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How Do I File My 2011 Taxes

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How Do I File My 2011 Taxes

How do i file my 2011 taxes 4. How do i file my 2011 taxes   Student Loan Interest Deduction Table of Contents Introduction Student Loan Interest DefinedQualified Student Loan Qualified Education Expenses Include As Interest Do Not Include As Interest When Must Interest Be Paid Can You Claim the DeductionNo Double Benefit Allowed Figuring the DeductionEffect of the Amount of Your Income on the Amount of Your Deduction Which Worksheet To Use Claiming the Deduction Introduction Generally, personal interest you pay, other than certain mortgage interest, is not deductible on your tax return. How do i file my 2011 taxes However, if your modified adjusted gross income (MAGI) is less than $75,000 ($155,000 if filing a joint return) there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. How do i file my 2011 taxes For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. How do i file my 2011 taxes This deduction can reduce the amount of your income subject to tax by up to $2,500 in 2013. How do i file my 2011 taxes The student loan interest deduction is taken as an adjustment to income. How do i file my 2011 taxes This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). How do i file my 2011 taxes This chapter explains: What type of loan interest you can deduct, Whether you can claim the deduction, What expenses you must have paid with the student loan, Who is an eligible student, How to figure the deduction, and How to claim the deduction. How do i file my 2011 taxes Table 4-1. How do i file my 2011 taxes Student Loan Interest Deduction at a Glance This table summarizes the features of the student loan interest deduction. How do i file my 2011 taxes Do not rely on this table alone. How do i file my 2011 taxes Refer to the text for complete details. How do i file my 2011 taxes Feature   Description Maximum benefit   You can reduce your income subject to tax by up to $2,500. How do i file my 2011 taxes Loan qualifications   Your student loan: •must have been taken out solely to pay qualified education expenses, and •cannot be from a related person or made under a qualified employer plan. How do i file my 2011 taxes Student qualifications   The student must be: •you, your spouse, or your dependent, and  •enrolled at least half-time in a degree program. How do i file my 2011 taxes Time limit on deduction   You can deduct interest paid during the remaining period of your student loan. How do i file my 2011 taxes Limit on modified adjusted gross income (MAGI)   $155,000 if married filing a joint return; $75,000 if single, head of household, or qualifying widow(er). How do i file my 2011 taxes Student Loan Interest Defined Student loan interest is interest you paid during the year on a qualified student loan. How do i file my 2011 taxes It includes both required and voluntary interest payments. How do i file my 2011 taxes Qualified Student Loan This is a loan you took out solely to pay qualified education expenses (defined later) that were: For you, your spouse, or a person who was your dependent when you took out the loan, Paid or incurred within a reasonable period of time before or after you took out the loan, and For education provided during an academic period for an eligible student. How do i file my 2011 taxes Loans from the following sources are not qualified student loans. How do i file my 2011 taxes A related person. How do i file my 2011 taxes A qualified employer plan. How do i file my 2011 taxes Your dependent. How do i file my 2011 taxes   Generally, your dependent is someone who is either a: Qualifying child, or Qualifying relative. How do i file my 2011 taxes You can find more information about dependents in Publication 501. How do i file my 2011 taxes Exceptions. How do i file my 2011 taxes   For purposes of the student loan interest deduction, there are the following exceptions to the general rules for dependents. How do i file my 2011 taxes An individual can be your dependent even if you are the dependent of another taxpayer. How do i file my 2011 taxes An individual can be your dependent even if the individual files a joint return with a spouse. How do i file my 2011 taxes An individual can be your dependent even if the individual had gross income for the year that was equal to or more than the exemption amount for the year ($3,900 for 2013). How do i file my 2011 taxes Reasonable period of time. How do i file my 2011 taxes   Qualified education expenses are treated as paid or incurred within a reasonable period of time before or after you take out the loan if they are paid with the proceeds of student loans that are part of a federal postsecondary education loan program. How do i file my 2011 taxes   Even if not paid with the proceeds of that type of loan, the expenses are treated as paid or incurred within a reasonable period of time if both of the following requirements are met. How do i file my 2011 taxes The expenses relate to a specific academic period, and The loan proceeds are disbursed within a period that begins 90 days before the start of that academic period and ends 90 days after the end of that academic period. How do i file my 2011 taxes   If neither of the above situations applies, the reasonable period of time usually is determined based on all the relevant facts and circumstances. How do i file my 2011 taxes Academic period. How do i file my 2011 taxes   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. How do i file my 2011 taxes In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. How do i file my 2011 taxes Eligible student. How do i file my 2011 taxes   This is a student who was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. How do i file my 2011 taxes Enrolled at least half-time. How do i file my 2011 taxes   A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study. How do i file my 2011 taxes   The standard for what is half of the normal full-time work load is determined by each eligible educational institution. How do i file my 2011 taxes However, the standard may not be lower than any of those established by the U. How do i file my 2011 taxes S. How do i file my 2011 taxes Department of Education under the Higher Education Act of 1965. How do i file my 2011 taxes Related person. How do i file my 2011 taxes   You cannot deduct interest on a loan you get from a related person. How do i file my 2011 taxes Related persons include: Your spouse, Your brothers and sisters, Your half brothers and half sisters, Your ancestors (parents, grandparents, etc. How do i file my 2011 taxes ), Your lineal descendants (children, grandchildren, etc. How do i file my 2011 taxes ), and Certain corporations, partnerships, trusts, and exempt organizations. How do i file my 2011 taxes Qualified employer plan. How do i file my 2011 taxes   You cannot deduct interest on a loan made under a qualified employer plan or under a contract purchased under such a plan. How do i file my 2011 taxes Qualified Education Expenses For purposes of the student loan interest deduction, these expenses are the total costs of attending an eligible educational institution, including graduate school. How do i file my 2011 taxes They include amounts paid for the following items. How do i file my 2011 taxes Tuition and fees. How do i file my 2011 taxes Room and board. How do i file my 2011 taxes Books, supplies, and equipment. How do i file my 2011 taxes Other necessary expenses (such as transportation). How do i file my 2011 taxes The cost of room and board qualifies only to the extent that it is not more than the greater of: 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, or The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. How do i file my 2011 taxes Eligible educational institution. How do i file my 2011 taxes   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. How do i file my 2011 taxes S. How do i file my 2011 taxes Department of Education. How do i file my 2011 taxes It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. How do i file my 2011 taxes   Certain educational institutions located outside the United States also participate in the U. How do i file my 2011 taxes S. How do i file my 2011 taxes Department of Education's Federal Student Aid (FSA) programs. How do i file my 2011 taxes   For purposes of the student loan interest deduction, an eligible educational institution also includes an institution conducting an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. How do i file my 2011 taxes   An educational institution must meet the above criteria only during the academic period(s) for which the student loan was incurred. How do i file my 2011 taxes The deductibility of interest on the loan is not affected by the institution's subsequent loss of eligibility. How do i file my 2011 taxes    The educational institution should be able to tell you if it is an eligible educational institution. How do i file my 2011 taxes Adjustments to Qualified Education Expenses You must reduce your qualified education expenses by the total amount paid for them with the following tax-free items. How do i file my 2011 taxes Employer-provided educational assistance. How do i file my 2011 taxes See chapter 11, Employer-Provided Educational Assistance . How do i file my 2011 taxes Tax-free distribution of earnings from a Coverdell education savings account (ESA). How do i file my 2011 taxes See Tax-Free Distributions in chapter 7, Coverdell Education Savings Account. How do i file my 2011 taxes Tax-free distribution of earnings from a qualified tuition program (QTP). How do i file my 2011 taxes See Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program. How do i file my 2011 taxes U. How do i file my 2011 taxes S. How do i file my 2011 taxes savings bond interest that you exclude from income because it is used to pay qualified education expenses. How do i file my 2011 taxes See chapter 10, Education Savings Bond Program . How do i file my 2011 taxes The tax-free part of scholarships and fellowships. How do i file my 2011 taxes See Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. How do i file my 2011 taxes Veterans' educational assistance. How do i file my 2011 taxes See Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. How do i file my 2011 taxes Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. How do i file my 2011 taxes Include As Interest In addition to simple interest on the loan, if all other requirements are met, the items discussed below can be student loan interest. How do i file my 2011 taxes Loan origination fee. How do i file my 2011 taxes   In general, this is a one-time fee charged by the lender when a loan is made. How do i file my 2011 taxes To be deductible as interest, a loan origination fee must be for the use of money rather than for property or services (such as commitment fees or processing costs) provided by the lender. How do i file my 2011 taxes A loan origination fee treated as interest accrues over the term of the loan. How do i file my 2011 taxes   Loan origination fees were not required to be reported on Form 1098-E, Student Loan Interest Statement, for loans made before September 1, 2004. How do i file my 2011 taxes If loan origination fees are not included in the amount reported on your Form 1098-E, you can use any reasonable method to allocate the loan origination fees over the term of the