1040nr Ez 2010 FormIrs Free File2008 Tax Forms 1040Hr BlockState Taxes1040nr Ez InstructionIl 1040x1040ezFederal Tax Amended Return2011 Ri 1040nrFill 1040xHow Do I Ammend A Tax ReturnEz1040Didnt File 2012 TaxesHow To File Amended Tax ReturnState Amended FormCan I File My 2011 Taxes OnlineEztaxHr Block 1040xAmend 2012 TaxesE File 2011 Tax ReturnFreetaxusa Coupon State ReturnFiling Past Year Tax Returns1040nr CalculatorHttps Www Freefilefillableforms Com Ffa Freefileforms HtmStudent Tax Return CalculatorFree State Income Tax FormForms For Filing State Tax ReturnsHow To File Taxes For Self Employment IncomeTax Form 1040 2012Irs Forms For 20122006 Tax Software1040ez Form Free FileFree Tax Calculator 2011 H&r Block2013 State Income Tax Form2011 Taxes FormsIrs Form 1040x InstructionsTax Software 1040nrFile 2007 Taxes FreeIrs Amended Tax Return
1040nr e Publication 972 - Introductory Material Table of Contents Future Developments Reminder IntroductionOrdering forms and publications. 1040nr e Tax questions. 1040nr e Future Developments For the latest information about developments related to Publication 972, such as legislation enacted after it was published, go to www. 1040nr e irs. 1040nr e gov/pub972. 1040nr e Reminder Photographs of missing children. 1040nr e The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. 1040nr e Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. 1040nr e You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. 1040nr e Introduction The purpose of this publication is: To figure the child tax credit you claim on Form 1040, line 51; Form 1040A, line 33; or Form 1040NR, line 48; and To figure the amount of earned income you enter on line 4a of Schedule 8812 (Form 1040A or 1040), Child Tax Credit. 1040nr e This publication is intended primarily for individuals sent here by the instructions to Forms 1040, 1040A, or 1040NR, or Schedule 8812. 1040nr e Even if you were not sent here by the instructions to one of the forms or the schedule, you can still choose to use this publication to figure your credit. 1040nr e However, most individuals can use a simpler worksheet in their tax form instructions. 1040nr e If you were sent here from your Form 1040, Form 1040A, or Form 1040NR instructions. 1040nr e Complete the Child Tax Credit Worksheet , later in this publication. 1040nr e If you were sent here from your Schedule 8812 instructions. 1040nr e Complete the 1040 and 1040NR Filers — Earned Income Worksheet , later in this publication. 1040nr e If you have not read your Form 1040, Form 1040A, or Form 1040NR instructions. 1040nr e Read the explanation of who must use this publication next. 1040nr e If you find that you are not required to use this publication to figure your child tax credit, you can use the simpler worksheet in the Form 1040, Form 1040A, or Form 1040NR instructions to figure your credit. 1040nr e Who must use this publication. 1040nr e If you answer “Yes” to either of the following questions, you must use this publication to figure your child tax credit. 1040nr e Are you excluding income from Puerto Rico or filing any of the following forms? Form 2555 or 2555-EZ (relating to foreign earned income). 1040nr e Form 4563 (exclusion of income for residents of American Samoa). 1040nr e Are you claiming any of the following credits? Mortgage interest credit, Form 8396. 1040nr e Adoption credit, Form 8839. 1040nr e Residential energy efficient property credit, Form 5695, Part I. 1040nr e District of Columbia first-time homebuyer credit, Form 8859. 1040nr e Comments and suggestions. 1040nr e We welcome your comments about this publication and your suggestions for future editions. 1040nr e You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. 1040nr e NW, IR-6526 Washington, DC 20224 We respond to many letters by telephone. 1040nr e Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 1040nr e You can send your comments from www. 1040nr e irs. 1040nr e gov/formspubs/. 1040nr e Click on “More Information” and then on “Comment on Tax Forms and Publications. 1040nr e ” Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. 1040nr e Ordering forms and publications. 1040nr e Visit www. 1040nr e irs. 1040nr e gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. 1040nr e Internal Revenue Service 1201 N. 1040nr e Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. 1040nr e If you have a tax question, check the information available on IRS. 1040nr e gov or call 1-800-829-1040. 1040nr e We cannot answer tax questions sent to either of the above addresses. 1040nr e Prev Up Next Home More Online Publications
Better Business Bureaus in Colorado
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The 1040nr E
