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State Income Tax Tables

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State Income Tax Tables

State income tax tables 23. State income tax tables   Interest Expense Table of Contents Introduction Useful Items - You may want to see: Home Mortgage InterestAmount Deductible Points Mortgage Insurance Premiums Form 1098, Mortgage Interest Statement Investment InterestInvestment Property Allocation of Interest Expense Limit on Deduction Items You Cannot DeductPersonal Interest Allocation of Interest How To ReportMore than one borrower. State income tax tables Mortgage proceeds used for business or investment. State income tax tables Introduction This chapter discusses what interest expenses you can deduct. State income tax tables Interest is the amount you pay for the use of borrowed money. State income tax tables The following are types of interest you can deduct as itemized deductions on Schedule A (Form 1040). State income tax tables Home mortgage interest, including certain points and mortgage insurance premiums. State income tax tables Investment interest. State income tax tables This chapter explains these deductions. State income tax tables It also explains where to deduct other types of interest and lists some types of interest you cannot deduct. State income tax tables Use Table 23-1 to find out where to get more information on various types of interest, including investment interest. State income tax tables Useful Items - You may want to see: Publication 936 Home Mortgage Interest Deduction 550 Investment Income and Expenses Home Mortgage Interest Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). State income tax tables The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. State income tax tables You can deduct home mortgage interest if all the following conditions are met. State income tax tables You file Form 1040 and itemize deductions on Schedule A (Form 1040). State income tax tables The mortgage is a secured debt on a qualified home in which you have an ownership interest. State income tax tables (Generally, your mortgage is a secured debt if you put your home up as collateral to protect the interest of the lender. State income tax tables The term “qualified home” means your main home or second home. State income tax tables For details, see Publication 936. State income tax tables )  Both you and the lender must intend that the loan be repaid. State income tax tables Amount Deductible In most cases, you can deduct all of your home mortgage interest. State income tax tables How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. State income tax tables Fully deductible interest. State income tax tables   If all of your mortgages fit into one or more of the following three categories at all times during the year, you can deduct all of the interest on those mortgages. State income tax tables (If any one mortgage fits into more than one category, add the debt that fits in each category to your other debt in the same category. State income tax tables )   The three categories are as follows: Mortgages you took out on or before October 13, 1987 (called grandfathered debt). State income tax tables Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2013 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately). State income tax tables Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2013 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2). State income tax tables The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home. State income tax tables   See Part II of Publication 936 for more detailed definitions of grandfathered, home acquisition, and home equity debt. State income tax tables    You can use Figure 23-A to check whether your home mortgage interest is fully deductible. State income tax tables Figure 23-A. State income tax tables Is My Home Mortgage Interest Fully Deductible? Please click here for the text description of the image. State income tax tables Figure 23-A. State income tax tables Is My Interest Fully Deductible? Limits on deduction. State income tax tables   You cannot fully deduct interest on a mortgage that does not fit into any of the three categories listed earlier. State income tax tables If this applies to you, see Part II of Publication 936 to figure the amount of interest you can deduct. State income tax tables Special Situations This section describes certain items that can be included as home mortgage interest and others that cannot. State income tax tables It also describes certain special situations that may affect your deduction. State income tax tables Late payment charge on mortgage payment. State income tax tables   You can deduct as home mortgage interest a late payment charge if it was not for a specific service performed in connection with your mortgage loan. State income tax tables Mortgage prepayment penalty. State income tax tables   If you pay off your home mortgage early, you may have to pay a penalty. State income tax tables You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan. State income tax tables Sale of home. State income tax tables   If you sell your home, you can deduct your home mortgage interest (subject to any limits that apply) paid up to, but not including, the date of sale. State income tax tables Example. State income tax tables John and Peggy Harris sold their home on May 7. State income tax tables Through April 30, they made home mortgage interest payments of $1,220. State income tax tables The settlement sheet for the sale of the home showed $50 interest for the 6-day period in May up to, but not including, the date of sale. State income tax tables Their mortgage interest deduction is $1,270 ($1,220 + $50). State income tax tables Prepaid interest. State income tax tables   If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. State income tax tables You can deduct in each year only the interest that qualifies as home mortgage interest for that year. State income tax tables However, there is an exception that applies to points, discussed later. State income tax tables Mortgage interest credit. State income tax tables   You may be able to claim a mortgage interest credit if you were issued a mortgage credit certificate (MCC) by a state or local government. State income tax tables Figure the credit on Form 8396, Mortgage Interest Credit. State income tax tables If you take this credit, you must reduce your mortgage interest deduction by the amount of the credit. State income tax tables   For more information on the credit, see chapter 37. State income tax tables Ministers' and military housing allowance. State income tax tables   If you are a minister or a member of the uniformed services and receive a housing allowance that is not taxable, you can still deduct your home mortgage interest. State income tax tables Hardest Hit Fund and Emergency Homeowners' Loan Programs. State income tax tables   You can use a special method to compute your deduction for mortgage interest and real estate taxes on your main home if you meet the following two conditions. State income tax tables You received assistance under: A State Housing Finance Agency (State HFA) Hardest Hit Fund program in which program payments could be used to pay mortgage interest, or An Emergency Homeowners' Loan Program administered by the Department of Housing and Urban Development (HUD) or a state. State income tax tables You meet the rules to deduct all of the mortgage interest on your loan and all of the real estate taxes on your main home. State income tax tables If you meet these tests, then you can deduct all of the payments you actually made during the year to your mortgage servicer, the State HFA, or HUD on the home mortgage (including the amount shown on box 3 of Form 1098-MA, Mortgage Assistance Payments), but not more than the sum of the amounts shown on Form 1098, Mortgage Interest Statement, in box 1 (mortgage interest received from payer(s) / borrower(s)), box 4 (mortgage insurance premiums) and box 5 (real property taxes). State income tax tables However, you are not required to use this special method to compute your deduction for mortgage interest and real estate taxes on your main home. State income tax tables Mortgage assistance payments under section 235 of the National Housing Act. State income tax tables   If you qualify for mortgage assistance payments for lower-income families under section 235 of the National Housing Act, part or all of the interest on your mortgage may be paid for you. State income tax tables You cannot deduct the interest that is paid for you. State income tax tables No other effect on taxes. State income tax tables   Do not include these mortgage assistance payments in your income. State income tax tables Also, do not use these payments to reduce other deductions, such as real estate taxes. State income tax tables Divorced or separated individuals. State income tax tables   If a divorce or separation agreement requires you or your spouse or former spouse to pay home mortgage interest on a home owned by both of you, the payment of interest may be alimony. State income tax tables See the discussion of Payments for jointly-owned home in chapter 18. State income tax tables Redeemable ground rents. State income tax tables   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct them as mortgage interest. State income tax tables   Payments made to end the lease and to buy the lessor's entire interest in the land are not deductible as mortgage interest. State income tax tables For more information, see Publication 936. State income tax tables Nonredeemable ground rents. State income tax tables   Payments on a nonredeemable ground rent are not mortgage interest. State income tax tables You can deduct them as rent if they are a business expense or if they are for rental property. State income tax tables Reverse mortgages. State income tax tables   A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. State income tax tables With a reverse mortgage, you retain title to your home. State income tax tables Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. State income tax tables Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. State income tax tables Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until the loan is paid in full. State income tax tables Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Publication 936. State income tax tables Rental payments. State income tax tables   If you live in a house before final settlement on the purchase, any payments you make for that period are