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H&r Block Free Efile

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H&r Block Free Efile

H&r block free efile 3. H&r block free efile   Farm Income Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Schedule F (Form 1040) Sales of Farm ProductsSchedule F. H&r block free efile Form 4797. H&r block free efile Sales Caused by Weather-Related Conditions Rents (Including Crop Shares)Crop Shares Agricultural Program PaymentsCommodity Credit Corporation (CCC) Loans Conservation Reserve Program (CRP) Crop Insurance and Crop Disaster Payments Feed Assistance and Payments Cost-Sharing Exclusion (Improvements) Payments Under the Farm Security and Rural Investment Act of 2002 and Under the Food, Conservation, and Energy Act of 2008 Tobacco Quota Buyout Program Payments Other Payments Payment to More Than One Person Income From CooperativesPatronage Dividends Per-Unit Retain Certificates Cancellation of DebtGeneral Rule Exceptions Exclusions Income From Other SourcesSod. H&r block free efile Granting the right to remove deposits. H&r block free efile Income Averaging for FarmersElected Farm Income (EFI) How To Figure the Tax Effect on Other Tax Determinations Tax for Certain Children Who Have Unearned Income Alternative Minimum Tax (AMT) Schedule J Introduction You may receive income from many sources. H&r block free efile You must report the income from all the different sources on your tax return, unless it is excluded by law. H&r block free efile Where you report the income on your tax return depends on its source. H&r block free efile This chapter discusses farm income you report on Schedule F (Form 1040), Profit or Loss From Farming. H&r block free efile For information on where to report other income, see the Instructions for Form 1040, U. H&r block free efile S. H&r block free efile Individual Income Tax Return. H&r block free efile Accounting method. H&r block free efile   The rules discussed in this chapter assume you use the cash method of accounting. H&r block free efile Under the cash method, you generally include an item of income in gross income in the year you receive it. H&r block free efile See Cash Method in chapter 2. H&r block free efile   If you use an accrual method of accounting, different rules may apply to your situation. H&r block free efile See Accrual Method in chapter 2. H&r block free efile Topics - This chapter discusses: Schedule F Sales of farm products Rents (including crop shares) Agricultural program payments Income from cooperatives Cancellation of debt Income from other sources Income averaging for farmers Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 550 Investment Income and Expenses 908 Bankruptcy Tax Guide 925 Passive Activity and At-Risk Rules 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) 982 Reduction of Tax Attributes Due to Discharge of Indebtedness Sch E (Form 1040) Supplemental Income and Loss Sch J (Form 1040) Income Averaging for Farmers and Fishermen 1099-G Certain Government Payments 1099-PATR Taxable Distributions Received From Cooperatives 4797 Sales of Business Property 4835 Farm Rental Income and Expenses See chapter 16 for information about getting publications and forms. H&r block free efile Schedule F (Form 1040) Individuals, trusts, and partnerships report farm income on Schedule F (Form 1040), Profit or Loss From Farming. H&r block free efile Use this schedule to figure the net profit or loss from regular farming operations. H&r block free efile Income from farming reported on Schedule F includes amounts you receive from cultivating, operating, or managing a farm for gain or profit, either as owner or tenant. H&r block free efile This includes income from operating a stock, dairy, poultry, fish, fruit, or truck farm and income from operating a plantation, ranch, range, or orchard. H&r block free efile It also includes income from the sale of crop shares if you materially participate in producing the crop. H&r block free efile See Rents (Including Crop Shares) , later. H&r block free efile Income received from operating a nursery, which specializes in growing ornamental plants, is considered to be income from farming. H&r block free efile Income reported on Schedule F does not include gains or losses from sales or other dispositions of the following farm assets. H&r block free efile Land. H&r block free efile Depreciable farm equipment. H&r block free efile Buildings and structures. H&r block free efile Livestock held for draft, breeding, sport, or dairy purposes. H&r block free efile Gains and losses from most dispositions of farm assets are discussed in chapters 8 and 9. H&r block free efile Gains and losses from casualties, thefts, and condemnations are discussed in chapter 11. H&r block free efile Sales of Farm Products Where to report. H&r block free efile    Table 3-1 shows where to report the sale of farm products on your tax return. H&r block free efile Schedule F. H&r block free efile   Amounts received from the sales of products you raised on your farm for sale (or bought for resale), such as livestock, produce, or grains, are reported on Schedule F. H&r block free efile This includes money and the fair market value of any property or services you receive. H&r block free efile When you sell farm products bought for resale, your profit or loss is the difference between your selling price (money plus the fair market value of any property) and your basis in the item (usually the cost). H&r block free efile See chapter 6 for information on the basis of assets. H&r block free efile You generally report these amounts on Schedule F for the year you receive payment. H&r block free efile Example. H&r block free efile In 2012, you bought 20 feeder calves for $11,000 for resale. H&r block free efile You sold them in 2013 for $21,000. H&r block free efile You report the $21,000 sales price on Schedule F, line 1b, subtract your $11,000 basis on line 1d, and report the resulting $10,000 profit on line 1e. H&r block free efile Form 4797. H&r block free efile   Sales of livestock held for draft, breeding, sport, or dairy purposes may result in ordinary or capital gains or losses, depending on the circumstances. H&r block free efile In either case, you should always report these sales on Form 4797 instead of Schedule F. H&r block free efile See Livestock under Ordinary or Capital Gain or Loss in chapter 8. H&r block free efile Animals you do not hold primarily for sale are considered business assets of your farm. H&r block free efile Table 3-1. H&r block free efile Where To Report Sales of Farm Products Item Sold Schedule F Form 4797 Farm products raised for sale X   Farm products bought for resale X   Farm assets not held primarily for sale, such as livestock held for draft, breeding, sport, or dairy purposes (bought or raised)   X Sale by agent. H&r block free efile   If your agent sells your farm products, you have constructive receipt of the income when your agent receives payment and you must include the net proceeds from the sale in gross income for the year the agent receives payment. H&r block free efile This applies even if your agent pays you in a later year. H&r block free efile For a discussion on constructive receipt of income, see Cash Method under Accounting Methods in chapter 2. H&r block free efile Sales Caused by Weather-Related Conditions If you sell or exchange more livestock, including poultry, than you normally would in a year because of a drought, flood, or other weather-related condition, you may be able to postpone reporting the gain from the additional animals until the next year. H&r block free efile You must meet all the following conditions to qualify. H&r block free efile Your principal trade or business is farming. H&r block free efile You use the cash method of accounting. H&r block free efile You can show that, under your usual business practices, you would not have sold or exchanged the additional animals this year except for the weather-related condition. H&r block free efile The weather-related condition caused an area to be designated as eligible for assistance by the federal government. H&r block free efile Sales or exchanges made before an area became eligible for federal assistance qualify if the weather-related condition that caused the sale or exchange also caused the area to be designated as eligible for federal assistance. H&r block free efile The designation can be made by the President, the Department of Agriculture (or any of its agencies), or by other federal departments or agencies. H&r block free efile A weather-related sale or exchange of livestock (other than poultry) held for draft, breeding, or dairy purposes may be an involuntary conversion. H&r block free efile See Other Involuntary Conversions in chapter 11. H&r block free efile Usual business practice. H&r block free efile   You must determine the number of animals you would have sold had you followed your usual business practice in the absence of the weather-related condition. H&r block free efile Do this by considering all the facts and circumstances, but do not take into account your sales in any earlier year for which you postponed the gain. H&r block free efile If you have not yet established a usual business practice, rely on the usual business practices of similarly situated farmers in your general region. H&r block free efile Connection with affected area. H&r block free efile   The livestock does not have to be raised or sold in an area affected by a weather-related condition for