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2005 Tax Forms

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2005 Tax Forms

2005 tax forms 6. 2005 tax forms   Retail Tax on Heavy Trucks, Trailers, and Tractors Table of Contents Highway vehicle. 2005 tax forms Vehicles not considered highway vehicles. 2005 tax forms Idling reduction device. 2005 tax forms Separate purchase. 2005 tax forms Leases. 2005 tax forms Exported vehicle. 2005 tax forms Tax on resale of tax-paid trailers and semitrailers. 2005 tax forms Use treated as sale. 2005 tax forms Sale. 2005 tax forms Long-term lease. 2005 tax forms Short-term lease. 2005 tax forms Related person. 2005 tax forms Exclusions from tax base. 2005 tax forms Sales not at arm's length. 2005 tax forms Installment sales. 2005 tax forms Repairs and modifications. 2005 tax forms Further manufacture. 2005 tax forms Rail trailers and rail vans. 2005 tax forms Parts and accessories. 2005 tax forms Trash containers. 2005 tax forms House trailers. 2005 tax forms Camper coaches or bodies for self-propelled mobile homes. 2005 tax forms Farm feed, seed, and fertilizer equipment. 2005 tax forms Ambulances and hearses. 2005 tax forms Truck-tractors. 2005 tax forms Concrete mixers. 2005 tax forms Registration requirement. 2005 tax forms Further manufacture. 2005 tax forms A tax of 12% of the sales price is imposed on the first retail sale of the following articles, including related parts and accessories sold on or in connection with, or with the sale of, the articles. 2005 tax forms Truck chassis and bodies. 2005 tax forms Truck trailer and semitrailer chassis and bodies. 2005 tax forms Tractors of the kind chiefly used for highway transportation in combination with a trailer or semitrailer. 2005 tax forms A truck is a highway vehicle primarily designed to transport its load on the same chassis as the engine, even if it is equipped to tow a vehicle, such as a trailer or semitrailer. 2005 tax forms A tractor is a highway vehicle designed to tow a vehicle, such as a trailer or semitrailer. 2005 tax forms A tractor may carry incidental items of cargo when towing or limited amounts of cargo when not towing. 2005 tax forms A sale of a truck, truck trailer, or semitrailer is considered a sale of a chassis and a body. 2005 tax forms The seller is liable for the tax. 2005 tax forms Chassis or body. 2005 tax forms   A chassis or body is taxable only if you sell it for use as a component part of a highway vehicle that is a truck, truck trailer or semitrailer, or a tractor of the kind chiefly used for highway transportation in combination with a trailer or semitrailer. 2005 tax forms Highway vehicle. 2005 tax forms   A highway vehicle is any self-propelled vehicle designed to carry a load over public highways, whether or not it is also designed to perform other functions. 2005 tax forms Examples of vehicles designed to carry a load over public highways are passenger automobiles, motorcycles, buses, and highway-type trucks and truck tractors. 2005 tax forms A vehicle is a highway vehicle even though the vehicle's design allows it to perform a highway transportation function for only one of the following. 2005 tax forms A particular type of load, such as passengers, furnishings, and personal effects (as in a house, office, or utility trailer). 2005 tax forms A special kind of cargo, goods, supplies, or materials. 2005 tax forms Some off-highway task unrelated to highway transportation, except as discussed next. 2005 tax forms Vehicles not considered highway vehicles. 2005 tax forms   Generally, the following kinds of vehicles are not considered highway vehicles for purposes of the retail tax. 2005 tax forms Specially designed mobile machinery for nontransportation functions. 2005 tax forms A self-propelled vehicle is not a highway vehicle if all the following apply. 2005 tax forms The chassis has permanently mounted to it machinery or equipment used to perform certain operations (construction, manufacturing, drilling, mining, timbering, processing, farming, or similar operations) if the operation of the machinery or equipment is unrelated to transportation on or off the public highways. 2005 tax forms The chassis has been specially designed to serve only as a mobile carriage and mount (and power source, if applicable) for the machinery or equipment, whether or not the machinery or equipment is in operation. 2005 tax forms The chassis could not, because of its special design and without substantial structural modification, be used as part of a vehicle designed to carry any other load. 2005 tax forms Vehicles specially designed for off-highway transportation. 2005 tax forms A vehicle is not treated as a highway vehicle if the vehicle is specially designed for the primary function of transporting a particular type of load other than over the public highway and because of this special design, the vehicles's capability to transport a load over a public highway is substantially limited or impaired. 2005 tax forms To make this determination, you can take into account the vehicle's size, whether the vehicle is subject to licensing, safety, or other requirements, and whether the vehicle can transport a load at a sustained speed of at least 25 miles per hour. 2005 tax forms It does not matter that the vehicle can carry heavier loads off highway than it is allowed to carry over the highway. 2005 tax forms Nontransportation trailers and semitrailers. 2005 tax forms A trailer or semitrailer is not treated as a highway vehicle if it is specially designed to function only as an enclosed stationary shelter for carrying on a nontransportation function at an off-highway site. 2005 tax forms For example, a trailer that is capable only of functioning as an office for an off-highway construction operation is not a highway vehicle. 2005 tax forms Gross vehicle weight. 