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1040 Instructions

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1040 Instructions

1040 instructions 5. 1040 instructions   Soil and Water Conservation Expenses Table of Contents Introduction Topics - This chapter discusses: Business of Farming Plan Certification Conservation ExpensesWater well. 1040 instructions Assessment by Conservation DistrictAssessment for Depreciable Property 25% Limit on DeductionNet operating loss. 1040 instructions When to Deduct or Capitalize Sale of a Farm Introduction If you are in the business of farming, you can choose to deduct certain expenses for: Soil or water conservation, Prevention of erosion of land used in farming, or Endangered species recovery. 1040 instructions Otherwise, these are capital expenses that must be added to the basis of the land. 1040 instructions (See chapter 6 for information on determining basis. 1040 instructions ) Conservation expenses for land in a foreign country do not qualify for this special treatment. 1040 instructions The deduction for conservation expenses cannot be more than 25% of your gross income from farming. 1040 instructions See 25% Limit on Deduction , later. 1040 instructions Although some expenses are not deductible as soil and water conservation expenses, they may be deductible as ordinary and necessary farm expenses. 1040 instructions These include interest and taxes, the cost of periodically clearing brush from productive land, the regular removal of sediment from a drainage ditch, and expenses paid or incurred primarily to produce an agricultural crop that may also conserve soil. 1040 instructions You must include in income most government payments for approved conservation practices. 1040 instructions However, you can exclude some payments you receive under certain cost-sharing conservation programs. 1040 instructions For more information, see Agricultural Program Payments in chapter 3. 1040 instructions To get the full deduction to which you are entitled, you should maintain your records to clearly distinguish between your ordinary and necessary farm business expenses and your soil and water conservation expenses. 1040 instructions Topics - This chapter discusses: Business of farming Plan certification Conservation expenses Assessment by conservation district 25% limit on deduction When to deduct or capitalize Sale of a farm Business of Farming For purposes of soil and water conservation expenses, you are in the business of farming if you cultivate, operate, or manage a farm for profit, either as an owner or a tenant. 1040 instructions You are not in the business of farming if you cultivate or operate a farm for recreation or pleasure, rather than for profit. 1040 instructions You are not farming if you are engaged only in forestry or the growing of timber. 1040 instructions Farm defined. 1040 instructions   A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. 1040 instructions It also includes plantations, ranches, ranges, and orchards. 1040 instructions A fish farm is an area where fish and other marine animals are grown or raised and artificially fed, protected, etc. 1040 instructions It does not include an area where they are merely caught or harvested. 1040 instructions A plant nursery is a farm for purposes of deducting soil and water conservation expenses. 1040 instructions Farm rental. 1040 instructions   If you own a farm and receive farm rental payments based on farm production, either in cash or crop shares, you are in the business of farming. 1040 instructions If you get cash rental for a farm you own that is not used in farm production, you cannot deduct soil and water conservation expenses for that farm. 1040 instructions   If you receive a fixed rental payment that is not based on farm production, you are in the business of farming only if you materially participate in operating or managing the farm. 1040 instructions Example. 1040 instructions You own a farm in Iowa and live in California. 1040 instructions You rent the farm for $175 in cash per acre and do not materially participate in producing or managing production of the crops grown on the farm. 1040 instructions You cannot deduct your soil conservation expenses for this farm. 1040 instructions You must capitalize the expenses and add them to the basis of the land. 1040 instructions     For more information, see Material participation for landlords under Landlord Participation in Farming in chapter 12. 1040 instructions Plan Certification You can deduct soil and water conservation expenses only if they are consistent with a plan approved by the Natural Resources Conservation Service (NRCS) of the Department of Agriculture. 1040 instructions If no such plan exists, the expenses must be consistent with a soil conservation plan of a comparable state agency. 