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

TurboTax Federal Free Edition - File Taxes Online

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

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


© 2012 - 2018 All rights reserved.

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

2010 Tax Return

How To Do 1040xFile State Income Tax FreeWww Irs Gov Efile Index Html2010 New Car Tax Credit1040nr Ez 20132010 Tax PreparationFree Federal Tax ReturnWebsite Can I Efile Past Year Tax Returns2006 Tax FilingWhere Can I File My 2012 TaxesTax Forms 2012How To Amend 2012 Taxes1040ez Tax Form2012 Tax Return BookletHow Do I File State TaxesTax FormFiling Late Taxes1040x CalculatorFree Tax Filing Online2011 1040ezH&r BlockHow To File 2012 Tax Return OnlineFile Federal And State Taxes Online For Free1040ez 20122011 Form 1040ezPrintable Tax Forms 1040ezTurbotax Free State EfileFree 2013 Federal & State Tax Preparation On Line2010 Ez 1040 FormTax Return For UnemployedOregon Tax Return Form 1040ezH And R Block Online FilingIrs Ez Tax FormH&rblock ComFile For 2012 Taxes1040ez Fillable FormFile 1040x Online FreeVita TaxDo Unemployed People Pay TaxesStateincometax

2010 Tax Return

2010 tax return Publication 4492 - Main Contents Table of Contents DefinitionsHurricane Katrina Disaster Area Katrina Covered Disaster Area Gulf Opportunity (GO) Zone (Core Disaster Area) Hurricane Rita Disaster Area (Rita Covered Disaster Area) Rita GO Zone Hurricane Wilma Disaster Area Wilma Covered Disaster Area Wilma GO Zone Extended Tax Deadlines Charitable Giving IncentivesTemporary Suspension of Limits on Charitable Contributions Standard Mileage Rate for Charitable Use of Vehicles Mileage Reimbursements to Charitable Volunteers Charitable Deduction for Contributions of Food Inventory Charitable Deduction for Contributions of Book Inventories to Public Schools Casualty and Theft LossesTime limit for making election. 2010 tax return Replacement Period for Nonrecognition of Gain Net Operating Losses IRAs and Other Retirement PlansDefinitions Taxation of Qualified Hurricane Distributions Repayment of Qualified Hurricane Distributions Repayment of Qualified Distributions for the Purchase or Construction of a Main Home Loans From Qualified Plans Additional Tax Relief for IndividualsEarned Income Credit and Child Tax Credit Additional Exemption for Housing Individuals Displaced by Hurricane Katrina Education Credits Recapture of Federal Mortgage Subsidy Exclusion of Certain Cancellations of Indebtedness by Reason of Hurricane Katrina Tax Relief for Temporary Relocation Additional Tax Relief for BusinessesSpecial Depreciation Allowance Increased Section 179 Deduction Work Opportunity Credit Employee Retention Credit Hurricane Katrina Housing Credit Reforestation Costs Demolition and Clean-up Costs Increase in Rehabilitation Tax Credit Request for Copy or Transcript of Tax Return How To Get Tax Help Definitions The following definitions are used throughout this publication. 2010 tax return Hurricane Katrina Disaster Area The Hurricane Katrina disaster area covers the area for which the President declared a major disaster before September 14, 2005, because of Hurricane Katrina. 2010 tax return The Hurricane Katrina disaster area covers the entire states of Alabama, Florida, Louisiana, and Mississippi. 2010 tax return Katrina Covered Disaster Area A portion of the Hurricane Katrina disaster area has been designated by the IRS as a covered disaster area. 2010 tax return The Katrina covered disaster area covers the following areas in four states. 2010 tax return Alabama. 2010 tax return   The counties of Baldwin, Bibb, Choctaw, Clarke, Colbert, Cullman, Greene, Hale, Jefferson, Lamar, Lauderdale, Marengo, Marion, Mobile, Monroe, Perry, Pickens, Sumter, Tuscaloosa, Washington, Wilcox, and Winston. 2010 tax return Florida. 2010 tax return   The counties of Bay, Broward, Collier, Escambia, Franklin, Gulf, Miami-Dade, Monroe, Okaloosa, Santa Rosa, and Walton. 2010 tax return Louisiana. 2010 tax return   All parishes. 2010 tax return Mississippi. 2010 tax return   All counties. 2010 tax return Gulf Opportunity (GO) Zone (Core Disaster Area) The GO Zone (also called the core disaster area) covers the portion of the Hurricane Katrina disaster area determined by the Federal Emergency Management Agency (FEMA) to be eligible for either individual only or both individual and public assistance from the Federal Government. 2010 tax return The GO Zone covers the following areas in three states. 2010 tax return Alabama. 2010 tax return   The counties of Baldwin, Choctaw, Clarke, Greene, Hale, Marengo, Mobile, Pickens, Sumter, Tuscaloosa, and Washington. 2010 tax return Louisiana. 2010 tax return   The parishes of Acadia, Ascension, Assumption, Calcasieu, Cameron, East Baton Rouge, East Feliciana, Iberia, Iberville, Jefferson, Jefferson Davis, Lafayette, Lafourche, Livingston, Orleans, Plaquemines, Pointe Coupee, St. 2010 tax return Bernard, St. 2010 tax return Charles, St. 2010 tax return Helena, St. 2010 tax return James, St. 2010 tax return John the Baptist, St. 2010 tax return Martin, St. 2010 tax return Mary, St. 2010 tax return Tammany, Tangipahoa, Terrebonne, Vermilion, Washington, West Baton Rouge, and West Feliciana. 2010 tax return Mississippi. 2010 tax return   The counties of Adams, Amite, Attala, Choctaw, Claiborne, Clarke, Copiah, Covington, Forrest, Franklin, George, Greene, Hancock, Harrison, Hinds, Holmes, Humphreys, Jackson, Jasper, Jefferson, Jefferson Davis, Jones, Kemper, Lamar, Lauderdale, Lawrence, Leake, Lincoln, Lowndes, Madison, Marion, Neshoba, Newton, Noxubee, Oktibbeha, Pearl River, Perry, Pike, Rankin, Scott, Simpson, Smith, Stone, Walthall, Warren, Wayne, Wilkinson, Winston, and Yazoo. 2010 tax return Hurricane Rita Disaster Area (Rita Covered Disaster Area) The Hurricane Rita disaster area (also designated by the IRS as the Rita covered disaster area) covers the area for which the President declared a major disaster before October 6, 2005, because of Hurricane Rita. 2010 tax return This area covers the entire states of Louisiana and Texas. 2010 tax return Rita GO Zone The Rita GO Zone covers the portion of the Hurricane Rita disaster area determined by FEMA to be eligible for either individual only or both individual and public assistance from the Federal Government. 2010 tax return The Rita GO Zone covers the following areas in two states. 2010 tax return Louisiana. 2010 tax return   The parishes of Acadia, Allen, Ascension, Beauregard, Calcasieu, Cameron, Evangeline, Iberia, Jefferson, Jefferson Davis, Lafayette, Lafourche, Livingston, Plaquemines, Sabine, St. 2010 tax return Landry, St. 2010 tax return Martin, St. 2010 tax return Mary, St. 2010 tax return Tammany, Terrebonne, Vermilion, Vernon, and West Baton Rouge. 2010 tax return Texas. 2010 tax return   The counties of Angelina, Brazoria, Chambers, Fort Bend, Galveston, Hardin, Harris, Jasper, Jefferson, Liberty, Montgomery, Nacogdoches, Newton, Orange, Polk, Sabine, San Augustine, San Jacinto, Shelby, Trinity, Tyler, and Walker. 2010 tax return Hurricane Wilma Disaster Area The Hurricane Wilma disaster area covers the area for which the President declared a major disaster before November 14, 2005, because of Hurricane Wilma. 2010 tax return The Hurricane Wilma disaster area covers the entire state of Florida. 2010 tax return Wilma Covered Disaster Area A portion of the Hurricane Wilma disaster area has been designated by the IRS as a covered disaster area. 2010 tax return The Wilma covered disaster area covers the following counties. 2010 tax return Florida. 2010 tax return   Brevard, Broward, Charlotte, Collier, DeSoto, Glades, Hardee, Hendry, Highlands, Indian River, Lee, Martin, Miami-Dade, Monroe, Okeechobee, Osceola, Palm Beach, Polk, St. 2010 tax return Lucie, and Sarasota. 2010 tax return Wilma GO Zone The Wilma GO Zone covers the portion of the Hurricane Wilma disaster area determined by FEMA to be eligible for either individual only or both individual and public assistance from the Federal Government. 2010 tax return The Wilma GO Zone covers the following counties. 2010 tax return Florida. 2010 tax return   Brevard, Broward, Collier, Glades, Hendry, Indian River, Lee, Martin, Miami-Dade, Monroe, Okeechobee, Palm Beach, and St. 2010 tax return Lucie. 2010 tax return Extended Tax Deadlines The IRS has extended deadlines that apply to filing returns, paying taxes, and performing certain other time-sensitive acts for certain taxpayers affected by Hurricane Katrina, Rita, or Wilma, until February 28, 2006. 2010 tax return The extension applies to deadlines (either an original or extended due date) that occur during the following periods. 2010 tax return After August 28, 2005 (August 23, 2005, for Florida affected taxpayers), and before February 28, 2006, for taxpayers affected by Hurricane Katrina. 2010 tax return After September 22, 2005, and before February 28, 2006, for taxpayers affected by Hurricane Rita. 2010 tax return After October 22, 2005, and before February 28, 2006, for taxpayers affected by Hurricane Wilma. 2010 tax return Affected taxpayer. 2010 tax return   The following taxpayers are eligible for the extension. 2010 tax return Any individual whose main home is located in a covered disaster area. 2010 tax return Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. 2010 tax return Any individual, business entity, or sole proprietor whose records needed to meet a postponed deadline are maintained or whose tax professional's office is in a covered disaster area. 2010 tax return The main home or principal place of business does not have to be located in the covered area. 2010 tax return Any individual visiting a county or parish in the Hurricane Katrina or Hurricane Rita covered disaster area that was injured or killed (and the estate of an individual killed) as a result of the hurricane or its aftermath. 2010 tax return Any estate or trust whose tax records needed to meet a filing or payment deadline are maintained in a covered disaster area. 2010 tax return Generally, any individual who is a worker assisting in the relief activities in a covered disaster area. 2010 tax return However, a relief worker assisting in the Wilma covered disaster area is not an affected taxpayer unless the worker is affiliated with a recognized government or philanthropic organization assisting in the relief activities. 2010 tax return The spouse of an affected taxpayer, solely with regard to a joint income tax return with that taxpayer. 2010 tax return   To ensure correct processing, affected taxpayers should write the assigned disaster designation (for example, “Hurricane Katrina”) in red ink at the top of any forms or documents filed with the IRS. 2010 tax return Affected taxpayers can also identify themselves to the IRS or ask hurricane-related questions by calling the special IRS disaster hotline at 1-866-562-5227. 2010 tax return Acts extended. 2010 tax return   Deadlines for performing the following acts are extended. 2010 tax return Filing any return of income, estate, gift, generation-skipping transfer, excise, or employment tax. 2010 tax return Paying any income, estate, gift, generation-skipping transfer, excise, or employment tax. 2010 tax return This includes making estimated tax payments. 2010 tax return Making certain contributions, distributions, recharacterizing contributions, or making a rollover to or from a qualified retirement plan. 2010 tax return Filing certain petitions with the Tax Court. 2010 tax return Filing a claim for credit or refund of any tax. 2010 tax return Bringing suit upon a claim for credit or refund. 2010 tax return Certain other acts described in Revenue Procedure 2005-27. 2010 tax return You can find Revenue Procedure 2005-27 on page 1050 of Internal Revenue Bulletin 2005-20 at www. 2010 tax return irs. 2010 tax return gov/pub/irs-irbs/irb05-20. 2010 tax return pdf. 2010 tax return Forgiveness of interest and penalties. 2010 tax return   The IRS may forgive the interest and penalties on any underpaid income, estate, gift, employment, or excise tax for the length of any extension. 2010 tax return Charitable Giving Incentives Temporary Suspension of Limits on Charitable Contributions Individuals. 2010 tax return   Qualified contributions are not subject to the overall limit on itemized deductions or the 50% adjusted gross income (AGI) limit. 2010 tax return A qualified contribution is a charitable contribution paid in cash or by check after August 27, 2005, and before January 1, 2006, to a 50% limit organization (other than certain private foundations described in section 509(a)(3)) if you make an election to have the 50% limit not apply to these contributions. 2010 tax return   Your deduction for qualified contributions is limited to your AGI minus your deduction for all other charitable contributions. 2010 tax return You can carry over any contributions you are not able to deduct for 2005 because of this limit. 2010 tax return In 2006, treat the carryover of your unused qualified contributions as a carryover of contributions subject to the 50% limit. 2010 tax return Exception. 2010 tax return   Qualified contributions do not include a contribution to a segregated fund or account for which you (or any person you appoint or designate) have or expect to have advisory privileges with respect to distributions or investments based on your contribution. 2010 tax return Corporations. 2010 tax return   A corporation may elect to deduct qualified cash contributions without regard to the 10% taxable income limit if the contributions were made after August 27, 2005, and before January 1, 2006, to a qualified charitable organization (other than certain private foundations described in section 509(a)(3)), for Hurricane Katrina, Rita, or Wilma relief efforts. 2010 tax return The corporation's deduction for these qualified contributions is limited to 100% of taxable income (as modified for the 10% limit) minus the corporation's deduction for all other charitable contributions. 2010 tax return Any qualified contributions over this limit can be carried over to the next 5 years, subject to the 10% limit. 2010 tax return Partners and shareholders. 2010 tax return   Each partner in a partnership and each shareholder in an S corporation makes a separate election to have the appropriate limit not apply. 2010 tax return More information. 2010 tax return   For more information, see Publication 526 or Publication 542, Corporations. 2010 tax return Publication 526 includes a worksheet you can use to figure your deduction if any limits apply to your charitable contributions. 2010 tax return Standard Mileage Rate for Charitable Use of Vehicles The following are special standard mileage rates in effect in 2005 and 2006 for the cost of operating your automobile for providing charitable services solely related to Hurricane Katrina. 2010 tax return 29 cents per mile for the period August 25 through August 31, 2005. 2010 tax return 34 cents per mile for the period September 1 through December 31, 2005. 2010 tax return 32 cents per mile for the period January 1 through December 31, 2006. 2010 tax return Mileage Reimbursements to Charitable Volunteers You can exclude from income amounts you receive as mileage reimbursements for the use of a private passenger automobile for the benefit of a qualified charitable organization in providing relief related to Hurricane Katrina during the period beginning on August 25, 2005, and ending on December 31, 2006. 2010 tax return You cannot claim a deduction or credit for amounts you receive as a mileage reimbursement. 2010 tax return You must keep records of miles driven, time, place (or use), and purpose of the mileage. 2010 tax return The amount you can exclude from income cannot exceed the standard business mileage rate (shown below) for expenses incurred during the following periods. 2010 tax return 40. 2010 tax return 5 cents per mile for the period August 25 through August 31, 2005. 2010 tax return 48. 2010 tax return 5 cents per mile for the period September 1 through December 31, 2005. 2010 tax return 44. 2010 tax return 5 cents per mile for the period January 1 through December 31, 2006. 2010 tax return Charitable Deduction for Contributions of Food Inventory Any taxpayer engaged in a trade or business is eligible to claim a deduction for a contribution of “apparently wholesome food” inventory to a qualified charitable organization described in section 501(c)(3) (except for private nonoperating foundations) after August 27, 2005, and before January 1, 2006. 2010 tax return “Apparently wholesome food” is food that meets all quality and labeling standards imposed by federal, state, and local laws and regulations even though the food may not be readily marketable due to appearance, age, freshness, grade, size, surplus, or other conditions. 2010 tax return The deduction is equal to the lesser of: The basis of the donated food plus one-half of the gain that would have been realized if the donated food had been sold at fair market value on the date of the donation, or Two times the basis of the donated food. 2010 tax return The taxpayer must receive written certification from the donee stating: The donated food is related to the purpose or function of the donee's basis for exemption under section 501(c)(3) and is to be used solely for the care of the ill, the needy, or infants; and The food was not given in exchange for money, other property, or services. 2010 tax return For a taxpayer other than a C corporation, the deduction is limited to 10% of the taxpayer's total net income from all trades or businesses from which the food contributions were made (figured without regard to the deduction for charitable contributions). 2010 tax return For example, if a taxpayer is a sole proprietor, a shareholder in an S corporation, and a partner in a partnership, and each made a contribution of apparently wholesome food inventory, the taxpayer's deduction is limited to 10% of the taxpayer's total net income from the sole proprietorship, S corporation, and partnership (figured without regard to the deduction for charitable contributions). 