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Free file state tax only Publication 925 - Introductory Material Table of Contents Future Developments Reminders IntroductionOrdering forms and publications. Free file state tax only Tax questions. Free file state tax only Useful Items - You may want to see: Future Developments For the latest developments related to Publication 925, such as legislation enacted after it was published, go to www. Free file state tax only irs. Free file state tax only gov/pub925. Free file state tax only Reminders At-risk amounts. Free file state tax only  The following rules apply to amounts borrowed after May 3, 2004. Free file state tax only You must file Form 6198, At-Risk Limitations, if you are engaged in an activity included in (6) under Activities Covered by the At-Risk Rules and you have borrowed certain amounts described in Certain borrowed amounts excluded under At-Risk Amounts in this publication. Free file state tax only You may be considered at risk for certain amounts described in Certain borrowed amounts excluded under At-Risk Amounts secured by real property used in the activity of holding real property (other than mineral property) that, if nonrecourse, would be qualified nonrecourse financing. Free file state tax only Photographs of missing children. Free file state tax only  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Free file state tax only Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Free file state tax only You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Free file state tax only Introduction This publication discusses two sets of rules that may limit the amount of your deductible loss from a trade, business, rental, or other income-producing activity. Free file state tax only The first part of the publication discusses the passive activity rules. Free file state tax only The second part discusses the at-risk rules. Free file state tax only However, when you figure your allowable losses from any activity, you must apply the at-risk rules before the passive activity rules. Free file state tax only Comments and suggestions. Free file state tax only   We welcome your comments about this publication and your suggestions for future editions. Free file state tax only   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Free file state tax only NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Free file state tax only Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Free file state tax only   You can send your comments from www. Free file state tax only irs. Free file state tax only gov/formspubs/. Free file state tax only Click on “More Information” and then on “Comment on Tax Forms and Publications. Free file state tax only ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Free file state tax only Ordering forms and publications. Free file state tax only   Visit www. Free file state tax only irs. Free file state tax only gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Free file state tax only Internal Revenue Service 1201 N. Free file state tax only Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Free file state tax only   If you have a tax question, check the information available on IRS. Free file state tax only gov or call 1-800-829-1040. Free file state tax only We cannot answer tax questions sent to either of the above addresses. Free file state tax only Useful Items - You may want to see: Publication 527 Residential Rental Property (Including Rental of Vacation Homes) 541 Partnerships Form (and Instructions) 4952 Investment Interest Expense Deduction 6198 At-Risk Limitations 8582 Passive Activity Loss Limitations 8582-CR Passive Activity Credit Limitations 8810 Corporate Passive Activity Loss and Credit Limitations 8949 Sales and Other Dispositions of Capital Assets See How To Get Tax Help near the end of this publication for information about getting these publications and forms. Free file state tax only Prev  Up  Next   Home   More Online Publications
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Questions and Answers on 501(c) Organizations

May 15, 2013

The IRS has received a variety of questions related to the exempt organization issues recently raised. Here are some basics on the issue.

1. What are the issues raised in the recent Treasury Inspector General for Tax Administration (“TIGTA”) report?

The issues relate to the application process for organizations seeking tax-exempt status. Part of the IRS’s responsibility is to review applications of organizations seeking tax-exempt status. Section 501(c)(3) organizations are required to get IRS approval. Others, including section 501(c)(4) organizations, are not required to get IRS approval, but often seek it.

2. Do the issues raised in the recent report relate to audits/ examinations?

No, the issues relate to the approval process of organizations that applied to the IRS for recognition of tax-exempt status. 

3. What does the IRS look for in the approval process? 

The IRS’s role is to determine whether organization meets the legal requirements for tax-exempt status. One requirement relates to the amount of political campaign intervention (“political activity”) that tax-exempt organizations may engage in. Section 501(c)(3) organizations are prohibited from engaging in any political activity. Other organizations, including section 501(c)(4) organizations, may only engage in a limited amount of political activity. 

4. Where does an organization send its application for tax-exemption?

All applications are sent to the IRS Determinations Office in Cincinnati. This office receives approximately 70,000 applications for tax-exempt status of all kinds each year. This includes applications from section 501(c)(3) and section 501(c)(4) organizations. This office, which includes fewer than 200 people working directly on applications, is primarily responsible for working determination applications. Determinations staff may consult with tax law specialists in Washington on how the law applies to their case. 

5. Has the IRS seen an increase in the number of applications in which the organization is potentially engaged in political activity?

Yes, the IRS has seen an increase in the number of section 501(c)(4) applications in general. The number of applications has more than doubled in recent years. In addition, the IRS has seen an increase in the number of tax-exempt organization applications in which the organization is potentially engaged in political activity. This includes both section 501(c)(3) and section 501(c)(4) organizations.

6. How did the IRS handle the increase in the number of applications from organizations that appeared to be engaged in political activity?

As done in the past in other situations, such as credit counseling and down payment assistance), the IRS selected cases using identified criteria so that cases needing further review would be worked consistently. This means that cases meeting the selection criteria were centralized and assigned to designated employees developing expertise in the area so that they could be worked in a fair and consistent manner. 

7. How are decisions made regarding what cases should be centralized in this area?

Cases are selected for centralization if there are indications in the application that the organization may engage in political campaign intervention, lobbying, or advocacy. This was done to ensure that the legal requirements related to these activities are applied in a fair and consistent manner. The set of criteria was revised at a later point in order to avoid centralizing pure lobbying organizations that did not require follow-on development. During certain periods (August 2010 to July 2011 and January 2012 to June 2012), specific names, terms and policies (such as Tea Party and Patriot) were inappropriately used as criteria in determining which cases should be centralized. However, case selection during these periods was not limited to these criteria. 