2005 tax forms   The tax does not apply to truck chassis and bodies suitable for use with a vehicle that has a gross vehicle weight (defined below) of 33,000 pounds or less. 2005 tax forms It also does not apply to truck trailer and semitrailer chassis and bodies suitable for use with a trailer or semitrailer that has a gross vehicle weight of 26,000 pounds or less. 2005 tax forms Tractors that have a gross vehicle weight of 19,500 pounds or less and a gross combined weight of 33,000 pounds or less are excluded from the 12% retail tax. 2005 tax forms   The following four classifications of truck body types meet the suitable for use standard and will be excluded from the retail excise tax. 2005 tax forms Platform truck bodies 21 feet or less in length. 2005 tax forms Dry freight and refrigerated truck van bodies 24 feet or less in length. 2005 tax forms Dump truck bodies with load capacities of 8 cubic yards or less. 2005 tax forms Refuse packer truck bodies with load capacities of 20 cubic yards or less. 2005 tax forms For more information on these classifications, see Revenue Procedure 2005-19, which is on page 832 of I. 2005 tax forms R. 2005 tax forms B. 2005 tax forms 2005-14 at www. 2005 tax forms irs. 2005 tax forms gov/pub/irs-irbs/irb05-14. 2005 tax forms pdf. 2005 tax forms   The gross vehicle weight means the maximum total weight of a loaded vehicle. 2005 tax forms Generally, this maximum total weight is the gross vehicle weight rating provided by the manufacturer or determined by the seller of the completed article. 2005 tax forms The seller's gross vehicle weight rating is determined solely on the basis of the strength of the chassis frame and the axle capacity and placement. 2005 tax forms The seller may not take into account any readily attachable components (such as tires or rim assemblies) in determining the gross vehicle weight. 2005 tax forms See Regulations section 145. 2005 tax forms 4051-1(e)(3) for more information. 2005 tax forms Parts or accessories. 2005 tax forms   The tax applies to parts or accessories sold on or in connection with, or with the sale of, a taxable article. 2005 tax forms For example, if at the time of the sale by the retailer, the part or accessory has been ordered from the retailer, the part or accessory will be considered as sold in connection with the sale of the vehicle. 2005 tax forms The tax applies in this case whether or not the retailer bills the parts or accessories separately. 2005 tax forms   If the retailer sells a taxable chassis, body, or tractor without parts or accessories considered essential for the operation or appearance of the taxable article, the sale of the parts or accessories by the retailer to the purchaser is considered made in connection with the sale of the taxable article even though they are shipped separately, at the same time, or on a different date. 2005 tax forms The tax applies unless there is evidence to the contrary. 2005 tax forms For example, if a retailer sells to any person a chassis and the bumpers for the chassis, or sells a taxable tractor and the fifth wheel and attachments, the tax applies to the parts or accessories regardless of the method of billing or the time at which the shipments were made. 2005 tax forms The tax does not apply to parts and accessories that are spares or replacements. 2005 tax forms   The tax imposed on parts and accessories sold on or in connection with the taxable articles listed earlier and the tax imposed on the separate purchase of parts and accessories (discussed next) for the taxable articles listed earlier do not apply to an idling reduction device or insulation that has an R value of at least R35 per inch. 2005 tax forms Idling reduction device. 2005 tax forms   An idling reduction device is any device or system of devices that provide the tractor with services, such as heat, air conditioning, and electricity, without the use of the main drive engine while the tractor is temporarily parked or stationary. 2005 tax forms The device must be affixed to the tractor and determined by the Administrator of the EPA, in consultation with the Secretary of Energy and Secretary of Transportation, to reduce idling while parked or stationary. 2005 tax forms The EPA discusses idling reduction technologies on its website at www. 2005 tax forms epa. 2005 tax forms gov/smartway/technology/idling. 2005 tax forms htm. 2005 tax forms Separate purchase. 2005 tax forms   The tax generally applies to the price of a part or accessory and its installation if the following conditions are met. 2005 tax forms The owner, lessee, or operator of any vehicle that contains a taxable article installs any part or accessory on the vehicle. 2005 tax forms The installation occurs within 6 months after the vehicle is first placed in service. 2005 tax forms   The owners of the trade or business installing the parts or accessories are secondarily liable for the tax. 2005 tax forms   A vehicle is placed in service on the date the owner takes actual possession of the vehicle. 2005 tax forms This date is established by a signed delivery ticket or other comparable document indicating delivery to and acceptance by the owner. 2005 tax forms   The tax does not apply if the installed part or accessory is a replacement part or accessory. 2005 tax forms The tax also does not apply if the total price of the parts and accessories, including installation charges, during the 6-month period is $1,000 or less. 2005 tax forms However, if the total price is more than $1,000, the tax applies to the cost of all parts and accessories (and installation charges) during that period. 2005 tax forms Example. 2005 tax forms You bought a taxable vehicle and placed it in service on April 8. 2005 tax forms On May 3, you bought and installed parts and accessories at a cost of $850. 2005 tax forms On July 15, you bought and installed parts and accessories for $300. 2005 tax forms Tax of $138 (12% of $1,150) applies on July 15. 2005 tax forms Also, tax will apply to any costs of additional parts and accessories installed on the vehicle before October 8. 2005 tax forms First retail sale defined. 2005 tax forms   The sale of an article is treated as the first retail sale, and the seller will be liable for the tax imposed on the sale unless one of the following exceptions applies. 2005 tax forms There has been a prior taxable sale, lease, or use of the article (however, see Tax on resale of tax-paid trailers and semitrailers, later). 