File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

Tax Software Review

Irs Form 1040 Ez InstructionsFree State E File TaxesFile My 1040x ElectronicallyFiling An Amended Return1040ez 20122012 1040xFile Taxes Online Free Federal And State2011 E-file1040ez Form Online2010 1040 Tax FormFree File Free 1040 Tax ReturnHow To File 1040nr OnlineHow To Do An Amended Tax ReturnFree Tax Filing Military2011 Tax Filing Deadline1040nr Tax Calculator2012 1040aStudent Tax Refund2010 Free Tax FilingH&r Block Free FilingHow Do I File 2009 Taxes OnlineFederal Amended Tax FormsTaxes Online FreeWww Irs1040ez Com2012 Tax Form 1040a1040 Amendment 2011Free File State ReturnIl 1040xIrs 1040ez1040 Form Free1040 2012 Tax FormCan I File 1040x OnlineFree State Income Tax E FileWhen Is The Last Day To File Taxes 20122010 Tax ReturnIrs Gov Forms 1040xI Need To File My 2011 Tax ReturnIrs 2012 Tax Forms 1040 EzWww Irs Gov App VitaIrs Form 1040 X

Tax Software Review

Tax software review Publication 4492 - Main Contents Table of Contents DefinitionsHurricane Katrina Disaster Area Katrina Covered Disaster Area Gulf Opportunity (GO) Zone (Core Disaster Area) Hurricane Rita Disaster Area (Rita Covered Disaster Area) Rita GO Zone Hurricane Wilma Disaster Area Wilma Covered Disaster Area Wilma GO Zone Extended Tax Deadlines Charitable Giving IncentivesTemporary Suspension of Limits on Charitable Contributions Standard Mileage Rate for Charitable Use of Vehicles Mileage Reimbursements to Charitable Volunteers Charitable Deduction for Contributions of Food Inventory Charitable Deduction for Contributions of Book Inventories to Public Schools Casualty and Theft LossesTime limit for making election. Tax software review Replacement Period for Nonrecognition of Gain Net Operating Losses IRAs and Other Retirement PlansDefinitions Taxation of Qualified Hurricane Distributions Repayment of Qualified Hurricane Distributions Repayment of Qualified Distributions for the Purchase or Construction of a Main Home Loans From Qualified Plans Additional Tax Relief for IndividualsEarned Income Credit and Child Tax Credit Additional Exemption for Housing Individuals Displaced by Hurricane Katrina Education Credits Recapture of Federal Mortgage Subsidy Exclusion of Certain Cancellations of Indebtedness by Reason of Hurricane Katrina Tax Relief for Temporary Relocation Additional Tax Relief for BusinessesSpecial Depreciation Allowance Increased Section 179 Deduction Work Opportunity Credit Employee Retention Credit Hurricane Katrina Housing Credit Reforestation Costs Demolition and Clean-up Costs Increase in Rehabilitation Tax Credit Request for Copy or Transcript of Tax Return How To Get Tax Help Definitions The following definitions are used throughout this publication. Tax software review Hurricane Katrina Disaster Area The Hurricane Katrina disaster area covers the area for which the President declared a major disaster before September 14, 2005, because of Hurricane Katrina. Tax software review The Hurricane Katrina disaster area covers the entire states of Alabama, Florida, Louisiana, and Mississippi. Tax software review Katrina Covered Disaster Area A portion of the Hurricane Katrina disaster area has been designated by the IRS as a covered disaster area. Tax software review The Katrina covered disaster area covers the following areas in four states. Tax software review Alabama. Tax software review   The counties of Baldwin, Bibb, Choctaw, Clarke, Colbert, Cullman, Greene, Hale, Jefferson, Lamar, Lauderdale, Marengo, Marion, Mobile, Monroe, Perry, Pickens, Sumter, Tuscaloosa, Washington, Wilcox, and Winston. Tax software review Florida. Tax software review   The counties of Bay, Broward, Collier, Escambia, Franklin, Gulf, Miami-Dade, Monroe, Okaloosa, Santa Rosa, and Walton. Tax software review Louisiana. Tax software review   All parishes. Tax software review Mississippi. Tax software review   All counties. Tax software review Gulf Opportunity (GO) Zone (Core Disaster Area) The GO Zone (also called the core disaster area) covers the portion of the Hurricane Katrina disaster area determined by the Federal Emergency Management Agency (FEMA) to be eligible for either individual only or both individual and public assistance from the Federal Government. Tax software review The GO Zone covers the following areas in three states. Tax software review Alabama. Tax software review   The counties of Baldwin, Choctaw, Clarke, Greene, Hale, Marengo, Mobile, Pickens, Sumter, Tuscaloosa, and Washington. Tax software review Louisiana. Tax software review   The parishes of Acadia, Ascension, Assumption, Calcasieu, Cameron, East Baton Rouge, East Feliciana, Iberia, Iberville, Jefferson, Jefferson Davis, Lafayette, Lafourche, Livingston, Orleans, Plaquemines, Pointe Coupee, St. Tax software review Bernard, St. Tax software review Charles, St. Tax software review Helena, St. Tax software review James, St. Tax software review John the Baptist, St. Tax software review Martin, St. Tax software review Mary, St. Tax software review Tammany, Tangipahoa, Terrebonne, Vermilion, Washington, West Baton Rouge, and West Feliciana. Tax software review Mississippi. Tax software review   The counties of Adams, Amite, Attala, Choctaw, Claiborne, Clarke, Copiah, Covington, Forrest, Franklin, George, Greene, Hancock, Harrison, Hinds, Holmes, Humphreys, Jackson, Jasper, Jefferson, Jefferson Davis, Jones, Kemper, Lamar, Lauderdale, Lawrence, Leake, Lincoln, Lowndes, Madison, Marion, Neshoba, Newton, Noxubee, Oktibbeha, Pearl River, Perry, Pike, Rankin, Scott, Simpson, Smith, Stone, Walthall, Warren, Wayne, Wilkinson, Winston, and Yazoo. Tax software review Hurricane Rita Disaster Area (Rita Covered Disaster Area) The Hurricane Rita disaster area (also designated by the IRS as the Rita covered disaster area) covers the area for which the President declared a major disaster before October 6, 2005, because of Hurricane Rita. Tax software review This area covers the entire states of Louisiana and Texas. Tax software review Rita GO Zone The Rita GO Zone covers the portion of the Hurricane Rita disaster area determined by FEMA to be eligible for either individual only or both individual and public assistance from the Federal Government. Tax software review The Rita GO Zone covers the following areas in two states. Tax software review Louisiana. Tax software review   The parishes of Acadia, Allen, Ascension, Beauregard, Calcasieu, Cameron, Evangeline, Iberia, Jefferson, Jefferson Davis, Lafayette, Lafourche, Livingston, Plaquemines, Sabine, St. Tax software review Landry, St. Tax software review Martin, St. Tax software review Mary, St. Tax software review Tammany, Terrebonne, Vermilion, Vernon, and West Baton Rouge. Tax software review Texas. Tax software review   The counties of Angelina, Brazoria, Chambers, Fort Bend, Galveston, Hardin, Harris, Jasper, Jefferson, Liberty, Montgomery, Nacogdoches, Newton, Orange, Polk, Sabine, San Augustine, San Jacinto, Shelby, Trinity, Tyler, and Walker. Tax software review Hurricane Wilma Disaster Area The Hurricane Wilma disaster area covers the area for which the President declared a major disaster before November 14, 2005, because of Hurricane Wilma. Tax software review The Hurricane Wilma disaster area covers the entire state of Florida. Tax software review Wilma Covered Disaster Area A portion of the Hurricane Wilma disaster area has been designated by the IRS as a covered disaster area. Tax software review The Wilma covered disaster area covers the following counties. Tax software review Florida. Tax software review   Brevard, Broward, Charlotte, Collier, DeSoto, Glades, Hardee, Hendry, Highlands, Indian River, Lee, Martin, Miami-Dade, Monroe, Okeechobee, Osceola, Palm Beach, Polk, St. Tax software review Lucie, and Sarasota. Tax software review Wilma GO Zone The Wilma GO Zone covers the portion of the Hurricane Wilma disaster area determined by FEMA to be eligible for either individual only or both individual and public assistance from the Federal Government. Tax software review The Wilma GO Zone covers the following counties. Tax software review Florida. Tax software review   Brevard, Broward, Collier, Glades, Hendry, Indian River, Lee, Martin, Miami-Dade, Monroe, Okeechobee, Palm Beach, and St. Tax software review Lucie. Tax software review Extended Tax Deadlines The IRS has extended deadlines that apply to filing returns, paying taxes, and performing certain other time-sensitive acts for certain taxpayers affected by Hurricane Katrina, Rita, or Wilma, until February 28, 2006. Tax software review The extension applies to deadlines (either an original or extended due date) that occur during the following periods. Tax software review After August 28, 2005 (August 23, 2005, for Florida affected taxpayers), and before February 28, 2006, for taxpayers affected by Hurricane Katrina. Tax software review After September 22, 2005, and before February 28, 2006, for taxpayers affected by Hurricane Rita. Tax software review After October 22, 2005, and before February 28, 2006, for taxpayers affected by Hurricane Wilma. Tax software review Affected taxpayer. Tax software review   The following taxpayers are eligible for the extension. Tax software review Any individual whose main home is located in a covered disaster area. Tax software review Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. Tax software review Any individual, business entity, or sole proprietor whose records needed to meet a postponed deadline are maintained or whose tax professional's office is in a covered disaster area. Tax software review The main home or principal place of business does not have to be located in the covered area. Tax software review Any individual visiting a county or parish in the Hurricane Katrina or Hurricane Rita covered disaster area that was injured or killed (and the estate of an individual killed) as a result of the hurricane or its aftermath. Tax software review Any estate or trust whose tax records needed to meet a filing or payment deadline are maintained in a covered disaster area. Tax software review Generally, any individual who is a worker assisting in the relief activities in a covered disaster area. Tax software review However, a relief worker assisting in the Wilma covered disaster area is not an affected taxpayer unless the worker is affiliated with a recognized government or philanthropic organization assisting in the relief activities. Tax software review The spouse of an affected taxpayer, solely with regard to a joint income tax return with that taxpayer. Tax software review   To ensure correct processing, affected taxpayers should write the assigned disaster designation (for example, “Hurricane Katrina”) in red ink at the top of any forms or documents filed with the IRS. Tax software review Affected taxpayers can also identify themselves to the IRS or ask hurricane-related questions by calling the special IRS disaster hotline at 1-866-562-5227. Tax software review Acts extended. Tax software review   Deadlines for performing the following acts are extended. Tax software review Filing any return of income, estate, gift, generation-skipping transfer, excise, or employment tax. Tax software review Paying any income, estate, gift, generation-skipping transfer, excise, or employment tax. Tax software review This includes making estimated tax payments. Tax software review Making certain contributions, distributions, recharacterizing contributions, or making a rollover to or from a qualified retirement plan. Tax software review Filing certain petitions with the Tax Court. Tax software review Filing a claim for credit or refund of any tax. Tax software review Bringing suit upon a claim for credit or refund. Tax software review Certain other acts described in Revenue Procedure 2005-27. Tax software review You can find Revenue Procedure 2005-27 on page 1050 of Internal Revenue Bulletin 2005-20 at www. Tax software review irs. Tax software review gov/pub/irs-irbs/irb05-20. Tax software review pdf. Tax software review Forgiveness of interest and penalties. Tax software review   The IRS may forgive the interest and penalties on any underpaid income, estate, gift, employment, or excise tax for the length of any extension. Tax software review Charitable Giving Incentives Temporary Suspension of Limits on Charitable Contributions Individuals. Tax software review   Qualified contributions are not subject to the overall limit on itemized deductions or the 50% adjusted gross income (AGI) limit. Tax software review A qualified contribution is a charitable contribution paid in cash or by check after August 27, 2005, and before January 1, 2006, to a 50% limit organization (other than certain private foundations described in section 509(a)(3)) if you make an election to have the 50% limit not apply to these contributions. Tax software review   Your deduction for qualified contributions is limited to your AGI minus your deduction for all other charitable contributions. Tax software review You can carry over any contributions you are not able to deduct for 2005 because of this limit. Tax software review In 2006, treat the carryover of your unused qualified contributions as a carryover of contributions subject to the 50% limit. Tax software review Exception. Tax software review   Qualified contributions do not include a contribution to a segregated fund or account for which you (or any person you appoint or designate) have or expect to have advisory privileges with respect to distributions or investments based on your contribution. Tax software review Corporations. Tax software review   A corporation may elect to deduct qualified cash contributions without regard to the 10% taxable income limit if the contributions were made after August 27, 2005, and before January 1, 2006, to a qualified charitable organization (other than certain private foundations described in section 509(a)(3)), for Hurricane Katrina, Rita, or Wilma relief efforts. Tax software review The corporation's deduction for these qualified contributions is limited to 100% of taxable income (as modified for the 10% limit) minus the corporation's deduction for all other charitable contributions. Tax software review Any qualified contributions over this limit can be carried over to the next 5 years, subject to the 10% limit. Tax software review Partners and shareholders. Tax software review   Each partner in a partnership and each shareholder in an S corporation makes a separate election to have the appropriate limit not apply. Tax software review More information. Tax software review   For more information, see Publication 526 or Publication 542, Corporations. Tax software review Publication 526 includes a worksheet you can use to figure your deduction if any limits apply to your charitable contributions. Tax software review Standard Mileage Rate for Charitable Use of Vehicles The following are special standard mileage rates in effect in 2005 and 2006 for the cost of operating your automobile for providing charitable services solely related to Hurricane Katrina. Tax software review 29 cents per mile for the period August 25 through August 31, 2005. Tax software review 34 cents per mile for the period September 1 through December 31, 2005. Tax software review 32 cents per mile for the period January 1 through December 31, 2006. Tax software review Mileage Reimbursements to Charitable Volunteers You can exclude from income amounts you receive as mileage reimbursements for the use of a private passenger automobile for the benefit of a qualified charitable organization in providing relief related to Hurricane Katrina during the period beginning on August 25, 2005, and ending on December 31, 2006. Tax software review You cannot claim a deduction or credit for amounts you receive as a mileage reimbursement. Tax software review You must keep records of miles driven, time, place (or use), and purpose of the mileage. Tax software review The amount you can exclude from income cannot exceed the standard business mileage rate (shown below) for expenses incurred during the following periods. Tax software review 40. Tax software review 5 cents per mile for the period August 25 through August 31, 2005. Tax software review 48. Tax software review 5 cents per mile for the period September 1 through December 31, 2005. Tax software review 44. Tax software review 5 cents per mile for the period January 1 through December 31, 2006. Tax software review Charitable Deduction for Contributions of Food Inventory Any taxpayer engaged in a trade or business is eligible to claim a deduction for a contribution of “apparently wholesome food” inventory to a qualified charitable organization described in section 501(c)(3) (except for private nonoperating foundations) after August 27, 2005, and before January 1, 2006. Tax software review “Apparently wholesome food” is food that meets all quality and labeling standards imposed by federal, state, and local laws and regulations even though the food may not be readily marketable due to appearance, age, freshness, grade, size, surplus, or other conditions. Tax software review The deduction is equal to the lesser of: The basis of the donated food plus one-half of the gain that would have been realized if the donated food had been sold at fair market value on the date of the donation, or Two times the basis of the donated food. Tax software review The taxpayer must receive written certification from the donee stating: The donated food is related to the purpose or function of the donee's basis for exemption under section 501(c)(3) and is to be used solely for the care of the ill, the needy, or infants; and The food was not given in exchange for money, other property, or services. Tax software review For a taxpayer other than a C corporation, the deduction is limited to 10% of the taxpayer's total net income from all trades or businesses from which the food contributions were made (figured without regard to the deduction for charitable contributions). Tax software review For example, if a taxpayer is a sole proprietor, a shareholder in an S corporation, and a partner in a partnership, and each made a contribution of apparently wholesome food inventory, the taxpayer's deduction is limited to 10% of the taxpayer's total net income from the sole proprietorship, S corporation, and partnership (figured without regard to the deduction for