rent and not interest. State income tax tables This is true even if the settlement papers call them interest. State income tax tables You cannot deduct these payments as home mortgage interest. State income tax tables Mortgage proceeds invested in tax-exempt securities. State income tax tables   You cannot deduct the home mortgage interest on grandfathered debt or home equity debt if you used the proceeds of the mortgage to buy securities or certificates that produce tax-free income. State income tax tables “Grandfathered debt” and “home equity debt” are defined earlier under Amount Deductible. State income tax tables Refunds of interest. State income tax tables   If you receive a refund of interest in the same tax year you paid it, you must reduce your interest expense by the amount refunded to you. State income tax tables If you receive a refund of interest you deducted in an earlier year, you generally must include the refund in income in the year you receive it. State income tax tables However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year. State income tax tables This is true whether the interest overcharge was refunded to you or was used to reduce the outstanding principal on your mortgage. State income tax tables    If you received a refund of interest you overpaid in an earlier year, you generally will receive a Form 1098, Mortgage Interest Statement, showing the refund in box 3. State income tax tables For information about Form 1098, see Form 1098, Mortgage Interest Statement , later. State income tax tables   For more information on how to treat refunds of interest deducted in earlier years, see Recoveries in chapter 12. State income tax tables Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. State income tax tables Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. State income tax tables A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. State income tax tables See Points paid by the seller , later. State income tax tables General Rule You generally cannot deduct the full amount of points in the year paid. State income tax tables Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. State income tax tables See Deduction Allowed Ratably , next. State income tax tables For exceptions to the general rule, see Deduction Allowed in Year Paid , later. State income tax tables Deduction Allowed Ratably If you do not meet the tests listed under Deduction Allowed in Year Paid , later, the loan is not a home improvement loan, or you choose not to deduct your points in full in the year paid, you can deduct the points ratably (equally) over the life of the loan if you meet all the following tests. State income tax tables You use the cash method of accounting. State income tax tables This means you report income in the year you receive it and deduct expenses in the year you pay them. State income tax tables Most individuals use this method. State income tax tables Your loan is secured by a home. State income tax tables (The home does not need to be your main home. State income tax tables ) Your loan period is not more than 30 years. State income tax tables If your loan period is more than 10 years, the terms of your loan are the same as other loans offered in your area for the same or longer period. State income tax tables Either your loan amount is $250,000 or less, or the number of points is not more than: 4, if your loan period is 15 years or less, or 6, if your loan period is more than 15 years. State income tax tables Deduction Allowed in Year Paid You can fully deduct points in the year paid if you meet all the following tests. State income tax tables (You can use Figure 23-B as a quick guide to see whether your points are fully deductible in the year paid. State income tax tables ) Your loan is secured by your main home. State income tax tables (Your main home is the one you ordinarily live in most of the time. State income tax tables ) Paying points is an established business practice in the area where the loan was made. State income tax tables The points paid were not more than the points generally charged in that area. State income tax tables You use the cash method of accounting. State income tax tables This means you report income in the year you receive it and deduct expenses in the year you pay them. State income tax tables (If you want more information about this method, see Accounting Methods in chapter 1. State income tax tables ) The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes. State income tax tables The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. State income tax tables The funds you provided are not required to have been applied to the points. State income tax tables They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. State income tax tables You cannot have borrowed these funds from your lender or mortgage broker. State income tax tables You use your loan to buy or build your main home. State income tax tables The points were computed as a percentage of the principal amount of the mortgage. State income tax tables The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. State income tax tables The points may be shown as paid from either your funds or the seller's. State income tax tables Figure 23-B. State income tax tables Are My Points Fully Deductible This Year? Please click here for the text description of the image. State income tax tables Figure 23-B. State income tax tables Are My Points Fully Deductible This Year? Note. State income tax tables If you meet all of these tests, you can choose to either fully deduct the points in the year paid, or deduct them over the life of the loan. State income tax tables Home improvement loan. State income tax tables   You can also fully deduct in the year paid points paid on a loan to improve your main home, if tests (1) through (6) are met. State income tax tables Second home. State income tax tables You cannot fully deduct in the year paid points you pay on loans secured by your second home. State income tax tables You can deduct these points only over the life of the loan. State income tax tables Refinancing. State income tax tables   Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. State income tax tables This is true even if the new mortgage is secured by your main home. State income tax tables   However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first 6 tests listed under Deduction Allowed in Year Paid , earlier, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. State income tax tables You can deduct the rest of the points over the life of the loan. State income tax tables Example 1. State income tax tables In 1998, Bill Fields got a mortgage to buy a home. State income tax tables In 2013, Bill refinanced that mortgage with a 15-year $100,000 mortgage loan. State income tax tables The mortgage is secured by his home. State income tax tables To get the new loan, he had to pay three points ($3,000). State income tax tables Two points ($2,000) were for prepaid interest, and one point ($1,000) was charged for services, in place of amounts that ordinarily are stated separately on the settlement statement. State income tax tables Bill paid the points out of his private funds, rather than out of the proceeds of the new loan. State income tax tables The payment of points is an established practice in the area, and the points charged are not more than the amount generally charged there. State income tax tables Bill's first payment on the new loan was due July 1. State income tax tables He made six payments on the loan in 2013 and is a cash basis taxpayer. State income tax tables Bill used the funds from the new mortgage to repay his existing mortgage. State income tax tables Although the new mortgage loan was for Bill's continued ownership of his main home, it was not for the purchase or improvement of that home. State income tax tables He cannot deduct all of the points in 2013. State income tax tables He can deduct two points ($2,000) ratably over the life of the loan. State income tax tables He deducts $67 [($2,000 ÷ 180 months) × 6 payments] of the points in 2013. State income tax tables The other point ($1,000) was a fee for services and is not deductible. State income tax tables Example 2. State income tax tables The facts are the same as in Example 1, except that Bill used $25,000 of the loan proceeds to improve his home and $75,000 to repay his existing mortgage. State income tax tables Bill deducts 25% ($25,000 ÷ $100,000) of the points ($2,000) in 2013. State income tax tables His deduction is $500 ($2,000 × 25%). State income tax tables Bill also deducts the ratable part of the remaining $1,500 ($2,000 − $500) that must be spread over the life of the loan. State income tax tables This is $50 [($1,500 ÷ 180 months) × 6 payments] in 2013. State income tax tables The total amount Bill deducts in 2013 is $550 ($500 + $50). State income tax tables Special Situations This section describes certain special situations that may affect your deduction of points. State income tax tables Original issue discount. State income tax tables   If you do not qualify to either deduct the points in the year paid or deduct them ratably over the life of the loan, or if you choose not to use either of these methods, the points reduce the issue price of the loan. State income tax tables This reduction results in original issue discount, which is discussed in chapter 4 of Publication 535. State income tax tables Amounts charged for services. State income tax tables   Amounts charged by the lender for specific services connected to the loan are not interest. State income tax tables Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. State income tax tables You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. State income tax tables Points paid by the seller. State income tax tables   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. State income tax tables Treatment by seller. State income tax tables   The seller cannot deduct these fees as interest. State income tax tables But they are a selling expense that reduces the amount realized by the seller. State income tax tables See chapter 15 for information on selling your home. State income tax tables Treatment by buyer. State income tax tables    The buyer reduces the basis of the home by the amount of the seller-paid points and treats the points as if he or she had paid them. State income tax tables If all the tests under Deduction Allowed in Year Paid , earlier, are met, the buyer can deduct the points in the year paid. State income tax tables If any of those tests are