2010 tax return Charitable Deduction for Contributions of Book Inventories to Public Schools A corporation (other than an S corporation) may be allowed a charitable deduction for a qualified book contribution made after August 27, 2005, and before January 1, 2006, to a public school that: Provides elementary or secondary education (kindergarten through grade 12), and Normally maintains a regular faculty and curriculum and has a regular enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. 2010 tax return . 2010 tax return The deduction is equal to the lesser of: The basis of the donated books plus one-half of the gain that would have been realized if the donated books had been sold at fair market value on the date of the donation, or Two times the basis of the donated books. 2010 tax return The corporation must receive written certification from the school stating that the donated books are suitable for the organization's educational programs and will be used for such programs. 2010 tax return Casualty and Theft Losses The following paragraphs explain changes to casualty and theft losses that were caused by Hurricane Katrina, Rita, or Wilma. 2010 tax return For more information, see Publication 547. 2010 tax return Limits on personal casualty or theft losses caused by Hurricane Katrina, Rita, or Wilma. 2010 tax return   The following losses to personal use property are not subject to the $100 or 10% of adjusted gross income limits. 2010 tax return Losses that arose in the Hurricane Katrina disaster area after August 24, 2005, and that were caused by Hurricane Katrina. 2010 tax return Losses that arose in the Hurricane Rita disaster area after September 22, 2005, and that were caused by Hurricane Rita. 2010 tax return Losses that arose in the Hurricane Wilma disaster area after October 22, 2005, and that were caused by Hurricane Wilma. 2010 tax return Qualifying losses include losses from flooding or other casualty, and from theft, that arose in the hurricane disaster area and that were caused by the hurricane. 2010 tax return Special instructions for individuals who elect to claim a Hurricane Katrina, Rita, or Wilma casualty or theft loss for 2004. 2010 tax return   Casualty and theft losses are generally deductible only in the year the casualty occurred or theft was discovered. 2010 tax return However, Hurricane Katrina, Rita, and Wilma are Presidentially declared disasters. 2010 tax return Therefore, you can elect to deduct losses from these hurricanes on your tax return for the previous year. 2010 tax return If you make this election, use the following additional instructions to complete your forms. 2010 tax return   Individuals filing or amending their 2004 tax return whose only casualty or theft losses to personal use property claimed on that return were caused by Hurricane Katrina, Rita, or Wilma should write “Hurricane Katrina,” “Hurricane Rita,” or “Hurricane Wilma” at the top of Form 1040 or 1040X. 2010 tax return They must also complete and attach the 2004 Form 4684 and write “Hurricane Katrina,”“Hurricane Rita,” or “Hurricane Wilma” on the dotted line next to line 11 and enter -0- on lines 11 and 17. 2010 tax return   Individuals filing or amending their 2004 tax return who also have casualty or theft losses to personal use property not related to Hurricane Katrina, Rita, or Wilma should disregard the caution directing taxpayers to use only one Form 4684, located above line 13, and complete lines 13 through 18 on two Forms 4684. 2010 tax return The Form 1040 or 1040X and the first Form 4684 should be prepared as explained above for Hurricane Katrina, Rita, or Wilma losses only. 2010 tax return The second Form 4684 should be prepared in the normal manner for all gains and non-Hurricane Katrina, Rita or Wilma losses. 2010 tax return If both Forms 4684 have a loss on line 18, they should carry the combined losses from that line to Schedule A (Form 1040), line 19. 2010 tax return If there is a gain on line 15 of the second Form 4684, disregard the instruction to enter it on Schedule D (Form 1040), and instead enter on Schedule A (Form 1040), line 19, the excess of the loss from the first Form 4684 over the gain on line 15 of the second Form 4684. 2010 tax return , Time limit for making election. 2010 tax return   You must make this election to claim your casualty or theft loss in 2004 by the later of the following dates. 2010 tax return The due date (without extensions) for filing your 2005 income tax return. 2010 tax return The due date (with extensions) for filing your 2004 income tax return. 2010 tax return Example. 2010 tax return If you are a calendar year individual taxpayer, you have until April 17, 2006, to amend your 2004 tax return to claim a casualty or theft loss that occurred during 2005. 2010 tax return Replacement Period for Nonrecognition of Gain Generally, an involuntary conversion occurs when property is damaged, destroyed, stolen, seized, requisitioned, or condemned, and you receive other property or money in payment, such as insurance or a condemnation award. 2010 tax return Generally, you do not have to report a gain (if any) if you replace the property within 2 years (4 years for a main home in a Presidentially declared disaster area). 2010 tax return However, for property that was involuntarily converted after August 24, 2005, as a result of Hurricane Katrina, a 5-year replacement period applies if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. 2010 tax return For more information, see the Instructions for Form 4684. 2010 tax return Net Operating Losses Qualified GO Zone loss. 2010 tax return   Generally, you can carry a net operating loss (NOL) back to the 2 tax years before the NOL year. 2010 tax return However, the portion of an NOL that is a qualified GO Zone loss can be carried back to the 5 tax years before the NOL year. 2010 tax return In addition, the 90% limit on the alternative tax NOL deduction (ATNOLD) does not apply to such portion of the ATNOLD. 2010 tax return   A qualified GO Zone loss is the smaller of: The excess of the NOL for the year over the specified liability loss for the year to which a 10-year carryback applies, or The total of the following deductions (to the extent they are taken into account in computing the NOL for the tax year): Qualified GO Zone casualty loss (as defined below), Moving expenses paid or incurred after August 27, 2005, and before January 1, 2008, for the employment of an individual whose main home was in the GO Zone before August 28, 2005, who was unable to remain in that home because of Hurricane Katrina, and whose main job location (after the move) is in the GO Zone, Temporary housing expenses paid or incurred after August 27, 2005, and before January 1, 2008, to house employees of the taxpayer whose main job location is in the GO Zone, Depreciation or amortization allowable for any qualified GO Zone property (even if you elected not to claim the special GO Zone depreciation allowance for such property) for the year placed in service, and Repair expenses (including expenses for the removal of debris) paid or incurred after August 27, 2005, and before January 1, 2008, for any damage from Hurricane Katrina to property located in the GO Zone. 2010 tax return Qualified GO Zone casualty loss. 2010 tax return   A qualified GO Zone casualty loss is any deductible section 1231 loss of property located in the GO Zone if the loss was caused by Hurricane Katrina. 2010 tax return For this purpose, the amount of the loss is reduced by any recognized gain from an involuntary conversion caused by Hurricane Katrina of property located in the GO Zone. 2010 tax return Any such loss taken into account in figuring your qualified GO Zone loss is not eligible for the election to be treated as having occurred in the previous tax year. 2010 tax return 5-year NOL carryback of certain timber losses. 2010 tax return   Generally, you can carry the portion of an NOL due to income and deductions attributable to a farming business back to the 5 tax years before the NOL year. 2010 tax return You can treat income and deductions attributable to qualified timber property as attributable to a farming business if any portion of the property is located in the GO Zone, Rita GO Zone, or Wilma GO Zone, and the income and deductions are allocable to the part of your tax year which is after the applicable date below. 2010 tax return August 27, 2005, if any portion of the property is located in the GO Zone. 2010 tax return September 22, 2005, if any portion of the property is located in the Rita GO Zone (but not in the GO Zone). 2010 tax return October 22, 2005, if any portion of the property is located in the Wilma GO Zone (but not in the GO Zone or the RITA GO Zone). 2010 tax return   These rules will not apply after 2006. 2010 tax return   However, these rules apply only to a timber producer who: Held qualified timber property (defined in Publication 535, Business Expenses) on the applicable date below: August 28, 2005, if any portion of the property is located in the GO Zone, September 23, 2005, if any portion of the property is located in the Rita GO Zone (but not in the GO Zone), or October 23, 2005, if any portion of the property is located in the Wilma GO Zone (but not in the GO Zone or the Rita GO Zone); Is not a corporation with stock publicly traded on an established securities market; Is not a real estate investment trust; and Did not hold more than 500 acres of qualified timber property on the applicable date above. 2010 tax return More information. 2010 tax return   For more information on NOLs, see Publication 536 or Publication 542, Corporations. 2010 tax return IRAs and Other Retirement Plans New rules provide for tax-favored withdrawals, repayments, and loans from certain retirement plans for taxpayers who suffered economic losses as a result of Hurricane Katrina, Rita, or Wilma. 2010 tax return Definitions Qualified hurricane distribution. 2010 tax return   A qualified hurricane distribution is any distribution you received from an eligible retirement plan if all of the following apply. 2010 tax return The distribution was made: After August 24, 2005, and before January 1, 2007, for Hurricane Katrina; After September 22, 2005, and before January 1, 2007, for Hurricane Rita; or After October 22, 2005, and before January 1, 2007, for Hurricane Wilma. 2010 tax return Your main home was located in a hurricane disaster area listed below on the date shown for that area. 2010 tax return August 28, 2005, for the Hurricane Katrina disaster area. 2010 tax return September 23, 2005, for the Hurricane Rita disaster area. 2010 tax return October 23, 2005, for the Hurricane Wilma disaster area. 2010 tax return You sustained an economic loss because of Hurricane Katrina, Rita, or Wilma and your main home was in that hurricane disaster area on the date shown in (2) above for that hurricane. 2010 tax return Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. 2010 tax return   If (1) through (3) above apply, you can generally designate any distribution (including periodic payments and required minimum distributions) from an eligible retirement plan as a qualified hurricane distribution, regardless of whether the distribution was made on account of Hurricane Katrina, Rita, or Wilma. 2010 tax return Qualified hurricane distributions are permitted without regard to your need or the actual amount of your economic loss. 2010 tax return   The total of your qualified hurricane distributions from all plans is limited to $100,000. 2010 tax return If you have distributions in excess of $100,000 from more than one type of plan, such as a 401(k) plan and an IRA, you may allocate the $100,000 limit among the plans any way you choose. 2010 tax return   A reduction or offset (after August 24, 2005, for Katrina; after September 22, 2005, for Rita; or after October 22, 2005, for Wilma) of your account balance in an eligible retirement plan in order to repay a loan can also be designated as a qualified hurricane distribution. 2010 tax return Eligible retirement plan. 2010 tax return   An eligible retirement plan can be any of the following. 2010 tax return A qualified pension, profit-sharing, or stock bonus plan (including a 401(k) plan). 2010 tax return A qualified annuity plan. 2010 tax return A tax-sheltered annuity contract. 2010 tax return A governmental section 457 deferred compensation plan. 2010 tax return A traditional, SEP, SIMPLE, or Roth IRA. 2010 tax return Main home. 2010 tax return   Generally, your main home is the home where you live most of the time. 2010 tax return A temporary absence due to special circumstances, such as illness, education, business, military service, evacuation, or vacation, will not change your main home. 2010 tax return Taxation of Qualified Hurricane Distributions Qualified hurricane distributions are included in income in equal amounts over three years. 2010 tax return However, if you elect, you can include the entire distribution in your income in the year it was received. 2010 tax return Qualified hurricane distributions are not subject to the additional 10% tax (or the additional 25% tax for certain distributions from SIMPLE IRAs) on early distributions from qualified retirement plans (including IRAs). 2010 tax return However, any distributions you receive in excess of the $100,000 qualified hurricane distribution limit may be subject to the additional tax on early distributions. 2010 tax return For more information, see Form 8915. 2010 tax return Repayment of Qualified Hurricane Distributions If you choose, you generally can repay any portion of a qualified hurricane distribution that is eligible for tax-free rollover treatment to an eligible retirement plan. 2010 tax return Also, you can repay a qualified hurricane distribution made on account of a hardship from a retirement plan. 2010 tax return However, see Exceptions below for qualified hurricane distributions you cannot repay. 2010 tax return You have three years from the day after the date you received the distribution to make a repayment. 2010 tax return Amounts that are repaid are treated as a qualified rollover and are not included in income. 2010 tax return Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover. 2010 tax return See Form 8915 for more information on how to report repayments. 2010 tax return Exceptions. 2010 tax return   You cannot repay the following types of distributions. 2010 tax return Qualified hurricane distributions received as a beneficiary (other than a surviving spouse). 2010 tax return Required minimum distributions. 2010 tax return Periodic payments (other than from an IRA) that are for: A period of 10 years or more, Your life or life expectancy, or The joint lives or joint life expectancies of you and your beneficiary. 2010 tax return Repayment of Qualified Distributions for the Purchase or Construction of a Main Home If you received a qualified distribution to purchase or construct a main home in the Hurricane Katrina, Rita, or Wilma disaster area, you can repay that distribution before March 1, 2006, to an eligible retirement plan after August 24, 2005 (Katrina); after September 22, 2005 (Rita); or after October 22, 2005 (Wilma). 2010 tax return For this purpose, an eligible retirement plan is any plan, annuity, or IRA to which a qualified rollover can be made. 2010 tax return To be a qualified distribution, the distribution must meet all of the following requirements. 2010 tax return The distribution is a hardship distribution from a 401(k) plan, a hardship distribution from a tax-sheltered annuity contract, or a qualified first-time homebuyer distribution from an IRA. 2010 tax return The distribution was received in 2005 after February 28 and before: August 29 for Hurricane Katrina; September 24 for Hurricane Rita; or October 24 for Hurricane Wilma. 2010 tax return The distribution was to be used to purchase or construct a main home in the Hurricane Katrina, Rita, or Wilma disaster area that was not purchased or constructed because of Hurricane Katrina, Rita, or Wilma. 2010 tax return Amounts that are repaid before March 1, 2006, are treated as a qualified rollover and are not included in income. 2010 tax return Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover. 2010 tax return A qualified distribution not repaid before March 1, 2006, may be taxable for 2005 and subject to the additional 10% tax (or the additional 25% tax for certain SIMPLE IRAs) on early distributions. 2010 tax return You must file Form 8915 if you received a qualified distribution that you repaid, in whole or in part, before March 1, 2006. 2010 tax return Loans From Qualified Plans The following benefits are available to qualified individuals. 2010 tax return Increases to the limits for distributions treated as loans from employer plans. 2010 tax return A 1-year suspension for payments due on plan loans. 2010 tax return Qualified individual. 2010 tax return   You are a qualified individual if any of the following apply. 2010 tax return Your main home on August 28, 2005, was located in the Hurricane Katrina disaster area and you had an economic loss because of Hurricane Katrina. 2010 tax return Your main home on September 23, 2005, was located in the Hurricane Rita disaster area and you had an economic loss because of Hurricane Rita. 2010 tax return Your main home on October 23, 2005, was located in the Hurricane Wilma disaster area and you had an economic loss because of Hurricane Wilma. 2010 tax return Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. 2010 tax return Limits on plan loans. 2010 tax return   The $50,000 limit for distributions treated as plan loans is increased to $100,000. 2010 tax return In addition, the limit based on 50% of your vested accrued benefit is increased to 100% of that benefit. 