charitable contributions). Tax software review Charitable Deduction for Contributions of Book Inventories to Public Schools A corporation (other than an S corporation) may be allowed a charitable deduction for a qualified book contribution made after August 27, 2005, and before January 1, 2006, to a public school that: Provides elementary or secondary education (kindergarten through grade 12), and Normally maintains a regular faculty and curriculum and has a regular enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. Tax software review . Tax software review The deduction is equal to the lesser of: The basis of the donated books plus one-half of the gain that would have been realized if the donated books had been sold at fair market value on the date of the donation, or Two times the basis of the donated books. Tax software review The corporation must receive written certification from the school stating that the donated books are suitable for the organization's educational programs and will be used for such programs. Tax software review Casualty and Theft Losses The following paragraphs explain changes to casualty and theft losses that were caused by Hurricane Katrina, Rita, or Wilma. Tax software review For more information, see Publication 547. Tax software review Limits on personal casualty or theft losses caused by Hurricane Katrina, Rita, or Wilma. Tax software review   The following losses to personal use property are not subject to the $100 or 10% of adjusted gross income limits. Tax software review Losses that arose in the Hurricane Katrina disaster area after August 24, 2005, and that were caused by Hurricane Katrina. Tax software review Losses that arose in the Hurricane Rita disaster area after September 22, 2005, and that were caused by Hurricane Rita. Tax software review Losses that arose in the Hurricane Wilma disaster area after October 22, 2005, and that were caused by Hurricane Wilma. Tax software review Qualifying losses include losses from flooding or other casualty, and from theft, that arose in the hurricane disaster area and that were caused by the hurricane. Tax software review Special instructions for individuals who elect to claim a Hurricane Katrina, Rita, or Wilma casualty or theft loss for 2004. Tax software review   Casualty and theft losses are generally deductible only in the year the casualty occurred or theft was discovered. Tax software review However, Hurricane Katrina, Rita, and Wilma are Presidentially declared disasters. Tax software review Therefore, you can elect to deduct losses from these hurricanes on your tax return for the previous year. Tax software review If you make this election, use the following additional instructions to complete your forms. Tax software review   Individuals filing or amending their 2004 tax return whose only casualty or theft losses to personal use property claimed on that return were caused by Hurricane Katrina, Rita, or Wilma should write “Hurricane Katrina,” “Hurricane Rita,” or “Hurricane Wilma” at the top of Form 1040 or 1040X. Tax software review They must also complete and attach the 2004 Form 4684 and write “Hurricane Katrina,”“Hurricane Rita,” or “Hurricane Wilma” on the dotted line next to line 11 and enter -0- on lines 11 and 17. Tax software review   Individuals filing or amending their 2004 tax return who also have casualty or theft losses to personal use property not related to Hurricane Katrina, Rita, or Wilma should disregard the caution directing taxpayers to use only one Form 4684, located above line 13, and complete lines 13 through 18 on two Forms 4684. Tax software review The Form 1040 or 1040X and the first Form 4684 should be prepared as explained above for Hurricane Katrina, Rita, or Wilma losses only. Tax software review The second Form 4684 should be prepared in the normal manner for all gains and non-Hurricane Katrina, Rita or Wilma losses. Tax software review If both Forms 4684 have a loss on line 18, they should carry the combined losses from that line to Schedule A (Form 1040), line 19. Tax software review If there is a gain on line 15 of the second Form 4684, disregard the instruction to enter it on Schedule D (Form 1040), and instead enter on Schedule A (Form 1040), line 19, the excess of the loss from the first Form 4684 over the gain on line 15 of the second Form 4684. Tax software review , Time limit for making election. Tax software review   You must make this election to claim your casualty or theft loss in 2004 by the later of the following dates. Tax software review The due date (without extensions) for filing your 2005 income tax return. Tax software review The due date (with extensions) for filing your 2004 income tax return. Tax software review Example. Tax software review If you are a calendar year individual taxpayer, you have until April 17, 2006, to amend your 2004 tax return to claim a casualty or theft loss that occurred during 2005. Tax software review Replacement Period for Nonrecognition of Gain Generally, an involuntary conversion occurs when property is damaged, destroyed, stolen, seized, requisitioned, or condemned, and you receive other property or money in payment, such as insurance or a condemnation award. Tax software review Generally, you do not have to report a gain (if any) if you replace the property within 2 years (4 years for a main home in a Presidentially declared disaster area). Tax software review However, for property that was involuntarily converted after August 24, 2005, as a result of Hurricane Katrina, a 5-year replacement period applies if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. Tax software review For more information, see the Instructions for Form 4684. Tax software review Net Operating Losses Qualified GO Zone loss. Tax software review   Generally, you can carry a net operating loss (NOL) back to the 2 tax years before the NOL year. Tax software review However, the portion of an NOL that is a qualified GO Zone loss can be carried back to the 5 tax years before the NOL year. Tax software review In addition, the 90% limit on the alternative tax NOL deduction (ATNOLD) does not apply to such portion of the ATNOLD. Tax software review   A qualified GO Zone loss is the smaller of: The excess of the NOL for the year over the specified liability loss for the year to which a 10-year carryback applies, or The total of the following deductions (to the extent they are taken into account in computing the NOL for the tax year): Qualified GO Zone casualty loss (as defined below), Moving expenses paid or incurred after August 27, 2005, and before January 1, 2008, for the employment of an individual whose main home was in the GO Zone before August 28, 2005, who was unable to remain in that home because of Hurricane Katrina, and whose main job location (after the move) is in the GO Zone, Temporary housing expenses paid or incurred after August 27, 2005, and before January 1, 2008, to house employees of the taxpayer whose main job location is in the GO Zone, Depreciation or amortization allowable for any qualified GO Zone property (even if you elected not to claim the special GO Zone depreciation allowance for such property) for the year placed in service, and Repair expenses (including expenses for the removal of debris) paid or incurred after August 27, 2005, and before January 1, 2008, for any damage from Hurricane Katrina to property located in the GO Zone. Tax software review Qualified GO Zone casualty loss. Tax software review   A qualified GO Zone casualty loss is any deductible section 1231 loss of property located in the GO Zone if the loss was caused by Hurricane Katrina. Tax software review For this purpose, the amount of the loss is reduced by any recognized gain from an involuntary conversion caused by Hurricane Katrina of property located in the GO Zone. Tax software review Any such loss taken into account in figuring your qualified GO Zone loss is not eligible for the election to be treated as having occurred in the previous tax year. Tax software review 5-year NOL carryback of certain timber losses. Tax software review   Generally, you can carry the portion of an NOL due to income and deductions attributable to a farming business back to the 5 tax years before the NOL year. Tax software review You can treat income and deductions attributable to qualified timber property as attributable to a farming business if any portion of the property is located in the GO Zone, Rita GO Zone, or Wilma GO Zone, and the income and deductions are allocable to the part of your tax year which is after the applicable date below. Tax software review August 27, 2005, if any portion of the property is located in the GO Zone. Tax software review September 22, 2005, if any portion of the property is located in the Rita GO Zone (but not in the GO Zone). Tax software review October 22, 2005, if any portion of the property is located in the Wilma GO Zone (but not in the GO Zone or the RITA GO Zone). Tax software review   These rules will not apply after 2006. Tax software review   However, these rules apply only to a timber producer who: Held qualified timber property (defined in Publication 535, Business Expenses) on the applicable date below: August 28, 2005, if any portion of the property is located in the GO Zone, September 23, 2005, if any portion of the property is located in the Rita GO Zone (but not in the GO Zone), or October 23, 2005, if any portion of the property is located in the Wilma GO Zone (but not in the GO Zone or the Rita GO Zone); Is not a corporation with stock publicly traded on an established securities market; Is not a real estate investment trust; and Did not hold more than 500 acres of qualified timber property on the applicable date above. Tax software review More information. Tax software review   For more information on NOLs, see Publication 536 or Publication 542, Corporations. Tax software review IRAs and Other Retirement Plans New rules provide for tax-favored withdrawals, repayments, and loans from certain retirement plans for taxpayers who suffered economic losses as a result of Hurricane Katrina, Rita, or Wilma. Tax software review Definitions Qualified hurricane distribution. Tax software review   A qualified hurricane distribution is any distribution you received from an eligible retirement plan if all of the following apply. Tax software review The distribution was made: After August 24, 2005, and before January 1, 2007, for Hurricane Katrina; After September 22, 2005, and before January 1, 2007, for Hurricane Rita; or After October 22, 2005, and before January 1, 2007, for Hurricane Wilma. Tax software review Your main home was located in a hurricane disaster area listed below on the date shown for that area. Tax software review August 28, 2005, for the Hurricane Katrina disaster area. Tax software review September 23, 2005, for the Hurricane Rita disaster area. Tax software review October 23, 2005, for the Hurricane Wilma disaster area. Tax software review You sustained an economic loss because of Hurricane Katrina, Rita, or Wilma and your main home was in that hurricane disaster area on the date shown in (2) above for that hurricane. Tax software review Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. Tax software review   If (1) through (3) above apply, you can generally designate any distribution (including periodic payments and required minimum distributions) from an eligible retirement plan as a qualified hurricane distribution, regardless of whether the distribution was made on account of Hurricane Katrina, Rita, or Wilma. Tax software review Qualified hurricane distributions are permitted without regard to your need or the actual amount of your economic loss. Tax software review   The total of your qualified hurricane distributions from all plans is limited to $100,000. Tax software review If you have distributions in excess of $100,000 from more than one type of plan, such as a 401(k) plan and an IRA, you may allocate the $100,000 limit among the plans any way you choose. Tax software review   A reduction or offset (after August 24, 2005, for Katrina; after September 22, 2005, for Rita; or after October 22, 2005, for Wilma) of your account balance in an eligible retirement plan in order to repay a loan can also be designated as a qualified hurricane distribution. Tax software review Eligible retirement plan. Tax software review   An eligible retirement plan can be any of the following. Tax software review A qualified pension, profit-sharing, or stock bonus plan (including a 401(k) plan). Tax software review A qualified annuity plan. Tax software review A tax-sheltered annuity contract. Tax software review A governmental section 457 deferred compensation plan. Tax software review A traditional, SEP, SIMPLE, or Roth IRA. Tax software review Main home. Tax software review   Generally, your main home is the home where you live most of the time. Tax software review A temporary absence due to special circumstances, such as illness, education, business, military service, evacuation, or vacation, will not change your main home. Tax software review Taxation of Qualified Hurricane Distributions Qualified hurricane distributions are included in income in equal amounts over three years. Tax software review However, if you elect, you can include the entire distribution in your income in the year it was received. Tax software review Qualified hurricane distributions are not subject to the additional 10% tax (or the additional 25% tax for certain distributions from SIMPLE IRAs) on early distributions from qualified retirement plans (including IRAs). Tax software review However, any distributions you receive in excess of the $100,000 qualified hurricane distribution limit may be subject to the additional tax on early distributions. Tax software review For more information, see Form 8915. Tax software review Repayment of Qualified Hurricane Distributions If you choose, you generally can repay any portion of a qualified hurricane distribution that is eligible for tax-free rollover treatment to an eligible retirement plan. Tax software review Also, you can repay a qualified hurricane distribution made on account of a hardship from a retirement plan. Tax software review However, see Exceptions below for qualified hurricane distributions you cannot repay. Tax software review You have three years from the day after the date you received the distribution to make a repayment. Tax software review Amounts that are repaid are treated as a qualified rollover and are not included in income. Tax software review Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover. Tax software review See Form 8915 for more information on how to report repayments. Tax software review Exceptions. Tax software review   You cannot repay the following types of distributions. Tax software review Qualified hurricane distributions received as a beneficiary (other than a surviving spouse). Tax software review Required minimum distributions. Tax software review Periodic payments (other than from an IRA) that are for: A period of 10 years or more, Your life or life expectancy, or The joint lives or joint life expectancies of you and your beneficiary. Tax software review Repayment of Qualified Distributions for the Purchase or Construction of a Main Home If you received a qualified distribution to purchase or construct a main home in the Hurricane Katrina, Rita, or Wilma disaster area, you can repay that distribution before March 1, 2006, to an eligible retirement plan after August 24, 2005 (Katrina); after September 22, 2005 (Rita); or after October 22, 2005 (Wilma). Tax software review For this purpose, an eligible retirement plan is any plan, annuity, or IRA to which a qualified rollover can be made. Tax software review To be a qualified distribution, the distribution must meet all of the following requirements. Tax software review The distribution is a hardship distribution from a 401(k) plan, a hardship distribution from a tax-sheltered annuity contract, or a qualified first-time homebuyer distribution from an IRA. Tax software review The distribution was received in 2005 after February 28 and before: August 29 for Hurricane Katrina; September 24 for Hurricane Rita; or October 24 for Hurricane Wilma. Tax software review The distribution was to be used to purchase or construct a main home in the Hurricane Katrina, Rita, or Wilma disaster area that was not purchased or constructed because of Hurricane Katrina, Rita, or Wilma. Tax software review Amounts that are repaid before March 1, 2006, are treated as a qualified rollover and are not included in income. Tax software review Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover. Tax software review A qualified distribution not repaid before March 1, 2006, may be taxable for 2005 and subject to the additional 10% tax (or the additional 25% tax for certain SIMPLE IRAs) on early distributions. Tax software review You must file Form 8915 if you received a qualified distribution that you repaid, in whole or in part, before March 1, 2006. Tax software review Loans From Qualified Plans The following benefits are available to qualified individuals. Tax software review Increases to the limits for distributions treated as loans from employer plans. Tax software review A 1-year suspension for payments due on plan loans. Tax software review Qualified individual. Tax software review   You are a qualified individual if any of the following apply. Tax software review Your main home on August 28, 2005, was located in the Hurricane Katrina disaster area and you had an economic loss because of Hurricane Katrina. Tax software review Your main home on September 23, 2005, was located in the Hurricane Rita disaster area and you had an economic loss because of Hurricane Rita. Tax software review Your main home on October 23, 2005, was located in the Hurricane Wilma disaster area and you had an economic loss because of Hurricane Wilma. Tax software review Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. Tax software review Limits on plan loans. Tax software review   The $50,000 limit for distributions treated as plan loans is increased to $100,000. Tax software review In addition, the limit based on 50% of your vested accrued benefit is increased to 100% of that benefit. Tax software review The higher limits apply only to loans received during the following period. Tax