8. What cases were centralized?

The TIGTA report reflects that 300 cases were centralized. Approximately 70 of those cases included the name Tea Party. The remaining cases included organizations of all political views. The current number of centralized cases is approximately 470.

9. Why did IRS employees look at Tea Party organizations?

IRS employees had seen cases of organizations with the name Tea Party in which political activity was an issue that needed to be reviewed for compliance with legal requirements. Because of the increased inventory of applications, this inappropriate criterion was used as a shortcut to centralize similar cases.

10. Would organizations with Tea Party in the name have been centralized if only appropriate selection criteria had been used?

Yes, in most cases the organization would have been centralized based on the information included in the application. The IRS should have focused on this information instead of using a shortcut.

11. Were centralized cases worked differently depending on which selection criteria was used?

No, centralized cases were not worked differently depending on which selection criteria was used.

12. Did mistakes occur in working the centralized cases?

Yes. Applicants whose cases were centralized unfortunately experienced inappropriate delays and over-expansive information requests in some cases. This was caused by ineffective processes and not related to the selection criteria used for the centralization of a case.

13. Is there any evidence of political bias in selecting cases for centralization or in working those cases?

The TIGTA report included no findings of political bias. In addition, the IRS has found no indication of political bias. 

14. How many centralized applications have been approved?

Since centralization, more than 175 applications have been approved to date. As with all applications for tax-exempt status that are approved, the names of organizations whose applications have been approved are publicly available. 

