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Tax deadline Publication 541 - Main Content Table of Contents Forming a PartnershipOrganizations Classified as Partnerships Family Partnership Partnership Agreement Terminating a PartnershipIRS e-file (Electronic Filing) Exclusion From Partnership Rules Partnership Return (Form 1065) Partnership DistributionsSubstantially appreciated inventory items. Tax deadline Partner's Gain or Loss Partner's Basis for Distributed Property Transactions Between Partnership and PartnersGuaranteed Payments Sale or Exchange of Property Contribution of Property Contribution of Services Basis of Partner's InterestAdjusted Basis Effect of Partnership Liabilities Disposition of Partner's InterestSale, Exchange, or Other Transfer Payments for Unrealized Receivables and Inventory Items Liquidation at Partner's Retirement or Death Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)Partnership Item. Tax deadline Small Partnerships and the Small Partnership Exception Small Partnership TEFRA Election Role of Tax Matters Partner (TMP) in TEFRA Proceedings Statute of Limitations and TEFRA Amended Returns and Administrative Adjustment Requests (AARs) How To Get Tax Help Forming a Partnership The following sections contain general information about partnerships. Tax deadline Organizations Classified as Partnerships An unincorporated organization with two or more members is generally classified as a partnership for federal tax purposes if its members carry on a trade, business, financial operation, or venture and divide its profits. Tax deadline However, a joint undertaking merely to share expenses is not a partnership. Tax deadline For example, co-ownership of property maintained and rented or leased is not a partnership unless the co-owners provide services to the tenants. Tax deadline The rules you must use to determine whether an organization is classified as a partnership changed for organizations formed after 1996. Tax deadline Organizations formed after 1996. Tax deadline   An organization formed after 1996 is classified as a partnership for federal tax purposes if it has two or more members and it is none of the following. Tax deadline An organization formed under a federal or state law that refers to it as incorporated or as a corporation, body corporate, or body politic. Tax deadline An organization formed under a state law that refers to it as a joint-stock company or joint-stock association. Tax deadline An insurance company. Tax deadline Certain banks. Tax deadline An organization wholly owned by a state, local, or foreign government. Tax deadline An organization specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). Tax deadline Certain foreign organizations identified in section 301. Tax deadline 7701-2(b)(8) of the regulations. Tax deadline A tax-exempt organization. Tax deadline A real estate investment trust. Tax deadline An organization classified as a trust under section 301. Tax deadline 7701-4 of the regulations or otherwise subject to special treatment under the Internal Revenue Code. Tax deadline Any other organization that elects to be classified as a corporation by filing Form 8832. Tax deadline For more information, see the instructions for Form 8832. Tax deadline Limited liability company. Tax deadline   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Tax deadline Unlike a partnership, none of the members of an LLC are personally liable for its debts. Tax deadline An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in Regulations section 301. Tax deadline 7701-3. Tax deadline See Form 8832 and section 301. Tax deadline 7701-3 of the regulations for more details. Tax deadline A domestic LLC with at least two members that does not file Form 8832 is classified as a partnership for federal income tax purposes. Tax deadline Organizations formed before 1997. Tax deadline   An organization formed before 1997 and classified as a partnership under the old rules will generally continue to be classified as a partnership as long as the organization has at least two members and does not elect to be classified as a corporation by filing Form 8832. Tax deadline Community property. Tax deadline    Spouses who own a qualified entity (defined later) can choose to classify the entity as a partnership for federal tax purposes by filing the appropriate partnership tax returns. Tax deadline They can choose to classify the entity as a sole proprietorship by filing a Schedule C (Form 1040) listing one spouse as the sole proprietor. Tax deadline A change in reporting position will be treated for federal tax purposes as a conversion of the entity. Tax deadline   A qualified entity is a business entity that meets all the following requirements. Tax deadline The business entity is wholly owned by spouses as community property under the laws of a state, a foreign country, or a possession of the United States. Tax deadline No person other than one or both spouses would be considered an owner for federal tax purposes. Tax deadline The business entity is not treated as a corporation. Tax deadline   For more information about community property, see Publication 555, Community Property. Tax deadline Publication 555 discusses the community property laws of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Tax deadline Family Partnership Members of a family can be partners. Tax deadline However, family members (or any other person) will be recognized as partners only if one of the following requirements is met. Tax deadline If capital is a material income-producing factor, they acquired their capital interest in a bona fide transaction (even if by gift or purchase from another family member), actually own the partnership interest, and actually control the interest. Tax deadline If capital is not a material income-producing factor, they joined together in good faith to conduct a business. Tax deadline They agreed that contributions of each entitle them to a share in the profits, and some capital or service has been (or is) provided by each partner. Tax deadline Capital is material. Tax deadline   Capital is a material income-producing factor if a substantial part of the gross income of the business comes from the use of capital. Tax deadline Capital is ordinarily an income-producing factor if the operation of the business requires substantial inventories or investments in plants, machinery, or equipment. Tax deadline Capital is not material. Tax deadline   In general, capital is not a material income-producing factor if the income of the business consists principally of fees, commissions, or other compensation for personal services performed by members or employees of the partnership. Tax deadline Capital interest. Tax deadline   A capital interest in a partnership is an interest in its assets that is distributable to the owner of the interest in either of the following situations. Tax deadline The owner withdraws from the partnership. Tax deadline The partnership liquidates. Tax deadline   The mere right to share in earnings and profits is not a capital interest in the partnership. Tax deadline Gift of capital interest. Tax deadline   If a family member (or any other person) receives a gift of a capital interest in a partnership in which capital is a material income-producing factor, the donee's distributive share of partnership income is subject to both of the following restrictions. Tax deadline It must be figured by reducing the partnership income by reasonable compensation for services the donor renders to the partnership. Tax deadline The donee's distributive share of partnership income attributable to donated capital must not be proportionately greater than the donor's distributive share attributable to the donor's capital. Tax deadline Purchase. Tax deadline   For purposes of determining a partner's distributive share, an interest purchased by one family member from another family member is considered a gift from the seller. Tax deadline The fair market value of the purchased interest is considered donated capital. Tax deadline For this purpose, members of a family include only spouses, ancestors, and lineal descendants (or a trust for the primary benefit of those persons). Tax deadline Example. Tax deadline A father sold 50% of his business to his son. Tax deadline The resulting partnership had a profit of $60,000. Tax deadline Capital is a material income-producing factor. Tax deadline The father performed services worth $24,000, which is reasonable compensation, and the son performed no services. Tax deadline The $24,000 must be allocated to the father as compensation. Tax deadline Of the remaining $36,000 of profit due to capital, at least 50%, or $18,000, must be allocated to the father since he owns a 50% capital interest. Tax deadline The son's share of partnership profit cannot be more than $18,000. Tax deadline Business owned and operated by spouses. Tax deadline   If spouses carry on a business together and share in the profits and losses, they may be partners whether or not they have a formal partnership agreement. Tax deadline If so, they should report income or loss from the business on Form 1065. Tax deadline They should not report the income on a Schedule C (Form 1040) in the name of one spouse as a sole proprietor. Tax deadline However, the spouses can elect not to treat the joint venture as a partnership by making a Qualified Joint Venture Election. Tax deadline Qualified Joint Venture Election. Tax deadline   A "qualified joint venture," whose only members are spouses filing a joint return, can elect not to be treated as a partnership for federal tax purposes. Tax deadline A qualified joint venture conducts a trade or business where: the only members of the joint venture are spouses filing jointly; both spouses elect not to be treated as a partnership; both spouses materially participate in the trade or business (see Passive Activity Limitations in the Instructions for Form 1065 for a definition of material participation); and the business is co-owned by both spouses and is not held in the name of a state law entity such as a partnership or LLC. Tax deadline   Under this election, a qualified joint venture conducted by spouses who file a joint return is not treated as a partnership for federal tax purposes and therefore does not have a Form 1065 filing requirement. Tax deadline All items of income, gain, deduction, loss, and credit are divided between the spouses based on their respective interests in the venture. Tax deadline Each spouse takes into account his or her respective share of these items as a sole proprietor. Tax deadline Each spouse would account for his or her respective share on the appropriate form, such as Schedule C (Form 1040). Tax deadline For purposes of determining net earnings from self-employment, each spouse's share of income or loss from a qualified joint venture is taken into account just as it is for federal income tax purposes (i. Tax deadline e. Tax deadline , based on their respective interests in the venture). Tax deadline   If the spouses do not make the election to treat their respective interests in the joint venture as sole proprietorships, each spouse should carry his or her share of the partnership income or loss from Schedule K-1 (Form 1065) to their joint or separate Form(s) 1040. Tax deadline Each spouse should include his or her respective share of self-employment income on a separate Schedule SE (Form 1040), Self-Employment Tax. Tax deadline   This generally does not increase the total tax on the return, but it does give each spouse credit for social security earnings on which retirement benefits are based. Tax deadline However, this may not be true if either spouse exceeds the social security tax limitation. Tax deadline   For more information on qualified joint ventures, go to IRS. Tax deadline gov, enter “Election for Qualified Joint Ventures” in the search box and select the link reading “Election for Husband and Wife Unincorporated Businesses. Tax deadline ” Partnership Agreement The partnership agreement includes the original agreement and any modifications. Tax deadline The modifications must be agreed to by all partners or adopted in any other manner provided by the partnership agreement. Tax deadline The agreement or modifications can be oral or written. Tax deadline Partners can modify the partnership agreement for a particular tax year after the close of the year but not later than the date for filing the partnership return for that year. Tax deadline This filing date does not include any extension of time. Tax deadline If the partnership agreement or any modification is silent on any matter, the provisions of local law are treated as part of the agreement. Tax deadline Terminating a Partnership A partnership terminates when one of the following events takes place. Tax deadline All its operations are discontinued and no part of any business, financial operation, or venture is continued by any of its partners in a partnership. Tax deadline At least 50% of the total interest in partnership capital and profits is sold or exchanged within a 12-month period, including a sale or exchange to another partner. Tax deadline Unlike other partnerships, an electing large partnership does not terminate on the sale or exchange of 50% or more of the partnership interests within a 12-month period. Tax deadline See section 1. Tax deadline 708-1(b) of the regulations for more information on the termination of a partnership. Tax deadline For special rules that apply to a merger, consolidation, or division of a partnership, see sections 1. Tax deadline 708-1(c) and 1. Tax deadline 708-1(d) of the regulations. Tax deadline Date of termination. Tax deadline   The partnership's tax year ends on the date of termination. Tax deadline For the event described in (1), above, the date of termination is the date the partnership completes the winding up of its affairs. Tax deadline For the event described in (2), above, the date of termination is the date of the sale or exchange of a partnership interest that, by itself or together with other sales or exchanges in the preceding 12 months, transfers an interest of 50% or more in both capital and profits. Tax deadline Short period return. Tax deadline   If a partnership is terminated before the end of what would otherwise be its tax year, Form 1065 must be filed for the short period, which is the period from the beginning of the tax year through the date of termination. Tax deadline The return is due the 15th day of the fourth month following the date of termination. Tax deadline See Partnership Return (Form 1065), later, for information about filing Form 1065. Tax deadline Conversion of partnership into limited liability company (LLC). Tax deadline   The conversion of a partnership into an LLC classified as a partnership for federal tax purposes does not terminate the partnership. Tax deadline The conversion is not a sale, exchange, or liquidation of any partnership interest; the partnership's tax year does not close; and the LLC can continue to use the partnership's taxpayer identification number. Tax deadline   However, the conversion may change some of the partners' bases in their partnership interests if the partnership has recourse liabilities that become nonrecourse liabilities. Tax deadline Because the partners share recourse and nonrecourse liabilities differently, their bases must be adjusted to reflect the new sharing ratios. Tax deadline If a decrease in a partner's share of liabilities exceeds the partner's basis, he or she must recognize gain on the excess. Tax deadline For more information, see Effect of Partnership Liabilities under Basis of Partner's Interest, later. Tax deadline   The same rules apply if an LLC classified as a partnership is converted into a partnership. Tax deadline IRS e-file (Electronic Filing) Please click here for the text description of the image. Tax deadline e-file Certain partnerships with more than 100 partners are required to file Form 1065, Schedules K-1, and related forms and schedules electronically (e-file). Tax deadline Other partnerships generally have the option to file electronically. Tax deadline For details about IRS e-file, see the Form 1065 instructions. Tax deadline Exclusion From Partnership Rules Certain partnerships that do not actively conduct a business can choose to be completely or partially excluded from being treated as partnerships for federal income tax purposes. Tax deadline All the partners must agree to make the choice, and the partners must be able to compute their own taxable income without computing the partnership's income. Tax deadline However, the partners are not exempt from the rule that limits a partner's distributive share of partnership loss to the adjusted basis of the partner's partnership interest. Tax deadline Nor are they exempt from the requirement of a business purpose for adopting a tax year for the partnership that differs from its required tax year. Tax deadline Investing partnership. Tax deadline   An investing partnership can be excluded if the participants in the joint purchase, retention, sale, or exchange of investment property meet all the following requirements. Tax deadline They own the property as co-owners. Tax deadline They reserve the right separately to take or dispose of their shares of any property acquired or retained. Tax deadline They do not actively conduct business or irrevocably authorize some person acting in a representative capacity to purchase, sell, or exchange the