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State Taxes Free File

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State Taxes Free File

State taxes free file Publication 560 - Introductory Material Table of Contents Future Developments What's New Reminders IntroductionSEP plans. State taxes free file SIMPLE plans. State taxes free file Qualified plans. State taxes free file Ordering forms and publications. State taxes free file Tax questions. State taxes free file Future Developments For the latest information about developments related to Publication 560, such as legislation enacted after we release it, go to www. State taxes free file irs. State taxes free file gov/pub560. State taxes free file What's New Compensation limit increased for 2013 and 2014. State taxes free file  For 2013 the maximum compensation used for figuring contributions and benefits increases to $255,000. State taxes free file This limit increases to $260,000 for 2014. State taxes free file Elective deferral limit for 2013 and 2014. State taxes free file  The limit on elective deferrals, other than catch-up contributions, increases to $17,500 for 2013 and remains at $17,500 for 2014. State taxes free file These limits apply for participants in SARSEPs, 401(k) plans (excluding SIMPLE plans), section 403(b) plans and section 457(b) plans. State taxes free file Defined contribution limit increased for 2013 and 2014. State taxes free file  The limit on contributions, other than catch-up contributions, for a participant in a defined contribution plan increases to $51,000 for 2013. State taxes free file This limit increases to $52,000 for 2014. State taxes free file SIMPLE plan salary reduction contribution limit for 2013 and 2014. State taxes free file  The limit on salary reduction contributions, other than catch-up contributions, increases to $12,000 for 2013 and remains at $12,000 for 2014. State taxes free file Catch-up contribution limit remains unchanged for 2013 and 2014. State taxes free file  A plan can permit participants who are age 50 or over at the end of the calendar year to make catch-up contributions in addition to elective deferrals and SIMPLE plan salary reduction contributions. State taxes free file The catch-up contribution limitation for defined contribution plans other than SIMPLE plans remains unchanged at $5,500 for 2013 and 2014. State taxes free file The catch-up contribution limitation for SIMPLE plans remains unchanged at $2,500 for 2013 and 2014. State taxes free file The catch-up contributions a participant can make for a year cannot exceed the lesser of the following amounts. State taxes free file The catch-up contribution limit. State taxes free file The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. State taxes free file See “Catch-up contributions” under Contribution Limits and Limit on Elective Deferrals in chapters 3 and 4, respectively, for more information. State taxes free file All section references are to the Internal Revenue Code, unless otherwise stated. State taxes free file Reminders In-plan Roth rollovers. State taxes free file  Section 402A(c)(4) provides for a distribution from an individual's account in a 401(k) plan, other than from a designated Roth account, that is rolled over to the individual's designated Roth account in the same plan. State taxes free file An in-plan Roth rollover is not treated as a distribution for most purposes. State taxes free file Section 402A(c)(4) was added by the Small Business Jobs Act of 2010 and applies to distributions made after September 27, 2010. State taxes free file For additional guidance on in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. State taxes free file R. State taxes free file B. State taxes free file 872, available at  www. State taxes free file irs. State taxes free file gov/irb/2010-51_IRB/ar11. State taxes free file html. State taxes free file In-plan Roth rollovers expanded. State taxes free file  Beginning in 2013, a plan with designated Roth accounts can permit a participant to roll over amounts into a designated Roth account from his or her other accounts in the same plan, regardless of whether the participant is eligible for a distribution from the other accounts. State taxes free file Section 402A(c)(4) was amended by the American Taxpayer Relief Act of 2012. State taxes free file For more information, see Notice 2013-74, 2013-52 I. State taxes free file R. State taxes free file B. State taxes free file 819, available at www. State taxes free file irs. State taxes free file gov/irb/2013-52_IRB/ar11. State taxes free file html. State taxes free file Credit for startup costs. State taxes free file  You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SEP, SIMPLE, or qualified plan. State taxes free file The credit equals 50% of the cost to set up and administer the plan and educate employees about the plan, up to a maximum of $500 per year for each of the first 3 years of the plan. State taxes free file You can choose to start claiming the credit in the tax year before the tax year in which the plan becomes effective. State taxes free file You must have had 100 or fewer employees who received at least $5,000 in compensation from you for the preceding year. State taxes free file At least one participant must be a non-highly compensated employee. State taxes free file The employees generally cannot be substantially the same employees for whom contributions were made or benefits accrued under a plan of any of the following employers in the 3-tax-year period immediately before the first year to which the credit applies. State taxes free file You. State taxes free file A member of a controlled group that includes you. State taxes free file A predecessor of (1) or (2). State