software review If your main home was located in the Hurricane Katrina disaster area, the period began on September 24, 2005, and ends on December 31, 2006. Tax software review If your main home was located in the Hurricane Rita or Wilma disaster area, the period began on December 21, 2005, and ends on December 31, 2006. Tax software review If you are a qualified individual based on Hurricane Katrina and another hurricane, use the period based on Hurricane Katrina. Tax software review One-year suspension of loan payments. Tax software review   Payments on plan loans due before 2007 may be suspended for 1 year by the plan administrator. Tax software review To qualify for the suspension, the due date for any loan payment must occur during the period beginning on: August 28, 2005, if your main home was located in the Hurricane Katrina disaster area. Tax software review September 23, 2005, if your main home was located in the Hurricane Rita disaster area. Tax software review October 23, 2005, if your main home was located in the Hurricane Wilma disaster area. Tax software review If you are a qualified individual based on more than one hurricane, use the period with the earliest beginning date. Tax software review Additional Tax Relief for Individuals Earned Income Credit and Child Tax Credit You can elect to use your 2004 earned income to figure your earned income credit (EIC) and additional child tax credit for 2005 if: Your 2005 earned income is less than your 2004 earned income, and At least one of the following statements is true. Tax software review Your main home on August 25, 2005, was in the Gulf Opportunity (GO) Zone. Tax software review Your main home on August 25, 2005, was in the Hurricane Katrina disaster area and you were displaced from that home because of Hurricane Katrina. Tax software review Your main home on September 23, 2005, was in the Rita GO Zone. Tax software review Your main home on September 23, 2005, was in the Hurricane Rita disaster area and you were displaced from that home because of Hurricane Rita. Tax software review Your main home on October 23, 2005, was in the Wilma GO Zone. Tax software review Your main home on October 23, 2005, was in the Hurricane Wilma disaster area and you were displaced from that home because of Hurricane Wilma. Tax software review Earned income. Tax software review    For the purpose of this election, your earned income for both the EIC and the additional child tax credit is the amount of earned income used to figure your EIC, even if you did not take the EIC and even if that amount is different than your earned income for the additional child tax credit. Tax software review If you are claiming only the additional child tax credit, you must figure the amount of your earned income for EIC purposes to determine your eligibility to make the election and the amount of the credit. Tax software review Joint returns. Tax software review   If you file a joint return, you qualify to make this election even if only one spouse meets the requirements. Tax software review If you make the election, your 2004 earned income is the sum of your 2004 earned income and your spouse's 2004 earned income. Tax software review Making the election. Tax software review   If you make the election to use your 2004 earned income, the election applies for figuring both the EIC and the additional child tax credit. Tax software review However, you can make the election for the additional child tax credit even if you do not take the EIC. Tax software review   Electing to use your 2004 earned income may increase or decrease your EIC. Tax software review Take the following steps to decide whether to make the election. Tax software review Figure your 2005 EIC using your 2004 earned income. Tax software review Figure your 2005 additional child tax credit using your 2004 earned income for EIC purposes. Tax software review Add the results of (1) and (2). Tax software review Figure your 2005 EIC using your 2005 earned income. Tax software review Figure your 2005 additional child tax credit using your 2005 earned income for additional child tax credit purposes. Tax software review Add the results of (4) and (5). Tax software review Compare the results of (3) and (6). Tax software review If (3) is larger than (6), it is to your benefit to make the election. Tax software review If (3) is equal to or smaller than (6), making the election will not help you. Tax software review   If you elect to use your 2004 earned income and you are claiming the EIC, enter “PYEI” and the amount of your 2004 earned income on the dotted line next to line 66a of Form 1040, on the line next to line 41a of Form 1040A, or in the space to the left of line 8a of Form 1040EZ. Tax software review   If you elect to use your 2004 earned income and you are claiming the additional child tax credit, enter your 2004 earned income for EIC purposes (even if you did not claim the EIC) on Form 8812, Additional Child Tax Credit, line 4a, and check the box on that line. Tax software review   Because Form 8812 was released before the GO Zone legislation was enacted, the instructions refer only to individuals whose main home was in the Hurricane Katrina disaster area. Tax software review When completing Form 8812, line 4a, use the above rules to determine your eligibility to make the election (instead of the Form 8812 instructions). Tax software review Getting your 2004 tax return information. Tax software review   If you do not have your 2004 tax records, you can get the amount of earned income used to figure your 2004 EIC by calling 1-866-562-5227. Tax software review You can also get this information by visiting the IRS website at www. Tax software review irs. Tax software review gov. Tax software review   If you prefer to figure your 2004 earned income yourself, copies or transcripts of your filed and processed tax returns can help you reconstruct your tax records. Tax software review See Request for Copy or Transcript of Tax Return on page 16. Tax software review Additional Exemption for Housing Individuals Displaced by Hurricane Katrina You may be able to claim an additional exemption amount of $500 for providing housing in your main home for each individual displaced by Hurricane Katrina. Tax software review The additional exemption amount is claimed on new Form 8914. Tax software review The additional exemption amount is allowable once per taxpayer for a specific individual in 2005 or 2006, but not in both years. Tax software review The maximum additional exemption amount you can claim for all displaced individuals is $2,000 ($1,000 if married filing separately). Tax software review The additional exemption amount you claim for displaced individuals in 2005 will reduce the $2,000 maximum for 2006. Tax software review If two or more taxpayers share the same main home, only one taxpayer in that main home can claim the additional exemption amount for a specific displaced individual. Tax software review If married filing separately, only one spouse may claim the additional exemption amount for a specific displaced individual. Tax software review In order for you to be considered to have provided housing, you must have a legal interest in the main home (that is, own or rent the home). Tax software review To qualify as a displaced individual, the individual: Must have had his or her main home in the Hurricane Katrina disaster area on August 28, 2005, and he or she must have been displaced from that home. Tax software review If the individual's main home was located outside the core disaster area, that home must have been damaged by Hurricane Katrina or the individual must have been evacuated from that home because of Hurricane Katrina, Must have been provided housing in your main home for a period of at least 60 consecutive days ending in the tax year in which the exemption is claimed, and Cannot be your spouse or dependent. Tax software review You cannot claim the additional exemption amount if you received rent (or any other amount) from any source for providing the housing. Tax software review You are permitted to receive payments or reimbursements that do not relate to normal housing costs, including the following. Tax software review Food, clothing, or personal items consumed or used by the displaced individual. Tax software review Reimbursement for the cost of any long distance telephone calls made by the displaced individual. Tax software review Reimbursement for the cost of gasoline for the displaced individual's use of your vehicle. Tax software review However, you cannot claim the additional exemption amount if you received any reimbursement for the extra costs of heat, electricity, or water used by the displaced individual. Tax software review Also, you must report on Form 8914 the displaced individual's social security number or individual taxpayer identification number to claim an additional exemption amount. Tax software review For more information, see Form 8914. Tax software review Education Credits The education credits have been expanded for students attending an eligible educational institution located in the Gulf Opportunity Zone (GOZ students) for any tax year beginning in 2005 or 2006. Tax software review The Hope credit for a GOZ student is increased to 100% of the first $2,000 in qualified education expenses and 50% of the next $2,000 of qualified education expenses for a maximum credit of $3,000 per student. Tax software review The lifetime learning credit rate for a GOZ student is increased from 20% to 40%. Tax software review The definition of qualified education expenses for a GOZ student also has been expanded. Tax software review In addition to tuition and fees required for the student's enrollment or attendance at an eligible educational institution, qualified education expenses for a GOZ student include the following. Tax software review Books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. Tax software review For a special needs student, expenses that are necessary for that person's enrollment or attendance at an eligible educational institution. Tax software review For a student who is at least a half-time student, the reasonable costs of room and board, but only to the extent that the costs are not more than the greater of the following two amounts. Tax software review The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. Tax software review The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. Tax software review You will need to contact the eligible educational institution for qualified room and board costs. Tax software review For more information, see Form 8863. Tax software review Recapture of Federal Mortgage Subsidy Generally, if you financed your home under a federally subsidized program (loans from tax-exempt qualified mortgage bonds or loans with mortgage credit certificates), you may have to recapture all or part of the benefit you received from that program when you sell or otherwise dispose of your home. Tax software review However, you do not have to recapture any benefit if your mortgage loan was a qualified home improvement loan of not more than $15,000. Tax software review This amount is increased to $150,000 if the loan was provided before 2011 and was used to: Repair damage caused by Hurricane Katrina to a residence in the Hurricane Katrina disaster area, or Alter, repair, or improve an existing owner-occupied residence in the GO Zone, Rita GO Zone, or Wilma GO Zone. Tax software review Exclusion of Certain Cancellations of Indebtedness by Reason of Hurricane Katrina Generally, discharges of nonbusiness debts (such as mortgages) made after August 24, 2005, and before January 1, 2007, are excluded from income for individuals whose main home was in the Hurricane Katrina disaster area on August 25, 2005. Tax software review If the individual's main home was located outside the core disaster area, the individual also must have had an economic loss because of Hurricane Katrina. Tax software review Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. Tax software review This relief does not apply to any debt secured by real property located outside the Hurricane Katrina disaster area. Tax software review You may also have to reduce certain tax attributes by the amount excluded. Tax software review For more information, see Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). Tax software review Tax Relief for Temporary Relocation Under the Gulf Opportunity Zone Act of 2005, the IRS may adjust the internal revenue laws to ensure that taxpayers do not lose a deduction or credit or experience a change of filing status in 2005 or 2006 as a result of a temporary relocation caused by Hurricane Katrina, Rita, or Wilma. Tax software review However, any such adjustment must ensure that an individual is not taken into account by more than one taxpayer for the same tax benefit. Tax software review The IRS has exercised this authority as follows. Tax software review In determining whether you furnished over one-half of the cost of maintaining a household, you can exclude from total household costs any assistance received from the government or charitable organizations because you were temporarily relocated as a result of Hurricane Katrina, Rita, or Wilma. Tax software review In determining whether you provided more than one-half of an individual's support, you can disregard any assistance received from the government or charitable organizations because you were temporarily relocated as a result of Hurricane Katrina, Rita, or Wilma. Tax software review You can treat as a student an individual who enrolled in school before August 25, 2005, and who is unable to attend classes because of Hurricane Katrina, for each month of the enrollment period that individual is prevented by Hurricane Katrina from attending school as planned. Tax software review You can treat as a student an individual who enrolled in school before September 23, 2005, and who is unable to attend classes because of Hurricane Rita, for each month of the enrollment period that individual is prevented by Hurricane Rita from attending school as planned. Tax software review You can treat as a student an individual who enrolled in school before October 23, 2005, and who is unable to attend classes because of Hurricane Wilma, for each month of the enrollment period that individual is prevented by Hurricane Wilma from attending school as planned. Tax software review Additional Tax Relief for Businesses Special Depreciation Allowance You can take a special depreciation allowance for qualified Gulf Opportunity (GO) Zone property (as defined below) you place in service after August 27, 2005. Tax software review The allowance is an additional deduction of 50% of the property's depreciable basis (after any section 179 deduction and before figuring your regular depreciation deduction). Tax software review The special allowance applies only for the first year the property is placed in service. Tax software review The allowance is deductible for both the regular tax and the alternative minimum tax (AMT). Tax software review There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. Tax software review You can elect not to deduct the special GO Zone depreciation allowance for qualified property. Tax software review If you make this election for any property, it applies to all property in the same class placed in service during the year. Tax software review Qualified GO Zone property. Tax software review   Property that qualifies for the special GO Zone depreciation allowance includes the following. Tax software review Tangible property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less. Tax software review Water utility property. Tax software review Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. Tax software review (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Tax software review ) Qualified leasehold improvement property. Tax software review Nonresidential real property and residential rental property. Tax software review   For more information on this property, see Publication 946. Tax software review Other tests to be met. Tax software review   To be qualified GO Zone property, the property must also meet all of the following tests. Tax software review You must have acquired the property, by purchase, after August 27, 2005, but only if no binding written contract for the acquisition was in effect before August 28, 2005. Tax software review The property must be placed in service before 2008 (2009 in the case of nonresidential real property and residential rental property). Tax software review Substantially all of the use of the property must be in the GO Zone and in the active conduct of your trade or business in the GO Zone. Tax software review The original use of the property in the GO Zone must begin with you after August 27, 2005. Tax software review Used property can be qualified GO Zone property if it has not previously been used within the GO Zone. Tax software review Also, additional capital expenditures you incurred after August 27, 2005, to recondition or rebuild your property meet the original use test if the original use of the property in the GO Zone began with you. Tax software review Excepted property. Tax software review   Qualified GO Zone property does not include any of the following. Tax software review Property required to be depreciated using the Alternative Depreciation System (ADS). Tax software review Property any portion of which is financed with the proceeds of a tax-exempt obligation under section 103. Tax software review Property for which you are claiming a commercial revitalization deduction. Tax software review Any property used in connection with any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, or any store, the principal business of which is the sale of alcoholic beverages for consumption off premises. Tax software review Any gambling or animal racing property (as defined below). Tax software review Property in the same class as that for which you elected not to claim the special GO Zone depreciation allowance. Tax software review   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 software review Recapture of special allowance. Tax software review   If, in any year after the year you claim the special allowance, the property ceases to be qualified GO Zone property, you may have to recapture as