2010 tax return The higher limits apply only to loans received during the following period. 2010 tax return If your main home was located in the Hurricane Katrina disaster area, the period began on September 24, 2005, and ends on December 31, 2006. 2010 tax return If your main home was located in the Hurricane Rita or Wilma disaster area, the period began on December 21, 2005, and ends on December 31, 2006. 2010 tax return If you are a qualified individual based on Hurricane Katrina and another hurricane, use the period based on Hurricane Katrina. 2010 tax return One-year suspension of loan payments. 2010 tax return   Payments on plan loans due before 2007 may be suspended for 1 year by the plan administrator. 2010 tax return To qualify for the suspension, the due date for any loan payment must occur during the period beginning on: August 28, 2005, if your main home was located in the Hurricane Katrina disaster area. 2010 tax return September 23, 2005, if your main home was located in the Hurricane Rita disaster area. 2010 tax return October 23, 2005, if your main home was located in the Hurricane Wilma disaster area. 2010 tax return If you are a qualified individual based on more than one hurricane, use the period with the earliest beginning date. 2010 tax return Additional Tax Relief for Individuals Earned Income Credit and Child Tax Credit You can elect to use your 2004 earned income to figure your earned income credit (EIC) and additional child tax credit for 2005 if: Your 2005 earned income is less than your 2004 earned income, and At least one of the following statements is true. 2010 tax return Your main home on August 25, 2005, was in the Gulf Opportunity (GO) Zone. 2010 tax return Your main home on August 25, 2005, was in the Hurricane Katrina disaster area and you were displaced from that home because of Hurricane Katrina. 2010 tax return Your main home on September 23, 2005, was in the Rita GO Zone. 2010 tax return Your main home on September 23, 2005, was in the Hurricane Rita disaster area and you were displaced from that home because of Hurricane Rita. 2010 tax return Your main home on October 23, 2005, was in the Wilma GO Zone. 2010 tax return Your main home on October 23, 2005, was in the Hurricane Wilma disaster area and you were displaced from that home because of Hurricane Wilma. 2010 tax return Earned income. 2010 tax return    For the purpose of this election, your earned income for both the EIC and the additional child tax credit is the amount of earned income used to figure your EIC, even if you did not take the EIC and even if that amount is different than your earned income for the additional child tax credit. 2010 tax return If you are claiming only the additional child tax credit, you must figure the amount of your earned income for EIC purposes to determine your eligibility to make the election and the amount of the credit. 2010 tax return Joint returns. 2010 tax return   If you file a joint return, you qualify to make this election even if only one spouse meets the requirements. 2010 tax return If you make the election, your 2004 earned income is the sum of your 2004 earned income and your spouse's 2004 earned income. 2010 tax return Making the election. 2010 tax return   If you make the election to use your 2004 earned income, the election applies for figuring both the EIC and the additional child tax credit. 2010 tax return However, you can make the election for the additional child tax credit even if you do not take the EIC. 2010 tax return   Electing to use your 2004 earned income may increase or decrease your EIC. 2010 tax return Take the following steps to decide whether to make the election. 2010 tax return Figure your 2005 EIC using your 2004 earned income. 2010 tax return Figure your 2005 additional child tax credit using your 2004 earned income for EIC purposes. 2010 tax return Add the results of (1) and (2). 2010 tax return Figure your 2005 EIC using your 2005 earned income. 2010 tax return Figure your 2005 additional child tax credit using your 2005 earned income for additional child tax credit purposes. 2010 tax return Add the results of (4) and (5). 2010 tax return Compare the results of (3) and (6). 2010 tax return If (3) is larger than (6), it is to your benefit to make the election. 2010 tax return If (3) is equal to or smaller than (6), making the election will not help you. 2010 tax return   If you elect to use your 2004 earned income and you are claiming the EIC, enter “PYEI” and the amount of your 2004 earned income on the dotted line next to line 66a of Form 1040, on the line next to line 41a of Form 1040A, or in the space to the left of line 8a of Form 1040EZ. 2010 tax return   If you elect to use your 2004 earned income and you are claiming the additional child tax credit, enter your 2004 earned income for EIC purposes (even if you did not claim the EIC) on Form 8812, Additional Child Tax Credit, line 4a, and check the box on that line. 2010 tax return   Because Form 8812 was released before the GO Zone legislation was enacted, the instructions refer only to individuals whose main home was in the Hurricane Katrina disaster area. 2010 tax return When completing Form 8812, line 4a, use the above rules to determine your eligibility to make the election (instead of the Form 8812 instructions). 2010 tax return Getting your 2004 tax return information. 2010 tax return   If you do not have your 2004 tax records, you can get the amount of earned income used to figure your 2004 EIC by calling 1-866-562-5227. 2010 tax return You can also get this information by visiting the IRS website at www. 2010 tax return irs. 2010 tax return gov. 2010 tax return   If you prefer to figure your 2004 earned income yourself, copies or transcripts of your filed and processed tax returns can help you reconstruct your tax records. 2010 tax return See Request for Copy or Transcript of Tax Return on page 16. 2010 tax return Additional Exemption for Housing Individuals Displaced by Hurricane Katrina You may be able to claim an additional exemption amount of $500 for providing housing in your main home for each individual displaced by Hurricane Katrina. 2010 tax return The additional exemption amount is claimed on new Form 8914. 2010 tax return The additional exemption amount is allowable once per taxpayer for a specific individual in 2005 or 2006, but not in both years. 2010 tax return The maximum additional exemption amount you can claim for all displaced individuals is $2,000 ($1,000 if married filing separately). 2010 tax return The additional exemption amount you claim for displaced individuals in 2005 will reduce the $2,000 maximum for 2006. 2010 tax return If two or more taxpayers share the same main home, only one taxpayer in that main home can claim the additional exemption amount for a specific displaced individual. 2010 tax return If married filing separately, only one spouse may claim the additional exemption amount for a specific displaced individual. 2010 tax return In order for you to be considered to have provided housing, you must have a legal interest in the main home (that is, own or rent the home). 2010 tax return To qualify as a displaced individual, the individual: Must have had his or her main home in the Hurricane Katrina disaster area on August 28, 2005, and he or she must have been displaced from that home. 2010 tax return If the individual's main home was located outside the core disaster area, that home must have been damaged by Hurricane Katrina or the individual must have been evacuated from that home because of Hurricane Katrina, Must have been provided housing in your main home for a period of at least 60 consecutive days ending in the tax year in which the exemption is claimed, and Cannot be your spouse or dependent. 2010 tax return You cannot claim the additional exemption amount if you received rent (or any other amount) from any source for providing the housing. 2010 tax return You are permitted to receive payments or reimbursements that do not relate to normal housing costs, including the following. 2010 tax return Food, clothing, or personal items consumed or used by the displaced individual. 2010 tax return Reimbursement for the cost of any long distance telephone calls made by the displaced individual. 2010 tax return Reimbursement for the cost of gasoline for the displaced individual's use of your vehicle. 2010 tax return However, you cannot claim the additional exemption amount if you received any reimbursement for the extra costs of heat, electricity, or water used by the displaced individual. 2010 tax return Also, you must report on Form 8914 the displaced individual's social security number or individual taxpayer identification number to claim an additional exemption amount. 2010 tax return For more information, see Form 8914. 2010 tax return Education Credits The education credits have been expanded for students attending an eligible educational institution located in the Gulf Opportunity Zone (GOZ students) for any tax year beginning in 2005 or 2006. 2010 tax return The Hope credit for a GOZ student is increased to 100% of the first $2,000 in qualified education expenses and 50% of the next $2,000 of qualified education expenses for a maximum credit of $3,000 per student. 2010 tax return The lifetime learning credit rate for a GOZ student is increased from 20% to 40%. 2010 tax return The definition of qualified education expenses for a GOZ student also has been expanded. 2010 tax return In addition to tuition and fees required for the student's enrollment or attendance at an eligible educational institution, qualified education expenses for a GOZ student include the following. 2010 tax return Books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. 2010 tax return For a special needs student, expenses that are necessary for that person's enrollment or attendance at an eligible educational institution. 2010 tax return For a student who is at least a half-time student, the reasonable costs of room and board, but only to the extent that the costs are not more than the greater of the following two amounts. 2010 tax return The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. 2010 tax return The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. 2010 tax return You will need to contact the eligible educational institution for qualified room and board costs. 2010 tax return For more information, see Form 8863. 2010 tax return Recapture of Federal Mortgage Subsidy Generally, if you financed your home under a federally subsidized program (loans from tax-exempt qualified mortgage bonds or loans with mortgage credit certificates), you may have to recapture all or part of the benefit you received from that program when you sell or otherwise dispose of your home. 2010 tax return However, you do not have to recapture any benefit if your mortgage loan was a qualified home improvement loan of not more than $15,000. 2010 tax return This amount is increased to $150,000 if the loan was provided before 2011 and was used to: Repair damage caused by Hurricane Katrina to a residence in the Hurricane Katrina disaster area, or Alter, repair, or improve an existing owner-occupied residence in the GO Zone, Rita GO Zone, or Wilma GO Zone. 2010 tax return Exclusion of Certain Cancellations of Indebtedness by Reason of Hurricane Katrina Generally, discharges of nonbusiness debts (such as mortgages) made after August 24, 2005, and before January 1, 2007, are excluded from income for individuals whose main home was in the Hurricane Katrina disaster area on August 25, 2005. 2010 tax return If the individual's main home was located outside the core disaster area, the individual also must have had an economic loss because of Hurricane Katrina. 2010 tax return Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. 2010 tax return This relief does not apply to any debt secured by real property located outside the Hurricane Katrina disaster area. 2010 tax return You may also have to reduce certain tax attributes by the amount excluded. 2010 tax return For more information, see Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). 2010 tax return Tax Relief for Temporary Relocation Under the Gulf Opportunity Zone Act of 2005, the IRS may adjust the internal revenue laws to ensure that taxpayers do not lose a deduction or credit or experience a change of filing status in 2005 or 2006 as a result of a temporary relocation caused by Hurricane Katrina, Rita, or Wilma. 2010 tax return However, any such adjustment must ensure that an individual is not taken into account by more than one taxpayer for the same tax benefit. 2010 tax return The IRS has exercised this authority as follows. 2010 tax return In determining whether you furnished over one-half of the cost of maintaining a household, you can exclude from total household costs any assistance received from the government or charitable organizations because you were temporarily relocated as a result of Hurricane Katrina, Rita, or Wilma. 2010 tax return In determining whether you provided more than one-half of an individual's support, you can disregard any assistance received from the government or charitable organizations because you were temporarily relocated as a result of Hurricane Katrina, Rita, or Wilma. 2010 tax return You can treat as a student an individual who enrolled in school before August 25, 2005, and who is unable to attend classes because of Hurricane Katrina, for each month of the enrollment period that individual is prevented by Hurricane Katrina from attending school as planned. 2010 tax return You can treat as a student an individual who enrolled in school before September 23, 2005, and who is unable to attend classes because of Hurricane Rita, for each month of the enrollment period that individual is prevented by Hurricane Rita from attending school as planned. 2010 tax return You can treat as a student an individual who enrolled in school before October 23, 2005, and who is unable to attend classes because of Hurricane Wilma, for each month of the enrollment period that individual is prevented by Hurricane Wilma from attending school as planned. 2010 tax return Additional Tax Relief for Businesses Special Depreciation Allowance You can take a special depreciation allowance for qualified Gulf Opportunity (GO) Zone property (as defined below) you place in service after August 27, 2005. 2010 tax return The allowance is an additional deduction of 50% of the property's depreciable basis (after any section 179 deduction and before figuring your regular depreciation deduction). 2010 tax return The special allowance applies only for the first year the property is placed in service. 2010 tax return The allowance is deductible for both the regular tax and the alternative minimum tax (AMT). 2010 tax return There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. 2010 tax return You can elect not to deduct the special GO Zone depreciation allowance for qualified property. 2010 tax return If you make this election for any property, it applies to all property in the same class placed in service during the year. 2010 tax return Qualified GO Zone property. 2010 tax return   Property that qualifies for the special GO Zone depreciation allowance includes the following. 2010 tax return Tangible property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less. 2010 tax return Water utility property. 2010 tax return Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. 2010 tax return (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. 2010 tax return ) Qualified leasehold improvement property. 2010 tax return Nonresidential real property and residential rental property. 2010 tax return   For more information on this property, see Publication 946. 2010 tax return Other tests to be met. 2010 tax return   To be qualified GO Zone property, the property must also meet all of the following tests. 2010 tax return You must have acquired the property, by purchase, after August 27, 2005, but only if no binding written contract for the acquisition was in effect before August 28, 2005. 2010 tax return The property must be placed in service before 2008 (2009 in the case of nonresidential real property and residential rental property). 2010 tax return Substantially all of the use of the property must be in the GO Zone and in the active conduct of your trade or business in the GO Zone. 2010 tax return The original use of the property in the GO Zone must begin with you after August 27, 2005. 2010 tax return Used property can be qualified GO Zone property if it has not previously been used within the GO Zone. 2010 tax return Also, additional capital expenditures you incurred after August 27, 2005, to recondition or rebuild your property meet the original use test if the original use of the property in the GO Zone began with you. 2010 tax return Excepted property. 2010 tax return   Qualified GO Zone property does not include any of the following. 2010 tax return Property required to be depreciated using the Alternative Depreciation System (ADS). 2010 tax return Property any portion of which is financed with the proceeds of a tax-exempt obligation under section 103. 2010 tax return Property for which you are claiming a commercial revitalization deduction. 2010 tax return Any property used in connection with any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, or any store, the principal business of which is the sale of alcoholic beverages for consumption off premises. 2010 tax return Any gambling or animal racing property (as defined below). 2010 tax return Property in the same class as that for which you elected not to claim the special GO Zone depreciation allowance. 2010 tax return   Gambling or animal racing property is: Any equipment, furniture, software, or other property used directly in connection with gambling, the racing of animals, or the on-site viewing of such racing, and The portion of any real property (determined by square footage) that is dedicated to gambling, the racing of animals, or the on-site viewing of such racing, unless this portion is less than 100 square feet. 2010 tax return Recapture of special allowance. 