investment property. Tax deadline Each separate participant can delegate authority to purchase, sell, or exchange his or her share of the investment property for the time being for his or her account, but not for a period of more than a year. Tax deadline Operating agreement partnership. Tax deadline   An operating agreement partnership group can be excluded if the participants in the joint production, extraction, or use of property meet all the following requirements. Tax deadline They own the property as co-owners, either in fee or under lease or other form of contract granting exclusive operating rights. Tax deadline They reserve the right separately to take in kind or dispose of their shares of any property produced, extracted, or used. Tax deadline They do not jointly sell services or the property produced or extracted. Tax deadline Each separate participant can delegate authority to sell his or her share of the property produced or extracted for the time being for his or her account, but not for a period of time in excess of the minimum needs of the industry, and in no event for more than one year. Tax deadline However, this exclusion does not apply to an unincorporated organization one of whose principal purposes is cycling, manufacturing, or processing for persons who are not members of the organization. Tax deadline Electing the exclusion. Tax deadline   An eligible organization that wishes to be excluded from the partnership rules must make the election not later than the time for filing the partnership return for the first tax year for which exclusion is desired. Tax deadline This filing date includes any extension of time. Tax deadline See Regulations section 1. Tax deadline 761-2(b) for the procedures to follow. Tax deadline Partnership Return (Form 1065) Every partnership that engages in a trade or business or has gross income must file an information return on Form 1065 showing its income, deductions, and other required information. Tax deadline The partnership return must show the names and addresses of each partner and each partner's distributive share of taxable income. Tax deadline The return must be signed by a general partner. Tax deadline If a limited liability company is treated as a partnership, it must file Form 1065 and one of its members must sign the return. Tax deadline A partnership is not considered to engage in a trade or business, and is not required to file a Form 1065, for any tax year in which it neither receives income nor pays or incurs any expenses treated as deductions or credits for federal income tax purposes. Tax deadline See the Instructions for Form 1065 for more information about who must file Form 1065. Tax deadline Partnership Distributions Partnership distributions include the following. Tax deadline A withdrawal by a partner in anticipation of the current year's earnings. Tax deadline A distribution of the current year's or prior years' earnings not needed for working capital. Tax deadline A complete or partial liquidation of a partner's interest. Tax deadline A distribution to all partners in a complete liquidation of the partnership. Tax deadline A partnership distribution is not taken into account in determining the partner's distributive share of partnership income or loss. Tax deadline If any gain or loss from the distribution is recognized by the partner, it must be reported on his or her return for the tax year in which the distribution is received. Tax deadline Money or property withdrawn by a partner in anticipation of the current year's earnings is treated as a distribution received on the last day of the partnership's tax year. Tax deadline Effect on partner's basis. Tax deadline   A partner's adjusted basis in his or her partnership interest is decreased (but not below zero) by the money and adjusted basis of property distributed to the partner. Tax deadline See Adjusted Basis under Basis of Partner's Interest, later. Tax deadline Effect on partnership. Tax deadline   A partnership generally does not recognize any gain or loss because of distributions it makes to partners. Tax deadline The partnership may be able to elect to adjust the basis of its undistributed property. Tax deadline Certain distributions treated as a sale or exchange. Tax deadline   When a partnership distributes the following items, the distribution may be treated as a sale or exchange of property rather than a distribution. Tax deadline Unrealized receivables or substantially appreciated inventory items distributed in exchange for any part of the partner's interest in other partnership property, including money. Tax deadline Other property (including money) distributed in exchange for any part of a partner's interest in unrealized receivables or substantially appreciated inventory items. Tax deadline   See Payments for Unrealized Receivables and Inventory Items under Disposition of Partner's Interest, later. Tax deadline   This treatment does not apply to the following distributions. Tax deadline A distribution of property to the partner who contributed the property to the partnership. Tax deadline Payments made to a retiring partner or successor in interest of a deceased partner that are the partner's distributive share of partnership income or guaranteed payments. Tax deadline Substantially appreciated inventory items. Tax deadline   Inventory items of the partnership are considered to have appreciated substantially in value if, at the time of the distribution, their total fair market value is more than 120% of the partnership's adjusted basis for the property. Tax deadline However, if a principal purpose for acquiring inventory property is to avoid ordinary income treatment by reducing the appreciation to less than 120%, that property is excluded. Tax deadline Partner's Gain or Loss A partner generally recognizes gain on a partnership distribution only to the extent any money (and marketable securities treated as money) included in the distribution exceeds the adjusted basis of the partner's interest in the partnership. Tax deadline Any gain recognized is generally treated as capital gain from the sale of the partnership interest on the date of the distribution. Tax deadline If partnership property (other than marketable securities treated as money) is distributed to a partner, he or she generally does not recognize any gain until the sale or other disposition of the property. Tax deadline For exceptions to these rules, see Distribution of partner's debt and Net precontribution gain, later. Tax deadline Also, see Payments for Unrealized Receivables and Inventory Items under Disposition of Partner's Interest, later. Tax deadline Example. Tax deadline The adjusted basis of Jo's partnership interest is $14,000. Tax deadline She receives a distribution of $8,000 cash and land that has an adjusted basis of $2,000 and a fair market value of $3,000. Tax deadline Because the cash received does not exceed the basis of her partnership interest, Jo does not recognize any gain on the distribution. Tax deadline Any gain on the land will be recognized when she sells or otherwise disposes of it. Tax deadline The distribution decreases the adjusted basis of Jo's partnership interest to $4,000 [$14,000 − ($8,000 + $2,000)]. Tax deadline Marketable securities treated as money. Tax deadline   Generally, a marketable security distributed to a partner is treated as money in determining whether gain is recognized on the distribution. Tax deadline This treatment, however, does not generally apply if that partner contributed the security to the partnership or an investment partnership made the distribution to an eligible partner. Tax deadline   The amount treated as money is the security's fair market value when distributed, reduced (but not below zero) by the excess (if any) of: The partner's distributive share of the gain that would be recognized had the partnership sold all its marketable securities at their fair market value immediately before the transaction resulting in the distribution, over The partner's distributive share of the gain that would be recognized had the partnership sold all such securities it still held after the distribution at the fair market value in (1). Tax deadline   For more information, including the definition of marketable securities, see section 731(c) of the Internal Revenue Code. Tax deadline Loss on distribution. Tax deadline   A partner does not recognize loss on a partnership distribution unless all the following requirements are met. Tax deadline The adjusted basis of the partner's interest in the partnership exceeds the distribution. Tax deadline The partner's entire interest in the partnership is liquidated. Tax deadline The distribution is in money, unrealized receivables, or inventory items. Tax deadline   There are exceptions to these general rules. Tax deadline See the following discussions. Tax deadline Also, see Liquidation at Partner's Retirement or Death under Disposition of Partner's Interest, later. Tax deadline Distribution of partner's debt. Tax deadline   If a partnership acquires a partner's debt and extinguishes the debt by distributing it to the partner, the partner will recognize capital gain or loss to the extent the fair market value of the debt differs from the basis of the debt (determined under the rules discussed in Partner's Basis for Distributed Property, later). Tax deadline   The partner is treated as having satisfied the debt for its fair market value. Tax deadline If the issue price (adjusted for any premium or discount) of the debt exceeds its fair market value when distributed, the partner may have to include the excess amount in income as canceled debt. Tax deadline   Similarly, a deduction may be available to a corporate partner if the fair market value of the debt at the time of distribution exceeds its adjusted issue price. Tax deadline Net precontribution gain. Tax deadline   A partner generally must recognize gain on the distribution of property (other than money) if the partner contributed appreciated property to the partnership during the 7-year period before the distribution. Tax deadline   The gain recognized is the lesser of the following amounts. Tax deadline The excess of: The fair market value of the property received in the distribution, over The adjusted basis of the partner's interest in the partnership immediately before the distribution, reduced (but not below zero) by any money received in the distribution. Tax deadline The “net precontribution gain” of the partner. Tax deadline This is the net gain the partner would recognize if all the property contributed by the partner within 7 years of the distribution, and held by the partnership immediately before the distribution, were distributed to another partner, other than a partner who owns more than 50% of the partnership. Tax deadline For information about the distribution of contributed property to another partner, see Contribution of Property , under Transactions Between Partnership and Partners, later. Tax deadline   The character of the gain is determined by reference to the character of the net precontribution gain. Tax deadline This gain is in addition to any gain the partner must recognize if the money distributed is more than his or her basis in the partnership. Tax deadline For these rules, the term “money” includes marketable securities treated as money, as discussed earlier. Tax deadline Effect on basis. Tax deadline   The adjusted basis of the partner's interest in the partnership is increased by any net precontribution gain recognized by the partner. Tax deadline Other than for purposes of determining the gain, the increase is treated as occurring immediately before the distribution. Tax deadline See Basis of Partner's Interest , later. Tax deadline   The partnership must adjust its basis in any property the partner contributed within 7 years of the distribution to reflect any gain that partner recognizes under this rule. Tax deadline Exceptions. Tax deadline   Any part of a distribution that is property the partner previously contributed to the partnership is not taken into account in determining the amount of the excess distribution or the partner's net precontribution gain. Tax deadline For this purpose, the partner's previously contributed property does not include a contributed interest in an entity to the extent its value is due to property contributed to the entity after the interest was contributed to the partnership. Tax deadline   Recognition of gain under this rule also does not apply to a distribution of unrealized receivables or substantially appreciated inventory items if the distribution is treated as a sale or exchange, as discussed earlier. Tax deadline Partner's Basis for Distributed Property Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed to the partner by a partnership is its adjusted basis to the partnership immediately before the distribution. Tax deadline However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction. Tax deadline Example 1. Tax deadline The adjusted basis of Emily's partnership interest is $30,000. Tax deadline She receives a distribution of property that has an adjusted basis of $20,000 to the partnership and $4,000 in cash. Tax deadline Her basis for the property is $20,000. Tax deadline Example 2. Tax deadline The adjusted basis of Steve's partnership interest is $10,000. Tax deadline He receives a distribution of $4,000 cash and property that has an adjusted basis to the partnership of $8,000. Tax deadline His basis for the distributed property is limited to $6,000 ($10,000 − $4,000, the cash he receives). Tax deadline Complete liquidation of partner's interest. Tax deadline   The basis of property received in complete liquidation of a partner's interest is the adjusted basis of the partner's interest in the partnership reduced by any money distributed to the partner in the same transaction. Tax deadline Partner's holding period. Tax deadline   A partner's holding period for property distributed to the partner includes the period the property was held by the partnership. Tax deadline If the property was contributed to the partnership by a partner, then the period it was held by that partner is also included. Tax deadline Basis divided among properties. Tax deadline   If the basis of property received is the adjusted basis of the partner's interest in the partnership (reduced by money received in the same transaction), it must be divided among the properties distributed to the partner. Tax deadline For property distributed after August 5, 1997, allocate the basis using the following rules. Tax deadline Allocate the basis first to unrealized receivables and inventory items included in the distribution by assigning a basis to each item equal to the partnership's adjusted basis in the item immediately before the distribution. Tax deadline If the total of these assigned bases exceeds the allocable basis, decrease the assigned bases by the amount of the excess. Tax deadline Allocate any remaining basis to properties other than unrealized receivables and inventory items by assigning a basis to each property equal to the partnership's adjusted basis in the property immediately before the distribution. Tax deadline If the allocable basis exceeds the total of these assigned bases, increase the assigned bases by the amount of the excess. Tax deadline If the total of these assigned bases exceeds the allocable basis, decrease the assigned bases by the amount of the excess. Tax deadline Allocating a basis increase. Tax deadline   Allocate any basis increase required in rule (2), above, first to properties with unrealized appreciation to the extent of the unrealized appreciation. Tax deadline If the basis increase is less than the total unrealized appreciation, allocate it among those properties in proportion to their respective amounts of unrealized appreciation. Tax deadline Allocate any remaining basis increase among all the properties in proportion to their respective fair market values. Tax deadline Example. Tax deadline Eun's basis in her partnership interest is $55,000. Tax deadline In a distribution in liquidation of her entire interest, she receives properties A and B, neither of which is inventory or unrealized receivables. Tax deadline Property A has an adjusted basis to the partnership of $5,000 and a fair market value of $40,000. Tax deadline Property B has an adjusted basis to the partnership of $10,000 and a fair market value of $10,000. Tax deadline To figure her basis in each property, Eun first assigns bases of $5,000 to property A and $10,000 to property B (their adjusted bases to the partnership). Tax deadline This leaves a $40,000 basis increase (the $55,000 allocable basis minus the $15,000 total of the assigned bases). Tax deadline She first allocates $35,000 to property A (its unrealized appreciation). Tax deadline The remaining $5,000 is allocated between the properties based on their fair market values. Tax deadline $4,000 ($40,000/$50,000) is allocated to property A and $1,000 ($10,000/$50,000) is allocated to property B. Tax deadline Eun's basis in property A is $44,000 ($5,000 + $35,000 + $4,000) and her basis in property B is $11,000 ($10,000 + $1,000). Tax deadline Allocating a basis decrease. Tax deadline   Use the following rules to allocate any basis decrease required in rule (1) or rule (2), earlier. Tax deadline Allocate the basis decrease first to items with unrealized depreciation to the extent of the unrealized depreciation. Tax deadline If the basis decrease is less than