ordinary income any excess benefit you received from claiming the special allowance. Tax software review Increased Section 179 Deduction An increased section 179 deduction is allowable for qualified section 179 Gulf Opportunity (GO) Zone property (as defined later) placed in service in the GO Zone. Tax software review Increased dollar limit. Tax software review   The limit on the section 179 deduction ($105,000 for 2005, $108,000 for 2006) for qualified section 179 GO Zone property acquired after August 27, 2005, is increased by the smaller of: $100,000, or The cost of qualified section 179 GO Zone property placed in service during the year (including such property placed in service by your spouse, even if you are filing a separate return). Tax software review   The amount for which you can make the election is reduced if the cost of all qualified section 179 GO Zone property you placed in service during the year exceeds $420,000 for 2005 ($430,000 for 2006) increased by the smaller of: $600,000, or The cost of qualified section 179 GO Zone property placed in service during the year. Tax software review Qualified section 179 GO Zone property. Tax software review   Qualified section 179 GO Zone property is section 179 property that is qualified GO Zone property (explained earlier under Special Depreciation Allowance). Tax software review Section 179 property does not include nonresidential real property or residential rental property. Tax software review For more information, including the requirements that must be met for property to qualify for the section 179 deduction, see chapter 2 of Publication 946. Tax software review Work Opportunity Credit For the work opportunity credit, the definition of “targeted group employee” has been expanded to include a Hurricane Katrina employee. Tax software review Hurricane Katrina employee. Tax software review   A Hurricane Katrina employee is: A person who, on August 28, 2005, had a main home in the core disaster area and, within a two-year period beginning on that date, is hired to perform services principally in the core disaster area; or A person who, on August 28, 2005, had a main home in the core disaster area, was displaced from that main home as a result of Hurricane Katrina, and was hired during the period beginning on August 28, 2005, and ending on December 31, 2005. Tax software review Qualified wages. Tax software review   Generally, qualified wages do not include wages you paid to a targeted group employee who worked for you previously. Tax software review However, wages will qualify if: You paid them to an employee who is a Hurricane Katrina employee, The employee was not in your employment on August 28, 2005, and This is your first hire of the employee as a Hurricane Katrina employee after August 28, 2005. Tax software review   For more information, see Form 5884. Tax software review Certification requirements. Tax software review   An employee must provide to the employer reasonable evidence that he or she is a Hurricane Katrina employee. Tax software review An employer may accept a completed Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity and Welfare-to-Work Credits, as such evidence. Tax software review The certification requirements described in Form 8850 do not apply to a Hurricane Katrina employee. Tax software review Do not send any Forms 8850 that have only box 1 checked to the state employment security agency. Tax software review Instead, the employer should keep these Forms 8850 with the employer's other records. Tax software review For more information, see Form 8850 and its instructions. Tax software review Employee Retention Credit An eligible employer who conducted an active trade or business in the Gulf Opportunity (GO) Zone, the Rita GO Zone, or the Wilma GO Zone can claim the employee retention credit. Tax software review The credit is 40% of qualified wages for each eligible employee (up to a maximum of $6,000 in qualified wages per employee). Tax software review Generally, you must reduce your deduction for salaries and wages by the amount of this credit (before the tax liability limit). Tax software review Use Form 5884-A to claim the credit. Tax software review See the following rules and definitions for each hurricane. Tax software review Employers affected by Hurricane Katrina. Tax software review   The following definitions apply to employers affected by Hurricane Katrina. Tax software review Eligible employer. Tax software review   For this purpose, an eligible employer is any employer who conducted an active trade or business on August 28, 2005, in the GO Zone and whose trade or business was inoperable on any day after August 28, 2005, and before January 1, 2006, because of damage caused by Hurricane Katrina. Tax software review Eligible employee. Tax software review   For this purpose, an eligible employee is an employee whose principal place of employment on August 28, 2005, with such eligible employer was in the GO Zone. Tax software review An employee is not an eligible employee for purposes of Hurricane Katrina if the employee is treated as an eligible employee for the work opportunity credit. Tax software review Employers affected by Hurricane Rita. Tax software review   The following definitions apply to employers affected by Hurricane Rita. Tax software review Eligible employer. Tax software review   For this purpose, an eligible employer is any employer who conducted an active trade or business on September 23, 2005, in the Rita GO Zone and whose trade or business was inoperable on any day after September 23, 2005, and before January 1, 2006, because of damage caused by Hurricane Rita. Tax software review Eligible employee. Tax software review   For this purpose, an eligible employee is an employee whose principal place of employment on September 23, 2005, with such eligible employer was in the Rita GO Zone. Tax software review An employee is not an eligible employee for purposes of Hurricane Rita if the employee is treated as an eligible employee for the work opportunity credit or the Hurricane Katrina employee retention credit. Tax software review Employers affected by Hurricane Wilma. Tax software review   The following definitions apply to employers affected by Hurricane Wilma. Tax software review Eligible employer. Tax software review   For this purpose, an eligible employer is any employer who conducted an active trade or business on October 23, 2005, in the Wilma GO Zone and whose trade or business was inoperable on any day after October 23, 2005, and before January 1, 2006, because of damage caused by Hurricane Wilma. Tax software review Eligible employee. Tax software review   For this purpose, an eligible employee is an employee whose principal place of employment on October 23, 2005, with such eligible employer was in the Wilma GO Zone. Tax software review An employee is not an eligible employee for purposes of Hurricane Wilma if the employee is treated as an eligible employee for the work opportunity credit or the Hurricane Katrina or Rita employee retention credit. Tax software review Qualified wages. Tax software review   Qualified wages are wages you paid or incurred before January 1, 2006, (up to $6,000 per employee) for an eligible employee beginning on the date your trade or business first became inoperable at the employee's principal place of employment immediately before the applicable hurricane, and ending on the date your trade or business resumed significant operations at that place. Tax software review In addition, the wages must have been paid or incurred after the following date. Tax software review August 28, 2005, for Hurricane Katrina. Tax software review September 23, 2005, for Hurricane Rita. Tax software review October 23, 2005, for Hurricane Wilma. Tax software review    This includes wages paid even if the employee performed no services, performed services at a place of employment other than the principal place of employment, or performed services at the principal place of employment before significant operations resumed. Tax software review    Wages qualifying for the credit generally have the same meaning as wages subject to the Federal Unemployment Tax Act (FUTA). Tax software review Qualified wages also include amounts you paid for medical or hospitalization expenses in connection with sickness or accident disability. Tax software review Qualified wages for any employee must be reduced by the amount of any work supplementation payment you received under the Social Security Act. Tax software review   For agricultural employees, if the work performed by any employee during more than half of any pay period qualified under FUTA as agricultural labor, that employee's wages subject to social security and Medicare taxes are qualified wages. Tax software review For a special rule that applies to railroad employees, see section 51(h)(1)(B). Tax software review   Qualified wages do not include the following. Tax software review Wages paid to your dependent or a related individual. Tax software review See section 51(i)(1). Tax software review Wages paid to any employee during the period for which you received payment for the employee from a federally funded on-the-job training program. Tax software review Wages for services of replacement workers during a strike or lockout. Tax software review   For more information, see Form 5884-A. Tax software review Hurricane Katrina Housing Credit An employer who conducted an active trade or business in the Gulf Opportunity (GO) Zone can claim the Hurricane Katrina housing credit. Tax software review The credit is equal to 30% of the value (up to $600 per month per employee) of in-kind lodging furnished to a qualified employee (and the employee's spouse or dependents) from January 1, 2006, through July 1, 2006. Tax software review The value of the lodging is excluded from the income of the qualified employee but is treated as wages for purposes of taxes imposed under the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA). Tax software review Generally, you must reduce your deduction for salaries and wages by the amount of this credit (before the tax liability limit). Tax software review The employer must use Form 5884-A to claim the credit. Tax software review A qualified employee is an individual who had a main home in the GO Zone on August 28, 2005, and who performs substantially all employment services in the GO Zone for the employer furnishing the lodging. Tax software review The employee cannot be your dependent or a related individual. Tax software review See section 51(i)(1). Tax software review For more information, see Form 5884-A. Tax software review Reforestation Costs You may be able to elect to deduct a limited amount of reforestation costs for each qualified timber property. Tax software review The deduction for any tax year generally is limited to $10,000 ($5,000 if married filing separately, $0 for a trust). Tax software review However, this limit is increased if you paid or incurred reforestation costs after the applicable date below and any portion of the qualified timber property is located in one of the following areas. Tax software review August 27, 2005, if any portion of the property is located in the GO Zone. Tax software review September 22, 2005, if any portion of the property is located in the Rita GO Zone (but not in the GO Zone). Tax software review October 22, 2005, if any portion of the property is located in the Wilma GO Zone. Tax software review The limit for each qualified timber property is increased by the smaller of: $10,000 ($5,000 if married filing separately, $0 for a trust), or The amount of reforestation costs you paid or incurred after the applicable date for the qualified timber property, any portion of which is located in the zone described above. Tax software review The increase in the limit applies only to costs paid or incurred before 2008. Tax software review However, these rules do not apply to any timber producer who: Held more than 500 acres of qualified timber property at any time during the tax year, Is a corporation with stock publicly traded on an established securities market, or Is a real estate investment trust. Tax software review For more information about the election to deduct reforestation costs, see chapter 8 in Publication 535, Business Expenses. Tax software review Demolition and Clean-up Costs You can elect to deduct 50% of any qualified GO Zone clean-up costs for the tax year in which the costs are paid or incurred, instead of capitalizing them. Tax software review Qualified GO Zone clean-up costs are any amounts paid or incurred after August 27, 2005, and before January 1, 2008, for the removal of debris from, or the demolition of structures on, real property located in the GO Zone that is: Held by you for use in a trade or business or for the production of income, or Inventory or other property held primarily for sale to customers in the ordinary course of your trade or business. Tax software review Increase in Rehabilitation Tax Credit The rehabilitation credit is increased for qualified rehabilitation expenditures paid or incurred after August 27, 2005, and before January 1, 2009, on buildings located in the GO Zone as follows. Tax software review For pre-1936 buildings (other than certified historic structures), the credit percentage is increased from 10% to 13%. Tax software review For certified historic structures, the credit percentage is increased from 20% to 26%. Tax software review For more information, see Form 3468, Investment Credit. Tax software review Request for Copy or Transcript of Tax Return Request for copy of tax return. Tax software review   You can use Form 4506 to order a copy of your tax return. Tax software review Generally, there is a $39. Tax software review 00 fee for requesting each copy of a tax return. Tax software review If your main home, principal place of business, or tax records are located in a Presidentially declared disaster area, the fee will be waived if the assigned disaster designation (for example, “Hurricane Katrina”) is written in red across the top of the form when filed. Tax software review Request for transcript of tax return. Tax software review   You can use Form 4506-T to order a free transcript of your tax return. Tax software review A transcript provides most of the line entries from a tax return and usually contains the information that a third party requires. Tax software review You can also call 1-800-829-1040 to order a transcript. Tax software review How To Get Tax Help Special IRS assistance. Tax software review   The IRS is providing special help for those affected by Hurricane Katrina, Rita, or Wilma, as well as survivors and personal representatives of the victims. Tax software review We have set up a special toll-free number for people who may have trouble filing or paying their taxes because they were affected by Hurricane Katrina, Rita, or Wilma, or who have other tax issues related to the hurricanes. Tax software review Call 1-866-562-5227 Monday through Friday In English-7 a. Tax software review m. Tax software review to 10 p. Tax software review m. Tax software review local time In Spanish-8 a. Tax software review m. Tax software review to 9:30 p. Tax software review m. Tax software review local time   The IRS website at www. Tax software review irs. Tax software review gov has notices and other tax relief information. Tax software review Check it periodically for any new guidance. Tax software review Other help from the IRS. Tax software review   You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. Tax software review By selecting the method that is best for you, you will have quick and easy access to tax help. Tax software review Contacting your Taxpayer Advocate. Tax software review   If you have attempted to deal with an IRS problem unsuccessfully, you should contact your Taxpayer Advocate. Tax software review   The Taxpayer Advocate independently represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels. Tax software review While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that your case is given a complete and impartial review. Tax software review   To contact your Taxpayer Advocate: Call the Taxpayer Advocate toll free at 1-877-777-4778. Tax software review Call, write, or fax the Taxpayer Advocate office in your area. Tax software review Call 1-800-829-4059 if you are a TTY/TDD user. Tax software review Visit www. Tax software review irs. Tax software review gov/advocate. Tax software review   For more information, see Publication 1546, How To Get Help With Unresolved Tax Problems (now available in Chinese, Korean, Russian, and Vietnamese, in addition to English and Spanish). Tax software review Free tax services. Tax software review   To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. Tax software review It contains a list of free tax publications and an index of tax topics. Tax software review It also describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics. Tax software review Internet. Tax software review You can access the IRS website 24 hours a day, 7 days a week, at www. Tax software review irs. Tax software review gov to: E-file your return. Tax software review Find out about commercial tax preparation and e-file services available free to eligible taxpayers. Tax software review Check the status of your refund. Tax software review Click on Where's My Refund. Tax software review Be sure to wait at least 6 weeks from the date you filed your return (3 weeks if you filed electronically). Tax software review Have your tax return available because you will need to know your social security number, your filing status, and the exact whole dollar amount of your refund. Tax software review Download forms, instructions, and publications. Tax software review Order IRS products online. Tax software review Research your tax questions online. Tax software review Search publications online by topic or keyword. Tax software review View Internal Revenue Bulletins (IRBs) published in the last few years. Tax software review Figure your withholdin
Español

State Photo and Multimedia Galleries

Visit state photo or multimedia galleries. Some photos may be available for use in the public domain, but some may be protected by license. We strongly recommend you thoroughly read the disclaimers on each site before use.