2010 tax return   If, in any year after the year you claim the special allowance, the property ceases to be qualified GO Zone property, you may have to recapture as ordinary income any excess benefit you received from claiming the special allowance. 2010 tax return Increased Section 179 Deduction An increased section 179 deduction is allowable for qualified section 179 Gulf Opportunity (GO) Zone property (as defined later) placed in service in the GO Zone. 2010 tax return Increased dollar limit. 2010 tax return   The limit on the section 179 deduction ($105,000 for 2005, $108,000 for 2006) for qualified section 179 GO Zone property acquired after August 27, 2005, is increased by the smaller of: $100,000, or The cost of qualified section 179 GO Zone property placed in service during the year (including such property placed in service by your spouse, even if you are filing a separate return). 2010 tax return   The amount for which you can make the election is reduced if the cost of all qualified section 179 GO Zone property you placed in service during the year exceeds $420,000 for 2005 ($430,000 for 2006) increased by the smaller of: $600,000, or The cost of qualified section 179 GO Zone property placed in service during the year. 2010 tax return Qualified section 179 GO Zone property. 2010 tax return   Qualified section 179 GO Zone property is section 179 property that is qualified GO Zone property (explained earlier under Special Depreciation Allowance). 2010 tax return Section 179 property does not include nonresidential real property or residential rental property. 2010 tax return For more information, including the requirements that must be met for property to qualify for the section 179 deduction, see chapter 2 of Publication 946. 2010 tax return Work Opportunity Credit For the work opportunity credit, the definition of “targeted group employee” has been expanded to include a Hurricane Katrina employee. 2010 tax return Hurricane Katrina employee. 2010 tax return   A Hurricane Katrina employee is: A person who, on August 28, 2005, had a main home in the core disaster area and, within a two-year period beginning on that date, is hired to perform services principally in the core disaster area; or A person who, on August 28, 2005, had a main home in the core disaster area, was displaced from that main home as a result of Hurricane Katrina, and was hired during the period beginning on August 28, 2005, and ending on December 31, 2005. 2010 tax return Qualified wages. 2010 tax return   Generally, qualified wages do not include wages you paid to a targeted group employee who worked for you previously. 2010 tax return However, wages will qualify if: You paid them to an employee who is a Hurricane Katrina employee, The employee was not in your employment on August 28, 2005, and This is your first hire of the employee as a Hurricane Katrina employee after August 28, 2005. 2010 tax return   For more information, see Form 5884. 2010 tax return Certification requirements. 2010 tax return   An employee must provide to the employer reasonable evidence that he or she is a Hurricane Katrina employee. 2010 tax return An employer may accept a completed Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity and Welfare-to-Work Credits, as such evidence. 2010 tax return The certification requirements described in Form 8850 do not apply to a Hurricane Katrina employee. 2010 tax return Do not send any Forms 8850 that have only box 1 checked to the state employment security agency. 2010 tax return Instead, the employer should keep these Forms 8850 with the employer's other records. 2010 tax return For more information, see Form 8850 and its instructions. 2010 tax return Employee Retention Credit An eligible employer who conducted an active trade or business in the Gulf Opportunity (GO) Zone, the Rita GO Zone, or the Wilma GO Zone can claim the employee retention credit. 2010 tax return The credit is 40% of qualified wages for each eligible employee (up to a maximum of $6,000 in qualified wages per employee). 2010 tax return Generally, you must reduce your deduction for salaries and wages by the amount of this credit (before the tax liability limit). 2010 tax return Use Form 5884-A to claim the credit. 2010 tax return See the following rules and definitions for each hurricane. 2010 tax return Employers affected by Hurricane Katrina. 2010 tax return   The following definitions apply to employers affected by Hurricane Katrina. 2010 tax return Eligible employer. 2010 tax return   For this purpose, an eligible employer is any employer who conducted an active trade or business on August 28, 2005, in the GO Zone and whose trade or business was inoperable on any day after August 28, 2005, and before January 1, 2006, because of damage caused by Hurricane Katrina. 2010 tax return Eligible employee. 2010 tax return   For this purpose, an eligible employee is an employee whose principal place of employment on August 28, 2005, with such eligible employer was in the GO Zone. 2010 tax return An employee is not an eligible employee for purposes of Hurricane Katrina if the employee is treated as an eligible employee for the work opportunity credit. 2010 tax return Employers affected by Hurricane Rita. 2010 tax return   The following definitions apply to employers affected by Hurricane Rita. 2010 tax return Eligible employer. 2010 tax return   For this purpose, an eligible employer is any employer who conducted an active trade or business on September 23, 2005, in the Rita GO Zone and whose trade or business was inoperable on any day after September 23, 2005, and before January 1, 2006, because of damage caused by Hurricane Rita. 2010 tax return Eligible employee. 2010 tax return   For this purpose, an eligible employee is an employee whose principal place of employment on September 23, 2005, with such eligible employer was in the Rita GO Zone. 2010 tax return An employee is not an eligible employee for purposes of Hurricane Rita if the employee is treated as an eligible employee for the work opportunity credit or the Hurricane Katrina employee retention credit. 2010 tax return Employers affected by Hurricane Wilma. 2010 tax return   The following definitions apply to employers affected by Hurricane Wilma. 2010 tax return Eligible employer. 2010 tax return   For this purpose, an eligible employer is any employer who conducted an active trade or business on October 23, 2005, in the Wilma GO Zone and whose trade or business was inoperable on any day after October 23, 2005, and before January 1, 2006, because of damage caused by Hurricane Wilma. 2010 tax return Eligible employee. 2010 tax return   For this purpose, an eligible employee is an employee whose principal place of employment on October 23, 2005, with such eligible employer was in the Wilma GO Zone. 2010 tax return An employee is not an eligible employee for purposes of Hurricane Wilma if the employee is treated as an eligible employee for the work opportunity credit or the Hurricane Katrina or Rita employee retention credit. 2010 tax return Qualified wages. 2010 tax return   Qualified wages are wages you paid or incurred before January 1, 2006, (up to $6,000 per employee) for an eligible employee beginning on the date your trade or business first became inoperable at the employee's principal place of employment immediately before the applicable hurricane, and ending on the date your trade or business resumed significant operations at that place. 2010 tax return In addition, the wages must have been paid or incurred after the following date. 2010 tax return August 28, 2005, for Hurricane Katrina. 2010 tax return September 23, 2005, for Hurricane Rita. 2010 tax return October 23, 2005, for Hurricane Wilma. 2010 tax return    This includes wages paid even if the employee performed no services, performed services at a place of employment other than the principal place of employment, or performed services at the principal place of employment before significant operations resumed. 2010 tax return    Wages qualifying for the credit generally have the same meaning as wages subject to the Federal Unemployment Tax Act (FUTA). 2010 tax return Qualified wages also include amounts you paid for medical or hospitalization expenses in connection with sickness or accident disability. 2010 tax return Qualified wages for any employee must be reduced by the amount of any work supplementation payment you received under the Social Security Act. 2010 tax return   For agricultural employees, if the work performed by any employee during more than half of any pay period qualified under FUTA as agricultural labor, that employee's wages subject to social security and Medicare taxes are qualified wages. 2010 tax return For a special rule that applies to railroad employees, see section 51(h)(1)(B). 2010 tax return   Qualified wages do not include the following. 2010 tax return Wages paid to your dependent or a related individual. 2010 tax return See section 51(i)(1). 2010 tax return Wages paid to any employee during the period for which you received payment for the employee from a federally funded on-the-job training program. 2010 tax return Wages for services of replacement workers during a strike or lockout. 2010 tax return   For more information, see Form 5884-A. 2010 tax return Hurricane Katrina Housing Credit An employer who conducted an active trade or business in the Gulf Opportunity (GO) Zone can claim the Hurricane Katrina housing credit. 2010 tax return The credit is equal to 30% of the value (up to $600 per month per employee) of in-kind lodging furnished to a qualified employee (and the employee's spouse or dependents) from January 1, 2006, through July 1, 2006. 2010 tax return The value of the lodging is excluded from the income of the qualified employee but is treated as wages for purposes of taxes imposed under the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA). 2010 tax return Generally, you must reduce your deduction for salaries and wages by the amount of this credit (before the tax liability limit). 2010 tax return The employer must use Form 5884-A to claim the credit. 2010 tax return A qualified employee is an individual who had a main home in the GO Zone on August 28, 2005, and who performs substantially all employment services in the GO Zone for the employer furnishing the lodging. 2010 tax return The employee cannot be your dependent or a related individual. 2010 tax return See section 51(i)(1). 2010 tax return For more information, see Form 5884-A. 2010 tax return Reforestation Costs You may be able to elect to deduct a limited amount of reforestation costs for each qualified timber property. 2010 tax return The deduction for any tax year generally is limited to $10,000 ($5,000 if married filing separately, $0 for a trust). 2010 tax return However, this limit is increased if you paid or incurred reforestation costs after the applicable date below and any portion of the qualified timber property is located in one of the following areas. 2010 tax return August 27, 2005, if any portion of the property is located in the GO Zone. 2010 tax return September 22, 2005, if any portion of the property is located in the Rita GO Zone (but not in the GO Zone). 2010 tax return October 22, 2005, if any portion of the property is located in the Wilma GO Zone. 2010 tax return The limit for each qualified timber property is increased by the smaller of: $10,000 ($5,000 if married filing separately, $0 for a trust), or The amount of reforestation costs you paid or incurred after the applicable date for the qualified timber property, any portion of which is located in the zone described above. 2010 tax return The increase in the limit applies only to costs paid or incurred before 2008. 2010 tax return However, these rules do not apply to any timber producer who: Held more than 500 acres of qualified timber property at any time during the tax year, Is a corporation with stock publicly traded on an established securities market, or Is a real estate investment trust. 2010 tax return For more information about the election to deduct reforestation costs, see chapter 8 in Publication 535, Business Expenses. 2010 tax return Demolition and Clean-up Costs You can elect to deduct 50% of any qualified GO Zone clean-up costs for the tax year in which the costs are paid or incurred, instead of capitalizing them. 2010 tax return Qualified GO Zone clean-up costs are any amounts paid or incurred after August 27, 2005, and before January 1, 2008, for the removal of debris from, or the demolition of structures on, real property located in the GO Zone that is: Held by you for use in a trade or business or for the production of income, or Inventory or other property held primarily for sale to customers in the ordinary course of your trade or business. 2010 tax return Increase in Rehabilitation Tax Credit The rehabilitation credit is increased for qualified rehabilitation expenditures paid or incurred after August 27, 2005, and before January 1, 2009, on buildings located in the GO Zone as follows. 2010 tax return For pre-1936 buildings (other than certified historic structures), the credit percentage is increased from 10% to 13%. 2010 tax return For certified historic structures, the credit percentage is increased from 20% to 26%. 2010 tax return For more information, see Form 3468, Investment Credit. 2010 tax return Request for Copy or Transcript of Tax Return Request for copy of tax return. 2010 tax return   You can use Form 4506 to order a copy of your tax return. 2010 tax return Generally, there is a $39. 2010 tax return 00 fee for requesting each copy of a tax return. 2010 tax return If your main home, principal place of business, or tax records are located in a Presidentially declared disaster area, the fee will be waived if the assigned disaster designation (for example, “Hurricane Katrina”) is written in red across the top of the form when filed. 2010 tax return Request for transcript of tax return. 2010 tax return   You can use Form 4506-T to order a free transcript of your tax return. 2010 tax return A transcript provides most of the line entries from a tax return and usually contains the information that a third party requires. 2010 tax return You can also call 1-800-829-1040 to order a transcript. 2010 tax return How To Get Tax Help Special IRS assistance. 2010 tax return   The IRS is providing special help for those affected by Hurricane Katrina, Rita, or Wilma, as well as survivors and personal representatives of the victims. 2010 tax return We have set up a special toll-free number for people who may have trouble filing or paying their taxes because they were affected by Hurricane Katrina, Rita, or Wilma, or who have other tax issues related to the hurricanes. 2010 tax return Call 1-866-562-5227 Monday through Friday In English-7 a. 2010 tax return m. 2010 tax return to 10 p. 2010 tax return m. 2010 tax return local time In Spanish-8 a. 2010 tax return m. 2010 tax return to 9:30 p. 2010 tax return m. 2010 tax return local time   The IRS website at www. 2010 tax return irs. 2010 tax return gov has notices and other tax relief information. 2010 tax return Check it periodically for any new guidance. 2010 tax return Other help from the IRS. 2010 tax return   You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. 2010 tax return By selecting the method that is best for you, you will have quick and easy access to tax help. 2010 tax return Contacting your Taxpayer Advocate. 2010 tax return   If you have attempted to deal with an IRS problem unsuccessfully, you should contact your Taxpayer Advocate. 2010 tax return   The Taxpayer Advocate independently represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels. 2010 tax return While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that your case is given a complete and impartial review. 2010 tax return   To contact your Taxpayer Advocate: Call the Taxpayer Advocate toll free at 1-877-777-4778. 2010 tax return Call, write, or fax the Taxpayer Advocate office in your area. 2010 tax return Call 1-800-829-4059 if you are a TTY/TDD user. 2010 tax return Visit www. 2010 tax return irs. 2010 tax return gov/advocate. 2010 tax return   For more information, see Publication 1546, How To Get Help With Unresolved Tax Problems (now available in Chinese, Korean, Russian, and Vietnamese, in addition to English and Spanish). 2010 tax return Free tax services. 2010 tax return   To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. 2010 tax return It contains a list of free tax publications and an index of tax topics. 2010 tax return It also describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics. 2010 tax return Internet. 2010 tax return You can access the IRS website 24 hours a day, 7 days a week, at www. 2010 tax return irs. 2010 tax return gov to: E-file your return. 2010 tax return Find out about commercial tax preparation and e-file services available free to eligible taxpayers. 2010 tax return Check the status of your refund. 2010 tax return Click on Where's My Refund. 2010 tax return Be sure to wait at least 6 weeks from the date you filed your return (3 weeks if you filed electronically). 2010 tax return Have your tax return available because you will need to know your social security number, your filing status, and the exact whole dollar amount of your refund. 2010 tax return Download forms, instructions, and publications. 2010 tax return Order IRS products online. 2010 tax return Research your tax questions online. 2010 tax return Search publications online by topic or keyword. 2010 tax return View Internal Revenue Bulletins (IRBs) published in the last few years. 2010 tax return Figure your withholdin
Print - Click this link to Print this page