Page Last Reviewed or Updated: 04-Sep-2013

The Free File State Tax Only

Free file state tax only 2. Free file state tax only   Ordinary or Capital Gain or Loss Table of Contents IntroductionSection 1231 transactions. Free file state tax only Topics - This chapter discusses: Useful Items - You may want to see: Capital Assets Noncapital AssetsCommodities derivative dealer. Free file state tax only Sales and Exchanges Between Related PersonsGain Is Ordinary Income Nondeductible Loss Other DispositionsSale of a Business Dispositions of Intangible Property Subdivision of Land Timber Precious Metals and Stones, Stamps, and Coins Coal and Iron Ore Conversion Transactions Introduction 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 file state tax only You must do this to figure your net capital gain or loss. Free file state tax only For individuals, a net capital gain may be taxed at a different tax rate than ordinary income. Free file state tax only See Capital Gains Tax Rates in chapter 4. Free file state tax only Your deduction for a net capital loss may be limited. Free file state tax only See Treatment of Capital Losses in chapter 4. Free file state tax only Capital gain or loss. Free file state tax only   Generally, you will have a capital gain or loss if you sell or exchange a capital asset. Free file state tax only You also may have a capital gain if your section 1231 transactions result in a net gain. Free file state tax only Section 1231 transactions. Free file state tax only   Section 1231 transactions are sales and exchanges of property held longer than 1 year and either used in a trade or business or held for the production of rents or royalties. Free file state tax only They also include certain involuntary conversions of business or investment property, including capital assets. Free file state tax only See Section 1231 Gains and Losses in chapter 3 for more information. Free file state tax only Topics - This chapter discusses: Capital assets Noncapital assets Sales and exchanges between  related persons Other dispositions Useful Items - You may want to see: Publication 550 Investment Income and Expenses Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 4797 Sales of Business Property 8594 Asset Acquisition Statement Under Section 1060 8949 Sales and Other Dispositions of Capital Assets See chapter 5 for information about getting publications and forms. Free file state tax only Capital Assets Almost everything you own and use for personal purposes, pleasure, or investment is a capital asset. Free file state tax only For exceptions, see Noncapital Assets, later. Free file state tax only The following items are examples of capital assets. Free file state tax only Stocks and bonds. Free file state tax only A home owned and occupied by you and your family. Free file state tax only Timber grown on your home property or investment property, even if you make casual sales of the timber. Free file state tax only Household furnishings. Free file state tax only A car used for pleasure or commuting. Free file state tax only Coin or stamp collections. Free file state tax only Gems and jewelry. Free file state tax only Gold, silver, and other metals. Free file state tax only Personal-use property. Free file state tax only   Generally, property held for personal use is a capital asset. Free file state tax only Gain from a sale or exchange of that property is a capital gain. Free file state tax only Loss from the sale or exchange of that property is not deductible. Free file state tax only You can deduct a loss relating to personal-use property only if it results from a casualty or theft. Free file state tax only Investment property. Free file state tax only   Investment property (such as stocks and bonds) is a capital asset, and a gain or loss from its sale or exchange is a capital gain or loss. Free file state tax only This treatment does not apply to property used to produce rental income. Free file state tax only See Business assets, later, under Noncapital Assets. Free file state tax only Release of restriction on land. Free file state tax only   Amounts you receive for the release of a restrictive covenant in a deed to land are treated as proceeds from the sale of a capital asset. Free file state tax only Noncapital Assets A noncapital asset is property that is not a capital asset. Free file state tax only The following kinds of property are not capital assets. Free file state tax only Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business. Free file state tax only Inventories are discussed in Publication 538, Accounting Periods and Methods. Free file state tax only But, see the Tip below. Free file state tax only Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale of any properties described in (1), above. Free file state tax only Depreciable property used in your trade or business or as rental property (including section 197 intangibles defined later), even if the property is fully depreciated (or amortized). Free file state tax only Sales of this type of property are discussed in chapter 3. Free file state tax only Real property used in your trade or business or as rental property, even if the property is fully depreciated. Free file state tax only A copyright; a literary, musical, or artistic composition; a letter; a memorandum; or similar property (such as drafts of speeches, recordings, transcripts, manuscripts, drawings, or photographs): Created by your personal efforts, Prepared or produced for you (in the case of a letter, memorandum, or similar property), or Received from a person who created the property or for whom the property was prepared under circumstances (for example, by gift) entitling you to the basis of the person who created the property, or for whom it was prepared or produced. Free file state tax only But, see the Tip below. Free file state tax only U. Free file state tax only S. Free file state tax only Government publications you got from the government for free or for less than the normal sales price or that you acquired under circumstances entitling you to the basis of someone who got the publications for free or for less than the normal sales price. Free file state tax only Any commodities derivative financial instrument (discussed later) held by a commodities derivatives dealer unless it meets both of the following requirements. Free file state tax only It is established to the satisfaction of the IRS that the instrument has no connection to the activities of the dealer as a dealer. Free file state tax only The instrument is clearly identified in the dealer's records as meeting (a) by the end of the day on which it was acquired, originated, or entered into. Free file state tax only Any hedging transaction (defined later) that is clearly identified as a hedging transaction by the end of the day on which it was acquired, originated, or entered into. Free file state tax only Supplies of a type you regularly use or consume in the ordinary course of your trade or business. Free file state tax only You can elect to treat as capital assets certain self-created musical compositions or copyrights you sold or exchanged. Free file state tax only See chapter 4 of Publication 550 for details. Free file state tax only Property held mainly for sale to customers. Free file state tax only   Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business are not capital assets. Free file state tax only Inventories are discussed in Publication 538. Free file state tax only Business assets. Free file state tax only   Real property and depreciable property used in your trade or business or as rental property (including section 197 intangibles defined later under Dispositions of Intangible Property) are not capital assets. Free file state tax only The sale or disposition of business property is discussed in chapter 3. Free file state tax only Letters and memoranda. Free file state tax only   Letters, memoranda, and similar property (such as drafts of speeches, recordings, transcripts, manuscripts, drawings, or photographs) are not treated as capital assets (as discussed earlier) if your personal efforts created them or if they were prepared or produced for you. Free file state tax only Nor is this property a capital asset if your basis in it is determined by reference to the person who created it or the person for whom it was prepared. Free file state tax only For this purpose, letters and memoranda addressed to you are considered prepared for you. Free file state tax only If letters or memoranda are prepared by persons under your administrative control, they are considered prepared for you whether or not you review them. Free file state tax only Commodities derivative financial instrument. Free file state tax only   A commodities derivative financial instrument is a commodities contract or other financial instrument for commodities (other than a share of corporate stock, a beneficial interest in a partnership or trust, a note, bond, debenture, or other evidence