loan. How do i file my 2011 taxes The method shown in the example below allocates equal portions of the loan origination fee to each payment required under the terms of the loan. How do i file my 2011 taxes A method that results in the double deduction of the same portion of a loan origination fee would not be reasonable. How do i file my 2011 taxes Example. How do i file my 2011 taxes In August 2004, Bill took out a student loan for $16,000 to pay the tuition for his senior year of college. How do i file my 2011 taxes The lender charged a 3% loan origination fee ($480) that was withheld from the funds Bill received. How do i file my 2011 taxes Bill began making payments on his student loan in 2013. How do i file my 2011 taxes Because the loan origination fee was not included in his 2013 Form 1098-E, Bill can use any reasonable method to allocate that fee over the term of the loan. How do i file my 2011 taxes Bill's loan is payable in 120 equal monthly payments. How do i file my 2011 taxes He allocates the $480 fee equally over the total number of payments ($480 ÷ 120 months = $4 per month). How do i file my 2011 taxes Bill made 7 payments in 2013, so he paid $28 ($4 × 7) of interest attributable to the loan origination fee. How do i file my 2011 taxes To determine his student loan interest deduction, he will add the $28 to the amount of other interest reported to him on Form 1098-E. How do i file my 2011 taxes Capitalized interest. How do i file my 2011 taxes   This is unpaid interest on a student loan that is added by the lender to the outstanding principal balance of the loan. How do i file my 2011 taxes Capitalized interest is treated as interest for tax purposes and is deductible as payments of principal are made on the loan. How do i file my 2011 taxes No deduction for capitalized interest is allowed in a year in which no loan payments were made. How do i file my 2011 taxes Interest on revolving lines of credit. How do i file my 2011 taxes   This interest, which includes interest on credit card debt, is student loan interest if the borrower uses the line of credit (credit card) only to pay qualified education expenses. How do i file my 2011 taxes See Qualified Education Expenses , earlier. How do i file my 2011 taxes Interest on refinanced student loans. How do i file my 2011 taxes   This includes interest on both: Consolidated loans—loans used to refinance more than one student loan of the same borrower, and Collapsed loans—two or more loans of the same borrower that are treated by both the lender and the borrower as one loan. How do i file my 2011 taxes    If you refinance a qualified student loan for more than your original loan and you use the additional amount for any purpose other than qualified education expenses, you cannot deduct any interest paid on the refinanced loan. How do i file my 2011 taxes Voluntary interest payments. How do i file my 2011 taxes   These are payments made on a qualified student loan during a period when interest payments are not required, such as when the borrower has been granted a deferment or the loan has not yet entered repayment status. How do i file my 2011 taxes Example. How do i file my 2011 taxes The payments on Roger's student loan were scheduled to begin in June 2012, 6 months after he graduated from college. How do i file my 2011 taxes He began making payments as required. How do i file my 2011 taxes In September 2013, Roger enrolled in graduate school on a full-time basis. How do i file my 2011 taxes He applied for and was granted deferment of his loan payments while in graduate school. How do i file my 2011 taxes Wanting to pay down his student loan as much as possible, he made loan payments in October and November 2013. How do i file my 2011 taxes Even though these were voluntary (not required) payments, Roger can deduct the interest paid in October and November. How do i file my 2011 taxes Allocating Payments Between Interest and Principal The allocation of payments between interest and principal for tax purposes might not be the same as the allocation shown on the Form 1098-E or other statement you receive from the lender or loan servicer. How do i file my 2011 taxes To make the allocation for tax purposes, a payment generally applies first to stated interest that remains unpaid as of the date the payment is due, second to any loan origination fees allocable to the payment, third to any capitalized interest that remains unpaid as of the date the payment is due, and fourth to the outstanding principal. How do i file my 2011 taxes Example. How do i file my 2011 taxes In August 2012, Peg took out a $10,000 student loan to pay the tuition for her senior year of college. How do i file my 2011 taxes The lender charged a 3% loan origination fee ($300) that was withheld from the funds Peg received. How do i file my 2011 taxes The interest (5% simple) on this loan accrued while she completed her senior year and for 6 months after she graduated. How do i file my 2011 taxes At the end of that period, the lender determined the amount to be repaid by capitalizing all accrued but unpaid interest ($625 interest accrued from August 2012 through October 2013) and adding it to the outstanding principal balance of the loan. How do i file my 2011 taxes The loan is payable over 60 months, with a payment of $200. How do i file my 2011 taxes 51 due on the first of each month, beginning November 2013. How do i file my 2011 taxes Peg did not receive a Form 1098-E for 2013 from her lender because the amount of interest she paid did not require the lender to issue an information return. How do i file my 2011 taxes However, she did receive an account statement from the lender that showed the following 2013 payments on her outstanding loan of $10,625 ($10,000 principal + $625 accrued but unpaid interest). How do i file my 2011 taxes Payment Date   Payment   Stated Interest   Principal November 2013   $200. How do i file my 2011 taxes 51   $44. How do i file my 2011 taxes 27   $156. How do i file my 2011 taxes 24 December 2013   $200. How do i file my 2011 taxes 51   $43. How do i file my 2011 taxes 62   $156. How do i file my 2011 taxes 89 Totals   $401. How do i file my 2011 taxes 02   $87. How do i file my 2011 taxes 89   $313. How do i file my 2011 taxes 13 To determine the amount of interest that could be deducted on the loan for 2013, Peg starts with the total amount of stated interest she paid, $87. How do i file my 2011 taxes 89. How do i file my 2011 taxes Next, she allocates the loan origination fee over the term of the loan ($300 ÷ 60 months = $5 per month). How do i file my 2011 taxes A total of $10 ($5 of each of the two principal payments) should be treated as interest for tax purposes. How do i file my 2011 taxes Peg then applies the unpaid capitalized interest ($625) to the two principal payments in the order in which they were made, and determines that the remaining amount of principal of both payments is treated as interest for tax purposes. How do i file my 2011 taxes Assuming that Peg qualifies to take the student loan interest deduction, she can deduct $401. How do i file my 2011 taxes 02 ($87. How do i file my 2011 taxes 89 + $10 + $303. How do i file my 2011 taxes 13). How do i file my 2011 taxes For 2014, Peg will continue to allocate $5 of the loan origination fee to the principal portion of each monthly payment she makes and treat that amount as interest for tax purposes. How do i file my 2011 taxes She also will apply the remaining amount of capitalized interest ($625 − $303. How do i file my 2011 taxes 13 = $321. How do i file my 2011 taxes 87) to the principal payments in the order in which they are made until the balance is zero, and treat those amounts as interest for tax purposes. How do i file my 2011 taxes Do Not Include As Interest You cannot claim a student loan interest deduction for any of the following items. How do i file my 2011 taxes Interest you paid on a loan if, under the terms of the loan, you are not legally obligated to make interest payments. How do i file my 2011 taxes Loan origination fees that are payments for property or services provided by the lender, such as commitment fees or processing costs. How do i file my 2011 taxes Interest you paid on a loan to the extent payments were made through your participation in the National Health Service Corps Loan Repayment Program (the “NHSC Loan Repayment Program”) or certain other loan repayment assistance programs. How do i file my 2011 taxes For more information, see Student Loan Repayment Assistance in chapter 5, Student Loan Cancellations and Repayment Assistance. How do i file my 2011 taxes When Must Interest Be Paid You can deduct all interest you paid during the year on your student loan, including voluntary payments, until the loan is paid off. How do i file my 2011 taxes Can You Claim the Deduction Generally, you can claim the deduction if all of the following requirements are met. How do i file my 2011 taxes Your filing status is any filing status except married filing separately. How do i file my 2011 taxes No one else is claiming an exemption for you on his or her tax return. How do i file my 2011 taxes You are legally obligated to pay interest on a qualified student loan. How do i file my 2011 taxes You paid interest on a qualified student loan. How do i file my 2011 taxes Claiming an exemption for you. How do i file my 2011 taxes   Another taxpayer is claiming an exemption for you if he or she lists your name and other required information on his or her Form 1040 (or Form 1040A), line 6c, or Form 1040NR, line 7c. How do i file my 2011 taxes Example 1. How do i file my 2011 taxes During 2013, Josh paid $600 interest on his qualified student loan. How do i file my 2011 taxes Only he is legally obligated to make the payments. How do i file my 2011 taxes No one claimed an exemption for Josh for 2013. How do i file my 2011 taxes Assuming all other requirements are met, Josh can deduct the $600 of interest he paid on his 2013 Form 1040 or 1040A. How do i file my 2011 taxes Example 2. How do i file my 2011 taxes During 2013, Jo paid $1,100 interest on her qualified student loan. How do i file my 2011 taxes Only she is legally obligated to make the payments. How do i file my 2011 taxes Jo's parents claimed an exemption for her on their 2013 tax return. How do i file my 2011 taxes In this case, neither Jo nor her parents may deduct the student loan interest Jo paid in 2013. How do i file my 2011 taxes Interest paid by others. How do i file my 2011 taxes   If you are the person legally obligated to make interest payments and someone else makes a payment of interest on your behalf, you are treated as receiving the payments from the other person and, in turn, paying the interest. How do i file my 2011 taxes Example 1. How do i file my 2011 taxes Darla obtained a qualified student loan to attend college. How do i file my 2011 taxes After Darla's graduation from college, she worked as an intern for a nonprofit organization. How do i file my 2011 taxes As part of the internship program, the nonprofit organization made an interest payment on behalf of Darla. How do i file my 2011 taxes This payment was treated as additional compensation and reported in box 1 of her Form W-2. How do i file my 2011 taxes Assuming all other qualifications are met, Darla can deduct this payment of interest on her tax return. How do i file my 2011 taxes Example 2. How do i file my 2011 taxes Ethan obtained a qualified student loan