Subscribe to Schedule M-3 E-mail Service

Subscribe to Schedule M-3 E-mail Service and receive e-mail alerts when updates are available on the Schedule M-3 page of the IRS.gov Web site.

Subscribe / Unsubscribe

Page Last Reviewed or Updated: 13-Mar-2014

The 2010 Tax Return

2010 tax return Publication 541 - Main Content Table of Contents Forming a PartnershipOrganizations Classified as Partnerships Family Partnership Partnership Agreement Terminating a PartnershipIRS e-file (Electronic Filing) Exclusion From Partnership Rules Partnership Return (Form 1065) Partnership DistributionsSubstantially appreciated inventory items. 2010 tax return Partner's Gain or Loss Partner's Basis for Distributed Property Transactions Between Partnership and PartnersGuaranteed Payments Sale or Exchange of Property Contribution of Property Contribution of Services Basis of Partner's InterestAdjusted Basis Effect of Partnership Liabilities Disposition of Partner's InterestSale, Exchange, or Other Transfer Payments for Unrealized Receivables and Inventory Items Liquidation at Partner's Retirement or Death Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)Partnership Item. 2010 tax return Small Partnerships and the Small Partnership Exception Small Partnership TEFRA Election Role of Tax Matters Partner (TMP) in TEFRA Proceedings Statute of Limitations and TEFRA Amended Returns and Administrative Adjustment Requests (AARs) How To Get Tax Help Forming a Partnership The following sections contain general information about partnerships. 2010 tax return Organizations Classified as Partnerships An unincorporated organization with two or more members is generally classified as a partnership for federal tax purposes if its members carry on a trade, business, financial operation, or venture and divide its profits. 2010 tax return However, a joint undertaking merely to share expenses is not a partnership. 2010 tax return For example, co-ownership of property maintained and rented or leased is not a partnership unless the co-owners provide services to the tenants. 2010 tax return The rules you must use to determine whether an organization is classified as a partnership changed for organizations formed after 1996. 2010 tax return Organizations formed after 1996. 2010 tax return   An organization formed after 1996 is classified as a partnership for federal tax purposes if it has two or more members and it is none of the following. 2010 tax return An organization formed under a federal or state law that refers to it as incorporated or as a corporation, body corporate, or body politic. 2010 tax return An organization formed under a state law that refers to it as a joint-stock company or joint-stock association. 2010 tax return An insurance company. 2010 tax return Certain banks. 2010 tax return An organization wholly owned by a state, local, or foreign government. 2010 tax return An organization specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). 2010 tax return Certain foreign organizations identified in section 301. 2010 tax return 7701-2(b)(8) of the regulations. 2010 tax return A tax-exempt organization. 2010 tax return A real estate investment trust. 2010 tax return An organization classified as a trust under section 301. 2010 tax return 7701-4 of the regulations or otherwise subject to special treatment under the Internal Revenue Code. 2010 tax return Any other organization that elects to be classified as a corporation by filing Form 8832. 2010 tax return For more information, see the instructions for Form 8832. 2010 tax return Limited liability company. 2010 tax return   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. 2010 tax return Unlike a partnership, none of the members of an LLC are personally liable for its debts. 2010 tax return An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in Regulations section 301. 2010 tax return 7701-3. 2010 tax return See Form 8832 and section 301. 2010 tax return 7701-3 of the regulations for more details. 2010 tax return A domestic LLC with at least two members that does not file Form 8832 is classified as a partnership for federal income tax purposes. 2010 tax return Organizations formed before 1997. 2010 tax return   An organization formed before 1997 and classified as a partnership under the old rules will generally continue to be classified as a partnership as long as the organization has at least two members and does not elect to be classified as a corporation by filing Form 8832. 2010 tax return Community property. 2010 tax return    Spouses who own a qualified entity (defined later) can choose to classify the entity as a partnership for federal tax purposes by filing the appropriate partnership tax returns. 2010 tax return They can choose to classify the entity as a sole proprietorship by filing a Schedule C (Form 1040) listing one spouse as the sole proprietor. 2010 tax return A change in reporting position will be treated for federal tax purposes as a conversion of the entity. 2010 tax return   A qualified entity is a business entity that meets all the following requirements. 2010 tax return The business entity is wholly owned by spouses as community property under the laws of a state, a foreign country, or a possession of the United States. 2010 tax return No person other than one or both spouses would be considered an owner for federal tax purposes. 2010 tax return The business entity is not treated as a corporation. 2010 tax return   For more information about community property, see Publication 555, Community Property. 2010 tax return Publication 555 discusses the community property laws of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. 2010 tax return Family Partnership Members of a family can be partners. 2010 tax return However, family members (or any other person) will be recognized as partners only if one of the following requirements is met. 2010 tax return If capital is a material income-producing factor, they acquired their capital interest in a bona fide transaction (even if by gift or purchase from another family member), actually own the partnership interest, and actually control the interest. 2010 tax return If capital is not a material income-producing factor, they joined together in good faith to conduct a business. 2010 tax return They agreed that contributions of each entitle them to a share in the profits, and some capital or service has been (or is) provided by each partner. 2010 tax return Capital is material. 2010 tax return   Capital is a material income-producing factor if a substantial part of the gross income of the business comes from the use of capital. 2010 tax return Capital is ordinarily an income-producing factor if the operation of the business requires substantial inventories or investments in plants, machinery, or equipment. 2010 tax return Capital is not material. 2010 tax return   In general, capital is not a material income-producing factor if the income of the business consists principally of fees, commissions, or other compensation for personal services performed by members or employees of the partnership. 2010 tax return Capital interest. 2010 tax return   A capital interest in a partnership is an interest in its assets that is distributable to the owner of the interest in either of the following situations. 2010 tax return The owner withdraws from the partnership. 2010 tax return The partnership liquidates. 2010 tax return   The mere right to share in earnings and profits is not a capital interest in the partnership. 2010 tax return Gift of capital interest. 2010 tax return   If a family member (or any other person) receives a gift of a capital interest in a partnership in which capital is a material income-producing factor, the donee's distributive share of partnership income is subject to both of the following restrictions. 2010 tax return It must be figured by reducing the partnership income by reasonable compensation for services the donor renders to the partnership. 2010 tax return The donee's distributive share of partnership income attributable to donated capital must not be proportionately greater than the donor's distributive share attributable to the donor's capital. 2010 tax return Purchase. 2010 tax return   For purposes of determining a partner's distributive share, an interest purchased by one family member from another family member is considered a gift from the seller. 2010 tax return The fair market value of the purchased interest is considered donated capital. 2010 tax return For this purpose, members of a family include only spouses, ancestors, and lineal descendants (or a trust for the primary benefit of those persons). 2010 tax return Example. 2010 tax return A father sold 50% of his business to his son. 2010 tax return The resulting partnership had a profit of $60,000. 2010 tax return Capital is a material income-producing factor. 2010 tax return The father performed services worth $24,000, which is reasonable compensation, and the son performed no services. 2010 tax return The $24,000 must be allocated to the father as compensation. 2010 tax return Of the remaining $36,000 of profit due to capital, at least 50%, or $18,000, must be allocated to the father since he owns a 50% capital interest. 2010 tax return The son's share of partnership profit cannot be more than $18,000. 2010 tax return Business owned and operated by spouses. 2010 tax return   If spouses carry on a business together and share in the profits and losses, they may be partners whether or not they have a formal partnership agreement. 2010 tax return If so, they should report income or loss from the business on Form 1065. 2010 tax return They should not report the income on a Schedule C (Form 1040) in the name of one spouse as a sole proprietor. 2010 tax return However, the spouses can elect not to treat the joint venture as a partnership by making a Qualified Joint Venture Election. 2010 tax return Qualified Joint Venture Election. 2010 tax return   A "qualified joint venture," whose only members are spouses filing a joint return, can elect not to be treated as a partnership for federal tax purposes. 2010 tax return A qualified joint venture conducts a trade or business where: the only members of the joint venture are spouses filing jointly; both spouses elect not to be treated as a partnership; both spouses materially participate in the trade or business (see Passive Activity Limitations in the Instructions for Form 1065 for a definition of material participation); and the business is co-owned by both spouses and is not held in the name of a state law entity such as a partnership or LLC. 2010 tax return   Under this election, a qualified joint venture conducted by spouses who file a joint return is not treated as a partnership for federal tax purposes and therefore does not have a Form 1065 filing requirement. 2010 tax return All items of income, gain, deduction, loss, and credit are divided between the spouses based on their respective interests in the venture. 2010 tax return Each spouse takes into account his or her respective share of these items as a sole proprietor. 2010 tax return Each spouse would account for his or her respective share on the appropriate form, such as Schedule C (Form 1040). 2010 tax return For purposes of determining net earnings from self-employment, each spouse's share of income or loss from a qualified joint venture is taken into account just as it is for federal income tax purposes (i. 2010 tax return e. 2010 tax return , based on their respective interests in the venture). 2010 tax return   If the spouses do not make the election to treat their respective interests in the joint venture as sole proprietorships, each spouse should carry his or her share of the partnership income or loss from Schedule K-1 (Form 1065) to their joint or separate Form(s) 1040. 2010 tax return Each spouse should include his or her respective share of self-employment income on a separate Schedule SE (Form 1040), Self-Employment Tax. 2010 tax return   This generally does not increase the total tax on the return, but it does give each spouse credit for social security earnings on which retirement benefits are based. 2010 tax return However, this may not be true if either spouse exceeds the social security tax limitation. 2010 tax return   For more information on qualified joint ventures, go to IRS. 2010 tax return gov, enter “Election for Qualified Joint Ventures” in the search box and select the link reading “Election for Husband and Wife Unincorporated Businesses. 2010 tax return ” Partnership Agreement The partnership agreement includes the original agreement and any modifications. 2010 tax return The modifications must be agreed to by all partners or adopted in any other manner provided by the partnership agreement. 2010 tax return The agreement or modifications can be oral or written. 2010 tax return Partners can modify the partnership agreement for a particular tax year after the close of the year but not later than the date for filing the partnership return for that year. 2010 tax return This filing date does not include any extension of time. 2010 tax return If the partnership agreement or any modification is silent on any matter, the provisions of local law are treated as part of the agreement. 2010 tax return Terminating a Partnership A partnership terminates when one of the following events takes place. 2010 tax return All its operations are discontinued and no part of any business, financial operation, or venture is continued by any of its partners in a partnership. 2010 tax return At least 50% of the total interest in partnership capital and profits is sold or exchanged within a 12-month period, including a sale or exchange to another partner. 2010 tax return Unlike other partnerships, an electing large partnership does not terminate on the sale or exchange of 50% or more of the partnership interests within a 12-month period. 2010 tax return See section 1. 2010 tax return 708-1(b) of the regulations for more information on the termination of a partnership. 2010 tax return For special rules that apply to a merger, consolidation, or division of a partnership, see sections 1. 2010 tax return 708-1(c) and 1. 2010 tax return 708-1(d) of the regulations. 2010 tax return Date of termination. 2010 tax return   The partnership's tax year ends on the date of termination. 2010 tax return For the event described in (1), above, the date of termination is the date the partnership completes the winding up of its affairs. 2010 tax return For the event described in (2), above, the date of termination is the date of the sale or exchange of a partnership interest that, by itself or together with other sales or exchanges in the preceding 12 months, transfers an interest of 50% or more in both capital and profits. 2010 tax return Short period return. 2010 tax return   If a partnership is terminated before the end of what would otherwise be its tax year, Form 1065 must be filed for the short period, which is the period from the beginning of the tax year through the date of termination. 2010 tax return The return is due the 15th day of the fourth month following the date of termination. 2010 tax return See Partnership Return (Form 1065), later, for information about filing Form 1065. 2010 tax return Conversion of partnership into limited liability company (LLC). 2010 tax return   The conversion of a partnership into an LLC classified as a partnership for federal tax purposes does not terminate the partnership. 2010 tax return The conversion is not a sale, exchange, or liquidation of any partnership interest; the partnership's tax year does not close; and the LLC can continue to use the partnership's taxpayer identification number. 2010 tax return   However, the conversion may change some of the partners' bases in their partnership interests if the partnership has recourse liabilities that become nonrecourse liabilities. 2010 tax return Because the partners share recourse and nonrecourse liabilities differently, their bases must be adjusted to reflect the new sharing ratios. 2010 tax return If a decrease in a partner's share of liabilities exceeds the partner's basis, he or she must recognize gain on the excess. 2010 tax return For more information, see Effect of Partnership Liabilities under Basis of Partner's Interest, later. 2010 tax return   The same rules apply if an LLC classified as a partnership is converted into a partnership. 2010 tax return IRS e-file (Electronic Filing) Please click here for the text description of the image. 2010 tax return e-file Certain partnerships with more than 100 partners are required to file Form 1065, Schedules K-1, and related forms and schedules electronically (e-file). 2010 tax return Other partnerships generally have the option to file electronically. 2010 tax return For details about IRS e-file, see the Form 1065 instructions. 2010 tax return Exclusion From Partnership Rules Certain partnerships that do not actively conduct a business can choose to be completely or partially excluded from being treated as partnerships for federal income tax purposes. 2010 tax return All the partners must agree to make the choice, and the partners must be able to compute their own taxable income without computing the partnership's income. 2010 tax return However, the partners are not exempt from the rule that limits a partner's distributive share of partnership loss to the adjusted basis of the partner's partnership interest. 2010 tax return Nor are they exempt from the requirement of a business purpose for adopting a tax year for the partnership that differs from its required tax year. 2010 tax return Investing partnership. 2010 tax return   An investing partnership can be excluded if the participants in the joint purchase, retention, sale, or exchange of investment property meet all the following requirements. 2010 tax return They own the property as co-owners. 2010 tax return They reserve the right separately to take or dispose of their shares of any property acquired or retained. 2010 tax return They do not actively conduct business or irrevocably authorize some person acting in a representative capacity to purchase, sell, or exchange the investment property. 