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

Free Efile State Tax Return

Www Myfreetaxes ComEz Tax FormIrs Form 1040xFree Tax E File 20122012 Ez Tax FormState Tax Forms Need Fill1040 Amendment 2011Taxact 2011 Free Download2012 1040ez Tax Form1040nr Tax ReturnStudent Loan Tax Forms10w40ezAmended Tax Return More:label_amended_20tax_20return More:bizfinanceFile Past Year TaxesWww Hrblock ComHow To Fill 1040xPrint 2011 Tax Forms1040ez Tax File2011 1040ez FormTax Forms 1040Filing An Amendment1040ez Form 2013 InstructionsFiling Late Tax ReturnsIrs Gov Amended ReturnsFree Tax Filing Online1040x Form 20121040 Ez2011 Irs Form 5329How To File A 1040x Online1040nr Form 2012How To File For Self Employment On TaxesHow To File 1040nrCan I File 2011 Tax Return Online1040 Ez 2011 FormHow To Amend A Tax ReturnHow To File State Tax ReturnHelp Me File 1040ezFree Tax ServiceFile Back Tax Returns OnlineE File Tax Returns

Free Efile State Tax Return

Free efile state tax return Publication 529 - Main Content Table of Contents Deductions Subject to the 2% LimitUnreimbursed Employee Expenses Tax Preparation Fees Other Expenses Deductions Not Subject to the 2% LimitList of Deductions Nondeductible ExpensesList of Nondeductible Expenses How To ReportWho can use Form 2106-EZ. Free efile state tax return Computer used in a home office. Free efile state tax return Example How To Get Tax HelpLow Income Taxpayer Clinics Deductions Subject to the 2% Limit You can deduct certain expenses as miscellaneous itemized deductions on Schedule A (Form 1040 or Form 1040NR). Free efile state tax return You can claim the amount of expenses that is more than 2% of your adjusted gross income. Free efile state tax return You figure your deduction on Schedule A by subtracting 2% of your adjusted gross income from the total amount of these expenses. Free efile state tax return Your adjusted gross income is the amount on Form 1040, line 38, or Form 1040NR, line 37. Free efile state tax return Generally, you apply the 2% limit after you apply any other deduction limit. Free efile state tax return For example, you apply the 50% (or 80%) limit on business-related meals and entertainment (discussed later under Travel, Transportation, Meals, Entertainment, Gifts, and Local Lodging ) before you apply the 2% limit. Free efile state tax return Deductions subject to the 2% limit are discussed in the following three categories. Free efile state tax return Unreimbursed employee expenses (Schedule A (Form 1040), line 21 or Schedule A (Form 1040NR), line 7). Free efile state tax return Tax preparation fees (Schedule A (Form 1040), line 22 or Schedule A (Form 1040NR), line 8). Free efile state tax return Other expenses (Schedule A (Form 1040), line 23 or Schedule A (Form 1040NR), line 9). Free efile state tax return Unreimbursed Employee Expenses Generally, the following expenses are deducted on Schedule A (Form 1040), line 21, or Schedule A (Form 1040NR), line 7. Free efile state tax return You can deduct only unreimbursed employee expenses that are: Paid or incurred during your tax year, For carrying on your trade or business of being an employee, and Ordinary and necessary. Free efile state tax return An expense is ordinary if it is common and accepted in your trade, business, or profession. Free efile state tax return An expense is necessary if it is appropriate and helpful to your business. Free efile state tax return An expense does not have to be required to be considered necessary. Free efile state tax return You may be able to deduct the following items as unreimbursed employee expenses. Free efile state tax return Business bad debt of an employee. Free efile state tax return Business liability insurance premiums. Free efile state tax return Damages paid to a former employer for breach of an employment contract. Free efile state tax return Depreciation on a computer your employer requires you to use in your work. Free efile state tax return Dues to a chamber of commerce if membership helps you do your job. Free efile state tax return Dues to professional societies. Free efile state tax return Educator expenses. Free efile state tax return Home office or part of your home used regularly and exclusively in your work. Free efile state tax return Job search expenses in your present occupation. Free efile state tax return Laboratory breakage fees. Free efile state tax return Legal fees related to your job. Free efile state tax return Licenses and regulatory fees. Free efile state tax return Malpractice insurance premiums. Free efile state tax return Medical examinations required by an employer. Free efile state tax return Occupational taxes. Free efile state tax return Passport for a business trip. Free efile state tax return Repayment of an income aid payment received under an employer's plan. Free efile state tax return Research expenses of a college professor. Free efile state tax return Rural mail carriers' vehicle expenses. Free efile state tax return Subscriptions to professional journals and trade magazines related to your work. Free efile state tax return Tools and supplies used in your work. Free efile state tax return Travel, transportation, meals, entertainment, gifts, and local lodging related to your work. Free efile state tax return Union dues and expenses. Free efile state tax return Work clothes and uniforms if required and not suitable for everyday use. Free efile state tax return Work-related education. Free efile state tax return Business Bad Debt A business bad debt is a loss from a debt created or acquired in your trade or business. Free efile state tax return Any other worthless debt is a business bad debt only if there is a very close relationship between the debt and your trade or business when the debt becomes worthless. Free efile state tax return A debt has a very close relationship to your trade or business of being an employee if your main motive for incurring the debt is a business reason. Free efile state tax return Example. Free efile state tax return You make a bona fide loan to the corporation you work for. Free efile state tax return It fails to pay you back. Free efile state tax return You had to make the loan in order to keep your job. Free efile state tax return You have a business bad debt as an employee. Free efile state tax return More information. Free efile state tax return   For more information on business bad debts, see chapter 10 in Publication 535. Free efile state tax return For information on nonbusiness bad debts, see chapter 4 in Publication 550, Investment Income and Expenses. Free efile state tax return Business Liability Insurance You can deduct insurance premiums you paid for protection against personal liability for wrongful acts on the job. Free efile state tax return Damages for Breach of Employment Contract If you break an employment contract, you can deduct damages you pay your former employer if the damages are attributable to the pay you received from that employer. Free efile state tax return Depreciation on Computers You can claim a depreciation deduction for a computer that you use in your work as an employee if its use is: For the convenience of your employer, and Required as a condition of your employment. Free efile state tax return For the convenience of your employer. Free efile state tax return   This means that your use of the computer is for a substantial business reason of your employer. Free efile state tax return You must consider all facts in making this determination. Free efile state tax return Use of your computer during your regular working hours to carry on your employer's business is generally for the convenience of your employer. Free efile state tax return Required as a condition of your employment. Free efile state tax return   This means that you cannot properly perform your duties without the computer. Free efile state tax return Whether you can properly perform your duties without it depends on all the facts and circumstances. Free efile state tax return It is not necessary that your employer explicitly requires you to use your computer. Free efile state tax return But neither is it enough that your employer merely states that your use of the item is a condition of your employment. Free efile state tax return Example. Free efile state tax return You are an engineer with an engineering firm. Free efile state tax return You occasionally take work home at night rather than work late at the office. Free efile state tax return You own and use a computer that is similar to the one you use at the office to complete your work at home. Free efile state tax return Since your use of the computer is not for the convenience of your employer and is not required as a condition of your employment, you cannot claim a depreciation deduction for it. Free efile state tax return Which depreciation method to use. Free efile state tax return   The depreciation method you use depends on whether you meet the more-than-50%-use test. Free efile state tax return More-than-50%-use test met. Free efile state tax return   You meet this test if you use the computer more than 50% in your work. Free efile state tax return If you meet this test, you can claim accelerated depreciation under the General Depreciation System (GDS). Free efile state tax return In addition, you may be able to take the section 179 deduction for the year you place the item in service. Free efile state tax return More-than-50%-use test not met. Free efile state tax return   If you do not meet the more-than-50%-use test, you are limited to the straight line method of depreciation under the Alternative Depreciation System (ADS). Free efile state tax return You also cannot claim the section 179 deduction. Free efile state tax return (But if you use your computer in a home office, see the exception below. Free efile state tax return ) Investment use. Free efile state tax return   Your use of a computer in connection with investments (described later under Other Expenses ) does not count as use in your work. Free efile state tax return However, you can combine your investment use with your work use in figuring your depreciation deduction. Free efile state tax return Exception for computer used in a home office. Free efile state tax return   The more-than-50%-use test does not apply to a computer used only in a part of your home that meets the requirements described later under Home Office . Free efile state tax return You can claim accelerated depreciation using GDS for a computer used in a qualifying home office, even if you do not use it more than 50% in your work. Free efile state tax return You also may be able to take a section 179 deduction for the year you place the computer in service. Free efile state tax return See Computer used in a home office under How To Report, later. Free efile state tax return More information. Free efile state tax return   For more information on depreciation and the section 179 deduction for computers and other items used in a home office, see Business Furniture and Equipment in Publication 587. Free efile state tax return Publication 946 has detailed information about the section 179 deduction and depreciation deductions using GDS and ADS. Free efile state tax return Reporting your depreciation deduction. Free efile state tax return    See How To Report, later, for information about reporting a deduction for depreciation. Free efile state tax return You must keep records to prove your percentage of business and investment use. Free efile state tax return Dues to Chambers of Commerce and Professional Societies You may be able to deduct dues paid to professional organizations (such as bar associations and medical associations) and to chambers of commerce and similar organizations, if membership helps you carry out the duties of your job. Free efile state tax return Similar organizations include: Boards of trade, Business leagues, Civic or public service organizations, Real estate boards, and Trade associations. Free efile state tax return Lobbying and political activities. Free efile state tax return    You may not be able to deduct that part of your dues that is for certain lobbying and political activities. Free efile state tax return See Lobbying Expenses under Nondeductible Expenses, later. Free efile state tax return Educator Expenses If you were an eligible educator in 2013, you can deduct up to $250 of qualified expenses you paid in 2013 as an adjustment to gross income on Form 1040, line 23, rather than as a miscellaneous itemized deduction. Free efile state tax return If you file Form 1040A, you can deduct these expenses on line 16. Free efile state tax return If you and your spouse are filing jointly and both of you were eligible educators, the maximum deduction is $500. Free efile state tax return However, neither spouse can deduct more than $250 of his or her qualified expenses. Free efile state tax return Eligible educator. Free efile state tax return   An eligible educator is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide in school for at least 900 hours during a school year. Free efile state tax return Qualified expenses. Free efile state tax return   Qualified expenses include ordinary and necessary expenses paid in connection with books, supplies, equipment (including computer equipment, software, and services), and other materials used in the classroom. Free efile state tax return An ordinary expense is one that is common and accepted in your educational field. Free efile state tax return A necessary expense is one that is helpful and appropriate for your profession as an educator. Free efile state tax return An expense does not have to be required to be considered necessary. Free efile state tax return   Qualified expenses do not include expenses for home schooling or for nonathletic supplies for courses in health or physical education. Free efile state tax return You must reduce your qualified expenses by the following amounts. Free efile state tax return Excludable U. Free efile state tax return S. Free efile state tax return series EE and I savings bond interest from Form 8815. Free efile state tax return Nontaxable qualified state tuition program earnings. Free efile state tax return Nontaxable earnings from Coverdell education savings accounts. Free efile state tax return Any reimbursements you received for those expenses that were not reported to you on your Form W-2, box 1. Free efile state tax return Educator expenses over limit. Free efile state tax return   If you were an educator in 2013 and you had qualified expenses that you cannot take as an adjustment to gross income, you can deduct the rest as an itemized deduction subject to the 2% limit. Free efile state tax return Home Office If you use a part of your home regularly and exclusively for business purposes, you may be able to deduct a part of the operating expenses and depreciation of your home. Free efile state tax return You can claim this deduction for the business use of a part of your home only if you use that part of your home regularly and exclusively: As your principal place of business for any trade or business, As a place to meet or deal with your patients, clients, or customers in the normal course of your trade or business, or In the case of a separate structure not attached to your home, in connection with your trade or business. Free efile state tax return The regular and exclusive business use must be for the convenience of your employer and not just appropriate and helpful in your job. Free efile state tax return Principal place of business. Free efile state tax return   If you have more than one place of business, the business part of your home is your principal place of business if: You use it regularly and exclusively for administrative or management activities of your trade or business, and You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Free efile state tax return   Otherwise, the location of your principal place of business generally depends on the relative importance of the activities performed at each location and the time spent at each location. Free efile state tax return You should keep records that will give the information needed to figure the deduction according to these rules. Free efile state tax return Also keep canceled checks, substitute checks, or account statements and receipts of the expenses paid to prove the deductions you claim. Free efile state tax return More information. Free efile state tax return   See Publication 587 for more detailed information and a worksheet for figuring the deduction. Free efile state tax return Job Search Expenses You can deduct certain expenses you have in looking for a new job in your present occupation, even if you do not get a new job. Free efile state tax return You cannot deduct these expenses if: You are looking for a job in a new occupation, There was a substantial break between the ending of your last job and your looking for a new one, or You are looking for a job for the first time. Free efile state tax return Employment and outplacement agency fees. Free efile state tax return    You can deduct employment and outplacement agency fees you pay in looking for a new job in your present occupation. Free efile state tax return Employer pays you back. Free efile state tax return   If, in a later year, your employer pays you back for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year. Free efile state tax return See Recoveries in Publication 525. Free efile state tax return Employer pays the employment agency. Free efile state tax return   If your employer pays the fees directly to the employment agency and you are not responsible for them, you do not include them in your gross income. Free efile state tax return Résumé. Free efile state tax return   You can deduct amounts you spend for preparing and mailing copies of a résumé to prospective employers if you are looking for a new job in your present occupation. Free efile state tax return Travel and transportation expenses. Free efile state tax return   If you travel to an area and, while there, you look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. Free efile state tax return You can deduct the travel expenses if the trip is primarily to look for a new job. Free efile state tax return The amount of time you spend on personal activity compared to the amount of time you spend in looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job. Free efile state tax return   Even if you cannot deduct the travel expenses to and from an area, you can deduct the expenses of looking for a new job in your present occupation while in the area. Free efile state tax return    You can choose to use the standard mileage rate to figure your car expenses. Free efile state tax return The 2013 rate for business use of a vehicle is 56½ cents per mile. Free efile state tax return See Publication 463 for more information on travel and car expenses. Free efile state tax return Legal Fees You can deduct legal fees related to doing or keeping your job. Free efile state tax return Licenses and Regulatory Fees You can deduct the amount you pay each year to state or local governments for licenses and regulatory fees for your trade, business, or profession. Free efile state tax return Occupational Taxes You can deduct an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. Free efile state tax return If you are an employee, you can claim occupational taxes only as a miscellaneous deduction subject to the 2% limit; you cannot claim them as a deduction for taxes elsewhere on your return. Free efile state tax return Repayment of Income Aid Payment An “income aid payment” is one that is received under an employer's plan to aid employees who lose their jobs because of lack of work. Free efile state tax return If you repay a lump-sum income aid payment that you received and included in income in an earlier year, you can deduct the repayment. Free efile state tax return Research Expenses of a College Professor If you are a college professor, you can deduct your research expenses, including travel expenses, for teaching, lecturing, or writing and publishing on subjects that relate directly to your teaching duties. Free efile state tax return You must have undertaken the research as a means of carrying out the duties expected of a professor and without expectation of profit apart from salary. Free efile state tax return However, you cannot deduct the cost of travel as a form of education. Free efile state tax return Rural Mail Carriers' Vehicle Expenses If your expenses to use a vehicle in performing services as a rural mail carrier are more