to attend college. How do i file my 2011 taxes After graduating from college, the first monthly payment on his loan was due in December. How do i file my 2011 taxes As a gift, Ethan's mother made this payment for him. How do i file my 2011 taxes No one is claiming a dependency exemption for Ethan on his or her tax return. How do i file my 2011 taxes Assuming all other qualifications are met, Ethan can deduct this payment of interest on his tax return. How do i file my 2011 taxes No Double Benefit Allowed You cannot deduct as interest on a student loan any amount that is an allowable deduction under any other provision of the tax law (for example, as home mortgage interest). How do i file my 2011 taxes Figuring the Deduction Your student loan interest deduction for 2013 is generally the smaller of: $2,500, or The interest you paid in 2013. How do i file my 2011 taxes However, the amount determined above may be gradually reduced (phased out) or eliminated based on your filing status and MAGI as explained below. How do i file my 2011 taxes You can use Worksheet 4-1. How do i file my 2011 taxes Student Loan Interest Deduction Worksheet (at the end of this chapter) to figure both your MAGI and your deduction. How do i file my 2011 taxes Form 1098-E. How do i file my 2011 taxes   To help you figure your student loan interest deduction, you should receive Form 1098-E. How do i file my 2011 taxes Generally, an institution (such as a bank or governmental agency) that received interest payments of $600 or more during 2013 on one or more qualified student loans must send Form 1098-E (or acceptable substitute) to each borrower by January 31, 2014. How do i file my 2011 taxes   For qualified student loans taken out before September 1, 2004, the institution is required to include on Form 1098-E only payments of stated interest. How do i file my 2011 taxes Other interest payments, such as certain loan origination fees and capitalized interest, may not appear on the form you receive. How do i file my 2011 taxes However, if you pay qualifying interest that is not included on Form 1098-E, you can also deduct those amounts. How do i file my 2011 taxes See Allocating Payments Between Interest and Principal , earlier. How do i file my 2011 taxes    The lender may ask for a completed Form W-9S, or similar statement to obtain the borrower's name, address, and taxpayer identification number. How do i file my 2011 taxes The form may also be used by the borrower to certify that the student loan was incurred solely to pay for qualified education expenses. How do i file my 2011 taxes Effect of the Amount of Your Income on the Amount of Your Deduction The amount of your student loan interest deduction is phased out (gradually reduced) if your MAGI is between $60,000 and $75,000 ($125,000 and $155,000 if you file a joint return). How do i file my 2011 taxes You cannot take a student loan interest deduction if your MAGI is $75,000 or more ($155,000 or more if you file a joint return). How do i file my 2011 taxes Modified adjusted gross income (MAGI). How do i file my 2011 taxes   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return before subtracting any deduction for student loan interest. How do i file my 2011 taxes However, as discussed below, there may be other modifications. How do i file my 2011 taxes Table 4-2 shows how the amount of your MAGI can affect your student loan interest deduction. How do i file my 2011 taxes Table 4-2. How do i file my 2011 taxes Effect of MAGI on Student Loan Interest Deduction IF your filing status is. How do i file my 2011 taxes . How do i file my 2011 taxes . How do i file my 2011 taxes AND your MAGI is. How do i file my 2011 taxes . How do i file my 2011 taxes . How do i file my 2011 taxes THEN your student loan interest deduction is. How do i file my 2011 taxes . How do i file my 2011 taxes . How do i file my 2011 taxes single,  head of household, or qualifying widow(er) not more than $60,000 not affected by the phaseout. How do i file my 2011 taxes more than $60,000  but less than $75,000 reduced because of the phaseout. How do i file my 2011 taxes $75,000 or more eliminated by the phaseout. How do i file my 2011 taxes married filing joint return not more than $125,000 not affected by the phaseout. How do i file my 2011 taxes more than $125,000 but less than $155,000 reduced because of the phaseout. How do i file my 2011 taxes $155,000 or more eliminated by the phaseout. How do i file my 2011 taxes MAGI when using Form 1040A. How do i file my 2011 taxes   If you file Form 1040A, your MAGI is the AGI on line 22 of that form figured without taking into account any amount on line 18 (student loan interest deduction) and line 19 (tuition and fees deduction). How do i file my 2011 taxes MAGI when using Form 1040. How do i file my 2011 taxes   If you file Form 1040, your MAGI is the AGI on line 38 of that form figured without taking into account any amount on line 33 (student loan interest deduction), line 34 (tuition and fees deduction), or line 35 (domestic production activities deduction), and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. How do i file my 2011 taxes MAGI when using Form 1040NR. How do i file my 2011 taxes   If you file Form 1040NR, your MAGI is the AGI on line 36 of that form figured without taking into account any amount on line 33 (student loan interest deduction) and line 34 (domestic production activities deduction). How do i file my 2011 taxes MAGI when using Form 1040NR-EZ. How do i file my 2011 taxes   If you file Form 1040NR-EZ, your MAGI is the AGI on line 10 of that form figured without taking into account any amount on line 9 (student loan interest deduction). How do i file my 2011 taxes Phaseout. How do i file my 2011 taxes   If your MAGI is within the range of incomes where the credit must be reduced, you must figure your reduced deduction. How do i file my 2011 taxes To figure the phaseout, multiply your interest deduction (before the phaseout) by a fraction. How do i file my 2011 taxes The numerator is your MAGI minus $60,000 ($125,000 in the case of a joint return). How do i file my 2011 taxes The denominator is $15,000 ($30,000 in the case of a joint return). How do i file my 2011 taxes Subtract the result from your deduction (before the phaseout) to give you the amount you can deduct. How do i file my 2011 taxes Example 1. How do i file my 2011 taxes During 2013 you paid $800 interest on a qualified student loan. How do i file my 2011 taxes Your 2013 MAGI is $145,000 and you are filing a joint return. How do i file my 2011 taxes You must reduce your deduction by $533, figured as follows. How do i file my 2011 taxes   $800 × $145,000 − $125,000  $30,000 = $533   Your reduced student loan interest deduction is $267 ($800 − $533). How do i file my 2011 taxes Example 2. How do i file my 2011 taxes The facts are the same as in Example 1 except that you paid $2,750 interest. How do i file my 2011 taxes Your maximum deduction for 2013 is $2,500. How do i file my 2011 taxes You must reduce your maximum deduction by $1,667, figured as follows. How do i file my 2011 taxes   $2,500 × $145,000 − $125,000  $30,000 = $1,667   In this example, your reduced student loan interest deduction is $833 ($2,500 − $1,667). How do i file my 2011 taxes Which Worksheet To Use Generally, you figure the deduction using the Student Loan Interest Deduction Worksheet in the instructions for Form 1040, Form 1040A, or Form 1040NR. How do i file my 2011 taxes However, if you are filing Form 2555, Foreign Earned Income, Form 2555-EZ, Foreign Earned Income Exclusion, or Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa, or you are excluding income from sources within Puerto Rico, you must complete Worksheet 4-1. How do i file my 2011 taxes Student Loan Interest Deduction Worksheet at the end of this chapter. How do i file my 2011 taxes Claiming the Deduction The student loan interest deduction is an adjustment to income. How do i file my 2011 taxes To claim the deduction, enter the allowable amount on line 33 (Form 1040), line 18 (Form 1040A), line 33 (Form 1040NR), or line 9 (Form 1040NR-EZ). How do i file my 2011 taxes Worksheet 4-1. How do i file my 2011 taxes Student Loan Interest Deduction Worksheet Use this worksheet instead of the worksheet in the Form 1040 instructions if you are filing Form 2555, 2555-EZ, or 4563, or you are excluding income from sources within Puerto Rico. How do i file my 2011 taxes Before using this worksheet, you must complete Form 1040, lines 7 through 32, plus any amount to be entered on the dotted line next to line 36. How do i file my 2011 taxes 1. How do i file my 2011 taxes Enter the total interest you paid in 2013 on qualified student loans. How do i file my 2011 taxes Do not enter  more than $2,500 1. How do i file my 2011 taxes   2. How do i file my 2011 taxes Enter the amount from Form 1040, line 22 2. How do i file my 2011 taxes       3. How do i file my 2011 taxes Enter the total of the amounts from Form 1040,  lines 23 through 32 3. How do i file my 2011 taxes           4. How do i file my 2011 taxes Enter the total of any amounts entered on the dotted line next to Form 1040, line 36 4. How do i file my 2011 taxes           5. How do i file my 2011 taxes Add lines 3 and 4 5. How do i file my 2011 taxes       6. How do i file my 2011 taxes Subtract line 5 from line 2 6. How do i file my 2011 taxes       7. How do i file my 2011 taxes Enter any foreign earned income exclusion and/or housing  exclusion (Form 2555, line 45, or Form 2555-EZ, line 18) 7. How do i file my 2011 taxes       8. How do i file my 2011 taxes Enter any foreign housing deduction (Form 2555, line 50) 8. How do i file my 2011 taxes       9. How do i file my 2011 taxes Enter the amount of income from Puerto Rico you are excluding 9. How do i file my 2011 taxes       10. How do i file my 2011 taxes Enter the amount of income from American Samoa  you are excluding (Form 4563, line 15) 10. How do i file my 2011 taxes       11. How do i file my 2011 taxes Add lines 6 through 10. How do i file my 2011 taxes This is your modified adjusted gross income 11. How do i file my 2011 taxes   12. How do i file my 2011 taxes Enter the amount shown below for your filing status 12. How do i file my 2011 taxes     •Single, head of household, or qualifying widow(er)—$60,000       •Married filing jointly—$125,000     13. How do i file my 2011 taxes Is the amount on line 11 more than the amount on line 12?       □ No. How do i file my 2011 taxes Skip lines 13 and 14, enter -0- on line 15, and go to line 16. How do i file my 2011 taxes       □ Yes. How do i file my 2011 taxes Subtract line 12 from line 11 13. How do i file my 2011 taxes   14. How do i file my 2011 taxes Divide line 13 by $15,000 ($30,000 if married filing jointly). How do i file my 2011 taxes Enter the result as a decimal  (rounded to at least three places). How do i file my 2011 taxes If the result is 1. How do i file my 2011 taxes 000 or more, enter 1. How do i file my 2011 taxes 000 14. How do i file my 2011 taxes . How do i file my 2011 taxes 15. How do i file my 2011 taxes Multiply line 1 by line 14 15. How do i file my 2011 taxes   16. How do i file my 2011 taxes Student loan interest deduction. How do i file my 2011 taxes Subtract line 15 from line 1. How do i file my 2011 taxes Enter the result here  and on Form 1040, line 33. How do i file my 2011 taxes Do not include this amount in figuring any other  deduction on your return (such as on Schedule A, C, E, etc. How do i file my 2011 taxes ) 16. How do i file my 2011 taxes   Prev  Up  Next   Home   More Online Publications