of indebtedness, or a section 1256 contract) the value or settlement price of which is calculated or determined by reference to a specified index (as defined in section 1221(b) of the Internal Revenue Code). Free file state tax only Commodities derivative dealer. Free file state tax only   A commodities derivative dealer is a person who regularly offers to enter into, assume, offset, assign, or terminate positions in commodities derivative financial instruments with customers in the ordinary course of a trade or business. Free file state tax only Hedging transaction. Free file state tax only   A hedging transaction is any transaction you enter into in the normal course of your trade or business primarily to manage any of the following. Free file state tax only Risk of price changes or currency fluctuations involving ordinary property you hold or will hold. Free file state tax only Risk of interest rate or price changes or currency fluctuations for borrowings you make or will make, or ordinary obligations you incur or will incur. Free file state tax only Sales and Exchanges Between Related Persons This section discusses the rules that may apply to the sale or exchange of property between related persons. Free file state tax only If these rules apply, gains may be treated as ordinary income and losses may not be deductible. Free file state tax only See Transfers to Spouse in chapter 1 for rules that apply to spouses. Free file state tax only Gain Is Ordinary Income If a gain is recognized on the sale or exchange of property to a related person, the gain may be ordinary income even if the property is a capital asset. Free file state tax only It is ordinary income if the sale or exchange is a depreciable property transaction or a controlled partnership transaction. Free file state tax only Depreciable property transaction. Free file state tax only   Gain on the sale or exchange of property, including a leasehold or a patent application, that is depreciable property in the hands of the person who receives it is ordinary income if the transaction is either directly or indirectly between any of the following pairs of entities. Free file state tax only A person and the person's controlled entity or entities. Free file state tax only A taxpayer and any trust in which the taxpayer (or his or her spouse) is a beneficiary unless the beneficiary's interest in the trust is a remote contingent interest; that is, the value of the interest computed actuarially is 5% or less of the value of the trust property. Free file state tax only An executor and a beneficiary of an estate unless the sale or exchange is in satisfaction of a pecuniary bequest (a bequest for a sum of money). Free file state tax only An employer (or any person related to the employer under rules (1), (2), or (3)) and a welfare benefit fund (within the meaning of section 419(e) of the Internal Revenue Code) that is controlled directly or indirectly by the employer (or any person related to the employer). Free file state tax only Controlled entity. Free file state tax only   A person's controlled entity is either of the following. Free file state tax only A corporation in which more than 50% of the value of all outstanding stock, or a partnership in which more than 50% of the capital interest or profits interest, is directly or indirectly owned by or for that person. Free file state tax only An entity whose relationship with that person is one of the following. Free file state tax only A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest or profits interest in the partnership. Free file state tax only Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 50%” is substituted for “at least 80%” in that definition. Free file state tax only Two S corporations, if the same persons own more than 50% in value of the outstanding stock of each corporation. Free file state tax only Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Free file state tax only Controlled partnership transaction. Free file state tax only   A gain recognized in a controlled partnership transaction may be ordinary income. Free file state tax only The gain is ordinary income if it results from the sale or exchange of property that, in the hands of the party who receives it, is a noncapital asset such as trade accounts receivable, inventory, stock in trade, or depreciable or real property used in a trade or business. Free file state tax only   A controlled partnership transaction is a transaction directly or indirectly between either of the following pairs of entities. Free file state tax only A partnership and a person who directly or indirectly owns more than 50% of the capital interest or profits interest in the partnership. Free file state tax only Two partnerships, if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships. Free file state tax only Determining ownership. Free file state tax only   In the transactions under Depreciable property transaction and Controlled partnership transaction, earlier, use the following rules to determine the ownership of stock or a partnership interest. Free file state tax only Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Free file state tax only (However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more in value of the stock of the corporation. Free file state tax only ) An individual is considered as owning the stock or partnership interest directly or indirectly owned by or for his or her family. Free file state tax only Family includes only brothers, sisters, half-brothers, half-sisters, spouse, ancestors, and lineal descendants. Free file state tax only For purposes of applying (1) or (2), above, stock or a partnership interest constructively owned by a person under (1) is treated as actually owned by that person. Free file state tax only But stock or a partnership interest constructively owned by an individual under (2) is not treated as owned by the individual for reapplying (2) to make another person the constructive owner of that stock or partnership interest. Free file state tax only Nondeductible Loss A loss on the sale or exchange of property between related persons is not deductible. Free file state tax only This applies to both direct and indirect transactions, but not to distributions of property from a corporation in a complete liquidation. Free file state tax only For the list of related persons, see Related persons next. Free file state tax only If a sale or exchange is between any of these related persons and involves the lump-sum sale of a number of blocks of stock or pieces of property, the gain or loss must be figured separately for each block of stock or piece of property. Free file state tax only The gain on each item is taxable. Free file state tax only The loss on any item is nondeductible. Free file state tax only Gains from the sales of any of these items may not be offset by losses on the sales of any of the other items. Free file state tax only Related persons. Free file state tax only   The following is a list of related persons. Free file state tax only Members of a family, including only brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Free file state tax only ), and lineal descendants (children, grandchildren, etc. Free file state tax only ). Free file state tax only An individual and a corporation if the individual directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. Free file state tax only Two corporations that are members of the same controlled group as defined in section 267(f) of the Internal Revenue Code. Free file state tax only A trust fiduciary and a corporation if the trust or the grantor of the trust directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. Free file state tax only A grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Free file state tax only Fiduciaries of two different trusts, and the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. Free file state tax only A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization, or a member of that person's family. Free file state tax only A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest or profits interest in the partnership. Free file state tax only Two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. Free file state tax only Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Free file state tax only An executor and a beneficiary of an estate unless the sale or exchange is in satisfaction of a pecuniary bequest. Free file state tax only Two partnerships if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships. Free file state tax only A person and a partnership if the person directly or indirectly owns more than 50% of the capital interest or profits interest in the partnership. Free file state tax only Partnership interests. Free file state tax only   The nondeductible loss rule does not apply to a sale or exchange of an interest in the partnership between the related persons described in (12) or (13) above. Free file state tax only Controlled groups. Free