2005 tax forms The sale qualifies as a tax-free sale under section 4221 (see Sales exempt from tax, later). 2005 tax forms The seller in good faith accepts from the purchaser a statement signed under penalties of perjury and executed in good faith that the purchaser intends to resell the article or lease it on a long-term basis. 2005 tax forms There is no registration requirement. 2005 tax forms Leases. 2005 tax forms   A long-term lease (a lease with a term of 1 year or more, taking into account options to renew) before a first retail sale is treated as a taxable sale. 2005 tax forms The tax is imposed on the lessor at the time of the lease. 2005 tax forms   A short-term lease (a lease with a term of less than 1 year, taking into account options to renew) before a first retail sale is treated as a taxable use. 2005 tax forms The tax is imposed on the lessor at the time of the lease. 2005 tax forms Exported vehicle. 2005 tax forms   A vehicle exported before its first retail sale, used in a foreign country, and then returned to the United States is subject to the retail tax on its first domestic use or retail sale after importation. 2005 tax forms Tax on resale of tax-paid trailers and semitrailers. 2005 tax forms   The tax applies to a trailer or semitrailer resold within 6 months after having been sold in a taxable sale. 2005 tax forms The seller liable for the tax on the resale can claim a credit equal to the tax paid on the prior taxable sale. 2005 tax forms The credit cannot exceed the tax on the resale. 2005 tax forms See Regulations section 145. 2005 tax forms 4052-1(a)(4) for information on the conditions to allowance for the credit. 2005 tax forms Use treated as sale. 2005 tax forms   If any person uses a taxable article before the first retail sale of the article, that person is liable for the tax as if the article had been sold at retail by that person. 2005 tax forms Figure the tax on the price at which similar articles are sold in the ordinary course of trade by retailers. 2005 tax forms The tax attaches when the use begins. 2005 tax forms   If the seller of an article regularly sells the articles at retail in arm's-length transactions, figure the tax on its use on the lowest established retail price for the articles in effect at the time of the taxable use. 2005 tax forms   If the seller of an article does not regularly sell the articles at retail in arm's-length transactions, a constructive price on which the tax is figured will be determined by the IRS after considering the selling practices and price structures of sellers of similar articles. 2005 tax forms   If a seller of an article incurs liability for tax on the use of the article and later sells or leases the article in a transaction that otherwise would be taxable, liability for tax is not incurred on the later sale or lease. 2005 tax forms Presumptive retail sales price. 2005 tax forms   There are rules to ensure that the tax base of transactions considered to be taxable sales includes either an actual or presumed markup percentage. 2005 tax forms If the person liable for tax is the vehicle's manufacturer, producer, or importer, the following discussions show how you figure the presumptive retail sales price depending on the type of transaction and the persons involved in the transaction. 2005 tax forms Table 6-1 outlines the appropriate tax base calculation for various transactions. 2005 tax forms   The presumed markup percentage to be used for trucks and truck-tractors is 4%. 2005 tax forms But for truck trailers and semitrailers and remanufactured trucks and tractors, the presumed markup percentage is zero. 2005 tax forms Sale. 2005 tax forms   For a taxable sale by a manufacturer, producer, importer, or related person, you generally figure the tax on a tax base of the sales price plus an amount equal to the presumed markup percentage times that sales price. 2005 tax forms Long-term lease. 2005 tax forms   In the case of a long-term lease by a manufacturer, producer, importer, or related person, figure the tax on a tax base of the constructive sales price plus an amount equal to the presumed markup percentage times the constructive sales price. 2005 tax forms Short-term lease. 2005 tax forms   When a manufacturer, producer, importer, or related person leases an article in a short-term lease considered a taxable use, figure the tax on a constructive sales price at which those or similar articles generally are sold in the ordinary course of trade by retailers. 2005 tax forms   But if the lessor in this situation regularly sells articles at retail in arm's-length transactions, figure the tax on the lowest established retail price in effect at the time of the taxable use. 2005 tax forms   If a person other than the manufacturer, producer, importer, or related person leases an article in a short-term lease considered a taxable use, figure the tax on a tax base of the price for which the article was sold to the lessor plus the cost of parts and accessories installed by the lessor and a presumed markup percentage. 2005 tax forms Related person. 2005 tax forms   A related person is any member of the same controlled group as the manufacturer, producer, or importer. 2005 tax forms Do not treat as a related person a person that sells the articles through a permanent retail establishment in the normal course of being a retailer if that person has records to prove the article was sold for a price that included a markup equal to or greater than the presumed markup percentage. 2005 tax forms Table 6-1. 2005 tax forms Tax Base IF the transaction is a. 2005 tax forms . 2005 tax forms . 2005 tax forms THEN figuring the base by using the. 2005 tax forms . 2005 tax forms . 