the postponement to apply. H&r block free efile However, the sale must occur solely because of a weather-related condition that affected the water, grazing, or other requirements of the livestock. H&r block free efile This requirement generally will not be met if the costs of feed, water, or other requirements of the livestock affected by the weather-related condition are not substantial in relation to the total costs of holding the livestock. H&r block free efile Classes of livestock. H&r block free efile   You must figure the amount to be postponed separately for each generic class of animals—for example, hogs, sheep, and cattle. H&r block free efile Do not separate animals into classes based on age, sex, or breed. H&r block free efile Amount to be postponed. H&r block free efile   Follow these steps to figure the amount of gain to be postponed for each class of animals. H&r block free efile Divide the total income realized from the sale of all livestock in the class during the tax year by the total number of such livestock sold. H&r block free efile For this purpose, do not treat any postponed gain from the previous year as income received from the sale of livestock. H&r block free efile Multiply the result in (1) by the excess number of such livestock sold solely because of weather-related conditions. H&r block free efile Example. H&r block free efile You are a calendar year taxpayer and you normally sell 100 head of beef cattle a year. H&r block free efile As a result of drought, you sold 135 head during 2012. H&r block free efile You realized $70,200 from the sale. H&r block free efile On August 9, 2012, as a result of drought, the affected area was declared a disaster area eligible for federal assistance. H&r block free efile The income you can postpone until 2013 is $18,200 [($70,200 ÷ 135) × 35]. H&r block free efile How to postpone gain. H&r block free efile   To postpone gain, attach a statement to your tax return for the year of the sale. H&r block free efile The statement must include your name and address and give the following information for each class of livestock for which you are postponing gain. H&r block free efile A statement that you are postponing gain under Internal Revenue Code (IRC) section 451(e). H&r block free efile Evidence of the weather-related conditions that forced the early sale or exchange of the livestock and the date, if known, on which an area was designated as eligible for assistance by the federal government because of weather-related conditions. H&r block free efile A statement explaining the relationship of the area affected by the weather-related condition to your early sale or exchange of the livestock. H&r block free efile The number of animals sold in each of the 3 preceding years. H&r block free efile The number of animals you would have sold in the tax year had you followed your normal business practice in the absence of weather-related conditions. H&r block free efile The total number of animals sold and the number sold because of weather-related conditions during the tax year. H&r block free efile A computation, as described above, of the income to be postponed for each class of livestock. H&r block free efile   Generally, you must file the statement and the return by the due date of the return, including extensions. H&r block free efile However, for sales or exchanges treated as an involuntary conversion from weather-related sales of livestock in an area eligible for federal assistance (discussed in chapter 11), you can file this statement at any time during the replacement period. H&r block free efile For other sales or exchanges, if you timely filed your return for the year without postponing gain, you can still postpone gain by filing an amended return within 6 months of the due date of the return (excluding extensions). H&r block free efile Attach the statement to the amended return and write “Filed pursuant to section 301. H&r block free efile 9100-2” at the top of the amended return. H&r block free efile File the amended return at the same address you filed the original return. H&r block free efile Once you have filed the statement, you can cancel your postponement of gain only with the approval of the IRS. H&r block free efile Rents (Including Crop Shares) The rent you receive for the use of your farmland is generally rental income, not farm income. H&r block free efile However, if you materially participate in farming operations on the land, the rent is farm income. H&r block free efile See Landlord Participation in Farming in chapter 12. H&r block free efile Pasture income and rental. H&r block free efile   If you pasture someone else's livestock and take care of them for a fee, the income is from your farming business. H&r block free efile You must enter it as Other income on Schedule F. H&r block free efile If you simply rent your pasture for a flat cash amount without providing services, report the income as rent on Part I of Schedule E (Form 1040), Supplemental Income and Loss. H&r block free efile Crop Shares You must include rent you receive in the form of crop shares in income in the year you convert the shares to money or the equivalent of money. H&r block free efile It does not matter whether you use the cash method of accounting or an accrual method of accounting. H&r block free efile If you materially participate in operating a farm from which you receive rent in the form of crop shares or livestock, the rental income is included in self-employment income. H&r block free efile See Landlord Participation in Farming in chapter 12. H&r block free efile Report the rental income on Schedule F. H&r block free efile If you do not materially participate in operating the farm, report this income on Form 4835 and carry the net income or loss to Schedule E (Form 1040). H&r block free efile The income is not included in self-employment income. H&r block free efile Crop shares you use to feed livestock. H&r block free efile   Crop shares you receive as a landlord and feed to your livestock are considered converted to money when fed to the livestock. H&r block free efile You must include the fair market value of the crop shares in income at that time. H&r block free efile You are entitled to a business expense deduction for the livestock feed in the same amount and at the same time you include the fair market value of the crop share as rental income. H&r block free efile Although these two transactions cancel each other for figuring adjusted gross income on Form 1040, they may be necessary to figure your self-employment tax. H&r block free efile See  chapter 12. H&r block free efile Crop shares you give to others (gift). H&r block free efile   Crop shares you receive as a landlord and give to others are considered converted to money when you make the gift. H&r block free efile You must report the fair market value of the crop share as income, even though someone else receives payment for the crop share. H&r block free efile Example. H&r block free efile A tenant farmed part of your land under a crop-share arrangement. H&r block free efile The tenant harvested and delivered the crop in your name to an elevator company. H&r block free efile Before selling any of the crop, you instructed the elevator company to cancel your warehouse receipt and make out new warehouse receipts in equal amounts of the crop in the names of your children. H&r block free efile They sell their crop shares in the following year and the elevator company makes payments directly to your children. H&r block free efile In this situation, you are considered to have received rental income and then made a gift of that income. H&r block free efile You must include the fair market value of the crop shares in your income for the tax year you gave the crop shares to your children. H&r block free efile Crop share loss. H&r block free efile   If you are involved in a rental or crop-share lease arrangement, any loss from these activities may be subject to the limits under the passive loss rules. H&r block free efile See Publication 925 for information on these rules. H&r block free efile Agricultural Program Payments You must include in income most government payments, such as those for approved conservation practices, direct payments, and counter-cyclical payments, whether you receive them in cash, materials, services, or commodity certificates. H&r block free efile However, you can exclude from income some payments you receive under certain cost-sharing conservation programs. H&r block free efile See Cost-Sharing Exclusion (Improvements) , later. H&r block free efile Report the agricultural program payment on the appropriate line of Schedule F, Part I. H&r block free efile Report the full amount even if you return a government check for cancellation, refund any of the payment you receive, or the government collects all or part of the payment from you by reducing the amount of some other payment or Commodity Credit Corporation (CCC) loan. H&r block free efile However, you can deduct the amount you refund or return or that reduces some other payment or loan to you. H&r block free efile Claim the deduction on Schedule F for the year of repayment or reduction. H&r block free efile Commodity Credit Corporation (CCC) Loans Generally, you do not report loans you receive as income. H&r block free efile However, if you pledge part or all of your production to secure a CCC loan, you can treat the loan as if it were a sale of the crop and report the loan proceeds as income in the year you receive