2010 tax return Each separate participant can delegate authority to purchase, sell, or exchange his or her share of the investment property for the time being for his or her account, but not for a period of more than a year. 2010 tax return Operating agreement partnership. 2010 tax return   An operating agreement partnership group can be excluded if the participants in the joint production, extraction, or use of property meet all the following requirements. 2010 tax return They own the property as co-owners, either in fee or under lease or other form of contract granting exclusive operating rights. 2010 tax return They reserve the right separately to take in kind or dispose of their shares of any property produced, extracted, or used. 2010 tax return They do not jointly sell services or the property produced or extracted. 2010 tax return Each separate participant can delegate authority to sell his or her share of the property produced or extracted for the time being for his or her account, but not for a period of time in excess of the minimum needs of the industry, and in no event for more than one year. 2010 tax return However, this exclusion does not apply to an unincorporated organization one of whose principal purposes is cycling, manufacturing, or processing for persons who are not members of the organization. 2010 tax return Electing the exclusion. 2010 tax return   An eligible organization that wishes to be excluded from the partnership rules must make the election not later than the time for filing the partnership return for the first tax year for which exclusion is desired. 2010 tax return This filing date includes any extension of time. 2010 tax return See Regulations section 1. 2010 tax return 761-2(b) for the procedures to follow. 2010 tax return Partnership Return (Form 1065) Every partnership that engages in a trade or business or has gross income must file an information return on Form 1065 showing its income, deductions, and other required information. 2010 tax return The partnership return must show the names and addresses of each partner and each partner's distributive share of taxable income. 2010 tax return The return must be signed by a general partner. 2010 tax return If a limited liability company is treated as a partnership, it must file Form 1065 and one of its members must sign the return. 2010 tax return A partnership is not considered to engage in a trade or business, and is not required to file a Form 1065, for any tax year in which it neither receives income nor pays or incurs any expenses treated as deductions or credits for federal income tax purposes. 2010 tax return See the Instructions for Form 1065 for more information about who must file Form 1065. 2010 tax return Partnership Distributions Partnership distributions include the following. 2010 tax return A withdrawal by a partner in anticipation of the current year's earnings. 2010 tax return A distribution of the current year's or prior years' earnings not needed for working capital. 2010 tax return A complete or partial liquidation of a partner's interest. 2010 tax return A distribution to all partners in a complete liquidation of the partnership. 2010 tax return A partnership distribution is not taken into account in determining the partner's distributive share of partnership income or loss. 2010 tax return If any gain or loss from the distribution is recognized by the partner, it must be reported on his or her return for the tax year in which the distribution is received. 2010 tax return Money or property withdrawn by a partner in anticipation of the current year's earnings is treated as a distribution received on the last day of the partnership's tax year. 2010 tax return Effect on partner's basis. 2010 tax return   A partner's adjusted basis in his or her partnership interest is decreased (but not below zero) by the money and adjusted basis of property distributed to the partner. 2010 tax return See Adjusted Basis under Basis of Partner's Interest, later. 2010 tax return Effect on partnership. 2010 tax return   A partnership generally does not recognize any gain or loss because of distributions it makes to partners. 2010 tax return The partnership may be able to elect to adjust the basis of its undistributed property. 2010 tax return Certain distributions treated as a sale or exchange. 2010 tax return   When a partnership distributes the following items, the distribution may be treated as a sale or exchange of property rather than a distribution. 2010 tax return Unrealized receivables or substantially appreciated inventory items distributed in exchange for any part of the partner's interest in other partnership property, including money. 2010 tax return Other property (including money) distributed in exchange for any part of a partner's interest in unrealized receivables or substantially appreciated inventory items. 2010 tax return   See Payments for Unrealized Receivables and Inventory Items under Disposition of Partner's Interest, later. 2010 tax return   This treatment does not apply to the following distributions. 2010 tax return A distribution of property to the partner who contributed the property to the partnership. 2010 tax return Payments made to a retiring partner or successor in interest of a deceased partner that are the partner's distributive share of partnership income or guaranteed payments. 2010 tax return Substantially appreciated inventory items. 2010 tax return   Inventory items of the partnership are considered to have appreciated substantially in value if, at the time of the distribution, their total fair market value is more than 120% of the partnership's adjusted basis for the property. 2010 tax return However, if a principal purpose for acquiring inventory property is to avoid ordinary income treatment by reducing the appreciation to less than 120%, that property is excluded. 2010 tax return Partner's Gain or Loss A partner generally recognizes gain on a partnership distribution only to the extent any money (and marketable securities treated as money) included in the distribution exceeds the adjusted basis of the partner's interest in the partnership. 2010 tax return Any gain recognized is generally treated as capital gain from the sale of the partnership interest on the date of the distribution. 2010 tax return If partnership property (other than marketable securities treated as money) is distributed to a partner, he or she generally does not recognize any gain until the sale or other disposition of the property. 2010 tax return For exceptions to these rules, see Distribution of partner's debt and Net precontribution gain, later. 2010 tax return Also, see Payments for Unrealized Receivables and Inventory Items under Disposition of Partner's Interest, later. 2010 tax return Example. 2010 tax return The adjusted basis of Jo's partnership interest is $14,000. 2010 tax return She receives a distribution of $8,000 cash and land that has an adjusted basis of $2,000 and a fair market value of $3,000. 2010 tax return Because the cash received does not exceed the basis of her partnership interest, Jo does not recognize any gain on the distribution. 2010 tax return Any gain on the land will be recognized when she sells or otherwise disposes of it. 2010 tax return The distribution decreases the adjusted basis of Jo's partnership interest to $4,000 [$14,000 − ($8,000 + $2,000)]. 2010 tax return Marketable securities treated as money. 2010 tax return   Generally, a marketable security distributed to a partner is treated as money in determining whether gain is recognized on the distribution. 2010 tax return This treatment, however, does not generally apply if that partner contributed the security to the partnership or an investment partnership made the distribution to an eligible partner. 2010 tax return   The amount treated as money is the security's fair market value when distributed, reduced (but not below zero) by the excess (if any) of: The partner's distributive share of the gain that would be recognized had the partnership sold all its marketable securities at their fair market value immediately before the transaction resulting in the distribution, over The partner's distributive share of the gain that would be recognized had the partnership sold all such securities it still held after the distribution at the fair market value in (1). 2010 tax return   For more information, including the definition of marketable securities, see section 731(c) of the Internal Revenue Code. 2010 tax return Loss on distribution. 2010 tax return   A partner does not recognize loss on a partnership distribution unless all the following requirements are met. 2010 tax return The adjusted basis of the partner's interest in the partnership exceeds the distribution. 2010 tax return The partner's entire interest in the partnership is liquidated. 2010 tax return The distribution is in money, unrealized receivables, or inventory items. 2010 tax return   There are exceptions to these general rules. 2010 tax return See the following discussions. 2010 tax return Also, see Liquidation at Partner's Retirement or Death under Disposition of Partner's Interest, later. 2010 tax return Distribution of partner's debt. 2010 tax return   If a partnership acquires a partner's debt and extinguishes the debt by distributing it to the partner, the partner will recognize capital gain or loss to the extent the fair market value of the debt differs from the basis of the debt (determined under the rules discussed in Partner's Basis for Distributed Property, later). 2010 tax return   The partner is treated as having satisfied the debt for its fair market value. 2010 tax return If the issue price (adjusted for any premium or discount) of the debt exceeds its fair market value when distributed, the partner may have to include the excess amount in income as canceled debt. 2010 tax return   Similarly, a deduction may be available to a corporate partner if the fair market value of the debt at the time of distribution exceeds its adjusted issue price. 2010 tax return Net precontribution gain. 2010 tax return   A partner generally must recognize gain on the distribution of property (other than money) if the partner contributed appreciated property to the partnership during the 7-year period before the distribution. 2010 tax return   The gain recognized is the lesser of the following amounts. 2010 tax return The excess of: The fair market value of the property received in the distribution, over The adjusted basis of the partner's interest in the partnership immediately before the distribution, reduced (but not below zero) by any money received in the distribution. 2010 tax return The “net precontribution gain” of the partner. 2010 tax return This is the net gain the partner would recognize if all the property contributed by the partner within 7 years of the distribution, and held by the partnership immediately before the distribution, were distributed to another partner, other than a partner who owns more than 50% of the partnership. 2010 tax return For information about the distribution of contributed property to another partner, see Contribution of Property , under Transactions Between Partnership and Partners, later. 2010 tax return   The character of the gain is determined by reference to the character of the net precontribution gain. 2010 tax return This gain is in addition to any gain the partner must recognize if the money distributed is more than his or her basis in the partnership. 2010 tax return For these rules, the term “money” includes marketable securities treated as money, as discussed earlier. 2010 tax return Effect on basis. 2010 tax return   The adjusted basis of the partner's interest in the partnership is increased by any net precontribution gain recognized by the partner. 2010 tax return Other than for purposes of determining the gain, the increase is treated as occurring immediately before the distribution. 2010 tax return See Basis of Partner's Interest , later. 2010 tax return   The partnership must adjust its basis in any property the partner contributed within 7 years of the distribution to reflect any gain that partner recognizes under this rule. 2010 tax return Exceptions. 2010 tax return   Any part of a distribution that is property the partner previously contributed to the partnership is not taken into account in determining the amount of the excess distribution or the partner's net precontribution gain. 2010 tax return For this purpose, the partner's previously contributed property does not include a contributed interest in an entity to the extent its value is due to property contributed to the entity after the interest was contributed to the partnership. 2010 tax return   Recognition of gain under this rule also does not apply to a distribution of unrealized receivables or substantially appreciated inventory items if the distribution is treated as a sale or exchange, as discussed earlier. 2010 tax return Partner's Basis for Distributed Property Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed to the partner by a partnership is its adjusted basis to the partnership immediately before the distribution. 2010 tax return However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction. 2010 tax return Example 1. 2010 tax return The adjusted basis of Emily's partnership interest is $30,000. 2010 tax return She receives a distribution of property that has an adjusted basis of $20,000 to the partnership and $4,000 in cash. 2010 tax return Her basis for the property is $20,000. 2010 tax return Example 2. 2010 tax return The adjusted basis of Steve's partnership interest is $10,000. 2010 tax return He receives a distribution of $4,000 cash and property that has an adjusted basis to the partnership of $8,000. 2010 tax return His basis for the distributed property is limited to $6,000 ($10,000 − $4,000, the cash he receives). 2010 tax return Complete liquidation of partner's interest. 2010 tax return   The basis of property received in complete liquidation of a partner's interest is the adjusted basis of the partner's interest in the partnership reduced by any money distributed to the partner in the same transaction. 2010 tax return Partner's holding period. 2010 tax return   A partner's holding period for property distributed to the partner includes the period the property was held by the partnership. 2010 tax return If the property was contributed to the partnership by a partner, then the period it was held by that partner is also included. 2010 tax return Basis divided among properties. 2010 tax return   If the basis of property received is the adjusted basis of the partner's interest in the partnership (reduced by money received in the same transaction), it must be divided among the properties distributed to the partner. 2010 tax return For property distributed after August 5, 1997, allocate the basis using the following rules. 2010 tax return Allocate the basis first to unrealized receivables and inventory items included in the distribution by assigning a basis to each item equal to the partnership's adjusted basis in the item immediately before the distribution. 2010 tax return If the total of these assigned bases exceeds the allocable basis, decrease the assigned bases by the amount of the excess. 2010 tax return Allocate any remaining basis to properties other than unrealized receivables and inventory items by assigning a basis to each property equal to the partnership's adjusted basis in the property immediately before the distribution. 2010 tax return If the allocable basis exceeds the total of these assigned bases, increase the assigned bases by the amount of the excess. 2010 tax return If the total of these assigned bases exceeds the allocable basis, decrease the assigned bases by the amount of the excess. 2010 tax return Allocating a basis increase. 2010 tax return   Allocate any basis increase required in rule (2), above, first to properties with unrealized appreciation to the extent of the unrealized appreciation. 2010 tax return If the basis increase is less than the total unrealized appreciation, allocate it among those properties in proportion to their respective amounts of unrealized appreciation. 2010 tax return Allocate any remaining basis increase among all the properties in proportion to their respective fair market values. 2010 tax return Example. 2010 tax return Eun's basis in her partnership interest is $55,000. 2010 tax return In a distribution in liquidation of her entire interest, she receives properties A and B, neither of which is inventory or unrealized receivables. 2010 tax return Property A has an adjusted basis to the partnership of $5,000 and a fair market value of $40,000. 2010 tax return Property B has an adjusted basis to the partnership of $10,000 and a fair market value of $10,000. 2010 tax return To figure her basis in each property, Eun first assigns bases of $5,000 to property A and $10,000 to property B (their adjusted bases to the partnership). 2010 tax return This leaves a $40,000 basis increase (the $55,000 allocable basis minus the $15,000 total of the assigned bases). 2010 tax return She first allocates $35,000 to property A (its unrealized appreciation). 2010 tax return The remaining $5,000 is allocated between the properties based on their fair market values. 2010 tax return $4,000 ($40,000/$50,000) is allocated to property A and $1,000 ($10,000/$50,000) is allocated to property B. 2010 tax return Eun's basis in property A is $44,000 ($5,000 + $35,000 + $4,000) and her basis in property B is $11,000 ($10,000 + $1,000). 2010 tax return Allocating a basis decrease. 2010 tax return   Use the following rules to allocate any basis decrease required in rule (1) or rule (2), earlier. 2010 tax return Allocate the basis decrease first to items with unrealized depreciation to the extent of the unrealized depreciation. 2010 tax return If the basis decrease is less than the total unrealized depreciation, allocate it among those items in proportion to their respective amounts of unrealized depreciation. 