1040 instructions Keep a copy of the plan with your books and records to support your deductions. 1040 instructions Conservation plan. 1040 instructions   A conservation plan includes the farming conservation practices approved for the area where your farmland is located. 1040 instructions There are three types of approved plans. 1040 instructions NRCS individual site plans. 1040 instructions These plans are issued individually to farmers who request assistance from NRCS to develop a conservation plan designed specifically for their farmland. 1040 instructions NRCS county plans. 1040 instructions These plans include a listing of farm conservation practices approved for the county where the farmland is located. 1040 instructions You can deduct expenses for conservation practices not included on the NRCS county plans only if the practice is a part of an individual site plan. 1040 instructions Comparable state agency plans. 1040 instructions These plans are approved by state agencies and can be approved individual site plans or county plans. 1040 instructions   A list of NRCS conservation programs is available at www. 1040 instructions nrcs. 1040 instructions usda. 1040 instructions gov/programs. 1040 instructions Individual site plans can be obtained from NRCS offices and the comparable state agencies. 1040 instructions Conservation Expenses You can deduct conservation expenses only for land you or your tenant are using, or have used in the past, for farming. 1040 instructions These expenses include, but are not limited to, the following. 1040 instructions The treatment or movement of earth, such as: Leveling, Conditioning, Grading, Terracing, Contour furrowing, and Restoration of soil fertility. 1040 instructions The construction, control, and protection of: Diversion channels, Drainage ditches, Irrigation ditches, Earthen dams, and Watercourses, outlets, and ponds. 1040 instructions The eradication of brush. 1040 instructions The planting of windbreaks. 1040 instructions You cannot deduct expenses to drain or fill wetlands, or to prepare land for center pivot irrigation systems, as soil and water conservation expenses. 1040 instructions These expenses are added to the basis of the land. 1040 instructions If you choose to deduct soil and water conservation expenses, you cannot exclude from gross income any cost-sharing payments you receive for those expenses. 1040 instructions See chapter 3 for information about payments eligible for the cost-sharing exclusion. 1040 instructions New farm or farmland. 1040 instructions   If you acquire a new farm or new farmland from someone who was using it in farming immediately before you acquired the land, soil and water conservation expenses you incur on it will be treated as made on land used in farming at the time the expenses were paid or incurred. 1040 instructions You can deduct soil and water conservation expenses for this land if your use of it is substantially a continuation of its use in farming. 1040 instructions The new farming activity does not have to be the same as the old farming activity. 1040 instructions For example, if you buy land that was used for grazing cattle and then prepare it for use as an apple orchard, you can deduct your conservation expenses. 1040 instructions Land not used for farming. 1040 instructions   If your conservation expenses benefit both land that does not qualify as land used for farming and land that does qualify, you must allocate the expenses between the two types of land. 1040 instructions For example, if the expenses benefit 200 acres of your land, but only 120 acres of this land are used for farming, then you can deduct 60% (120 ÷ 200) of the expenses. 1040 instructions You can use another method to allocate these expenses if you can clearly show that your method is more reasonable. 1040 instructions Depreciable conservation assets. 1040 instructions   You generally cannot deduct your expenses for depreciable conservation assets. 1040 instructions However, you can deduct certain amounts you pay or incur for an assessment for depreciable property that a soil and water conservation or drainage district levies against your farm. 1040 instructions See Assessment for Depreciable Property , later. 1040 instructions   You must capitalize expenses to buy, build, install, or improve depreciable structures or facilities. 1040 instructions These expenses include those for materials, supplies, wages, fuel, hauling, and moving dirt when making structures such as tanks, reservoirs, pipes, culverts, canals, dams, wells, or pumps composed of masonry, concrete, tile, metal, or wood. 1040 instructions You recover your capital investment through annual allowances for depreciation. 1040 instructions   You can deduct soil and water conservation expenses for nondepreciable earthen items. 