them. H&r block free efile You do not need approval from the IRS to adopt this method of reporting CCC loans. H&r block free efile Once you report a CCC loan as income for the year received, you generally must report all CCC loans in that year and later years in the same way. H&r block free efile However, you can obtain for your tax year an automatic consent to change your method of accounting for loans received from the CCC, from including the loan amount in gross income for the tax year in which the loan is received to treating the loan amount as a loan. H&r block free efile For more information, see Part I of the Instructions for Form 3115 and Revenue Procedure 2008-52. H&r block free efile Revenue Procedure 2008-52, 2008-36 I. H&r block free efile R. H&r block free efile B. H&r block free efile 587, is available at  www. H&r block free efile irs. H&r block free efile gov/irb/2008-36_IRB/ar09. H&r block free efile html. H&r block free efile You can request income tax withholding from CCC loan payments you receive. H&r block free efile Use Form W-4V, Voluntary Withholding Request. H&r block free efile See chapter 16 for information about ordering the form. H&r block free efile To elect to report a CCC loan as income, include the loan proceeds as income on Schedule F, line 7a, for the year you receive it. H&r block free efile Attach a statement to your return showing the details of the loan. H&r block free efile You must file the statement and the return by the due date of the return, including extensions. H&r block free efile If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). H&r block free efile Attach the statement to the amended return and write “Filed pursuant to section 301. H&r block free efile 9100-2” at the top of the return. H&r block free efile File the amended return at the same address you filed the original return. H&r block free efile When you make this election, the amount you report as income becomes your basis in the commodity. H&r block free efile See chapter 6 for information on the basis of assets. H&r block free efile If you later repay the loan, redeem the pledged commodity, and sell it, you report as income at the time of sale the sale proceeds minus your basis in the commodity. H&r block free efile If the sale proceeds are less than your basis in the commodity, you can report the difference as a loss on Schedule F. H&r block free efile If you forfeit the pledged crops to the CCC in full payment of the loan, the forfeiture is treated for tax purposes as a sale of the crops. H&r block free efile If you did not report the loan proceeds as income for the year you received them, you must include them in your income for the year of the forfeiture. H&r block free efile Form 1099-A. H&r block free efile   If you forfeit pledged crops to the CCC in full payment of a loan, you may receive a Form 1099-A, Acquisition or Abandonment of Secured Property. H&r block free efile “CCC” should be shown in box 6. H&r block free efile The amount of any CCC loan outstanding when you forfeited your commodity should also be indicated on the form. H&r block free efile Market Gain Under the CCC nonrecourse marketing assistance loan program, your repayment amount for a loan secured by your pledge of an eligible commodity is generally based on the lower of the loan rate or the prevailing world market price for the commodity on the date of repayment. H&r block free efile If you repay the loan when the world price is lower, the difference between that repayment amount and the original loan amount is market gain. H&r block free efile Whether you use cash or CCC certificates to repay the loan, you will receive a Form 1099-G showing the market gain you realized. H&r block free efile Market gain should be reported as follows. H&r block free efile If you elected to include the CCC loan in income in the year you received it, do not include the market gain in income. H&r block free efile However, adjust the basis of the commodity for the amount of the market gain. H&r block free efile If you did not include the CCC loan in income in the year received, include the market gain in your income. H&r block free efile The following examples show how to report market gain. H&r block free efile Example 1. H&r block free efile Mike Green is a cotton farmer. H&r block free efile He uses the cash method of accounting and files his tax return on a calendar year basis. H&r block free efile He has deducted all expenses incurred in producing the cotton and has a zero basis in the commodity. H&r block free efile In 2012, Mike pledged 1,000 pounds of cotton as collateral for a CCC loan of $2,000 (a loan rate of $2. H&r block free efile 00 per pound). H&r block free efile In 2013, he repaid the loan and redeemed the cotton for $1,500 when the world price was $1. H&r block free efile 50 per pound (lower than the loan amount). H&r block free efile Later in 2013, he sold the cotton for $2,500. H&r block free efile The market gain on the redemption was $. H&r block free efile 50 ($2. H&r block free efile 00 – $1. H&r block free efile 50) per pound. H&r block free efile Mike realized total market gain of $500 ($. H&r block free efile 50 x 1,000 pounds). H&r block free efile How he reports this market gain and figures his gain or loss from the sale of the cotton depends on whether he included CCC loans in income in 2012. H&r block free efile Included CCC loan. H&r block free efile   Mike reported the $2,000 CCC loan as income for 2012 on Schedule F, line 1b, so he is treated as if he sold the cotton for $2,000 when he pledged it and repurchased the cotton for $1,500 when he redeemed it. H&r block free efile The $500 market gain is not recognized on the redemption. H&r block free efile He reports it for 2013 as an agricultural program payment on Schedule F, line 4a, but does not include it as a taxable amount on line 4b. H&r block free efile   Mike's basis in the cotton after he redeemed it was $1,500, which is the redemption (repurchase) price paid for the cotton. H&r block free efile His gain from the sale is $1,000 ($2,500 – $1,500). H&r block free efile He reports the $1,000 gain as income for 2013 on Schedule F, line 1b. H&r block free efile Excluded CCC loan. H&r block free efile   Mike has income of $500 from market gain in 2013. H&r block free efile He reports it on Schedule F, lines 4a and 4b. H&r block free efile His basis in the cotton is zero, so his gain from its sale is $2,500. H&r block free efile He reports the $2,500 gain as income for 2013 on Schedule F, line 1b. H&r block free efile Example 2. H&r block free efile The facts are the same as in Example 1 except that, instead of selling the cotton for $2,500 after redeeming it, Mike entered into an option-to-purchase contract with a cotton buyer before redeeming the cotton. H&r block free efile Under that contract, Mike authorized the cotton buyer to pay the CCC loan on Mike's behalf. H&r block free efile In 2013, the cotton buyer repaid the loan for $1,500 and immediately exercised his option, buying the cotton for $1,500. H&r block free efile How Mike reports the $500 market gain on the redemption of the cotton and figures his gain or loss from its sale depends on whether he included CCC loans in income in 2012. H&r block free efile Included CCC loan. H&r block free efile   As in Example 1, Mike is treated as though he sold the cotton for $2,000 when he pledged it and repurchased the cotton for $1,500 when the cotton buyer redeemed it for him. H&r block free efile The $500 market gain is not recognized on the redemption. H&r block free efile Mike reports it for 2013 as an agricultural program payment on Schedule F, line 4a, but does not include it as a taxable amount on line 4b. H&r block free efile   Also, as in Example 1, Mike's basis in the cotton when the cotton buyer redeemed it for him was $1,500. H&r block free efile Mike has no gain or loss on its sale to the cotton buyer for that amount. H&r block free efile Excluded CCC loan. H&r block free efile   As in Example 1, Mike has income of $500 from market gain in 2013. H&r block free efile He reports it on Schedule F, lines 4a and 4b. H&r block free efile His basis in the cotton is zero, so his gain from its sale is $1,500. H&r block free efile He reports the $1,500 gain as income for 2013 on Schedule F, line 1b. H&r block free efile Conservation Reserve Program (CRP) Under the Conservation Reserve Program (CRP), if you own or operate highly erodible or other specified cropland, you may enter into a long-term contract with the USDA, agreeing to convert to a less intensive use of that cropland. H&r block free efile You must include the annual rental payments and any one-time incentive payment you receive under the program on Schedule F, lines 4a and 4b. H&r block free efile Cost-share payments you receive may qualify for the cost-sharing exclusion. H&r block free efile See Cost-Sharing Exclusion (Improvements) , later. H&r block free efile CRP payments are reported to you on Form 1099-G. H&r block free efile Individuals who are receiving Social Security retirement or disability benefits may exclude CRP payments when calculating self-employment tax. H&r block free efile See the instructions for Schedule SE (Form 1040). H&r block free efile Crop Insurance and Crop Disaster Payments You must include in income any crop insurance proceeds you receive as the result of physical crop damage or reduction of crop revenue, or both. H&r block free efile You generally include them in the year you receive them. H&r block free efile Treat