than the amount of your reimbursements, you can deduct the unreimbursed expenses. Free efile state tax return See chapter 4 of Publication 463 for more information. Free efile state tax return Tools Used in Your Work Generally, you can deduct amounts you spend for tools used in your work if the tools wear out and are thrown away within 1 year from the date of purchase. Free efile state tax return You can depreciate the cost of tools that have a useful life substantially beyond the tax year. Free efile state tax return For more information about depreciation, see Publication 946. Free efile state tax return Travel, Transportation, Meals, Entertainment, Gifts, and Local Lodging If you are an employee and have ordinary and necessary business-related expenses for travel away from home, local transportation, entertainment, and gifts, you may be able to deduct these expenses. Free efile state tax return Generally, you must file Form 2106 or Form 2106-EZ to claim these expenses. Free efile state tax return Travel expenses. Free efile state tax return   Travel expenses are those incurred while traveling away from home for your employer. Free efile state tax return You can deduct travel expenses paid or incurred in connection with a temporary work assignment. Free efile state tax return Generally, you cannot deduct travel expenses paid or incurred in connection with an indefinite work assignment. Free efile state tax return   Travel expenses may include: The cost of getting to and from your business destination (air, rail, bus, car, etc. Free efile state tax return ), Meals and lodging while away from home, Taxi fares, Baggage charges, and Cleaning and laundry expenses. Free efile state tax return   Travel expenses are discussed more fully in chapter 1 of Publication 463. Free efile state tax return Temporary work assignment. Free efile state tax return    If your assignment or job away from home in a single location is realistically expected to last (and does in fact last) for 1 year or less, it is temporary, unless there are facts and circumstances that indicate it is not. Free efile state tax return Indefinite work assignment. Free efile state tax return   If your assignment or job away from home in a single location is realistically expected to last for more than 1 year, it is indefinite, whether or not it actually lasts for more than 1 year. Free efile state tax return If your assignment or job away from home in a single location is realistically expected to last for 1 year or less, but at some later date it is realistically expected to exceed 1 year, it will be treated as temporary (in the absence of facts and circumstances indicating otherwise) until the date that your realistic expectation changes, and it will be treated as indefinite after that date. Free efile state tax return Federal crime investigation and prosecution. Free efile state tax return   If you are a federal employee participating in a federal crime investigation or prosecution, you are not subject to the 1-year rule for deducting temporary travel expenses. Free efile state tax return This means that you may be able to deduct travel expenses even if you are away from your tax home for more than 1 year. Free efile state tax return   To qualify, the Attorney General must certify that you are traveling: For the Federal Government, In a temporary duty status, and To investigate, prosecute, or provide support services for the investigation or prosecution of a federal crime. Free efile state tax return Armed Forces reservists traveling more than 100 miles from home. Free efile state tax return   If you are a member of a reserve component of the Armed Forces of the United States and you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you can deduct some of your travel expenses as an adjustment to gross income rather than as a miscellaneous itemized deduction. Free efile state tax return The amount of expenses you can deduct as an adjustment to gross income is limited to the regular federal per diem rate (for lodging, meals, and incidental expenses) and the standard mileage rate (for car expenses) plus any parking fees, ferry fees, and tolls. Free efile state tax return The balance, if any, is reported on Schedule A. Free efile state tax return   You are a member of a reserve component of the Armed Forces of the United States if you are in the Army, Naval, Marine Corps, Air Force, Coast Guard Reserve, the Army National Guard of the United States, the Air National Guard of the United States, or the Reserve Corps of the Public Health Service. Free efile state tax return   For more information on travel expenses, see Publication 463. Free efile state tax return Local transportation expenses. Free efile state tax return   Local transportation expenses are the expenses of getting from one workplace to another when you are not traveling away from home. Free efile state tax return They include the cost of transportation by air, rail, bus, taxi, and the cost of using your car. Free efile state tax return   You can choose to use the standard mileage rate to figure your car expenses. Free efile state tax return The 2013 rate for business use of a vehicle is 56½ cents per mile. Free efile state tax return    In general, the costs of commuting between your residence and your place of business are nondeductible. Free efile state tax return Work at two places in a day. Free efile state tax return   If you work at two places in a day, whether or not for the same employer, you can generally deduct the expenses of getting from one workplace to the other. Free efile state tax return Temporary work location. Free efile state tax return   You can deduct expenses incurred in going between your home and a temporary work location if at least one of the following applies. Free efile state tax return The work location is outside the metropolitan area where you live and normally work. Free efile state tax return You have at least one regular work location (other than your home) for the same trade or business. Free efile state tax return (If this applies, the distance between your home and the temporary work location does not matter. Free efile state tax return )   For this purpose, a work location is generally considered temporary if your work there is realistically expected to last (and does in fact last) for 1 year or less. Free efile state tax return It is not temporary if your work there is realistically expected to last for more than 1 year, even if it actually lasts for 1 year or less. Free efile state tax return If your work there initially is realistically expected to last for 1 year or less, but later is realistically expected to last for more than 1 year, the work location is generally considered temporary until the date your realistic expectation changes and not temporary after that date. Free efile state tax return For more information, see chapter 1 of Publication 463. Free efile state tax return Home office. Free efile state tax return   You can deduct expenses incurred in going between your home and a workplace if your home is your principal place of business for the same trade or business. Free efile state tax return (In this situation, whether the other workplace is temporary or regular and its distance from your home do not matter. Free efile state tax return ) See Home Office , earlier, for a discussion on the use of your home as your principal place of business. Free efile state tax return Meals and entertainment. Free efile state tax return   Generally, you can deduct entertainment expenses (including entertainment-related meals) only if they are directly related to the active conduct of your trade or business. Free efile state tax return However, the expense only needs to be associated with the active conduct of your trade or business if it directly precedes or follows a substantial and bona fide business-related discussion. Free efile state tax return   You can deduct only 50% of your business-related meal and entertainment expenses unless the expenses meet certain exceptions. Free efile state tax return You apply this 50% limit before you apply the 2%-of-adjusted-gross-income limit. Free efile state tax return Meals when subject to “hours of service” limits. Free efile state tax return   You can deduct 80% of your business-related meal expenses if you consume the meals during or incident to any period subject to the Department of Transportation's “hours of service” limits. Free efile state tax return You apply this 80% limit before you apply the 2%-of-adjusted-gross-income limit. Free efile state tax return Gift expenses. Free efile state tax return   You can generally deduct up to $25 of business gifts you give to any one individual during the year. Free efile state tax return The following items do not count toward the $25 limit. Free efile state tax return Identical, widely distributed items costing $4 or less that have your name clearly and permanently imprinted. Free efile state tax return Signs, racks, and promotional materials to be displayed on the business premises of the recipient. Free efile state tax return Local lodging. Free efile state tax return   If your employer provides or requires you to obtain lodging while you are not traveling away from home, you can deduct the cost of the lodging if it is: on a temporary basis, necessary for you to participate in or be available for a business meeting or employer function, and the costs are ordinary and necessary, but not lavish or extravagant. Free efile state tax return   If your employer provides the lodging or reimburses you for the cost of the lodging, you can deduct the cost only if the value or the reimbursement is included in your gross income because it is reported as wages on your Form W-2. Free efile state tax return Additional information. Free efile state tax return    See Publication 463 for more information on travel, transportation, meal, entertainment, and gift expenses, and reimbursements for these expenses. Free efile state tax return Union Dues and Expenses You can deduct dues and initiation fees you pay for union membership. Free efile state tax return You can also deduct assessments for benefit payments to unemployed union members. Free efile state tax return However, you cannot deduct the part of the assessments or contributions that provides funds for the payment of sick, accident, or death benefits. Free efile state tax return Also, you cannot deduct contributions to a pension fund even if the union requires you to make the contributions. Free efile state tax return You may not be able to deduct amounts you pay to the union that are related to certain lobbying and political activities. Free efile state tax return See Lobbying Expenses under Nondeductible Expenses, later. Free efile state tax return Work Clothes and Uniforms You can deduct the cost and upkeep of work clothes if the following two requirements are met. Free efile state tax return You must wear them as a condition of your employment. Free efile state tax return The clothes are not suitable for everyday wear. Free efile state tax return It is not enough that you wear distinctive clothing. Free efile state tax return The clothing must be specifically required by your employer. Free efile state tax return Nor is it enough that you do not, in fact, wear your work clothes away from work. Free efile state tax return The clothing must not be suitable for taking the place of your regular clothing. Free efile state tax return Examples of workers who may be able to deduct the cost and upkeep of work clothes are: delivery workers, firefighters, health care workers, law enforcement officers, letter carriers, professional athletes, and transportation workers (air, rail, bus, etc. Free efile state tax return ). Free efile state tax return Musicians and entertainers can deduct the cost of theatrical clothing and accessories that are not suitable for everyday wear. Free efile state tax return However, work clothing consisting of white cap, white shirt or white jacket, white bib overalls, and standard work shoes, which a painter is required by his union to wear on the job, is not distinctive in character or in the nature of a uniform. Free efile state tax return Similarly, the costs of buying and maintaining blue work clothes worn by a welder at the request of a foreman are not deductible. Free efile state tax return Protective clothing. Free efile state tax return   You can deduct the cost of protective clothing required in your work, such as safety shoes or boots, safety glasses, hard hats, and work gloves. Free efile state tax return   Examples of workers who may be required to wear safety items are: carpenters, cement workers, chemical workers, electricians, fishing boat crew members, machinists, oil field workers, pipe fitters, steamfitters, and truck drivers. Free efile state tax return Military uniforms. Free efile state tax return   You generally cannot deduct the cost of your uniforms if you are on full-time active duty in the armed forces. Free efile state tax return However, if you are an armed forces reservist, you can deduct the unreimbursed cost of your uniform if military regulations restrict you from wearing it except while on duty as a reservist. Free efile state tax return In figuring the deduction, you must reduce the cost by any nontaxable allowance you receive for these expenses. Free efile state tax return   If local military rules do not allow you to wear fatigue uniforms when you are off duty, you can deduct the amount by which the cost of buying and keeping up these uniforms is more than the uniform allowance you receive. Free efile state tax return   If you are a student at an armed forces academy, you cannot deduct the cost of your uniforms if they replace regular clothing. Free efile state tax return However, you can deduct the cost of insignia, shoulder boards, and related items. Free efile state tax return    You can deduct the cost of your uniforms if you are a civilian faculty or staff member of a military school. Free efile state tax return Work-Related Education You can deduct expenses you have for education, even if the education may lead to a degree, if the education meets at least one of the following two tests. Free efile state tax return It maintains or improves skills required in your present work. Free efile state tax return It is required by your employer or the law to keep your salary, status, or job, and the requirement serves a business purpose of your employer. Free efile state tax return You cannot deduct expenses you have for education, even though one or both of the preceding tests are met, if the education: Is needed to meet the minimum educational requirements to qualify you in your trade or business, or Is part of a program of study that will lead to qualifying you in a new trade or business. Free efile state tax return If your education qualifies, you can deduct expenses for tuition, books, supplies, laboratory fees, and similar items, and certain transportation costs. Free efile state tax return If the education qualifies you for a new trade or business, you cannot deduct the educational expenses even if you do not intend to enter that trade or business. Free efile state tax return Travel as education. Free efile state tax return   You cannot deduct the cost of travel that in itself constitutes a form of education. Free efile state tax return For example, a French teacher who travels to France to maintain general familiarity with the French language and culture cannot deduct the cost of the trip as an educational expense. Free efile state tax return More information. Free efile state tax return    See Publication 970, Tax Benefits for Education, for a complete discussion of the deduction for work-related education expenses. Free efile state tax return Education Expenses During Unemployment If you stop working for a year or less in order to get education in order to maintain or improve skills needed in your present work and then return to the same general type of work, your absence is considered temporary. Free efile state tax return Education that you get during a temporary absence is qualifying work-related education if it maintains or improves skills needed in your present work. Free efile state tax return Tax Preparation Fees You can usually deduct tax preparation fees on the return for the year in which you pay them. Free efile state tax return Thus, on your 2013 return, you can deduct fees paid in 2013 for preparing your 2012 return. Free efile state tax return These fees include the cost of tax preparation software programs and tax publications. Free efile state tax return They also include any fee you paid for electronic filing of your return. Free efile state tax return See Tax preparation fees under How To Report, later. Free efile state tax return Other Expenses You can deduct certain other expenses as miscellaneous itemized deductions subject to the 2%-of-adjusted-gross-income limit. Free efile state tax return On Schedule A (Form 1040), line 23, or Schedule A (Form 1040NR), line 9, you can deduct the ordinary and necessary expenses that you pay: To produce or collect income that must be included in your gross income, To manage, conserve, or maintain property held for producing such income, or To determine, contest, pay, or claim a refund of any tax. Free efile state tax return You can deduct expenses you pay for the purposes in (1) and (2) above only if they are reasonable and closely related to these purposes. Free efile state tax return These other expenses include the following items. Free efile state tax return Appraisal fees for a casualty loss or charitable contribution. Free efile state tax return Casualty and theft losses from property used in performing services as an employee. Free efile state tax return Clerical help and office rent in caring for investments. Free efile state tax return Depreciation on home computers used for investments. Free efile state tax return Excess deductions (including administrative expenses) allowed a beneficiary on termination of an estate or trust. Free efile state tax return Fees to collect interest and dividends. Free efile state tax return Hobby expenses, but generally not more than hobby income. Free efile state tax return Indirect miscellaneous deductions from pass-through entities. Free efile state tax return Investment fees and expenses. Free efile state tax return Legal fees related to producing or collecting taxable income or getting tax advice. Free efile state tax return Loss on deposits in an insolvent or bankrupt financial institution. Free efile state tax return Loss on traditional IRAs or Roth IRAs, when all amounts have been distributed to you. Free efile state tax return Repayments of income. Free efile state tax return Repayments of social security benefits. Free efile state tax return Safe deposit box rental, except for storing jewelry and other personal effects. Free efile state tax return Service charges on dividend reinvestment plans. Free efile state tax return Tax advice fees. Free efile state tax return Trustee's fees for your IRA, if separately billed and paid. Free efile state tax return If the expenses you pay produce income that is only partially taxable, see Tax-Exempt Income Expenses, later, under Nondeductible Expenses. Free efile state tax return Appraisal Fees You can deduct appraisal fees if you pay them to figure a casualty loss or the fair market value of donated property. Free efile state tax return Casualty and Theft Losses You can deduct a casualty or theft loss as a miscellaneous itemized deduction subject to the 2% limit if you used the damaged or stolen property in performing services as an employee. Free efile state tax return First report the loss in Section B of Form 4684, Casualties and Thefts. Free efile state tax return You may also have to include the loss on Form 4797, Sales of Business Property, if you are otherwise required to file that form. Free efile state tax return To figure your deduction, add all casualty or theft losses from this type of property included on Form 4684, lines 32 and 38b, or Form 4797, line 18a. Free efile state tax return For more information on casualty and theft losses, see Publication 547, Casualties, Disasters, and Thefts. Free efile state tax return Clerical Help and Office Rent You can deduct office expenses, such as rent and clerical help, that you have in connection with your investments and collecting the taxable income on them. Free efile state tax return Credit or Debit Card Convenience Fees You can deduct the convenience fee charged by the card processor for paying your income