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How do i file my 2011 taxes 2. How do i file my 2011 taxes   Ordinary or Capital Gain or Loss Table of Contents IntroductionSection 1231 transactions. How do i file my 2011 taxes Topics - This chapter discusses: Useful Items - You may want to see: Capital Assets Noncapital AssetsCommodities derivative dealer. How do i file my 2011 taxes Sales and Exchanges Between Related PersonsGain Is Ordinary Income Nondeductible Loss Other DispositionsSale of a Business Dispositions of Intangible Property Subdivision of Land Timber Precious Metals and Stones, Stamps, and Coins Coal and Iron Ore Conversion Transactions Introduction You must classify your gains and losses as either ordinary or capital (and your capital gains or losses as either short-term or long-term). How do i file my 2011 taxes You must do this to figure your net capital gain or loss. How do i file my 2011 taxes For individuals, a net capital gain may be taxed at a different tax rate than ordinary income. How do i file my 2011 taxes See Capital Gains Tax Rates in chapter 4. How do i file my 2011 taxes Your deduction for a net capital loss may be limited. How do i file my 2011 taxes See Treatment of Capital Losses in chapter 4. How do i file my 2011 taxes Capital gain or loss. How do i file my 2011 taxes   Generally, you will have a capital gain or loss if you sell or exchange a capital asset. How do i file my 2011 taxes You also may have a capital gain if your section 1231 transactions result in a net gain. How do i file my 2011 taxes Section 1231 transactions. How do i file my 2011 taxes   Section 1231 transactions are sales and exchanges of property held longer than 1 year and either used in a trade or business or held for the production of rents or royalties. How do i file my 2011 taxes They also include certain involuntary conversions of business or investment property, including capital assets. How do i file my 2011 taxes See Section 1231 Gains and Losses in chapter 3 for more information. How do i file my 2011 taxes Topics - This chapter discusses: Capital assets Noncapital assets Sales and exchanges between  related persons Other dispositions Useful Items - You may want to see: Publication 550 Investment Income and Expenses Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 4797 Sales of Business Property 8594 Asset Acquisition Statement Under Section 1060 8949 Sales and Other Dispositions of Capital Assets See chapter 5 for information about getting publications and forms. How do i file my 2011 taxes Capital Assets Almost everything you own and use for personal purposes, pleasure, or investment is a capital asset. How do i file my 2011 taxes For exceptions, see Noncapital Assets, later. How do i file my 2011 taxes The following items are examples of capital assets. How do i file my 2011 taxes Stocks and bonds. How do i file my 2011 taxes A home owned and occupied by you and your family. How do i file my 2011 taxes Timber grown on your home property or investment property, even if you make casual sales of the timber. How do i file my 2011 taxes Household furnishings. How do i file my 2011 taxes A car used for pleasure or commuting. How do i file my 2011 taxes Coin or stamp collections. How do i file my 2011 taxes Gems and jewelry. How do i file my 2011 taxes Gold, silver, and other metals. How do i file my 2011 taxes Personal-use property. How do i file my 2011 taxes   Generally, property held for personal use is a capital asset. How do i file my 2011 taxes Gain from a sale or exchange of that property is a capital gain. How do i file my 2011 taxes Loss from the sale or exchange of that property is not deductible. How do i file my 2011 taxes You can deduct a loss relating to personal-use property only if it results from a casualty or theft. How do i file my 2011 taxes Investment property. How do i file my 2011 taxes   Investment property (such as stocks and bonds) is a capital asset, and a gain or loss from its sale or exchange is a capital gain or loss. How do i file my 2011 taxes This treatment does not apply to property used to produce rental income. How do i file my 2011 taxes See Business assets, later, under Noncapital Assets. How do i file my 2011 taxes Release of restriction on land. How do i file my 2011 taxes   Amounts you receive for the release of a restrictive covenant in a deed to land are treated as proceeds from the sale of a capital asset. How do i file my 2011 taxes Noncapital Assets A noncapital asset is property that is not a capital asset. How do i file my 2011 taxes The following kinds of property are not capital assets. How do i file my 2011 taxes Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business. How do i file my 2011 taxes Inventories are discussed in Publication 538, Accounting Periods and Methods. How do i file my 2011 taxes But, see the Tip below. How do i file my 2011 taxes Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale of any properties described in (1), above. How do i file my 2011 taxes Depreciable property used in your trade or business or as rental property (including section 197 intangibles defined later), even if the property is fully depreciated (or amortized). How do i file my 2011 taxes Sales of this type of property are discussed in chapter 3. How do i file my 2011 taxes Real property used in your trade or business or as rental property, even if the property is fully depreciated. How do i file my 2011 taxes A copyright; a literary, musical, or artistic composition; a letter; a memorandum; or similar property (such as drafts of speeches, recordings, transcripts, manuscripts, drawings, or photographs): Created by your personal efforts, Prepared or produced for you (in the case of a letter, memorandum, or similar property), or Received from a person who created the property or for whom the property was prepared under circumstances (for example, by gift) entitling you to the basis of the person who created the property, or for whom it was prepared or produced. How do i file my 2011 taxes But, see the Tip below. How do i file my 2011 taxes U. How do i file my 2011 taxes S. How do i file my 2011 taxes Government publications you got from the government for free or for less than the normal sales price or that you acquired under circumstances entitling you to the basis of someone who got the publications for free or for less than the normal sales price. How do i file my 2011 taxes Any commodities derivative financial instrument (discussed later) held by a commodities derivatives dealer unless it meets both of the following requirements. How do i file my 2011 taxes It is established to the satisfaction of the IRS that the instrument has no connection to the activities of the dealer as a dealer. How do i file my 2011 taxes The instrument is clearly identified in the dealer's records as meeting (a) by the end of the day on which it was acquired, originated, or entered into. How do i file my 2011 taxes Any hedging transaction (defined later) that is clearly identified as a hedging transaction by the end of the day on which it was acquired, originated, or entered into. How do i file my 2011 taxes Supplies of a type you regularly use or consume in the ordinary course of your trade or business. How do i file my 2011 taxes You can elect to treat as capital assets certain self-created musical compositions or copyrights you sold or exchanged. How do i file my 2011 taxes See chapter 4 of Publication 550 for details. How do i file my 2011 taxes Property held mainly for sale to customers. How do i file my 2011 taxes   Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business are not capital assets. How do i file my 2011 taxes Inventories are discussed in Publication 538. How do i file my 2011 taxes Business assets. How do i file my 2011 taxes   Real property and depreciable property used in your trade or business or as rental property (including section 197 intangibles defined later under Dispositions of Intangible Property) are not capital assets. How do i file my 2011 taxes The sale or disposition of business property is discussed in chapter 3. How do i file my 2011 taxes Letters and memoranda. How do i file my 2011 taxes   Letters, memoranda, and similar property (such as drafts of speeches, recordings, transcripts, manuscripts, drawings, or photographs) are not treated as capital assets (as discussed earlier) if your personal efforts created them or if they were prepared or produced for you. How do i file my 2011 taxes Nor is this property a capital asset if your basis in it is determined by reference to the person who created it or the person for whom it was prepared. How do i file my 2011 taxes For this purpose, letters and memoranda addressed to you are considered prepared for you. How do i file my 2011 taxes If letters or memoranda are prepared by persons under your administrative control, they are considered prepared for you whether or not you review them. How do i file my 2011 taxes Commodities derivative financial instrument. How do i file my 2011 taxes   A commodities derivative financial instrument is a commodities contract or other financial instrument for commodities (other than a share of corporate stock, a beneficial interest in a partnership or trust, a note, bond, debenture, or other evidence of indebtedness, or a section 1256 contract) the value or settlement price of which is calculated or determined by reference to a specified index (as defined in section 1221(b) of the Internal Revenue Code). How do i file my 2011 taxes Commodities derivative dealer. How do i file my 2011 taxes   A commodities derivative dealer is a person who regularly offers to enter into, assume, offset, assign, or terminate positions in commodities derivative financial instruments with customers in the ordinary course of a trade or business. How do i file my 2011 taxes Hedging transaction. How do i file my 2011 taxes   A hedging transaction is any transaction you enter into in the normal course of your trade or business primarily to manage any of the following. How do i file my 2011 taxes Risk of price changes or currency fluctuations involving ordinary property you hold or will hold. How do i file my 2011 taxes Risk of interest rate or price changes or currency fluctuations for borrowings you make or will make, or ordinary obligations you incur or will incur. How do i file my 2011 taxes Sales and Exchanges Between Related Persons This section discusses the rules that may apply to the sale or exchange of property between related persons. How do i file my 2011 taxes If these rules apply, gains may be treated as ordinary income and losses may not be deductible. How do i file my 2011 taxes See Transfers to Spouse in chapter 1 for rules that apply to spouses. How do i file my 2011 taxes Gain Is Ordinary Income If a gain is recognized on the sale or exchange of property to a related person, the gain may be ordinary income even if the property is a capital asset. How do i file my 2011 taxes It is ordinary income if the sale or exchange is a depreciable property transaction or a controlled partnership transaction. How do i file my 2011 taxes Depreciable property transaction. How do i file my 2011 taxes   Gain on the sale or exchange of property, including a leasehold or a patent application, that is depreciable property in the hands of the