the total unrealized depreciation, allocate it among those items in proportion to their respective amounts of unrealized depreciation. Tax deadline Allocate any remaining basis decrease among all the items in proportion to their respective assigned basis amounts (as decreased in (1)). Tax deadline Example. Tax deadline Armando's basis in his partnership interest is $20,000. Tax deadline In a distribution in liquidation of his entire interest, he receives properties C and D, neither of which is inventory or unrealized receivables. Tax deadline Property C has an adjusted basis to the partnership of $15,000 and a fair market value of $15,000. Tax deadline Property D has an adjusted basis to the partnership of $15,000 and a fair market value of $5,000. Tax deadline To figure his basis in each property, Armando first assigns bases of $15,000 to property C and $15,000 to property D (their adjusted bases to the partnership). Tax deadline This leaves a $10,000 basis decrease (the $30,000 total of the assigned bases minus the $20,000 allocable basis). Tax deadline He allocates the entire $10,000 to property D (its unrealized depreciation). Tax deadline Armando's basis in property C is $15,000 and his basis in property D is $5,000 ($15,000 − $10,000). Tax deadline Distributions before August 6, 1997. Tax deadline   For property distributed before August 6, 1997, allocate the basis using the following rules. Tax deadline Allocate the basis first to unrealized receivables and inventory items included in the distribution to the extent of the partnership's adjusted basis in those items. Tax deadline If the partnership's adjusted basis in those items exceeded the allocable basis, allocate the basis among the items in proportion to their adjusted bases to the partnership. Tax deadline Allocate any remaining basis to other distributed properties in proportion to their adjusted bases to the partnership. Tax deadline Partner's interest more than partnership basis. Tax deadline   If the basis of a partner's interest to be divided in a complete liquidation of the partner's interest is more than the partnership's adjusted basis for the unrealized receivables and inventory items distributed, and if no other property is distributed to which the partner can apply the remaining basis, the partner has a capital loss to the extent of the remaining basis of the partnership interest. Tax deadline Special adjustment to basis. Tax deadline   A partner who acquired any part of his or her partnership interest in a sale or exchange or upon the death of another partner may be able to choose a special basis adjustment for property distributed by the partnership. Tax deadline To choose the special adjustment, the partner must have received the distribution within 2 years after acquiring the partnership interest. Tax deadline Also, the partnership must not have chosen the optional adjustment to basis when the partner acquired the partnership interest. Tax deadline   If a partner chooses this special basis adjustment, the partner's basis for the property distributed is the same as it would have been if the partnership had chosen the optional adjustment to basis. Tax deadline However, this assigned basis is not reduced by any depletion or depreciation that would have been allowed or allowable if the partnership had previously chosen the optional adjustment. Tax deadline   The choice must be made with the partner's tax return for the year of the distribution if the distribution includes any property subject to depreciation, depletion, or amortization. Tax deadline If the choice does not have to be made for the distribution year, it must be made with the return for the first year in which the basis of the distributed property is pertinent in determining the partner's income tax. Tax deadline   A partner choosing this special basis adjustment must attach a statement to his or her tax return that the partner chooses under section 732(d) of the Internal Revenue Code to adjust the basis of property received in a distribution. Tax deadline The statement must show the computation of the special basis adjustment for the property distributed and list the properties to which the adjustment has been allocated. Tax deadline Example. Tax deadline Chin Ho purchased a 25% interest in X partnership for $17,000 cash. Tax deadline At the time of the purchase, the partnership owned inventory having a basis to the partnership of $14,000 and a fair market value of $16,000. Tax deadline Thus, $4,000 of the $17,000 he paid was attributable to his share of inventory with a basis to the partnership of $3,500. Tax deadline Within 2 years after acquiring his interest, Chin Ho withdrew from the partnership and for his entire interest received cash of $1,500, inventory with a basis to the partnership of $3,500, and other property with a basis of $6,000. Tax deadline The value of the inventory received was 25% of the value of all partnership inventory. Tax deadline (It is immaterial whether the inventory he received was on hand when he acquired his interest. Tax deadline ) Since the partnership from which Chin Ho withdrew did not make the optional adjustment to basis, he chose to adjust the basis of the inventory received. Tax deadline His share of the partnership's basis for the inventory is increased by $500 (25% of the $2,000 difference between the $16,000 fair market value of the inventory and its $14,000 basis to the partnership at the time he acquired his interest). Tax deadline The adjustment applies only for purposes of determining his new basis in the inventory, and not for purposes of partnership gain or loss on disposition. Tax deadline The total to be allocated among the properties Chin Ho received in the distribution is $15,500 ($17,000 basis of his interest − $1,500 cash received). Tax deadline His basis in the inventory items is $4,000 ($3,500 partnership basis + $500 special adjustment). Tax deadline The remaining $11,500 is allocated to his new basis for the other property he received. Tax deadline Mandatory adjustment. Tax deadline   A partner does not always have a choice of making this special adjustment to basis. Tax deadline The special adjustment to basis must be made for a distribution of property (whether or not within 2 years after the partnership interest was acquired) if all the following conditions existed when the partner received the partnership interest. Tax deadline The fair market value of all partnership property (other than money) was more than 110% of its adjusted basis to the partnership. Tax deadline If there had been a liquidation of the partner's interest immediately after it was acquired, an allocation of the basis of that interest under the general rules (discussed earlier under Basis divided among properties) would have decreased the basis of property that could not be depreciated, depleted, or amortized and increased the basis of property that could be. Tax deadline The optional basis adjustment, if it had been chosen by the partnership, would have changed the partner's basis for the property actually distributed. Tax deadline Required statement. Tax deadline   Generally, if a partner chooses a special basis adjustment and notifies the partnership, or if the partnership makes a distribution for which the special basis adjustment is mandatory, the partnership must provide a statement to the partner. Tax deadline The statement must provide information necessary for the partner to compute the special basis adjustment. Tax deadline Marketable securities. Tax deadline   A partner's basis in marketable securities received in a partnership distribution, as determined in the preceding discussions, is increased by any gain recognized by treating the securities as money. Tax deadline See Marketable securities treated as money under Partner's Gain or Loss, earlier. Tax deadline The basis increase is allocated among the securities in proportion to their respective amounts of unrealized appreciation before the basis increase. Tax deadline Transactions Between Partnership and Partners For certain transactions between a partner and his or her partnership, the partner is treated as not being a member of the partnership. Tax deadline These transactions include the following. Tax deadline Performing services for, or transferring property to, a partnership if: There is a related allocation and distribution to a partner, and The entire transaction, when viewed together, is properly characterized as occurring between the partnership and a partner not acting in the capacity of a partner. Tax deadline Transferring money or other property to a partnership if: There is a related transfer of money or other property by the partnership to the contributing partner or another partner, and The transfers together are properly characterized as a sale or exchange of property. Tax deadline Payments by accrual basis partnership to cash basis partner. Tax deadline   A partnership that uses an accrual method of accounting cannot deduct any business expense owed to a cash basis partner until the amount is paid. Tax deadline However, this rule does not apply to guaranteed payments made to a partner, which are generally deductible when accrued. Tax deadline Guaranteed Payments Guaranteed payments are those made by a partnership to a partner that are determined without regard to the partnership's income. Tax deadline A partnership treats guaranteed payments for services, or for the use of capital, as if they were made to a person who is not a partner. Tax deadline This treatment is for purposes of determining gross income and deductible business expenses only. Tax deadline For other tax purposes, guaranteed payments are treated as a partner's distributive share of ordinary income. Tax deadline Guaranteed payments are not subject to income tax withholding. Tax deadline The partnership generally deducts guaranteed payments on line 10 of Form 1065 as a business expense. Tax deadline They are also listed on Schedules K and K-1 of the partnership return. Tax deadline The individual partner reports guaranteed payments on Schedule E (Form 1040) as ordinary income, along with his or her distributive share of the partnership's other ordinary income. Tax deadline Guaranteed payments made to partners for organizing the partnership or syndicating interests in the partnership are capital expenses. Tax deadline Generally, organizational and syndication expenses are not deductible by the partnership. Tax deadline However, a partnership can elect to deduct a portion of its organizational expenses and amortize the remaining expenses (see Business start-up and organizational costs in the Instructions for Form 1065). Tax deadline Organizational expenses (if the election is not made) and syndication expenses paid to partners must be reported on the partners' Schedule K-1 as guaranteed payments. Tax deadline Minimum payment. Tax deadline   If a partner is to receive a minimum payment from the partnership, the guaranteed payment is the amount by which the minimum payment is more than the partner's distributive share of the partnership income before taking into account the guaranteed payment. Tax deadline Example. Tax deadline Under a partnership agreement, Divya is to receive 30% of the partnership income, but not less than $8,000. Tax deadline The partnership has net income of $20,000. Tax deadline Divya's share, without regard to the minimum guarantee, is $6,000 (30% × $20,000). Tax deadline The guaranteed payment that can be deducted by the partnership is $2,000 ($8,000 − $6,000). Tax deadline Divya's income from the partnership is $8,000, and the remaining $12,000 of partnership income will be reported by the other partners in proportion to their shares under the partnership agreement. Tax deadline If the partnership net income had been $30,000, there would have been no guaranteed payment since her share, without regard to the guarantee, would have been greater than the guarantee. Tax deadline Self-employed health insurance premiums. Tax deadline   Premiums for health insurance paid by a partnership on behalf of a partner, for services as a partner, are treated as guaranteed payments. Tax deadline The partnership can deduct the payments as a business expense, and the partner must include them in gross income. Tax deadline However, if the partnership accounts for insurance paid for a partner as a reduction in distributions to the partner, the partnership cannot deduct the premiums. Tax deadline   A partner who qualifies can deduct 100% of the health insurance premiums paid by the partnership on his or her behalf as an adjustment to income. Tax deadline The partner cannot deduct the premiums for any calendar month, or part of a month, in which the partner is eligible to participate in any subsidized health plan maintained by any employer of the partner, the partner's spouse, the partner's dependents, or any children under age 27 who are not dependents. Tax deadline For more information on the self-employed health insurance deduction, see chapter 6 in Publication 535. Tax deadline Including payments in partner's income. Tax deadline   Guaranteed payments are included in income in the partner's tax year in which the partnership's tax year ends. Tax deadline Example 1. Tax deadline Under the terms of a partnership agreement, Erica is entitled to a fixed annual payment of $10,000 without regard to the income of the partnership. Tax deadline Her distributive share of the partnership income is 10%. Tax deadline The partnership has $50,000 of ordinary income after deducting the guaranteed payment. Tax deadline She must include ordinary income of $15,000 ($10,000 guaranteed payment + $5,000 ($50,000 × 10%) distributive share) on her individual income tax return for her tax year in which the partnership's tax year ends. Tax deadline Example 2. Tax deadline Lamont is a calendar year taxpayer who is a partner in a partnership. Tax deadline The partnership uses a fiscal year that ended January 31, 2013. Tax deadline Lamont received guaranteed payments from the partnership from February 1, 2012, until December 31, 2012. Tax deadline He must include these guaranteed payments in income for 2013 and report them on his 2013 income tax return. Tax deadline Payments resulting in loss. Tax deadline   If guaranteed payments to a partner result in a partnership loss in which the partner shares, the partner must report the full amount of the guaranteed payments as ordinary income. Tax deadline The partner separately takes into account his or her distributive share of the partnership loss, to the extent of the adjusted basis of the partner's partnership interest. Tax deadline Sale or Exchange of Property Special rules apply to a sale or exchange of property between a partnership and certain persons. Tax deadline Losses. Tax deadline   Losses will not be allowed from a sale or exchange of property (other than an interest in the partnership) directly or indirectly between a partnership and a person whose direct or indirect interest in the capital or profits of the partnership is more than 50%. Tax deadline   If the sale or exchange is between two partnerships in which the same persons directly or indirectly own more than 50% of the capital or profits interests in each partnership, no deduction of a loss is allowed. Tax deadline   The basis of each partner's interest in the partnership is decreased (but not below zero) by the partner's share of the disallowed loss. Tax deadline   If the purchaser later sells the property, only the gain realized that is greater than the loss not allowed will be taxable. Tax deadline If any gain from the sale of the property is not recognized because of this rule, the basis of each partner's interest in the partnership is increased by the partner's share of that gain. Tax deadline Gains. Tax deadline   Gains are treated as ordinary income in a sale or exchange of property directly or indirectly between a person and a partnership, or between two partnerships, if both of the following tests are met. Tax deadline More than 50% of the capital or profits interest in the partnership(s) is directly or indirectly owned by the same person(s). Tax deadline The property in the hands of the transferee immediately after the transfer is not a capital asset. Tax deadline Property that is not a capital asset includes accounts receivable, inventory, stock-in-trade, and depreciable or real property used in a trade or business. Tax deadline More than 50% ownership. Tax deadline   To determine if there is more than 50% ownership in partnership capital or profits, the following rules apply. Tax deadline An interest directly or indirectly owned by, or for, a corporation, partnership, estate, or trust is considered to be owned proportionately by, or for, its shareholders, partners, or beneficiaries. Tax deadline An individual is considered to own the interest directly or indirectly owned by, or for, the individual's family. Tax deadline For this rule, “family” includes only brothers, sisters, half-brothers, half-sisters, spouses, ancestors, and lineal descendants. Tax deadline If a person is considered to own an interest using rule (1), that person (the “constructive owner”) is treated as if actually owning that interest when rules (1) and (2) are applied. Tax deadline However, if a person is considered to own an interest using rule (2), that person is not treated as actually owning that interest in reapplying rule (2) to make another person the constructive owner. Tax deadline Example. Tax deadline Individuals A and