2010 tax return Allocate any remaining basis decrease among all the items in proportion to their respective assigned basis amounts (as decreased in (1)). 2010 tax return Example. 2010 tax return Armando's basis in his partnership interest is $20,000. 2010 tax return In a distribution in liquidation of his entire interest, he receives properties C and D, neither of which is inventory or unrealized receivables. 2010 tax return Property C has an adjusted basis to the partnership of $15,000 and a fair market value of $15,000. 2010 tax return Property D has an adjusted basis to the partnership of $15,000 and a fair market value of $5,000. 2010 tax return To figure his basis in each property, Armando first assigns bases of $15,000 to property C and $15,000 to property D (their adjusted bases to the partnership). 2010 tax return This leaves a $10,000 basis decrease (the $30,000 total of the assigned bases minus the $20,000 allocable basis). 2010 tax return He allocates the entire $10,000 to property D (its unrealized depreciation). 2010 tax return Armando's basis in property C is $15,000 and his basis in property D is $5,000 ($15,000 − $10,000). 2010 tax return Distributions before August 6, 1997. 2010 tax return   For property distributed before August 6, 1997, allocate the basis using the following rules. 2010 tax return Allocate the basis first to unrealized receivables and inventory items included in the distribution to the extent of the partnership's adjusted basis in those items. 2010 tax return If the partnership's adjusted basis in those items exceeded the allocable basis, allocate the basis among the items in proportion to their adjusted bases to the partnership. 2010 tax return Allocate any remaining basis to other distributed properties in proportion to their adjusted bases to the partnership. 2010 tax return Partner's interest more than partnership basis. 2010 tax return   If the basis of a partner's interest to be divided in a complete liquidation of the partner's interest is more than the partnership's adjusted basis for the unrealized receivables and inventory items distributed, and if no other property is distributed to which the partner can apply the remaining basis, the partner has a capital loss to the extent of the remaining basis of the partnership interest. 2010 tax return Special adjustment to basis. 2010 tax return   A partner who acquired any part of his or her partnership interest in a sale or exchange or upon the death of another partner may be able to choose a special basis adjustment for property distributed by the partnership. 2010 tax return To choose the special adjustment, the partner must have received the distribution within 2 years after acquiring the partnership interest. 2010 tax return Also, the partnership must not have chosen the optional adjustment to basis when the partner acquired the partnership interest. 2010 tax return   If a partner chooses this special basis adjustment, the partner's basis for the property distributed is the same as it would have been if the partnership had chosen the optional adjustment to basis. 2010 tax return However, this assigned basis is not reduced by any depletion or depreciation that would have been allowed or allowable if the partnership had previously chosen the optional adjustment. 2010 tax return   The choice must be made with the partner's tax return for the year of the distribution if the distribution includes any property subject to depreciation, depletion, or amortization. 2010 tax return If the choice does not have to be made for the distribution year, it must be made with the return for the first year in which the basis of the distributed property is pertinent in determining the partner's income tax. 2010 tax return   A partner choosing this special basis adjustment must attach a statement to his or her tax return that the partner chooses under section 732(d) of the Internal Revenue Code to adjust the basis of property received in a distribution. 2010 tax return The statement must show the computation of the special basis adjustment for the property distributed and list the properties to which the adjustment has been allocated. 2010 tax return Example. 2010 tax return Chin Ho purchased a 25% interest in X partnership for $17,000 cash. 2010 tax return At the time of the purchase, the partnership owned inventory having a basis to the partnership of $14,000 and a fair market value of $16,000. 2010 tax return Thus, $4,000 of the $17,000 he paid was attributable to his share of inventory with a basis to the partnership of $3,500. 2010 tax return Within 2 years after acquiring his interest, Chin Ho withdrew from the partnership and for his entire interest received cash of $1,500, inventory with a basis to the partnership of $3,500, and other property with a basis of $6,000. 2010 tax return The value of the inventory received was 25% of the value of all partnership inventory. 2010 tax return (It is immaterial whether the inventory he received was on hand when he acquired his interest. 2010 tax return ) Since the partnership from which Chin Ho withdrew did not make the optional adjustment to basis, he chose to adjust the basis of the inventory received. 2010 tax return His share of the partnership's basis for the inventory is increased by $500 (25% of the $2,000 difference between the $16,000 fair market value of the inventory and its $14,000 basis to the partnership at the time he acquired his interest). 2010 tax return The adjustment applies only for purposes of determining his new basis in the inventory, and not for purposes of partnership gain or loss on disposition. 2010 tax return The total to be allocated among the properties Chin Ho received in the distribution is $15,500 ($17,000 basis of his interest − $1,500 cash received). 2010 tax return His basis in the inventory items is $4,000 ($3,500 partnership basis + $500 special adjustment). 2010 tax return The remaining $11,500 is allocated to his new basis for the other property he received. 2010 tax return Mandatory adjustment. 2010 tax return   A partner does not always have a choice of making this special adjustment to basis. 2010 tax return The special adjustment to basis must be made for a distribution of property (whether or not within 2 years after the partnership interest was acquired) if all the following conditions existed when the partner received the partnership interest. 2010 tax return The fair market value of all partnership property (other than money) was more than 110% of its adjusted basis to the partnership. 2010 tax return If there had been a liquidation of the partner's interest immediately after it was acquired, an allocation of the basis of that interest under the general rules (discussed earlier under Basis divided among properties) would have decreased the basis of property that could not be depreciated, depleted, or amortized and increased the basis of property that could be. 2010 tax return The optional basis adjustment, if it had been chosen by the partnership, would have changed the partner's basis for the property actually distributed. 2010 tax return Required statement. 2010 tax return   Generally, if a partner chooses a special basis adjustment and notifies the partnership, or if the partnership makes a distribution for which the special basis adjustment is mandatory, the partnership must provide a statement to the partner. 2010 tax return The statement must provide information necessary for the partner to compute the special basis adjustment. 2010 tax return Marketable securities. 2010 tax return   A partner's basis in marketable securities received in a partnership distribution, as determined in the preceding discussions, is increased by any gain recognized by treating the securities as money. 2010 tax return See Marketable securities treated as money under Partner's Gain or Loss, earlier. 2010 tax return The basis increase is allocated among the securities in proportion to their respective amounts of unrealized appreciation before the basis increase. 2010 tax return Transactions Between Partnership and Partners For certain transactions between a partner and his or her partnership, the partner is treated as not being a member of the partnership. 2010 tax return These transactions include the following. 2010 tax return Performing services for, or transferring property to, a partnership if: There is a related allocation and distribution to a partner, and The entire transaction, when viewed together, is properly characterized as occurring between the partnership and a partner not acting in the capacity of a partner. 2010 tax return Transferring money or other property to a partnership if: There is a related transfer of money or other property by the partnership to the contributing partner or another partner, and The transfers together are properly characterized as a sale or exchange of property. 2010 tax return Payments by accrual basis partnership to cash basis partner. 2010 tax return   A partnership that uses an accrual method of accounting cannot deduct any business expense owed to a cash basis partner until the amount is paid. 2010 tax return However, this rule does not apply to guaranteed payments made to a partner, which are generally deductible when accrued. 2010 tax return Guaranteed Payments Guaranteed payments are those made by a partnership to a partner that are determined without regard to the partnership's income. 2010 tax return A partnership treats guaranteed payments for services, or for the use of capital, as if they were made to a person who is not a partner. 2010 tax return This treatment is for purposes of determining gross income and deductible business expenses only. 2010 tax return For other tax purposes, guaranteed payments are treated as a partner's distributive share of ordinary income. 2010 tax return Guaranteed payments are not subject to income tax withholding. 2010 tax return The partnership generally deducts guaranteed payments on line 10 of Form 1065 as a business expense. 2010 tax return They are also listed on Schedules K and K-1 of the partnership return. 2010 tax return The individual partner reports guaranteed payments on Schedule E (Form 1040) as ordinary income, along with his or her distributive share of the partnership's other ordinary income. 2010 tax return Guaranteed payments made to partners for organizing the partnership or syndicating interests in the partnership are capital expenses. 2010 tax return Generally, organizational and syndication expenses are not deductible by the partnership. 2010 tax return However, a partnership can elect to deduct a portion of its organizational expenses and amortize the remaining expenses (see Business start-up and organizational costs in the Instructions for Form 1065). 2010 tax return Organizational expenses (if the election is not made) and syndication expenses paid to partners must be reported on the partners' Schedule K-1 as guaranteed payments. 2010 tax return Minimum payment. 2010 tax return   If a partner is to receive a minimum payment from the partnership, the guaranteed payment is the amount by which the minimum payment is more than the partner's distributive share of the partnership income before taking into account the guaranteed payment. 2010 tax return Example. 2010 tax return Under a partnership agreement, Divya is to receive 30% of the partnership income, but not less than $8,000. 2010 tax return The partnership has net income of $20,000. 2010 tax return Divya's share, without regard to the minimum guarantee, is $6,000 (30% × $20,000). 2010 tax return The guaranteed payment that can be deducted by the partnership is $2,000 ($8,000 − $6,000). 2010 tax return Divya's income from the partnership is $8,000, and the remaining $12,000 of partnership income will be reported by the other partners in proportion to their shares under the partnership agreement. 2010 tax return If the partnership net income had been $30,000, there would have been no guaranteed payment since her share, without regard to the guarantee, would have been greater than the guarantee. 2010 tax return Self-employed health insurance premiums. 2010 tax return   Premiums for health insurance paid by a partnership on behalf of a partner, for services as a partner, are treated as guaranteed payments. 2010 tax return The partnership can deduct the payments as a business expense, and the partner must include them in gross income. 2010 tax return However, if the partnership accounts for insurance paid for a partner as a reduction in distributions to the partner, the partnership cannot deduct the premiums. 2010 tax return   A partner who qualifies can deduct 100% of the health insurance premiums paid by the partnership on his or her behalf as an adjustment to income. 2010 tax return The partner cannot deduct the premiums for any calendar month, or part of a month, in which the partner is eligible to participate in any subsidized health plan maintained by any employer of the partner, the partner's spouse, the partner's dependents, or any children under age 27 who are not dependents. 2010 tax return For more information on the self-employed health insurance deduction, see chapter 6 in Publication 535. 2010 tax return Including payments in partner's income. 2010 tax return   Guaranteed payments are included in income in the partner's tax year in which the partnership's tax year ends. 2010 tax return Example 1. 2010 tax return Under the terms of a partnership agreement, Erica is entitled to a fixed annual payment of $10,000 without regard to the income of the partnership. 2010 tax return Her distributive share of the partnership income is 10%. 2010 tax return The partnership has $50,000 of ordinary income after deducting the guaranteed payment. 2010 tax return She must include ordinary income of $15,000 ($10,000 guaranteed payment + $5,000 ($50,000 × 10%) distributive share) on her individual income tax return for her tax year in which the partnership's tax year ends. 2010 tax return Example 2. 2010 tax return Lamont is a calendar year taxpayer who is a partner in a partnership. 2010 tax return The partnership uses a fiscal year that ended January 31, 2013. 2010 tax return Lamont received guaranteed payments from the partnership from February 1, 2012, until December 31, 2012. 2010 tax return He must include these guaranteed payments in income for 2013 and report them on his 2013 income tax return. 2010 tax return Payments resulting in loss. 2010 tax return   If guaranteed payments to a partner result in a partnership loss in which the partner shares, the partner must report the full amount of the guaranteed payments as ordinary income. 2010 tax return The partner separately takes into account his or her distributive share of the partnership loss, to the extent of the adjusted basis of the partner's partnership interest. 2010 tax return Sale or Exchange of Property Special rules apply to a sale or exchange of property between a partnership and certain persons. 2010 tax return Losses. 2010 tax return   Losses will not be allowed from a sale or exchange of property (other than an interest in the partnership) directly or indirectly between a partnership and a person whose direct or indirect interest in the capital or profits of the partnership is more than 50%. 2010 tax return   If the sale or exchange is between two partnerships in which the same persons directly or indirectly own more than 50% of the capital or profits interests in each partnership, no deduction of a loss is allowed. 2010 tax return   The basis of each partner's interest in the partnership is decreased (but not below zero) by the partner's share of the disallowed loss. 2010 tax return   If the purchaser later sells the property, only the gain realized that is greater than the loss not allowed will be taxable. 2010 tax return If any gain from the sale of the property is not recognized because of this rule, the basis of each partner's interest in the partnership is increased by the partner's share of that gain. 2010 tax return Gains. 2010 tax return   Gains are treated as ordinary income in a sale or exchange of property directly or indirectly between a person and a partnership, or between two partnerships, if both of the following tests are met. 2010 tax return More than 50% of the capital or profits interest in the partnership(s) is directly or indirectly owned by the same person(s). 2010 tax return The property in the hands of the transferee immediately after the transfer is not a capital asset. 2010 tax return Property that is not a capital asset includes accounts receivable, inventory, stock-in-trade, and depreciable or real property used in a trade or business. 2010 tax return More than 50% ownership. 2010 tax return   To determine if there is more than 50% ownership in partnership capital or profits, the following rules apply. 2010 tax return An interest directly or indirectly owned by, or for, a corporation, partnership, estate, or trust is considered to be owned proportionately by, or for, its shareholders, partners, or beneficiaries. 2010 tax return An individual is considered to own the interest directly or indirectly owned by, or for, the individual's family. 2010 tax return For this rule, “family” includes only brothers, sisters, half-brothers, half-sisters, spouses, ancestors, and lineal descendants. 2010 tax return If a person is considered to own an interest using rule (1), that person (the “constructive owner”) is treated as if actually owning that interest when rules (1) and (2) are applied. 2010 tax return However, if a person is considered to own an interest using rule (2), that person is not treated as actually owning that interest in reapplying rule (2) to make another person the constructive owner. 2010 tax return Example. 2010 tax return Individuals A and B and Trust T are equal partners in Partnership ABT. 2010 tax return A's husband, AH, is the sole beneficiary of Trust T. 2010 tax return Trust T's partnership interest will be attributed to AH only for the purpose of further attributing the interest to A. 2010 tax return As a result, A is a more-than-50% partner. 2010 tax return This means that any deduction for losses on transactions between her and ABT will not be allowed, and gain from property that in the hands of the transferee is not a capital asset is treated as ordinary, rather than capital, gain. 2010 tax return More information. 