not met, the buyer deducts the points over the life of the loan. State income tax tables   For information about basis, see chapter 13. State income tax tables Funds provided are less than points. State income tax tables   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the funds you provided were less than the points charged to you (test (6)), you can deduct the points in the year paid, up to the amount of funds you provided. State income tax tables In addition, you can deduct any points paid by the seller. State income tax tables Example 1. State income tax tables When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). State income tax tables You meet all the tests for deducting points in the year paid, except the only funds you provided were a $750 down payment. State income tax tables Of the $1,000 charged for points, you can deduct $750 in the year paid. State income tax tables You spread the remaining $250 over the life of the mortgage. State income tax tables Example 2. State income tax tables The facts are the same as in Example 1, except that the person who sold you your home also paid one point ($1,000) to help you get your mortgage. State income tax tables In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). State income tax tables You spread the remaining $250 over the life of the mortgage. State income tax tables You must reduce the basis of your home by the $1,000 paid by the seller. State income tax tables Excess points. State income tax tables   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the points paid were more than generally paid in your area (test (3)), you deduct in the year paid only the points that are generally charged. State income tax tables You must spread any additional points over the life of the mortgage. State income tax tables Mortgage ending early. State income tax tables   If you spread your deduction for points over the life of the mortgage, you can deduct any remaining balance in the year the mortgage ends. State income tax tables However, if you refinance the mortgage with the same lender, you cannot deduct any remaining balance of spread points. State income tax tables Instead, deduct the remaining balance over the term of the new loan. State income tax tables    A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. State income tax tables Example. State income tax tables Dan paid $3,000 in points in 2002 that he had to spread out over the 15-year life of the mortgage. State income tax tables He deducts $200 points per year. State income tax tables Through 2012, Dan has deducted $2,200 of the points. State income tax tables Dan prepaid his mortgage in full in 2013. State income tax tables He can deduct the remaining $800 of points in 2013. State income tax tables Limits on deduction. State income tax tables   You cannot fully deduct points paid on a mortgage unless the mortgage fits into one of the categories listed earlier under Fully deductible interest . State income tax tables See Publication 936 for details. State income tax tables Mortgage Insurance Premiums You can treat amounts you paid during 2013 for qualified mortgage insurance as home mortgage interest. State income tax tables The insurance must be in connection with home acquisition debt and the insurance contract must have been issued after 2006. State income tax tables Qualified mortgage insurance. State income tax tables   Qualified mortgage insurance is mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). State income tax tables   Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. State income tax tables If provided by the Rural Housing Service, it is commonly known as a guarantee fee. State income tax tables These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013. State income tax tables Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098. State income tax tables Special rules for prepaid mortgage insurance. State income tax tables   Generally, if you paid premiums for qualified mortgage insurance that are allocable to periods after the close of the tax year, such premiums are treated as paid in the period to which they are allocated. State income tax tables You must allocate the premiums over the shorter of the stated term of the mortgage or 84 months, beginning with the month the insurance was obtained. State income tax tables No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term. State income tax tables This paragraph does not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. State income tax tables See the Example below. State income tax tables Example. State income tax tables Ryan purchased a home in May of 2012 and financed the home with a 15-year mortgage. State income tax tables Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May. State income tax tables Since the $9,240 in private mortgage insurance is allocable to periods after 2012, Ryan must allocate the $9,240 over the shorter of the life of the mortgage or 84 months. State income tax tables Ryan's adjusted gross income (AGI) for 2012 is $76,000. State income tax tables Ryan can deduct $880 ($9,240 ÷ 84 × 8 months) for qualified mortgage insurance premiums in 2012. State income tax tables For 2013, Ryan can deduct $1,320 ($9,240 ÷ 84 × 12 months) if his AGI is $100,000 or less. State income tax tables In this example, the mortgage insurance premiums are allocated over 84 months, which is shorter than the life of the mortgage of 15 years (180 months). State income tax tables Limit on deduction. State income tax tables   If your adjusted gross income on Form 1040, line 38, is more than $100,000 ($50,000 if your filing status is married filing separately), the amount of your mortgage insurance premiums that are otherwise deductible is reduced and may be eliminated. State income tax tables See Line 13 in the instructions for Schedule A (Form 1040) and complete the Mortgage Insurance Premiums Deduction Worksheet to figure the amount you can deduct. State income tax tables If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. State income tax tables Form 1098, Mortgage Interest Statement If you paid $600 or more of mortgage interest (including certain points and mortgage insurance premiums) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement from the mortgage holder. State income tax tables You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. State income tax tables A governmental unit is a person for purposes of furnishing the statement. State income tax tables The statement for each year should be sent to you by January 31 of the following year. State income tax tables A copy of this form will also be sent to the IRS. State income tax tables The statement will show the total interest you paid during the year, any mortgage insurance premiums you paid, and if you purchased a main home during the year, it also will show the deductible points paid during the year, including seller-paid points. State income tax tables However, it should not show any interest that was paid for you by a government agency. State income tax tables As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. State income tax tables However, certain points not included on Form 1098 also may be deductible, either in the year paid or over the life of the loan. State income tax tables See Points , earlier, to determine whether you can deduct points not shown on Form 1098. State income tax tables Prepaid interest on Form 1098. State income tax tables   If you prepaid interest in 2013 that accrued in full by January 15, 2014, this prepaid interest may be included in box 1 of Form 1098. State income tax tables However, you cannot deduct the prepaid amount for January 2014 in 2013. State income tax tables (See Prepaid interest , earlier. State income tax tables ) You will have to figure the interest that accrued for 2014 and subtract it from the amount in box 1. State income tax tables You will include the interest for January 2014 with the other interest you pay for 2014. State income tax tables See How To Report , later. State income tax tables Refunded interest. State income tax tables   If you received a refund of mortgage interest you overpaid in an earlier year, you generally will receive a Form 1098 showing the refund in box 3. State income tax tables See Refunds of interest , earlier. State income tax tables Mortgage insurance premiums. State income tax tables   The amount of mortgage insurance premiums you paid during 2013 may be shown in box 4 of Form 1098. State income tax tables See Mortgage Insurance Premiums, earlier. State income tax tables Investment Interest This section discusses interest expenses you may be able to deduct as an investor. State income tax tables If you borrow money to buy property you hold for investment, the interest you pay is investment interest. State income tax tables You can deduct investment interest subject to the limit discussed later. State income tax tables However, you cannot deduct interest you incurred to produce tax-exempt income. State income tax tables Nor can you deduct interest expenses on straddles. State income tax tables Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. State income tax tables Investment Property Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. State income tax tables It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). State income tax tables Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity). State income tax tables Partners, shareholders, and beneficiaries. State income tax tables   To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest. State income tax tables Allocation of Interest Expense If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. State income tax tables Only the interest expense on the part of the debt used for investment purposes is treated as investment interest. State income tax tables The allocation is not affected by the use of property that secures the debt. State income tax tables Limit on Deduction Generally, your deduction for investment interest expense is limited to the amount of your net investment income. State income tax tables You can carry over the amount of investment interest that you could not deduct because of this limit to the next tax year. State income tax tables The interest carried over is treated as investment interest paid or accrued in that next year. State income tax tables You can carry over disallowed investment interest to the next tax year even if it is more than your taxable income in the year the interest was paid or accrued. State income tax tables Net Investment Income Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income. State