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File back tax online 10. File back tax online   Employees of Foreign Governments and International Organizations Table of Contents Exemption Under Tax Treaty Exemption Under U. File back tax online S. File back tax online Tax LawCertification. File back tax online Employees of foreign governments (including foreign municipalities) have two ways to get exemption of their governmental wages from U. File back tax online S. File back tax online income tax: By a provision in a tax treaty or consular convention between the United States and their country, or By meeting the requirements of U. File back tax online S. File back tax online tax law. File back tax online Employees of international organizations can exempt their wages either by a provision, if one exists, in the international agreement creating the international organization, or by meeting the requirements of U. File back tax online S. File back tax online tax law. File back tax online The exemption discussed in this chapter applies only to pay received for services performed for a foreign government or international organization. File back tax online Other U. File back tax online S. File back tax online income received by persons who qualify for this exemption may be fully taxable or given favorable treatment under an applicable tax treaty provision. File back tax online The proper treatment of this kind of income (interest, dividends, etc. File back tax online ) is discussed earlier in this publication. File back tax online Exemption Under Tax Treaty If you are from a country that has a tax treaty with the United States, you should first look at the treaty to see if there is a provision that exempts your income. File back tax online The income of U. File back tax online S. File back tax online citizens and resident aliens working for foreign governments usually is not exempt. File back tax online However, in a few instances, the income of a U. File back tax online S. File back tax online citizen with dual citizenship may qualify. File back tax online Often the exemption is limited to the income of persons who also are nationals of the foreign country involved. File back tax online Exemption Under U. File back tax online S. File back tax online Tax Law Employees of foreign governments who do not qualify under a tax treaty provision and employees of international organizations may qualify for exemption by meeting the following requirements of U. File back tax online S. File back tax online tax law. File back tax online The exemption under U. File back tax online S. File back tax online tax law applies only to current employees and not to former employees. File back tax online Pensions received by former employees living in the United States do not qualify for the exemption discussed here. File back tax online Employees of foreign governments. File back tax online   If you are not a U. File back tax online S. File back tax online citizen, or if you are a U. File back tax online S. File back tax online citizen but also a citizen of the Philippines, and you work for a foreign government in the United States, your foreign government salary is exempt from U. File back tax online S. File back tax online tax if you perform services similar to those performed by U. File back tax online S. File back tax online government employees in that foreign country and that foreign government grants an equivalent exemption to U. File back tax online S. File back tax online government employees. File back tax online Certification. File back tax online   To qualify for the exemption under U. File back tax online S. File back tax online tax law, either the Department of State must certify that you perform services similar to those performed by employees of the government of the United States in foreign countries and that your foreign government employer grants an equivalent exemption to U. File back tax online S. File back tax online government employees performing similar services in its country or you must establish those facts. File back tax online However, see Aliens who keep immigrant status , later, for a special rule that may affect your qualifying for this exemption. File back tax online Employees of international organizations. File back tax online   If you work for an international organization in the United States and you are not a U. File back tax online S. File back tax online citizen (or you are a U. File back tax online S. File back tax online citizen but are also a citizen of the Philippines), your salary from that organization is exempt from U. File back tax online S. File back tax online tax. File back tax online However, see Aliens who keep immigrant status , later, for a special rule that may affect your qualifying for this exemption. File back tax online   An international organization is an organization designated by the President of the United States through Executive Order to qualify for the privileges, exemptions, and immunities provided in the International Organizations Immunities Act. File back tax online   You should find out if you have been made known to, and have been accepted by, the Secretary of State as an officer or an employee of that organization, or if you have been designated by the Secretary of State, before formal notification and acceptance, as a prospective officer or employee. File back tax online   If you are claiming exemption, you should know the number of the Executive Order covering the international organization and should have some written evidence of your acceptance or designation by the Secretary of State. File back tax online   The exemption is denied when, because the Secretary of State determines your presence in the United States is no longer desirable, you leave the United States (or after a reasonable time allowed for leaving the United States). File back tax online The exemption is also denied when a foreign country does not allow similar exemptions to U. File back tax online S. File back tax online citizens. File back tax online Then the Secretary of State can withdraw the privileges, exemptions, and immunities from the nationals of that foreign country. File back tax online Aliens who keep immigrant status. File back tax online   If you file the waiver provided by section 247(b) of the Immigration and Nationality Act (USCIS Form I-508) to keep your immigrant status (green card), you no longer qualify for the exemption from U. File back tax online S. File back tax online tax under U. File back tax online S. File back tax online tax law from the date of filing the waiver with the Attorney General. File back tax online   However, you do not lose the exemption if you file the waiver, and meet either of the following conditions. File back tax online You are exempt from U. File back tax online S. File back tax online tax under an income tax treaty, consular agreement, or international agreement between the United States and your foreign government employer. File back tax online You work for an international organization and the international organization agreement creating the international organization provides that alien employees are exempt from U. File back tax online S. File back tax online income tax. File back tax online Two international organizations that have such a provision are the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (World Bank). File back tax online . File back tax online   For more information about a specific foreign country or international organization, send an email to embassy@irs. File back tax online gov. File back tax online Prev  Up  Next   Home   More Online Publications
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  • Coupon and Promotion Codes. Search for coupon and promotion codes to be sure you get all discounts the e-tailer currently offers. To find current codes, perform a search for the e-tailer’s name along with the words ‘promotion code’ or ‘coupon’. After applying the coupon code double check your total price to ensure the discount was applied properly. Also check "Deal of the Day" websites, where retailers offer deep discounts on merchandise and services.
  • Payment Methods. The way you pay matters! You get the most protection with a credit card; debit cards are more risky. Virtual wallets such as PayPal are convenient but have disadvantages, too. Single use credit card numbers are another option – ask your credit card provider if they offer this feature.
  • Shipping and Handling. Shipping and handling can put a big dent in a shopping budget. Look for sites that offer free or discounted shipping rates. Make sure you understand all conditions placed on free shipping offers and that you’ll get your merchandise in time if you choose that option. The law affords you rights surrounding time-frames for shipping your purchase.
  • Return Policies. Understand the e-tailer’s return policy. Do they offer a special, extended return policy for the holiday season? What documentation needs to accompany a return? If you purchase online, and the e-tailer also has a brick and mortar site can you return to the store? Do you need a return authorization number or an “RA” to return an item? Will the e-tailer pay for return shipping of the item or do you have to cover that cost? Will you have to pay a re-stocking fee?
  • Problems with the purchase. One of the most common online purchasing problems is products that don't arrive in time. Even if the company is unable to ship as promised, it must provide you adequate notice promptly and give you a revised delivery date. You must be allowed to agree to the delay or cancel the order and get a refund. If you're not happy about a transaction, you should complain to the retailer using the address or phone number you kept from your transaction receipts. If you don’t receive the merchandise you ordered file a dispute with your credit card company.

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