file state tax only   Losses on transactions between members of the same controlled group described in (3) earlier are deferred rather than denied. Free file state tax only   For more information, see section 267(f) of the Internal Revenue Code. Free file state tax only Ownership of stock or partnership interests. Free file state tax only   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership for a loss on a sale or exchange, the following rules apply. Free file state tax only Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Free file state tax only (However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more in value of the stock of the corporation. Free file state tax only ) An individual is considered as owning the stock or partnership interest directly or indirectly owned by or for his or her family. Free file state tax only Family includes only brothers, sisters, half-brothers, half-sisters, spouse, ancestors, and lineal descendants. Free file state tax only An individual owning (other than by applying (2)) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. Free file state tax only For purposes of applying (1), (2), or (3), stock or a partnership interest constructively owned by a person under (1) is treated as actually owned by that person. Free file state tax only But stock or a partnership interest constructively owned by an individual under (2) or (3) is not treated as owned by the individual for reapplying either (2) or (3) to make another person the constructive owner of that stock or partnership interest. Free file state tax only Indirect transactions. Free file state tax only   You cannot deduct your loss on the sale of stock through your broker if under a prearranged plan a related person or entity buys the same stock you had owned. Free file state tax only This does not apply to a cross-trade between related parties through an exchange that is purely coincidental and is not prearranged. Free file state tax only Property received from a related person. Free file state tax only   If, in a purchase or exchange, you received property from a related person who had a loss that was not allowable and you later sell or exchange the property at a gain, you recognize the gain only to the extent it is more than the loss previously disallowed to the related person. Free file state tax only This rule applies only to the original transferee. Free file state tax only Example 1. Free file state tax only Your brother sold stock to you for $7,600. Free file state tax only His cost basis was $10,000. Free file state tax only His loss of $2,400 was not deductible. Free file state tax only You later sell the same stock to an unrelated party for $10,500, realizing a gain of $2,900 ($10,500 − $7,600). Free file state tax only Your recognized gain is only $500, the gain that is more than the $2,400 loss not allowed to your brother. Free file state tax only Example 2. Free file state tax only Assume the same facts as in Example 1, except that you sell the stock for $6,900 instead of $10,500. Free file state tax only Your recognized loss is only $700 ($7,600 − $6,900). Free file state tax only You cannot deduct the loss not allowed to your brother. Free file state tax only Other Dispositions This section discusses rules for determining the treatment of gain or loss from various dispositions of property. Free file state tax only Sale of a Business The sale of a business usually is not a sale of one asset. Free file state tax only Instead, all the assets of the business are sold. Free file state tax only Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss. Free file state tax only A business usually has many assets. Free file state tax only When sold, these assets must be classified as capital assets, depreciable property used in the business, real property used in the business, or property held for sale to customers, such as inventory or stock in trade. Free file state tax only The gain or loss on each asset is figured separately. Free file state tax only The sale of capital assets results in capital gain or loss. Free file state tax only The sale of real property or depreciable property used in the business and held longer than 1 year results in gain or loss from a section 1231 transaction (discussed in chapter 3). Free file state tax only The sale of inventory results in ordinary income or loss. Free file state tax only Partnership interests. Free file state tax only   An interest in a partnership or joint venture is treated as a capital asset when sold. Free file state tax only The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary gain or loss. Free file state tax only For more information, see Disposition of Partner's Interest in Publication 541. Free file state tax only Corporation interests. Free file state tax only   Your interest in a corporation is represented by stock certificates. Free file state tax only When you sell these certificates, you usually realize capital gain or loss. Free file state tax only For information on the sale of stock, see chapter 4 in Publication 550. Free file state tax only Corporate liquidations. Free file state tax only   Corporate liquidations of property generally are treated as a sale or exchange. Free file state tax only Gain or loss generally is recognized by the corporation on a liquidating sale of its assets. Free file state tax only Gain or loss generally is recognized also on a liquidating distribution of assets as if the corporation sold the assets to the distributee at fair market value. Free file state tax only   In certain cases in which the distributee is a corporation in control of the distributing corporation, the distribution may not be taxable. Free file state tax only For more information, see section 332 of the Internal Revenue Code and the related regulations. Free file state tax only Allocation of consideration paid for a business. Free file state tax only   The sale of a trade or business for a lump sum is considered a sale of each individual asset rather than of a single asset. Free file state tax only Except for assets exchanged under any nontaxable exchange rules, both the buyer and seller of a business must use the residual method (explained later) to allocate the consideration to each business asset transferred. Free file state tax only This method determines gain or loss from the transfer of each asset and how much of the consideration is for goodwill and certain other intangible property. Free file state tax only It also determines the buyer's basis in the business assets. Free file state tax only Consideration. Free file state tax only   The buyer's consideration is the cost of the assets acquired. Free file state tax only The seller's consideration is the amount realized (money plus the fair market value of property received) from the sale of assets. Free file state tax only Residual method. Free file state tax only   The residual method must be used for any transfer of a group of assets that constitutes a trade or business and for which the buyer's basis is determined only by the amount paid for the assets. Free file state tax only This applies to both direct and indirect transfers, such as the sale of a business or the sale of a partnership interest in which the basis of the buyer's share of the partnership assets is adjusted for the amount paid under section 743(b) of the Internal Revenue Code. Free file state tax only Section 743(b) applies if a partnership has an election in effect under section 754 of the Internal Revenue Code. Free file state tax only   A group of assets constitutes a trade or business if either of the following applies. Free file state tax only Goodwill or going concern value could, under any circumstances, attach to them. Free file state tax only The use of the assets would constitute an active trade or business under section 355 of the Internal Revenue Code. Free file state tax only   The residual method provides for the consideration to be reduced first by the amount of Class I assets (defined below). Free file state tax only The consideration remaining after this reduction must be allocated among the various business assets in a certain order. Free file state tax only See Classes of assets next for the complete order. Free file state tax only Classes of assets. Free file state tax only   The following definitions are the classifications for deemed or actual asset acquisitions. Free file state tax only Allocate the consideration among the assets in the following order. Free file state tax only The amount allocated to an asset, other than a Class VII asset, cannot exceed its fair market value on the purchase date. Free file state tax only The amount you can allocate to an asset also is subject to any applicable limits under the Internal Revenue Code or general principles of tax law. Free file state tax only Class I assets are cash and general deposit accounts (including checking and savings accounts but excluding certificates of deposit). Free file state tax only Class II