tax (including estimated tax payments) by credit or debit card. Free efile state tax return The fees are deductible on the return for the year in which you paid them. Free efile state tax return For example, fees charged to payments made in 2013 can be claimed on the 2013 tax return. Free efile state tax return Depreciation on Home Computer You can deduct depreciation on your home computer if you use it to produce income (for example, to manage your investments that produce taxable income). Free efile state tax return You generally must depreciate the computer using the straight line method over the Alternative Depreciation System (ADS) recovery period. Free efile state tax return But if you work as an employee and also use the computer in that work, see Depreciation on Computers under Unreimbursed Employee Expenses, earlier. Free efile state tax return For more information on depreciation, see Publication 946. Free efile state tax return Excess Deductions of an Estate If an estate's total deductions in its last tax year are more than its gross income for that year, the beneficiaries succeeding to the estate's property can deduct the excess. Free efile state tax return Do not include deductions for the estate's personal exemption and charitable contributions when figuring the estate's total deductions. Free efile state tax return The beneficiaries can claim the deduction only for the tax year in which, or with which, the estate terminates, whether the year of termination is a normal year or a short tax year. Free efile state tax return For more information, see Termination of Estate in Publication 559, Survivors, Executors, and Administrators. Free efile state tax return Fees To Collect Interest and Dividends You can deduct fees you pay to a broker, bank, trustee, or similar agent to collect your taxable bond interest or dividends on shares of stock. Free efile state tax return But you cannot deduct a fee you pay to a broker to buy investment property, such as stocks or bonds. Free efile state tax return You must add the fee to the cost of the property. Free efile state tax return You cannot deduct the fee you pay to a broker to sell securities. Free efile state tax return You can use the fee only to figure gain or loss from the sale. Free efile state tax return See the instructions for Schedule D (Form 1040) for information on how to report the fee. Free efile state tax return Hobby Expenses You can generally deduct hobby expenses, but only up to the amount of hobby income. Free efile state tax return A hobby is not a business because it is not carried on to make a profit. Free efile state tax return See Not-for-Profit Activities in chapter 1 of Publication 535. Free efile state tax return Indirect Deductions of Pass-Through Entities Pass-through entities include partnerships, S corporations, and mutual funds that are not publicly offered. Free efile state tax return Deductions of pass-through entities are passed through to the partners or shareholders. Free efile state tax return The partners or shareholders can deduct their share of passed-through deductions for investment expenses as miscellaneous itemized deductions subject to the 2% limit. Free efile state tax return Example. Free efile state tax return You are a member of an investment club that is formed solely to invest in securities. Free efile state tax return The club is treated as a partnership. Free efile state tax return The partnership's income is solely from taxable dividends, interest, and gains from sales of securities. Free efile state tax return In this case, you can deduct your share of the partnership's operating expenses as miscellaneous itemized deductions subject to the 2% limit. Free efile state tax return However, if the investment club partnership has investments that also produce nontaxable income, you cannot deduct your share of the partnership's expenses that produce the nontaxable income. Free efile state tax return Publicly offered mutual funds. Free efile state tax return   Publicly offered mutual funds do not pass deductions for investment expenses through to shareholders. Free efile state tax return A mutual fund is “publicly offered” if it is: Continuously offered pursuant to a public offering, Regularly traded on an established securities market, or Held by or for at least 500 persons at all times during the tax year. Free efile state tax return   A publicly offered mutual fund will send you a Form 1099-DIV, Dividends and Distributions, or a substitute form, showing the net amount of dividend income (gross dividends minus investment expenses). Free efile state tax return This net figure is the amount you report on your return as income. Free efile state tax return You cannot further deduct investment expenses related to publicly offered mutual funds because they are already included as part of the net income amount. Free efile state tax return Information returns. Free efile state tax return   You should receive information returns from pass-through entities. Free efile state tax return Partnerships and S corporations. Free efile state tax return   These entities issue Schedule K-1, which lists the items and amounts you must report, and identifies the tax return schedules and lines to use. Free efile state tax return Nonpublicly offered mutual funds. Free efile state tax return   These funds will send you a Form 1099-DIV, or a substitute form, showing your share of gross income and investment expenses. Free efile state tax return You can claim the expenses only as a miscellaneous itemized deduction subject to the 2% limit. Free efile state tax return Investment Fees and Expenses You can deduct investment fees, custodial fees, trust administration fees, and other expenses you paid for managing your investments that produce taxable income. Free efile state tax return Legal Expenses You can usually deduct legal expenses that you incur in attempting to produce or collect taxable income or that you pay in connection with the determination, collection, or refund of any tax. Free efile state tax return You can also deduct legal expenses that are: Related to either doing or keeping your job, such as those you paid to defend yourself against criminal charges arising out of your trade or business, For tax advice related to a divorce if the bill specifies how much is for tax advice and it is determined in a reasonable way, or To collect taxable alimony. Free efile state tax return You can deduct expenses of resolving tax issues relating to profit or loss from business (Schedule C or C-EZ), rentals or royalties (Schedule E), or farm income and expenses (Schedule F) on the appropriate schedule. Free efile state tax return You deduct expenses of resolving nonbusiness tax issues on Schedule A (Form 1040 or Form 1040NR). Free efile state tax return See Tax Preparation Fees, earlier. Free efile state tax return Unlawful discrimination claims. Free efile state tax return   You may be able to deduct, as an adjustment to income on Form 1040, line 36, or Form 1040NR, line 35, rather than as a miscellaneous itemized deduction, attorney fees and court costs for actions settled or decided after October 22, 2004, involving a claim of unlawful discrimination, a claim against the U. Free efile state tax return S. Free efile state tax return Government, or a claim made under section 1862(b)(3)(A) of the Social Security Act. Free efile state tax return However, the amount you can deduct on Form 1040, line 36, or Form 1040NR, line 35, is limited to the amount of the judgment or settlement you are including in income for the tax year. Free efile state tax return See Publication 525 for more information. Free efile state tax return Loss on Deposits A loss on deposits can occur when a bank, credit union, or other financial institution becomes insolvent or bankrupt. Free efile state tax return If you can reasonably estimate the amount of your loss on money you have on deposit in a financial institution that becomes insolvent or bankrupt, you can generally choose to deduct it in the current year even though its exact amount has not been finally determined. Free efile state tax return If elected, the casualty loss is subject to certain deduction limitations. Free efile state tax return The election is made on Form 4684. Free efile state tax return Once you make this choice, you cannot change it without IRS approval. Free efile state tax return If none of the deposit is federally insured, you can deduct the loss in either of the following ways. Free efile state tax return As an ordinary loss (as a miscellaneous itemized deduction subject to the 2% limit). Free efile state tax return Write the name of the financial institution and “Insolvent Financial Institution” beside the amount on Schedule A (Form 1040), line 23, or Schedule A (Form 1040NR), line 9. Free efile state tax return This deduction is limited to $20,000 ($10,000 if you are married filing separately) for each financial institution, reduced by any expected state insurance proceeds. Free efile state tax return As a casualty loss. Free efile state tax return Report it on Form 4684 first and then on Schedule A (Form 1040). Free efile state tax return See Publication 547 for details. Free efile state tax return As a nonbusiness bad debt. Free efile state tax return Report it on Schedule D (Form 1040). Free efile state tax return If any part of the deposit is federally insured, you can deduct the loss only as a casualty loss. Free efile state tax return Exception. Free efile state tax return   You cannot make this choice if you are a 1%-or-more-owner or an officer of the financial institution, or are related to such owner or officer. Free efile state tax return For a definition of “related,” see Deposit in Insolvent or Bankrupt Financial Institution in chapter 4 of Publication 550. Free efile state tax return Actual loss different from estimated loss. Free efile state tax return   If you make this choice and your actual loss is less than your estimated loss, you must include the excess in income. Free efile state tax return See Recoveries in Publication 525. Free efile state tax return If your actual loss is more than your estimated loss, treat the excess loss as explained under Choice not made, next. Free efile state tax return Choice not made. Free efile state tax return   If you do not make this choice (or if you have an excess actual loss after choosing to deduct your estimated loss), treat your loss (or excess loss) as a nonbusiness bad debt (deductible as a short-term capital loss) in the year its amount is finally determined. Free efile state tax return See Nonbusiness Bad Debts in chapter 4 of Publication 550. Free efile state tax return Loss on IRA If you have a loss on your traditional IRA (or Roth IRA) investment, you can deduct the loss as a miscellaneous itemized deduction subject to the 2% limit, but only when all the amounts in all your traditional IRA (or Roth IRA) accounts have been distributed to you and the total distributions are less than your unrecovered basis. Free efile state tax return For more information, see Publication 590, Individual Retirement Arrangements (IRAs). Free efile state tax return Repayments of Income If you had to repay an amount that you included in income in an earlier year, you may be able to deduct the amount you repaid. Free efile state tax return If the amount you had to repay was ordinary income of $3,000 or less, the deduction is subject to the 2% limit. Free efile state tax return If it was more than $3,000, see Repayments Under Claim of Right under Deductions Not Subject to the 2% Limit, later. Free efile state tax return Repayments of Social Security Benefits If the total of the amounts in box 5 (net benefits for 2013) of all your Forms SSA-1099, Social Security Benefit Statement, and Forms RRB-1099, Payments By the Railroad Retirement Board, is a negative figure (a figure in parentheses), you may be able to take a miscellaneous itemized deduction subject to the 2% limit. Free efile state tax return The amount you can deduct is the part of the negative figure that represents an amount you included in gross income in an earlier year. Free efile state tax return The amount in box 5 of Form SSA-1099 or RRB-1099 is the net amount of your benefits for the year. Free efile state tax return It will be a negative figure if the amount of benefits you repaid in 2013 (box 4) is more than the gross amount of benefits paid to you in 2013 (box 3). Free efile state tax return If the deduction is more than $3,000, you will have to use a special computation to figure your tax. Free efile state tax return See Publication 915, Social Security and Equivalent Railroad Retirement Benefits, for additional information. Free efile state tax return Safe Deposit Box Rent You can deduct safe deposit box rent if you use the box to store taxable income-producing stocks, bonds, or investment-related papers and documents. Free efile state tax return You cannot deduct the rent if you use the box only for jewelry, other personal items, or tax-exempt securities. Free efile state tax return Service Charges on Dividend Reinvestment Plans You can deduct service charges you pay as a subscriber in a dividend reinvestment plan. Free efile state tax return These service charges include payments for: Holding shares acquired through a plan, Collecting and reinvesting cash dividends, and Keeping individual records and providing detailed statements of accounts. Free efile state tax return Trustee's Administrative Fees for IRA Trustee's administrative fees that are billed separately and paid by you in connection with your IRA are deductible (if they are ordinary and necessary) as a miscellaneous itemized deduction subject to the 2% limit. Free efile state tax return Deductions Not Subject to the 2% Limit You can deduct the items listed below as miscellaneous itemized deductions. Free efile state tax return They are not subject to the 2% limit. Free efile state tax return Report these items on Schedule A (Form 1040), line 28, or Schedule A (Form 1040NR), line 14. Free efile state tax return List of Deductions Amortizable premium on taxable bonds. Free efile state tax return Casualty and theft losses from income-producing property. Free efile state tax return Federal estate tax on income in respect of a decedent. Free efile state tax return Gambling losses up to the amount of gambling winnings. Free efile state tax return Impairment-related work expenses of persons with disabilities. Free efile state tax return Loss from other activities from Schedule K-1 (Form 1065-B), box 2. Free efile state tax return Losses from Ponzi-type investment schemes. Free efile state tax return Repayments of more than $3,000 under a claim of right. Free efile state tax return Unrecovered investment in an annuity. Free efile state tax return Amortizable Premium on Taxable Bonds In general, if the amount you pay for a bond is greater than its stated principal amount, the excess is bond premium. Free efile state tax return You can elect to amortize the premium on taxable bonds. Free efile state tax return The amortization of the premium is generally an offset to interest income on the bond rather than a separate deduction item. Free efile state tax return Pre-1998 election to amortize bond premium. Free efile state tax return   Generally, if you first elected to amortize bond premium before 1998, the above treatment of the premium does not apply to bonds you acquired before 1988. Free efile state tax return Bonds acquired after October 22, 1986, and before 1988. Free efile state tax return   The amortization of the premium on these bonds is investment interest expense subject to the investment interest limit, unless you chose to treat it as an offset to interest income on the bond. Free efile state tax return Bonds acquired before October 23, 1986. Free efile state tax return   The amortization of the premium on these bonds is a miscellaneous itemized deduction not subject to the 2% limit. Free efile state tax return Deduction for excess premium. Free efile state tax return   On certain bonds (such as bonds that pay a variable rate of interest or that provide for an interest-free period), the amount of bond premium allocable to a period may exceed the amount of stated interest allocable to the period. Free efile state tax return If this occurs, treat the excess as a miscellaneous itemized deduction that is not subject to the 2% limit. Free efile state tax return However, the amount deductible is limited to the amount by which your total interest inclusions on the bond in prior periods exceed the total amount you treated as a bond premium deduction on the bond in prior periods. Free efile state tax return If any of the excess bond premium cannot be deducted because of the limit, this amount is carried forward to the next period and is treated as bond premium allocable to that period. Free efile state tax return    Pre-1998 choice to amortize bond premium. Free efile state tax return If you made the choice to amortize the premium on taxable bonds before 1998, you can deduct the bond premium amortization that is more than your interest income only for bonds acquired during 1998 and later years. Free efile state tax return More information. Free efile state tax return    For more information on bond premium, see Bond Premium Amortization in chapter 3 of Publication 550. Free efile state tax return Casualty and Theft Losses of Income-Producing Property You can deduct a casualty or theft loss as a miscellaneous itemized deduction not subject to the 2% limit if the damaged or stolen property was income-producing property (property held for investment, such as stocks, notes, bonds, gold, silver, vacant lots, and works of art). Free efile state tax return First report the loss in Section B of Form 4684. Free efile state tax return You may also have to include the loss on Form 4797, Sales of Business Property, if you are otherwise required to file that form. Free efile state tax return To figure your deduction, add all casualty or theft losses from this type of property included on Form 4684, lines 32 and 38b, or Form 4797, line 18a. Free efile state tax return For more information on casualty and theft losses, see Publication 547. Free efile state tax return Federal Estate Tax on Income in Respect of a Decedent You can deduct the federal estate tax attributable to income in respect of a decedent that you as a beneficiary include in your gross income. Free efile state tax return Income in respect of the decedent is gross income that the decedent would have received had death not occurred and that was not properly includible in the decedent's final income tax return. Free efile state tax return See Publication 559 for information about figuring the amount of this deduction. Free efile state tax return Gambling Losses Up to the Amount of Gambling Winnings You must report the full amount of your gambling winnings for the year on Form 1040, line 21. Free efile state tax return You deduct your gambling losses for the year on Schedule A (Form 1040), line 28. Free efile state tax return You cannot deduct gambling losses that are more than your winnings. Free efile state tax return Generally, nonresident aliens cannot deduct gambling losses on Schedule A (Form 1040NR). Free efile state tax return You cannot reduce your gambling winnings by your gambling losses and report the difference. Free efile state tax return You must report the full amount of your winnings as income and claim your losses (up to the amount of winnings) as an itemized deduction. Free efile state tax return Therefore, your records should show your winnings separately from your losses. Free efile state tax return Diary of winnings and losses. Free efile state tax return You must keep an accurate diary or similar record of your losses and winnings. Free efile state tax return Your diary should contain at least the following information. Free efile state tax return The date and type of your specific wager or wagering activity. Free efile state tax return The name and address or location of the gambling establishment. Free efile state tax return The names of other persons present with you at the gambling establishment. Free efile state tax return The amount(s) you won or lost. Free efile state tax return Proof of winnings and losses. Free efile state tax return   In addition to your diary, you should also have other documentation. Free efile state tax return You can generally prove your winnings and losses through Form W-2G, Certain Gambling Winnings, Form 5754, Statement by Person(s) Receiving Gambling Winnings, wagering