B and Trust T are equal partners in Partnership ABT. Tax deadline A's husband, AH, is the sole beneficiary of Trust T. Tax deadline Trust T's partnership interest will be attributed to AH only for the purpose of further attributing the interest to A. Tax deadline As a result, A is a more-than-50% partner. Tax deadline This means that any deduction for losses on transactions between her and ABT will not be allowed, and gain from property that in the hands of the transferee is not a capital asset is treated as ordinary, rather than capital, gain. Tax deadline More information. Tax deadline   For more information on these special rules, see Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. Tax deadline Contribution of Property Usually, neither the partner nor the partnership recognizes a gain or loss when property is contributed to the partnership in exchange for a partnership interest. Tax deadline This applies whether a partnership is being formed or is already operating. Tax deadline The partnership's holding period for the property includes the partner's holding period. Tax deadline The contribution of limited partnership interests in one partnership for limited partnership interests in another partnership qualifies as a tax-free contribution of property to the second partnership if the transaction is made for business purposes. Tax deadline The exchange is not subject to the rules explained later under Disposition of Partner's Interest. Tax deadline Disguised sales. Tax deadline   A contribution of money or other property to the partnership followed by a distribution of different property from the partnership to the partner is treated not as a contribution and distribution, but as a sale of property, if both of the following tests are met. Tax deadline The distribution would not have been made but for the contribution. Tax deadline The partner's right to the distribution does not depend on the success of partnership operations. Tax deadline   All facts and circumstances are considered in determining if the contribution and distribution are more properly characterized as a sale. Tax deadline However, if the contribution and distribution occur within 2 years of each other, the transfers are presumed to be a sale unless the facts clearly indicate that the transfers are not a sale. Tax deadline If the contribution and distribution occur more than 2 years apart, the transfers are presumed not to be a sale unless the facts clearly indicate that the transfers are a sale. Tax deadline Form 8275 required. Tax deadline   A partner must attach Form 8275, Disclosure Statement, (or other statement) to his or her return if the partner contributes property to a partnership and, within 2 years (before or after the contribution), the partnership transfers money or other consideration to the partner. Tax deadline For exceptions to this requirement, see section 1. Tax deadline 707-3(c)(2) of the regulations. Tax deadline   A partnership must attach Form 8275 (or other statement) to its return if it distributes property to a partner, and, within 2 years (before or after the distribution), the partner transfers money or other consideration to the partnership. Tax deadline   Form 8275 must include the following information. Tax deadline A caption identifying the statement as a disclosure under section 707 of the Internal Revenue Code. Tax deadline A description of the transferred property or money, including its value. Tax deadline A description of any relevant facts in determining if the transfers are properly viewed as a disguised sale. Tax deadline See section 1. Tax deadline 707-3(b)(2) of the regulations for a description of the facts and circumstances considered in determining if the transfers are a disguised sale. Tax deadline Contribution to partnership treated as investment company. Tax deadline   Gain is recognized when property is contributed (in exchange for an interest in the partnership) to a partnership that would be treated as an investment company if it were incorporated. Tax deadline   A partnership is generally treated as an investment company if over 80% of the value of its assets is held for investment and consists of certain readily marketable items. Tax deadline These items include money, stocks and other equity interests in a corporation, and interests in regulated investment companies and real estate investment trusts. Tax deadline For more information, see section 351(e)(1) of the Internal Revenue Code and the related regulations. Tax deadline Whether a partnership is treated as an investment company under this test is ordinarily determined immediately after the transfer of property. Tax deadline   This rule applies to limited partnerships and general partnerships, regardless of whether they are privately formed or publicly syndicated. Tax deadline Contribution to foreign partnership. Tax deadline   A domestic partnership that contributed property after August 5, 1997, to a foreign partnership in exchange for a partnership interest may have to file Form 8865 if either of the following apply. Tax deadline Immediately after the contribution, the partnership owned, directly or indirectly, at least a 10% interest in the foreign partnership. Tax deadline The fair market value of the property contributed to the foreign partnership, when added to other contributions of property made to the partnership during the preceding 12-month period, is greater than $100,000. Tax deadline   The partnership may also have to file Form 8865, even if no contributions are made during the tax year, if it owns a 10% or more interest in a foreign partnership at any time during the year. Tax deadline See the form instructions for more information. Tax deadline Basis of contributed property. Tax deadline   If a partner contributes property to a partnership, the partnership's basis for determining depreciation, depletion, gain, or loss for the property is the same as the partner's adjusted basis for the property when it was contributed, increased by any gain recognized by the partner at the time of contribution. Tax deadline Allocations to account for built-in gain or loss. Tax deadline   The fair market value of property at the time it is contributed may be different from the partner's adjusted basis. Tax deadline The partnership must allocate among the partners any income, deduction, gain, or loss on the property in a manner that will account for the difference. Tax deadline This rule also applies to contributions of accounts payable and other accrued but unpaid items of a cash basis partner. Tax deadline   The partnership can use different allocation methods for different items of contributed property. Tax deadline A single reasonable method must be consistently applied to each item, and the overall method or combination of methods must be reasonable. Tax deadline See section 1. Tax deadline 704-3 of the regulations for allocation methods generally considered reasonable. Tax deadline   If the partnership sells contributed property and recognizes gain or loss, built-in gain or loss is allocated to the contributing partner. Tax deadline If contributed property is subject to depreciation or other cost recovery, the allocation of deductions for these items takes into account built-in gain or loss on the property. Tax deadline However, the total depreciation, depletion, gain, or loss allocated to partners cannot be more than the depreciation or depletion allowable to the partnership or the gain or loss realized by the partnership. Tax deadline Example. Tax deadline Areta and Sofia formed an equal partnership. Tax deadline Areta contributed $10,000 in cash to the partnership and Sofia contributed depreciable property with a fair market value of $10,000 and an adjusted basis of $4,000. Tax deadline The partnership's basis for depreciation is limited to the adjusted basis of the property in Sofia's hands, $4,000. Tax deadline In effect, Areta purchased an undivided one-half interest in the depreciable property with her contribution of $10,000. Tax deadline Assuming that the depreciation rate is 10% a year under the General Depreciation System (GDS), she would have been entitled to a depreciation deduction of $500 per year, based on her interest in the partnership, if the adjusted basis of the property equaled its fair market value when contributed. Tax deadline To simplify this example, the depreciation deductions are determined without regard to any first-year depreciation conventions. Tax deadline However, since the partnership is allowed only $400 per year of depreciation (10% of $4,000), no more than $400 can be allocated between the partners. Tax deadline The entire $400 must be allocated to Areta. Tax deadline Distribution of contributed property to another partner. Tax deadline   If a partner contributes property to a partnership and the partnership distributes the property to another partner within 7 years of the contribution, the contributing partner must recognize gain or loss on the distribution. Tax deadline   The recognized gain or loss is the amount the contributing partner would have recognized if the property had been sold for its fair market value when it was distributed. Tax deadline This amount is the difference between the property's basis and its fair market value at the time of contribution. Tax deadline The character of the gain or loss will be the same as the character of the gain or loss that would have resulted if the partnership had sold the property to the distributee partner. Tax deadline Appropriate adjustments must be made to the adjusted basis of the contributing partner's partnership interest and to the adjusted basis of the property distributed to reflect the recognized gain or loss. Tax deadline Disposition of certain contributed property. Tax deadline   The following rules determine the character of the partnership's gain or loss on a disposition of certain types of contributed property. Tax deadline Unrealized receivables. Tax deadline If the property was an unrealized receivable in the hands of the contributing partner, any gain or loss on its disposition by the partnership is ordinary income or loss. Tax deadline Unrealized receivables are defined later under Payments for Unrealized Receivables and Inventory Items. Tax deadline When reading the definition, substitute “partner” for “partnership. Tax deadline ” Inventory items. Tax deadline If the property was an inventory item in the hands of the contributing partner, any gain or loss on its disposition by the partnership within 5 years after the contribution is ordinary income or loss. Tax deadline Inventory items are defined later in Payments for Unrealized Receivables and Inventory Items. Tax deadline Capital loss property. Tax deadline If the property was a capital asset in the contributing partner's hands, any loss on its disposition by the partnership within 5 years after the contribution is a capital loss. Tax deadline The capital loss is limited to the amount by which the partner's adjusted basis for the property exceeded the property's fair market value immediately before the contribution. Tax deadline Substituted basis property. Tax deadline If the disposition of any of the property listed in (1), (2), or (3) is a nonrecognition transaction, these rules apply when the recipient of the property disposes of any substituted basis property (other than certain corporate stock) resulting from the transaction. Tax deadline Contribution of Services A partner can acquire an interest in partnership capital or profits as compensation for services performed or to be performed. Tax deadline Capital interest. Tax deadline   A capital interest is an interest that would give the holder a share of the proceeds if the partnership's assets were sold at fair market value and the proceeds were distributed in a complete liquidation of the partnership. Tax deadline This determination generally is made at the time of receipt of the partnership interest. Tax deadline The fair market value of such an interest received by a partner as compensation for services must generally be included in the partner's gross income in the first tax year in which the partner can transfer the interest or the interest is not subject to a substantial risk of forfeiture. Tax deadline The capital interest transferred as compensation for services is subject to the rules for restricted property discussed in Publication 525 under Employee Compensation. Tax deadline   The fair market value of an interest in partnership capital transferred to a partner as payment for services to the partnership is a guaranteed payment, discussed earlier. Tax deadline Profits interest. Tax deadline   A profits interest is a partnership interest other than a capital interest. Tax deadline If a person receives a profits interest for providing services to, or for the benefit of, a partnership in a partner capacity or in anticipation of being a partner, the receipt of such an interest is not a taxable event for the partner or the partnership. Tax deadline However, this does not apply in the following situations. Tax deadline The profits interest relates to a substantially certain and predictable stream of income from partnership assets, such as income from high-quality debt securities or a high-quality net lease. Tax deadline Within 2 years of receipt, the partner disposes of the profits interest. Tax deadline The profits interest is a limited partnership interest in a publicly traded partnership. Tax deadline   A profits interest transferred as compensation for services is not subject to the rules for restricted property that apply to capital interests. Tax deadline Basis of Partner's Interest The basis of a partnership interest is the money plus the adjusted basis of any property the partner contributed. Tax deadline If the partner must recognize gain as a result of the contribution, this gain is included in the basis of his or her interest. Tax deadline Any increase in a partner's individual liabilities because of an assumption of partnership liabilities is considered a contribution of money to the partnership by the partner. Tax deadline Interest acquired by gift, etc. Tax deadline   If a partner acquires an interest in a partnership by gift, inheritance, or under any circumstance other than by a contribution of money or property to the partnership, the partner's basis must be determined using the basis rules described in Publication 551. Tax deadline Adjusted Basis There is a worksheet for adjusting the basis of a partner's interest in the partnership in the Partner's Instructions for Schedule K-1 (Form 1065). Tax deadline The basis of an interest in a partnership is increased or decreased by certain items. Tax deadline Increases. Tax deadline   A partner's basis is increased by the following items. Tax deadline The partner's additional contributions to the partnership, including an increased share of, or assumption of, partnership liabilities. Tax deadline The partner's distributive share of taxable and nontaxable partnership income. Tax deadline The partner's distributive share of the excess of the deductions for depletion over the basis of the depletable property, unless the property is oil or gas wells whose basis has been allocated to partners. Tax deadline Decreases. Tax deadline   The partner's basis is decreased (but never below zero) by the following items. Tax deadline The money (including a decreased share of partnership liabilities or an assumption of the partner's individual liabilities by the partnership) and adjusted basis of property distributed to the partner by the partnership. Tax deadline The partner's distributive share of the partnership losses (including capital losses). Tax deadline The partner's distributive share of nondeductible partnership expenses that are not capital expenditures. Tax deadline This includes the partner's share of any section 179 expenses, even if the partner cannot deduct the entire amount on his or her individual income tax return. Tax deadline The partner's deduction for depletion for any partnership oil and gas wells, up to the proportionate share of the adjusted basis of the wells allocated to the partner. Tax deadline Partner's liabilities assumed by partnership. Tax deadline   If contributed property is subject to a debt or if a partner's liabilities are assumed by the partnership, the basis of that partner's interest is reduced (but not below zero) by the liability assumed by the other partners. Tax deadline This partner must reduce his or her basis because the assumption of the liability is treated as a distribution of money to that partner. Tax deadline The other partners' assumption of the liability is treated as a contribution by them of money to the partnership. Tax deadline See Effect of Partnership Liabilities , later. Tax deadline Example 1. Tax deadline Ivan acquired a 20% interest in a partnership by contributing property that had an adjusted basis to him of $8,000 and a $4,000 mortgage. Tax deadline The partnership assumed payment of the mortgage. Tax deadline The basis of Ivan's interest is: Adjusted basis of contributed property $8,000 Minus: Part of mortgage assumed by other partners (80% × $4,000) 3,200 Basis of Ivan's partnership interest $4,800 Example 2. Tax deadline If, in Example 1, the contributed property had a $12,000 mortgage, the basis of Ivan's partnership interest would be zero. Tax deadline The $1,600 difference between the mortgage assumed by the other partners, $9,600 (80% × $12,000), and his basis of $8,000 would be treated as capital gain from the sale or exchange of a partnership interest. Tax deadline However, this gain would not increase the basis of his partnership interest. Tax deadline Book value of partner's interest. Tax deadline   The adjusted basis of a partner's interest is determined without considering any amount shown in the partnership books as a capital, equity, or similar account. Tax deadline Example. Tax deadline Enzo contributes to his partnership property that has an adjusted basis of $400 and a fair market value of $1,000. Tax deadline His partner contributes $1,000 cash. Tax deadline While each partner has increased his capital account by $1,000, which will be re