The Tax Software Review

Tax software review 8. Tax software review   Gains and Losses Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesDetermining Gain or Loss Like-Kind Exchanges Transfer to Spouse Ordinary or Capital Gain or LossCapital Assets Noncapital Assets Hedging (Commodity Futures) Livestock Converted Wetland and Highly Erodible Cropland Timber Sale of a Farm Foreclosure or Repossession Abandonment Introduction This chapter explains how to figure, and report on your tax return, your gain or loss on the disposition of your property or debt and whether such gain or loss is ordinary or capital. Tax software review Ordinary gain is taxed at the same rates as wages and interest income while capital gain is generally taxed at lower rates. Tax software review Dispositions discussed in this chapter include sales, exchanges, foreclosures, repossessions, canceled debts, hedging transactions, and elections to treat cutting of timber as a sale or exchange. Tax software review Topics - This chapter discusses: Sales and exchanges Ordinary or capital gain or loss Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 523 Selling Your Home 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 908 Bankruptcy Tax Guide Form (and Instructions) 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) Sch D (Form 1040) Capital Gains and Losses Sch F (Form 1040) Profit or Loss From Farming 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8949 Sales and Other Dispositions of Capital Assets See chapter 16 for information about getting publications and forms. Tax software review Sales and Exchanges If you sell, exchange, or otherwise dispose of your property, you usually have a gain or a loss. Tax software review This section explains certain rules for determining whether any gain you have is taxable, and whether any loss you have is deductible. Tax software review A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Tax software review An exchange is a transfer of property for other property or services. Tax software review Determining Gain or Loss You usually realize a gain or loss when you sell or exchange property. Tax software review If the amount you realize from a sale or exchange of property is more than its adjusted basis, you will have a gain. Tax software review If the adjusted basis of the property is more than the amount you realize, you will have a loss. Tax software review Basis and adjusted basis. Tax software review   The basis of property you buy is usually its cost. Tax software review The adjusted basis of property is basis plus certain additions and minus certain deductions. Tax software review See chapter 6 for more information about basis and adjusted basis. Tax software review Amount realized. Tax software review   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (FMV) (defined in chapter 6) of all property or services you receive. Tax software review The amount you realize also includes any of your liabilities assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. Tax software review   If the liabilities relate to an exchange of multiple properties, see Multiple Property Exchanges in chapter 1 of Publication 544. Tax software review Amount recognized. Tax software review   Your gain or loss realized from a sale or exchange of certain property is usually a recognized gain or loss for tax purposes. Tax software review A recognized gain is a gain you must include in gross income and report on your income tax return. Tax software review A recognized loss is a loss you deduct from gross income. Tax software review However, your gain or loss realized from the exchange of certain property may not be recognized for tax purposes. Tax software review See Like-Kind Exchanges next. Tax software review Also, a loss from the disposition of property held for personal use is not deductible. Tax software review Like-Kind Exchanges Certain exchanges of property are not taxable. Tax software review This means any gain from the exchange is not recognized, and any loss cannot be deducted. Tax software review Your gain or loss will not be recognized until you sell or otherwise dispose of the property you receive. Tax software review The exchange of property for the same kind of property is the most common type of nontaxable exchange. Tax software review To qualify for treatment as a like-kind exchange, the property traded and the property received must be both of the following. Tax software review Qualifying property. Tax software review Like-kind property. Tax software review These two requirements are discussed later. Tax software review Multiple-party transactions. Tax software review   The like-kind exchange rules also apply to property exchanges that involve three and four-party transactions. Tax software review Any part of these multiple-party transactions can qualify as a like-kind exchange if it meets all the requirements described in this section. Tax software review Receipt of title from third party. Tax software review   If you receive property in a like-kind exchange and the other party who transfers the property to you does not give you the title, but a third party does, you can still treat this transaction as a like-kind exchange if it meets all the requirements. Tax software review Basis of property received. Tax software review   If you receive property in a like-kind exchange, the basis of the property will be the same as the basis of the property you gave up. Tax software review See chapter 6 for more information. Tax software review Money paid. Tax software review   If, in addition to giving up like-kind property, you pay money in a like-kind exchange, you still have no recognized gain or loss. Tax software review The basis of the property received is the basis of the property given up, increased by the money paid. Tax software review Example. Tax software review You traded an old tractor with an adjusted basis of $15,000 for a new one. Tax software review The new tractor costs $300,000. Tax software review You were allowed $80,000 for the old tractor and paid $220,000 cash. Tax software review You have no recognized gain or loss on the transaction regardless of the adjusted basis of your old tractor and the basis of the new tractor is $235,000, the adjusted basis of the old tractor plus the cash paid ($15,000 + $220,000). Tax software review If you had sold the old tractor to a third party for $80,000 and bought a new one, you would have a recognized gain or loss on the sale of your old tractor equal to the difference between the amount realized and the adjusted basis of the old tractor. Tax software review In this case, the taxable gain would be $65,000 ($80,000 − $15,000) and the basis of the new tractor would be $300,000. Tax software review Reporting the exchange. Tax software review   Report the exchange of like-kind property, even though no gain or loss is recognized, on Form 8824, Like-Kind Exchanges. Tax software review The Instructions for Form 8824 explain how to report the details of the exchange. Tax software review   If you have any recognized gain because you received money or unlike property, report it on Schedule D (Form 1040) or Form 4797, whichever applies. Tax software review You may also have to report the recognized gain as ordinary income because of depreciation recapture on Form 4797. Tax software review See chapter 9 for more information. Tax software review Qualifying property. Tax software review   In a like-kind exchange, both the property you give up and the property you receive must be held by you for investment or for productive use in your trade or business. Tax software review Machinery, buildings, land, trucks, breeding livestock, rental houses, and certain mutual ditch, reservoir, or irrigation company stock are examples of property that may qualify. Tax software review Nonqualifying property. Tax software review   The rules for like-kind exchanges do not apply to exchanges of the following property. Tax software review Property you use for personal purposes, such as your home and family car. Tax software review Stock in trade or other property held primarily for sale, such as crops and produce. Tax software review Stocks, bonds, or notes. Tax software review However, see Qualifying property above. Tax software review Other securities or evidences of indebtedness, such as accounts receivable. Tax software review Partnership interests. Tax software review However, you may have a nontaxable exchange under other rules. Tax software review See Other Nontaxable Exchanges in chapter 1 of Publication 544. Tax software review Like-kind property. Tax software review   To qualify as a nontaxable exchange, the properties exchanged must be of like kind. Tax software review Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Tax software review Generally, real property exchanged for real property qualifies as an exchange of like-kind property. Tax software review For example, an exchange of city property for farm property or improved property for unimproved property is a like-kind exchange. Tax software review   An exchange of a tractor for a new tractor is an exchange of like-kind property, and so is an exchange of timber land for crop acreage. Tax software review An exchange of a tractor for acreage, however, is not an exchange of like-kind property. Tax software review The exchange of livestock of one sex for livestock of the other sex is not a like-kind exchange. Tax software review For example, the exchange of a bull for a cow is not a like-kind exchange. Tax software review An exchange of the assets of a business for the assets of a similar business cannot be treated as an exchange of one property for another property. Tax software review    Note. Tax software review Whether you engaged in a like-kind exchange depends on an analysis of each asset involved in the exchange. Tax software review Personal property. Tax software review   Depreciable tangible personal property can be either like kind or like class to qualify for nontaxable exchange treatment. Tax software review Like-class properties are depreciable tangible personal properties within the same General Asset Class or Product Class. Tax software review Property classified in any General Asset Class may not be classified within a Product Class. Tax software review Assets that are not in the same class will qualify as like-kind property if they are of the same nature or character. Tax software review General Asset Classes. Tax software review   General Asset Classes describe the types of property frequently used in many businesses. Tax software review They include, but are not limited to, the following property. Tax software review Office furniture, fixtures, and equipment (asset class 00. Tax software review 11). Tax software review Information systems, such as computers and peripheral equipment (asset class 00. Tax software review 12). Tax software review Data handling equipment except computers (asset class 00. Tax software review 13). Tax software review Automobiles and taxis (asset class 00. Tax software review 22). Tax software review Light general purpose trucks (asset class 00. Tax software review 241). Tax software review Heavy general purpose trucks (asset class 00. Tax software review 242). Tax software review Tractor units for use over-the-road (asset class 00. Tax software review 26). Tax software review Trailers and trailer-mounted containers (asset class 00. Tax software review 27). Tax software review Industrial steam and electric generation and/or distribution systems (asset class 00. Tax software review 4). Tax software review Product Classes. Tax software review   Product Classes include property listed in a 6-digit product class in sectors 31 through 33 of the North American Industry Classification System (NAICS) of the Executive Office of the President, Office of Management and Budget, United States, (NAICS Manual). Tax software review The latest version of the manual can be accessed at www. Tax software review census. Tax software review gov/eos/www/naics/. Tax software review Copies of the printed manual may be purchased from the National Technical Information Service (NTIS) at  www. Tax software review ntis. Tax software review gov/products/naics. Tax software review aspx or by calling 1-800-553-NTIS (1-800-553-6847) or (703) 605-6000. Tax software review A CD-ROM version with search and retrieval software is also available from NTIS. Tax software review    NAICS class 333111, Farm Machinery and Equipment Manufacturing, includes most machinery and equipment used in a farming business. Tax software review Partially nontaxable exchange. Tax software review   If, in addition to like-kind property, you receive money or unlike property in an exchange on which you realize gain, you have a partially nontaxable exchange. Tax software review You are taxed on the gain you realize, but only to the extent of the money and the FMV of the unlike property you receive. Tax software review A loss is not deductible. Tax software review Example 1. Tax software review You trade farmland that cost $30,000 for $10,000 cash and other land to be used in farming with a FMV of $50,000. Tax software review You have a realized gain of $30,000 ($50,000 FMV of new land + $10,000 cash − $30,000 basis of old farmland = $30,000 realized gain). Tax software review However, only $10,000, the cash received, is recognized (included in income). Tax software review Example 2. Tax software review Assume the same facts as in Example 1, except that, instead of money, you received a tractor with a FMV of $10,000. Tax software review Your recognized gain is still limited to $10,000, the value of the tractor (the unlike property). Tax software review Example 3. Tax software review Assume in Example 1 that the FMV of the land you received was only $15,000. Tax software review Your $5,000 loss is not recognized. Tax software review Unlike property given up. Tax software review   If, in addition to like-kind property, you give up unlike property, you must recognize gain or loss on the unlike property you give up. Tax software review The gain or loss is the difference between the FMV of the unlike property and the adjusted basis of the unlike property. Tax software review Like-kind exchanges between related persons. Tax software review   Special rules apply to like-kind exchanges between related persons. Tax software review These rules affect both direct and indirect exchanges. Tax software review Under these rules, if either person disposes of the property within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Tax software review The gain or loss on the original exchange must be recognized as of the date of the later disposition. Tax software review The 2-year holding period begins on the date of the last transfer of property that was part of the like-kind exchange. Tax software review Related persons. Tax software review   Under these rules, related persons include, for example, you and a member of your family (spouse, brother, sister, parent, child, etc. Tax software review ), you and a corporation in which you have more than 50% ownership, you and a partnership in which you directly or indirectly own more than a 50% interest of the capital or profits, and two partnerships in which you directly or indirectly own more than 50% of the capital interests or profits. Tax software review   For the complete list of related persons, see Related persons in chapter 2 of Publication 544. Tax software review Example. Tax software review You used a grey pickup truck in your farming business. Tax software review Your sister used a red pickup truck in her landscaping business. Tax software review In December 2012, you exchanged your grey pickup truck, plus $200, for your sister's red pickup truck. Tax software review At that time, the FMV of the grey pickup truck was $7,000 and its adjusted basis was $6,000. Tax software review The FMV of the red pickup truck was $7,200 and its adjusted basis was $1,000. Tax software review You realized a gain of $1,000 (the $7,200 FMV of the red pickup truck, minus the grey pickup truck's $6,000 adjusted basis, minus the $200 you paid). Tax software review Your sister realized a gain of $6,200 (the $7,000 FMV of the grey pickup truck plus the $200 you paid, minus the $1,000 adjusted basis of the red pickup truck). Tax software review However, because this was a like-kind exchange, you recognized no gain. Tax software review Your basis in the red pickup truck was $6,200 (the $6,000 adjusted basis of the grey pickup truck plus the $200 you paid). Tax software review She recognized gain only to the extent of the money she received, $200. Tax software review Her basis in the grey pickup truck was $1,000 (the $1,000 adjusted basis of the red pickup truck minus the $200 received, plus the $200 gain recognized). Tax software review In 2013, you sold the red pickup truck to a third party for $7,000. Tax software review Because you sold it within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Tax software review On your tax return for 2013, you must report your $1,000 gain on the 2012 exchange. Tax software review You also report a loss on the sale as $200 (the adjusted basis of the red pickup truck, $7,200 (its $6,200 basis plus the $1,000 gain recognized), minus the $7,000 realized from the sale). Tax software review In addition, your sister must report on her tax return for 2013 the $6,000 balance of her gain on the 2012 exchange. Tax software review Her adjusted basis in the grey pickup truck is increased to $7,000 (its $1,000 basis plus the $6,000 gain recognized). Tax software review Exceptions to the rules for related persons. Tax software review   The following property dispositions are excluded from these rules. Tax software review Dispositions due to the death of either related person. Tax software review Involuntary conversions. Tax software review Dispositions where it is established to the satisfaction of the IRS that neither the exchange nor the disposition has, as a main purpose, the avoidance of federal income tax. Tax software review Multiple property exchanges. Tax software review   Under the like-kind exchange rules, you must generally make a property-by-property comparison to figure your recognized gain and the basis of the property you receive in the exchange. Tax software review However, for exchanges of multiple properties, you do not make a property-by-property comparison if you do either of the following. Tax software review Transfer and receive properties in two or more exchange groups. Tax software review Transfer or receive more