2010 tax return   For more information on these special rules, see Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. 2010 tax return Contribution of Property Usually, neither the partner nor the partnership recognizes a gain or loss when property is contributed to the partnership in exchange for a partnership interest. 2010 tax return This applies whether a partnership is being formed or is already operating. 2010 tax return The partnership's holding period for the property includes the partner's holding period. 2010 tax return The contribution of limited partnership interests in one partnership for limited partnership interests in another partnership qualifies as a tax-free contribution of property to the second partnership if the transaction is made for business purposes. 2010 tax return The exchange is not subject to the rules explained later under Disposition of Partner's Interest. 2010 tax return Disguised sales. 2010 tax return   A contribution of money or other property to the partnership followed by a distribution of different property from the partnership to the partner is treated not as a contribution and distribution, but as a sale of property, if both of the following tests are met. 2010 tax return The distribution would not have been made but for the contribution. 2010 tax return The partner's right to the distribution does not depend on the success of partnership operations. 2010 tax return   All facts and circumstances are considered in determining if the contribution and distribution are more properly characterized as a sale. 2010 tax return However, if the contribution and distribution occur within 2 years of each other, the transfers are presumed to be a sale unless the facts clearly indicate that the transfers are not a sale. 2010 tax return If the contribution and distribution occur more than 2 years apart, the transfers are presumed not to be a sale unless the facts clearly indicate that the transfers are a sale. 2010 tax return Form 8275 required. 2010 tax return   A partner must attach Form 8275, Disclosure Statement, (or other statement) to his or her return if the partner contributes property to a partnership and, within 2 years (before or after the contribution), the partnership transfers money or other consideration to the partner. 2010 tax return For exceptions to this requirement, see section 1. 2010 tax return 707-3(c)(2) of the regulations. 2010 tax return   A partnership must attach Form 8275 (or other statement) to its return if it distributes property to a partner, and, within 2 years (before or after the distribution), the partner transfers money or other consideration to the partnership. 2010 tax return   Form 8275 must include the following information. 2010 tax return A caption identifying the statement as a disclosure under section 707 of the Internal Revenue Code. 2010 tax return A description of the transferred property or money, including its value. 2010 tax return A description of any relevant facts in determining if the transfers are properly viewed as a disguised sale. 2010 tax return See section 1. 2010 tax return 707-3(b)(2) of the regulations for a description of the facts and circumstances considered in determining if the transfers are a disguised sale. 2010 tax return Contribution to partnership treated as investment company. 2010 tax return   Gain is recognized when property is contributed (in exchange for an interest in the partnership) to a partnership that would be treated as an investment company if it were incorporated. 2010 tax return   A partnership is generally treated as an investment company if over 80% of the value of its assets is held for investment and consists of certain readily marketable items. 2010 tax return These items include money, stocks and other equity interests in a corporation, and interests in regulated investment companies and real estate investment trusts. 2010 tax return For more information, see section 351(e)(1) of the Internal Revenue Code and the related regulations. 2010 tax return Whether a partnership is treated as an investment company under this test is ordinarily determined immediately after the transfer of property. 2010 tax return   This rule applies to limited partnerships and general partnerships, regardless of whether they are privately formed or publicly syndicated. 2010 tax return Contribution to foreign partnership. 2010 tax return   A domestic partnership that contributed property after August 5, 1997, to a foreign partnership in exchange for a partnership interest may have to file Form 8865 if either of the following apply. 2010 tax return Immediately after the contribution, the partnership owned, directly or indirectly, at least a 10% interest in the foreign partnership. 2010 tax return The fair market value of the property contributed to the foreign partnership, when added to other contributions of property made to the partnership during the preceding 12-month period, is greater than $100,000. 2010 tax return   The partnership may also have to file Form 8865, even if no contributions are made during the tax year, if it owns a 10% or more interest in a foreign partnership at any time during the year. 2010 tax return See the form instructions for more information. 2010 tax return Basis of contributed property. 2010 tax return   If a partner contributes property to a partnership, the partnership's basis for determining depreciation, depletion, gain, or loss for the property is the same as the partner's adjusted basis for the property when it was contributed, increased by any gain recognized by the partner at the time of contribution. 2010 tax return Allocations to account for built-in gain or loss. 2010 tax return   The fair market value of property at the time it is contributed may be different from the partner's adjusted basis. 2010 tax return The partnership must allocate among the partners any income, deduction, gain, or loss on the property in a manner that will account for the difference. 2010 tax return This rule also applies to contributions of accounts payable and other accrued but unpaid items of a cash basis partner. 2010 tax return   The partnership can use different allocation methods for different items of contributed property. 2010 tax return A single reasonable method must be consistently applied to each item, and the overall method or combination of methods must be reasonable. 2010 tax return See section 1. 2010 tax return 704-3 of the regulations for allocation methods generally considered reasonable. 2010 tax return   If the partnership sells contributed property and recognizes gain or loss, built-in gain or loss is allocated to the contributing partner. 2010 tax return If contributed property is subject to depreciation or other cost recovery, the allocation of deductions for these items takes into account built-in gain or loss on the property. 2010 tax return However, the total depreciation, depletion, gain, or loss allocated to partners cannot be more than the depreciation or depletion allowable to the partnership or the gain or loss realized by the partnership. 2010 tax return Example. 2010 tax return Areta and Sofia formed an equal partnership. 2010 tax return Areta contributed $10,000 in cash to the partnership and Sofia contributed depreciable property with a fair market value of $10,000 and an adjusted basis of $4,000. 2010 tax return The partnership's basis for depreciation is limited to the adjusted basis of the property in Sofia's hands, $4,000. 2010 tax return In effect, Areta purchased an undivided one-half interest in the depreciable property with her contribution of $10,000. 2010 tax return Assuming that the depreciation rate is 10% a year under the General Depreciation System (GDS), she would have been entitled to a depreciation deduction of $500 per year, based on her interest in the partnership, if the adjusted basis of the property equaled its fair market value when contributed. 2010 tax return To simplify this example, the depreciation deductions are determined without regard to any first-year depreciation conventions. 2010 tax return However, since the partnership is allowed only $400 per year of depreciation (10% of $4,000), no more than $400 can be allocated between the partners. 2010 tax return The entire $400 must be allocated to Areta. 2010 tax return Distribution of contributed property to another partner. 2010 tax return   If a partner contributes property to a partnership and the partnership distributes the property to another partner within 7 years of the contribution, the contributing partner must recognize gain or loss on the distribution. 2010 tax return   The recognized gain or loss is the amount the contributing partner would have recognized if the property had been sold for its fair market value when it was distributed. 2010 tax return This amount is the difference between the property's basis and its fair market value at the time of contribution. 2010 tax return The character of the gain or loss will be the same as the character of the gain or loss that would have resulted if the partnership had sold the property to the distributee partner. 2010 tax return Appropriate adjustments must be made to the adjusted basis of the contributing partner's partnership interest and to the adjusted basis of the property distributed to reflect the recognized gain or loss. 2010 tax return Disposition of certain contributed property. 2010 tax return   The following rules determine the character of the partnership's gain or loss on a disposition of certain types of contributed property. 2010 tax return Unrealized receivables. 2010 tax return If the property was an unrealized receivable in the hands of the contributing partner, any gain or loss on its disposition by the partnership is ordinary income or loss. 2010 tax return Unrealized receivables are defined later under Payments for Unrealized Receivables and Inventory Items. 2010 tax return When reading the definition, substitute “partner” for “partnership. 2010 tax return ” Inventory items. 2010 tax return If the property was an inventory item in the hands of the contributing partner, any gain or loss on its disposition by the partnership within 5 years after the contribution is ordinary income or loss. 2010 tax return Inventory items are defined later in Payments for Unrealized Receivables and Inventory Items. 2010 tax return Capital loss property. 2010 tax return If the property was a capital asset in the contributing partner's hands, any loss on its disposition by the partnership within 5 years after the contribution is a capital loss. 2010 tax return The capital loss is limited to the amount by which the partner's adjusted basis for the property exceeded the property's fair market value immediately before the contribution. 2010 tax return Substituted basis property. 2010 tax return If the disposition of any of the property listed in (1), (2), or (3) is a nonrecognition transaction, these rules apply when the recipient of the property disposes of any substituted basis property (other than certain corporate stock) resulting from the transaction. 2010 tax return Contribution of Services A partner can acquire an interest in partnership capital or profits as compensation for services performed or to be performed. 2010 tax return Capital interest. 2010 tax return   A capital interest is an interest that would give the holder a share of the proceeds if the partnership's assets were sold at fair market value and the proceeds were distributed in a complete liquidation of the partnership. 2010 tax return This determination generally is made at the time of receipt of the partnership interest. 2010 tax return The fair market value of such an interest received by a partner as compensation for services must generally be included in the partner's gross income in the first tax year in which the partner can transfer the interest or the interest is not subject to a substantial risk of forfeiture. 2010 tax return The capital interest transferred as compensation for services is subject to the rules for restricted property discussed in Publication 525 under Employee Compensation. 2010 tax return   The fair market value of an interest in partnership capital transferred to a partner as payment for services to the partnership is a guaranteed payment, discussed earlier. 2010 tax return Profits interest. 2010 tax return   A profits interest is a partnership interest other than a capital interest. 2010 tax return If a person receives a profits interest for providing services to, or for the benefit of, a partnership in a partner capacity or in anticipation of being a partner, the receipt of such an interest is not a taxable event for the partner or the partnership. 2010 tax return However, this does not apply in the following situations. 2010 tax return The profits interest relates to a substantially certain and predictable stream of income from partnership assets, such as income from high-quality debt securities or a high-quality net lease. 2010 tax return Within 2 years of receipt, the partner disposes of the profits interest. 2010 tax return The profits interest is a limited partnership interest in a publicly traded partnership. 2010 tax return   A profits interest transferred as compensation for services is not subject to the rules for restricted property that apply to capital interests. 2010 tax return Basis of Partner's Interest The basis of a partnership interest is the money plus the adjusted basis of any property the partner contributed. 2010 tax return If the partner must recognize gain as a result of the contribution, this gain is included in the basis of his or her interest. 2010 tax return Any increase in a partner's individual liabilities because of an assumption of partnership liabilities is considered a contribution of money to the partnership by the partner. 2010 tax return Interest acquired by gift, etc. 2010 tax return   If a partner acquires an interest in a partnership by gift, inheritance, or under any circumstance other than by a contribution of money or property to the partnership, the partner's basis must be determined using the basis rules described in Publication 551. 2010 tax return Adjusted Basis There is a worksheet for adjusting the basis of a partner's interest in the partnership in the Partner's Instructions for Schedule K-1 (Form 1065). 2010 tax return The basis of an interest in a partnership is increased or decreased by certain items. 2010 tax return Increases. 2010 tax return   A partner's basis is increased by the following items. 2010 tax return The partner's additional contributions to the partnership, including an increased share of, or assumption of, partnership liabilities. 2010 tax return The partner's distributive share of taxable and nontaxable partnership income. 2010 tax return The partner's distributive share of the excess of the deductions for depletion over the basis of the depletable property, unless the property is oil or gas wells whose basis has been allocated to partners. 2010 tax return Decreases. 2010 tax return   The partner's basis is decreased (but never below zero) by the following items. 2010 tax return The money (including a decreased share of partnership liabilities or an assumption of the partner's individual liabilities by the partnership) and adjusted basis of property distributed to the partner by the partnership. 2010 tax return The partner's distributive share of the partnership losses (including capital losses). 2010 tax return The partner's distributive share of nondeductible partnership expenses that are not capital expenditures. 2010 tax return This includes the partner's share of any section 179 expenses, even if the partner cannot deduct the entire amount on his or her individual income tax return. 2010 tax return The partner's deduction for depletion for any partnership oil and gas wells, up to the proportionate share of the adjusted basis of the wells allocated to the partner. 2010 tax return Partner's liabilities assumed by partnership. 2010 tax return   If contributed property is subject to a debt or if a partner's liabilities are assumed by the partnership, the basis of that partner's interest is reduced (but not below zero) by the liability assumed by the other partners. 2010 tax return This partner must reduce his or her basis because the assumption of the liability is treated as a distribution of money to that partner. 2010 tax return The other partners' assumption of the liability is treated as a contribution by them of money to the partnership. 2010 tax return See Effect of Partnership Liabilities , later. 2010 tax return Example 1. 2010 tax return Ivan acquired a 20% interest in a partnership by contributing property that had an adjusted basis to him of $8,000 and a $4,000 mortgage. 2010 tax return The partnership assumed payment of the mortgage. 2010 tax return The basis of Ivan's interest is: Adjusted basis of contributed property $8,000 Minus: Part of mortgage assumed by other partners (80% × $4,000) 3,200 Basis of Ivan's partnership interest $4,800 Example 2. 2010 tax return If, in Example 1, the contributed property had a $12,000 mortgage, the basis of Ivan's partnership interest would be zero. 2010 tax return The $1,600 difference between the mortgage assumed by the other partners, $9,600 (80% × $12,000), and his basis of $8,000 would be treated as capital gain from the sale or exchange of a partnership interest. 2010 tax return However, this gain would not increase the basis of his partnership interest. 2010 tax return Book value of partner's interest. 2010 tax return   The adjusted basis of a partner's interest is determined without considering any amount shown in the partnership books as a capital, equity, or similar account. 2010 tax return Example. 2010 tax return Enzo contributes to his partnership property that has an adjusted basis of $400 and a fair market value of $1,000. 2010 tax return His partner contributes $1,000 cash. 2010 tax return While each partner has increased his capital account by $1,000, which will be re