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Tax deadline Publication 536 - Main Content Table of Contents NOL Steps How To Figure an NOLNonbusiness deductions (line 6). Tax deadline Nonbusiness income (line 7). Tax deadline Nonbusiness capital losses. Tax deadline Business capital losses. Tax deadline Illustrated Form 1045, Schedule A When To Use an NOLExceptions to 2-Year Carryback Rule Waiving the Carryback Period How To Carry an NOL Back or Forward How To Claim an NOL DeductionDeducting a Carryback Deducting a Carryforward Change in Marital Status Change in Filing Status Illustrated Form 1045 How To Figure an NOL CarryoverIllustrated Form 1045, Schedule B NOL Carryover From 2013 to 2014Worksheet Instructions How To Get Tax HelpLow Income Taxpayer Clinics NOL Steps Follow Steps 1 through 5 to figure and use your NOL. Tax deadline Step 1. Tax deadline   Complete your tax return for the year. Tax deadline You may have an NOL if a negative figure appears on the line below: Individuals — Form 1040, line 41, or Form 1040NR, line 39. Tax deadline Estates and trusts — Form 1041, line 22. Tax deadline   If the amount on that line is not negative, stop here — you do not have an NOL. Tax deadline Step 2. Tax deadline   Determine whether you have an NOL and its amount. Tax deadline See How To Figure an NOL , later. Tax deadline If you do not have an NOL, stop here. Tax deadline Step 3. Tax deadline   Decide whether to carry the NOL back to a past year or to waive the carryback period and instead carry the NOL forward to a future year. Tax deadline See When To Use an NOL , later. Tax deadline Step 4. Tax deadline   Deduct the NOL in the carryback or carryforward year. Tax deadline See How To Claim an NOL Deduction , later. Tax deadline If your NOL deduction is equal to or less than your taxable income without the deduction, stop here — you have used up your NOL. Tax deadline Step 5. Tax deadline   Determine the amount of your unused NOL. Tax deadline See How To Figure an NOL Carryover , later. Tax deadline Carry over the unused NOL to the next carryback or carryforward year and begin again at Step 4. Tax deadline Note. Tax deadline   If your NOL deduction includes more than one NOL amount, apply Step 5 separately to each NOL amount, starting with the amount from the earliest year. Tax deadline How To Figure an NOL If your deductions for the year are more than your income for the year, you may have an NOL. Tax deadline There are rules that limit what you can deduct when figuring an NOL. Tax deadline In general, the following items are not allowed when figuring an NOL. Tax deadline Any deduction for personal exemptions. Tax deadline Capital losses in excess of capital gains. Tax deadline The section 1202 exclusion of the gain from the sale or exchange of qualified small business stock. Tax deadline Nonbusiness deductions in excess of nonbusiness income. Tax deadline The net operating loss deduction. Tax deadline The domestic production activities deduction. Tax deadline Form 1045, Schedule A. Tax deadline   Use Form 1045, Schedule A, to figure an NOL. Tax deadline The following discussion explains Schedule A and includes an illustrated example. Tax deadline   First, complete Form 1045, Schedule A, line 1, using amounts from your return. Tax deadline If line 1 is a negative amount, you may have an NOL. Tax deadline   Next, complete the rest of Form 1045, Schedule A, to figure your NOL. Tax deadline Nonbusiness deductions (line 6). Tax deadline   Enter on line 6 deductions that are not connected to your trade or business or your employment. Tax deadline Examples of deductions not related to your trade or business are: Alimony paid, Deductions for contributions to an IRA or a self-employed retirement plan, Health savings account deduction, Archer medical savings account deduction, Most itemized deductions (except for casualty and theft losses, state income tax on trade and business income, and any employee business expenses), and The standard deduction. Tax deadline   Do not include on line 6 the deduction for personal exemptions for you, your spouse, or your dependents. Tax deadline   Do not enter business deductions on line 6. Tax deadline These are deductions that are connected to your trade or business. Tax deadline They include the following. Tax deadline State income tax on income attributable to trade or business (including wages, salary, and unemployment compensation). Tax deadline Moving expenses. Tax deadline Educator expenses. Tax deadline The deduction for the deductible part of self-employed health insurance. Tax deadline Domestic production activities deduction. Tax deadline Rental losses. Tax deadline Loss on the sale or exchange of business real estate or depreciable property. Tax deadline Your share of a business loss from a partnership or an S corporation. Tax deadline Ordinary loss on the sale or exchange of stock in a small business corporation or a small business investment company. Tax deadline If you itemize your deductions, casualty and theft losses (even if they involve nonbusiness property) and employee business expenses (such as union dues, uniforms, tools, education expenses, and travel and transportation expenses). Tax deadline Loss on the sale of accounts receivable (if you use an accrual method of accounting). Tax deadline Interest and litigation expenses on state and federal income taxes related to your business. Tax deadline Unrecovered investment in a pension or annuity claimed on a decedent's final return. Tax deadline Payment by a federal employee to buy back sick leave used in an earlier year. Tax deadline Nonbusiness income (line 7). Tax deadline   Enter on line 7 only income that is not related to your trade or business or your employment. Tax deadline For example, enter your annuity income, dividends, and interest on investments. Tax deadline Also, include your share of nonbusiness income from partnerships and S corporations. Tax deadline   Do not include on line 7 the income you receive from your trade or business or your employment. Tax deadline This includes salaries and wages, self-employment income, unemployment compensation included in your gross income, and your share of business income from partnerships and S corporations. Tax deadline Also, do not include rental income or ordinary gain from the sale or other disposition of business real estate or depreciable business property. Tax deadline Adjustment for section 1202 exclusion (line 17). Tax deadline   Enter on line 17 any gain you excluded under section 1202 on the sale or exchange of qualified small business stock. Tax deadline Adjustments for capital losses (lines 19–22). Tax deadline   The amount deductible for capital losses is limited based on whether the losses are business capital losses or nonbusiness capital losses. Tax deadline Nonbusiness capital losses. Tax deadline   You can deduct your nonbusiness capital losses (line 2) only up to the amount of your nonbusiness capital gains without regard to any section 1202 exclusion (line 3). Tax deadline If your nonbusiness capital losses are more than your nonbusiness capital gains without regard to any section 1202 exclusion, you cannot deduct the excess. Tax deadline Business capital losses. Tax deadline   You can deduct your business capital losses (line 11) only up to the total of: Your nonbusiness capital gains that are more than the total of your nonbusiness capital losses and excess nonbusiness deductions (line 10), and Your total business capital gains without regard to any section 1202 exclusion (line 12). Tax deadline Domestic production activities deduction (line 23). Tax deadline   You cannot take the domestic production activities deduction when figuring your NOL. Tax deadline Enter on line 23 any domestic production activities deduction claimed on your return. Tax deadline NOLs from other years (line 24). Tax deadline   You cannot deduct any NOL carryovers or carrybacks from other years. Tax deadline Enter the total amount of your NOL deduction for losses from other years. Tax deadline Illustrated Form 1045, Schedule A The following example illustrates how to figure an NOL. Tax deadline It includes filled-in pages 1 and 2 of Form 1040 and Form 1045, Schedule A. Tax deadline Example. Tax deadline Glenn Johnson is in the retail record business. Tax deadline He is single and has the following income and deductions on his Form 1040 for 2013. Tax deadline See the illustrated Form 1040 , later. Tax deadline INCOME   Wages from part-time job $1,225 Interest on savings 425 Net long-term capital gain on sale of real estate used in business 2,000 Glenn's total income $3,650 DEDUCTIONS   Net loss from business (gross income of $67,000 minus expenses of $72,000) $5,000 Net short-term capital loss on sale of stock 1,000 Standard deduction 6,100 Personal exemption 3,900 Glenn's total deductions $16,000 Glenn's deductions exceed his income by $12,350 ($16,000 − $3,650). Tax deadline However, to figure whether he has an NOL, certain deductions are not allowed. Tax deadline He uses Form 1045, Schedule A, to figure his NOL. Tax deadline See the Illustrated Form 1045, Schedule A , later. Tax deadline The following items are not allowed on Form 1045, Schedule A. Tax deadline Nonbusiness net short-term capital loss $1,000 Nonbusiness deductions (standard deduction, $6,100) minus nonbusiness income (interest, $425) 5,675 Deduction for personal exemption 3,900 Total adjustments to net loss $10,575     Therefore, Glenn's NOL for 2013 is figured as follows: Glenn's total 2013 income $3,650 Less:     Glenn's original 2013 total deductions $16,000   Reduced by the disallowed items − 10,575 − 5,425 Glenn's NOL for 2013 $1,775 This image is too large to be displayed in the current screen. Tax deadline Please click the link to view the image. Tax deadline Form 1040, page 1 This image is too large to be displayed in the current screen. Tax deadline Please click the link to view the image. Tax deadline Form 1040, page 2 This image is too large to be displayed in the current screen. Tax deadline Please click the link to view the image. Tax deadline Form 1045, page 2 When To Use an NOL Generally, if you have an NOL for a tax year ending in 2013, you must carry back the entire amount of the NOL to the 2 tax years before the NOL year (the carryback period), and then carry forward any remaining NOL for up to 20 years after the NOL year (the carryforward period). Tax deadline You can, however, choose not to carry back an NOL and only carry it forward. Tax deadline See Waiving the Carryback Period , later. Tax deadline You cannot deduct any part of the NOL remaining after the 20-year carryforward period. Tax deadline NOL year. Tax deadline   This is the year in which the NOL occurred. Tax deadline Exceptions to 2-Year Carryback Rule Eligible losses, farming losses, qualified disaster losses, and specified liability losses, all defined next, qualify for longer carryback periods. Tax deadline Eligible loss. Tax deadline   The carryback period for eligible losses is 3 years. Tax deadline Only the eligible loss portion of the NOL can be carried back 3 years. Tax deadline An eligible loss is any part of an NOL that: Is from a casualty or theft, or Is attributable to a federally declared disaster for a qualified small business or certain qualified farming businesses. Tax deadline Qualified small business. Tax deadline   A qualified small business is a sole proprietorship or a partnership that has average annual gross receipts (reduced by returns and allowances) of $5 million or less during the 3-year period ending with the tax year of the NOL. Tax deadline If the business did not exist for this entire 3-year period, use the period the business was in existence. Tax deadline   An eligible loss does not include a farming loss or a qualified disaster loss. Tax deadline Farming loss. Tax deadline   The carryback period for a farming loss is 5 years. Tax deadline Only the farming loss portion of the NOL can be carried back 5 years. Tax deadline A farming loss is the smaller of: The amount that would be the NOL for the tax year if only income and deductions attributable to farming businesses were taken into account, or The NOL for the tax year. Tax deadline Farming business. Tax deadline   A farming business is a trade or business involving cultivation of land or the raising or harvesting of any agricultural or horticultural commodity. Tax deadline A farming business can include operating a nursery or sod farm or raising or harvesting most ornamental trees or trees bearing fruit, nuts, or other crops. Tax deadline The raising, shearing, feeding, caring for, training, and management of animals is also considered a farming business. Tax deadline   A farming business does not include contract harvesting of an agricultural or horticultural commodity grown or raised by someone else. Tax deadline It also does not include a business in which you merely buy or sell plants or animals grown or raised entirely by someone else. Tax deadline Waiving the 5-year carryback. Tax deadline   You can choose to figure the carryback period for a farming loss without regard to the special 5-year carryback rule. Tax deadline To make this choice for 2013, attach to your 2013 income tax return filed by the due date (including extensions) a statement that you are choosing to treat any 2013 farming losses without regard to the special 5-year carryback rule. Tax deadline If you filed your original return on time but did not file the statement with it, you can make this choice on an amended return filed within 6 months after the due date of the return (excluding extensions). Tax deadline Attach an election statement to your amended return, and write “Filed pursuant to section 301. Tax deadline 9100-2” at the top of the statement. Tax deadline Once made, this choice is irrevocable. Tax deadline Qualified disaster loss. Tax deadline   The carryback period for a qualified disaster loss is 5 years. Tax deadline Only the qualified disaster loss portion of the NOL can be carried back 5 years. Tax deadline A qualified disaster loss is the smaller of: The sum of: Any losses attributable to a federally declared disaster and occurring before January 1, 2010, in the disaster area, plus Any allowable qualified disaster expenses (even if you did not choose to treat those expenses as deductions in the current year), or The NOL for the tax year. Tax deadline Qualified disaster expenses. Tax deadline   A qualified disaster expense is any capital expense paid or incurred in connection with a trade or business or with business-related property which is: For the abatement or control of hazardous substances that were released as a result of a federally declared disaster occurring before January 1, 2010, For the removal of debris from, or the demolition of structures on, real property which is business-related property damaged or destroyed as a result of a federally declared disaster occurring before January 1, 2010, or For the repair of business-related property damaged as a result of a federally declared disaster occurring before January 1, 2010. Tax deadline Business-related property is property held for use in a trade or business, property held for the production of income, or inventory property. Tax deadline Note. Tax deadline Section 198A allows taxpayers to treat certain capital expenses (qualified disaster expenses) as deductions in the year the expenses were paid or incurred. Tax deadline Excluded losses. Tax deadline   A qualified disaster loss does not include any losses from property used in connection with any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, or any store for which the principal business is the sale of alcoholic beverages for consumption off premises. Tax deadline   A qualified disaster loss also does not include any losses from any gambling or animal racing property. Tax deadline Gambling or animal racing property is any equipment, furniture, software, or other property used directly in connection with gambling, the racing of animals, or the on-site viewing of such racing, and the portion of any real property (determined by square footage) that is dedicated to gambling, the racing of animals, or the on-site viewing of such racing, unless this portion is less than 100 square feet. Tax deadline Specified liability loss. Tax deadline   The carryback period for a specified liability loss is 10 years. Tax deadline Only the specified liability loss portion of the NOL can be carried back 10 years. Tax deadline Generally, a specified liability loss is a loss arising from: Product liability and expenses incurred in the investigation or settlement of, or opposition to, product liability claims, or An act (or failure to act) that occurred at least 3 years before the beginning of the loss year and resulted in a liability under a federal or state law requiring: Reclamation of land, Dismantling of a drilling platform, Remediation of environmental contamination, or Payment under any workers compensation act. Tax deadline   Any loss from a liability arising from (1) through (4) above can be taken into account as a specified liability loss only if you used an accrual method of accounting throughout the period in which the act (or failure to act) occurred. Tax deadline For details, see section 172(f). Tax deadline Waiving the 10-year carryback. Tax deadline   You can choose to figure the carryback period for a specified liability loss without regard to the special 10-year carryback rule. Tax deadline To make this choice for 2013 attach to your 2013 income tax return filed by the due date (including extensions) a statement that you are choosing to treat any 2013 specified liability losses without regard to the special 10-year carryback rule. Tax deadline If you filed your original return on time but did not file the statement with it, you can make this choice on an amended return filed within 6 months after the due date of the return (excluding extensions). Tax deadline Attach a statement to your amended return and write “Filed pursuant to section 301. Tax deadline 9100-2” at the top of the statement. Tax deadline Once made, this choice is irrevocable. Tax deadline Waiving the Carryback Period You can choose not to carry back your NOL. Tax deadline If you make this choice, then you can use your NOL only in the 20-year carryforward period. Tax deadline (This choice means you also choose not to carry back any alternative tax NOL. Tax deadline ) To make this choice, attach a statement to your original return filed by the due date (including extensions) for the NOL year. Tax deadline This statement must show that you are choosing to waive the carryback period under section 172(b)(3). Tax deadline If you filed your original return on time but did not file the statement with it, you can make this choice on an amended return filed within 6 months of the due date of the return (excluding extensions). Tax deadline Attach a statement to your amended return, and write “Filed pursuant to section 301. Tax deadline 9100-2” at the top of the statement. Tax deadline Once you choose to waive the carryback period, it generally is irrevocable. Tax deadline If you choose to waive the carryback period for more than one NOL, you must make a separate choice and attach a separate statement for each NOL year. Tax deadline If you do not file this statement on time, you cannot waive the carryback period. Tax deadline How To Carry an NOL Back or Forward If you choose to carry back the NOL, you must first carry the entire NOL to the earliest carryback year. Tax deadline If your NOL is not used up, you can carry the rest to the next earliest carryback year, and so on. Tax deadline If you waive the carryback period or do not use up the NOL in the carryback period, carry forward what remains of the NOL to the 20 tax years following the NOL year. Tax deadline Start by carrying it to the first tax year after the NOL year. Tax deadline If you do not use it up, carry the unused part to the next year. Tax deadline Continue to carry any unused part of the NOL forward until the NOL is used up or you complete the 20-year carryforward period. Tax deadline Example 1. Tax deadline You started your business as a sole proprietor in 2013 and had a $42,000 NOL for the year. Tax deadline No part of the NOL qualifies for the 3-year, 5-year, or 10-year carryback. Tax deadline You begin using your NOL in 2011, the second year before the NOL year, as shown in the following chart. Tax deadline Year   Carryback/  Carryover Unused  Loss 2011 $42,000 $40,000 2012 40,000 37,000 2013 (NOL year)     2014 37,000 31,500 2015 31,500 22,500 2016 22,500 12,700 2017 12,700 4,000 2018 4,000 -0- If your loss were larger, you could carry it forward until the year 2033. Tax deadline If you still had an unused 2013 carryforward after the year 2033, you would not be allowed to deduct it. Tax deadline Example 2. Tax deadline Assume the same facts as in Example 1 , except that $4,000 of the NOL is attributable to a casualty loss and this loss qualifies for a 3-year carryback period. Tax deadline You begin using the $4,000 in 2010. Tax deadline As shown in the following chart, $3,000 of this NOL is used in 2010. Tax deadline The remaining $1,000 is carried to 2011 with the $38,000 NOL that you must begin using in 2011. Tax deadline Year   Carryback/  Carryover Unused  Loss 2010 $4,000 $1,000 2011 39,000 37,000 2012 37,000 34,000 2013 (NOL year)     2014 34,000 28,500 2015 28,500 19,500 2016 19,500 9,700 2017 9,700 1,000 2018 1,000 -0- How To Claim an NOL Deduction If you have not already carried the NOL to an earlier year, your NOL deduction is the total NOL. Tax deadline If you carried the NOL to an earlier year, your NOL deduction is the carried over NOL minus the NOL amount you used in the earlier year or years. Tax deadline If you carry more than one NOL to the same year, your NOL deduction is the total of these carrybacks and carryovers. Tax deadline NOL resulting in no taxable income. Tax deadline   If your NOL is more than the taxable income of the year you carry it to (figured before deducting the NOL), you generally will have an NOL carryover to the next year. Tax deadline See How To Figure an NOL Carryover , later, to determine how much NOL you have used and how much you carry to the next year. Tax deadline Deducting a Carryback If you carry back your NOL, you can use either Form 1045 or Form 1040X. Tax deadline You can get your refund faster by using Form 1045, but you have a shorter time to file it. Tax deadline You can use Form 1045 to apply an NOL to all carryback years. Tax deadline If you use Form 1040X, you must use a separate Form 1040X for each carryback year to which you apply the NOL. Tax deadline Estates and trusts that do not file Form 1045 must file an amended Form 1041 (instead of Form 1040X) for each carryback year to which NOLs are applied. Tax deadline Use a copy of the appropriate year's Form 1041, check the “Amended return” box, and follow the Form 1041 instructions for amended returns. Tax deadline Include the NOL deduction with other deductions not subject to the 2% limit (line 15a). Tax deadline Also, see the special procedures for filing an amended return due to an NOL carryback, explained under Form 1040X , later. Tax deadline Form 1045. Tax deadline   You can apply for a quick refund by filing Form 1045. Tax deadline This form results in a tentative adjustment of tax in the carryback year. Tax deadline See the Illustrated Form 1045 . Tax deadline at the end of this discussion. Tax deadline   If the IRS refunds or credits an amount to you from Form 1045 and later determines that the refund or credit is too much, the IRS may assess and collect the excess immediately. Tax deadline   Generally, you must file Form 1045 on or after the date you file your tax return for the NOL year, but not later than one year after the end of the NOL year. Tax deadline If the last day of the NOL year falls on a Saturday, Sunday, or holiday, the form will be considered timely if postmarked on the next business day. Tax deadline For example, if you are a calendar year taxpayer with a carryback from 2013 to 2011, you must file Form 1045 on or after the date you file your tax return for 2013, but no later than December 31, 2014. Tax deadline Form 1040X. Tax deadline   If you do not file Form 1045, you can file Form 1040X to get a refund of tax because of an NOL carryback. Tax deadline File Form 1040X within 3 years after the due date, including extensions, for filing the return for the NOL year. Tax deadline For example, if you are a calendar year taxpayer and filed your 2011 return by the April 15, 2012, due date, you must file a claim for refund of 2008 tax because of an NOL carryback from 2011 by April 15, 2015. Tax deadline   Attach a computation of your NOL using Form 1045, Schedule A, and, if it applies, your NOL carryover using Form 1045, Schedule B, discussed later . Tax deadline Refiguring your tax. Tax deadline   To refigure your total tax liability for a carryback year, first refigure your adjusted gross income for that year. Tax deadline (On Form 1045, use lines 10 and 11 and the “After carryback” column for the applicable carryback year. Tax deadline ) Use your adjusted gross income after applying the NOL deduction to refigure income or deduction items that are based on, or limited to, a percentage of your adjusted gross income. Tax deadline Refigure the following items. Tax deadline The special allowance for passive activity losses from rental real estate activities. Tax deadline Taxable social security and tier 1 railroad retirement benefits. Tax deadline IRA deductions. Tax deadline Excludable savings bond interest. Tax deadline Excludable employer-provided adoption benefits. Tax deadline The student loan interest deduction. Tax deadline The tuition and fees deduction. Tax deadline   If more than one of these items apply, refigure them in the order listed above, using your adjusted gross income after applying the NOL deduction and any previous item. Tax deadline (Enter your NOL deduction on Form 1045, line 10. Tax deadline On line 11, using the “After carryback” column, enter your adjusted gross income refigured after applying the NOL deduction and after refiguring any above items. Tax deadline )   Next, refigure your taxable income. Tax deadline (On Form 1045, use lines 12 through 15 and the “After carryback” column. Tax deadline ) Use your refigured adjusted gross income (Form 1045, line 11, using the “After carryback” column) to refigure certain deductions and other items that are based on or limited to a percentage of your adjusted gross income. Tax deadline Refigure the following items. Tax deadline The itemized deduction for medical expenses. Tax deadline The itemized deduction for qualified mortgage insurance premiums. Tax deadline The itemized deduction for casualty losses. Tax deadline Miscellaneous itemized deductions subject to the 2% limit. Tax deadline The overall limit on itemized deductions (do not apply to carryback years beginning after December 31, 2009). Tax deadline The phaseout of the deduction for exemptions (do not apply to carryback years beginning after December 31, 2009). Tax deadline Qualified motor vehicle tax (do not apply to carryback years beginning after December 31, 2009). Tax deadline    Do not refigure the itemized deduction for charitable contributions. Tax deadline   Finally, use your refigured taxable income (Form 1045, line 15, using the “After carryback” column) to refigure your total tax liability. Tax deadline Refigure your income tax, your alternative minimum tax, and any credits that are based on or limited by your adjusted gross income (AGI), modified adjusted gross income (MAGI), or tax liability. Tax deadline (On Form 1045, use lines 16 through 25, and the “After carryback” column. Tax deadline ) The earned income credit, for example, may be affected by changes to adjusted gross income or the amount of tax (or both) and, therefore, must be recomputed. Tax deadline If you become eligible for a credit because of the carryback, complete the form for that specific credit (such as the EIC Worksheet) for that year. Tax deadline   While it is necessary to refigure your income tax, alternative minimum tax, and credits, do not refigure your self-employment tax. Tax deadline Deducting a Carryforward If you carry forward your NOL to a tax year after the NOL year, list your NOL deduction as a negative figure on the “Other income” line of Form 1040 or Form 1040NR (line 21 for 2013). Tax deadline Estates and trusts include an NOL deduction on Form 1041 with other deductions not subject to the 2% limit (line 15a for 2013). Tax deadline You must attach a statement that shows all the important facts about the NOL. Tax deadline Your statement should include a computation showing how you figured the NOL deduction. Tax deadline If you deduct more than one NOL in the same year, your statement must cover each of them. Tax deadline Change in Marital Status If you and your spouse were not married to each other in all years involved in figuring NOL carrybacks and carryovers, only the spouse who had the loss can take the NOL deduction. Tax deadline If you file a joint return, the NOL deduction is limited to the income of that spouse. Tax deadline For example, if your marital status changes because of death or divorce, and in a later year you have an NOL, you can carry back that loss only to the part of the income reported on the joint return (filed with your former spouse) that was related to your taxable income. Tax deadline After you deduct the NOL in the carryback year, the joint rates apply to the resulting taxable income. Tax deadline Refund limit. Tax deadline   If you are not married in the NOL year (or are married to a different spouse), and in the carryback year you were married and filed a joint return, your refund for the overpaid joint tax may be limited. Tax deadline You can claim a refund for the difference between your share of the refigured tax and your contribution toward the tax paid on the joint return. Tax deadline The refund cannot be more than the joint overpayment. Tax deadline Attach a statement showing how you figured your refund. Tax deadline Figuring your share of a joint tax liability. Tax deadline   There are five steps for figuring your share of the refigured joint tax liability. Tax deadline Figure your total tax as though you had filed as married filing separately. Tax deadline Figure your spouse's total tax as though your spouse had also filed as married filing separately. Tax deadline Add the amounts in (1) and (2). Tax deadline Divide the amount in (1) by the amount in (3). Tax deadline Multiply the refigured tax on your joint return by the amount figured in (4). Tax deadline This is your share of the joint tax liability. Tax deadline Figuring your contribution toward tax paid. Tax deadline   Unless you have an agreement or clear evidence of each spouse's contributions toward the payment of the joint tax liability, figure your contribution by adding the tax withheld on your wages and your share of joint estimated tax payments or tax paid with the return. Tax deadline If the original return for the carryback year resulted in an overpayment, reduce your contribution by your share of the tax refund. Tax deadline Figure your share of a joint payment or refund by the same method used in figuring your share of the joint tax liability. Tax deadline Use your taxable income as originally reported on the joint return in steps (1) and (2) above, and substitute the joint payment or refund for the refigured joint tax in step (5). Tax deadline Change in Filing Status If you and your spouse were married and filed a joint return for each year involved in figuring NOL carrybacks and carryovers, figure the NOL deduction on a joint return as you would for an individual. Tax deadline However, treat the NOL deduction as a joint NOL. Tax deadline If you and your spouse were married and filed separate returns for each year involved in figuring NOL carrybacks and carryovers, the spouse who sustained the loss may take the NOL deduction on a separate return. Tax deadline Special rules apply for figuring the NOL carrybacks and carryovers of married people whose filing status changes for any tax year involved in figuring an NOL carryback or carryover. Tax deadline Separate to joint return. Tax deadline   If you and your spouse file a joint return for a carryback or carryforward year, and were married but filed separate returns for any of the tax years involved in figuring the NOL carryback or carryover, treat the separate carryback or carryover as a joint carryback or carryover. Tax deadline Joint to separate returns. Tax deadline   If you and your spouse file separate returns for a carryback or carryforward year, but filed a joint return for any or all of the tax years involved in figuring the NOL carryover, figure each of your carryovers separately. Tax deadline Joint return in NOL year. Tax deadline   Figure each spouse's share of the joint NOL through the following steps. Tax deadline Figure each spouse's NOL as if he or she filed a separate return. Tax deadline See How To Figure an NOL , earlier. Tax deadline If only one spouse has an NOL, stop here. Tax deadline All of the joint NOL is that spouse's NOL. Tax deadline If both spouses have an NOL, multiply the joint NOL by a fraction, the numerator of which is spouse A's NOL figured in (1) and the denominator of which is the total of the spouses' NOLs figured in (1). Tax deadline The result is spouse A's share of the joint NOL. Tax deadline The rest of the joint NOL is spouse B's share. Tax deadline Example 1. Tax deadline Mark and Nancy are married and file a joint return for 2013. Tax deadline They have an NOL of $5,000. Tax deadline They carry the NOL back to 2011, a year in which Mark and Nancy filed separate returns. Tax deadline Figured separately, Nancy's 2013 deductions were more than her income, and Mark's income was more than his deductions. Tax deadline Mark does not have any NOL to carry back. Tax deadline Nancy can carry back the entire $5,000 NOL to her 2011 separate return. Tax deadline Example 2. Tax deadline Assume the same facts as in Example 1 , except that both Mark and Nancy had deductions in 2013 that were more than their income. Tax deadline Figured separately, his NOL is $1,800 and her NOL is $3,000. Tax deadline The