as crop insurance proceeds the crop disaster payments you receive from the federal government as the result of destruction or damage to crops, or the inability to plant crops, because of drought, flood, or any other natural disaster. H&r block free efile You can request income tax withholding from crop disaster payments you receive from the federal government. H&r block free efile Use Form W-4V, Voluntary Withholding Request. H&r block free efile See chapter 16 for information about ordering the form. H&r block free efile Election to postpone reporting until the following year. H&r block free efile   You can postpone reporting some or all crop insurance proceeds as income until the year following the year the physical damage occurred if you meet all the following conditions. H&r block free efile You use the cash method of accounting. H&r block free efile You receive the crop insurance proceeds in the same tax year the crops are damaged. H&r block free efile You can show that under your normal business practice you would have included income from the damaged crops in any tax year following the year the damage occurred. H&r block free efile   Deferral is not permitted for proceeds received from revenue insurance policies. H&r block free efile   To postpone reporting some or all crop insurance proceeds received in 2013, report the amount you received on Schedule F, line 6a, but do not include it as a taxable amount on line 6b. H&r block free efile Check the box on line 8c and attach a statement to your tax return. H&r block free efile The statement must include your name and address and contain the following information. H&r block free efile A statement that you are making an election under IRC section 451(d) and Regulations section 1. H&r block free efile 451-6. H&r block free efile The specific crop or crops physically destroyed or damaged. H&r block free efile A statement that under your normal business practice you would have included income from some or all of the destroyed or damaged crops in gross income for a tax year following the year the crops were destroyed or damaged. H&r block free efile The cause of the physical destruction or damage and the date or dates it occurred. H&r block free efile The total payments you received from insurance carriers, itemized for each specific crop, and the date you received each payment. H&r block free efile The name of each insurance carrier from whom you received payments. H&r block free efile   One election covers all crops representing a single trade or business. H&r block free efile If you have more than one farming business, make a separate election for each one. H&r block free efile For example, if you operate two separate farms on which you grow different crops and you keep separate books for each farm, you should make two separate elections to postpone reporting insurance proceeds you receive for crops grown on each of your farms. H&r block free efile   An election is binding for the year unless the IRS approves your request to change it. H&r block free efile To request IRS approval to change your election, write to the IRS at the following address giving your name, address, identification number, the year you made the election, and your reasons for wanting to change it. H&r block free efile Ogden Submission Processing Center P. H&r block free efile O. H&r block free efile Box 9941 Ogden, UT 84409 Feed Assistance and Payments The Disaster Assistance Act of 1988 authorizes programs to provide feed assistance, reimbursement payments, and other benefits to qualifying livestock producers if the Secretary of Agriculture determines that, because of a natural disaster, a livestock emergency exists. H&r block free efile These programs include partial reimbursement for the cost of purchased feed and for certain transportation expenses. H&r block free efile They also include the donation or sale at a below-market price of feed owned by the Commodity Credit Corporation. H&r block free efile Include in income: The market value of donated feed, The difference between the market value and the price you paid for feed you buy at below-market prices, and Any cost reimbursement you receive. H&r block free efile You must include these benefits in income in the year you receive them. H&r block free efile You cannot postpone reporting them under the rules explained earlier for weather-related sales of livestock or crop insurance proceeds. H&r block free efile Report the benefits on Schedule F, Part I, as agricultural program payments. H&r block free efile You can usually take a current deduction for the same amount as a feed expense. H&r block free efile Cost-Sharing Exclusion (Improvements) You can exclude from your income part or all of a payment you receive under certain federal or state cost-sharing conservation, reclamation, and restoration programs. H&r block free efile A payment is any economic benefit you get as a result of an improvement. H&r block free efile However, this exclusion applies only to that part of a payment that meets all three of the following tests. H&r block free efile It was for a capital expense. H&r block free efile You cannot exclude any part of a payment for an expense you can deduct in the year you pay or incur it. H&r block free efile You must include the payment for a deductible expense in income, and you can take any offsetting deduction. H&r block free efile See chapter 5 for information on deducting soil and water conservation expenses. H&r block free efile It does not substantially increase your annual income from the property for which it is made. H&r block free efile An increase in annual income is substantial if it is more than the greater of the following amounts. H&r block free efile 10% of the average annual income derived from the affected property before receiving the improvement. H&r block free efile $2. H&r block free efile 50 times the number of affected acres. H&r block free efile The Secretary of Agriculture certified that the payment was primarily made for conserving soil and water resources, protecting or restoring the environment, improving forests, or providing a habitat for wildlife. H&r block free efile Qualifying programs. H&r block free efile   If the three tests listed above are met, you can exclude part or all of the payments from the following programs. H&r block free efile The rural clean water program authorized by the Federal Water Pollution Control Act. H&r block free efile The rural abandoned mine program authorized by the Surface Mining Control and Reclamation Act of 1977. H&r block free efile The water bank program authorized by the Water Bank Act. H&r block free efile The emergency conservation measures program authorized by title IV of the Agricultural Credit Act of 1978. H&r block free efile The agricultural conservation program authorized by the Soil Conservation and Domestic Allotment Act. H&r block free efile The great plains conservation program authorized by the Soil Conservation and Domestic Policy Act. H&r block free efile The resource conservation and development program authorized by the Bankhead-Jones Farm Tenant Act and by the Soil Conservation and Domestic Allotment Act. H&r block free efile Certain small watershed programs, listed later. H&r block free efile Any program of a state, possession of the United States, a political subdivision of any of these, or of the District of Columbia under which payments are made to individuals primarily for conserving soil, protecting or restoring the environment, improving forests, or providing a habitat for wildlife. H&r block free efile Several state programs have been approved. H&r block free efile For information about the status of those programs, contact the state offices of the Farm Service Agency (FSA) and the Natural Resources and Conservation Service (NRCS). H&r block free efile Small watershed programs. H&r block free efile   If the three tests listed earlier are met, you can exclude part or all of the payments you receive under the following programs for improvements made in connection with a watershed. H&r block free efile The programs under the Watershed Protection and Flood Prevention Act. H&r block free efile The flood prevention projects under the Flood Control Act of 1944. H&r block free efile The Emergency Watershed Protection Program under the Flood Control Act of 1950. H&r block free efile Certain programs under the Colorado River Basin Salinity Control Act. H&r block free efile The Wetlands Reserve Program authorized by the Food Security Act of 1985, the Federal Agriculture Improvement and Reform Act of 1996 and the Farm Security and Rural Investment Act of 2002. H&r block free efile The Environmental Quality Incentives Program (EQIP) authorized by the Federal Agriculture Improvement and Reform Act of 1996. H&r block free efile The Wildlife Habitat Incentives Program (WHIP) authorized by the Federal Agriculture Improvement and Reform Act of 1996. H&r block free efile The Soil and Water Conservation Assistance Program authorized by the Agricultural Risk Protection Act of 2000. H&r block free efile The Agricultural Management Assistance Program authorized by the Agricultural Risk Protection Act of 2000. H&r block free efile The Conservation Reserve Program authorized by the Food Security Act of 1985 and the Federal Agriculture Improvement and Reform Act of 1996. H&r block free efile The Forest Land Enhancement Program authorized under the Farm Security and Rural Investment Act of 2002. H&r block free efile The Conservation Security Program