1040 instructions Nondepreciable earthen items include certain dams, ponds, and terraces described under Property Having a Determinable Useful Life in chapter 7. 1040 instructions Water well. 1040 instructions   You cannot deduct the cost of drilling a water well for irrigation and other agricultural purposes as a soil and water conservation expense. 1040 instructions It is a capital expense. 1040 instructions You recover your cost through depreciation. 1040 instructions You also must capitalize your cost for drilling a test hole. 1040 instructions If the test hole produces no water and you continue drilling, the cost of the test hole is added to the cost of the producing well. 1040 instructions You can recover the total cost through depreciation deductions. 1040 instructions   If a test hole, dry hole, or dried-up well (resulting from prolonged lack of rain, for instance) is abandoned, you can deduct your unrecovered cost in the year of abandonment. 1040 instructions Abandonment means that all economic benefits from the well are terminated. 1040 instructions For example, filling or sealing a well excavation or casing so that all economic benefits from the well are terminated constitutes an abandonment. 1040 instructions Endangered species recovery expenses. 1040 instructions   If you are in the business of farming and meet other specific requirements, you can choose to deduct the conservation expenses discussed earlier as endangered species recovery expenses. 1040 instructions Otherwise, these are capital expenses that must be added to the basis of the land. 1040 instructions   The expenses must be paid or incurred for the purpose of achieving site-specific management actions recommended in a recovery plan approved under section 4(f) of the Endangered Species Act of 1973. 1040 instructions See Internal Revenue Code section 175 for more information. 1040 instructions Assessment by Conservation District In some localities, a soil or water conservation or drainage district incurs expenses for soil or water conservation and levies an assessment against the farmers who benefit from the expenses. 1040 instructions You can deduct as a conservation expense amounts you pay or incur for the part of an assessment that: Covers expenses you could deduct if you had paid them directly, or Covers expenses for depreciable property used in the district's business. 1040 instructions Assessment for Depreciable Property You generally can deduct as a conservation expense amounts you pay or incur for the part of a conservation or drainage district assessment that covers expenses for depreciable property. 1040 instructions This includes items such as pumps, locks, concrete structures (including dams and weir gates), draglines, and similar equipment. 1040 instructions The depreciable property must be used in the district's soil and water conservation activities. 1040 instructions However, the following limits apply to these assessments. 1040 instructions The total assessment limit. 1040 instructions The yearly assessment limit. 1040 instructions After you apply these limits, the amount you can deduct is added to your other conservation expenses for the year. 1040 instructions The total for these expenses is then subject to the 25% of gross income from farming limit on the deduction, discussed later. 1040 instructions See Table 5-1 for a brief summary of these limits. 1040 instructions Table 5-1. 1040 instructions Limits on Deducting an Assessment by a Conservation District for Depreciable Property Total Limit on Deduction for Assessment for Depreciable Property Yearly Limit on Deduction for Assessment for Depreciable Property Yearly Limit for All Conservation Expenses 10% of: $500 + 10% of: 25% of: Total assessment against all members of the district for the property. 1040 instructions Your deductible share of the cost to the district for the property. 1040 instructions Your gross income from farming. 1040 instructions No one taxpayer can deduct more than 10% of the total assessment. 1040 instructions Any amount over 10% is a capital expense and is added to the basis of your land. 1040 instructions If an assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. 1040 instructions If the amount you pay or incur for any year is more than the limit, you can deduct for that year only 10% of your deductible share of the cost. 1040 instructions You can deduct the remainder in equal amounts over the next 9 tax years. 1040 instructions Limit for all conservation expenses, including assessments for depreciable property. 1040 instructions Amounts greater than 25% can be carried to the following year and added to that year's expenses. 1040 instructions The total is then subject to the 25% of gross income from farming limit in that year. 1040 instructions To ensure your deduction is within the deduction limits, keep records to show the following. 