sum of their separate NOLs ($4,800) is less than their $5,000 joint NOL because his deductions included a $200 net capital loss that is not allowed in figuring his separate NOL. Tax deadline The loss is allowed in figuring their joint NOL because it was offset by Nancy's capital gains. Tax deadline Mark's share of their $5,000 joint NOL is $1,875 ($5,000 × $1,800/$4,800) and Nancy's is $3,125 ($5,000 − $1,875). Tax deadline Joint return in previous carryback or carryforward year. Tax deadline   If only one spouse had an NOL deduction on the previous year's joint return, all of the joint carryover is that spouse's carryover. Tax deadline If both spouses had an NOL deduction (including separate carryovers of a joint NOL, figured as explained in the previous discussion ), figure each spouse's share of the joint carryover through the following steps. Tax deadline Figure each spouse's modified taxable income as if he or she filed a separate return. Tax deadline See Modified taxable income under How To Figure an NOL Carryover , later. Tax deadline Multiply the joint modified taxable income you used to figure the joint carryover by a fraction, the numerator of which is spouse A's modified taxable income figured in (1) and the denominator of which is the total of the spouses' modified taxable incomes figured in (1). Tax deadline This is spouse A's share of the joint modified taxable income. Tax deadline Subtract the amount figured in (2) from the joint modified taxable income. Tax deadline This is spouse B's share of the joint modified taxable income. Tax deadline Reduce the amount figured in (3), but not below zero, by spouse B's NOL deduction. Tax deadline Add the amounts figured in (2) and (4). Tax deadline Subtract the amount figured in (5) from spouse A's NOL deduction. Tax deadline This is spouse A's share of the joint carryover. Tax deadline The rest of the joint carryover is spouse B's share. Tax deadline Example. Tax deadline Sam and Wanda filed a joint return for 2011 and separate returns for 2012 and 2013. Tax deadline In 2013, Sam had an NOL of $18,000 and Wanda had an NOL of $2,000. Tax deadline They choose to carry back both NOLs 2 years to their 2011 joint return and claim a $20,000 NOL deduction. Tax deadline Their joint modified taxable income (MTI) for 2011 is $15,000, and their joint NOL carryover to 2012 is $5,000 ($20,000 – $15,000). Tax deadline Sam and Wanda each figure their separate MTI for 2011 as if they had filed separate returns. Tax deadline Then they figure their shares of the $5,000 carryover as follows. Tax deadline Step 1. Tax deadline   Sam's separate MTI $9,000 Wanda's separate MTI + 3,000 Total MTI $12,000 Step 2. Tax deadline   Joint MTI $15,000 Sam's MTI ÷ total MTI ($9,000 ÷ $12,000) × . Tax deadline 75 Sam's share of joint MTI $11,250 Step 3. Tax deadline   Joint MTI $15,000 Sam's share of joint MTI − 11,250 Wanda's share of joint MTI $3,750 Step 4. Tax deadline   Wanda's share of joint MTI $3,750 Wanda's NOL deduction − 2,000 Wanda's remaining share $1,750 Step 5. Tax deadline   Sam's share of joint MTI $11,250 Wanda's remaining share + 1,750 Joint MTI to be offset $13,000 Step 6. Tax deadline   Sam's NOL deduction $18,000 Joint MTI to be offset − 13,000 Sam's carryover to 2012 $5,000 Joint carryover to 2012 $5,000 Sam's carryover − 5,000 Wanda's carryover to 2012 $-0- Wanda's $2,000 NOL deduction offsets $2,000 of her $3,750 share of the joint modified taxable income and is completely used up. Tax deadline She has no carryover to 2012. Tax deadline Sam's $18,000 NOL deduction offsets all of his $11,250 share of joint modified taxable income and the remaining $1,750 of Wanda's share. Tax deadline His carryover to 2012 is $5,000. Tax deadline Illustrated Form 1045 The following example illustrates how to use Form 1045 to claim an NOL deduction in a carryback year. Tax deadline It includes a filled-in page 1 of Form 1045. Tax deadline Example. Tax deadline Martha Sanders is a self-employed contractor. Tax deadline Martha's 2013 deductions are more than her 2013 income because of a business loss. Tax deadline She uses Form 1045 to carry back her NOL 2 years and claim an NOL deduction in 2011. Tax deadline Her filing status in both years was single. Tax deadline See the filled-in Form 1045 later. Tax deadline Martha figures her 2013 NOL on Form 1045, Schedule A (not shown). Tax deadline (For an example using Form 1045, Schedule A, see Illustrated Form 1045, Schedule A under How To Figure an NOL , earlier. Tax deadline ) She enters the $10,000 NOL from Form 1045, Schedule A, line 25, on Form 1045, line 1a. Tax deadline Martha completes lines 10 through 25, using the “Before carryback” column under the column for the second preceding tax year ended 12/31/11 on page 1 of Form 1045 using the following amounts from her 2011 return. Tax deadline 2011 Adjusted gross income $50,000 Itemized deductions:     Medical expenses [$6,000 − ($50,000 × 7. Tax deadline 5%)] $2,250   State income tax + 2,000   Real estate tax + 4,000   Home mortgage interest + 5,000   Total itemized deductions $13,250 Exemption $3,700 Income tax $4,550 Self-employment tax $6,120   Martha refigures her taxable income for 2011 after carrying back her 2013 NOL as follows: 2011 Adjusted gross income $50,000 Less:     NOL from 2013 −10,000 2011 Adjusted gross income after carryback $40,000 Less:     Itemized deductions:     Medical expenses [$6,000 − ($40,000 × 7. Tax deadline 5%)] $3,000   State income tax + 2,000   Real estate tax + 4,000   Home mortgage interest + 5,000   Total itemized deductions −14,000 Less:     Exemption − 3,700 2011 Taxable income after carryback $22,300 Martha then completes lines 10 through 25, using the “After carryback” column under the column for the second preceding tax year ended 12/31/11. Tax deadline On line 10, Martha enters her $10,000 NOL deduction. Tax deadline Her new adjusted gross income on line 11 is $40,000 ($50,000 − $10,000). Tax deadline To complete line 12, she must refigure her medical expense deduction using her new adjusted gross income. Tax deadline Her refigured medical expense deduction is $3,000 [$6,000 − ($40,000 × 7. Tax deadline 5%)]. Tax deadline This increases her total itemized deductions to $14,000 [$13,250 + ($3,000 − $2,250)]. Tax deadline Martha uses her refigured taxable income ($22,300) from line 15, and the tax tables in her 2011 Form 1040 instructions to find her income tax. Tax deadline She enters the new amount, $2,924, on line 16, and her new total tax liability, $9,044, on line 25. Tax deadline Martha used up her $10,000 NOL in 2011 so she does not complete a column for the first preceding tax year ended 12/31/2012. Tax deadline The decrease in tax because of her NOL deduction (line 27) is $1,612. Tax deadline Martha files Form 1045 after filing her 2013 return, but no later than December 31, 2014. Tax deadline She mails it to the Internal Revenue Service Center for the place where she lives as shown in the 2013 instructions for Form 1040 and attaches a copy of her 2013 return (including the applicable forms and schedules). Tax deadline This image is too large to be displayed in the current screen. Tax deadline Please click the link to view the image. Tax deadline Form 1045, page 1 How To Figure an NOL Carryover If your NOL is more than your taxable income for the year to which you carry it (figured before deducting the NOL), you may have an NOL carryover. Tax deadline You must make certain modifications to your taxable income to determine how much NOL you will use up in that year and how much you can carry over to the next tax year. Tax deadline Your carryover is the excess of your NOL deduction over your modified taxable income for the carryback or carryforward year. Tax deadline If your NOL deduction includes more than one NOL, apply the NOLs against your modified taxable income in the same order in which you incurred them, starting with the earliest. Tax deadline Modified taxable income. Tax deadline   Your modified taxable income is your taxable income figured with the following changes. Tax deadline You cannot claim an NOL deduction for the NOL carryover you are figuring or for any later NOL. Tax deadline You cannot claim a deduction for capital losses in excess of your capital gains. Tax deadline Also, you must increase your taxable income by the amount of any section 1202 exclusion. Tax deadline You cannot claim the domestic production activities deduction. Tax deadline You cannot claim a deduction for your exemptions for yourself, your spouse, or dependents. Tax deadline You must figure any item affected by the amount of your adjusted gross income after making the changes in (1), (2), and (3), above, and certain other changes to your adjusted gross income that result from (1), (2), and (3). Tax deadline This includes income and deduction items used to figure adjusted gross income (for example, IRA deductions), as well as certain itemized deductions. Tax deadline To figure a charitable contribution deduction, do not include deductions for NOL carrybacks in the change in (1) but do include deductions for NOL carryforwards from tax years before the NOL year. Tax deadline   Your taxable income as modified cannot be less than zero. Tax deadline Form 1045, Schedule B. Tax deadline   You can use Form 1045, Schedule B, to figure your modified taxable income for carryback years and your carryover from each of those years. Tax deadline Do not use Form 1045, Schedule B, for a carryforward year. Tax deadline If your 2013 return includes an NOL deduction from an NOL year before 2013 that reduced your taxable income to zero (to less than zero, if an estate or trust), see NOL Carryover From 2013 to 2014 , later. Tax deadline Illustrated Form 1045, Schedule B The following example illustrates how to figure an NOL carryover from a carryback year. Tax deadline It includes a filled-in Form 1045, Schedule B. Tax deadline Example. Tax deadline Ida Brown runs a small clothing shop. Tax deadline In 2013, she has an NOL of $36,000 that she carries back to 2011. Tax deadline She has no other carrybacks or carryforwards to 2011. Tax deadline Ida's adjusted gross income in 2011 was $35,000, consisting of her salary of $36,000 minus a $1,000 capital loss deduction. Tax deadline She is single and claimed only one personal exemption of $3,700. Tax deadline During that year, she gave $1,450 in charitable contributions. Tax deadline Her medical expenses were $3,000. Tax deadline She also deducted $1,650 in taxes and $3,125 in home mortgage interest. Tax deadline Her deduction for charitable contributions was not limited because her contributions, $1,450, were less than 50% of her adjusted gross income. Tax deadline The deduction for medical expenses was limited to expenses over 7. Tax deadline 5% of adjusted gross income (. Tax deadline 075 × $35,000 = $2,625; $3,000 − $2,625 = $375). Tax deadline The deductions for taxes and home mortgage interest were not subject to any limits. Tax deadline She was able to claim $6,600 ($1,450 + $375 + $1,650 + $3,125) in itemized deductions and a personal exemption deduction of $3,700 for 2011. Tax deadline She had no other deductions in 2011 (except the NOL deduction). Tax deadline Her taxable income (figured without the NOL deduction) for the year was $24,700. Tax deadline Ida's adjusted gross income in 2012 was $9,325, consisting of net business income from the clothing shop of $12,325 and a net capital loss of $3,000. Tax deadline She did not itemize her deductions in 2012. Tax deadline She deducted the standard deduction of $5,950 and the personal exemption deduction of $3,800. Tax deadline She had no other deductions in 2012 (other than the NOL deduction). Tax deadline Her taxable income, therefore, was ($425). Tax deadline Ida's $36,000 carryback will result in her having 2011 taxable income of zero. Tax deadline She then completes the column for the second preceding tax year ended 12/31/11 on Form 1045, Schedule B, to figure how much of her NOL she uses up in 2011 and how much she can carry over to 2012. Tax deadline She completes the column for the first preceding tax year ended 12/31/12. Tax deadline See the illustrated Form 1045, Schedule B , shown later. Tax deadline Column 1, line 1. Tax deadline Ida enters $36,000, her 2013 net operating loss, on line 1. Tax deadline Column 1, line 2. Tax deadline She enters $24,700, her 2011 taxable income (figured without the NOL deduction), on line 2. Tax deadline Column 1, line 3. Tax deadline Ida enters her net capital loss deduction of $1,000 on line 3. Tax deadline Column 1, lines 4 and 5. Tax deadline Ida had no section 1202 exclusion or domestic production activities deduction in 2011. Tax deadline She enters zero on lines 4 and 5. Tax deadline Column 1, line 6. Tax deadline Although Ida's entry on line 3 modifies her adjusted gross income, that does not affect any other items included in her adjusted gross income. Tax deadline Ida enters zero on line 6. Tax deadline Column 1, line 7. Tax deadline Ida had itemized deductions and entered $1,000 on line 3, so she completes lines 11 through 38 to figure her adjustment to itemized deductions. Tax deadline On line 7, she enters the total adjustment from line 38. Tax deadline Column 1, line 8. Tax deadline Ida enters the deduction for her personal exemption of $3,700 for 2011. Tax deadline Column 1, line 9. Tax deadline After combining lines 2 through 8, Ida's modified taxable income is $29,475. Tax deadline Column 1, line 10. Tax deadline Ida figures her carryover to 2012 by subtracting her modified taxable income (line 9) from her NOL deduction (line 1). Tax deadline She enters the $6,525 carryover on line 10. Tax deadline She also enters the $6,525 as her NOL deduction for 2012 on Form 1045, page 1, line 10, in the “After carryback” column under the column for the first preceding tax year ended 12/31/12. Tax deadline (For an illustrated example of page 1 of Form 1045, see Illustrated Form 1045 under How To Claim an NOL Deduction , earlier. Tax deadline ) Next, Ida completes column 2 for the first preceding tax year ended 12/31/12. Tax deadline Column 1, line 11. Tax deadline Ida's adjusted gross income for 2011 was $35,000. Tax deadline Column 1, line 12. Tax deadline She adds lines 3 through 6 and enters $1,000 on line 12. Tax deadline (This is her net capital loss deduction added back, which modifies her adjusted gross income. Tax deadline ) Column 1, line 13. Tax deadline Her modified adjusted gross income for 2011 is now $36,000. Tax deadline Column 1, line 14. Tax deadline On her 2011 tax return, she deducted $375 as medical expenses. Tax deadline Column 1, line 15. Tax deadline Her actual medical expenses were $3,000. Tax deadline Column 1, line 16. Tax deadline She multiplies her modified adjusted gross income, $36,000, by . Tax deadline 075. Tax deadline She enters $2,700 on line 16. Tax deadline Column 1, line 17. Tax deadline She substracts $2,700 from her actual medical expenses, $3,000. Tax deadline She enters $300 on line 17. Tax deadline This is her modified medical deduction. Tax deadline Column 1, line 18. Tax deadline The difference between her medical deduction and her modified medical deduction is $75. Tax deadline She enters this on line 18. Tax deadline Column 1, lines 19 through 21. Tax deadline Ida had no deduction for qualified mortgage insurance premiums in 2011. Tax deadline She skips lines 19 and 20 and enters zero on line 21. Tax deadline Column 1, line 22. Tax deadline She enters her modified adjusted gross income of $36,000 on line 22. Tax deadline Column 1, line 23. Tax deadline She had no other carrybacks to 2011 and enters zero on line 23. Tax deadline Column 1, line 24. Tax deadline Her modified adjusted gross income remains $36,000. Tax deadline Column 1, line 25. Tax deadline Her actual contributions for 2011 were $1,450, which she enters on line 25. Tax deadline Column 1, line 26. Tax deadline She now refigures her charitable contributions based on her modified adjusted gross income. Tax deadline Her contributions are well below the 50% limit, so she enters $1,450 on line 26. Tax deadline Column 1, line 27. Tax deadline The difference is zero. Tax deadline Column 1, lines 28 through 37. Tax deadline Ida had no casualty losses or deductions for miscellaneous items in 2011. Tax deadline She skips lines 28 through 31 and lines 33 through 36. Tax deadline Ida enters zero on lines 32 and 37. Tax deadline Column 1, line 38. Tax deadline She combines lines 18, 21, 27, 32, and 37 and enters $75 on line 38. Tax deadline She carries this figure to line 7. Tax deadline Column 2, line 1. Tax deadline Ida enters $6,525, the carryback of her 2013 NOL to 2012, from column 1, line 10, on line 1. Tax deadline Column 2, line 2. Tax deadline She enters ($425), her 2012 taxable income, on line 2. Tax deadline Column 2, line 3. Tax deadline Ida enters her net capital loss deduction of $3,000 on line 3. Tax deadline Column 2, lines 4 and 5. Tax deadline Ida had no section 1202 exclusion or domestic production activities deduction in 2012. Tax deadline She enters zero on lines 4 and 5. Tax deadline Column 2, line 6. Tax deadline Although Ida's entry on line 3 modifies her adjusted gross income, that does not affect any other items included in her adjusted gross income. Tax deadline Ida enters zero on line 6. Tax deadline Column 2, line 7. Tax deadline Because Ida did not itemize deductions on her 2012 tax return, she enters zero on line 7. Tax deadline Column 2, line 8. Tax deadline Ida enters the deduction for her personal