1040nr e 9. 1040nr e Dispositions of Property Used in Farming Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Section 1231 Gains and LossesNonrecaptured section 1231 losses. 1040nr e Depreciation RecaptureSection 1245 Property Section 1250 Property Installment Sale Other Dispositions Other GainsExceptions. 1040nr e Amount to report as ordinary income. 1040nr e Applicable percentage. 1040nr e Amount to report as ordinary income. 1040nr e Applicable percentage. 1040nr e Introduction When you dispose of property used in your farm business, your taxable gain or loss is usually treated as ordinary income (which is taxed at the same rates as wages and interest income) or capital gain (which is generally taxed at lower rates) under the rules for section 1231 transactions. 1040nr e When you dispose of depreciable property (section 1245 property or section 1250 property) at a gain, you may have to recognize all or part of the gain as ordinary income under the depreciation recapture rules. 1040nr e Any gain remaining after applying the depreciation recapture rules is a section 1231 gain, which may be taxed as a capital gain. 1040nr e Gains and losses from property used in farming are reported on Form 4797, Sales of Business Property. 1040nr e Table 9-1 contains examples of items reported on Form 4797 and refers to the part of that form on which they first should be reported. 1040nr e Topics - This chapter discusses: Section 1231 gains and losses Depreciation recapture Other gains Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets Form (and Instructions) 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. 1040nr e Section 1231 Gains and Losses Section 1231 gains and losses are the taxable gains and losses from section 1231 transactions (explained below). 1040nr e Their treatment as ordinary or capital gains depends on whether you have a net gain or a net loss from all of your section 1231 transactions in the tax year. 1040nr e Table 9-1. 1040nr e Where to First Report Certain Items on Form 4797 Type of property Held 1 year or less Held more than 1 year 1 Depreciable trade or business property: a Sold or exchanged at a gain Part II Part III (1245, 1250) b Sold or exchanged at a loss Part II Part I 2 Farmland held less than 10 years for which soil, water, or land clearing expenses were deducted: a Sold at a gain Part II Part III (1252) b Sold at a loss Part II Part I 3 All other farmland Part II Part I 4 Disposition of cost-sharing payment property described in section 126 Part II Part III (1255) 5 Cattle and horses used in a trade or business for draft, breeding, dairy, or sporting purposes: Held less than 24 mos. 1040nr e Held 24 mos. 1040nr e or more a Sold at a gain Part II Part III (1245) b Sold at a loss Part II Part I c Raised cattle and horses sold at a gain Part II Part I 6 Livestock other than cattle and horses used in a trade or business for draft, breeding, dairy, or sporting purposes: Held less than 12 mos. 1040nr e Held 12 mos. 1040nr e or more a Sold at a gain Part II Part III (1245) b Sold at a loss Part II Part I c Raised livestock sold at a gain Part II Part I If you have a gain from a section 1231 transaction, first determine whether any of the gain is ordinary income under the depreciation recapture rules (explained later). 1040nr e Do not take that gain into account as section 1231 gain. 1040nr e Section 1231 transactions. 1040nr e Gain or loss on the following transactions is subject to section 1231 treatment. 1040nr e Sale or exchange of cattle and horses. 1040nr e The cattle and horses must be held for draft, breeding, dairy, or sporting purposes and held for 24 months or longer. 1040nr e Sale or exchange of other livestock. 1040nr e This livestock must be held for draft, breeding, dairy, or sporting purposes and held for 12 months or longer. 1040nr e Other livestock includes hogs, mules, sheep, goats, donkeys, and other fur-bearing animals. 1040nr e Other livestock does not include poultry. 1040nr e Sale or exchange of depreciable personal property. 1040nr e This property must be used in your business and held longer than 1 year. 1040nr e Generally, property held for the production of rents or royalties is considered to be used in a trade or business. 1040nr e Examples of depreciable personal property include farm machinery and trucks. 1040nr e It also includes amortizable section 197 intangibles. 1040nr e Sale or exchange of real estate. 1040nr e This property must be used in your business and held longer than 1 year. 1040nr e Examples are your farm or ranch (including barns and sheds). 1040nr e Sale or exchange of unharvested crops. 1040nr e The crop and land must be sold, exchanged, or involuntarily converted at the same time and to the same person, and the land must have been held longer than 1 year. 1040nr e You cannot keep any right or option to reacquire the land directly or indirectly (other than a right customarily incident to a mortgage or other security transaction). 1040nr e Growing crops sold with a leasehold on the land, even if sold to the same person in a single transaction, are not included. 1040nr e Distributive share of partnership gains and losses. 1040nr e Your distributive share must be from the sale or exchange of property listed above and held longer than 1 year (or for the required period for certain livestock). 