person who receives it is ordinary income if the transaction is either directly or indirectly between any of the following pairs of entities. How do i file my 2011 taxes A person and the person's controlled entity or entities. How do i file my 2011 taxes A taxpayer and any trust in which the taxpayer (or his or her spouse) is a beneficiary unless the beneficiary's interest in the trust is a remote contingent interest; that is, the value of the interest computed actuarially is 5% or less of the value of the trust property. How do i file my 2011 taxes An executor and a beneficiary of an estate unless the sale or exchange is in satisfaction of a pecuniary bequest (a bequest for a sum of money). How do i file my 2011 taxes An employer (or any person related to the employer under rules (1), (2), or (3)) and a welfare benefit fund (within the meaning of section 419(e) of the Internal Revenue Code) that is controlled directly or indirectly by the employer (or any person related to the employer). How do i file my 2011 taxes Controlled entity. How do i file my 2011 taxes   A person's controlled entity is either of the following. How do i file my 2011 taxes A corporation in which more than 50% of the value of all outstanding stock, or a partnership in which more than 50% of the capital interest or profits interest, is directly or indirectly owned by or for that person. How do i file my 2011 taxes An entity whose relationship with that person is one of the following. How do i file my 2011 taxes A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest or profits interest in the partnership. How do i file my 2011 taxes Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 50%” is substituted for “at least 80%” in that definition. How do i file my 2011 taxes Two S corporations, if the same persons own more than 50% in value of the outstanding stock of each corporation. How do i file my 2011 taxes Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. How do i file my 2011 taxes Controlled partnership transaction. How do i file my 2011 taxes   A gain recognized in a controlled partnership transaction may be ordinary income. How do i file my 2011 taxes The gain is ordinary income if it results from the sale or exchange of property that, in the hands of the party who receives it, is a noncapital asset such as trade accounts receivable, inventory, stock in trade, or depreciable or real property used in a trade or business. How do i file my 2011 taxes   A controlled partnership transaction is a transaction directly or indirectly between either of the following pairs of entities. How do i file my 2011 taxes A partnership and a person who directly or indirectly owns more than 50% of the capital interest or profits interest in the partnership. How do i file my 2011 taxes Two partnerships, if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships. How do i file my 2011 taxes Determining ownership. How do i file my 2011 taxes   In the transactions under Depreciable property transaction and Controlled partnership transaction, earlier, use the following rules to determine the ownership of stock or a partnership interest. How do i file my 2011 taxes Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. How do i file my 2011 taxes (However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more in value of the stock of the corporation. How do i file my 2011 taxes ) An individual is considered as owning the stock or partnership interest directly or indirectly owned by or for his or her family. How do i file my 2011 taxes Family includes only brothers, sisters, half-brothers, half-sisters, spouse, ancestors, and lineal descendants. How do i file my 2011 taxes For purposes of applying (1) or (2), above, stock or a partnership interest constructively owned by a person under (1) is treated as actually owned by that person. How do i file my 2011 taxes But stock or a partnership interest constructively owned by an individual under (2) is not treated as owned by the individual for reapplying (2) to make another person the constructive owner of that stock or partnership interest. How do i file my 2011 taxes Nondeductible Loss A loss on the sale or exchange of property between related persons is not deductible. How do i file my 2011 taxes This applies to both direct and indirect transactions, but not to distributions of property from a corporation in a complete liquidation. How do i file my 2011 taxes For the list of related persons, see Related persons next. How do i file my 2011 taxes If a sale or exchange is between any of these related persons and involves the lump-sum sale of a number of blocks of stock or pieces of property, the gain or loss must be figured separately for each block of stock or piece of property. How do i file my 2011 taxes The gain on each item is taxable. How do i file my 2011 taxes The loss on any item is nondeductible. How do i file my 2011 taxes Gains from the sales of any of these items may not be offset by losses on the sales of any of the other items. How do i file my 2011 taxes Related persons. How do i file my 2011 taxes   The following is a list of related persons. How do i file my 2011 taxes Members of a family, including only brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. How do i file my 2011 taxes ), and lineal descendants (children, grandchildren, etc. How do i file my 2011 taxes ). How do i file my 2011 taxes An individual and a corporation if the individual directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. How do i file my 2011 taxes Two corporations that are members of the same controlled group as defined in section 267(f) of the Internal Revenue Code. How do i file my 2011 taxes A trust fiduciary and a corporation if the trust or the grantor of the trust directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. How do i file my 2011 taxes A grantor and fiduciary, and the fiduciary and beneficiary, of any trust. How do i file my 2011 taxes Fiduciaries of two different trusts, and the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. How do i file my 2011 taxes A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization, or a member of that person's family. How do i file my 2011 taxes A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest or profits interest in the partnership. How do i file my 2011 taxes Two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. How do i file my 2011 taxes Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. How do i file my 2011 taxes An executor and a beneficiary of an estate unless the sale or exchange is in satisfaction of a pecuniary bequest. How do i file my 2011 taxes Two partnerships if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships. How do i file my 2011 taxes A person and a partnership if the person directly or indirectly owns more than 50% of the capital interest or profits interest in the partnership. How do i file my 2011 taxes Partnership interests. How do i file my 2011 taxes   The nondeductible loss rule does not apply to a sale or exchange of an interest in the partnership between the related persons described in (12) or (13) above. How do i file my 2011 taxes Controlled groups. How do i file my 2011 taxes   Losses on transactions between members of the same controlled group described in (3) earlier are deferred rather than denied. How do i file my 2011 taxes   For more information, see section 267(f) of the Internal Revenue Code. How do i file my 2011 taxes Ownership of stock or partnership interests. How do i file my 2011 taxes   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership for a loss on a sale or exchange, the following rules apply. How do i file my 2011 taxes Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. How do i file my 2011 taxes (However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more in value of the stock of the corporation. How do i file my 2011 taxes ) An individual is considered as owning the stock or partnership interest directly or indirectly owned by or for his or her family. How do i file my 2011 taxes Family includes only brothers, sisters, half-brothers, half-sisters, spouse, ancestors, and lineal descendants. How do i file my 2011 taxes An individual owning (other than by applying (2)) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. How do i file my 2011 taxes For purposes of applying (1), (2), or (3), stock or a partnership interest constructively owned by a person under (1) is treated as actually owned by that person. How do i file my 2011 taxes But stock or a partnership interest constructively owned by an individual under (2) or (3) is not treated as owned by the individual for reapplying either (2) or (3) to make another person the constructive owner of that stock or partnership interest. How do i file my 2011 taxes Indirect transactions. How do i file my 2011 taxes   You cannot deduct your loss on the sale of stock through your broker if under a prearranged plan a related person or entity buys the same stock you had owned. How do i file my 2011 taxes This does not apply to a cross-trade between related parties through an exchange that is purely coincidental and is not prearranged. How do i file my 2011 taxes Property received from a related person. How do i file my 2011 taxes   If, in a purchase or exchange, you received property from a related person who had a loss that was not allowable and you later sell or exchange the property at a gain, you recognize the gain only to the extent it is more than the loss previously disallowed to the related person. How do i file my 2011 taxes This rule applies only to the original transferee. How do i file my 2011 taxes Example 1. How do i file my 2011 taxes Your brother sold stock to you for $7,600. How do i file my 2011 taxes His cost basis was $10,000. How do i file my 2011 taxes His loss of $2,400 was not deductible. How do i file my 2011 taxes You later sell the same stock to an unrelated party for $10,500, realizing a gain of $2,900 ($10,500 − $7,600). How do i file my 2011 taxes Your recognized gain is only $500, the gain that is more than the $2,400 loss not allowed to your brother. How do i file my 2011 taxes Example 2. How do i file my 2011 taxes Assume the same facts as in Example 1, except that you sell the stock for $6,900 instead of $10,500. How do i file my 2011 taxes Your recognized loss is only $700 ($7,600 − $6,900). How do i file my 2011 taxes You cannot deduct the loss not allowed to your brother. How do i file my 2011 taxes Other Dispositions This section discusses rules for determining the treatment of gain or loss from various dispositions of property. How do i file my 2011 taxes Sale of a Business The sale of a business usually is not a sale of one asset. How do i file my 2011 taxes Instead, all the assets of the business are sold. How do i file my 2011 taxes Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss. How do i file my 2011 taxes A business usually has many assets. How do i file my 2011 taxes When sold, these assets must be classified as capital assets, depreciable property used in the business, real property used in the business, or property held for sale to customers, such as inventory or stock in trade. How do i file my 2011 taxes The gain or loss on each asset is figured separately. How do i file my 2011 taxes The sale of capital assets results in capital gain or loss. How do i file my 2011 taxes The sale of real property or depreciable property used in the business and held longer than 1 