authorized by the Food Security Act of 1985. H&r block free efile The Forest Health Protection Program (FHPP) authorized by the Cooperative Forestry Assistance Act of 1978. H&r block free efile Income realized. H&r block free efile   The gross income you realize upon getting an improvement under these cost-sharing programs is the value of the improvement reduced by the sum of the excludable portion and your share of the cost of the improvement (if any). H&r block free efile Value of the improvement. H&r block free efile   You determine the value of the improvement by multiplying its fair market value (defined in chapter 6) by a fraction. H&r block free efile The numerator of the fraction is the total cost of the improvement (all amounts paid either by you or by the government for the improvement) reduced by the sum of the following items. H&r block free efile Any government payments under a program not listed earlier. H&r block free efile Any part of a government payment under a program listed earlier that the Secretary of Agriculture has not certified as primarily for conservation. H&r block free efile Any government payment to you for rent or for your services. H&r block free efile The denominator of the fraction is the total cost of the improvement. H&r block free efile Excludable portion. H&r block free efile   The excludable portion is the present fair market value of the right to receive annual income from the affected acreage of the greater of the following amounts. H&r block free efile 10% of the prior average annual income from the affected acreage. H&r block free efile The prior average annual income is the average of the gross receipts from the affected acreage for the last 3 tax years before the tax year in which you started to install the improvement. H&r block free efile $2. H&r block free efile 50 times the number of affected acres. H&r block free efile The calculation of present fair market value of the right to receive annual income is too complex to discuss in this publication. H&r block free efile You may need to consult your tax advisor for assistance. H&r block free efile Example. H&r block free efile One hundred acres of your land was reclaimed under a rural abandoned mine program contract with the Natural Resources Conservation Service of the USDA. H&r block free efile The total cost of the improvement was $500,000. H&r block free efile The USDA paid $490,000. H&r block free efile You paid $10,000. H&r block free efile The value of the cost-sharing improvement is $15,000. H&r block free efile The present fair market value of the right to receive the annual income described in (1) above is $1,380, and the present fair market value of the right to receive the annual income described in (2) is $1,550. H&r block free efile The excludable portion is the greater amount, $1,550. H&r block free efile You figure the amount to include in gross income as follows: Value of cost-sharing improvement $15,000 Minus: Your share $10,000     Excludable portion 1,550 11,550 Amount included in income $ 3,450 Effects of the exclusion. H&r block free efile   When you figure the basis of property you acquire or improve using cost-sharing payments excluded from income, subtract the excluded payments from your capital costs. H&r block free efile Any payment excluded from income is not part of your basis. H&r block free efile In the example above, the increase in basis is $500,000 – $490,000 + $3,450 = $13,450. H&r block free efile   In addition, you cannot take depreciation, amortization, or depletion deductions for the part of the cost of the property for which you receive cost-sharing payments you exclude from income. H&r block free efile How to report the exclusion. H&r block free efile   Attach a statement to your tax return (or amended return) for the tax year you receive the last government payment for the improvement. H&r block free efile The statement must include the following information. H&r block free efile The dollar amount of the cost funded by the government payment. H&r block free efile The value of the improvement. H&r block free efile The amount you are excluding. H&r block free efile   Report the total cost-sharing payments you receive on Schedule F, line 4a, and the taxable amount on line 4b. H&r block free efile Recapture. H&r block free efile   If you dispose of the property within 20 years after you received the excluded payments, you must treat as ordinary income part or all of the cost-sharing payments you excluded. H&r block free efile In the above example, if the 100 acres were sold within 20 years of the exclusion for a gain of $2,000, $1,550 of that amount would be included in ordinary income. H&r block free efile You must report the recapture on Form 4797. H&r block free efile See Section 1255 property under Other Gains in chapter 9. H&r block free efile Electing not to exclude payments. H&r block free efile   You can elect not to exclude all or part of any payments you receive under these programs. H&r block free efile If you make this election for all of these payments, none of the above restrictions and rules apply. H&r block free efile You must make this election by the due date, including extensions, for filing your return. H&r block free efile In the example above, an election not to exclude payments results in $5,000 included in income and a $15,000 increase in basis. H&r block free efile If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). H&r block free efile Write “Filed pursuant to section 301. H&r block free efile 9100-2” at the top of the amended return and file it at the same address you filed the original return. H&r block free efile Payments Under the Farm Security and Rural Investment Act of 2002 and Under the Food, Conservation, and Energy Act of 2008 The Farm Security and Rural Investment Act of 2002 created two new types of payments—direct and counter-cyclical payments. H&r block free efile You must include these payments on Schedule F, lines 4a and 4b. H&r block free efile The Food, Conservation, and Energy Act of 2008 provides for direct and counter-cyclical payments (DCP) as well as Average Crop Revenue Election (ACRE) payments. H&r block free efile You must include these payments on Schedule F, lines 6a and 6b. H&r block free efile The American Taxpayer Relief Act of 2012, enacted on January 2, 2013, amends the Food, Conservation, and Energy Act of 2008 and provided a one-year extension for these payments. H&r block free efile Tobacco Quota Buyout Program Payments The Fair and Equitable Tobacco Reform Act of 2004, title VI of the American Jobs Creation Act of 2004, terminated the tobacco marketing quota program and the tobacco price support program. H&r block free efile As a result, the USDA offered to enter into contracts with eligible tobacco quota holders and growers to provide compensation for the lost value of the quotas and related price support. H&r block free efile If you are an eligible tobacco quota holder, your contract entitles you to receive total payments of $7 per pound of quota in 10 equal annual payments in fiscal years 2005 through 2014. H&r block free efile If you are an eligible tobacco grower, your contract entitles you to receive total payments of up to $3 per pound of quota in 10 equal annual payments in fiscal years 2005 through 2014. H&r block free efile Tobacco Quota Holders Contract payments you receive are considered proceeds from a sale of your tobacco quota as of the date on which you and the USDA enter into the contract. H&r block free efile Your taxable gain or loss is the total amount received for your quota reduced by any amount treated as interest (discussed below), over your adjusted basis. H&r block free efile The gain or loss is capital or ordinary depending on how you used the quota. H&r block free efile See Capital or ordinary gain or loss , later. H&r block free efile Report the entire gain on your income tax return for the tax year that includes the date you entered into the contract if you elect not to use the installment method. H&r block free efile Adjusted basis. H&r block free efile   The adjusted basis of your quota is determined differently depending on how you obtained the quota. H&r block free efile The basis of a quota derived from an original grant by the federal government is zero. H&r block free efile The basis of a purchased quota is the purchase price. H&r block free efile The basis of a quota received as a gift is generally the same as the donor's basis. H&r block free efile However, under certain circumstances, the basis is increased by the amount of gift taxes paid. H&r block free efile If the basis is greater than the fair market value of the quota at the time of the gift, the basis for determining loss is the fair market value. H&r block free efile The basis of an inherited quota is generally the fair market value of the quota at the time of the decedent's death. H&r block free efile Reduction of basis. H&r block free efile   You are required to reduce the basis of your tobacco quota by the following amounts. H&r block free efile Deductions you took for amortization, depletion, or depreciation. H&r block free efile Amounts you previously deducted as a loss because of a reduction in the number of pounds of tobacco allowable under the quota. H&r block free efile The entire cost of a purchased quota you deducted in an earlier year (which reduces your basis to zero). H&r block free efile Amount treated as interest. H&r block free efile   You must reduce your tobacco quota buyout program payment by