1040nr e Cutting or disposal of timber. 1040nr e Special 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, as described in chapter 8 under Timber . 1040nr e Condemnation. 1040nr e The condemned property (defined in chapter 11) must have been held longer than 1 year. 1040nr e It must be business property or a capital asset held in connection with a trade or business or a transaction entered into for profit, such as investment property. 1040nr e It cannot be property held for personal use. 1040nr e Casualty or theft. 1040nr e The casualty or theft must have affected business property, property held for the production of rents or royalties, or investment property (such as notes and bonds). 1040nr e You must have held the property longer than 1 year. 1040nr e However, if your casualty or theft losses are more than your casualty or theft gains, neither the gains nor the losses are taken into account in the section 1231 computation. 1040nr e Section 1231 does not apply to personal casualty gains and losses. 1040nr e See chapter 11 for information on how to treat those gains and losses. 1040nr e If the property is not held for the required holding period, the transaction is not subject to section 1231 treatment, and any gain or loss is ordinary income reported in Part II of Form 4797. 1040nr e See Table 9-1. 1040nr e Property for sale to customers. 1040nr e A sale, exchange, or involuntary conversion of property held mainly for sale to customers is not a section 1231 transaction. 1040nr e If you will get back all, or nearly all, of your investment in the property by selling it rather than by using it up in your business, it is property held mainly for sale to customers. 1040nr e Treatment as ordinary or capital. 1040nr e To determine the treatment of section 1231 gains and losses, combine all of your section 1231 gains and losses for the year. 1040nr e If you have a net section 1231 loss, it is an ordinary loss. 1040nr e If you have a net section 1231 gain, it is ordinary income up to your nonrecaptured section 1231 losses from previous years, explained next. 1040nr e The rest, if any, is long-term capital gain. 1040nr e Nonrecaptured section 1231 losses. 1040nr e Your nonrecaptured section 1231 losses are your net section 1231 losses for the previous 5 years that have not been applied against a net section 1231 gain by treating the gain as ordinary income. 1040nr e These losses are applied against your net section 1231 gain beginning with the earliest loss in the 5-year period. 1040nr e Example. 1040nr e In 2013, Ben has a $2,000 net section 1231 gain. 1040nr e To figure how much he has to report as ordinary income and long-term capital gain, he must first determine his section 1231 gains and losses from the previous 5-year period. 1040nr e From 2008 through 2012 he had the following section 1231 gains and losses. 1040nr e Year Amount 2008 -0- 2009 -0- 2010 ($2,500) 2011 -0- 2012 $1,800 Ben uses this information to figure how to report his net section 1231 gain for 2013 as shown below. 1040nr e 1) Net section 1231 gain (2013) $2,000 2) Net section 1231 loss (2010) ($2,500) 3) Net section 1231 gain (2012) 1,800 4) Remaining net section 1231 loss from prior 5 years ($700) 5) Gain treated as ordinary income $700 6) Gain treated as long-term capital gain $1,300 His remaining net section 1231 loss from 2010 is completely recaptured in 2013. 1040nr e Depreciation Recapture If you dispose of depreciable or amortizable property at a gain, you may have to treat all or part of the gain (even if it is otherwise nontaxable) as ordinary income. 1040nr e To figure any gain that must be reported as ordinary income, you must keep permanent records of the facts necessary to figure the depreciation or amortization allowed or allowable on your property. 1040nr e For more information, see chapter 3 of Publication 544. 1040nr e Section 1245 Property A gain on the disposition of section 1245 property is treated as ordinary income to the extent of depreciation allowed or allowable. 1040nr e Any recognized gain that is more than the part that is ordinary income is a section 1231 gain. 1040nr e See Treatment as ordinary or capital under Section 1231 Gains and Losses , earlier. 1040nr e Section 1245 property includes any property that is or has been subject to an allowance for depreciation or amortization and that is any of the following types of property. 1040nr e Personal property (either tangible or intangible). 1040nr e Other tangible property (except buildings and their structural components) used as any of the following. 1040nr e See Buildings and structural components below. 1040nr e An integral part of manufacturing, production, or extraction, or of furnishing certain services. 1040nr e A research facility in any of the activities in (a). 1040nr e A facility in any of the activities in (a) above, for the bulk storage of fungible commodities (discussed later). 1040nr e That part of real property (not included in (2)) with an adjusted basis reduced by (but not limited to) the following. 