tickets, canceled checks, substitute checks, credit records, bank withdrawals, and statements of actual winnings or payment slips provided to you by the gambling establishment. Free efile state tax return   For specific wagering transactions, you can use the following items to support your winnings and losses. Free efile state tax return    These recordkeeping suggestions are intended as general guidelines to help you establish your winnings and losses. Free efile state tax return They are not all-inclusive. Free efile state tax return Your tax liability depends on your particular facts and circumstances. Free efile state tax return Keno. Free efile state tax return   Copies of the keno tickets you purchased that were validated by the gambling establishment, copies of your casino credit records, and copies of your casino check cashing records. Free efile state tax return Slot machines. Free efile state tax return   A record of the machine number and all winnings by date and time the machine was played. Free efile state tax return Table games (twenty-one (blackjack), craps, poker, baccarat, roulette, wheel of fortune, etc. Free efile state tax return ). Free efile state tax return   The number of the table at which you were playing. Free efile state tax return Casino credit card data indicating whether the credit was issued in the pit or at the cashier's cage. Free efile state tax return Bingo. Free efile state tax return   A record of the number of games played, cost of tickets purchased, and amounts collected on winning tickets. Free efile state tax return Supplemental records include any receipts from the casino, parlor, etc. Free efile state tax return Racing (horse, harness, dog, etc. Free efile state tax return ). Free efile state tax return   A record of the races, amounts of wagers, amounts collected on winning tickets, and amounts lost on losing tickets. Free efile state tax return Supplemental records include unredeemed tickets and payment records from the racetrack. Free efile state tax return Lotteries. Free efile state tax return   A record of ticket purchases, dates, winnings, and losses. Free efile state tax return Supplemental records include unredeemed tickets, payment slips, and winnings statements. Free efile state tax return Impairment-Related Work Expenses If you have a physical or mental disability that limits your being employed, or substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, and working, you can deduct your impairment-related work expenses. Free efile state tax return Impairment-related work expenses are ordinary and necessary business expenses for attendant care services at your place of work and other expenses in connection with your place of work that are necessary for you to be able to work. Free efile state tax return Example. Free efile state tax return You are blind. Free efile state tax return You must use a reader to do your work. Free efile state tax return You use the reader both during your regular working hours at your place of work and outside your regular working hours away from your place of work. Free efile state tax return The reader's services are only for your work. Free efile state tax return You can deduct your expenses for the reader as impairment-related work expenses. Free efile state tax return Self-employed. Free efile state tax return   If you are self-employed, enter your impairment-related work expenses on the appropriate form (Schedule C, C-EZ, E, or F) used to report your business income and expenses. Free efile state tax return See Impairment-related work expenses. Free efile state tax return , later under How To Report. Free efile state tax return Loss From Other Activities From Schedule K-1 (Form 1065-B), Box 2 If the amount reported in Schedule K-1 (Form 1065-B), box 2, is a loss, report it on Schedule A (Form 1040), line 28, or Schedule A (Form 1040NR), line 14 (only if effectively connected with a U. Free efile state tax return S. Free efile state tax return trade or business). Free efile state tax return It is not subject to the passive activity limitations. Free efile state tax return Officials Paid on a Fee Basis If you are a fee-basis official, you can claim your expenses in performing services in that job as an adjustment to income rather than as a miscellaneous itemized deduction. Free efile state tax return See Publication 463 for more information. Free efile state tax return Performing Artists If you are a qualified performing artist, you can deduct your employee business expenses as an adjustment to income rather than as a miscellaneous itemized deduction. Free efile state tax return If you are an employee, complete Form 2106 or Form 2106-EZ. Free efile state tax return See Publication 463 for more information. Free efile state tax return Losses From Ponzi-type Investment Schemes These losses are deductible as theft losses of income-producing property on your tax return for the year the loss was discovered. Free efile state tax return You figure the deductible loss in Section B of Form 4684. Free efile state tax return However, if you qualify to use Revenue Procedure 2009-20 (as modified by Revenue Procedure 2011-58) and you choose to follow the procedures in the guidance, complete Section C of Form 4684 before completing Section B. Free efile state tax return Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Free efile state tax return You do not need to complete Appendix A. Free efile state tax return See the Form 4684 instructions and Publication 547, Casualties, Disasters, and Thefts, for more information. Free efile state tax return Repayments Under Claim of Right If you had to repay more than $3,000 that you included in your income in an earlier year because at the time you thought you had an unrestricted right to it, you may be able to deduct the amount you repaid, or take a credit against your tax. Free efile state tax return See Repayments in Publication 525 for more information. Free efile state tax return Unrecovered Investment in Annuity A retiree who contributed to the cost of an annuity can exclude from income a part of each payment received as a tax-free return of the retiree's investment. Free efile state tax return If the retiree dies before the entire investment is recovered tax free, any unrecovered investment can be deducted on the retiree's final income tax return. Free efile state tax return See Publication 575, Pension and Annuity Income, for more information about the tax treatment of pensions and annuities. Free efile state tax return Nondeductible Expenses You cannot deduct the following expenses. Free efile state tax return List of Nondeductible Expenses Adoption expenses. Free efile state tax return Broker's commissions. Free efile state tax return Burial or funeral expenses, including the cost of a cemetery lot. Free efile state tax return Campaign expenses. Free efile state tax return Capital expenses. Free efile state tax return Check-writing fees. Free efile state tax return Club dues. Free efile state tax return Commuting expenses. Free efile state tax return Fees and licenses, such as car licenses, marriage licenses, and dog tags. Free efile state tax return Fines and penalties, such as parking tickets. Free efile state tax return Health spa expenses. Free efile state tax return Hobby losses—but see Hobby Expenses, earlier. Free efile state tax return Home repairs, insurance, and rent. Free efile state tax return Home security system. Free efile state tax return Illegal bribes and kickbacks—see Bribes and kickbacks in chapter 11 of Publication 535. Free efile state tax return Investment-related seminars. Free efile state tax return Life insurance premiums paid by the insured. Free efile state tax return Lobbying expenses. Free efile state tax return Losses from the sale of your home, furniture, personal car, etc. Free efile state tax return Lost or misplaced cash or property. Free efile state tax return Lunches with co-workers. Free efile state tax return Meals while working late. Free efile state tax return Medical expenses as business expenses other than medical examinations required by your employer. Free efile state tax return Personal disability insurance premiums. Free efile state tax return Personal legal expenses. Free efile state tax return Personal, living, or family expenses. Free efile state tax return Political contributions. Free efile state tax return Professional accreditation fees. Free efile state tax return Professional reputation, expenses to improve. Free efile state tax return Relief fund contributions. Free efile state tax return Residential telephone line. Free efile state tax return Stockholders' meeting, expenses of attending. Free efile state tax return Tax-exempt income, expenses of earning or collecting. Free efile state tax return The value of wages never received or lost vacation time. Free efile state tax return Travel expenses for another individual. Free efile state tax return Voluntary unemployment benefit fund contributions. Free efile state tax return Wristwatches. Free efile state tax return Adoption Expenses You cannot deduct the expenses of adopting a child but you may be able to take a credit for those expenses. Free efile state tax return For details, see Form 8839, Qualified Adoption Expenses. Free efile state tax return Commissions Commissions paid on the purchase of securities are not deductible, either as business or nonbusiness expenses. Free efile state tax return Instead, these fees must be added to the taxpayer's cost of the securities. Free efile state tax return Commissions paid on the sale are deductible as business expenses only by dealers. Free efile state tax return Campaign Expenses You cannot deduct campaign expenses of a candidate for any office, even if the candidate is running for reelection to the office. Free efile state tax return These include qualification and registration fees for primary elections. Free efile state tax return Legal fees. Free efile state tax return   You cannot deduct legal fees paid to defend charges that arise from participation in a political campaign. Free efile state tax return Capital Expenses You cannot currently deduct amounts paid to buy property that has a useful life substantially beyond the tax year or amounts paid to increase the value or prolong the life of property. Free efile state tax return If you use such property in your work, you may be able to take a depreciation deduction. Free efile state tax return See Publication 946. Free efile state tax return If the property is a car used in your work, also see Publication 463. Free efile state tax return Check-Writing Fees on Personal Account If you have a personal checking account, you cannot deduct fees charged by the bank for the privilege of writing checks, even if the account pays interest. Free efile state tax return Club Dues Generally, you cannot deduct the cost of membership in any club organized for business, pleasure, recreation, or other social purpose. Free efile state tax return This includes business, social, athletic, luncheon, sporting, airline, hotel, golf, and country clubs. Free efile state tax return You cannot deduct dues paid to an organization if one of its main purposes is to: Conduct entertainment activities for members or their guests, or Provide members or their guests with access to entertainment facilities. Free efile state tax return Dues paid to airline, hotel, and luncheon clubs are not deductible. Free efile state tax return Commuting Expenses You cannot deduct commuting expenses (the cost of transportation between your home and your main or regular place of work). Free efile state tax return If you haul tools, instruments, or other items in your car to and from work, you can deduct only the additional cost of hauling the items, such as the rent on a trailer to carry the items. Free efile state tax return Fines or Penalties You cannot deduct fines or penalties you pay to a governmental unit for violating a law. Free efile state tax return This includes an amount paid in settlement of your actual or potential liability for a fine or penalty (civil or criminal). Free efile state tax return Fines or penalties include parking tickets, tax penalties, and penalties deducted from teachers' paychecks after an illegal strike. Free efile state tax return Health Spa Expenses You cannot deduct health spa expenses, even if there is a job requirement to stay in excellent physical condition, such as might be required of a law enforcement officer. Free efile state tax return Home Security System You cannot deduct the cost of a home security system as a miscellaneous deduction. Free efile state tax return However, you may be able to claim a deduction for a home security system as a business expense if you have a home office. Free efile state tax return See Home Office under Unreimbursed Employee Expenses, earlier, and Publication 587. Free efile state tax return Investment-Related Seminars You cannot deduct any expenses for attending a convention, seminar, or similar meeting for investment purposes. Free efile state tax return Life Insurance Premiums You cannot deduct premiums you pay on your life insurance. Free efile state tax return You may be able to deduct, as alimony, premiums you pay on life insurance policies assigned to your former spouse. Free efile state tax return See Publication 504, Divorced or Separated Individuals, for information on alimony. Free efile state tax return Lobbying Expenses You generally cannot deduct amounts paid or incurred for lobbying expenses. Free efile state tax return These include expenses to: Influence legislation, Participate, or intervene, in any political campaign for, or against, any candidate for public office, Attempt to influence the general public, or segments of the public, about elections, legislative matters, or referendums, or Communicate directly with covered executive branch officials in any attempt to influence the official actions or positions of those officials. Free efile state tax return Lobbying expenses also include any amounts paid or incurred for research, preparation, planning, or coordination of any of these activities. Free efile state tax return Covered executive branch official. Free efile state tax return   A covered executive branch official, for the purpose of (4) above, is any of the following officials. Free efile state tax return The President. Free efile state tax return The Vice President. Free efile state tax return Any officer or employee of the White House Office of the Executive Office of the President, and the two most senior level officers of each of the other agencies in the Executive Office. Free efile state tax return Any individual serving in a position in Level I of the Executive Schedule under section 5312 of Title 5, United States Code, any other individual designated by the President as having Cabinet-level status, and any immediate deputy of one of these individuals. Free efile state tax return Dues used for lobbying. Free efile state tax return   If a tax-exempt organization notifies you that part of the dues or other amounts you pay to the organization are used to pay nondeductible lobbying expenses, you cannot deduct that part. Free efile state tax return Exceptions. Free efile state tax return   You can deduct certain lobbying expenses if they are ordinary and necessary expenses of carrying on your trade or business. Free efile state tax return You can deduct expenses for attempting to influence the legislation of any local council or similar governing body (local legislation). Free efile state tax return An Indian tribal government is considered a local council or similar governing body. Free efile state tax return You can deduct in-house expenses for influencing legislation or communicating directly with a covered executive branch official if the expenses for the tax year are not more than $2,000 (not counting overhead expenses). Free efile state tax return If you are a professional lobbyist, you can deduct the expenses you incur in the trade or business of lobbying on behalf of another person. Free efile state tax return Payments by the other person to you for lobbying activities cannot be deducted. Free efile state tax return Lost or Mislaid Cash or Property You cannot deduct a loss based on the mere disappearance of money or property. Free efile state tax return However, an accidental loss or disappearance of property can qualify as a casualty if it results from an identifiable event that is sudden, unexpected, or unusual. Free efile state tax return See Publication 547. Free efile state tax return Example. Free efile state tax return A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Free efile state tax return The diamond falls from the ring and is never found. Free efile state tax return The loss of the diamond is a casualty. Free efile state tax return Lunches With Co-workers You cannot deduct the expenses of lunches with co-workers, except while traveling away from home on business. Free efile state tax return See Publication 463 for information on deductible expenses while traveling away from home. Free efile state tax return Meals While Working Late You cannot deduct the cost of meals while working late. Free efile state tax return However, you may be able to claim a deduction if the cost of the meals is a deductible entertainment expense, or if you are traveling away from home. Free efile state tax return See Publication 463 for information on deductible entertainment expenses and expenses while traveling away from home. Free efile state tax return Personal Legal Expenses You cannot deduct personal legal expenses such as those for the following. Free efile state tax return Custody of children. Free efile state tax return Breach of promise to marry suit. Free efile state tax return Civil or criminal charges resulting from a personal relationship. Free efile state tax return Damages for personal injury (except certain whistleblower claims and unlawful discrimination claims). Free efile state tax return For more information about unlawful discrimination claims, see Deductions Subject to the 2% Limit, earlier. Free efile state tax return Preparation of a title (or defense or perfection of a title). Free efile state tax return Preparation of a will. Free efile state tax return Property claims or property settlement in a divorce. Free efile state tax return You cannot deduct these expenses even if a result of the legal proceeding is the loss of income-producing property. Free efile state tax return Political Contributions You cannot deduct contributions made to a political candidate, a campaign committee, or a newsletter fund. Free efile state tax return Advertisements in convention bulletins and admissions to dinners or programs that benefit a political party or political candidate are not deductible. Free efile state tax return Professional Accreditation Fees You cannot deduct professional accreditation fees such as the following. Free efile state tax return Accounting certificate fees paid for the initial right to practice accounting. Free efile state tax return Bar exam fees and incidental expenses in securing initial admission to the bar. Free efile state tax return Medical and dental license fees paid to get initial licensing. Free efile state tax return Professional Reputation You cannot deduct expenses of radio and TV appearances to increase your personal prestige or establish your professional reputation. Free efile state tax return Relief Fund Contributions You cannot deduct contributions paid to a private plan that pays benefits to any covered employee who cannot work because of any injury or illness not related to the job. Free efile state tax return Residential Telephone Service You cannot deduct any charge (including taxes) for basic local telephone service for the first telephone line to your residence, even if it is used in a trade or business. Free efile state tax return Stockholders' Meetings You cannot deduct transportation and other expenses you pay to attend stockholders' meetings of companies in which you own stock but have no other interest. Free efile state tax return You cannot deduct these expenses even if you are attending the meeting to get information that would be useful in making further investments. Free efile state tax return Tax-Exempt Income Expenses You cannot deduct expenses to produce tax-exempt income. Free efile state tax return You cannot deduct interest on a debt incurred or continued to buy or carry tax-exempt securities. Free efile state tax return If you have expenses to p
Print - Click this link to Print this page