the amount treated as interest. H&r block free efile The interest is reportable as ordinary income. H&r block free efile If payments total $3,000 or less, your total quota buyout program payment does not include any amount treated as interest and you are not required to reduce the total payment you receive. H&r block free efile   In all other cases, a portion of each payment may be treated as interest for federal tax purposes. H&r block free efile You may be required to reduce your total quota buyout program payment before you calculate your gain or loss. H&r block free efile For more information, see Notice 2005-57, 2005-32 I. H&r block free efile R. H&r block free efile B. H&r block free efile 267, available at www. H&r block free efile irs. H&r block free efile gov/irb/2005-32_IRB/ar13. H&r block free efile html. H&r block free efile Installment method. H&r block free efile   You may use the installment method to report a gain if you receive at least one payment after the close of your tax year. H&r block free efile Under the installment method, a portion of the gain is taken into account in each year in which a payment is received. H&r block free efile See chapter 10 for more information. H&r block free efile Capital or ordinary gain or loss. H&r block free efile   Whether your gain or loss is ordinary or capital depends on how you used the quota. H&r block free efile Quota used in the trade or business of farming. H&r block free efile   If you used the quota in the trade or business of farming and you held it for more than one year, you report the transaction as a section 1231 transaction on Form 4797. H&r block free efile See Section 1231 transactions in the Instructions for Form 4797 for detailed information on reporting section 1231 transactions. H&r block free efile Quota held for investment. H&r block free efile   If you held the quota for investment purposes, any gain or loss is capital gain or loss. H&r block free efile The same result also applies if you held the quota for the production of income, though not connected with a trade or business. H&r block free efile Gain treated as ordinary income. H&r block free efile   If you previously deducted any of the following items, some or all of the capital gain must be recharacterized and reported as ordinary income. H&r block free efile Any resulting capital gain is taxed as ordinary income up to the amount previously deducted. H&r block free efile The cost of acquiring a quota. H&r block free efile Amounts for amortization, depletion, or depreciation. H&r block free efile Amounts to reflect a reduction in the quota pounds. H&r block free efile   You should include the ordinary income on your return for the tax year even if you use the installment method to report the remainder of the gain. H&r block free efile Self-employment income. H&r block free efile   The tobacco quota buyout payments are not self-employment income. H&r block free efile Income averaging for farmers. H&r block free efile   The gain or loss resulting from the quota payments does not qualify for income averaging. H&r block free efile A tobacco quota is considered an interest in land. H&r block free efile Income averaging is not available for gain or loss arising from the sale or other disposition of land. H&r block free efile Involuntary conversion. H&r block free efile   The buyout of the tobacco quota is not an involuntary conversion. H&r block free efile Form 1099-S. H&r block free efile   A tobacco quota is considered an interest in land, so the USDA will generally report the total amount you receive under a contract on Form 1099-S, Proceeds From Real Estate Transactions, if the amount is $600 or more. H&r block free efile The USDA will generally report any portion of a payment treated as interest of $600 or more to you on Form 1099-INT, Interest Income, for the year in which the payment is made. H&r block free efile Like-kind exchange of quota. H&r block free efile   You may postpone reporting the gain or loss from tobacco quota buyout payments by entering into a like-kind exchange if you comply with the requirements of section 1031 and the regulations thereunder. H&r block free efile See Notice 2005-57 for more information. H&r block free efile Tobacco Growers Contract payments you receive are determined by reference to the amount of quota under which you produced (or planted) quota tobacco during the 2002, 2003, and 2004 tobacco marketing years and are prorated based on the number of years that you produced (or planted) quota tobacco during those years. H&r block free efile Taxation of payments to tobacco growers. H&r block free efile   Payments to growers replace ordinary income that would have been earned had the tobacco marketing quota and price support programs continued. H&r block free efile Individuals will generally report the payments as an Agricultural program payment on Schedule F. H&r block free efile If you are a landowner who does not materially participate in the operation or management of the farm and are receiving the grower payment because your farm rental income is based on the tobacco grown by a tenant, the grower payment should be reported on Form 4835. H&r block free efile Self-employment income. H&r block free efile   Payments to growers generally represent self-employment income. H&r block free efile If the grower is an individual carrying on a trade or business and deriving income (other than farm rental income properly reported on Form 4835) from that trade or business, the payments are net earnings from self-employment. H&r block free efile Income averaging for farmers. H&r block free efile   Payments to growers who are individuals qualify for farm income averaging. H&r block free efile Form 1099-G. H&r block free efile   If the amount received in a taxable year is $600 or more, the amount will generally be reported by the USDA on a Form 1099-G. H&r block free efile Other Payments You must include most other government program payments in income. H&r block free efile Fertilizer and Lime Include in income the value of fertilizer or lime you receive under a government program. H&r block free efile How to claim the offsetting deduction is explained under Fertilizer and Lime in chapter 4. H&r block free efile Improvements If government payments are based on improvements, such as a pollution control facility, you must include them in income. H&r block free efile You must also capitalize the full cost of the improvement. H&r block free efile Since you have included the payments in income, they do not reduce your basis. H&r block free efile However, see Cost-Sharing Exclusion (Improvements) , earlier, for additional information. H&r block free efile National Tobacco Growers' Settlement Trust Fund Payments If you are a producer, landowner, or tobacco quota owner who receives money from the National Tobacco Growers' Settlement Trust Fund, you must report those payments as income. H&r block free efile You should receive a Form 1099-MISC, Miscellaneous Income, that shows the payment amount. H&r block free efile If you produce a tobacco crop, report the payments as income from farming on your Schedule F. H&r block free efile If you are a landowner or tobacco quota owner who leases tobacco-related property but you do not produce the crop, report the payments as farm rental income on Form 4835. H&r block free efile Payment to More Than One Person The USDA reports program payments to the IRS. H&r block free efile It reports a program payment intended for more than one person as having been paid to the person whose identification number is on record for that payment (payee of record). H&r block free efile If you, as the payee of record, receive a program payment belonging to someone else, such as your landlord, the amount belonging to the other person is a nominee distribution. H&r block free efile You should file Form 1099-G to report the identity of the actual recipient to the IRS. H&r block free efile You should also give this information to the recipient. H&r block free efile You can avoid the inconvenience of unnecessary inquiries about the identity of the recipient if you file this form. H&r block free efile Report the total amount reported to you as the payee of record on Schedule F, line 4a or 6a. H&r block free efile However, do not report as a taxable amount on line 4b or 6b any amount belonging to someone else. H&r block free efile See chapter 16 for information about ordering Form 1099-G. H&r block free efile Income From Cooperatives If you buy farm supplies through a cooperative, you may receive income from the cooperative in the form of patronage dividends (refunds). H&r block free efile If you sell your farm products through a cooperative, you may receive either patronage dividends or a per-unit retain certificate, explained later, from the cooperative. H&r block free efile Form 1099-PATR. H&r block free efile   The cooperative will report the income to you on Form 1099-PATR or a similar form and send a copy to the IRS. H&r block free efile Form 1099-PATR may also show an alternative minimum tax adjustment that you must include on Form 6251, Alternative Minimum Tax—Individuals, if you are required to file the form. H&r block free efile For information on the alternative minimum tax, see the Instructions for Form 6251. H&r block free efile Patronage Dividends You generally report patronage dividends as income on Schedule F, lines 3a and 3b, for the tax year you receive them. H&r block free efile They include the following items. H&r block free efile Money