income tax tables Investment income. State income tax tables    This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). State income tax tables Investment income does not include Alaska Permanent Fund dividends. State income tax tables It also does not include qualified dividends or net capital gain unless you choose to include them. State income tax tables Choosing to include qualified dividends. State income tax tables   Investment income generally does not include qualified dividends, discussed in chapter 8. State income tax tables However, you can choose to include all or part of your qualified dividends in investment income. State income tax tables   You make this choice by completing Form 4952, line 4g, according to its instructions. State income tax tables   If you choose to include any amount of your qualified dividends in investment income, you must reduce your qualified dividends that are eligible for the lower capital gains tax rates by the same amount. State income tax tables Choosing to include net capital gain. State income tax tables   Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). State income tax tables However, you can choose to include all or part of your net capital gain in investment income. State income tax tables    You make this choice by completing Form 4952, line 4g, according to its instructions. State income tax tables   If you choose to include any amount of your net capital gain in investment income, you must reduce your net capital gain that is eligible for the lower capital gains tax rates by the same amount. State income tax tables    Before making either choice, consider the overall effect on your tax liability. State income tax tables Compare your tax if you make one or both of these choices with your tax if you do not. State income tax tables Investment income of child reported on parent's return. State income tax tables    Investment income includes the part of your child's interest and dividend income that you choose to report on your return. State income tax tables If the child does not have qualified dividends, Alaska Permanent Fund dividends, or capital gain distributions, this is the amount on line 6 of Form 8814, Parents' Election To Report Child's Interest and Dividends. State income tax tables Child's qualified dividends. State income tax tables   If part of the amount you report is your child's qualified dividends, that part (which is reported on Form 1040, line 9b) generally does not count as investment income. State income tax tables However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. State income tax tables   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends). State income tax tables Child's Alaska Permanent Fund dividends. State income tax tables   If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. State income tax tables To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. State income tax tables Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. State income tax tables Subtract the result from the amount on Form 8814, line 12. State income tax tables Child's capital gain distributions. State income tax tables    If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D, line 13, or Form 1040, line 13) generally does not count as investment income. State income tax tables However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. State income tax tables   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends , earlier). State income tax tables Investment expenses. State income tax tables   Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. State income tax tables Investment expenses that are included as a miscellaneous itemized deduction on Schedule A (Form 1040) are allowable deductions after applying the 2% limit that applies to miscellaneous itemized deductions. State income tax tables Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A, line 27. State income tax tables Losses from passive activities. State income tax tables   Income or expenses that you used in computing income or loss from a passive activity are not included in determining your investment income or investment expenses (including investment interest expense). State income tax tables See Publication 925, Passive Activity and At-Risk Rules, for information about passive activities. State income tax tables Form 4952 Use Form 4952, Investment Interest Expense Deduction, to figure your deduction for investment interest. State income tax tables Exception to use of Form 4952. State income tax tables   You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. State income tax tables Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. State income tax tables You do not have any other deductible investment expenses. State income tax tables You have no carryover of investment interest expense from 2012. State income tax tables If you meet all of these tests, you can deduct all of your investment interest. State income tax tables More Information For more information on investment interest, see Interest Expenses in chapter 3 of Publication 550. State income tax tables Items You Cannot Deduct Some interest payments are not deductible. State income tax tables Certain expenses similar to interest also are not deductible. State income tax tables Nondeductible expenses include the following items. State income tax tables Personal interest (discussed later). State income tax tables Service charges (however, see Other Expenses (Line 23) in chapter 28). State income tax tables Annual fees for credit cards. State income tax tables Loan fees. State income tax tables Credit investigation fees. State income tax tables Interest to purchase or carry tax-exempt securities. State income tax tables Penalties. State income tax tables   You cannot deduct fines and penalties paid to a government for violations of law, regardless of their nature. State income tax tables Personal Interest Personal interest is not deductible. State income tax tables Personal interest is any interest that is not home mortgage interest, investment interest, business interest, or other deductible interest. State income tax tables It includes the following items. State income tax tables Interest on car loans (unless you use the car for business). State income tax tables Interest on federal, state, or local income tax. State income tax tables Finance charges on credit cards, retail installment contracts, and revolving charge accounts incurred for personal expenses. State income tax tables Late payment charges by a public utility. State income tax tables You may be able to deduct interest you pay on a qualified student loan. State income tax tables For details, see Publication 970, Tax Benefits for Education. State income tax tables Allocation of Interest If you use the proceeds of a loan for more than one purpose (for example, personal and business), you must allocate the interest on the loan to each use. State income tax tables However, you do not have to allocate home mortgage interest if it is fully deductible, regardless of how the funds are used. State income tax tables You allocate interest (other than fully deductible home mortgage interest) on a loan in the same way as the loan itself is allocated. State income tax tables You do this by tracing disbursements of the debt proceeds to specific uses. State income tax tables For details on how to do this, see chapter 4 of Publication 535. State income tax tables How To Report You must file Form 1040 to deduct any home mortgage interest expense on your tax return. State income tax tables Where you deduct your interest expense generally depends on how you use the loan proceeds. State income tax tables See Table 23-1 for a summary of where to deduct your interest expense. State income tax tables Home mortgage interest and points. State income tax tables   Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. State income tax tables If you paid more deductible interest to the financial institution than the amount shown on Form 1098, show the larger deductible amount on line 10. State income tax tables Attach a statement explaining the difference and print “See attached” next to line 10. State income tax tables    Deduct home mortgage interest that was not reported to you on Form 1098 on Schedule A (Form 1040), line 11. State income tax tables If you paid home mortgage interest to the person from whom you bought your home, show that person's name, address, and taxpayer identification number (TIN) on the dotted lines next to line 11. State income tax tables The seller must give you this number and you must give the seller your TIN. State income tax tables A Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. State income tax tables Failure to meet any of these requirements may result in a $50 penalty for each failure. State income tax tables The TIN can be either a social security number, an individual taxpayer identification number (issued by the Internal Revenue Service), or an employer identification number. State income tax tables See Social Security Number (SSN) in chapter 1 for more information about TINs. State income tax tables    If you can take a deduction for points that were not reported to you on Form 1098, deduct those points on Schedule A (Form 1040), line 12. State income tax tables   Deduct mortgage insurance premiums on Schedule A (Form 1040), line 13. State income tax tables More than one borrower. State income tax tables   If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return explaining this. State income tax tables Show how much of the interest each of you paid, and give the name and address of the person who received the form. State income tax tables Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. State income tax tables Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13. State income tax tables   Similarly, if you are the payer of record on a mortgage on which there are other borrowers entitled to a deduction for the interest shown on the Form 1098 you received, deduct only your share of the interest on Schedule A (Form 1040), line 10. State income tax tables You should let each of the other borrowers know what his or her share is. State income tax tables Mortgage proceeds used for business or investment. State income tax tables    If your home mortgage interest deduction is limited, but all or part of the mortgage proceeds were used for business, investment, or other deductible activities, see Table 23-1. State income tax tables It shows where to deduct the part of your excess interest that is for