2005 tax forms Sale by the manufacturer, producer, importer, or related person Sales price plus (presumed markup percentage × sales price) Sale by the dealer Total consideration paid for the item including any charges incident to placing it in a condition ready for use Long-term lease by the manufacturer, producer, importer, or related person Constructive sales price plus (presumed markup percentage × constructive sales price) Short-term lease by the manufacturer, producer, importer, or related person Constructive sales price at which such or similar articles are sold Short-term lease by a lessor other than the manufacturer, producer, importer, or related person Price for which the article was sold to the lessor plus the cost of parts and accessories installed by the lessor plus a presumed markup percentage Short-term lease where the articles are regularly sold at arm's length Lowest established retail price in effect at the time of the taxable use General rule for sales by dealers to the consumer. 2005 tax forms   For a taxable sale, other than a long-term lease, by a person other than a manufacturer, producer, importer, or related person, your tax base is the retail sales price as discussed next under Determination of tax base. 2005 tax forms   When you sell an article to the consumer, generally you do not add a presumed markup to the tax base. 2005 tax forms However, you do add a markup if all the following apply. 2005 tax forms You do not perform any significant activities relating to the processing of the sale of a taxable article. 2005 tax forms The main reason for processing the sale through you is to avoid or evade the presumed markup. 2005 tax forms You do not have records proving that the article was sold for a price that included a markup equal to or greater than the presumed markup percentage. 2005 tax forms In these situations, your tax base is the sales price plus an amount equal to the presumed markup percentage times that selling price. 2005 tax forms Determination of tax base. 2005 tax forms   These rules apply to both normal retail sales price and presumptive retail sales price computations. 2005 tax forms To arrive at the tax base, the price is the total consideration paid (including trade-in allowance) for the item and includes any charge incident to placing the article in a condition ready for use. 2005 tax forms However, see Presumptive retail sales price, earlier. 2005 tax forms Exclusions from tax base. 2005 tax forms   Exclude from the tax base the retail excise tax imposed on the sale. 2005 tax forms Exclude any state or local retail sales tax if stated as a separate charge from the price whether the sales tax is imposed on the seller or purchaser. 2005 tax forms Also exclude the value of any used component of the article furnished by the first user of the article. 2005 tax forms   Exclude charges for transportation, delivery, insurance, and installation (other than installation charges for parts and accessories, discussed earlier) and other expenses incurred in connection with the delivery of an article to a purchaser. 2005 tax forms These expenses are those incurred in delivery from the retail dealer to the customer. 2005 tax forms In the case of delivery directly from the manufacturer to the dealer's customer, include the transportation and delivery charges to the extent the charges do not exceed what it would have cost to ship the article to the dealer. 2005 tax forms   Exclude amounts charged for machinery or equipment that does not contribute to the highway transportation function of the vehicle, provided those charges are supported by adequate records. 2005 tax forms For example, for an industrial vacuum loader vehicle, exclude amounts charged for the vacuum pump and hose, filter system, material separator, silencer or muffler, control cabinet, and ladder. 2005 tax forms Similarly, for a sewer cleaning vehicle, exclude amounts charged for the high pressure water pump, hose components, and the vacuum pipe. 2005 tax forms Sales not at arm's length. 2005 tax forms   For any taxable article sold (not at arm's length) at less than the fair market price, figure the excise tax on the price for which similar articles are sold at retail in the ordinary course of trade. 2005 tax forms   A sale is not at arm's length if either of the following apply. 2005 tax forms One of the parties is controlled (in law or in fact) by the other or there is common control, whether or not the control is actually exercised to influence the sales price. 2005 tax forms The sale is made under special arrangements between a seller and a purchaser. 2005 tax forms Installment sales. 2005 tax forms   If the first retail sale is an installment sale, or other form of sale in which the sales price is paid in installments, tax liability arises at the time of the sale. 2005 tax forms The tax is figured on the entire sales price. 2005 tax forms No part of the tax is deferred because the sales price is paid in installments. 2005 tax forms Repairs and modifications. 2005 tax forms   The tax does not apply to the sale or use of an article that has been repaired or modified unless the cost of the repairs and modifications is more than 75% of the retail price of a comparable new article. 2005 tax forms This includes modifications that change the transportation function of an article or restore a wrecked article to a functional condition. 2005 tax forms However, this exception generally does not apply to an article that was not subject to the tax when it was new. 2005 tax forms Further manufacture. 2005 tax forms   The tax does not apply to the use by a person of a taxable article as material in the manufacture or production of, or as a component part of, another article to be manufactured or produced by that person. 2005 tax forms Do not treat a person as engaged in the manufacture of any article merely because that person combines the article with a: Coupling device (including any fifth wheel); Wrecker crane; Loading and unloading equipment (including any crane, hoist, winch, or power liftgate); Aerial ladder or tower; Ice and snow control equipment; Earth moving, excavation, and construction equipment; Spreader; Sleeper cab; Cab shield; or Wood or metal floor. 2005 tax forms Combining an article with an item in this list does not give rise to taxability. 2005 tax forms However, see Parts or accessories discussed earlier. 2005 tax forms Articles exempt from tax. 2005 tax forms   The tax on heavy trucks, trailers, and tractors does not apply to sales of the articles described in the following discussions. 