Understanding your CP2005 Notice

 
We accepted the information you sent us. We're not going to change your tax return. We've closed our review of it.


What you need to do

  • Read your notice carefully.
  • You don't have to do anything.
  • You don't have to answer the notice.
  • If you have a payment plan for another IRS debt, keep making your payments.

You may want to...

  • Keep a copy of your notice for your files.
  • Contact us if you don't get a refund for any payment you made on the proposed changes we now aren't going to make.
  • Contact us by mail or by calling the toll free number on your notice with any questions we haven't answered below.

Answers to Common Questions

Why did it take you so long to contact me about this matter?
Our computer systems match the information you report on your tax return with information reported by employers, banks, businesses, and others. This matching takes several months to complete.

What if I sent you a payment based on the changes you proposed?
You'll receive a refund check in 4 to 6 weeks as long as you owe no taxes or other debts we have to collect.

What if I petitioned the U.S. Tax Court?
Our Office of Chief Counsel will contact you about closing your petition.

What should I do if you close my case without changing my account and I think you closed it in error?
Please call the toll free number on your notice.

What should I do if I receive another notice or letter?
If the notice or letter is about this matter, pay no attention to it. If it's about another matter, read it carefully and follow its instructions.


Tips for next year

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.

You can avoid future mistakes by:

  • keeping accurate and full records
  • waiting until you get all of your income statements to file your tax return
  • checking the records you get from your employer, mortgage company, bank, or other sources of income (W-2s, 1098s, 1099s, etc.) to make sure they're correct
  • including all the income you received during the year on your tax return
  • following the instructions for your tax return on how to report income, expenses and deductions
  • filing an amended tax return if you receive any additional information after you've filed your return
Page Last Reviewed or Updated: 28-Feb-2014

Printable samples of this notice (PDF)

 

 