paid as a patronage dividend, including cash advances received (for example, from a marketing cooperative). H&r block free efile The stated dollar value of qualified written notices of allocation. H&r block free efile The fair market value of other property. H&r block free efile Do not report as income on line 3b any patronage dividends you receive from expenditures that were not deductible, such as buying personal or family items, capital assets, or depreciable property. H&r block free efile You must reduce the cost or other basis of these items by the amount of such patronage dividends received. H&r block free efile Personal items include fuel purchased for personal use, basic local telephone service, and personal long distance calls. H&r block free efile If you cannot determine what the dividend is for, report it as income on lines 3a and 3b. H&r block free efile Qualified written notice of allocation. H&r block free efile   If you receive a qualified written notice of allocation as part of a patronage dividend, you must generally include its stated dollar value in your income on Schedule F, lines 3a and 3b, in the year you receive it. H&r block free efile A written notice of allocation is qualified if at least 20% of the patronage dividend is paid in money or by qualified check and either of the following conditions is met. H&r block free efile The notice must be redeemable in cash for at least 90 days after it is issued, and you must have received a written notice of your right of redemption at the same time as the written notice of allocation. H&r block free efile You must have agreed to include the stated dollar value in income in the year you receive the notice by doing one of the following. H&r block free efile Signing and giving a written agreement to the cooperative. H&r block free efile Getting or keeping membership in the cooperative after it adopted a bylaw providing that membership constitutes agreement. H&r block free efile The cooperative must notify you in writing of this bylaw and give you a copy. H&r block free efile Endorsing and cashing a qualified check paid as part of the same patronage dividend. H&r block free efile You must cash the check by the 90th day after the close of the payment period for the cooperative's tax year for which the patronage dividend was paid. H&r block free efile Qualified check. H&r block free efile   A qualified check is any instrument that is redeemable in money and meets both of the following requirements. H&r block free efile It is part of a patronage dividend that also includes a qualified written notice of allocation for which you met condition 2(c), above. H&r block free efile It is imprinted with a statement that endorsing and cashing it constitutes the payee's consent to include in income the stated dollar value of any written notices of allocation paid as part of the same patronage dividend. H&r block free efile Loss on redemption. H&r block free efile   You can deduct on Schedule F, Part II, any loss incurred on the redemption of a qualified written notice of allocation you received in the ordinary course of your farming business. H&r block free efile The loss is the difference between the stated dollar amount of the qualified written notice you included in income and the amount you received when you redeemed it. H&r block free efile Nonqualified notice of allocation. H&r block free efile   Do not include the stated dollar value of any nonqualified notice of allocation in income when you receive it. H&r block free efile Your basis in the notice is zero. H&r block free efile You must include in income for the tax year of disposition any amount you receive from its sale, redemption, or other disposition. H&r block free efile Report that amount, up to the stated dollar value of the notice, on Schedule F, lines 3a and 3b. H&r block free efile However, do not include that amount in your income if the notice resulted from buying or selling capital assets or depreciable property or from buying personal items, as explained in the following discussions. H&r block free efile   If the amount you receive is more than the stated dollar value of the notice, report the excess as the type of income it represents. H&r block free efile For example, if it represents interest income, report it on your return as interest. H&r block free efile Buying or selling capital assets or depreciable property. H&r block free efile   Do not include in income patronage dividends from buying capital assets or depreciable property used in your business. H&r block free efile You must, however, reduce the basis of these assets by the dividends. H&r block free efile This reduction is taken into account as of the first day of the tax year in which the dividends are received. H&r block free efile If the dividends are more than your unrecovered basis, reduce the unrecovered basis to zero and include the difference on Schedule F, line 3a, for the tax year you receive them. H&r block free efile   This rule and the exceptions explained below also apply to amounts you receive from the sale, redemption, or other disposition of a nonqualified notice of allocation that resulted from buying or selling capital assets or depreciable property. H&r block free efile Example. H&r block free efile On July 1, 2012, Mr. H&r block free efile Brown, a patron of a cooperative association, bought a machine for his dairy farm business from the association for $2,900. H&r block free efile The machine has a life of 7 years under MACRS (as provided in the Table of Class Lives and Recovery Periods in Appendix B of Publication 946, Depreciation and Amortization). H&r block free efile Mr. H&r block free efile Brown files his return on a calendar year basis. H&r block free efile For 2012, he claimed a depreciation deduction of $311, using the 10. H&r block free efile 71% depreciation rate from the 150% declining balance, half-year convention table (shown in Table A-14 in Appendix A of Publication 946). H&r block free efile On July 2, 2013, the cooperative association paid Mr. H&r block free efile Brown a $300 cash patronage dividend for buying the machine. H&r block free efile Mr. H&r block free efile Brown adjusts the basis of the machine and figures his depreciation deduction for 2013 (and later years) as follows. H&r block free efile Cost of machine on July 1, 2012 $2,900 Minus: 2012 depreciation $311     2013 cash dividend 300 611 Adjusted basis for  depreciation for 2013: $2,289 Depreciation rate: 1 ÷ 6½ (remaining recovery period as of 1/1/2012) = 15. H&r block free efile 38% × 1. H&r block free efile 5 = 23. H&r block free efile 07% Depreciation deduction for 2013 ($2,289 × 23. H&r block free efile 07%) $528 Exceptions. H&r block free efile   If the dividends are for buying or selling capital assets or depreciable property you did not own at any time during the year you received the dividends, you must include them on Schedule F, lines 3a and 3b, unless one of the following rules applies. H&r block free efile If the dividends relate to a capital asset you held for more than 1 year for which a loss was or would have been deductible, treat them as gain from the sale or exchange of a capital asset held for more than 1 year. H&r block free efile If the dividends relate to a capital asset for which a loss was not or would not have been deductible, do not report them as income (ordinary or capital gain). H&r block free efile   If the dividends are for selling capital assets or depreciable property during the year you received the dividends, treat them as an additional amount received on the sale. H&r block free efile Personal purchases. H&r block free efile   Because you cannot deduct the cost of personal, living, or family items, such as supplies, equipment, or services not related to the production of farm income, you can omit from the taxable amount of patronage dividends on Schedule F, line 3b, any dividends from buying those items (and you must reduce the cost or other basis of those items by the amount of the dividends). H&r block free efile This rule also applies to amounts you receive from the sale, redemption, or other disposition of a nonqualified written notice of allocation resulting from these purchases. H&r block free efile Per-Unit Retain Certificates A per-unit retain certificate is any written notice that shows the stated dollar amount of a per-unit retain allocation made to you by the cooperative. H&r block free efile A per-unit retain allocation is an amount paid to patrons for products sold for them that is fixed without regard to the net earnings of the cooperative. H&r block free efile These allocations can be paid in money, other property, or qualified certificates. H&r block free efile Per-unit retain certificates issued by a cooperative generally receive the same tax treatment as patronage dividends, discussed earlier. H&r block free efile Qualified certificates. H&r block free efile   Qualified per-unit retain certificates are those issued to patrons who have agreed to include the stated dollar amount of these certificates in income in the year of receipt. H&r block free efile The agreement may be made in writing or by getting or keeping membership in a cooperative whose bylaws or charter states that membership constitutes agreement. H&r block free efile If you receive qualified per-unit retain certificates, include the stated dollar amount of the certificates in income on Schedule F, lines 3a and 3b, for the tax year you receive them. H&r block free efile Nonqualified certificates. H&r block