1040nr e Amortization of certified pollution control facilities. 1040nr e The section 179 expense deduction. 1040nr e Deduction for clean-fuel vehicles and certain refueling property. 1040nr e Expenditures to remove architectural and transportation barriers to the handicapped and elderly. 1040nr e Certain reforestation expenditures (as described under Reforestation Costs in chapter 7. 1040nr e Single purpose agricultural (livestock) or horticultural structures. 1040nr e Storage facilities (except buildings and their structural components) used in distributing petroleum or any primary product of petroleum. 1040nr e Buildings and structural components. 1040nr e Section 1245 property does not include buildings and structural components. 1040nr e The term building includes a house, barn, warehouse, or garage. 1040nr e The term structural component includes walls, floors, windows, doors, central air conditioning systems, light fixtures, etc. 1040nr e Do not treat a structure that is essentially machinery or equipment as a building or structural component. 1040nr e Also, do not treat a structure that houses property used as an integral part of an activity as a building or structural component if the structure's use is so closely related to the property's use that the structure can be expected to be replaced when the property it initially houses is replaced. 1040nr e The fact that the structure is specially designed to withstand the stress and other demands of the property and cannot be used economically for other purposes indicates it is closely related to the use of the property it houses. 1040nr e Structures such as oil and gas storage tanks, grain storage bins, and silos are not treated as buildings, but as section 1245 property. 1040nr e Facility for bulk storage of fungible commodities. 1040nr e This is a facility used mainly for the bulk storage of fungible commodities. 1040nr e Bulk storage means storage of a commodity in a large mass before it is used. 1040nr e For example, if a facility is used to store oranges that have been sorted and boxed, it is not used for bulk storage. 1040nr e To be fungible, a commodity must be such that one part may be used in place of another. 1040nr e Gain Treated as Ordinary Income The gain treated as ordinary income on the sale, exchange, or involuntary conversion of section 1245 property, including a sale and leaseback transaction, is the lesser of the following amounts. 1040nr e The depreciation (which includes any section 179 deduction claimed) and amortization allowed or allowable on the property. 1040nr e The gain realized on the disposition (the amount realized from the disposition minus the adjusted basis of the property). 1040nr e For any other disposition of section 1245 property, ordinary income is the lesser of (1) above or the amount by which its fair market value (FMV) is more than its adjusted basis. 1040nr e For details, see chapter 3 of Publication 544. 1040nr e Use Part III of Form 4797 to figure the ordinary income part of the gain. 1040nr e Depreciation claimed on other property or claimed by other taxpayers. 1040nr e Depreciation and amortization include the amounts you claimed on the section 1245 property as well as the following depreciation and amortization amounts. 1040nr e Amounts you claimed on property you exchanged for, or converted to, your section 1245 property in a like-kind exchange or involuntary conversion. 1040nr e For details on exchanges of property that are not taxable, see Like-Kind Exchanges in chapter 8. 1040nr e Amounts a previous owner of the section 1245 property claimed if your basis is determined with reference to that person's adjusted basis (for example, the donor's depreciation deductions on property you received as a gift and part of the transfer is a sale or exchange). 1040nr e Example. 1040nr e Jeff Free paid $120,000 for a tractor in 2012. 1040nr e On February 23, 2013, he traded it for a chopper and paid an additional $30,000. 1040nr e To figure his depreciation deduction on the chopper for the current year, Jeff continues to use the basis of the tractor as he would have before the trade. 1040nr e Jeff can also depreciate the additional $30,000 for the chopper. 1040nr e Depreciation and amortization. 1040nr e Depreciation and amortization deductions that must be recaptured as ordinary income include (but are not limited to) the following items. 1040nr e See Depreciation Recapture in chapter 3 of Publication 544 for more details. 1040nr e Ordinary depreciation deductions. 1040nr e Section 179 deduction (see chapter 7). 1040nr e Any special depreciation allowance. 1040nr e Amortization deductions for all the following costs. 1040nr e Acquiring a lease. 1040nr e Lessee improvements. 1040nr e Pollution control facilities. 1040nr e Reforestation expenses. 1040nr e Section 197 intangibles. 1040nr e Qualified disaster expenses. 1040nr e Franchises, trademarks, and trade names acquired before August 11, 1993. 1040nr e Example. 