those activities. State income tax tables Investment interest. State income tax tables    Deduct investment interest, subject to certain limits discussed in Publication 550, on Schedule A (Form 1040), line 14. State income tax tables Amortization of bond premium. State income tax tables   There are various ways to treat the premium you pay to buy taxable bonds. State income tax tables See Bond Premium Amortization in Publication 550. State income tax tables Income-producing rental or royalty interest. State income tax tables   Deduct interest on a loan for income-producing rental or royalty property that is not used in your business in Part I of Schedule E (Form 1040). State income tax tables Example. State income tax tables You rent out part of your home and borrow money to make repairs. State income tax tables You can deduct only the interest payment for the rented part in Part I of Schedule E (Form 1040). State income tax tables Deduct the rest of the interest payment on Schedule A (Form 1040) if it is deductible home mortgage interest. State income tax tables Table 23-1. State income tax tables Where To Deduct Your Interest Expense IF you have . State income tax tables . State income tax tables . State income tax tables THEN deduct it on . State income tax tables . State income tax tables . State income tax tables AND for more information go to . State income tax tables . State income tax tables . State income tax tables deductible student loan interest Form 1040, line 33, or Form 1040A, line 18 Publication 970. State income tax tables deductible home mortgage interest and points reported on Form 1098 Schedule A (Form 1040), line 10 Publication 936. State income tax tables deductible home mortgage interest not reported on Form 1098 Schedule A (Form 1040), line 11 Publication 936. State income tax tables deductible points not reported on Form 1098 Schedule A (Form 1040), line 12 Publication 936. State income tax tables deductible mortgage insurance premiums Schedule A (Form 1040), line 13 Publication 936. State income tax tables deductible investment interest (other than incurred to produce rents or royalties) Schedule A (Form 1040), line 14 Publication 550. State income tax tables deductible business interest (non-farm) Schedule C or C-EZ (Form 1040) Publication 535. State income tax tables deductible farm business interest Schedule F (Form 1040) Publications 225 and 535. State income tax tables deductible interest incurred to produce rents or royalties Schedule E (Form 1040) Publications 527 and 535. State income tax tables personal interest not deductible. State income tax tables Prev  Up  Next   Home   More Online Publications
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The State Income Tax Tables

State income tax tables 2. State income tax tables   Ordinary or Capital Gain or Loss Table of Contents IntroductionSection 1231 transactions. State income tax tables Topics - This chapter discusses: Useful Items - You may want to see: Capital Assets Noncapital AssetsCommodities derivative dealer. State income tax tables 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). State income tax tables You must do this to figure your net capital gain or loss. State income tax tables For individuals, a net capital gain may be taxed at a different tax rate than ordinary income. State income tax tables See Capital Gains Tax Rates in chapter 4. State income tax tables Your deduction for a net capital loss may be limited. State income tax tables See Treatment of Capital Losses in chapter 4. State income tax tables Capital gain or loss. State income tax tables   Generally, you will have a capital gain or loss if you sell or exchange a capital asset. State income tax tables You also may have a capital gain if your section 1231 transactions result in a net gain. State income tax tables Section 1231 transactions. State income tax tables   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. State income tax tables They also include certain involuntary conversions of business or investment property, including capital assets. State income tax tables See Section 1231 Gains and Losses in chapter 3 for more information. State income tax tables 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. State income tax tables Capital Assets Almost everything you own and use for personal purposes, pleasure, or investment is a capital asset. State income tax tables For exceptions, see Noncapital Assets, later. State income tax tables The following items are examples of capital assets. State income tax tables Stocks and bonds. State income tax tables A home owned and occupied by you and your family. State income tax tables Timber grown on your home property or investment property, even if you make casual sales of the timber. State income tax tables Household furnishings. State income tax tables A car used for pleasure or commuting. State income tax tables Coin or stamp collections. State income tax tables Gems and jewelry. State income tax tables Gold, silver, and other metals. State income tax tables Personal-use property. State income tax tables   Generally, property held for personal use is a capital asset. State income tax tables Gain from a sale or exchange of that property is a capital gain. State income tax tables Loss from the sale or exchange of that property is not deductible. State income tax tables You can deduct a loss relating to personal-use property only if it results from a casualty or theft. State income tax tables Investment property. State income tax tables   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. State income tax tables This treatment does not apply to property used to produce rental income. State income tax tables See Business assets, later, under Noncapital Assets. State income tax tables Release of restriction on land. State income tax tables   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. State income tax tables Noncapital Assets A noncapital asset is property that is not a capital asset. State income tax tables The following kinds of property are not capital assets. State income tax tables Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business. State income tax tables Inventories are discussed in Publication 538, Accounting Periods and Methods. State income tax tables But, see the Tip below. State income tax tables 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. State income tax tables 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). State income tax tables Sales of this type of property are discussed in chapter 3. State income tax tables Real property used in your trade or business or as rental property, even if the property is fully depreciated. State income tax tables 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. State income tax tables But, see the Tip below. State income tax tables U. State income tax tables S. State income tax tables 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. State income tax tables Any commodities derivative financial instrument (discussed later) held by a commodities derivatives dealer unless it meets both of the following requirements. State income tax tables It is established to the satisfaction of the IRS that the instrument has no connection to the activities of the dealer as a dealer. State income tax tables 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. State income tax tables 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. State income tax tables Supplies of a type you regularly use or consume in the ordinary course of your trade or business. State income tax tables You can elect to treat as capital assets certain self-created musical compositions or copyrights you sold or exchanged. State income tax tables See chapter 4 of Publication 550 for details. State income tax tables Property held mainly for sale to customers. State income tax tables   Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business are not capital assets. State income tax tables Inventories are discussed in Publication 538. State income tax tables Business assets. State income tax tables   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. State income tax tables The sale or disposition of business property is discussed in chapter 3. State income tax tables Letters and memoranda. State income tax tables   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. State income tax tables 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. State income tax tables For this purpose, letters and memoranda addressed to you are considered prepared for you. State income tax tables If letters or memoranda are prepared by persons under your administrative control, they are considered prepared for you whether or not you review them. State income tax tables Commodities derivative financial instrument. State income tax tables   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). State income tax tables Commodities derivative dealer. State income tax tables   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. State income tax tables Hedging transaction. State income tax tables   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. State income tax tables Risk of price changes or currency fluctuations involving ordinary property you hold or will hold. State income tax tables 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. State income tax tables Sales and Exchanges Between Related Persons This section discusses the rules that may apply to the sale or exchange of property between related persons. State income tax tables If these rules apply, gains may be treated as ordinary income and losses may not be deductible. State income tax tables See Transfers to Spouse in chapter 1 for rules that apply to spouses. State income tax tables 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. State income tax tables It is ordinary income if the sale or exchange is a depreciable property transaction or a controlled partnership transaction. State income tax tables Depreciable property transaction. State income tax tables   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. State income tax tables A person and the person's controlled entity or entities. State income tax tables 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. State income tax tables 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). State income tax tables 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). State income tax tables Controlled entity. State income tax tables   A person's controlled entity is either of the following. State income tax tables 