than one property within a single exchange group. Tax software review   For more information, see Multiple Property Exchanges in chapter 1 of Publication 544. Tax software review Deferred exchange. Tax software review   A deferred exchange for like-kind property may qualify for nonrecognition of gain or loss. Tax software review A deferred exchange is an exchange in which you transfer property you use in business or hold for investment and later receive like-kind property you will use in business or hold for investment. Tax software review The property you receive is replacement property. Tax software review The transaction must be an exchange of property for property rather than a transfer of property for money used to buy replacement property. Tax software review In addition, the replacement property will not be treated as like-kind property unless certain identification and receipt requirements are met. Tax software review   For more information see Deferred Exchanges in chapter 1 of Publication 544. Tax software review Transfer to Spouse No gain or loss is recognized on a transfer of property from an individual to (or in trust for the benefit of) a spouse, or a former spouse if incident to divorce. Tax software review This rule does not apply if the recipient is a nonresident alien. Tax software review Nor does this rule apply to a transfer in trust to the extent the liabilities assumed and the liabilities on the property are more than the property's adjusted basis. Tax software review Any transfer of property to a spouse or former spouse on which gain or loss is not recognized is not considered a sale or exchange. Tax software review The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. Tax software review This carryover basis rule applies whether the adjusted basis of the transferred property is less than, equal to, or greater than either its FMV at the time of transfer or any consideration paid by the recipient. Tax software review This rule applies for determining loss as well as gain. Tax software review Any gain recognized on a transfer in trust increases the basis. Tax software review For more information on transfers of property incident to divorce, see Property Settlements in Publication 504, Divorced or Separated Individuals. Tax software review Ordinary or Capital Gain or Loss Generally, you will have a capital gain or loss if you sell or exchange a capital asset (defined below). Tax software review You may also have a capital gain if your section 1231 transactions result in a net gain. Tax software review See Section 1231 Gains and Losses in  chapter 9. Tax software review To figure your net capital gain or loss, you must classify your gains and losses as either ordinary or capital (and your capital gains or losses as either short-term or long-term). Tax software review Your net capital gains may be taxed at a lower tax rate than ordinary income. Tax software review See Capital Gains Tax Rates , later. Tax software review Your deduction for a net capital loss may be limited. Tax software review See Treatment of Capital Losses , later. Tax software review Capital Assets Almost everything you own and use for personal purposes or investment is a capital asset. Tax software review The following items are examples of capital assets. Tax software review A home owned and occupied by you and your family. Tax software review Household furnishings. Tax software review A car used for pleasure. Tax software review If your car is used both for pleasure and for farm business, it is partly a capital asset and partly a noncapital asset, defined later. Tax software review Stocks and bonds. Tax software review However, there are special rules for gains on qualified small business stock. Tax software review For more information on this subject, see Gains on Qualified Small Business Stock and Losses on Section 1244 (Small Business) Stock in chapter 4 of Publication 550. Tax software review Personal-use property. Tax software review   Gain from a sale or exchange of personal-use property is a capital gain and is taxable. Tax software review Loss from the sale or exchange of personal-use property is not deductible. Tax software review You can deduct a loss relating to personal-use property only if it results from a casualty or theft. Tax software review For information on casualties and thefts, see chapter 11. Tax software review Long and Short Term Where you report a capital gain or loss depends on how long you own the asset before you sell or exchange it. Tax software review The time you own an asset before disposing of it is the holding period. Tax software review If you hold a capital asset 1 year or less, the gain or loss resulting from its disposition is short term. Tax software review Report it in Part I of Schedule D (Form 1040). Tax software review If you hold a capital asset longer than 1 year, the gain or loss resulting from its disposition is long term. Tax software review Report it in Part II of Schedule D (Form 1040). Tax software review Holding period. Tax software review   To figure if you held property longer than 1 year, start counting on the day after the day you acquired the property. Tax software review The day you disposed of the property is part of your holding period. Tax software review Example. Tax software review If you bought an asset on June 19, 2012, you should start counting on June 20, 2012. Tax software review If you sold the asset on June 19, 2013, your holding period is not longer than 1 year, but if you sold it on June 20, 2013, your holding period is longer than 1 year. Tax software review Inherited property. Tax software review   If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it. Tax software review This rule does not apply to livestock used in a farm business. Tax software review See Holding period under Livestock , later. Tax software review Nonbusiness bad debt. Tax software review   A nonbusiness bad debt is a short-term capital loss, deductible in the year the debt becomes worthless. Tax software review See chapter 4 of Publication 550. Tax software review Nontaxable exchange. Tax software review   If you acquire an asset in exchange for another asset and your basis for the new asset is figured, in whole or in part, by using your basis in the old property, the holding period of the new property includes the holding period of the old property. Tax software review That is, it begins on the same day as your holding period for the old property. Tax software review Gift. Tax software review   If you receive a gift of property and your basis in it is figured using the donor's basis, your holding period includes the donor's holding period. Tax software review Real property. Tax software review   To figure how long you held real property, start counting on the day after you received title to it or, if earlier, on the day after you took possession of it and assumed the burdens and privileges of ownership. Tax software review   However, taking possession of real property under an option agreement is not enough to start the holding period. Tax software review The holding period cannot start until there is an actual contract of sale. Tax software review The holding period of the seller cannot end before that time. Tax software review Figuring Net Gain or Loss The totals for short-term capital gains and losses and the totals for long-term capital gains and losses must be figured separately. Tax software review Net short-term capital gain or loss. Tax software review   Combine your short-term capital gains and losses. Tax software review Do this by adding all of your short-term capital gains. Tax software review Then add all of your short-term capital losses. Tax software review Subtract the lesser total from the greater. Tax software review The difference is your net short-term capital gain or loss. Tax software review Net long-term capital gain or loss. Tax software review   Follow the same steps to combine your long-term capital gains and losses. Tax software review The result is your net long-term capital gain or loss. Tax software review Net gain. Tax software review   If the total of your capital gains is more than the total of your capital losses, the difference is taxable. Tax software review However, part of your gain (but not more than your net capital gain) may be taxed at a lower rate than the rate of tax on your ordinary income. Tax software review See Capital Gains Tax Rates , later. Tax software review Net loss. Tax software review   If the total of your capital losses is more than the total of your capital gains, the difference is deductible. Tax software review But there are limits on how much loss you can deduct and when you can deduct it. Tax software review See Treatment of Capital Losses next. Tax software review Treatment of Capital Losses If your capital losses are more than your capital gains, you must claim the difference even if you do not have ordinary income to offset it. Tax software review For taxpayers other than corporations, the yearly limit on the capital loss you can deduct is $3,000 ($1,500 if you are married and file a separate return). Tax software review If your other income is low, you may not be able to use the full $3,000. Tax software review The part of the $3,000 you cannot use becomes part of your capital loss carryover (discussed next). Tax software review Capital loss carryover. Tax software review   Generally, you have a capital loss carryover if either of the following situations applies to you. Tax software review Your net loss on Schedule D (Form 1040), is more than the yearly limit. Tax software review Your taxable income without your deduction for exemptions is less than zero. Tax software review If either of these situations applies to you for 2013, see Capital Losses under Reporting Capital Gains and Losses in chapter 4 of Publication 550 to figure the amount you can carry over to 2014. Tax software review    To figure your capital loss carryover from 2013 to 2014, you will need a copy of your 2013 Form 1040 and Schedule D (Form 1040). Tax software review Capital Gains Tax Rates The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. Tax software review These lower rates are called the maximum capital gains rates. Tax software review The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss. Tax software review See Schedule D (Form 1040) and the Instructions for Schedule D (Form 1040). Tax software review Also see Publication 550. Tax software review Noncapital Assets Noncapital assets include property such as inventory and depreciable property used in a trade or business. Tax software review A list of properties that are not capital assets is provided in the Instructions for Schedule D (Form 1040). Tax software review Property held for sale in the ordinary course of your farm business. Tax software review   Property you hold mainly for sale to customers, such as livestock, poultry, livestock products, and crops, is a noncapital asset. Tax software review Gain or loss from sales or other dispositions of this property is reported on Schedule F (Form 1040) (not on Schedule D (Form 1040) or Form 4797). Tax software review The treatment of this property is discussed in chapter 3. Tax software review Land and depreciable properties. Tax software review   Land and depreciable property you use in farming are not capital assets. Tax software review Noncapital assets also include livestock held for draft, breeding, dairy, or sporting purposes. Tax software review However, your gains and losses from sales and exchanges of your farmland and depreciable properties must be considered together with certain other transactions to determine whether the gains and losses are treated as capital or ordinary gains and losses. Tax software review The sales of these business assets are reported on Form 4797. Tax software review See chapter 9 for more information. Tax software review Hedging (Commodity Futures) Hedging transactions are transactions that you enter into in the normal course of business primarily to manage the risk of interest rate or price changes, or currency fluctuations, with respect to borrowings, ordinary property, or ordinary obligations. Tax software review Ordinary property or obligations are those that cannot produce capital gain or loss if sold or exchanged. Tax software review A commodity futures contract is a standardized, exchange-traded contract for the sale or purchase of a fixed amount of a commodity at a future date for a fixed price. Tax software review The holder of an option on a futures contract has the right (but not the obligation) for a specified period of time to enter into a futures contract to buy or sell at a particular price. Tax software review A forward contract is generally similar to a futures contract except that the terms are not standardized and the contract is not exchange traded. Tax software review Businesses may enter into commodity futures contracts or forward contracts and may acquire options on commodity futures contracts as either of the following. Tax software review Hedging transactions. Tax software review Transactions that are not hedging transactions. Tax software review Futures transactions with exchange-traded commodity futures contracts that are not hedging transactions, generally, result in capital gain or loss and are subject to the mark-to-market rules discussed in Publication 550. Tax software review There is a limit on the amount of capital losses you can deduct each year. Tax software review Hedging transactions are not subject to the mark-to-market rules. Tax software review If, as a farmer-producer, to protect yourself from the risk of unfavorable price fluctuations, you enter into commodity forward contracts, futures contracts, or options on futures contracts and the contracts cover an amount of the commodity within your range of production, the transactions are generally considered hedging transactions. Tax software review They can take place at any time you have the commodity under production, have it on hand for sale, or reasonably expect to have it on hand. Tax software review The gain or loss on the termination of these hedges is generally ordinary gain or loss. Tax software review Farmers who file their income tax returns on the cash method report any profit or loss on the hedging transaction on Schedule F, line 8. Tax software review Gains or losses from hedging transactions that hedge supplies of a type regularly used or consumed in the ordinary course of your trade or business may be ordinary gains or losses. Tax software review Examples include fuel and feed. Tax software review If you have numerous transactions in the commodity futures market during the year, you must be able to show which transactions are hedging transactions. Tax software review Clearly identify a hedging transaction on your books and records before the end of the day you entered into the transaction. Tax software review It may be helpful to have separate brokerage accounts for your hedging and speculation transactions. Tax software review Retain the identification of each hedging transaction with your books and records. Tax software review Also, identify the item(s) or aggregate risk that is being hedged in your records. Tax software review Although the identification of the hedging transaction must be made before the end of the day it was entered into, you have 35 days after entering into the transaction to identify the hedged item(s) or risk. Tax software review For more information on the tax treatment of futures and options contracts, see Commodity Futures and Section 1256 Contracts Marked to Market in Publication 550. Tax software review Accounting methods for hedging transactions. Tax software review   The accounting method you use for a hedging transaction must clearly reflect income. Tax software review This means that your accounting method must reasonably match the timing of income, deduction, gain, or loss from a hedging transaction with the timing of income, deduction, gain, or loss from the item or items being hedged. Tax software review There are requirements and limits on the method you can use for certain hedging transactions. Tax software review See Regulations section 1. Tax software review 446-4(e) for those requirements and limits. Tax software review   Hedging transactions must be accounted for under the rules stated above unless the transaction is subject to mark-to-market accounting under section 475 or you use an accounting method other than the following methods. Tax software review Cash method. Tax software review Farm-price method. Tax software review Unit-livestock-price method. Tax software review   Once you adopt a method, you must apply it consistently and must have IRS approval before changing it. Tax software review   Your books and records must describe the accounting method used for each type of hedging transaction. Tax software review They must also contain any additional identification necessary to verify the application of the accounting method you used for the transaction. Tax software review You must make the additional identification no more than 35 days after entering into the hedging transaction. Tax software review Example of a hedging transaction. Tax software review   You file your income tax returns on the cash method. Tax software review On July 2 you anticipate a yield of 50,000 bushels of corn this year. Tax software review The December futures price is $5. Tax software review 75 a bushel, but there are indications that by harvest time the price will drop. Tax software review To protect yourself against a drop in the price, you enter into the following hedging transaction. Tax software review You sell ten December futures contracts of 5,000 bushels each for a total of 50,000 bushels of corn at $5. Tax software review 75 a bushel. Tax software review   The price did not drop as anticipated but rose to $6 a bushel. Tax software review In November, you sell your crop at a local elevator for $6 a bushel. Tax software review You also close out your futures position by buying ten December contracts for $6 a bushel. Tax software review You paid a broker's commission of $1,400 ($70 per contract) for the complete in and out position in the futures market. Tax software review   The result is that the price of corn rose 25 cents a bushel and the actual selling price is $6 a bushel. Tax software review Your loss on the hedge is 25 cents a bushel. Tax software review In effect, the net selling price of your corn is $5. Tax software review 75 a bushel. Tax software review   Report the results of your