year results in gain or loss from a section 1231 transaction (discussed in chapter 3). How do i file my 2011 taxes The sale of inventory results in ordinary income or loss. How do i file my 2011 taxes Partnership interests. How do i file my 2011 taxes   An interest in a partnership or joint venture is treated as a capital asset when sold. How do i file my 2011 taxes The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary gain or loss. How do i file my 2011 taxes For more information, see Disposition of Partner's Interest in Publication 541. How do i file my 2011 taxes Corporation interests. How do i file my 2011 taxes   Your interest in a corporation is represented by stock certificates. How do i file my 2011 taxes When you sell these certificates, you usually realize capital gain or loss. How do i file my 2011 taxes For information on the sale of stock, see chapter 4 in Publication 550. How do i file my 2011 taxes Corporate liquidations. How do i file my 2011 taxes   Corporate liquidations of property generally are treated as a sale or exchange. How do i file my 2011 taxes Gain or loss generally is recognized by the corporation on a liquidating sale of its assets. How do i file my 2011 taxes Gain or loss generally is recognized also on a liquidating distribution of assets as if the corporation sold the assets to the distributee at fair market value. How do i file my 2011 taxes   In certain cases in which the distributee is a corporation in control of the distributing corporation, the distribution may not be taxable. How do i file my 2011 taxes For more information, see section 332 of the Internal Revenue Code and the related regulations. How do i file my 2011 taxes Allocation of consideration paid for a business. How do i file my 2011 taxes   The sale of a trade or business for a lump sum is considered a sale of each individual asset rather than of a single asset. How do i file my 2011 taxes Except for assets exchanged under any nontaxable exchange rules, both the buyer and seller of a business must use the residual method (explained later) to allocate the consideration to each business asset transferred. How do i file my 2011 taxes This method determines gain or loss from the transfer of each asset and how much of the consideration is for goodwill and certain other intangible property. How do i file my 2011 taxes It also determines the buyer's basis in the business assets. How do i file my 2011 taxes Consideration. How do i file my 2011 taxes   The buyer's consideration is the cost of the assets acquired. How do i file my 2011 taxes The seller's consideration is the amount realized (money plus the fair market value of property received) from the sale of assets. How do i file my 2011 taxes Residual method. How do i file my 2011 taxes   The residual method must be used for any transfer of a group of assets that constitutes a trade or business and for which the buyer's basis is determined only by the amount paid for the assets. How do i file my 2011 taxes This applies to both direct and indirect transfers, such as the sale of a business or the sale of a partnership interest in which the basis of the buyer's share of the partnership assets is adjusted for the amount paid under section 743(b) of the Internal Revenue Code. How do i file my 2011 taxes Section 743(b) applies if a partnership has an election in effect under section 754 of the Internal Revenue Code. How do i file my 2011 taxes   A group of assets constitutes a trade or business if either of the following applies. How do i file my 2011 taxes Goodwill or going concern value could, under any circumstances, attach to them. How do i file my 2011 taxes The use of the assets would constitute an active trade or business under section 355 of the Internal Revenue Code. How do i file my 2011 taxes   The residual method provides for the consideration to be reduced first by the amount of Class I assets (defined below). How do i file my 2011 taxes The consideration remaining after this reduction must be allocated among the various business assets in a certain order. How do i file my 2011 taxes See Classes of assets next for the complete order. How do i file my 2011 taxes Classes of assets. How do i file my 2011 taxes   The following definitions are the classifications for deemed or actual asset acquisitions. How do i file my 2011 taxes Allocate the consideration among the assets in the following order. How do i file my 2011 taxes The amount allocated to an asset, other than a Class VII asset, cannot exceed its fair market value on the purchase date. How do i file my 2011 taxes The amount you can allocate to an asset also is subject to any applicable limits under the Internal Revenue Code or general principles of tax law. How do i file my 2011 taxes Class I assets are cash and general deposit accounts (including checking and savings accounts but excluding certificates of deposit). How do i file my 2011 taxes Class II assets are certificates of deposit, U. How do i file my 2011 taxes S. How do i file my 2011 taxes Government securities, foreign currency, and actively traded personal property, including stock and securities. How do i file my 2011 taxes Class III assets are accounts receivable, other debt instruments, and assets that you mark to market at least annually for federal income tax purposes. How do i file my 2011 taxes However, see section 1. How do i file my 2011 taxes 338-6(b)(2)(iii) of the regulations for exceptions that apply to debt instruments issued by persons related to a target corporation, contingent debt instruments, and debt instruments convertible into stock or other property. How do i file my 2011 taxes Class IV assets are property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held by the taxpayer primarily for sale to customers in the ordinary course of business. How do i file my 2011 taxes Class V assets are all assets other than Class I, II, III, IV, VI, and VII assets. How do i file my 2011 taxes    Note. How do i file my 2011 taxes Furniture and fixtures, buildings, land, vehicles, and equipment, which constitute all or part of a trade or business are generally Class V assets. How do i file my 2011 taxes Class VI assets are section 197 intangibles (other than goodwill and going concern value). How do i file my 2011 taxes Class VII assets are goodwill and going concern value (whether the goodwill or going concern value qualifies as a section 197 intangible). How do i file my 2011 taxes   If an asset described in one of the classifications described above can be included in more than one class, include it in the lower numbered class. How do i file my 2011 taxes For example, if an asset is described in both Class II and Class IV, choose Class II. How do i file my 2011 taxes Example. How do i file my 2011 taxes The total paid in the sale of the assets of Company SKB is $21,000. How do i file my 2011 taxes No cash or deposit accounts or similar accounts were sold. How do i file my 2011 taxes The company's U. How do i file my 2011 taxes S. How do i file my 2011 taxes Government securities sold had a fair market value of $3,200. How do i file my 2011 taxes The only other asset transferred (other than goodwill and going concern value) was inventory with a fair market value of $15,000. How do i file my 2011 taxes Of the $21,000 paid for the assets of Company SKB, $3,200 is allocated to U. How do i file my 2011 taxes S. How do i file my 2011 taxes Government securities, $15,000 to inventory assets, and the remaining $2,800 to goodwill and going concern value. How do i file my 2011 taxes Agreement. How do i file my 2011 taxes   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value of any of the assets. How do i file my 2011 taxes This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. How do i file my 2011 taxes Reporting requirement. How do i file my 2011 taxes   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. How do i file my 2011 taxes Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. How do i file my 2011 taxes Generally, the buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. How do i file my 2011 taxes See the Instructions for Form 8594. How do i file my 2011 taxes Dispositions of Intangible Property Intangible property is any personal property that has value but cannot be seen or touched. How do i file my 2011 taxes It includes such items as patents, copyrights, and the goodwill value of a business. How do i file my 2011 taxes Gain or loss on the sale or exchange of amortizable or depreciable intangible property held longer than 1 year (other than an amount recaptured as ordinary income) is a section 1231 gain or loss. How do i file my 2011 taxes The treatment of section 1231 gain or loss and the recapture of amortization and depreciation as ordinary income are explained in chapter 3. How do i file my 2011 taxes See chapter 8 of Publication 535, Business Expenses, for information on amortizable intangible property and chapter 1 of Publication 946, How To Depreciate Property, for information on intangible property that can and cannot be depreciated. How do i file my 2011 taxes Gain or loss on dispositions of other intangible property is ordinary or capital depending on whether the property is a capital asset or a noncapital asset. How do i file my 2011 taxes The following discussions explain special rules that apply to certain dispositions of intangible property. How do i file my 2011 taxes Section 197 Intangibles Section 197 intangibles are certain intangible assets acquired after August 10, 1993 (after July 25, 1991, if chosen), and held in connection with the conduct of a trade or business or an activity entered into for profit whose costs are amortized over 15 years. How do i file my 2011 taxes They include the following assets. How do i file my 2011 taxes Goodwill. How do i file my 2011 taxes Going concern value. How do i file my 2011 taxes Workforce in place. How do i file my 2011 taxes Business books and records, operating systems, and other information bases. How do i file my 2011 taxes Patents, copyrights, formulas, processes, designs, patterns, know how, formats, and similar items. How do i file my 2011 taxes Customer-based intangibles. How do i file my 2011 taxes Supplier-based intangibles. How do i file my 2011 taxes Licenses, permits, and other rights granted by a governmental unit. How do i file my 2011 taxes Covenants not to compete entered into in connection with the acquisition of a business. How do i file my 2011 taxes Franchises, trademarks, and trade names. How do i file my 2011 taxes See chapter 8 of Publication 535 for a description of each intangible. How do i file my 2011 taxes Dispositions. How do i file my 2011 taxes   You cannot deduct a loss from the disposition or worthlessness of a section 197 intangible you acquired in the same transaction (or series of related transactions) as another section 197 intangible you still hold. How do i file my 2011 taxes Instead, you must increase the adjusted basis of your retained section 197 intangible by the nondeductible loss. How do i file my 2011 taxes If you retain more than one section 197 intangible, increase each intangible's adjusted basis. How do i file my 2011 taxes Figure the increase by multiplying the nondeductible loss by a fraction, the numerator (top number) of which is the retained intangible's adjusted basis on the date of the loss and the denominator (bottom number) of which is the total adjusted basis of all retained intangibles on the date