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. State income tax tables An entity whose relationship with that person is one of the following. State income tax tables 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. State income tax tables 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. State income tax tables Two S corporations, if the same persons own more than 50% in value of the outstanding stock of each corporation. State income tax tables 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. State income tax tables Controlled partnership transaction. State income tax tables   A gain recognized in a controlled partnership transaction may be ordinary income. State income tax tables 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. State income tax tables   A controlled partnership transaction is a transaction directly or indirectly between either of the following pairs of entities. State income tax tables A partnership and a person who directly or indirectly owns more than 50% of the capital interest or profits interest in the partnership. State income tax tables Two partnerships, if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships. State income tax tables Determining ownership. State income tax tables   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. State income tax tables 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. State income tax tables (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. State income tax tables ) An individual is considered as owning the stock or partnership interest directly or indirectly owned by or for his or her family. State income tax tables Family includes only brothers, sisters, half-brothers, half-sisters, spouse, ancestors, and lineal descendants. State income tax tables 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. State income tax tables 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. State income tax tables Nondeductible Loss A loss on the sale or exchange of property between related persons is not deductible. State income tax tables This applies to both direct and indirect transactions, but not to distributions of property from a corporation in a complete liquidation. State income tax tables For the list of related persons, see Related persons next. State income tax tables 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. State income tax tables The gain on each item is taxable. State income tax tables The loss on any item is nondeductible. State income tax tables Gains from the sales of any of these items may not be offset by losses on the sales of any of the other items. State income tax tables Related persons. State income tax tables   The following is a list of related persons. State income tax tables Members of a family, including only brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. State income tax tables ), and lineal descendants (children, grandchildren, etc. State income tax tables ). State income tax tables An individual and a corporation if the individual directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. State income tax tables Two corporations that are members of the same controlled group as defined in section 267(f) of the Internal Revenue Code. State income tax tables 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. State income tax tables A grantor and fiduciary, and the fiduciary and beneficiary, of any trust. State income tax tables Fiduciaries of two different trusts, and the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. State income tax tables 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. State income tax tables 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. State income tax tables Two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. State income tax tables 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. State income tax tables An executor and a beneficiary of an estate unless the sale or exchange is in satisfaction of a pecuniary bequest. State income tax tables Two partnerships if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships. State income tax tables 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. State income tax tables Partnership interests. State income tax tables   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. State income tax tables Controlled groups. State income tax tables   Losses on transactions between members of the same controlled group described in (3) earlier are deferred rather than denied. State income tax tables   For more information, see section 267(f) of the Internal Revenue Code. State income tax tables Ownership of stock or partnership interests. State income tax tables   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. State income tax tables 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. State income tax tables (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. State income tax tables ) An individual is considered as owning the stock or partnership interest directly or indirectly owned by or for his or her family. State income tax tables Family includes only brothers, sisters, half-brothers, half-sisters, spouse, ancestors, and lineal descendants. State income tax tables 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. State income tax tables 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. State income tax tables 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. State income tax tables Indirect transactions. State income tax tables   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. State income tax tables This does not apply to a cross-trade between related parties through an exchange that is purely coincidental and is not prearranged. State income tax tables Property received from a related person. State income tax tables   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. State income tax tables This rule applies only to the original transferee. State income tax tables Example 1. State income tax tables Your brother sold stock to you for $7,600. State income tax tables His cost basis was $10,000. State income tax tables His loss of $2,400 was not deductible. State income tax tables You later sell the same stock to an unrelated party for $10,500, realizing a gain of $2,900 ($10,500 − $7,600). State income tax tables Your recognized gain is only $500, the gain that is more than the $2,400 loss not allowed to your brother. State income tax tables Example 2. State income tax tables Assume the same facts as in Example 1, except that you sell the stock for $6,900 instead of $10,500. State income tax tables Your recognized loss is only $700 ($7,600 − $6,900). State income tax tables You cannot deduct the loss not allowed to your brother. State income tax tables Other Dispositions This section discusses rules for determining the treatment of gain or loss from various dispositions of property. State income tax tables Sale of a Business The sale of a business usually is not a sale of one asset. State income tax tables Instead, all the assets of the business are sold. State income tax tables Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss. State income tax tables A business usually has many assets. State income tax tables 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. State income tax tables The gain or loss on each asset is figured separately. State income tax tables The sale of capital assets results in capital gain or loss. State income tax tables 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). State income tax tables The sale of inventory results in ordinary income or loss. State income tax tables Partnership interests. State income tax tables   An interest in a partnership or joint venture is treated as a capital asset when sold. State income tax tables The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary gain or loss. State income tax tables For more information, see Disposition of Partner's Interest in Publication 541. State income tax tables Corporation interests. State income tax tables   Your interest in a corporation is represented by stock certificates. State income tax tables When you sell these certificates, you usually realize capital gain or loss. State income tax tables For information on the sale of stock, see chapter 4 in Publication 550. State income tax tables Corporate liquidations. State income tax tables   Corporate liquidations of property generally are treated as a sale or exchange. State income tax tables Gain or loss generally is recognized by the corporation on a liquidating sale of its assets. State income tax tables 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. State income tax tables   In certain cases in which the distributee is a corporation in control of the distributing corporation, the distribution may not be taxable. State income tax tables For more information, see section 332 of the Internal Revenue Code and the related regulations. State income tax tables Allocation of consideration paid for a business. State income tax tables   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. State income tax tables 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. State income tax tables 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. State income tax tables It also determines the buyer's basis in the business assets. State income tax tables Consideration. State income tax tables   The buyer's consideration is the cost of the assets acquired. State income tax tables The seller's consideration is the amount realized (money plus the fair market value of property received) from the sale of assets. State income tax tables Residual method. State income tax tables   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. State income tax tables 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. State income tax tables Section 743(b) applies if a partnership has an election in effect under section 754 of the Internal Revenue Code. State income tax tables   A group of assets constitutes a trade or business if either of the following applies. State income tax tables Goodwill or going concern value could, under any circumstances, attach to them. State income tax tables The use of the assets would constitute an active trade or business under section 355 of the Internal Revenue Code. State income tax tables   The residual method provides for the consideration to be reduced first by the amount of Class I assets (defined below). State income tax tables The consideration remaining after this reduction must be allocated among the various business assets in a certain order. State income tax tables See Classes of