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Free Efile State Tax Return

Free efile state tax return 8. Free efile state tax return   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. Free efile state tax return Ordinary gain is taxed at the same rates as wages and interest income while capital gain is generally taxed at lower rates. Free efile state tax return 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. Free efile state tax return 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. Free efile state tax return Sales and Exchanges If you sell, exchange, or otherwise dispose of your property, you usually have a gain or a loss. Free efile state tax return This section explains certain rules for determining whether any gain you have is taxable, and whether any loss you have is deductible. Free efile state tax return A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Free efile state tax return An exchange is a transfer of property for other property or services. Free efile state tax return Determining Gain or Loss You usually realize a gain or loss when you sell or exchange property. Free efile state tax return If the amount you realize from a sale or exchange of property is more than its adjusted basis, you will have a gain. Free efile state tax return If the adjusted basis of the property is more than the amount you realize, you will have a loss. Free efile state tax return Basis and adjusted basis. Free efile state tax return   The basis of property you buy is usually its cost. Free efile state tax return The adjusted basis of property is basis plus certain additions and minus certain deductions. Free efile state tax return See chapter 6 for more information about basis and adjusted basis. Free efile state tax return Amount realized. Free efile state tax return   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. Free efile state tax return 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. Free efile state tax return   If the liabilities relate to an exchange of multiple properties, see Multiple Property Exchanges in chapter 1 of Publication 544. Free efile state tax return Amount recognized. Free efile state tax return   Your gain or loss realized from a sale or exchange of certain property is usually a recognized gain or loss for tax purposes. Free efile state tax return A recognized gain is a gain you must include in gross income and report on your income tax return. Free efile state tax return A recognized loss is a loss you deduct from gross income. Free efile state tax return However, your gain or loss realized from the exchange of certain property may not be recognized for tax purposes. Free efile state tax return See Like-Kind Exchanges next. Free efile state tax return Also, a loss from the disposition of property held for personal use is not deductible. Free efile state tax return Like-Kind Exchanges Certain exchanges of property are not taxable. Free efile state tax return This means any gain from the exchange is not recognized, and any loss cannot be deducted. Free efile state tax return Your gain or loss will not be recognized until you sell or otherwise dispose of the property you receive. Free efile state tax return The exchange of property for the same kind of property is the most common type of nontaxable exchange. Free efile state tax return To qualify for treatment as a like-kind exchange, the property traded and the property received must be both of the following. Free efile state tax return Qualifying property. Free efile state tax return Like-kind property. Free efile state tax return These two requirements are discussed later. Free efile state tax return Multiple-party transactions. Free efile state tax return   The like-kind exchange rules also apply to property exchanges that involve three and four-party transactions. Free efile state tax return Any part of these multiple-party transactions can qualify as a like-kind exchange if it meets all the requirements described in this section. Free efile state tax return Receipt of title from third party. Free efile state tax return   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. Free efile state tax return Basis of property received. Free efile state tax return   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. Free efile state tax return See chapter 6 for more information. Free efile state tax return Money paid. Free efile state tax return   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. Free efile state tax return The basis of the property received is the basis of the property given up, increased by the money paid. Free efile state tax return Example. Free efile state tax return You traded an old tractor with an adjusted basis of $15,000 for a new one. Free efile state tax return The new tractor costs $300,000. Free efile state tax return You were allowed $80,000 for the old tractor and paid $220,000 cash. Free efile state tax return 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). Free efile state tax return 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. Free efile state tax return 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. Free efile state tax return Reporting the exchange. Free efile state tax return   Report the exchange of like-kind property, even though no gain or loss is recognized, on Form 8824, Like-Kind Exchanges. Free efile state tax return The Instructions for Form 8824 explain how to report the details of the exchange. Free efile state tax return   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. Free efile state tax return You may also have to report the recognized gain as ordinary income because of depreciation recapture on Form 4797. Free efile state tax return See chapter 9 for more information. Free efile state tax return Qualifying property. Free efile state tax return   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. Free efile state tax return Machinery, buildings, land, trucks, breeding livestock, rental houses, and certain mutual ditch, reservoir, or irrigation company stock are examples of property that may qualify. Free efile state tax return Nonqualifying property. Free efile state tax return   The rules for like-kind exchanges do not apply to exchanges of the following property. Free efile state tax return Property you use for personal purposes, such as your home and family car. Free efile state tax return Stock in trade or other property held primarily for sale, such as crops and produce. Free efile state tax return Stocks, bonds, or notes. Free efile state tax return However, see Qualifying property above. Free efile state tax return Other securities or evidences of indebtedness, such as accounts receivable. Free efile state tax return Partnership interests. Free efile state tax return However, you may have a nontaxable exchange under other rules. Free efile state tax return See Other Nontaxable Exchanges in chapter 1 of Publication 544. Free efile state tax return Like-kind property. Free efile state tax return   To qualify as a nontaxable exchange, the properties exchanged must be of like kind. Free efile state tax return Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Free efile state tax return Generally, real property exchanged for real property qualifies as an exchange of like-kind property. Free efile state tax return For example, an exchange of city property for farm property or improved property for unimproved property is a like-kind exchange. Free efile state tax return   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. Free efile state tax return An exchange of a tractor for acreage, however, is not an exchange of like-kind property. Free efile state tax return The exchange of livestock of one sex for livestock of the other sex is not a like-kind exchange. Free efile state tax return For example, the exchange of a bull for a cow is not a like-kind exchange. Free efile state tax return 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. Free efile state tax return    Note. Free efile state tax return Whether you engaged in a like-kind exchange depends on an analysis of each asset involved in the exchange. Free efile state tax return Personal property. Free efile state tax return   Depreciable tangible personal property can be either like kind or like class to qualify for nontaxable exchange treatment. Free efile state tax return Like-class properties are depreciable tangible personal properties within the same General Asset Class or Product Class. Free efile state tax return Property classified in any General Asset Class may not be classified within a Product Class. Free efile state tax return Assets that are not in the same class will qualify as like-kind property if they are of the same nature or character. Free efile state tax return General Asset Classes. Free efile state tax return   General Asset Classes describe the types of property frequently used in many businesses. Free efile state tax return They include, but are not limited to, the following property. Free efile state tax return Office furniture, fixtures, and equipment (asset class 00. Free efile state tax return 11). Free efile state tax return Information systems, such as computers and peripheral equipment (asset class 00. Free efile state tax return 12). Free efile state tax return Data handling equipment except computers (asset class 00. Free efile state tax return 13). Free efile state tax return Automobiles and taxis (asset class 00. Free efile state tax return 22). Free efile state tax return Light general purpose trucks (asset class 00. Free efile state tax return 241). Free efile state tax return Heavy general purpose trucks (asset class 00. Free efile state tax return 242). Free efile state tax return Tractor units for use over-the-road (asset class 00. Free efile state tax return 26). Free efile state tax return Trailers and trailer-mounted containers (asset class 00. Free efile state tax return 27). Free efile state tax return Industrial steam and electric generation and/or distribution systems (asset class 00. Free efile state tax return 4). Free efile state tax return Product Classes. Free efile state tax return   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). Free efile state tax return The latest version of the manual can be accessed at www. Free efile state tax return census. Free efile state tax return gov/eos/www/naics/. Free efile state tax return Copies of the printed manual may be purchased from the National Technical Information Service (NTIS) at  www. Free efile state tax return ntis. Free efile state tax return gov/products/naics. Free efile state tax return aspx or by calling 1-800-553-NTIS (1-800-553-6847) or (703) 605-6000. Free efile state tax return A CD-ROM version with search and retrieval software is also available from NTIS. Free efile state tax return    NAICS class 333111, Farm Machinery and Equipment Manufacturing, includes most machinery and equipment used in a farming business. Free efile state tax return Partially nontaxable exchange. Free efile state tax return   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. Free efile state tax return 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. Free efile state tax return A loss is not deductible. Free efile state tax return Example 1. Free efile state tax return 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. Free efile state tax return 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). Free efile state tax return However, only $10,000, the cash received, is recognized (included in income). Free efile state tax return Example 2. Free efile state tax return Assume the same facts as in Example 1, except that, instead of money, you received a tractor with a FMV of $10,000. Free efile state tax return Your recognized gain is still limited to $10,000, the value of the tractor (the unlike property). Free efile state tax return Example 3. Free efile state tax return Assume in Example 1 that the FMV of the land you received was only $15,000. Free efile state tax return Your $5,000 loss is not recognized. Free efile state tax return Unlike property given up. Free efile state tax return   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. Free efile state tax return The gain or loss is the difference between the FMV of the unlike property and the adjusted basis of the unlike property. Free efile state tax return Like-kind exchanges between related persons. Free efile state tax return   Special rules apply to like-kind exchanges between related persons. Free efile state tax return These rules affect both direct and indirect exchanges. Free efile state tax return Under these rules, if either person disposes of the property within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Free efile state tax return The gain or loss on the original exchange must be recognized as of the date of the later disposition. Free efile state tax return The 2-year holding period begins on the date of the last transfer of property that was part of the like-kind exchange. Free efile state tax return Related persons. Free efile state tax return   Under these rules, related persons include, for example, you and a member of your family (spouse, brother, sister, parent, child, etc. Free efile state tax return ), 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. Free efile state tax return   For the complete list of related persons, see Related persons in chapter 2 of Publication 544. Free efile state tax return Example. Free efile state tax return You used a grey pickup truck in your farming business. Free efile state tax return Your sister used a red pickup truck in her landscaping business. Free efile state tax return In December 2012, you exchanged your grey pickup truck, plus $200, for your sister's red pickup truck. Free efile state tax return At that time, the FMV of the grey pickup truck was $7,000 and its adjusted basis was $6,000. Free efile state tax return The FMV of the red pickup truck was $7,200 and its adjusted basis was $1,000. Free efile state tax return 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). Free efile state tax return 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). Free efile state tax return However, because this was a like-kind exchange, you recognized no gain. Free efile state tax return 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). Free efile state tax return She recognized gain only to the extent of the money she received, $200. Free efile state tax return 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). Free efile state tax return In 2013, you sold the red pickup truck to a third party for $7,000. Free efile state tax return Because you sold it within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Free efile state tax return On your tax return for 2013, you must report your $1,000 gain on the 2012 exchange. Free efile state tax return 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). Free efile state tax return In addition, your sister must report on her tax return for 2013 the $6,000 balance of her gain on the 2012 exchange. Free efile state tax return Her adjusted basis in the grey pickup truck is increased to $7,000 (its $1,000 basis plus the $6,000 gain recognized). Free efile state tax return Exceptions to the rules for related persons. Free efile state tax return   The following property dispositions are excluded from these rules. Free efile state tax return Dispositions due to the death of either related person. Free efile state tax return Involuntary conversions. Free efile state tax return 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. Free efile state tax return Multiple property exchanges. Free efile state tax return   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. Free efile state tax return However, for exchanges of multiple properties, you do not make a property-by-property comparison if you do either of the following. Free efile state tax return Transfer and receive properties in two or more exchange groups. Free efile state tax return Transfer or receive more than one property within a single exchange group. Free efile state tax return   For more information, see Multiple Property Exchanges in chapter 1 of Publication 544. Free efile state tax return Deferred exchange. Free efile state tax return   A deferred exchange for like-kind property may qualify for nonrecognition of gain or loss. Free efile state tax return 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. Free efile state tax return The property you receive is replacement property. Free efile state tax return The transaction must be an exchange of property for property rather than a transfer of property for money used to buy replacement property. Free efile state tax return In addition, the replacement property will not be treated as like-kind property unless certain identification and receipt requirements are met. Free efile state tax return   For more information see Deferred Exchanges in chapter 1 of Publication 544. Free efile state tax return 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. Free efile state tax return This rule does not apply if the recipient is a nonresident alien. Free efile state tax return 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. Free efile state tax return 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. Free efile state tax return The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. Free efile state tax return 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. Free efile state tax return This rule applies for determining loss as well as gain. Free efile state tax return Any gain recognized on a transfer in trust increases the basis. Free efile state tax return For more information on transfers of property incident to divorce, see Property Settlements in Publication 504, Divorced or Separated Individuals. Free efile state tax return 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). Free efile state tax return You may also have a capital gain if your section 1231 transactions result in a net gain. Free efile state tax return See Section 1231 Gains and Losses in  chapter 9. Free efile state tax return 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). Free efile state tax return Your net capital gains may be taxed at a lower tax rate than ordinary income. Free efile state tax return See Capital Gains Tax Rates , later. Free efile state tax return Your deduction for a net capital loss may be limited. Free efile state tax return See Treatment of Capital Losses , later. Free efile state tax return Capital Assets Almost everything you own and use for personal purposes or investment is a capital asset. Free efile state tax return The following items are examples of capital assets. Free efile state tax return A home owned and occupied by you and your family. Free efile state tax return Household furnishings. Free efile state tax return A car used for pleasure. Free efile state tax return 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. Free efile state tax return Stocks and bonds. Free efile state tax return However, there are special rules for gains on qualified small business stock. Free efile state tax return 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. Free efile state tax return Personal-use property. Free efile state tax return   Gain from a sale or exchange of personal-use property is a capital gain and is taxable. Free efile state tax return Loss from the sale or exchange of personal-use property is not deductible. Free efile state tax return You can deduct a loss relating to personal-use property only if it results from a casualty or theft. Free efile state tax return For information on casualties and thefts, see chapter 11. Free efile state tax return 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. Free efile state tax return The time you own an asset before disposing of it is the holding period. Free efile state tax return If you hold a capital asset 1 year or less, the gain or loss resulting from its disposition is short term. Free efile state tax return Report it in Part I of Schedule D (Form 1040). Free efile state tax return If you hold a capital asset longer than 1 year, the gain or loss resulting from its disposition is long term. Free efile state tax return Report it in Part II of Schedule D (Form 1040). Free efile state tax return Holding period. Free efile state tax return   To figure if you held property longer than 1 year, start counting on the day after the day you acquired the property. Free efile state tax return The day you disposed of the property is part of your holding period. Free efile state tax return Example. Free efile state tax return If you bought an asset on June 19, 2012, you should start counting on June 20, 2012. Free efile state tax return 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. Free efile state tax return Inherited property. Free efile state tax return   If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it. Free efile state tax return This rule does not apply to livestock used in a farm