futures transactions and your sale of corn separately on Schedule F. Tax software review See the instructions for the 2013 Schedule F (Form 1040). Tax software review   The loss on your futures transactions is $13,900, figured as follows. Tax software review July 2 - Sold December corn futures (50,000 bu. Tax software review @$5. Tax software review 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Tax software review @$6 plus $1,400 broker's commission) 301,400 Futures loss ($13,900) This loss is reported as a negative figure on Schedule F, Part I, line 8, as other income. Tax software review   The proceeds from your corn sale at the local elevator are $300,000 (50,000 bu. Tax software review × $6). Tax software review Report it on Schedule F, Part I, line 2, as income from sales of products you raised. Tax software review   Assume you were right and the price went down 25 cents a bushel. Tax software review In effect, you would still net $5. Tax software review 75 a bushel, figured as follows. Tax software review Sold cash corn, per bushel $5. Tax software review 50 Gain on hedge, per bushel . Tax software review 25 Net price, per bushel $5. Tax software review 75       The gain on your futures transactions would have been $11,100, figured as follows. Tax software review July 2 - Sold December corn futures (50,000 bu. Tax software review @$5. Tax software review 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Tax software review @$5. Tax software review 50 plus $1,400 broker's commission) 276,400 Futures gain $11,100 The $11,100 is reported on Schedule F, Part I, line 8, as other income. Tax software review   The proceeds from the sale of your corn at the local elevator, $275,000, are reported on Schedule F, Part I, line 2, as income from sales of products you raised. Tax software review Livestock This part discusses the sale or exchange of livestock used in your farm business. Tax software review Gain or loss from the sale or exchange of this livestock may qualify as a section 1231 gain or loss. Tax software review However, any part of the gain that is ordinary income from the recapture of depreciation is not included as section 1231 gain. Tax software review See chapter 9 for more information on section 1231 gains and losses and the recapture of depreciation under section 1245. Tax software review The rules discussed here do not apply to the sale of livestock held primarily for sale to customers. Tax software review The sale of this livestock is reported on Schedule F. Tax software review See chapter 3. Tax software review Also, special rules apply to sales or exchanges caused by weather-related conditions. Tax software review See chapter 3. Tax software review Holding period. Tax software review   The sale or exchange of livestock used in your farm business (defined below) qualifies as a section 1231 transaction if you held the livestock for 12 months or more (24 months or more for horses and cattle). Tax software review Livestock. Tax software review   For section 1231 transactions, livestock includes cattle, hogs, horses, mules, donkeys, sheep, goats, fur-bearing animals, and other mammals. Tax software review Also, for section 1231 transactions, livestock does not include chickens, turkeys, pigeons, geese, emus, ostriches, rheas, or other birds, fish, frogs, reptiles, etc. Tax software review Livestock used in farm business. Tax software review   If livestock is held primarily for draft, breeding, dairy, or sporting purposes, it is used in your farm business. Tax software review The purpose for which an animal is held ordinarily is determined by a farmer's actual use of the animal. Tax software review An animal is not held for draft, breeding, dairy, or sporting purposes merely because it is suitable for that purpose, or because it is held for sale to other persons for use by them for that purpose. Tax software review However, a draft, breeding, or sporting purpose may be present if an animal is disposed of within a reasonable time after it is prevented from its intended use or made undesirable as a result of an accident, disease, drought, or unfitness of the animal. Tax software review Example 1. Tax software review You discover an animal that you intend to use for breeding purposes is sterile. Tax software review You dispose of it within a reasonable time. Tax software review This animal was held for breeding purposes. Tax software review Example 2. Tax software review You retire and sell your entire herd, including young animals that you would have used for breeding or dairy purposes had you remained in business. Tax software review These young animals were held for breeding or dairy purposes. Tax software review Also, if you sell young animals to reduce your breeding or dairy herd because of drought, these animals are treated as having been held for breeding or dairy purposes. Tax software review See Sales Caused by Weather-Related Conditions in chapter 3. Tax software review Example 3. Tax software review You are in the business of raising hogs for slaughter. Tax software review Customarily, before selling your sows, you obtain a single litter of pigs that you will raise for sale. Tax software review You sell the brood sows after obtaining the litter. Tax software review Even though you hold these brood sows for ultimate sale to customers in the ordinary course of your business, they are considered to be held for breeding purposes. Tax software review Example 4. Tax software review You are in the business of raising registered cattle for sale to others for use as breeding cattle. Tax software review The business practice is to breed the cattle before sale to establish their fitness as registered breeding cattle. Tax software review Your use of the young cattle for breeding purposes is ordinary and necessary for selling them as registered breeding cattle. Tax software review Such use does not demonstrate that you are holding the cattle for breeding purposes. Tax software review However, those cattle you held as additions or replacements to your own breeding herd to produce calves are considered to be held for breeding purposes, even though they may not actually have produced calves. Tax software review The same applies to hog and sheep breeders. Tax software review Example 5. Tax software review You breed, raise, and train horses for racing purposes. Tax software review Every year you cull horses from your racing stable. Tax software review In 2013, you decided that to prevent your racing stable from getting too large to be effectively operated, you must cull six horses that had been raced at public tracks in 2012. Tax software review These horses are all considered held for sporting purposes. Tax software review Figuring gain or loss on the cash method. Tax software review   Farmers or ranchers who use the cash method of accounting figure their gain or loss on the sale of livestock used in their farming business as follows. Tax software review Raised livestock. Tax software review   Gain on the sale of raised livestock is generally the gross sales price reduced by any expenses of the sale. Tax software review Expenses of sale include sales commissions, freight or hauling from farm to commission company, and other similar expenses. Tax software review The basis of the animal sold is zero if the costs of raising it were deducted during the years the animal was being raised. Tax software review However, see Uniform Capitalization Rules in chapter 6. Tax software review Purchased livestock. Tax software review   The gross sales price minus your adjusted basis and any expenses of sale is the gain or loss. Tax software review Example. Tax software review A farmer sold a breeding cow on January 8, 2013, for $1,250. Tax software review Expenses of the sale were $125. Tax software review The cow was bought July 2, 2009, for $1,300. Tax software review Depreciation (not less than the amount allowable) was $867. Tax software review Gross sales price $1,250 Cost (basis) $1,300   Minus: Depreciation deduction 867   Unrecovered cost (adjusted basis) $ 433   Expense of sale 125 558 Gain realized $ 692 Converted Wetland and Highly Erodible Cropland Special rules apply to dispositions of land converted to farming use after March 1, 1986. Tax software review Any gain realized on the disposition of converted wetland or highly erodible cropland is treated as ordinary income. Tax software review Any loss on the disposition of such property is treated as a long-term capital loss. Tax software review Converted wetland. Tax software review   This is generally land that was drained or filled to make the production of agricultural commodities possible. Tax software review It includes converted wetland held by the person who originally converted it or held by any other person who used the converted wetland at any time after conversion for farming. Tax software review   A wetland (before conversion) is land that meets all the following conditions. Tax software review It is mostly soil that, in its undrained condition, is saturated, flooded, or ponded long enough during a growing season to develop an oxygen-deficient state that supports the growth and regeneration of plants growing in water. Tax software review It is saturated by surface or groundwater at a frequency and duration sufficient to support mostly plants that are adapted for life in saturated soil. Tax software review It supports, under normal circumstances, mostly plants that grow in saturated soil. Tax software review Highly erodible cropland. Tax software review   This is cropland subject to erosion that you used at any time for farming purposes other than grazing animals. Tax software review Generally, highly erodible cropland is land currently classified by the Department of Agriculture as Class IV, VI, VII, or VIII under its classification system. Tax software review Highly erodible cropland also includes land that would have an excessive average annual erosion rate in relation to the soil loss tolerance level, as determined by the Department of Agriculture. Tax software review Successor. Tax software review   Converted wetland or highly erodible cropland is also land held by any person whose basis in the land is figured by reference to the adjusted basis of a person in whose hands the property was converted wetland or highly erodible cropland. Tax software review Timber Standing timber you held as investment property is a capital asset. Tax software review Gain or loss from its sale is capital gain or loss reported on Form 8949 and Schedule D (Form 1040), as applicable. Tax software review If you held the timber primarily for sale to customers, it is not a capital asset. Tax software review Gain or loss on its sale is ordinary business income or loss. Tax software review It is reported on Schedule F, line 1 (purchased timber) or line 2 (raised timber). Tax software review See the Instructions for Schedule F (Form 1040). Tax software review Farmers who cut timber on their land and sell it as logs, firewood, or pulpwood usually have no cost or other basis for that timber. Tax software review Amounts realized from these sales, and the expenses incurred in cutting, hauling, etc. Tax software review , are ordinary farm income and expenses reported on Schedule F. Tax software review Different rules apply if you owned the timber longer than 1 year and elect to treat timber cutting as a sale or exchange or you enter into a cutting contract, discussed below. Tax software review Timber considered cut. Tax software review   Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. Tax software review This is true whether the timber is cut under contract or whether you cut it yourself. Tax software review Christmas trees. Tax software review   Evergreen trees, such as Christmas trees, that are more than 6 years old when severed from their roots and sold for ornamental purposes are included in the term timber. Tax software review They qualify for both rules discussed below. Tax software review Election to treat cutting as a sale or exchange. Tax software review   Under the general rule, the cutting of timber results in no gain or loss. Tax software review It is not until a sale or exchange occurs that gain or loss is realized. Tax software review But if you owned or had a contractual right to cut timber, you can elect to treat the cutting of timber as a section 1231 transaction in the year it is cut. Tax software review Even though the cut timber is not actually sold or exchanged, you report your gain or loss on the cutting for the year the timber is cut. Tax software review Any later sale results in ordinary business income or loss. Tax software review See the example below. Tax software review   To elect this treatment, you must: Own or hold a contractual right to cut the timber for a period of more than 1 year before it is cut, and Cut the timber for sale or use in your trade or business. Tax software review Making the election. Tax software review   You make the election on your return for the year the cutting takes place by including in income the gain or loss on the cutting and including a computation of your gain or loss. Tax software review You do not have to make the election in the first year you cut the timber. Tax software review You can make it in any year to which the election would apply. Tax software review If the timber is partnership property, the election is made on the partnership return. Tax software review This election cannot be made on an amended return. Tax software review   Once you have made the election, it remains in effect for all later years unless you revoke it. Tax software review Election under section 631(a) may be revoked. Tax software review   If you previously elected for any tax year ending before October 23, 2004, to treat the cutting of timber as a sale or exchange under section 631(a), you may revoke this election without the consent of the IRS for any tax year ending after October 22, 2004. Tax software review The prior election (and revocation) is disregarded for purposes of making a subsequent election. Tax software review See Form T (Timber), Forest Activities Schedule, for more information. Tax software review Gain or loss. Tax software review   Your gain or loss on the cutting of standing timber is the difference between its adjusted basis for depletion and its FMV on the first day of your tax year in which it is cut. Tax software review   Your adjusted basis for depletion of cut timber is based on the number of units (board feet, log scale, or other units) of timber cut during the tax year and considered to be sold or exchanged. Tax software review Your adjusted basis for depletion is also based on the depletion unit of timber in the account used for the cut timber, and should be figured in the same manner as shown in section 611 and Regulations section 1. Tax software review 611-3. Tax software review   Depletion of timber is discussed in chapter 7. Tax software review Example. Tax software review   In April 2013, you owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. Tax software review It had an adjusted basis for depletion of $40 per MBF. Tax software review You are a calendar year taxpayer. Tax software review On January 1, 2013, the timber had a FMV of $350 per MBF. Tax software review It was cut in April for sale. Tax software review On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. Tax software review You report the difference between the FMV and your adjusted basis for depletion as a gain. Tax software review This amount is reported on Form 4797 along with your other section 1231 gains and losses to figure whether it is treated as a capital gain or as ordinary gain. Tax software review You figure your gain as follows. Tax software review FMV of timber January 1, 2013 $1,400,000 Minus: Adjusted basis for depletion 160,000 Section 1231 gain $1,240,000   The FMV becomes your basis in the cut timber, and a later sale of the cut timber, including any by-product or tree tops, will result in ordinary business income or loss. Tax software review Outright sales of timber. Tax software review   Outright sales of timber by landowners qualify for capital gains treatment using rules similar to the rules for certain disposal of timber under a contract with retained economic interest (defined later). Tax software review However, for outright sales, the date of disposal is not deemed to be the date the timber is cut because the landowner can elect to treat the payment date as the date of disposal (see Date of disposal below). Tax software review Cutting contract. Tax software review   You must treat the disposal of standing timber under a cutting contract as a section 1231 transaction if all the following apply to you. Tax software review You are the owner of the timber. Tax software review You held the timber longer than 1 year before its disposal. Tax software review You kept an economic interest in the timber. Tax software review   You have kept an economic interest in standing timber if, under the cutting contract, the expected return on your investment is conditioned on the cutting of the timber. Tax software review   The difference between the amount realized from the disposal of the timber and its adjusted basis for depletion is treated as gain or loss on its sale. Tax software review Include this amount on Form 4797 along with your other section 1231 gains or losses. Tax software review Date of disposal. Tax software review   The date of disposal is the date the timber is cut. Tax software review However, for outright sales by landowners or if you receive payment under the contract before the timber is cut, you can elect to treat the date of payment as the date of disposal. Tax software review   This election applies only to figure the holding period of the timber. Tax software review It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). Tax software review   To make this election, attach a statement to the tax return filed by the due date (including extensions) for the year payment is received. Tax software review The statement must identify the advance payments subject to the election and the contract under which they were made. Tax software review   If you timely filed your return for the year you received payment without making the election, you can still make the election by filing an amended return within 6 months after the due date for that year's return (excluding extensions). Tax software review Attach the statement to the amended return and write “Filed pursuant to section 301. Tax software review 9100-2” at the top of the statement. Tax