2005 tax forms Rail trailers and rail vans. 2005 tax forms   This is any chassis or body of a trailer or semitrailer designed for use both as a highway vehicle and a railroad car (including any parts and accessories designed primarily for use on and in connection with it). 2005 tax forms Do not treat a piggyback trailer or semitrailer as designed for use as a railroad car. 2005 tax forms Parts and accessories. 2005 tax forms   This is any part or accessory sold separately from the truck or trailer, except as described earlier under Parts or accessories and Separate purchase. 2005 tax forms Trash containers. 2005 tax forms   This is any box, container, receptacle, bin, or similar article that meets all the following conditions. 2005 tax forms It is designed to be used as a trash container. 2005 tax forms It is not designed to carry freight other than trash. 2005 tax forms It is not designed to be permanently mounted on or affixed to a truck chassis or body. 2005 tax forms House trailers. 2005 tax forms   This is any house trailer (regardless of size) suitable for use in connection with either passenger automobiles or trucks. 2005 tax forms Camper coaches or bodies for self-propelled mobile homes. 2005 tax forms   This is any article designed to be mounted or placed on trucks, truck chassis, or automobile chassis and to be used primarily as living quarters or camping accommodations. 2005 tax forms Further, the tax does not apply to chassis specifically designed and constructed to accommodate and transport self-propelled mobile home bodies. 2005 tax forms Farm feed, seed, and fertilizer equipment. 2005 tax forms   This is any body primarily designed to process or prepare, haul, spread, load, or unload feed, seed, or fertilizer to or on farms. 2005 tax forms This exemption applies only to the farm equipment body (and parts and accessories) and not to the chassis upon which the farm equipment is mounted. 2005 tax forms Ambulances and hearses. 2005 tax forms   This is any ambulance, hearse, or combination ambulance-hearse. 2005 tax forms Truck-tractors. 2005 tax forms   This is any truck-tractor specifically designed for use in shifting semitrailers in and around freight yards and freight terminals. 2005 tax forms Concrete mixers. 2005 tax forms   This is any article designed to be placed or mounted on a truck, truck trailer, or semitrailer chassis to be used to process or prepare concrete. 2005 tax forms This exemption does not apply to the chassis on which the article is mounted. 2005 tax forms Sales exempt from tax. 2005 tax forms   The following sales are ordinarily exempt from tax. 2005 tax forms Sales to a state or local government for its exclusive use. 2005 tax forms Sales to Indian tribal governments, but only if the transaction involves the exercise of an essential tribal government function. 2005 tax forms Sales to a nonprofit educational organization for its exclusive use. 2005 tax forms Sales to a qualified blood collector organization (as defined under Communications Tax in chapter 4) for its exclusive use in the collection, storage, or transportation of blood. 2005 tax forms Sales for use by the purchaser for further manufacture of other taxable articles (see below). 2005 tax forms Sales for export or for resale by the purchaser to a second purchaser for export. 2005 tax forms Sales to the United Nations for official use. 2005 tax forms Registration requirement. 2005 tax forms   In general, the seller and buyer must be registered for a sale to be tax free. 2005 tax forms See the Form 637 instructions for more information. 2005 tax forms Certain registration exceptions apply in the case of sales to state and local governments, sales to foreign purchasers for export, and sales for resale or long term leasing. 2005 tax forms Further manufacture. 2005 tax forms   If you buy articles tax free and resell or use them other than in the manufacture of another article, you are liable for the tax on their resale or use just as if you had manufactured and made the first retail sale of them. 2005 tax forms Credits or refunds. 2005 tax forms   A credit or refund (without interest) of the retail tax on the taxable articles described earlier may be allowable if the tax has been paid with respect to an article and, before any other use, such article is used by any person as a component part of another taxable article manufactured or produced. 2005 tax forms The person using the article as a component part is eligible for the credit or refund. 2005 tax forms   A credit or refund is allowable if, before any other use, an article is, by any person: Exported, Used or sold for use as supplies for vessels, Sold to a state or local government for its exclusive use, Sold to a nonprofit educational organization for its exclusive use, or Sold to a qualified blood collector organization (as defined under Communications Tax in chapter 4) for its exclusive use in the collection, storage, or transportation of blood. 2005 tax forms A credit or refund is also allowable if there is a price readjustment by reason of the return or repossession of an article or by reason of a bona fide discount, rebate, or allowance. 2005 tax forms   See also Conditions to allowance in chapter 5. 2005 tax forms Tire credit. 2005 tax forms   A credit is allowed against the retail tax on the taxable articles described earlier if taxable tires are sold on or in connection with the sale of the article. 2005 tax forms The credit is equal to the manufacturers excise tax imposed on the taxable tires (discussed earlier). 2005 tax forms This is the section 4051(d) taxable tire credit and is claimed on Schedule C (Form 720) for the same quarter for which the tax on the heavy vehicle is reported. 2005 tax forms Prev  Up  Next   Home   More Online Publications
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The 2005 Tax Forms