assets next for the complete order. State income tax tables Classes of assets. State income tax tables   The following definitions are the classifications for deemed or actual asset acquisitions. State income tax tables Allocate the consideration among the assets in the following order. State income tax tables The amount allocated to an asset, other than a Class VII asset, cannot exceed its fair market value on the purchase date. State income tax tables 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. State income tax tables Class I assets are cash and general deposit accounts (including checking and savings accounts but excluding certificates of deposit). State income tax tables Class II assets are certificates of deposit, U. State income tax tables S. State income tax tables Government securities, foreign currency, and actively traded personal property, including stock and securities. State income tax tables Class III assets are accounts receivable, other debt instruments, and assets that you mark to market at least annually for federal income tax purposes. State income tax tables However, see section 1. State income tax tables 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. State income tax tables 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. State income tax tables Class V assets are all assets other than Class I, II, III, IV, VI, and VII assets. State income tax tables    Note. State income tax tables Furniture and fixtures, buildings, land, vehicles, and equipment, which constitute all or part of a trade or business are generally Class V assets. State income tax tables Class VI assets are section 197 intangibles (other than goodwill and going concern value). State income tax tables Class VII assets are goodwill and going concern value (whether the goodwill or going concern value qualifies as a section 197 intangible). State income tax tables   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. State income tax tables For example, if an asset is described in both Class II and Class IV, choose Class II. State income tax tables Example. State income tax tables The total paid in the sale of the assets of Company SKB is $21,000. State income tax tables No cash or deposit accounts or similar accounts were sold. State income tax tables The company's U. State income tax tables S. State income tax tables Government securities sold had a fair market value of $3,200. State income tax tables The only other asset transferred (other than goodwill and going concern value) was inventory with a fair market value of $15,000. State income tax tables Of the $21,000 paid for the assets of Company SKB, $3,200 is allocated to U. State income tax tables S. State income tax tables Government securities, $15,000 to inventory assets, and the remaining $2,800 to goodwill and going concern value. State income tax tables Agreement. State income tax tables   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. State income tax tables This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. State income tax tables Reporting requirement. State income tax tables   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. State income tax tables Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. State income tax tables Generally, the buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. State income tax tables See the Instructions for Form 8594. State income tax tables Dispositions of Intangible Property Intangible property is any personal property that has value but cannot be seen or touched. State income tax tables It includes such items as patents, copyrights, and the goodwill value of a business. State income tax tables 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. State income tax tables The treatment of section 1231 gain or loss and the recapture of amortization and depreciation as ordinary income are explained in chapter 3. State income tax tables 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. State income tax tables 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. State income tax tables The following discussions explain special rules that apply to certain dispositions of intangible property. State income tax tables 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. State income tax tables They include the following assets. State income tax tables Goodwill. State income tax tables Going concern value. State income tax tables Workforce in place. State income tax tables Business books and records, operating systems, and other information bases. State income tax tables Patents, copyrights, formulas, processes, designs, patterns, know how, formats, and similar items. State income tax tables Customer-based intangibles. State income tax tables Supplier-based intangibles. State income tax tables Licenses, permits, and other rights granted by a governmental unit. State income tax tables Covenants not to compete entered into in connection with the acquisition of a business. State income tax tables Franchises, trademarks, and trade names. State income tax tables See chapter 8 of Publication 535 for a description of each intangible. State income tax tables Dispositions. State income tax tables   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. State income tax tables Instead, you must increase the adjusted basis of your retained section 197 intangible by the nondeductible loss. State income tax tables If you retain more than one section 197 intangible, increase each intangible's adjusted basis. State income tax tables 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. State income tax tables   In applying this rule, members of the same controlled group of corporations and commonly controlled businesses are treated as a single entity. State income tax tables 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. State income tax tables Covenant not to compete. State income tax tables   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. State income tax tables 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. State income tax tables Anti-churning rules. State income tax tables   Anti-churning rules prevent a taxpayer from converting section 197 intangibles that do not qualify for amortization into property that would qualify for amortization. State income tax tables 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. State income tax tables Recognize gain on the transfer of the property. State income tax tables Pay income tax on the gain at the highest tax rate. State income tax tables   If the transferor is a partnership or S corporation, the partnership or S corporation (not the partners or shareholders) can make the election. State income tax tables But each partner or shareholder must pay the tax on his or her share of gain. State income tax tables   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. State income tax tables You must file the tax return by the due date (including extensions). State income tax tables You must also notify the transferee of the election in writing by the due date of the return. State income tax tables   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). State income tax tables Attach the statement to the amended return and write “Filed pursuant to section 301. State income tax tables 9100-2” at the top of the statement. State income tax tables File the amended return at the same address the original return was filed. State income tax tables For more information about making the election, see Regulations section 1. State income tax tables 197-2(h)(9). State income tax tables For information about reporting the tax on your income tax return, see the Instructions for Form 4797. State income tax tables 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. State income tax tables 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. State income tax tables For information on the treatment of gain or loss on the transfer of capital assets, see chapter 4. State income tax tables This treatment applies to your transfer of a patent if you meet all the following conditions. State income tax tables You are the holder of the patent. State income tax tables You transfer the patent other than by gift, inheritance, or devise. State income tax tables You transfer all substantial rights to the patent or an undivided interest in all such rights. State income tax tables You do not transfer the patent to a related person. State income tax tables Holder. State income tax tables   You are the holder of a patent if you are either of the following. State income tax tables The individual whose effort created the patent property and who qualifies as the original and first inventor. State income tax tables 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. State income tax tables All substantial rights. State income tax tables   All substantial rights to patent property are all rights that have value when they are transferred. State income tax tables 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. State income tax tables   All substantial rights to a patent are not transferred if any of the following apply to the transfer. State income tax tables The rights are limited geographically within a country. State income tax tables The rights are limited to a period less than the remaining life of the patent. State income tax tables 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. State income tax tables 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. State income tax tables Related persons. State income tax tables   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. State income tax tables Members of your family include your spouse, ancestors, and lineal descendants, but not your brothers, sisters, half-brothers, or half-sisters. State income tax tables Substitute “25% or more” ownership for “more than 50%. State income tax tables ”   If you fit within the definition of a related person independent of family status, the brother-sister exception in (1), earlier, does not apply. State income tax tables For example, a transfer between a brother and a sister as beneficiary and fiduciary of the same trust is a transfer between related persons. State income tax tables The brother-sister exception does not apply because the trust relationship is independent of family status. State income tax tables 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. State income tax tables 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. State income tax tables Significant power, right, or continuing interest. State income tax tables   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. State