1040 instructions The total assessment against all members of the district for the depreciable property. 1040 instructions Your deductible share of the cost to the district for the depreciable property. 1040 instructions Your gross income from farming. 1040 instructions Total assessment limit. 1040 instructions   You cannot deduct more than 10% of the total amount assessed to all members of the conservation or drainage district for the depreciable property. 1040 instructions This applies whether you pay the assessment in one payment or in installments. 1040 instructions If your assessment is more than 10% of the total amount assessed, both the following rules apply. 1040 instructions The amount over 10% is a capital expense and is added to the basis of your land. 1040 instructions If the assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. 1040 instructions Yearly assessment limit. 1040 instructions   The maximum amount you can deduct in any one year is the total of 10% of your deductible share of the cost as explained earlier, plus $500. 1040 instructions If the amount you pay or incur is equal to or less than the maximum amount, you can deduct it in the year it is paid or incurred. 1040 instructions If the amount you pay or incur is more, you can deduct in that year only 10% of your deductible share of the cost. 1040 instructions You can deduct the remainder in equal amounts over the next 9 tax years. 1040 instructions Your total conservation expense deduction for each year is also subject to the 25% of gross income from farming limit on the deduction, discussed later. 1040 instructions Example 1. 1040 instructions This year, the soil conservation district levies and you pay an assessment of $2,400 against your farm. 1040 instructions Of the assessment, $1,500 is for digging drainage ditches. 1040 instructions You can deduct this part as a soil or conservation expense as if you had paid it directly. 1040 instructions The remaining $900 is for depreciable equipment to be used in the district's irrigation activities. 1040 instructions The total amount assessed by the district against all its members for the depreciable equipment is $7,000. 1040 instructions The total amount you can deduct for the depreciable equipment is limited to 10% of the total amount assessed by the district against all its members for depreciable equipment, or $700. 1040 instructions The $200 excess ($900 − $700) is a capital expense you must add to the basis of your farm. 1040 instructions To figure the maximum amount you can deduct for the depreciable equipment this year, multiply your deductible share of the total assessment ($700) by 10%. 1040 instructions Add $500 to the result for a total of $570. 1040 instructions Your deductible share, $700, is greater than the maximum amount deductible in one year, so you can deduct only $70 of the amount you paid or incurred for depreciable property this year (10% of $700). 1040 instructions You can deduct the balance at the rate of $70 a year over the next 9 years. 1040 instructions You add $70 to the $1,500 portion of the assessment for drainage ditches. 1040 instructions You can deduct $1,570 of the $2,400 assessment as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed later. 1040 instructions Example 2. 1040 instructions Assume the same facts in Example 1 except that $1,850 of the $2,400 assessment is for digging drainage ditches and $550 is for depreciable equipment. 1040 instructions The total amount assessed by the district against all its members for depreciable equipment is $5,500. 1040 instructions The total amount you can deduct for the depreciable equipment is limited to 10% of this amount, or $550. 1040 instructions The maximum amount you can deduct this year for the depreciable equipment is $555 (10% of your deductible share of the total assessment, $55, plus $500). 1040 instructions Since your deductible share is less than the maximum amount deductible in one year, you can deduct the entire $550 this year. 1040 instructions You can deduct the entire assessment, $2,400, as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed below. 1040 instructions Sale or other disposal of land during 9-year period. 1040 instructions   If you dispose of the land during the 9-year period for deducting conservation expenses subject to the yearly limit, any amounts you have not yet deducted because of this limit are added to the basis of the property. 1040 instructions Death of farmer during 9-year period. 1040 instructions   If a farmer dies during the 9-year period, any remaining amounts not yet deducted are deducted in the year of death. 1040 instructions 25% Limit on Deduction The total deduction for conservation expenses in any tax year is limited to 25% of your gross income from farming for the year. 1040 instructions Gross income from farming. 