assets are certificates of deposit, U. Free file state tax only S. Free file state tax only Government securities, foreign currency, and actively traded personal property, including stock and securities. Free file state tax only Class III assets are accounts receivable, other debt instruments, and assets that you mark to market at least annually for federal income tax purposes. Free file state tax only However, see section 1. Free file state tax only 338-6(b)(2)(iii) of the regulations for exceptions that apply to debt instruments issued by persons related to a target corporation, contingent debt instruments, and debt instruments convertible into stock or other property. Free file state tax only Class IV assets are property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held by the taxpayer primarily for sale to customers in the ordinary course of business. Free file state tax only Class V assets are all assets other than Class I, II, III, IV, VI, and VII assets. Free file state tax only    Note. Free file state tax only Furniture and fixtures, buildings, land, vehicles, and equipment, which constitute all or part of a trade or business are generally Class V assets. Free file state tax only Class VI assets are section 197 intangibles (other than goodwill and going concern value). Free file state tax only Class VII assets are goodwill and going concern value (whether the goodwill or going concern value qualifies as a section 197 intangible). Free file state tax only   If an asset described in one of the classifications described above can be included in more than one class, include it in the lower numbered class. Free file state tax only For example, if an asset is described in both Class II and Class IV, choose Class II. Free file state tax only Example. Free file state tax only The total paid in the sale of the assets of Company SKB is $21,000. Free file state tax only No cash or deposit accounts or similar accounts were sold. Free file state tax only The company's U. Free file state tax only S. Free file state tax only Government securities sold had a fair market value of $3,200. Free file state tax only The only other asset transferred (other than goodwill and going concern value) was inventory with a fair market value of $15,000. Free file state tax only Of the $21,000 paid for the assets of Company SKB, $3,200 is allocated to U. Free file state tax only S. Free file state tax only Government securities, $15,000 to inventory assets, and the remaining $2,800 to goodwill and going concern value. Free file state tax only Agreement. Free file state tax only   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value of any of the assets. Free file state tax only This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. Free file state tax only Reporting requirement. Free file state tax only   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. Free file state tax only Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. Free file state tax only Generally, the buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. Free file state tax only See the Instructions for Form 8594. Free file state tax only Dispositions of Intangible Property Intangible property is any personal property that has value but cannot be seen or touched. Free file state tax only It includes such items as patents, copyrights, and the goodwill value of a business. Free file state tax only Gain or loss on the sale or exchange of amortizable or depreciable intangible property held longer than 1 year (other than an amount recaptured as ordinary income) is a section 1231 gain or loss. Free file state tax only The treatment of section 1231 gain or loss and the recapture of amortization and depreciation as ordinary income are explained in chapter 3. Free file state tax only See chapter 8 of Publication 535, Business Expenses, for information on amortizable intangible property and chapter 1 of Publication 946, How To Depreciate Property, for information on intangible property that can and cannot be depreciated. Free file state tax only Gain or loss on dispositions of other intangible property is ordinary or capital depending on whether the property is a capital asset or a noncapital asset. Free file state tax only The following discussions explain special rules that apply to certain dispositions of intangible property. Free file state tax only Section 197 Intangibles Section 197 intangibles are certain intangible assets acquired after August 10, 1993 (after July 25, 1991, if chosen), and held in connection with the conduct of a trade or business or an activity entered into for profit whose costs are amortized over 15 years. Free file state tax only They include the following assets. Free file state tax only Goodwill. Free file state tax only Going concern value. Free file state tax only Workforce in place. Free file state tax only Business books and records, operating systems, and other information bases. Free file state tax only Patents, copyrights, formulas, processes, designs, patterns, know how, formats, and similar items. Free file state tax only Customer-based intangibles. Free file state tax only Supplier-based intangibles. Free file state tax only Licenses, permits, and other rights granted by a governmental unit. Free file state tax only Covenants not to compete entered into in connection with the acquisition of a business. Free file state tax only Franchises, trademarks, and trade names. Free file state tax only See chapter 8 of Publication 535 for a description of each intangible. Free file state tax only Dispositions. Free file state tax only   You cannot deduct a loss from the disposition or worthlessness of a section 197 intangible you acquired in the same transaction (or series of related transactions) as another section 197 intangible you still hold. Free file state tax only Instead, you must increase the adjusted basis of your retained section 197 intangible by the nondeductible loss. Free file state tax only If you retain more than one section 197 intangible, increase each intangible's adjusted basis. Free file state tax only Figure the increase by multiplying the nondeductible loss by a fraction, the numerator (top number) of which is the retained intangible's adjusted basis on the date of the loss and the denominator (bottom number) of which is the total adjusted basis of all retained intangibles on the date of the loss. Free file state tax only   In applying this rule, members of the same controlled group of corporations and commonly controlled businesses are treated as a single entity. Free file state tax only For example, a corporation cannot deduct a loss on the sale of a section 197 intangible if, after the sale, a member of the same controlled group retains other section 197 intangibles acquired in the same transaction as the intangible sold. Free file state tax only Covenant not to compete. Free file state tax only   A covenant not to compete (or similar arrangement) that is a section 197 intangible cannot be treated as disposed of or worthless before you have disposed of your entire interest in the trade or business for which the covenant was entered into. Free file state tax only Members of the same controlled group of corporations and commonly controlled businesses are treated as a single entity in determining whether a member has disposed of its entire interest in a trade or business. Free file state tax only Anti-churning rules. Free file state tax only   Anti-churning rules prevent a taxpayer from converting section 197 intangibles that do not qualify for amortization into property that would qualify for amortization. Free file state tax only However, these rules do not apply to part of the basis of property acquired by certain related persons if the transferor elects to do both the following. Free file state tax only Recognize gain on the transfer of the property. Free file state tax only Pay income tax on the gain at the highest tax rate. Free file state tax only   If the transferor is a partnership or S corporation, the partnership or S corporation (not the partners or shareholders) can make the election. Free file state tax only But each partner or shareholder must pay the tax on his or her share of gain. Free file state tax only   To make the election, you, as the transferor, must attach a statement containing certain information to your income tax return for the year of the transfer. Free file state tax only You must file the tax return by the due date (including extensions). Free file state tax only You must also notify the transferee of the election in writing by the due date of the return. Free file state tax only   If you timely filed your return without making the election, you can make the election by filing an amended return within 6 months after the due date of the return (excluding extensions). Free file state tax only Attach the statement to the amended return and write “Filed pursuant to section 301. Free file state tax only 9100-2” at the top of the statement. Free