taxes free file The credit is part of the general business credit, which can be carried back or forward to other tax years if it cannot be used in the current year. State taxes free file However, the part of the general business credit attributable to the small employer pension plan startup cost credit cannot be carried back to a tax year beginning before January 1, 2002. State taxes free file You cannot deduct the part of the startup costs equal to the credit claimed for a tax year, but you can choose not to claim the allowable credit for a tax year. State taxes free file To take the credit, use Form 8881, Credit for Small Employer Pension Plan Startup Costs. State taxes free file Retirement savings contributions credit. State taxes free file  Retirement plan participants (including self-employed individuals) who make contributions to their plan may qualify for the retirement savings contribution credit. State taxes free file The maximum contribution eligible for the credit is $2,000. State taxes free file To take the credit, use Form 8880, Credit for Qualified Retirement Savings Contributions. State taxes free file For more information on who is eligible for the credit, retirement plan contributions eligible for the credit and how to figure the credit, see Form 8880 and its instructions or go to the IRS website and search Retirement Topics-Retirement Savings Contributions Credit (Saver's Credit). State taxes free file Photographs of missing children. State taxes free file  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. State taxes free file Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. State taxes free file You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. State taxes free file Introduction This publication discusses retirement plans you can set up and maintain for yourself and your employees. State taxes free file In this publication, “you” refers to the employer. State taxes free file See chapter 1 for the definition of the term employer and the definitions of other terms used in this publication. State taxes free file This publication covers the following types of retirement plans. State taxes free file SEP (simplified employee pension) plans. State taxes free file SIMPLE (savings incentive match plan for employees) plans. State taxes free file Qualified plans (also called H. State taxes free file R. State taxes free file 10 plans or Keogh plans when covering self-employed individuals), including 401(k) plans. State taxes free file SEP, SIMPLE, and qualified plans offer you and your employees a tax-favored way to save for retirement. State taxes free file You can deduct contributions you make to the plan for your employees. State taxes free file If you are a sole proprietor, you can deduct contributions you make to the plan for yourself. State taxes free file You can also deduct trustees' fees if contributions to the plan do not cover them. State taxes free file Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan. State taxes free file Under a 401(k) plan, employees can have you contribute limited amounts of their before-tax (after-tax, in the case of a qualified Roth contribution program) pay to the plan. State taxes free file These amounts (and the earnings on them) are generally tax free until your employees receive distributions from the plan or, in the case of a qualified distribution from a designated Roth account, completely tax free. State taxes free file What this publication covers. State taxes free file   This publication contains the information you need to understand the following topics. State taxes free file What type of plan to set up. State taxes free file How to set up a plan. State taxes free file How much you can contribute to a plan. State taxes free file How much of your contribution is deductible. State taxes free file How to treat certain distributions. State taxes free file How to report information about the plan to the IRS and your employees. State taxes free file Basic features of SEP, SIMPLE, and qualified plans. State taxes free file The key rules for SEP, SIMPLE, and qualified plans are outlined in Table 1. State taxes free file SEP plans. State taxes free file   SEPs provide a simplified method for you to make contributions to a retirement plan for yourself and your employees. State taxes free file Instead of setting up a profit-sharing or money purchase plan with a trust, you can adopt a SEP agreement and make contributions directly to a traditional individual retirement account or a traditional individual retirement annuity (SEP-IRA) set up for yourself and each eligible employee. State taxes free file SIMPLE plans. State taxes free file   Generally, if you had 100 or fewer employees who received at least $5,000 in compensation last year, you can set up a SIMPLE plan. State taxes free file Under a SIMPLE plan, employees can choose to make salary reduction contributions rather than receiving these amounts as part of their regular pay. State taxes free file In addition, you will contribute matching or nonelective contributions. State taxes free file The two types of SIMPLE plans are the SIMPLE IRA plan and the SIMPLE 401(k) plan. State taxes free file Qualified plans. State taxes free file   The qualified plan rules are more complex than the SEP plan and SIMPLE plan rules. State taxes free file However, there are advantages to qualified plans, such as increased flexibility in designing plans and increased contribution and deduction limits in some cases. State taxes free file Table 1. State taxes free file Key Retirement Plan Rules for 2013 Type  of  Plan Last Date for Contribution Maximum Contribution Maximum Deduction When To Set Up Plan SEP Due date of employer's return (including extensions). State taxes