income tax tables   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. State income tax tables A right to disapprove any assignment of the interest, or any part of it. State income tax tables A right to end the agreement at will. State income tax tables 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. State income tax tables A right to make the recipient sell or advertise only your products or services. State income tax tables A right to make the recipient buy most supplies and equipment from you. State income tax tables 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. State income tax tables 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. State income tax tables However, you may receive capital gain treatment on at least part of the proceeds provided you meet certain requirements. State income tax tables See section 1237 of the Internal Revenue Code. State income tax tables Timber Standing timber held as investment property is a capital asset. State income tax tables Gain or loss from its sale is reported as a capital gain or loss on Form 8949, and Schedule D (Form 1040), as applicable. State income tax tables If you held the timber primarily for sale to customers, it is not a capital asset. State income tax tables Gain or loss on its sale is ordinary business income or loss. State income tax tables It is reported in the gross receipts or sales and cost of goods sold items of your return. State income tax tables 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. State income tax tables These sales constitute a very minor part of their farm businesses. State income tax tables In these cases, amounts realized from such sales, and the expenses of cutting, hauling, etc. State income tax tables , are ordinary farm income and expenses reported on Schedule F (Form 1040), Profit or Loss From Farming. State income tax tables 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. State income tax tables Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. State income tax tables This is true whether the timber is cut under contract or whether you cut it yourself. State income tax tables Under the rules discussed below, disposition of the timber is treated as a section 1231 transaction. State income tax tables See chapter 3. State income tax tables Gain or loss is reported on Form 4797. State income tax tables Christmas trees. State income tax tables   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. State income tax tables They qualify for both rules discussed below. State income tax tables Election to treat cutting as a sale or exchange. State income tax tables   Under the general rule, the cutting of timber results in no gain or loss. State income tax tables It is not until a sale or exchange occurs that gain or loss is realized. State income tax tables 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. State income tax tables 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. State income tax tables Any later sale results in ordinary business income or loss. State income tax tables See Example, later. State income tax tables   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. State income tax tables Making the election. State income tax tables   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. State income tax tables You do not have to make the election in the first year you cut timber. State income tax tables You can make it in any year to which the election would apply. State income tax tables If the timber is partnership property, the election is made on the partnership return. State income tax tables This election cannot be made on an amended return. State income tax tables   Once you have made the election, it remains in effect for all later years unless you cancel it. State income tax tables   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. State income tax tables The prior election (and revocation) is disregarded for purposes of making a subsequent election. State income tax tables See Form T (Timber), Forest Activities Schedule, for more information. State income tax tables Gain or loss. State income tax tables   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. State income tax tables   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. State income tax tables 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. State income tax tables   Timber depletion is discussed in chapter 9 of Publication 535. State income tax tables Example. State income tax tables In April 2013, you had owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. State income tax tables It had an adjusted basis for depletion of $40 per MBF. State income tax tables You are a calendar year taxpayer. State income tax tables On January 1, 2013, the timber had a fair market value (FMV) of $350 per MBF. State income tax tables It was cut in April for sale. State income tax tables On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. State income tax tables You report the difference between the fair market value and your adjusted basis for depletion as a gain. State income tax tables 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. State income tax tables You figure your gain as follows. State income tax tables 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. State income tax tables Outright sales of timber. State income tax tables   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). State income tax tables 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). State income tax tables Cutting contract. State income tax tables   You must treat the disposal of standing timber under a cutting contract as a section 1231 transaction if all the following apply to you. State income tax tables You are the owner of the timber. State income tax tables You held the timber longer than 1 year before its disposal. State income tax tables You kept an economic interest in the timber. State income tax tables   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. State income tax tables   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. State income tax tables 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. State income tax tables Date of disposal. State income tax tables   The date of disposal is the date the timber is cut. State income tax tables 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. State income tax tables   This election applies only to figure the holding period of the timber. State income tax tables It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). State income tax tables   To make this election, attach a statement to the tax return filed by the due date (including extensions) for the year payment is received. State income tax tables The statement must identify the advance payments subject to the election and the contract under which they were made. State income tax tables   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). State income tax tables Attach the statement to the amended return and write “Filed pursuant to section 301. State income tax tables 9100-2” at the top of the statement. State income tax tables File the amended return at the same address the original return was filed. State income tax tables Owner. State income tax tables   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. State income tax tables 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. State income tax tables Tree stumps. State income tax tables   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. State income tax tables Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. State income tax tables However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. State income tax tables Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. State income tax tables   See Form T (Timber) and its separate instructions for more information about dispositions of timber. State income tax tables Precious Metals and Stones, Stamps, and Coins Gold, silver, gems, stamps, coins, etc. State income tax tables , are capital assets except when they are held for sale by a dealer. State income tax tables Any gain or loss from their sale or exchange generally is a capital gain or loss. State income tax tables If you are a dealer, the amount received from the sale is ordinary business income. State income tax tables 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. State income tax tables You owned the coal or iron ore longer than 1 year before its disposal. State income tax tables You kept an economic interest in the coal or iron ore. State income tax tables For this rule, the date the coal or iron ore is mined is considered the date of its disposal. State income tax tables 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). State income tax tables This amount is included on Form 4797 along with your other section 1231 gains and losses. State income tax tables You are considered an owner if you own or sublet an economic interest in the coal or iron ore in place. State income tax tables If you own only an option to buy the coal in place, you do not qualify as an owner. State income tax tables 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. State income tax tables 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. State income tax tables Rather, their total, along with the adjusted depletion basis, is deducted from the amount received to determine gain. State income tax tables If the total of these expenses plus the adjusted depletion basis is more than the amount received, the result is a loss. State income tax tables Special rule. State income tax tables   The above treatment does not apply if you directly or indirectly dispose of the iron ore or coal to any of the following persons. State income tax tables 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). State income tax tables 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. State income tax tables Conversion Transactions Recognized gain on the disposition or termination of any position held as part of certain conversion transactions is treated as ordinary income. State income tax tables 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. State income tax tables An applicable straddle (generally, any set of offsetting positions with respect to personal property, including stock). State income tax tables 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. State income tax tables 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. State income tax tables For more information, see chapter 4 of Publication 550. State income tax tables Prev  Up  Next   Home   More Online Publications