1040 instructions   Gross income from farming is the income you derive in the business of farming from the production of crops, fish, fruits, other agricultural products, or livestock. 1040 instructions Gains from sales of draft, breeding, or dairy livestock are included. 1040 instructions Gains from sales of assets such as farm machinery, or from the disposition of land, are not included. 1040 instructions Carryover of deduction. 1040 instructions   If your deductible conservation expenses in any year are more than 25% of your gross income from farming for that year, you can carry the unused deduction over to later years. 1040 instructions However, the deduction in any later year is limited to 25% of the gross income from farming for that year as well. 1040 instructions Example. 1040 instructions In 2012, you have gross income of $32,000 from two farms. 1040 instructions During the year, you incurred $10,000 of deductible soil and water conservation expenses for one of the farms. 1040 instructions However, your deduction is limited to 25% of $32,000, or $8,000. 1040 instructions The $2,000 excess ($10,000 − $8,000) is carried over to 2013 and added to deductible soil and water conservation expenses made in that year. 1040 instructions The total of the 2012 carryover plus 2013 expenses is deductible in 2013, subject to the limit of 25% of your gross income from farming in 2013. 1040 instructions Any expenses over the limit in that year are carried to 2014 and later years. 1040 instructions Net operating loss. 1040 instructions   The deduction for soil and water conservation expenses, after applying the 25% limit, is included when figuring a net operating loss (NOL) for the year. 1040 instructions If the NOL is carried to another year, the soil and water conservation deduction included in the NOL is not subject to the 25% limit in the year to which it is carried. 1040 instructions When to Deduct or Capitalize If you choose to deduct soil and water conservation expenses, you must deduct the total allowable amount on your tax return for the first year you pay or incur these expenses. 1040 instructions If you do not choose to deduct the expenses, you must capitalize them. 1040 instructions Change of method. 1040 instructions   If you want to change your method for the treatment of soil and water conservation expenses, or you want to treat the expenses for a particular project or a single farm in a different manner, you must get the approval of the IRS. 1040 instructions To get this approval, submit a written request by the due date of your return for the first tax year you want the new method to apply. 1040 instructions You or your authorized representative must sign the request. 1040 instructions   The request must include the following information. 1040 instructions Your name and address. 1040 instructions The first tax year the method or change of method is to apply. 1040 instructions Whether the method or change of method applies to all your soil and water conservation expenses or only to those for a particular project or farm. 1040 instructions If the method or change of method does not apply to all your expenses, identify the project or farm to which the expenses apply. 1040 instructions The total expenses you paid or incurred in the first tax year the method or change of method is to apply. 1040 instructions A statement that you will account separately in your books for the expenses to which this method or change of method relates. 1040 instructions Send your request to the following  address. 1040 instructions  Department of the Treasury Internal Revenue Service Center Cincinnati, OH 45999  For more information, see Change in  Accounting Method in chapter 2. 1040 instructions Sale of a Farm If you sell your farm, you cannot adjust the basis of the land at the time of the sale for any unused carryover of soil and water conservation expenses (except for deductions of assessments for depreciable property, discussed earlier). 1040 instructions However, if you acquire another farm and return to the business of farming, you can start taking deductions again for the unused carryovers. 1040 instructions Gain on sale of farmland. 1040 instructions   If you held the land 5 years or less before you sold it, gain on the sale of the land is treated as ordinary income up to the amount you previously deducted for soil and water conservation expenses. 1040 instructions If you held the land less than 10 but more than 5 years, the gain is treated as ordinary income up to a specified percentage of the previous deductions. 1040 instructions See Section 1252 property under Other Gains in chapter 9. 1040 instructions Prev  Up  Next   Home   More Online Publications
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Letter 3127C Frequently Asked Questions (FAQs)