business. Free efile state tax return See Holding period under Livestock , later. Free efile state tax return Nonbusiness bad debt. Free efile state tax return   A nonbusiness bad debt is a short-term capital loss, deductible in the year the debt becomes worthless. Free efile state tax return See chapter 4 of Publication 550. Free efile state tax return Nontaxable exchange. Free efile state tax return   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. Free efile state tax return That is, it begins on the same day as your holding period for the old property. Free efile state tax return Gift. Free efile state tax return   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. Free efile state tax return Real property. Free efile state tax return   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. Free efile state tax return   However, taking possession of real property under an option agreement is not enough to start the holding period. Free efile state tax return The holding period cannot start until there is an actual contract of sale. Free efile state tax return The holding period of the seller cannot end before that time. Free efile state tax return 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. Free efile state tax return Net short-term capital gain or loss. Free efile state tax return   Combine your short-term capital gains and losses. Free efile state tax return Do this by adding all of your short-term capital gains. Free efile state tax return Then add all of your short-term capital losses. Free efile state tax return Subtract the lesser total from the greater. Free efile state tax return The difference is your net short-term capital gain or loss. Free efile state tax return Net long-term capital gain or loss. Free efile state tax return   Follow the same steps to combine your long-term capital gains and losses. Free efile state tax return The result is your net long-term capital gain or loss. Free efile state tax return Net gain. Free efile state tax return   If the total of your capital gains is more than the total of your capital losses, the difference is taxable. Free efile state tax return 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. Free efile state tax return See Capital Gains Tax Rates , later. Free efile state tax return Net loss. Free efile state tax return   If the total of your capital losses is more than the total of your capital gains, the difference is deductible. Free efile state tax return But there are limits on how much loss you can deduct and when you can deduct it. Free efile state tax return See Treatment of Capital Losses next. Free efile state tax return 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. Free efile state tax return 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). Free efile state tax return If your other income is low, you may not be able to use the full $3,000. Free efile state tax return The part of the $3,000 you cannot use becomes part of your capital loss carryover (discussed next). Free efile state tax return Capital loss carryover. Free efile state tax return   Generally, you have a capital loss carryover if either of the following situations applies to you. Free efile state tax return Your net loss on Schedule D (Form 1040), is more than the yearly limit. Free efile state tax return Your taxable income without your deduction for exemptions is less than zero. Free efile state tax return 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. Free efile state tax return    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). Free efile state tax return 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. Free efile state tax return These lower rates are called the maximum capital gains rates. Free efile state tax return 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. Free efile state tax return See Schedule D (Form 1040) and the Instructions for Schedule D (Form 1040). Free efile state tax return Also see Publication 550. Free efile state tax return Noncapital Assets Noncapital assets include property such as inventory and depreciable property used in a trade or business. Free efile state tax return A list of properties that are not capital assets is provided in the Instructions for Schedule D (Form 1040). Free efile state tax return Property held for sale in the ordinary course of your farm business. Free efile state tax return   Property you hold mainly for sale to customers, such as livestock, poultry, livestock products, and crops, is a noncapital asset. Free efile state tax return 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). Free efile state tax return The treatment of this property is discussed in chapter 3. Free efile state tax return Land and depreciable properties. Free efile state tax return   Land and depreciable property you use in farming are not capital assets. Free efile state tax return Noncapital assets also include livestock held for draft, breeding, dairy, or sporting purposes. Free efile state tax return 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. Free efile state tax return The sales of these business assets are reported on Form 4797. Free efile state tax return See chapter 9 for more information. Free efile state tax return 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. Free efile state tax return Ordinary property or obligations are those that cannot produce capital gain or loss if sold or exchanged. Free efile state tax return 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. Free efile state tax return 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. Free efile state tax return A forward contract is generally similar to a futures contract except that the terms are not standardized and the contract is not exchange traded. Free efile state tax return Businesses may enter into commodity futures contracts or forward contracts and may acquire options on commodity futures contracts as either of the following. Free efile state tax return Hedging transactions. Free efile state tax return Transactions that are not hedging transactions. Free efile state tax return 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. Free efile state tax return There is a limit on the amount of capital losses you can deduct each year. Free efile state tax return Hedging transactions are not subject to the mark-to-market rules. Free efile state tax return 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. Free efile state tax return 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. Free efile state tax return The gain or loss on the termination of these hedges is generally ordinary gain or loss. Free efile state tax return 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. Free efile state tax return 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. Free efile state tax return Examples include fuel and feed. Free efile state tax return If you have numerous transactions in the commodity futures market during the year, you must be able to show which transactions are hedging transactions. Free efile state tax return Clearly identify a hedging transaction on your books and records before the end of the day you entered into the transaction. Free efile state tax return It may be helpful to have separate brokerage accounts for your hedging and speculation transactions. Free efile state tax return Retain the identification of each hedging transaction with your books and records. Free efile state tax return Also, identify the item(s) or aggregate risk that is being hedged in your records. Free efile state tax return 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. Free efile state tax return 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. Free efile state tax return Accounting methods for hedging transactions. Free efile state tax return   The accounting method you use for a hedging transaction must clearly reflect income. Free efile state tax return 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. Free efile state tax return There are requirements and limits on the method you can use for certain hedging transactions. Free efile state tax return See Regulations section 1. Free efile state tax return 446-4(e) for those requirements and limits. Free efile state tax return   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. Free efile state tax return Cash method. Free efile state tax return Farm-price method. Free efile state tax return Unit-livestock-price method. Free efile state tax return   Once you adopt a method, you must apply it consistently and must have IRS approval before changing it. Free efile state tax return   Your books and records must describe the accounting method used for each type of hedging transaction. Free efile state tax return They must also contain any additional identification necessary to verify the application of the accounting method you used for the transaction. Free efile state tax return You must make the additional identification no more than 35 days after entering into the hedging transaction. Free efile state tax return Example of a hedging transaction. Free efile state tax return   You file your income tax returns on the cash method. Free efile state tax return On July 2 you anticipate a yield of 50,000 bushels of corn this year. Free efile state tax return The December futures price is $5. Free efile state tax return 75 a bushel, but there are indications that by harvest time the price will drop. Free efile state tax return To protect yourself against a drop in the price, you enter into the following hedging transaction. Free efile state tax return You sell ten December futures contracts of 5,000 bushels each for a total of 50,000 bushels of corn at $5. Free efile state tax return 75 a bushel. Free efile state tax return   The price did not drop as anticipated but rose to $6 a bushel. Free efile state tax return In November, you sell your crop at a local elevator for $6 a bushel. Free efile state tax return You also close out your futures position by buying ten December contracts for $6 a bushel. Free efile state tax return You paid a broker's commission of $1,400 ($70 per contract) for the complete in and out position in the futures market. Free efile state tax return   The result is that the price of corn rose 25 cents a bushel and the actual selling price is $6 a bushel. Free efile state tax return Your loss on the hedge is 25 cents a bushel. Free efile state tax return In effect, the net selling price of your corn is $5. Free efile state tax return 75 a bushel. Free efile state tax return   Report the results of your futures transactions and your sale of corn separately on Schedule F. Free efile state tax return See the instructions for the 2013 Schedule F (Form 1040). Free efile state tax return   The loss on your futures transactions is $13,900, figured as follows. Free efile state tax return July 2 - Sold December corn futures (50,000 bu. Free efile state tax return @$5. Free efile state tax return 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Free efile state tax return @$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. Free efile state tax return   The proceeds from your corn sale at the local elevator are $300,000 (50,000 bu. Free efile state tax return × $6). Free efile state tax return Report it on Schedule F, Part I, line 2, as income from sales of products you raised. Free efile state tax return   Assume you were right and the price went down 25 cents a bushel. Free efile state tax return In effect, you would still net $5. Free efile state tax return 75 a bushel, figured as follows. Free efile state tax return Sold cash corn, per bushel $5. Free efile state tax return 50 Gain on hedge, per bushel . Free efile state tax return 25 Net price, per bushel $5. Free efile state tax return 75       The gain on your futures transactions would have been $11,100, figured as follows. Free efile state tax return July 2 - Sold December corn futures (50,000 bu. Free efile state tax return @$5. Free efile state tax return 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Free efile state tax return @$5. Free efile state tax return 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. Free efile state tax return   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. Free efile state tax return Livestock This part discusses the sale or exchange of livestock used in your farm business. Free efile state tax return Gain or loss from the sale or exchange of this livestock may qualify as a section 1231 gain or loss. Free efile state tax return However, any part of the gain that is ordinary income from the recapture of depreciation is not included as section 1231 gain. Free efile state tax return See chapter 9 for more information on section 1231 gains and losses and the recapture of depreciation under section 1245. Free efile state tax return The rules discussed here do not apply to the sale of livestock held primarily for sale to customers. Free efile state tax return The sale of this livestock is reported on Schedule F. Free efile state tax return See chapter 3. Free efile state tax return Also, special rules apply to sales or exchanges caused by weather-related conditions. Free efile state tax return See chapter 3. Free efile state tax return Holding period. Free efile state tax return   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). Free efile state tax return Livestock. Free efile state tax return   For section 1231 transactions, livestock includes cattle, hogs, horses, mules, donkeys, sheep, goats, fur-bearing animals, and other mammals. Free efile state tax return Also, for section 1231 transactions, livestock does not include chickens, turkeys, pigeons, geese, emus, ostriches, rheas, or other birds, fish, frogs, reptiles, etc. Free efile state tax return Livestock used in farm business. Free efile state tax return   If livestock is held primarily for draft, breeding, dairy, or sporting purposes, it is used in your farm business. Free efile state tax return The purpose for which an animal is held ordinarily is determined by a farmer's actual use of the animal. Free efile state tax return 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. Free efile state tax return 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. Free efile state tax return Example 1. Free efile state tax return You discover an animal that you intend to use for breeding purposes is sterile. Free efile state tax return You dispose of it within a reasonable time. Free efile state tax return This animal was held for breeding purposes. Free efile state tax return Example 2. Free efile state tax return 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. Free efile state tax return These young animals were held for breeding or dairy purposes. Free efile state tax return 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. Free efile state tax return See Sales Caused by Weather-Related Conditions in chapter 3. Free efile state tax return Example 3. Free efile state tax return You are in the business of raising hogs for slaughter. Free efile state tax return Customarily, before selling your sows, you obtain a single litter of pigs that you will raise for sale. Free efile state tax return You sell the brood sows after obtaining the litter. Free efile state tax return 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. Free efile state tax return Example 4. Free efile state tax return You are in the business of raising registered cattle for sale to others for use as breeding cattle. Free efile state tax return The business practice is to breed the cattle before sale to establish their fitness as registered breeding cattle. Free efile state tax return Your use of the young cattle for breeding purposes is ordinary and necessary for selling them as registered breeding cattle. Free efile state tax return Such use does not demonstrate that you are holding the cattle for breeding purposes. Free efile state tax return 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. Free efile state tax return The same applies to hog and sheep breeders. Free efile state tax return Example 5. Free efile state tax return You breed, raise, and train horses for racing purposes. Free efile state tax return Every year you cull horses from your racing stable. Free efile state tax return 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. Free efile state tax return These horses are all considered held for sporting purposes. Free efile state tax return Figuring gain or loss on the cash method. Free efile state tax return   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. Free efile state tax return Raised livestock. Free efile state tax return   Gain on the sale of raised livestock is generally the gross sales price reduced by any expenses of the sale. Free efile state tax return Expenses of sale include sales commissions, freight or hauling from farm to commission company, and other similar expenses. Free efile state tax return The basis of the animal sold is zero if the costs of raising it were deducted during the years the animal was being raised. Free efile state tax return However, see Uniform Capitalization Rules in chapter 6. Free efile state tax return Purchased livestock. Free efile state tax return   The gross sales price minus your adjusted basis and any expenses of sale is the gain or loss. Free efile state tax return Example. Free efile state tax return A farmer sold a breeding cow on January 8, 2013, for $1,250. Free efile state tax return Expenses of the sale were $125. Free efile state tax return The cow was bought July 2, 2009, for $1,300. Free efile state tax return Depreciation (not less than the amount allowable) was $867. Free efile state tax return 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. Free efile state tax return Any gain realized on the disposition of converted wetland or highly erodible cropland is treated as ordinary income. Free efile state tax return Any loss on the disposition of such property is treated as a long-term capital loss. Free efile state tax return Converted wetland. Free efile state tax return   This is generally land that was drained or filled to make the production of agricultural commodities possible. Free efile state tax return 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. Free efile state tax return   A wetland (before conversion) is land that meets all the following conditions. Free efile state tax return 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. Free efile state tax return 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. Free efile state tax return It supports, under normal circumstances, mostly plants that grow in saturated soil. Free efile state tax return Highly erodible cropland. Free efile state tax return   This is cropland subject to erosion that you used at any time for farming purposes other than grazing animals. Free efile state tax return Generally, highly erodible cropland is land currently classified by the Department of Agriculture as Class IV, VI, VII, or VIII under its classification system. Free efile state tax return 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. Free efile state tax return Successor. Free efile state tax return   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. Free efile state tax return Timber Standing timber you held as investment property is a capital asset. Free efile state tax return Gain or loss from its sale is capital gain or loss reported on Form 8949 and Schedule D (Form 1040), as applicable. Free efile state tax return If you held the timber primarily for sale to customers, it is not a capital asset. Free efile state tax return Gain or loss on its sale is ordinary business income or loss. Free efile state tax return It is reported on Schedule F, line 1 (purchased timber) or line 2 (raised timber). Free efile state tax return See the Instructions for Schedule F (Form 1040). Free efile state tax return 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. Free efile state tax return Amounts realized from these sales, and the expenses incurred in cutting, hauling, etc. Free efile state tax return , are ordinary farm income and expenses reported on Schedule F. Free efile state tax return 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. Free efile state tax return Timber considered cut. Free efile state tax return   Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. Free efile state tax return This is true whether the timber is cut under contract or whether you cut it yourself. Free efile state tax return Christmas trees. Free efile state tax return   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. Free efile state tax return They qualify for both rules discussed below. Free efile state tax return Election to treat cutting as a sale or exchange. Free efile state tax return   Under the general rule, the cutting of timber results in no gain or loss. Free efile state tax return It is not until a sale or exchange occurs that gain or loss is realized. Free efile state tax return 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. Free