2005 tax forms 9. 2005 tax forms   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. 2005 tax forms Depreciation RecaptureSection 1245 Property Section 1250 Property Installment Sale Other Dispositions Other GainsExceptions. 2005 tax forms Amount to report as ordinary income. 2005 tax forms Applicable percentage. 2005 tax forms Amount to report as ordinary income. 2005 tax forms Applicable percentage. 2005 tax forms 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. 2005 tax forms 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. 2005 tax forms Any gain remaining after applying the depreciation recapture rules is a section 1231 gain, which may be taxed as a capital gain. 2005 tax forms Gains and losses from property used in farming are reported on Form 4797, Sales of Business Property. 2005 tax forms 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. 2005 tax forms 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. 2005 tax forms Section 1231 Gains and Losses Section 1231 gains and losses are the taxable gains and losses from section 1231 transactions (explained below). 2005 tax forms 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. 2005 tax forms Table 9-1. 2005 tax forms 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. 2005 tax forms Held 24 mos. 2005 tax forms  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. 2005 tax forms Held 12 mos. 2005 tax forms   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). 2005 tax forms Do not take that gain into account as section 1231 gain. 2005 tax forms Section 1231 transactions. 2005 tax forms   Gain or loss on the following transactions is subject to section 1231 treatment. 2005 tax forms Sale or exchange of cattle and horses. 2005 tax forms The cattle and horses must be held for draft, breeding, dairy, or sporting purposes and held for 24 months or longer. 2005 tax forms Sale or exchange of other livestock. 2005 tax forms This livestock must be held for draft, breeding, dairy, or sporting purposes and held for 12 months or longer. 2005 tax forms Other livestock includes hogs, mules, sheep, goats, donkeys, and other fur-bearing animals. 2005 tax forms Other livestock does not include poultry. 2005 tax forms Sale or exchange of depreciable personal property. 2005 tax forms This property must be used in your business and held longer than 1 year. 2005 tax forms Generally, property held for the production of rents or royalties is considered to be used in a trade or business. 2005 tax forms Examples of depreciable personal property include farm machinery and trucks. 2005 tax forms It also includes amortizable section 197 intangibles. 2005 tax forms Sale or exchange of real estate. 2005 tax forms This property must be used in your business and held longer than 1 year. 2005 tax forms Examples are your farm or ranch (including barns and sheds). 2005 tax forms Sale or exchange of unharvested crops. 2005 tax forms 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. 2005 tax forms 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). 2005 tax forms Growing crops sold with a leasehold on the land, even if sold to the same person in a single transaction, are not included. 2005 tax forms Distributive share of partnership gains and losses. 2005 tax forms 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). 2005 tax forms Cutting or disposal of timber. 2005 tax forms 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 . 2005 tax forms Condemnation. 2005 tax forms The condemned property (defined in chapter 11) must have been held longer than 1 year. 2005 tax forms 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. 2005 tax forms It cannot be property held for personal use. 2005 tax forms Casualty or theft. 2005 tax forms 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). 2005 tax forms You must have held the property longer than 1 year. 2005 tax forms 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. 2005 tax forms Section 1231 does not apply to personal casualty gains and losses. 2005 tax forms See chapter 11 for information on how to treat those gains and losses. 2005 tax forms 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. 2005 tax forms See Table 9-1. 2005 tax forms Property for sale to customers. 2005 tax forms   A sale, exchange, or involuntary conversion of property held mainly for sale to customers is not a section 1231 transaction. 2005 tax forms 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. 2005 tax forms Treatment as ordinary or capital. 2005 tax forms   To determine the treatment of section 1231 gains and losses, combine all of your section 1231 gains and losses for the year. 2005 tax forms If you have a net section 1231 loss, it is an ordinary loss. 2005 tax forms If you have a net section 1231 gain, it is ordinary income up to your nonrecaptured section 1231 losses from previous years, explained next. 2005 tax forms The rest, if any, is long-term capital gain. 2005 tax forms Nonrecaptured section 1231 losses. 2005 tax forms   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. 2005 tax forms These losses are applied against your net section 1231 gain beginning with the earliest loss in the 5-year period. 2005 tax forms Example. 2005 tax forms In 2013, Ben has a $2,000 net section 1231 gain. 2005 tax forms 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. 2005 tax forms From 2008 through 2012 he had the following section 1231 gains and losses. 2005 tax forms 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. 2005 tax forms 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. 2005 tax forms 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. 2005 tax forms 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. 2005 tax forms For more information, see chapter 3 of Publication 544. 2005 tax forms 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. 2005 tax forms Any recognized gain that is more than the part that is ordinary income is a section 1231 gain. 2005 tax forms See Treatment as ordinary or capital under Section 1231 Gains and Losses , earlier. 2005 tax forms 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. 2005 tax forms Personal property (either tangible or intangible). 2005 tax forms Other tangible property (except buildings and their structural components) used as any of the following. 2005 tax forms See Buildings and structural components below. 2005 tax forms An integral part of manufacturing, production, or extraction, or of furnishing certain services. 