What is the letter telling me?

This letter is confirming your oral or written request to make a change to your current Installment Agreement. The change can be payment amount, payment date or adding an additional liability to the agreement. The letter explains the necessary fees charged for this service.

What do I have to do?

Follow the instructions in the letter and make the change on the date provided.

How much time do I have?

The letter tells you when the change takes place.

What happens if I don't take any action?

You must continue to make your installment payments as the letter directs.

Who should I contact?

If you have any questions you may call the toll free number provided in the letter. The person who answers will assist you.

What if I don't agree or have already taken corrective action?

If you don't agree with the installment terms, you should contact us immediately. If you have already taken corrective action, you should receive a monthly reminder notice.

Page Last Reviewed or Updated: 03-Feb-2014

The 1040 Instructions

1040 instructions 3. 1040 instructions   Dispositions of Business Property Table of Contents Introduction Useful Items - You may want to see: What Is a Disposition of Property?Like-kind exchanges. 1040 instructions How Do I Figure a Gain or Loss?Is My Gain or Loss Ordinary or Capital? Is My Capital Gain or Loss Short Term or Long Term? Where Do I Report Gains and Losses? Introduction If you dispose of business property, you may have a gain or loss that you report on Form 1040. 1040 instructions However, in some cases you may have a gain that is not taxable or a loss that is not deductible. 1040 instructions This chapter discusses whether you have a disposition, how to figure the gain or loss, and where to report the gain or loss. 1040 instructions Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets Form (and Instructions) 4797 Sales of Business Property Sch D (Form 1040) Capital Gains and Losses See chapter 12 for information about getting publications and forms. 1040 instructions What Is a Disposition of Property? A disposition of property includes the following transactions. 1040 instructions You sell property for cash or other property. 1040 instructions You exchange property for other property. 1040 instructions You receive money as a tenant for the cancellation of a lease. 1040 instructions You receive money for granting the exclusive use of a copyright throughout its life in a particular medium. 1040 instructions You transfer property to satisfy a debt. 1040 instructions You abandon property. 1040 instructions Your bank or other financial institution forecloses on your mortgage or repossesses your property. 1040 instructions Your property is damaged, destroyed, or stolen, and you receive property or money in payment. 1040 instructions Your property is condemned, or disposed of under the threat of condemnation, and you receive property or money in payment. 1040 instructions For details about damaged, destroyed, or stolen property, see Publication 547, Casualties, Disasters, and Thefts. 1040 instructions For details about other dispositions, see chapter 1 in Publication 544. 1040 instructions Nontaxable exchanges. 1040 instructions   Certain exchanges of property are not taxable. 1040 instructions This means any gain from the exchange is not recognized and you cannot deduct any loss. 1040 instructions Your gain or loss will not be recognized until you sell or otherwise dispose of the property you receive. 1040 instructions Like-kind exchanges. 1040 instructions   A like-kind exchange is the exchange of property for the same kind of property. 1040 instructions It is the most common type of nontaxable exchange. 1040 instructions To be a like-kind exchange, the property traded and the property received must be both of the following. 1040 instructions Business or investment property. 1040 instructions Like property. 1040 instructions   Report the exchange of like-kind property on Form 8824, Like-Kind Exchanges. 1040 instructions For more information about like-kind exchanges, see chapter 1 in Publication 544. 1040 instructions Installment sales. 1040 instructions   An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. 1040 instructions If you finance the buyer's purchase of your property, instead of having the buyer get a loan or mortgage from a third party, you probably have an installment sale. 1040 instructions   For more information about installment sales, see Publication 537, Installment Sales. 1040 instructions Sale of a business. 1040 instructions   The sale of a business usually is not a sale of one asset. 1040 instructions Instead, all the assets of the business are sold. 1040 instructions Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss. 1040 instructions   Both the buyer and seller involved in the sale of a business must report to the IRS the allocation of the sales price among the business assets. 1040 instructions Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. 1040 instructions The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. 1040 instructions   For more information about the sale of a business, see chapter 2 of Publication 544. 1040 instructions How Do I Figure a Gain or Loss? Table 3-1. 1040 instructions How To Figure a Gain or Loss IF your. 1040 instructions . 