file state tax only File the amended return at the same address the original return was filed. Free file state tax only For more information about making the election, see Regulations section 1. Free file state tax only 197-2(h)(9). Free file state tax only For information about reporting the tax on your income tax return, see the Instructions for Form 4797. Free file state tax only Patents The transfer of a patent by an individual is treated as a sale or exchange of a capital asset held longer than 1 year. Free file state tax only This applies even if the payments for the patent are made periodically during the transferee's use or are contingent on the productivity, use, or disposition of the patent. Free file state tax only For information on the treatment of gain or loss on the transfer of capital assets, see chapter 4. Free file state tax only This treatment applies to your transfer of a patent if you meet all the following conditions. Free file state tax only You are the holder of the patent. Free file state tax only You transfer the patent other than by gift, inheritance, or devise. Free file state tax only You transfer all substantial rights to the patent or an undivided interest in all such rights. Free file state tax only You do not transfer the patent to a related person. Free file state tax only Holder. Free file state tax only   You are the holder of a patent if you are either of the following. Free file state tax only The individual whose effort created the patent property and who qualifies as the original and first inventor. Free file state tax only The individual who bought an interest in the patent from the inventor before the invention was tested and operated successfully under operating conditions and who is neither related to, nor the employer of, the inventor. Free file state tax only All substantial rights. Free file state tax only   All substantial rights to patent property are all rights that have value when they are transferred. Free file state tax only A security interest (such as a lien), or a reservation calling for forfeiture for nonperformance, is not treated as a substantial right for these rules and may be kept by you as the holder of the patent. Free file state tax only   All substantial rights to a patent are not transferred if any of the following apply to the transfer. Free file state tax only The rights are limited geographically within a country. Free file state tax only The rights are limited to a period less than the remaining life of the patent. Free file state tax only The rights are limited to fields of use within trades or industries and are less than all the rights that exist and have value at the time of the transfer. Free file state tax only The rights are less than all the claims or inventions covered by the patent that exist and have value at the time of the transfer. Free file state tax only Related persons. Free file state tax only   This tax treatment does not apply if the transfer is directly or indirectly between you and a related person as defined earlier in the list under Nondeductible Loss, with the following changes. Free file state tax only Members of your family include your spouse, ancestors, and lineal descendants, but not your brothers, sisters, half-brothers, or half-sisters. Free file state tax only Substitute “25% or more” ownership for “more than 50%. Free file state tax only ”   If you fit within the definition of a related person independent of family status, the brother-sister exception in (1), earlier, does not apply. Free file state tax only For example, a transfer between a brother and a sister as beneficiary and fiduciary of the same trust is a transfer between related persons. Free file state tax only The brother-sister exception does not apply because the trust relationship is independent of family status. Free file state tax only Franchise, Trademark, or Trade Name If you transfer or renew a franchise, trademark, or trade name for a price contingent on its productivity, use, or disposition, the amount you receive generally is treated as an amount realized from the sale of a noncapital asset. Free file state tax only A franchise includes an agreement that gives one of the parties the right to distribute, sell, or provide goods, services, or facilities within a specified area. Free file state tax only Significant power, right, or continuing interest. Free file state tax only   If you keep any significant power, right, or continuing interest in the subject matter of a franchise, trademark, or trade name that you transfer or renew, the amount you receive is ordinary royalty income rather than an amount realized from a sale or exchange. Free file state tax only   A significant power, right, or continuing interest in a franchise, trademark, or trade name includes, but is not limited to, the following rights in the transferred interest. Free file state tax only A right to disapprove any assignment of the interest, or any part of it. Free file state tax only A right to end the agreement at will. Free file state tax only A right to set standards of quality for products used or sold, or for services provided, and for the equipment and facilities used to promote such products or services. Free file state tax only A right to make the recipient sell or advertise only your products or services. Free file state tax only A right to make the recipient buy most supplies and equipment from you. Free file state tax only A right to receive payments based on the productivity, use, or disposition of the transferred item of interest if those payments are a substantial part of the transfer agreement. Free file state tax only Subdivision of Land If you own a tract of land and, to sell or exchange it, you subdivide it into individual lots or parcels, the gain normally is ordinary income. Free file state tax only However, you may receive capital gain treatment on at least part of the proceeds provided you meet certain requirements. Free file state tax only See section 1237 of the Internal Revenue Code. Free file state tax only Timber Standing timber held as investment property is a capital asset. Free file state tax only Gain or loss from its sale is reported as a capital gain or loss on Form 8949, and Schedule D (Form 1040), as applicable. Free file state tax only If you held the timber primarily for sale to customers, it is not a capital asset. Free file state tax only Gain or loss on its sale is ordinary business income or loss. Free file state tax only It is reported in the gross receipts or sales and cost of goods sold items of your return. Free file state tax only 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 file state tax only These sales constitute a very minor part of their farm businesses. Free file state tax only In these cases, amounts realized from such sales, and the expenses of cutting, hauling, etc. Free file state tax only , are ordinary farm income and expenses reported on Schedule F (Form 1040), Profit or Loss From Farming. Free file state tax only Different rules apply if you owned the timber longer than 1 year and elect to either: Treat timber cutting as a sale or exchange, or Enter into a cutting contract. Free file state tax only Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. Free file state tax only This is true whether the timber is cut under contract or whether you cut it yourself. Free file state tax only Under the rules discussed below, disposition of the timber is treated as a section 1231 transaction. Free file state tax only See chapter 3. Free file state tax only Gain or loss is reported on Form 4797. Free file state tax only Christmas trees. Free file state tax only   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 file state tax only They qualify for both rules discussed below. Free file state tax only Election to treat cutting as a sale or exchange. Free file state tax only   Under the general rule, the cutting of timber results in no gain or loss. Free file state tax only It is not until a sale or exchange occurs that gain or loss is realized. Free file state tax only 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 the timber is cut. Free file state tax only 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 file state tax only Any later sale results in ordinary business income or loss. Free file state tax only See Example, later. Free file state tax only   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 for use in your trade or business. Free file state tax only Making the election. Free file state tax only   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 the gain or loss. Free file state tax only You do not have to make the election in the first year you cut timber. Free file state tax only You can make it in any year to which the election would apply. Free file state tax only If the timber is partnership property, the election is made on the partnership return. Free file state tax only This election cannot be made on an amended return. Free file state tax