free file Smaller of $51,000 or 25%1 of participant's compensation. State taxes free file 2 25%1 of all participants' compensation. State taxes free file 2 Any time up to the due date of employer's return (including extensions). State taxes free file SIMPLE IRA and SIMPLE 401(k) Salary reduction contributions: 30 days after the end of the month for which the contributions are to be made. State taxes free file 4  Matching or nonelective contributions: Due date of employer's return (including extensions). State taxes free file Employee contribution: Salary reduction contribution up to $12,000, $14,500 if age 50 or over. State taxes free file   Employer contribution:  Either dollar-for-dollar matching contributions, up to 3% of employee's compensation,3 or fixed nonelective contributions of 2% of compensation. State taxes free file 2 Same as maximum contribution. State taxes free file Any time between 1/1 and 10/1 of the calendar year. State taxes free file   For a new employer coming into existence after 10/1, as soon as administratively feasible. State taxes free file Qualified Plan: Defined Contribution Plan  Elective deferral: Due date of employer's return (including extensions). State taxes free file 4   Employer contribution: Money Purchase or Profit-Sharing: Due date of employer's return (including extensions). State taxes free file  Employee contribution: Elective deferral up to $17,500, $23,000 if age 50 or over. State taxes free file   Employer contribution: Money Purchase: Smaller of $51,000 or 100%1 of participant's compensation. State taxes free file 2  Profit-Sharing: Smaller of $51,000 or 100%1 of participant's compensation. State taxes free file 2  25%1 of all participants' compensation2, plus amount of elective deferrals made. State taxes free file   By the end of the tax year. State taxes free file Qualified Plan: Defined Benefit Plan Contributions generally must be paid in quarterly installments, due 15 days after the end of each quarter. State taxes free file See Minimum Funding Requirement in chapter 4. State taxes free file Amount needed to provide an annual benefit no larger than the smaller of $205,000 or 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. State taxes free file Based on actuarial assumptions and computations. State taxes free file By the end of the tax year. State taxes free file 1Net earnings from self-employment must take the contribution into account. State taxes free file See Deduction Limit for Self-Employed Individuals in chapters 2 and 4 . State taxes free file  2Compensation is generally limited to $255,000 in 2013. State taxes free file  3Under a SIMPLE 401(k) plan, compensation is generally limited to $255,000 in 2013. State taxes free file  4Certain plans subject to Department of Labor rules may have an earlier due date for salary reduction contributions and elective deferrals. State taxes free file What this publication does not cover. State taxes free file   Although the purpose of this publication is to provide general information about retirement plans you can set up for your employees, it does not contain all the rules and exceptions that apply to these plans. State taxes free file You may also need professional help and guidance. State taxes free file   Also, this publication does not cover all the rules that may be of interest to employees. State taxes free file For example, it does not cover the following topics. State taxes free file The comprehensive IRA rules an employee needs to know. State taxes free file These rules are covered in Publication 590, Individual Retirement Arrangements (IRAs). State taxes free file The comprehensive rules that apply to distributions from retirement plans. State taxes free file These rules are covered in Publication 575, Pension and Annuity Income. State taxes free file The comprehensive rules that apply to section 403(b) plans. State taxes free file These rules are covered in Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans). State taxes free file Comments and suggestions. State taxes free file   We welcome your comments about this publication and your suggestions for future editions. State taxes free file   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. State taxes free file NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. State taxes free file Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. State taxes free file   You can send your comments from www. State taxes free file irs. State taxes free file gov/formspubs. State taxes free file Click on “More Information” and then on “Give us feedback. State taxes free file ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. State taxes free file Ordering forms and publications. State taxes free file   Visit www. State taxes free file irs. State taxes free file gov/formspubs to download forms  and publications, call 1-800-TAX-FORM  (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. State taxes free file Internal Revenue Service 1201 N. State taxes free file Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. State taxes free file   If you have a tax question, check the information available on IRS. State taxes free file gov or call 1-800-829-1040. State taxes free file We cannot answer tax questions sent to either of the above addresses. State taxes free file Note. State taxes free file Forms filed electronically with the Department of Labor are not available on the IRS website. State taxes free file Instead, see www. State taxes free file efast. State taxes free file dol. State taxes free file gov. State taxes free file Prev  Up  Next   Home   More Online Publications
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The State Taxes Free File

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