exemption of $3,800 for 2012. Tax deadline Column 2, line 9. Tax deadline After combining lines 2 through 8, Ida's modified taxable income is $6,375. Tax deadline Column 2, line 10. Tax deadline Ida figures her carryforward to 2014 by subtracting her modified taxable income (line 9) from her NOL deduction (line 1). Tax deadline She enters the $150 carryover on line 10. Tax deadline This image is too large to be displayed in the current screen. Tax deadline Please click the link to view the image. Tax deadline Form 1045, page 3 This image is too large to be displayed in the current screen. Tax deadline Please click the link to view the image. Tax deadline Form 1045, page 4 NOL Carryover From 2013 to 2014 If you had an NOL deduction carried forward from a year prior to 2013 that resulted in your having taxable income on your 2013 return of zero (of less than zero, if an estate or trust), complete Table 1 , Worksheet for NOL Carryover From 2013 to 2014, on the following pages. Tax deadline It will help you figure your NOL to carry to 2014. Tax deadline Keep the worksheet for your records. Tax deadline Worksheet Instructions At the top of the worksheet, enter the NOL year for which you are figuring the carryover. Tax deadline More than one NOL. Tax deadline   If your 2013 NOL deduction includes amounts for more than one loss year, complete this worksheet only for one loss year. Tax deadline To determine which year, start with your earliest NOL and subtract each NOL separately from your taxable income figured without the NOL deduction. Tax deadline Complete this worksheet for the earliest NOL that results in your having taxable income below zero. Tax deadline Your NOL carryover to 2014 is the total of the amount on line 10 of the worksheet and all later NOL amounts. Tax deadline Example. Tax deadline Your taxable income for 2013 is $5,000 without your $9,000 NOL deduction. Tax deadline Your NOL deduction includes a $2,000 carryover from 2011 and a $7,000 carryover from 2012. Tax deadline Subtract your 2011 NOL of $2,000 from $5,000. Tax deadline This gives you taxable income of $3,000. Tax deadline Your 2011 NOL is now completely used up. Tax deadline Subtract your $7,000 2012 NOL from $3,000. Tax deadline This gives you taxable income of ($4,000). Tax deadline You now complete the worksheet for your 2012 NOL. Tax deadline Your NOL carryover to 2014 is the unused part of your 2012 NOL from line 10 of the worksheet. Tax deadline Line 2. Tax deadline   Treat your NOL deduction for the NOL year entered at the top of the worksheet and later years as a positive amount. Tax deadline Add it to your negative taxable income (figured without the NOL deduction). Tax deadline Enter the result on line 2. Tax deadline Line 6. Tax deadline   You must refigure the following income and deductions based on adjusted gross income. Tax deadline The special allowance for passive activity losses from rental real estate activities. Tax deadline Taxable social security and tier 1 railroad retirement benefits. Tax deadline IRA deductions. Tax deadline Excludable savings bond interest. Tax deadline Excludable employer-provided adoption benefits. Tax deadline The student loan interest deduction. Tax deadline The tuition and fees deduction. Tax deadline   If none of these items apply to you, enter zero on line 6. Tax deadline Otherwise, increase your adjusted gross income by the total of lines 3 through 5 and your NOL deduction for the NOL year entered at the top of the worksheet and later years. Tax deadline Using this increased adjusted gross income, refigure the items that apply, in the order listed above. Tax deadline Your adjustment for each item is the difference between the refigured amount and the amount included on your return. Tax deadline Combine the adjustments for previous items with your adjusted gross income before refiguring the next item. Tax deadline Keep a record of your computations. Tax deadline   Enter your total adjustments for the above items on line 6. Tax deadline Line 7. Tax deadline   Enter zero if you claimed the standard deduction or the amounts on lines 3 through 5 are zero. Tax deadline Otherwise, use lines 11 through 33 of the worksheet to figure the amount to enter on this line. Tax deadline Complete only those sections that apply to you. Tax deadline Estates and trusts. Tax deadline   Enter zero on line 7 if you did not claim any miscellaneous deductions on Form 1041, line 15c, or a casualty or theft loss. Tax deadline Otherwise, refigure these deductions by substituting modified adjusted gross income (see below ) for adjusted gross income. Tax deadline Subtract the recomputed deductions from those claimed on the return. Tax deadline Enter the result on line 7. Tax deadline Modified adjusted gross income. Tax deadline   To refigure miscellaneous itemized deductions of an estate or trust (Form 1041, line 15c), modified adjusted gross income is the total of the following amounts. Tax deadline The adjusted gross income on the return. Tax deadline The amounts from lines 3 through 5 of the worksheet. Tax deadline The exemption amount from Form 1041, line 20. Tax deadline The NOL deduction for the NOL year entered at the top of the worksheet and for later years. Tax deadline   To refigure the casualty and theft loss deduction of an estate or trust, modified adjusted gross income is the total of the following amounts. Tax deadline The adjusted gross income amount you used to figure the deduction claimed on the return. Tax deadline The amounts from lines 3 through 5 of the worksheet. Tax deadline The NOL deduction for the NOL year entered at the top of the worksheet and for later years. Tax deadline Line 11. Tax deadline   Treat your NOL deduction for the NOL year entered at the top of the worksheet and for later years as a positive amount. Tax deadline Add it to your adjusted gross income. Tax deadline Enter the result on line 11. Tax deadline Line 20. Tax deadline   Is your modified adjusted gross income from line 13 of this worksheet more than $100,000 ($50,000 if married filing separately)?   □ Yes. Tax deadline Your deduction is limited. Tax deadline Refigure your deduction using the Mortgage Insurance Premiums Deduction Worksheet in the 2013 Instructions for Form 1045. Tax deadline On line 2 of the Mortgage Insurance Premiums Deduction Worksheet, enter the amount from line 13 of this worksheet. Tax deadline   □ No. Tax deadline Your deduction is not limited. Tax deadline Enter the amount from line 19 on line 20 and enter -0- on line 21. Tax deadline Line 23. Tax deadline   If you had a contributions carryover from 2012 to 2013 and your NOL deduction includes an amount from an NOL year before 2012, you may have to reduce your contributions carryover. Tax deadline Reduce the contributions carryover by the amount of any adjustment you made to your 2012 charitable contributions deduction when figuring your NOL carryover to 2013. Tax deadline Use the reduced contributions carryover to figure the amount to enter on line 23. Tax deadline Please click here for the text description of the image. Tax deadline Worksheet for NOL Carryover Worksheet for NOL Carryover (Continued) How To Get Tax Help Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. Tax deadline Free help with your tax return. Tax deadline   You can get free help preparing your return nationwide from IRS-certified volunteers. Tax deadline The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. Tax deadline The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Tax deadline Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Tax deadline In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. Tax deadline To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. Tax deadline gov, download the IRS2Go app, or call 1-800-906-9887. Tax deadline   As part of the TCE program, AARP offers the Tax-Aide counseling program. Tax deadline To find the nearest AARP Tax-Aide site, visit AARP's website at www. Tax deadline aarp. Tax deadline org/money/taxaide or call 1-888-227-7669. Tax deadline For more information on these programs, go to IRS. Tax deadline gov and enter “VITA” in the search box. Tax deadline Internet. Tax deadline    IRS. Tax deadline gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. Tax deadline Download the free IRS2Go app from the iTunes app store or from Google Play. Tax deadline Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. Tax deadline Check the status of your 2013 refund with the Where's My Refund? application on IRS. Tax deadline gov or download the IRS2Go app and select the Refund Status option. Tax deadline The IRS issues more than 9 out of 10 refunds in less than 21 days. Tax deadline Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. Tax deadline You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. Tax deadline The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Tax deadline Use the Interactive Tax Assistant (ITA) to research your tax questions. Tax deadline No need to wait on the phone or stand in line. Tax deadline The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. Tax deadline When you reach the response screen, you can print the entire interview and the final response for your records. Tax deadline New subject areas are added on a regular basis. Tax deadline  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. Tax deadline gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. Tax deadline You can use the IRS Tax Map to search publications and instructions by topic or keyword. Tax deadline The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. Tax deadline When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. Tax deadline Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. Tax deadline You can also ask the IRS to mail a return or an account transcript to you. Tax deadline Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. Tax deadline gov or by calling 1-800-908-9946. Tax deadline Tax return and tax account transcripts are generally available for the current year and the past three years. Tax deadline Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. Tax deadline Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. Tax deadline If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. Tax deadline Check the status of your amended return using Where's My Amended Return? Go to IRS. Tax deadline gov and enter Where's My Amended Return? in the search box. Tax deadline You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Tax deadline It can take up to 3 weeks from the date you mailed it to show up in our system. Tax deadline Make a payment using one of several safe and convenient electronic payment options available on IRS. Tax deadline gov. Tax deadline Select the Payment tab on the front page of IRS. Tax deadline gov for more information. Tax deadline Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. Tax deadline Figure your income tax withholding with the IRS Withholding Calculator on IRS. Tax deadline gov. Tax deadline Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. Tax deadline Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. Tax deadline gov. Tax deadline Request an Electronic Filing PIN by going to IRS. Tax deadline gov and entering Electronic Filing PIN in the search box. Tax deadline Download forms, instructions and publications, including accessible versions for people with disabilities. Tax deadline Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. Tax deadline gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. Tax deadline An employee can answer questions about your tax account or help you set up a payment plan. Tax deadline Before you visit, check the Office Locator on IRS. Tax deadline gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. Tax deadline If you have a special need, such as a disability, you can request an appointment. Tax deadline Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. Tax deadline Apply for an Employer Identification Number (EIN). Tax deadline Go to IRS. Tax deadline gov and enter Apply for an EIN in the search box. Tax deadline Read the Internal Revenue Code, regulations, or other official guidance. Tax deadline Read Internal Revenue Bulletins. Tax deadline Sign up to receive local and national tax news and more by email. Tax deadline Just click on “subscriptions” above the search box on IRS. Tax deadline gov and choose from a variety of options. Tax deadline Phone. Tax deadline    You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. Tax deadline Download the free IRS2Go app from the iTunes app store or from Google Play. Tax deadline Call to locate the nearest volunteer help site, 1-800-906-9887 or you can use the VITA Locator Tool on IRS. Tax deadline gov, or download the IRS2Go app. Tax deadline Low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Tax deadline The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Tax deadline Most VITA and TCE sites offer free electronic filing. Tax deadline Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. Tax deadline Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. Tax deadline Call the automated Where's My Refund? information hotline to check the status of your 2013 refund 24 hours a day, 7 days a week at 1-800-829-1954. Tax deadline If you e-file, you can start checking on the status of your return within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. Tax deadline The IRS issues more than 9 out of 10 refunds in less than 21 days. Tax deadline Where's My Refund? will give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. Tax deadline Before you call this automated hotline, have your 2013 tax return handy so you can enter your social security number, your filing status, and the exact whole dollar amount of your refund. Tax deadline The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Tax deadline Note, the above information is for our automated hotline. Tax deadline Our live phone and walk-in assistors can research the status of your refund only if it's been 21 days or more since you filed electronically or more than 6 weeks since you mailed your paper return. Tax deadline Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. Tax deadline You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Tax deadline It can take up to 3 weeks from the date you mailed it to show up in our system. Tax deadline Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, publications, and prior-year forms and instructions (limited to 5 years). Tax deadline You should receive your order within 10 business days. Tax deadline Call TeleTax, 1-800-829-4477, to listen to pre-recorded messages covering general and business tax information. Tax deadline If, between January and April 15, you still have questions about the Form 1040, 1040A, or 1040EZ (like filing requirements, dependents, credits, Schedule D, pensions and IRAs or self-employment taxes), call 1-800-829-1040. Tax deadline Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. Tax deadline The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. Tax deadline These individuals can also contact the IRS through relay services such as the Federal Relay Service. Tax deadline Walk-in. Tax deadline   You can find a selection of forms, publications and services — in person. Tax deadline Products. Tax deadline You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Tax deadline Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. Tax deadline Services. Tax deadline You can walk in to your local TAC for face-to-face tax help. Tax deadline An employee can answer questions about your tax account or help you set up a payment plan. Tax deadline Before visiting, use the Office Locator tool on IRS. Tax deadline gov, or choose the Contact Us option on the IRS2Go app and search Local Offices for days and hours of operation, and services provided. Tax deadline Mail. Tax deadline   You can send your order for forms, instructions, and publications to the address below. Tax deadline You should receive a response within 10 business days after your request is received. Tax deadline Internal Revenue Service 1201 N. Tax deadline Mitsubishi Motorway Bloomington, IL 61705-6613    The Taxpayer Advocate Service Is Here to Help You. Tax deadline The Taxpayer Advocate Service (TAS) is your voice at the IRS. Tax deadline Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. Tax deadline   What can TAS do for you? We can offer you free help with IRS problems that you can't resolve on your own. Tax deadline We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. Tax deadline You face (or your business is facing) an immediate threat of adverse action. Tax deadline You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. Tax deadline   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. Tax deadline Here's why we can help: TAS is an independent organization within the IRS. Tax deadline Our advocates know how to work with the IRS. Tax deadline Our services are free and tailored to meet your needs. Tax deadline We have offices in every state, the District of Columbia, and Puerto Rico. Tax deadline   How can you reach us? If you think TAS can help you, call your local advocate, whose number is in your local directory and at Taxpayer Advocate, or call us toll-free at 1-877-777-4778. Tax deadline   How else does TAS help taxpayers?  TAS also works to resolve large-scale, systemic problems that affect many taxpayers. Tax deadline If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System. Tax deadline Low Income Taxpayer Clinics Low Income