only   Once you have made the election, it remains in effect for all later years unless you cancel it. Free file state tax only   If you previously elected to treat the cutting of timber as a sale or exchange, you may revoke this election without the consent of the IRS. Free file state tax only The prior election (and revocation) is disregarded for purposes of making a subsequent election. Free file state tax only See Form T (Timber), Forest Activities Schedule, for more information. Free file state tax only Gain or loss. Free file state tax only   Your gain or loss on the cutting of standing timber is the difference between its adjusted basis for depletion and its fair market value on the first day of your tax year in which it is cut. Free file state tax only   Your adjusted basis for depletion of cut timber is based on the number of units (feet board measure, log scale, or other units) of timber cut during the tax year and considered to be sold or exchanged. Free file state tax only 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 of the Internal Revenue Code and the related regulations. Free file state tax only   Timber depletion is discussed in chapter 9 of Publication 535. Free file state tax only Example. Free file state tax only In April 2013, you had owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. Free file state tax only It had an adjusted basis for depletion of $40 per MBF. Free file state tax only You are a calendar year taxpayer. Free file state tax only On January 1, 2013, the timber had a fair market value (FMV) of $350 per MBF. Free file state tax only It was cut in April for sale. Free file state tax only On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. Free file state tax only You report the difference between the fair market value and your adjusted basis for depletion as a gain. Free file state tax only This amount is reported on Form 4797 along with your other section 1231 gains and losses to figure whether it is treated as capital gain or as ordinary gain. Free file state tax only You figure your gain as follows. Free file state tax only FMV of timber January 1, 2013 $1,400,000 Minus: Adjusted basis for depletion 160,000 Section 1231 gain $1,240,000 The fair market value 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 file state tax only Outright sales of timber. Free file state tax only   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 below). Free file state tax only 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 below). Free file state tax only Cutting contract. Free file state tax only   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 file state tax only You are the owner of the timber. Free file state tax only You held the timber longer than 1 year before its disposal. Free file state tax only You kept an economic interest in the timber. Free file state tax only   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 file state tax only   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 file state tax only Include this amount on Form 4797 along with your other section 1231 gains or losses to figure whether it is treated as capital or ordinary gain or loss. Free file state tax only Date of disposal. Free file state tax only   The date of disposal is the date the timber is cut. Free file state tax only 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 file state tax only   This election applies only to figure the holding period of the timber. Free file state tax only It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). Free file state tax only   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 file state tax only The statement must identify the advance payments subject to the election and the contract under which they were made. Free file state tax only   If you timely filed your return for the year you received payment without making the election, you still can make the election by filing an amended return within 6 months after the due date for that year's return (excluding extensions). Free file state tax only Attach the statement to the amended return and write “Filed pursuant to section 301. Free file state tax only 9100-2” at the top of the statement. Free file state tax only File the amended return at the same address the original return was filed. Free file state tax only Owner. Free file state tax only   The owner of timber is any person who owns an interest in it, including a sublessor and the holder of a contract to cut the timber. Free file state tax only 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 file state tax only Tree stumps. Free file state tax only   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 file state tax only Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. Free file state tax only However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. Free file state tax only Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. Free file state tax only   See Form T (Timber) and its separate instructions for more information about dispositions of timber. Free file state tax only Precious Metals and Stones, Stamps, and Coins Gold, silver, gems, stamps, coins, etc. Free file state tax only , are capital assets except when they are held for sale by a dealer. Free file state tax only Any gain or loss from their sale or exchange generally is a capital gain or loss. Free file state tax only If you are a dealer, the amount received from the sale is ordinary business income. Free file state tax only Coal and Iron Ore You must treat the disposal of coal (including lignite) or iron ore mined in the United States as a section 1231 transaction if both the following apply to you. Free file state tax only You owned the coal or iron ore longer than 1 year before its disposal. Free file state tax only You kept an economic interest in the coal or iron ore. Free file state tax only For this rule, the date the coal or iron ore is mined is considered the date of its disposal. Free file state tax only Your gain or loss is the difference between the amount realized from disposal of the coal or iron ore and the adjusted basis you use to figure cost depletion (increased by certain expenses not allowed as deductions for the tax year). Free file state tax only This amount is included on Form 4797 along with your other section 1231 gains and losses. Free file state tax only You are considered an owner if you own or sublet an economic interest in the coal or iron ore in place. Free file state tax only If you own only an option to buy the coal in place, you do not qualify as an owner. Free file state tax only In addition, this gain or loss treatment does not apply to income realized by an owner who is a co-adventurer, partner, or principal in the mining of coal or iron ore. Free file state tax only The expenses of making and administering the contract under which the coal or iron ore was disposed of and the expenses of preserving the economic interest kept under the contract are not allowed as deductions in figuring taxable income. Free file state tax only Rather, their total, along with the adjusted depletion basis, is deducted from the amount received to determine gain. Free file state tax only If the total of these expenses plus the adjusted depletion basis is more than the amount received, the result is a loss. Free file state tax only Special rule. Free file state tax only   The above treatment does not apply if you directly or indirectly dispose of the iron ore or coal to any of the following persons. Free file state tax only A related person whose relationship to you would result in the disallowance of a loss (see Nondeductible Loss under Sales and Exchanges Between Related Persons, earlier). Free file state tax only An individual, trust, estate, partnership, association, company, or corporation owned or controlled directly or indirectly by the same interests that own or control your business. Free file state tax only Conversion Transactions Recognized gain on the disposition or termination of any position held as part of certain conversion transactions is treated as ordinary income. Free file state tax only This applies if substantially all your expected return is attributable to the time value of your net investment (like interest on a loan) and the transaction is any of the following. Free file state tax only An applicable straddle (generally, any set of offsetting positions with respect to personal property, including stock). Free file state tax only A transaction in which you acquire property and, at or about the same time, you contract to sell the same or substantially identical property at a specified price. Free file state tax only Any other transaction that is marketed and sold as producing capital gain from a transaction in which substantially all of your expected return is due to the time value of your net investment. Free file state tax only For more information, see chapter 4 of Publication 550. Free file state tax only Prev  Up  Next   Home   More Online Publications