of the loss. How do i file my 2011 taxes   In applying this rule, members of the same controlled group of corporations and commonly controlled businesses are treated as a single entity. How do i file my 2011 taxes For example, a corporation cannot deduct a loss on the sale of a section 197 intangible if, after the sale, a member of the same controlled group retains other section 197 intangibles acquired in the same transaction as the intangible sold. How do i file my 2011 taxes Covenant not to compete. How do i file my 2011 taxes   A covenant not to compete (or similar arrangement) that is a section 197 intangible cannot be treated as disposed of or worthless before you have disposed of your entire interest in the trade or business for which the covenant was entered into. How do i file my 2011 taxes Members of the same controlled group of corporations and commonly controlled businesses are treated as a single entity in determining whether a member has disposed of its entire interest in a trade or business. How do i file my 2011 taxes Anti-churning rules. How do i file my 2011 taxes   Anti-churning rules prevent a taxpayer from converting section 197 intangibles that do not qualify for amortization into property that would qualify for amortization. How do i file my 2011 taxes However, these rules do not apply to part of the basis of property acquired by certain related persons if the transferor elects to do both the following. How do i file my 2011 taxes Recognize gain on the transfer of the property. How do i file my 2011 taxes Pay income tax on the gain at the highest tax rate. How do i file my 2011 taxes   If the transferor is a partnership or S corporation, the partnership or S corporation (not the partners or shareholders) can make the election. How do i file my 2011 taxes But each partner or shareholder must pay the tax on his or her share of gain. How do i file my 2011 taxes   To make the election, you, as the transferor, must attach a statement containing certain information to your income tax return for the year of the transfer. How do i file my 2011 taxes You must file the tax return by the due date (including extensions). How do i file my 2011 taxes You must also notify the transferee of the election in writing by the due date of the return. How do i file my 2011 taxes   If you timely filed your return without making the election, you can make the election by filing an amended return within 6 months after the due date of the return (excluding extensions). How do i file my 2011 taxes Attach the statement to the amended return and write “Filed pursuant to section 301. How do i file my 2011 taxes 9100-2” at the top of the statement. How do i file my 2011 taxes File the amended return at the same address the original return was filed. How do i file my 2011 taxes For more information about making the election, see Regulations section 1. How do i file my 2011 taxes 197-2(h)(9). How do i file my 2011 taxes For information about reporting the tax on your income tax return, see the Instructions for Form 4797. How do i file my 2011 taxes Patents The transfer of a patent by an individual is treated as a sale or exchange of a capital asset held longer than 1 year. How do i file my 2011 taxes This applies even if the payments for the patent are made periodically during the transferee's use or are contingent on the productivity, use, or disposition of the patent. How do i file my 2011 taxes For information on the treatment of gain or loss on the transfer of capital assets, see chapter 4. How do i file my 2011 taxes This treatment applies to your transfer of a patent if you meet all the following conditions. How do i file my 2011 taxes You are the holder of the patent. How do i file my 2011 taxes You transfer the patent other than by gift, inheritance, or devise. How do i file my 2011 taxes You transfer all substantial rights to the patent or an undivided interest in all such rights. How do i file my 2011 taxes You do not transfer the patent to a related person. How do i file my 2011 taxes Holder. How do i file my 2011 taxes   You are the holder of a patent if you are either of the following. How do i file my 2011 taxes The individual whose effort created the patent property and who qualifies as the original and first inventor. How do i file my 2011 taxes The individual who bought an interest in the patent from the inventor before the invention was tested and operated successfully under operating conditions and who is neither related to, nor the employer of, the inventor. How do i file my 2011 taxes All substantial rights. How do i file my 2011 taxes   All substantial rights to patent property are all rights that have value when they are transferred. How do i file my 2011 taxes A security interest (such as a lien), or a reservation calling for forfeiture for nonperformance, is not treated as a substantial right for these rules and may be kept by you as the holder of the patent. How do i file my 2011 taxes   All substantial rights to a patent are not transferred if any of the following apply to the transfer. How do i file my 2011 taxes The rights are limited geographically within a country. How do i file my 2011 taxes The rights are limited to a period less than the remaining life of the patent. How do i file my 2011 taxes The rights are limited to fields of use within trades or industries and are less than all the rights that exist and have value at the time of the transfer. How do i file my 2011 taxes The rights are less than all the claims or inventions covered by the patent that exist and have value at the time of the transfer. How do i file my 2011 taxes Related persons. How do i file my 2011 taxes   This tax treatment does not apply if the transfer is directly or indirectly between you and a related person as defined earlier in the list under Nondeductible Loss, with the following changes. How do i file my 2011 taxes Members of your family include your spouse, ancestors, and lineal descendants, but not your brothers, sisters, half-brothers, or half-sisters. How do i file my 2011 taxes Substitute “25% or more” ownership for “more than 50%. How do i file my 2011 taxes ”   If you fit within the definition of a related person independent of family status, the brother-sister exception in (1), earlier, does not apply. How do i file my 2011 taxes For example, a transfer between a brother and a sister as beneficiary and fiduciary of the same trust is a transfer between related persons. How do i file my 2011 taxes The brother-sister exception does not apply because the trust relationship is independent of family status. How do i file my 2011 taxes Franchise, Trademark, or Trade Name If you transfer or renew a franchise, trademark, or trade name for a price contingent on its productivity, use, or disposition, the amount you receive generally is treated as an amount realized from the sale of a noncapital asset. How do i file my 2011 taxes A franchise includes an agreement that gives one of the parties the right to distribute, sell, or provide goods, services, or facilities within a specified area. How do i file my 2011 taxes Significant power, right, or continuing interest. How do i file my 2011 taxes   If you keep any significant power, right, or continuing interest in the subject matter of a franchise, trademark, or trade name that you transfer or renew, the amount you receive is ordinary royalty income rather than an amount realized from a sale or exchange. How do i file my 2011 taxes   A significant power, right, or continuing interest in a franchise, trademark, or trade name includes, but is not limited to, the following rights in the transferred interest. How do i file my 2011 taxes A right to disapprove any assignment of the interest, or any part of it. How do i file my 2011 taxes A right to end the agreement at will. How do i file my 2011 taxes A right to set standards of quality for products used or sold, or for services provided, and for the equipment and facilities used to promote such products or services. How do i file my 2011 taxes A right to make the recipient sell or advertise only your products or services. How do i file my 2011 taxes A right to make the recipient buy most supplies and equipment from you. How do i file my 2011 taxes A right to receive payments based on the productivity, use, or disposition of the transferred item of interest if those payments are a substantial part of the transfer agreement. How do i file my 2011 taxes Subdivision of Land If you own a tract of land and, to sell or exchange it, you subdivide it into individual lots or parcels, the gain normally is ordinary income. How do i file my 2011 taxes However, you may receive capital gain treatment on at least part of the proceeds provided you meet certain requirements. How do i file my 2011 taxes See section 1237 of the Internal Revenue Code. How do i file my 2011 taxes Timber Standing timber held as investment property is a capital asset. How do i file my 2011 taxes Gain or loss from its sale is reported as a capital gain or loss on Form 8949, and Schedule D (Form 1040), as applicable. How do i file my 2011 taxes If you held the timber primarily for sale to customers, it is not a capital asset. How do i file my 2011 taxes Gain or loss on its sale is ordinary business income or loss. How do i file my 2011 taxes It is reported in the gross receipts or sales and cost of goods sold items of your return. How do i file my 2011 taxes Farmers who cut timber on their land and sell it as logs, firewood, or pulpwood usually have no cost or other basis for that timber. How do i file my 2011 taxes These sales constitute a very minor part of their farm businesses. How do i file my 2011 taxes In these cases, amounts realized from such sales, and the expenses of cutting, hauling, etc. How do i file my 2011 taxes , are ordinary farm income and expenses reported on Schedule F (Form 1040), Profit or Loss From Farming. How do i file my 2011 taxes Different rules apply if you owned the timber longer than 1 year and elect to either: Treat timber cutting as a sale or exchange, or Enter into a cutting contract. How do i file my 2011 taxes Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. How do i file my 2011 taxes This is true whether the timber is cut under contract or whether you cut it yourself. How do i file my 2011 taxes Under the rules discussed below, disposition of the timber is treated as a section 1231 transaction. How do i file my 2011 taxes See chapter 3. How do i file my 2011 taxes Gain or loss is reported on Form 4797. How do i file my 2011 taxes Christmas trees. How do i file my 2011 taxes   Evergreen trees, such as Christmas trees, that are more than 6 years old when severed from their roots and sold for ornamental purposes are included in the term timber. How do i file my 2011 taxes They qualify for both rules discussed below. How do i file my 2011 taxes Election to treat cutting as a sale or exchange. How do i file my 2011 taxes   Under the general rule, the cutting of timber results in no gain or loss. How do i file my 2011 taxes It is not until a sale or exchange occurs that gain or loss is realized. How do i file my 2011 taxes But if you owned or had a contractual right to cut timber, you can elect to treat the cutting of timber as a section 1231 transaction in the year the timber is cut. How do i file my 2011 taxes Even though the cut timber is not actually sold or exchanged, you report your gain or loss on the cutting for the year the timber