2005 tax forms A research facility in any of the activities in (a). 2005 tax forms A facility in any of the activities in (a) above, for the bulk storage of fungible commodities (discussed later). 2005 tax forms That part of real property (not included in (2)) with an adjusted basis reduced by (but not limited to) the following. 2005 tax forms Amortization of certified pollution control facilities. 2005 tax forms The section 179 expense deduction. 2005 tax forms Deduction for clean-fuel vehicles and certain refueling property. 2005 tax forms Expenditures to remove architectural and transportation barriers to the handicapped and elderly. 2005 tax forms Certain reforestation expenditures (as described under Reforestation Costs in chapter 7. 2005 tax forms Single purpose agricultural (livestock) or horticultural structures. 2005 tax forms Storage facilities (except buildings and their structural components) used in distributing petroleum or any primary product of petroleum. 2005 tax forms Buildings and structural components. 2005 tax forms   Section 1245 property does not include buildings and structural components. 2005 tax forms The term building includes a house, barn, warehouse, or garage. 2005 tax forms The term structural component includes walls, floors, windows, doors, central air conditioning systems, light fixtures, etc. 2005 tax forms   Do not treat a structure that is essentially machinery or equipment as a building or structural component. 2005 tax forms 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. 2005 tax forms   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. 2005 tax forms Structures such as oil and gas storage tanks, grain storage bins, and silos are not treated as buildings, but as section 1245 property. 2005 tax forms Facility for bulk storage of fungible commodities. 2005 tax forms   This is a facility used mainly for the bulk storage of fungible commodities. 2005 tax forms Bulk storage means storage of a commodity in a large mass before it is used. 2005 tax forms For example, if a facility is used to store oranges that have been sorted and boxed, it is not used for bulk storage. 2005 tax forms To be fungible, a commodity must be such that one part may be used in place of another. 2005 tax forms 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. 2005 tax forms The depreciation (which includes any section 179 deduction claimed) and amortization allowed or allowable on the property. 2005 tax forms The gain realized on the disposition (the amount realized from the disposition minus the adjusted basis of the property). 2005 tax forms 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. 2005 tax forms For details, see chapter 3 of Publication 544. 2005 tax forms Use Part III of Form 4797 to figure the ordinary income part of the gain. 2005 tax forms Depreciation claimed on other property or claimed by other taxpayers. 2005 tax forms   Depreciation and amortization include the amounts you claimed on the section 1245 property as well as the following depreciation and amortization amounts. 2005 tax forms Amounts you claimed on property you exchanged for, or converted to, your section 1245 property in a like-kind exchange or involuntary conversion. 2005 tax forms For details on exchanges of property that are not taxable, see Like-Kind Exchanges in chapter 8. 2005 tax forms 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). 2005 tax forms Example. 2005 tax forms Jeff Free paid $120,000 for a tractor in 2012. 2005 tax forms On February 23, 2013, he traded it for a chopper and paid an additional $30,000. 2005 tax forms 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. 2005 tax forms Jeff can also depreciate the additional $30,000 for the chopper. 2005 tax forms Depreciation and amortization. 2005 tax forms   Depreciation and amortization deductions that must be recaptured as ordinary income include (but are not limited to) the following items. 2005 tax forms See Depreciation Recapture in chapter 3 of Publication 544 for more details. 2005 tax forms Ordinary depreciation deductions. 2005 tax forms Section 179 deduction (see chapter 7). 2005 tax forms Any special depreciation allowance. 2005 tax forms Amortization deductions for all the following costs. 2005 tax forms Acquiring a lease. 2005 tax forms Lessee improvements. 2005 tax forms Pollution control facilities. 2005 tax forms Reforestation expenses. 2005 tax forms Section 197 intangibles. 2005 tax forms Qualified disaster expenses. 2005 tax forms Franchises, trademarks, and trade names acquired before August 11, 1993. 2005 tax forms Example. 2005 tax forms You file your returns on a calendar year basis. 2005 tax forms 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. 2005 tax forms You used the half-year convention and your MACRS deductions for the truck were $1,500 in 2011 and $2,550 in 2012. 2005 tax forms You did not claim the section 179 expense deduction for the truck. 2005 tax forms You sold it in May 2013 for $7,000. 2005 tax forms The MACRS deduction in 2013, the year of sale, is $893 (½ of $1,785). 2005 tax forms Figure the gain treated as ordinary income as follows. 2005 tax forms 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. 2005 tax forms   You generally use the greater of the depreciation allowed or allowable when figuring the part of gain to report as ordinary income. 2005 tax forms 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. 2005 tax forms 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. 2005 tax forms This treatment applies only when figuring what part of the gain is treated as ordinary income under the rules for section 1245 depreciation recapture. 2005 tax forms Disposition of plants and animals. 2005 tax forms   If you elect not to use the uniform capitalization rules (see chapter 6), you must treat any plant you produce as section 1245 property. 2005 tax forms 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. 2005 tax forms For section 1231 transactions, show these expenses as depreciation on Form 4797, Part III, line 22. 2005 tax forms 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. 