1040nr e You file your returns on a calendar year basis. 1040nr e In February 2011, you bought and placed in service for 100% use in your farming business a light-duty truck (5-year property) that cost $10,000. 1040nr e You used the half-year convention and your MACRS deductions for the truck were $1,500 in 2011 and $2,550 in 2012. 1040nr e You did not claim the section 179 expense deduction for the truck. 1040nr e You sold it in May 2013 for $7,000. 1040nr e The MACRS deduction in 2013, the year of sale, is $893 (½ of $1,785). 1040nr e Figure the gain treated as ordinary income as follows. 1040nr e 1) Amount realized $7,000 2) Cost (February 2011) $10,000 3) Depreciation allowed or allowable (MACRS deductions: $1,500 + $2,550 + $893) 4,943 4) Adjusted basis (subtract line 3 from line 2) $5,057 5) Gain realized (subtract line 4 from line 1) 1,943 6) Gain treated as ordinary income (lesser of line 3 or line 5) $1,943 Depreciation allowed or allowable. 1040nr e You generally use the greater of the depreciation allowed or allowable when figuring the part of gain to report as ordinary income. 1040nr e If, in prior years, you have consistently taken proper deductions under one method, the amount allowed for your prior years will not be increased even though a greater amount would have been allowed under another proper method. 1040nr e If you did not take any deduction at all for depreciation, your adjustments to basis for depreciation allowable are figured by using the straight line method. 1040nr e This treatment applies only when figuring what part of the gain is treated as ordinary income under the rules for section 1245 depreciation recapture. 1040nr e Disposition of plants and animals. 1040nr e If you elect not to use the uniform capitalization rules (see chapter 6), you must treat any plant you produce as section 1245 property. 1040nr e If you have a gain on the property's disposition, you must recapture the pre-productive expenses you would have capitalized if you had not made the election by treating the gain, up to the amount of these expenses, as ordinary income. 1040nr e For section 1231 transactions, show these expenses as depreciation on Form 4797, Part III, line 22. 1040nr e For plant sales that are reported on Schedule F (1040), Profit or Loss From Farming, this recapture rule does not change the reporting of income because the gain is already ordinary income. 1040nr e You can use the farm-price method or the unit-livestock-price method discussed in chapter 2 to figure these expenses. 1040nr e Example. 1040nr e Janet Maple sold her apple orchard in 2013 for $80,000. 1040nr e Her adjusted basis at the time of sale was $60,000. 1040nr e She bought the orchard in 2006, but the trees did not produce a crop until 2009. 1040nr e Her pre-productive expenses were $6,000. 1040nr e She elected not to use the uniform capitalization rules. 1040nr e Janet must treat $6,000 of the gain as ordinary income. 1040nr e Section 1250 Property Section 1250 property includes all real property subject to an allowance for depreciation that is not and never has been section 1245 property. 1040nr e It includes buildings and structural components that are not section 1245 property (discussed earlier). 1040nr e It includes a leasehold of land or section 1250 property subject to an allowance for depreciation. 1040nr e A fee simple interest in land is not section 1250 property because, like land, it is not depreciable. 1040nr e Gain on the disposition of section 1250 property is treated as ordinary income to the extent of additional depreciation allowed or allowable. 1040nr e To determine the additional depreciation on section 1250 property, see Depreciation Recapture in chapter 3 of Publication 544. 1040nr e You will not have additional depreciation if any of the following apply to the property disposed of. 1040nr e You figured depreciation for the property using the straight line method or any other method that does not result in depreciation that is more than the amount figured by the straight line method and you have held the property longer than 1 year. 1040nr e You chose the alternate ACRS (straight line) method for the property, which was a type of 15-, 18-, or 19-year real property covered by the section 1250 rules. 1040nr e The property was nonresidential real property placed in service after 1986 (or after July 31, 1986, if the choice to use MACRS was made) and you held it longer than 1 year. 1040nr e These properties are depreciated using the straight line method. 1040nr e Installment Sale If you report the sale of property under the installment method, any depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale. 1040nr e This applies even if no payments are received in that year. 1040nr e If the gain is more than the depreciation recapture income, report the rest of the gain using the rules of the installment method. 