efile state tax return 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. Free efile state tax return Any later sale results in ordinary business income or loss. Free efile state tax return See the example below. Free efile state tax return   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. Free efile state tax return Making the election. Free efile state tax return   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. Free efile state tax return You do not have to make the election in the first year you cut the timber. Free efile state tax return You can make it in any year to which the election would apply. Free efile state tax return If the timber is partnership property, the election is made on the partnership return. Free efile state tax return This election cannot be made on an amended return. Free efile state tax return   Once you have made the election, it remains in effect for all later years unless you revoke it. Free efile state tax return Election under section 631(a) may be revoked. Free efile state tax return   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. Free efile state tax return The prior election (and revocation) is disregarded for purposes of making a subsequent election. Free efile state tax return See Form T (Timber), Forest Activities Schedule, for more information. Free efile state tax return Gain or loss. Free efile state tax return   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. Free efile state tax return   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. Free efile state tax return 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. Free efile state tax return 611-3. Free efile state tax return   Depletion of timber is discussed in chapter 7. Free efile state tax return Example. Free efile state tax return   In April 2013, you owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. Free efile state tax return It had an adjusted basis for depletion of $40 per MBF. Free efile state tax return You are a calendar year taxpayer. Free efile state tax return On January 1, 2013, the timber had a FMV of $350 per MBF. Free efile state tax return It was cut in April for sale. Free efile state tax return On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. Free efile state tax return You report the difference between the FMV and your adjusted basis for depletion as a gain. Free efile state tax return 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. Free efile state tax return You figure your gain as follows. Free efile state tax return 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. Free efile state tax return Outright sales of timber. Free efile state tax return   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). Free efile state tax return 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). Free efile state tax return Cutting contract. Free efile state tax return   You must treat the disposal of standing timber under a cutting contract as a section 1231 transaction if all the following apply to you. Free efile state tax return You are the owner of the timber. Free efile state tax return You held the timber longer than 1 year before its disposal. Free efile state tax return You kept an economic interest in the timber. Free efile state tax return   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. Free efile state tax return   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. Free efile state tax return Include this amount on Form 4797 along with your other section 1231 gains or losses. Free efile state tax return Date of disposal. Free efile state tax return   The date of disposal is the date the timber is cut. Free efile state tax return 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. Free efile state tax return   This election applies only to figure the holding period of the timber. Free efile state tax return It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). Free efile state tax return   To make this election, attach a statement to the tax return filed by the due date (including extensions) for the year payment is received. Free efile state tax return The statement must identify the advance payments subject to the election and the contract under which they were made. Free efile state tax return   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). Free efile state tax return Attach the statement to the amended return and write “Filed pursuant to section 301. Free efile state tax return 9100-2” at the top of the statement. Free efile state tax return File the amended return at the same address the original return was filed. Free efile state tax return Owner. Free efile state tax return   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. Free efile state tax return 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. Free efile state tax return Tree stumps. Free efile state tax return   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. Free efile state tax return Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. Free efile state tax return However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. Free efile state tax return Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. Free efile state tax return   See Form T (Timber) and its separate instructions for more information about dispositions of timber. Free efile state tax return 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). Free efile state tax return If you have a gain from the sale, you may be allowed to exclude the gain on your home. Free efile state tax return For more information, see Publication 523, Selling Your Home. Free efile state tax return The gain on the sale of your business property is taxable. Free efile state tax return A loss on the sale of your business property to an unrelated person is deducted as an ordinary loss. Free efile state tax return Your taxable gain or loss on the sale of property used in your farm business is taxed under the rules for section 1231 transactions. Free efile state tax return See chapter 9. Free efile state tax return Losses from personal-use property, other than casualty or theft losses, are not deductible. Free efile state tax return 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. Free efile state tax return See chapter 10 for information about installment sales. Free efile state tax return When you sell your farm, the gain or loss on each asset is figured separately. Free efile state tax return The tax treatment of gain or loss on the sale of each asset is determined by the classification of the asset. Free efile state tax return Each of the assets sold must be classified as one of the following. Free efile state tax return Capital asset held 1 year or less. Free efile state tax return Capital asset held longer than 1 year. Free efile state tax return 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 ). Free efile state tax return 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). Free efile state tax return 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. Free efile state tax return Allocation of consideration paid for a farm. Free efile state tax return   The sale of a farm for a lump sum is considered a sale of each individual asset rather than a single asset. Free efile state tax return The residual method is required only if the group of assets sold constitutes a trade or business. Free efile state tax return This method determines gain or loss from the transfer of each asset. Free efile state tax return It also determines the buyer's basis in the business assets. Free efile state tax return For more information, see Sale of a Business in chapter 2 of Publication 544. Free efile state tax return Property used in farm operation. Free efile state tax return   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. Free efile state tax return Recognized gains and losses on business property must be reported on your return for the year of the sale. Free efile state tax return If the property was held longer than 1 year, it may qualify for section 1231 treatment (see chapter 9). Free efile state tax return Example. Free efile state tax return You sell your farm, including your main home, which you have owned since December 2001. Free efile state tax return You realize gain on the sale as follows. Free efile state tax return   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. Free efile state tax return 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. Free efile state tax return Treat the balance as section 1231 gain. Free efile state tax return 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 . Free efile state tax return Partial sale. Free efile state tax return   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. Free efile state tax return You cannot wait until you have sold enough of the farm to recover its entire cost before reporting gain or loss. Free efile state tax return For a detailed discussion on installment sales, see Publication 544. Free efile state tax return Adjusted basis of the part sold. Free efile state tax return   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. Free efile state tax return , on the part sold. Free efile state tax return 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 . Free efile state tax return Example. Free efile state tax return You bought a 600-acre farm for $700,000. Free efile state tax return The farm included land and buildings. Free efile state tax return The purchase contract designated $600,000 of the purchase price to the land. Free efile state tax return You later sold 60 acres of land on which you had installed a fence. Free efile state tax return 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. Free efile state tax return Use this amount to determine your gain or loss on the sale of the 60 acres. Free efile state tax return Assessed values for local property taxes. Free efile state tax return   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. Free efile state tax return Example. Free efile state tax return Assume that in the preceding example there was no breakdown of the $700,000 purchase price between land and buildings. Free efile state tax return 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. Free efile state tax return The assessed valuation of the land is 3/4 (75%) of the total assessed valuation. Free efile state tax return Multiply the $700,000 total purchase price by 75% to figure basis of $525,000 for the 600 acres of land. Free efile state tax return The unadjusted basis of the 60 acres you sold would then be $52,500 (1/10 of $525,000). Free efile state tax return Sale of your home. Free efile state tax return   Your home is a capital asset and not property used in the trade or business of farming. Free efile state tax return 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. Free efile state tax return Your home includes the immediate surroundings and outbuildings relating to it that are not used for business purposes. Free efile state tax return   If you use part of your home for business, you must make an appropriate adjustment to the basis for depreciation allowed or allowable. Free efile state tax return For more information on basis, see chapter 6. Free efile state tax return More information. Free efile state tax return   For more information on selling your home, see Publication 523. Free efile state tax return Gain from condemnation. Free efile state tax return   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. Free efile state tax return 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. Free efile state tax return 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. Free efile state tax return The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Free efile state tax return This is true even if you voluntarily return the property to the lender. Free efile state tax return You may also realize ordinary income from cancellation of debt if the loan balance is more than the FMV of the property. Free efile state tax return Buyer's (borrower's) gain or loss. Free efile state tax return   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. Free efile state tax return The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Free efile state tax return See Determining Gain or Loss , earlier. Free efile state tax return Worksheet 8-1. Free efile state tax return Worksheet for Foreclosures andRepossessions Part 1. Free efile state tax return Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Free efile state tax return Complete this part only if you were personally liable for the debt. Free efile state tax return Otherwise, go to Part 2. Free efile state tax return   1. Free efile state tax return 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. Free efile state tax return Enter the Fair Market Value of the transferred property   3. Free efile state tax return Ordinary income from cancellation of debt upon foreclosure or repossession. Free efile state tax return * Subtract line 2 from line 1. Free efile state tax return If zero or less, enter -0-   Part 2. Free efile state tax return Figure your gain or loss from foreclosure or repossession. Free efile state tax return   4. Free efile state tax return If you completed Part 1, enter the smaller of line 1 or line 2. Free efile state tax return If you did not complete Part 1, enter the outstanding debt immediately before the transfer of property   5. Free efile state tax return Enter any proceeds you received from the foreclosure sale   6. Free efile state tax return Add lines 4 and 5   7. Free efile state tax return Enter the adjusted basis of the transferred property   8. Free efile state tax return Gain or loss from foreclosure or repossession. Free efile state tax return Subtract line 7  from line 6   * The income may not be taxable. Free efile state tax return See Cancellation of debt . Free efile state tax return    You can use Worksheet 8-1 to figure your gain or loss from a foreclosure or repossession. Free efile state tax return Amount realized on a nonrecourse debt. Free efile state tax return   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. Free efile state tax return 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. Free efile state tax return Example 1. Free efile state tax return Ann paid $200,000 for land used in her farming business. Free efile state tax return She paid $15,000 down and borrowed the remaining $185,000 from a bank. Free efile state tax return Ann is not personally liable for the loan (nonrecourse debt), but pledges the land as security. Free efile state tax return The bank foreclosed on the loan 2 years after Ann stopped making payments. Free efile state tax return When the bank foreclosed, the balance due on the loan was $180,000 and the FMV of the land was $170,000. Free efile state tax return The amount Ann realized on the foreclosure was $180,000, the debt canceled by the foreclosure. Free efile state tax return She figures her gain or loss on Form 4797, Part I, by comparing the amount realized ($180,000) with her adjusted basis ($200,000). Free efile state tax return She has a $20,000 deductible loss. Free efile state tax return Example 2. Free efile state tax return Assume the same facts as in Example 1 except the FMV of the land was $210,000. Free efile state tax return The result is the same. Free efile state tax return The amount Ann realized on the foreclosure is $180,000, the debt canceled by the foreclosure. Free efile state tax return Because her adjusted basis is $200,000, she has a deductible loss of $20,000, which she reports on Form 4797, Part I. Free efile state tax return Amount realized on a recourse debt. Free efile state tax return   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. Free efile state tax return   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. Free efile state tax return The amount realized does not include the canceled debt that is your income from cancellation of debt. Free efile state tax return See Cancellation of debt , later. Free efile state tax return Example 3. Free efile state tax return Assume the same facts as in Example 1 above except Ann is personally liable for the loan (recourse debt). Free efile state tax return In this case, the amount she realizes is $170,000. Free efile state tax return This is the canceled debt ($180,000) up to the FMV of the land ($170,000). Free efile state tax return Ann figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($200,000). Free efile state tax return She has a $30,000 deductible loss, which she figures on Form 4797, Part I. Free efile state tax return She is also treated as receiving ordinary income from cancellation of debt. Free efile state tax return That income is $10,000 ($180,000 − $170,000). Free efile state tax return This is the part of the canceled debt not included in the amount realized. Free efile state tax return She reports this as other income on Schedule F, line 8. Free efile state tax return Seller's (lender's) gain or loss on repossession. Free efile state tax return   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. Free efile state tax return For more information, see Repossession in Publication 537, Installment Sales. Free efile state tax return Cancellation of debt. Free efile state tax return   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. Free efile state tax return This income is separate from any gain or loss realized from the foreclosure or repossession. Free efile state tax return Report the income from cancellation of a business debt on Schedule F, line 8. Free efile state tax return Report the income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Free efile state tax return    You can use Worksheet 8-1 to figure your income from cancellation of debt. Free efile state tax return   However, income from cancellation of debt is not taxed if any of the following apply. Free efile state tax return The cancellation is intended as a gift. Free efile state tax return The debt is qualified farm debt (see chapter 3). Free efile state tax return The debt is qualified real property business debt (see chapter 5 of Publication 334). Free efile state tax return You are insolvent or bankrupt (see  chapter 3). Free efile state tax return The debt is qualified principal residence indebtedness (see chapter 3). Free efile state tax return   Use Form 982 to report the income exclusion. Free efile state tax return Abandonment The abandonment of property is a disposition of property. Free efile state tax return 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. Free efile state tax return Business or investment property. Free efile state tax return   Loss from abandonment of business or investment property is deductible as a loss. Free efile state tax return Loss from abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Free efile state tax return If your adjusted basis is more than the amount you realize (if any), then you have a loss. Free efile state tax return If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Free efile state tax return This rule also applies to leasehold improvements the lessor made for the lessee. Free efile state tax return 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 . Free efile state tax return   If the abandoned property is secured by debt, special rules apply. Free efile state tax return 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). Free efile state tax return For more information, see chapter 3 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). Free efile state tax return The abandonment loss is deducted in the tax year in which the loss is sustained. Free efile state tax return Report the loss on Form 4797, Part II, line 10. Free efile state tax return Personal-use property. Free efile state tax return   You cannot deduct any loss from abandonment of your home or other property held for personal use. Free efile state tax return Canceled debt. Free efile state tax return   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. Free efile state tax return This income is separate from any loss realized from abandonment of the property. Free efile state tax return Report income from cancellation of a debt related to a business or rental activity as business or rental income. Free efile state tax return Report income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Free efile state tax return   However, income from cancellation of debt is not taxed in certain circumstances. Free efile state tax return See Cancellation of debt earlier under Foreclosure or Repossession . Free efile state tax return Forms 1099-A and 1099-C. Free efile state tax return   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. Free efile state tax return 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. Free efile state tax return 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. Free efile state tax return For foreclosures, repossessions, abandonments of property, and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Free efile state tax return Prev  Up  Next   Home   More Online Publications