2005 tax forms You can use the farm-price method or the unit-livestock-price method discussed in  chapter 2 to figure these expenses. 2005 tax forms Example. 2005 tax forms Janet Maple sold her apple orchard in 2013 for $80,000. 2005 tax forms Her adjusted basis at the time of sale was $60,000. 2005 tax forms She bought the orchard in 2006, but the trees did not produce a crop until 2009. 2005 tax forms Her pre-productive expenses were $6,000. 2005 tax forms She elected not to use the uniform capitalization rules. 2005 tax forms Janet must treat $6,000 of the gain as ordinary income. 2005 tax forms 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. 2005 tax forms It includes buildings and structural components that are not section 1245 property (discussed earlier). 2005 tax forms It includes a leasehold of land or section 1250 property subject to an allowance for depreciation. 2005 tax forms A fee simple interest in land is not section 1250 property because, like land, it is not depreciable. 2005 tax forms Gain on the disposition of section 1250 property is treated as ordinary income to the extent of additional depreciation allowed or allowable. 2005 tax forms To determine the additional depreciation on section 1250 property, see Depreciation Recapture in chapter 3 of Publication 544. 2005 tax forms You will not have additional depreciation if any of the following apply to the property disposed of. 2005 tax forms 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. 2005 tax forms 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. 2005 tax forms 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. 2005 tax forms These properties are depreciated using the straight line method. 2005 tax forms 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. 2005 tax forms This applies even if no payments are received in that year. 2005 tax forms If the gain is more than the depreciation recapture income, report the rest of the gain using the rules of the installment method. 2005 tax forms For this purpose, include the recapture income in your installment sale basis to determine your gross profit on the installment sale. 2005 tax forms 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. 2005 tax forms To do this, allocate the selling price and the payments you receive in the year of sale to each asset. 2005 tax forms Report any depreciation recapture income in the year of sale before using the installment method for any remaining gain. 2005 tax forms For more information on installment sales, see chapter 10. 2005 tax forms Other Dispositions Chapter 3 of Publication 544 discusses the tax treatment of the following transfers of depreciable property. 2005 tax forms By gift. 2005 tax forms At death. 2005 tax forms In like-kind exchanges. 2005 tax forms In involuntary conversions. 2005 tax forms Publication 544 also explains how to handle a single transaction involving multiple properties. 2005 tax forms Other Gains This section discusses gain on the disposition of farmland for which you were allowed either of the following. 2005 tax forms Deductions for soil and water conservation expenditures (section 1252 property). 2005 tax forms Exclusions from income for certain cost sharing payments (section 1255 property). 2005 tax forms Section 1252 property. 2005 tax forms   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. 2005 tax forms Exceptions. 2005 tax forms   Do not treat gain on the following transactions as gain on section 1252 property. 2005 tax forms Disposition of farmland by gift. 2005 tax forms Transfer of farm property at death (except for income in respect of a decedent). 2005 tax forms For more information, see Regulations section 1. 2005 tax forms 1252-2. 2005 tax forms Amount to report as ordinary income. 2005 tax forms   You report as ordinary income the lesser of the following amounts. 2005 tax forms 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). 2005 tax forms The total deductions allowed for soil and water conservation expenses multiplied by the applicable percentage, discussed next. 2005 tax forms Applicable percentage. 2005 tax forms   The applicable percentage is based on the length of time you held the land. 2005 tax forms If you dispose of your farmland within 5 years after the date you acquired it, the percentage is 100%. 2005 tax forms 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. 2005 tax forms 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. 2005 tax forms Example. 2005 tax forms You acquired farmland on January 19, 2005. 2005 tax forms On October 3, 2013, you sold the land at a $30,000 gain. 2005 tax forms 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. 2005 tax forms The applicable percentage is 40% since you sold the land within the 8th year after you acquired it. 2005 tax forms 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. 2005 tax forms Section 1255 property. 2005 tax forms   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. 2005 tax forms If you chose not to exclude these payments, you will not have to recognize ordinary income under this provision. 2005 tax forms Amount to report as ordinary income. 2005 tax forms   You report as ordinary income the lesser of the following amounts. 2005 tax forms The applicable percentage of the total excluded cost-sharing payments. 2005 tax forms The gain on the disposition of the property. 2005 tax forms 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. 2005 tax forms However, if applicable, gain reported under this rule must be reported regardless of any contrary provisions (including nonrecognition provisions) under any other section. 2005 tax forms Applicable percentage. 2005 tax forms   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. 2005 tax forms If the property is held less than 10 years after you receive the payments, the percentage is 100%. 2005 tax forms After 10 years, the percentage is reduced by 10% a year, or part of a year, until the rate is 0%. 2005 tax forms Form 4797, Part III. 2005 tax forms   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. 2005 tax forms Prev  Up  Next   Home   More Online Publications