1040nr e For this purpose, include the recapture income in your installment sale basis to determine your gross profit on the installment sale. 1040nr e If you dispose of more than one asset in a single transaction, you must separately figure the gain on each asset so that it may be properly reported. 1040nr e To do this, allocate the selling price and the payments you receive in the year of sale to each asset. 1040nr e Report any depreciation recapture income in the year of sale before using the installment method for any remaining gain. 1040nr e For more information on installment sales, see chapter 10. 1040nr e Other Dispositions Chapter 3 of Publication 544 discusses the tax treatment of the following transfers of depreciable property. 1040nr e By gift. 1040nr e At death. 1040nr e In like-kind exchanges. 1040nr e In involuntary conversions. 1040nr e Publication 544 also explains how to handle a single transaction involving multiple properties. 1040nr e Other Gains This section discusses gain on the disposition of farmland for which you were allowed either of the following. 1040nr e Deductions for soil and water conservation expenditures (section 1252 property). 1040nr e Exclusions from income for certain cost sharing payments (section 1255 property). 1040nr e Section 1252 property. 1040nr e If you disposed of farmland you held more than 1 year and less than 10 years at a gain and you were allowed deductions for soil and water conservation expenses for the land, as discussed in chapter 5, you must treat part of the gain as ordinary income and treat the balance as section 1231 gain. 1040nr e Exceptions. 1040nr e Do not treat gain on the following transactions as gain on section 1252 property. 1040nr e Disposition of farmland by gift. 1040nr e Transfer of farm property at death (except for income in respect of a decedent). 1040nr e For more information, see Regulations section 1. 1040nr e 1252-2. 1040nr e Amount to report as ordinary income. 1040nr e You report as ordinary income the lesser of the following amounts. 1040nr e Your gain (determined by subtracting the adjusted basis from the amount realized from a sale, exchange, or involuntary conversion, or the FMV for all other dispositions). 1040nr e The total deductions allowed for soil and water conservation expenses multiplied by the applicable percentage, discussed next. 1040nr e Applicable percentage. 1040nr e The applicable percentage is based on the length of time you held the land. 1040nr e If you dispose of your farmland within 5 years after the date you acquired it, the percentage is 100%. 1040nr e If you dispose of the land within the 6th through 9th year after you acquired it, the applicable percentage is reduced by 20% a year for each year or part of a year you hold the land after the 5th year. 1040nr e If you dispose of the land 10 or more years after you acquired it, the percentage is 0%, and the entire gain is a section 1231 gain. 1040nr e Example. 1040nr e You acquired farmland on January 19, 2005. 1040nr e On October 3, 2013, you sold the land at a $30,000 gain. 1040nr e Between January 1 and October 3, 2013, you incur soil and water conservation expenditures of $15,000 for the land that are fully deductible in 2013. 1040nr e The applicable percentage is 40% since you sold the land within the 8th year after you acquired it. 1040nr e You treat $6,000 (40% of $15,000) of the $30,000 gain as ordinary income and the $24,000 balance as a section 1231 gain. 1040nr e Section 1255 property. 1040nr e If you receive certain cost-sharing payments on property and you exclude those payments from income (as discussed in chapter 3), you may have to treat part of any gain as ordinary income and treat the balance as a section 1231 gain. 1040nr e If you chose not to exclude these payments, you will not have to recognize ordinary income under this provision. 1040nr e Amount to report as ordinary income. 1040nr e You report as ordinary income the lesser of the following amounts. 1040nr e The applicable percentage of the total excluded cost-sharing payments. 1040nr e The gain on the disposition of the property. 1040nr e You do not report ordinary income under this rule to the extent the gain is recognized as ordinary income under sections 1231 through 1254, 1256, and 1257. 1040nr e However, if applicable, gain reported under this rule must be reported regardless of any contrary provisions (including nonrecognition provisions) under any other section. 1040nr e Applicable percentage. 1040nr e The applicable percentage of the excluded cost-sharing payments to be reported as ordinary income is based on the length of time you hold the property after receiving the payments. 1040nr e If the property is held less than 10 years after you receive the payments, the percentage is 100%. 1040nr e After 10 years, the percentage is reduced by 10% a year, or part of a year, until the rate is 0%. 1040nr e Form 4797, Part III. 1040nr e Use Form 4797, Part III, to figure the ordinary income part of a gain from the sale, exchange, or involuntary conversion of section 1252 property and section 1255 property. 1040nr e Prev Up Next Home More Online Publications