1040 instructions . 1040 instructions THEN you have a. 1040 instructions . 1040 instructions . 1040 instructions Adjusted basis is more than the amount realized Loss. 1040 instructions Amount realized is more than the adjusted basis Gain. 1040 instructions Basis, adjusted basis, amount realized, fair market value, and amount recognized are defined next. 1040 instructions You need to know these definitions to figure your gain or loss. 1040 instructions Basis. 1040 instructions   The cost or purchase price of property is usually its basis for figuring the gain or loss from its sale or other disposition. 1040 instructions However, if you acquired the property by gift, inheritance, or in some way other than buying it, you must use a basis other than its cost. 1040 instructions For more information about basis, see Publication 551, Basis of Assets. 1040 instructions Adjusted basis. 1040 instructions   The adjusted basis of property is your original cost or other basis plus certain additions, and minus certain deductions such as depreciation and casualty losses. 1040 instructions In determining gain or loss, the costs of transferring property to a new owner, such as selling expenses, are added to the adjusted basis of the property. 1040 instructions Amount realized. 1040 instructions   The amount you realize from a disposition is the total of all money you receive plus the fair market value of all property or services you receive. 1040 instructions The amount you realize also includes any of your liabilities that were assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. 1040 instructions Fair market value. 1040 instructions   Fair market value is the price at which the property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. 1040 instructions Amount recognized. 1040 instructions   Your gain or loss realized from a disposition of property is usually a recognized gain or loss for tax purposes. 1040 instructions Recognized gains must be included in gross income. 1040 instructions Recognized losses are deductible from gross income. 1040 instructions However, a gain or loss realized from certain exchanges of property is not recognized. 1040 instructions See  Nontaxable exchanges, earlier. 1040 instructions Also, you cannot deduct a loss from the disposition of property held for personal use. 1040 instructions Is My Gain or Loss Ordinary or Capital? You must classify your gains and losses as either ordinary or capital gains or losses. 1040 instructions You must do this to figure your net capital gain or loss. 1040 instructions Generally, you will have a capital gain or loss if you dispose of a capital asset. 1040 instructions For the most part, everything you own and use for personal purposes or investment is a capital asset. 1040 instructions Certain property you use in your business is not a capital asset. 1040 instructions A gain or loss from a disposition of this property is an ordinary gain or loss. 1040 instructions However, if you held the property longer than 1 year, you may be able to treat the gain or loss as a capital gain or loss. 1040 instructions These gains and losses are called section 1231 gains and losses. 1040 instructions For more information about ordinary and capital gains and losses, see chapters 2 and 3 in Publication 544. 1040 instructions Is My Capital Gain or Loss Short Term or Long Term? If you have a capital gain or loss, you must determine whether it is long term or short term. 1040 instructions Whether a gain or loss is long or short term depends on how long you own the property before you dispose of it. 1040 instructions The time you own property before disposing of it is called the holding period. 1040 instructions Table 3-2. 1040 instructions Do I Have a Short-Term or Long-Term Gain or Loss? IF you hold the property. 1040 instructions . 1040 instructions . 1040 instructions THEN you have a. 1040 instructions . 1040 instructions . 1040 instructions 1 year or less Short-term capital gain or loss. 1040 instructions More than 1 year Long-term capital gain or loss. 1040 instructions For more information about short-term and long-term capital gains and losses, see chapter 4 of Publication 544. 1040 instructions Where Do I Report Gains and Losses? Report gains and losses from the following dispositions on the forms indicated. 1040 instructions The instructions for the forms explain how to fill them out. 1040 instructions Dispositions of business property and depreciable property. 1040 instructions   Use Form 4797. 1040 instructions If you have taxable gain, you may also have to use Schedule D (Form 1040). 1040 instructions Like-kind exchanges. 1040 instructions   Use Form 8824, Like-Kind Exchanges. 1040 instructions You may also have to use Form 4797 and Schedule D (Form 1040). 1040 instructions Installment sales. 1040 instructions   Use Form 6252, Installment Sale Income. 1040 instructions You may also have to use Form 4797 and Schedule D (Form 1040). 1040 instructions Casualties and thefts. 1040 instructions   Use Form 4684, Casualties and Thefts. 1040 instructions You may also have to use Form 4797. 1040 instructions Condemned property. 1040 instructions   Use Form 4797. 1040 instructions You may also have to use Schedule D (Form 1040). 1040 instructions Prev  Up  Next   Home   More Online Publications