is cut. How do i file my 2011 taxes Any later sale results in ordinary business income or loss. How do i file my 2011 taxes See Example, later. How do i file my 2011 taxes   To elect this treatment, you must: Own or hold a contractual right to cut the timber for a period of more than 1 year before it is cut, and Cut the timber for sale or for use in your trade or business. How do i file my 2011 taxes Making the election. How do i file my 2011 taxes   You make the election on your return for the year the cutting takes place by including in income the gain or loss on the cutting and including a computation of the gain or loss. How do i file my 2011 taxes You do not have to make the election in the first year you cut timber. How do i file my 2011 taxes You can make it in any year to which the election would apply. How do i file my 2011 taxes If the timber is partnership property, the election is made on the partnership return. How do i file my 2011 taxes This election cannot be made on an amended return. How do i file my 2011 taxes   Once you have made the election, it remains in effect for all later years unless you cancel it. How do i file my 2011 taxes   If you previously elected to treat the cutting of timber as a sale or exchange, you may revoke this election without the consent of the IRS. How do i file my 2011 taxes The prior election (and revocation) is disregarded for purposes of making a subsequent election. How do i file my 2011 taxes See Form T (Timber), Forest Activities Schedule, for more information. How do i file my 2011 taxes Gain or loss. How do i file my 2011 taxes   Your gain or loss on the cutting of standing timber is the difference between its adjusted basis for depletion and its fair market value on the first day of your tax year in which it is cut. How do i file my 2011 taxes   Your adjusted basis for depletion of cut timber is based on the number of units (feet board measure, log scale, or other units) of timber cut during the tax year and considered to be sold or exchanged. How do i file my 2011 taxes Your adjusted basis for depletion is also based on the depletion unit of timber in the account used for the cut timber, and should be figured in the same manner as shown in section 611 of the Internal Revenue Code and the related regulations. How do i file my 2011 taxes   Timber depletion is discussed in chapter 9 of Publication 535. How do i file my 2011 taxes Example. How do i file my 2011 taxes In April 2013, you had owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. How do i file my 2011 taxes It had an adjusted basis for depletion of $40 per MBF. How do i file my 2011 taxes You are a calendar year taxpayer. How do i file my 2011 taxes On January 1, 2013, the timber had a fair market value (FMV) of $350 per MBF. How do i file my 2011 taxes It was cut in April for sale. How do i file my 2011 taxes On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. How do i file my 2011 taxes You report the difference between the fair market value and your adjusted basis for depletion as a gain. How do i file my 2011 taxes This amount is reported on Form 4797 along with your other section 1231 gains and losses to figure whether it is treated as capital gain or as ordinary gain. How do i file my 2011 taxes You figure your gain as follows. How do i file my 2011 taxes FMV of timber January 1, 2013 $1,400,000 Minus: Adjusted basis for depletion 160,000 Section 1231 gain $1,240,000 The fair market value becomes your basis in the cut timber and a later sale of the cut timber including any by-product or tree tops will result in ordinary business income or loss. How do i file my 2011 taxes Outright sales of timber. How do i file my 2011 taxes   Outright sales of timber by landowners qualify for capital gains treatment using rules similar to the rules for certain disposal of timber under a contract with retained economic interest (defined below). How do i file my 2011 taxes However, for outright sales, the date of disposal is not deemed to be the date the timber is cut because the landowner can elect to treat the payment date as the date of disposal (see below). How do i file my 2011 taxes Cutting contract. How do i file my 2011 taxes   You must treat the disposal of standing timber under a cutting contract as a section 1231 transaction if all the following apply to you. How do i file my 2011 taxes You are the owner of the timber. How do i file my 2011 taxes You held the timber longer than 1 year before its disposal. How do i file my 2011 taxes You kept an economic interest in the timber. How do i file my 2011 taxes   You have kept an economic interest in standing timber if, under the cutting contract, the expected return on your investment is conditioned on the cutting of the timber. How do i file my 2011 taxes   The difference between the amount realized from the disposal of the timber and its adjusted basis for depletion is treated as gain or loss on its sale. How do i file my 2011 taxes Include this amount on Form 4797 along with your other section 1231 gains or losses to figure whether it is treated as capital or ordinary gain or loss. How do i file my 2011 taxes Date of disposal. How do i file my 2011 taxes   The date of disposal is the date the timber is cut. How do i file my 2011 taxes However, for outright sales by landowners or if you receive payment under the contract before the timber is cut, you can elect to treat the date of payment as the date of disposal. How do i file my 2011 taxes   This election applies only to figure the holding period of the timber. How do i file my 2011 taxes It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). How do i file my 2011 taxes   To make this election, attach a statement to the tax return filed by the due date (including extensions) for the year payment is received. How do i file my 2011 taxes The statement must identify the advance payments subject to the election and the contract under which they were made. How do i file my 2011 taxes   If you timely filed your return for the year you received payment without making the election, you still can make the election by filing an amended return within 6 months after the due date for that year's return (excluding extensions). How do i file my 2011 taxes Attach the statement to the amended return and write “Filed pursuant to section 301. How do i file my 2011 taxes 9100-2” at the top of the statement. How do i file my 2011 taxes File the amended return at the same address the original return was filed. How do i file my 2011 taxes Owner. How do i file my 2011 taxes   The owner of timber is any person who owns an interest in it, including a sublessor and the holder of a contract to cut the timber. How do i file my 2011 taxes You own an interest in timber if you have the right to cut it for sale on your own account or for use in your business. How do i file my 2011 taxes Tree stumps. How do i file my 2011 taxes   Tree stumps are a capital asset if they are on land held by an investor who is not in the timber or stump business as a buyer, seller, or processor. How do i file my 2011 taxes Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. How do i file my 2011 taxes However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. How do i file my 2011 taxes Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. How do i file my 2011 taxes   See Form T (Timber) and its separate instructions for more information about dispositions of timber. How do i file my 2011 taxes Precious Metals and Stones, Stamps, and Coins Gold, silver, gems, stamps, coins, etc. How do i file my 2011 taxes , are capital assets except when they are held for sale by a dealer. How do i file my 2011 taxes Any gain or loss from their sale or exchange generally is a capital gain or loss. How do i file my 2011 taxes If you are a dealer, the amount received from the sale is ordinary business income. How do i file my 2011 taxes Coal and Iron Ore You must treat the disposal of coal (including lignite) or iron ore mined in the United States as a section 1231 transaction if both the following apply to you. How do i file my 2011 taxes You owned the coal or iron ore longer than 1 year before its disposal. How do i file my 2011 taxes You kept an economic interest in the coal or iron ore. How do i file my 2011 taxes For this rule, the date the coal or iron ore is mined is considered the date of its disposal. How do i file my 2011 taxes Your gain or loss is the difference between the amount realized from disposal of the coal or iron ore and the adjusted basis you use to figure cost depletion (increased by certain expenses not allowed as deductions for the tax year). How do i file my 2011 taxes This amount is included on Form 4797 along with your other section 1231 gains and losses. How do i file my 2011 taxes You are considered an owner if you own or sublet an economic interest in the coal or iron ore in place. How do i file my 2011 taxes If you own only an option to buy the coal in place, you do not qualify as an owner. How do i file my 2011 taxes In addition, this gain or loss treatment does not apply to income realized by an owner who is a co-adventurer, partner, or principal in the mining of coal or iron ore. How do i file my 2011 taxes The expenses of making and administering the contract under which the coal or iron ore was disposed of and the expenses of preserving the economic interest kept under the contract are not allowed as deductions in figuring taxable income. How do i file my 2011 taxes Rather, their total, along with the adjusted depletion basis, is deducted from the amount received to determine gain. How do i file my 2011 taxes If the total of these expenses plus the adjusted depletion basis is more than the amount received, the result is a loss. How do i file my 2011 taxes Special rule. How do i file my 2011 taxes   The above treatment does not apply if you directly or indirectly dispose of the iron ore or coal to any of the following persons. How do i file my 2011 taxes A related person whose relationship to you would result in the disallowance of a loss (see Nondeductible Loss under Sales and Exchanges Between Related Persons, earlier). How do i file my 2011 taxes An individual, trust, estate, partnership, association, company, or corporation owned or controlled directly or indirectly by the same interests that own or control your business. How do i file my 2011 taxes Conversion Transactions Recognized gain on the disposition or termination of any position held as part of certain conversion transactions is treated as ordinary income. How do i file my 2011 taxes This applies if substantially all your expected return is attributable to the time value of your net investment (like interest on a loan) and the transaction is any of the following. How do i file my 2011 taxes An applicable straddle (generally, any set of offsetting positions with respect to personal property, including stock). How do i file my 2011 taxes A transaction in which you acquire property and, at or about the same time, you contract to sell the same or substantially identical property at a specified price. How do i file my 2011 taxes Any other transaction that is marketed and sold as producing capital gain from a transaction in which substantially all of your expected return is due to the time value of your net investment. How do i file my 2011 taxes For more information, see chapter 4 of Publication 550. How do i file my 2011 taxes Prev  Up  Next   Home   More Online Publications