software review File the amended return at the same address the original return was filed. Tax software review Owner. Tax software review   An owner is any person who owns an interest in the timber, including a sublessor and the holder of a contract to cut the timber. Tax software review You own an interest in timber if you have the right to cut it for sale on your own account or for use in your business. Tax software review Tree stumps. Tax software review   Tree stumps are a capital asset if they are on land held by an investor who is not in the timber or stump business as a buyer, seller, or processor. Tax software review Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. Tax software review However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. Tax software review Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. Tax software review   See Form T (Timber) and its separate instructions for more information about dispositions of timber. Tax software review Sale of a Farm The sale of your farm will usually involve the sale of both nonbusiness property (your home) and business property (the land and buildings used in the farm operation and perhaps machinery and livestock). Tax software review If you have a gain from the sale, you may be allowed to exclude the gain on your home. Tax software review For more information, see Publication 523, Selling Your Home. Tax software review The gain on the sale of your business property is taxable. Tax software review A loss on the sale of your business property to an unrelated person is deducted as an ordinary loss. Tax software review Your taxable gain or loss on the sale of property used in your farm business is taxed under the rules for section 1231 transactions. Tax software review See chapter 9. Tax software review Losses from personal-use property, other than casualty or theft losses, are not deductible. Tax software review If you receive payments for your farm in installments, your gain is taxed over the period of years the payments are received, unless you elect not to use the installment method of reporting the gain. Tax software review See chapter 10 for information about installment sales. Tax software review When you sell your farm, the gain or loss on each asset is figured separately. Tax software review The tax treatment of gain or loss on the sale of each asset is determined by the classification of the asset. Tax software review Each of the assets sold must be classified as one of the following. Tax software review Capital asset held 1 year or less. Tax software review Capital asset held longer than 1 year. Tax software review Property (including real estate) used in your business and held 1 year or less (including draft, breeding, dairy, and sporting animals held less than the holding periods discussed earlier under Livestock ). Tax software review Property (including real estate) used in your business and held longer than 1 year (including only draft, breeding, dairy, and sporting animals held for the holding periods discussed earlier). Tax software review Property held primarily for sale or which is of the kind that would be included in inventory if on hand at the end of your tax year. Tax software review Allocation of consideration paid for a farm. Tax software review   The sale of a farm for a lump sum is considered a sale of each individual asset rather than a single asset. Tax software review The residual method is required only if the group of assets sold constitutes a trade or business. Tax software review This method determines gain or loss from the transfer of each asset. Tax software review It also determines the buyer's basis in the business assets. Tax software review For more information, see Sale of a Business in chapter 2 of Publication 544. Tax software review Property used in farm operation. Tax software review   The rules for excluding the gain on the sale of your home, described later under Sale of your home , do not apply to the property used for your farming business. Tax software review Recognized gains and losses on business property must be reported on your return for the year of the sale. Tax software review If the property was held longer than 1 year, it may qualify for section 1231 treatment (see chapter 9). Tax software review Example. Tax software review You sell your farm, including your main home, which you have owned since December 2001. Tax software review You realize gain on the sale as follows. Tax software review   Farm   Farm   With Home Without   Home Only Home Selling price $382,000 $158,000 $224,000 Cost (or other basis) 240,000 110,000 130,000 Gain $142,000 $48,000 $94,000 You must report the $94,000 gain from the sale of the property used in your farm business. Tax software review All or a part of that gain may have to be reported as ordinary income from the recapture of depreciation or soil and water conservation expenses. Tax software review Treat the balance as section 1231 gain. Tax software review The $48,000 gain from the sale of your home is not taxable as long as you meet the requirements explained later under Sale of your home . Tax software review Partial sale. Tax software review   If you sell only part of your farm, you must report any recognized gain or loss on the sale of that part on your tax return for the year of the sale. Tax software review You cannot wait until you have sold enough of the farm to recover its entire cost before reporting gain or loss. Tax software review For a detailed discussion on installment sales, see Publication 544. Tax software review Adjusted basis of the part sold. Tax software review   This is the properly allocated part of your original cost or other basis of the entire farm plus or minus necessary adjustments for improvements, depreciation, etc. Tax software review , on the part sold. Tax software review If your home is on the farm, you must properly adjust the basis to exclude those costs from your farm asset costs, as discussed below under Sale of your home . Tax software review Example. Tax software review You bought a 600-acre farm for $700,000. Tax software review The farm included land and buildings. Tax software review The purchase contract designated $600,000 of the purchase price to the land. Tax software review You later sold 60 acres of land on which you had installed a fence. Tax software review Your adjusted basis for the part of your farm sold is $60,000 (1/10 of $600,000), plus any unrecovered cost (cost not depreciated) of the fence on the 60 acres at the time of sale. Tax software review Use this amount to determine your gain or loss on the sale of the 60 acres. Tax software review Assessed values for local property taxes. Tax software review   If you paid a flat sum for the entire farm and no other facts are available for properly allocating your original cost or other basis between the land and the buildings, you can use the assessed values for local property taxes for the year of purchase to allocate the costs. Tax software review Example. Tax software review Assume that in the preceding example there was no breakdown of the $700,000 purchase price between land and buildings. Tax software review However, in the year of purchase, local taxes on the entire property were based on assessed valuations of $420,000 for land and $140,000 for improvements, or a total of $560,000. Tax software review The assessed valuation of the land is 3/4 (75%) of the total assessed valuation. Tax software review Multiply the $700,000 total purchase price by 75% to figure basis of $525,000 for the 600 acres of land. Tax software review The unadjusted basis of the 60 acres you sold would then be $52,500 (1/10 of $525,000). Tax software review Sale of your home. Tax software review   Your home is a capital asset and not property used in the trade or business of farming. Tax software review If you sell a farm that includes a house you and your family occupy, you must determine the part of the selling price and the part of the cost or other basis allocable to your home. Tax software review Your home includes the immediate surroundings and outbuildings relating to it that are not used for business purposes. Tax software review   If you use part of your home for business, you must make an appropriate adjustment to the basis for depreciation allowed or allowable. Tax software review For more information on basis, see chapter 6. Tax software review More information. Tax software review   For more information on selling your home, see Publication 523. Tax software review Gain from condemnation. Tax software review   If you have a gain from a condemnation or sale under threat of condemnation, you may use the preceding rules for excluding the gain, rather than the rules discussed under Postponing Gain in chapter 11. Tax software review However, any gain that cannot be excluded (because it is more than the limit) may be postponed under the rules discussed under Postponing Gain in chapter 11. Tax software review Foreclosure or Repossession If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. Tax software review The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Tax software review This is true even if you voluntarily return the property to the lender. Tax software review You may also realize ordinary income from cancellation of debt if the loan balance is more than the FMV of the property. Tax software review Buyer's (borrower's) gain or loss. Tax software review   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. Tax software review The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Tax software review See Determining Gain or Loss , earlier. Tax software review Worksheet 8-1. Tax software review Worksheet for Foreclosures andRepossessions Part 1. Tax software review Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Tax software review Complete this part only if you were personally liable for the debt. Tax software review Otherwise, go to Part 2. Tax software review   1. Tax software review Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable after the transfer of property   2. Tax software review Enter the Fair Market Value of the transferred property   3. Tax software review Ordinary income from cancellation of debt upon foreclosure or repossession. Tax software review * Subtract line 2 from line 1. Tax software review If zero or less, enter -0-   Part 2. Tax software review Figure your gain or loss from foreclosure or repossession. Tax software review   4. Tax software review If you completed Part 1, enter the smaller of line 1 or line 2. Tax software review If you did not complete Part 1, enter the outstanding debt immediately before the transfer of property   5. Tax software review Enter any proceeds you received from the foreclosure sale   6. Tax software review Add lines 4 and 5   7. Tax software review Enter the adjusted basis of the transferred property   8. Tax software review Gain or loss from foreclosure or repossession. Tax software review Subtract line 7  from line 6   * The income may not be taxable. Tax software review See Cancellation of debt . Tax software review    You can use Worksheet 8-1 to figure your gain or loss from a foreclosure or repossession. Tax software review Amount realized on a nonrecourse debt. Tax software review   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full amount of the debt canceled by the transfer. Tax software review The full canceled debt is included in the amount realized even if the fair market value of the property is less than the canceled debt. Tax software review Example 1. Tax software review Ann paid $200,000 for land used in her farming business. Tax software review She paid $15,000 down and borrowed the remaining $185,000 from a bank. Tax software review Ann is not personally liable for the loan (nonrecourse debt), but pledges the land as security. Tax software review The bank foreclosed on the loan 2 years after Ann stopped making payments. Tax software review When the bank foreclosed, the balance due on the loan was $180,000 and the FMV of the land was $170,000. Tax software review The amount Ann realized on the foreclosure was $180,000, the debt canceled by the foreclosure. Tax software review She figures her gain or loss on Form 4797, Part I, by comparing the amount realized ($180,000) with her adjusted basis ($200,000). Tax software review She has a $20,000 deductible loss. Tax software review Example 2. Tax software review Assume the same facts as in Example 1 except the FMV of the land was $210,000. Tax software review The result is the same. Tax software review The amount Ann realized on the foreclosure is $180,000, the debt canceled by the foreclosure. Tax software review Because her adjusted basis is $200,000, she has a deductible loss of $20,000, which she reports on Form 4797, Part I. Tax software review Amount realized on a recourse debt. Tax software review   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. Tax software review   You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. Tax software review The amount realized does not include the canceled debt that is your income from cancellation of debt. Tax software review See Cancellation of debt , later. Tax software review Example 3. Tax software review Assume the same facts as in Example 1 above except Ann is personally liable for the loan (recourse debt). Tax software review In this case, the amount she realizes is $170,000. Tax software review This is the canceled debt ($180,000) up to the FMV of the land ($170,000). Tax software review Ann figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($200,000). Tax software review She has a $30,000 deductible loss, which she figures on Form 4797, Part I. Tax software review She is also treated as receiving ordinary income from cancellation of debt. Tax software review That income is $10,000 ($180,000 − $170,000). Tax software review This is the part of the canceled debt not included in the amount realized. Tax software review She reports this as other income on Schedule F, line 8. Tax software review Seller's (lender's) gain or loss on repossession. Tax software review   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. Tax software review For more information, see Repossession in Publication 537, Installment Sales. Tax software review Cancellation of debt. Tax software review   If property that is repossessed or foreclosed upon secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the FMV of the property. Tax software review This income is separate from any gain or loss realized from the foreclosure or repossession. Tax software review Report the income from cancellation of a business debt on Schedule F, line 8. Tax software review Report the income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Tax software review    You can use Worksheet 8-1 to figure your income from cancellation of debt. Tax software review   However, income from cancellation of debt is not taxed if any of the following apply. Tax software review The cancellation is intended as a gift. Tax software review The debt is qualified farm debt (see chapter 3). Tax software review The debt is qualified real property business debt (see chapter 5 of Publication 334). Tax software review You are insolvent or bankrupt (see  chapter 3). Tax software review The debt is qualified principal residence indebtedness (see chapter 3). Tax software review   Use Form 982 to report the income exclusion. Tax software review Abandonment The abandonment of property is a disposition of property. Tax software review You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership, but without passing it on to anyone else. Tax software review Business or investment property. Tax software review   Loss from abandonment of business or investment property is deductible as a loss. Tax software review Loss from abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Tax software review If your adjusted basis is more than the amount you realize (if any), then you have a loss. Tax software review If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Tax software review This rule also applies to leasehold improvements the lessor made for the lessee. Tax software review However, if the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed earlier under Foreclosure or Repossession . Tax software review   If the abandoned property is secured by debt, special rules apply. Tax software review The tax consequences of abandonment of property that secures a debt depend on whether you are personally liable for the debt (recourse debt) or were not personally liable for the debt (nonrecourse debt). Tax software review For more information, see chapter 3 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). Tax software review The abandonment loss is deducted in the tax year in which the loss is sustained. Tax software review Report the loss on Form 4797, Part II, line 10. Tax software review Personal-use property. Tax software review   You cannot deduct any loss from abandonment of your home or other property held for personal use. Tax software review Canceled debt. Tax software review   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you will realize ordinary income equal to the canceled debt. Tax software review This income is separate from any loss realized from abandonment of the property. Tax software review Report income from cancellation of a debt related to a business or rental activity as business or rental income. Tax software review Report income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Tax software review   However, income from cancellation of debt is not taxed in certain circumstances. Tax software review See Cancellation of debt earlier under Foreclosure or Repossession . Tax software review Forms 1099-A and 1099-C. Tax software review   A lender who acquires an interest in your property in a foreclosure, repossession, or abandonment should send you Form 1099-A showing the information you need to figure your loss from the foreclosure, repossession, or abandonment. Tax software review However, if the lender cancels part of your debt and the lender must file Form 1099-C, the lender may include the information about the foreclosure, repossession, or abandonment on that form instead of Form 1099-A. Tax software review The lender must file Form 1099-C and send you a copy if the canceled debt is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Tax software review For foreclosures, repossessions, abandonments of property, and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Tax software review Prev  Up  Next   Home   More Online Publications