free efile   Do not include the stated dollar value of a nonqualified per-unit retain certificate in income when you receive it. H&r block free efile Your basis in the certificate is zero. H&r block free efile You must include in income any amount you receive from its sale, redemption, or other disposition. H&r block free efile Report the amount you receive from the disposition as ordinary income on Schedule F, lines 3a and 3b, for the tax year of disposition. H&r block free efile Cancellation of Debt This section explains the general rule for including canceled debt in income and the exceptions to the general rule. H&r block free efile For more information on canceled debt, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. H&r block free efile General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in gross income for tax purposes. H&r block free efile Discharge of qualified farm indebtedness (defined below) is one of the exceptions to the general rule. H&r block free efile It is excluded from taxable income (see Exclusions , later). H&r block free efile Report the canceled amount on Schedule F, line 8, if you incurred the debt in your farming business. H&r block free efile If the debt is a nonbusiness debt, report the canceled amount as other income on Form 1040, line 21. H&r block free efile Election to defer income from discharge of indebtedness. H&r block free efile   You can elect to defer income from a discharge of business indebtedness that occurred after 2008 and before 2011. H&r block free efile Generally, if the election is made, the deferred income is included in gross income ratably over a 5-year period beginning in 2014 (for calendar year taxpayers) and the exclusions listed below do not apply. H&r block free efile See IRC section 108(i) and Publication 4681 for details. H&r block free efile Form 1099-C. H&r block free efile   If a federal agency, financial institution, credit union, finance company, or credit card company cancels or forgives your debt of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. H&r block free efile The amount of debt canceled is shown in box 2. H&r block free efile Exceptions The following discussion covers some exceptions to the general rule for canceled debt. H&r block free efile These exceptions apply before the exclusions discussed below. H&r block free efile Price reduced after purchase. H&r block free efile   If your purchase of property was financed by the seller and the seller reduces the amount of the debt at a time when you are not insolvent and the reduction does not occur in a chapter 11 bankruptcy case, the amount of the debt reduction will be treated as a reduction in the purchase price of the property. H&r block free efile Reduce your basis in the property by the amount of the reduction in the debt. H&r block free efile The rules that apply to bankruptcy and insolvency are explained below under Exclusions . H&r block free efile Deductible debt. H&r block free efile   You do not realize income from a canceled debt to the extent the payment of the debt would have been a deductible expense. H&r block free efile This exception applies before the price reduction exception discussed above and the bankruptcy and insolvency exclusions discussed next. H&r block free efile Example. H&r block free efile You get accounting services for your farm on credit. H&r block free efile Later, you have trouble paying your farm debts, but you are not bankrupt or insolvent. H&r block free efile Your accountant forgives part of the amount you owe for the accounting services. H&r block free efile How you treat the canceled debt depends on your method of accounting. H&r block free efile Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. H&r block free efile Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. H&r block free efile Exclusions Do not include canceled debt in income in the following situations. H&r block free efile The cancellation takes place in a bankruptcy case under title 11 of the U. H&r block free efile S. H&r block free efile Code. H&r block free efile The cancellation takes place when you are insolvent. H&r block free efile The canceled debt is a qualified farm debt. H&r block free efile The canceled debt is a qualified real property business debt (in the case of a taxpayer other than a C corporation). H&r block free efile See Publication 334, Tax Guide for Small Business, chapter 5. H&r block free efile The canceled debt is qualified principal residence indebtedness which is discharged after 2006 and before 2014. H&r block free efile The exclusions do not apply in the following situations: If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations (2), (3), (4), and (5) do not apply. H&r block free efile If a canceled debt is excluded from income because it takes place when you are insolvent, the exclusions in situations (3) and (4) do not apply to the extent you are insolvent. H&r block free efile If a canceled debt is excluded from income because it is qualified principal residence indebtedness, the exclusion in situation (2) does not apply unless you elect to apply situation (2) instead of the exclusion for qualified principal residence indebtedness. H&r block free efile See Form 982 , later, for information on how to claim an exclusion for a canceled debt. H&r block free efile Debt. H&r block free efile   For this discussion, debt includes any debt for which you are liable or that attaches to property you hold. H&r block free efile Bankruptcy and Insolvency You can exclude a canceled debt from income if you are bankrupt or to the extent you are insolvent. H&r block free efile Bankruptcy. H&r block free efile   A bankruptcy case is a case under title 11 of the U. H&r block free efile S. H&r block free efile Code if you are under the jurisdiction of the court and the cancellation of the debt is granted by the court or is the result of a plan approved by the court. H&r block free efile   Do not include debt canceled in a bankruptcy case in your income in the year it is canceled. H&r block free efile Instead, you must use the amount canceled to reduce your tax attributes, explained below under Reduction of tax attributes . H&r block free efile Insolvency. H&r block free efile   You are insolvent to the extent your liabilities are more than the fair market value of your assets immediately before the cancellation of debt. H&r block free efile   You can exclude canceled debt from gross income up to the amount by which you are insolvent. H&r block free efile If the canceled debt is more than this amount and the debt qualifies, you can apply the rules for qualified farm debt or qualified real property business debt to the difference. H&r block free efile Otherwise, you include the difference in gross income. H&r block free efile Use the amount excluded because of insolvency to reduce any tax attributes, as explained below under Reduction of tax attributes . H&r block free efile You must reduce the tax attributes under the insolvency rules before applying the rules for qualified farm debt or for qualified real property business debt. H&r block free efile Example. H&r block free efile You had a $15,000 debt that was not qualified principal residence debt canceled outside of bankruptcy. H&r block free efile Immediately before the cancellation, your liabilities totaled $80,000 and your assets totaled $75,000. H&r block free efile Since your liabilities were more than your assets, you were insolvent to the extent of $5,000 ($80,000 − $75,000). H&r block free efile You can exclude this amount from income. H&r block free efile The remaining canceled debt ($10,000) may be subject to the qualified farm debt or qualified real property business debt rules. H&r block free efile If not, you must include it in income. H&r block free efile Reduction of tax attributes. H&r block free efile   If you exclude canceled debt from income in a bankruptcy case or during insolvency, you must use the excluded debt to reduce certain tax attributes. H&r block free efile Order of reduction. H&r block free efile   You must use the excluded canceled debt to reduce the following tax attributes in the order listed unless you elect to reduce the basis of depreciable property first, as explained later. H&r block free efile Net operating loss (NOL). H&r block free efile Reduce any NOL for the tax year of the debt cancellation, and then any NOL carryover to that year. H&r block free efile Reduce the NOL or NOL carryover one dollar for each dollar of excluded canceled debt. H&r block free efile General business credit carryover. H&r block free efile Reduce the credit carryover to or from the tax year of the debt cancellation. H&r block free efile Reduce the carryover 331/3 cents for each dollar of excluded canceled debt. H&r block free efile Minimum tax credit. H&r block free efile Reduce the minimum tax credit available at the beginning of the tax year following the tax year of the debt cancellation. H&r block free efile Reduce the credit 331/3 cents for each dollar of excluded canceled debt. H&r block free efile Capital loss. H&r block free efile Reduce any net capital loss for the tax year of the debt cancellation, and then any capital loss carryover to that year. H&r block free efile Reduce the capital loss or loss carryover one dollar for each dollar of excluded canceled debt. H&r block free efile Basis. H&r block free efile Reduce the basis of the property you hold at the beginning of the tax year following the tax year of the debt cancellation in the following order. H&r block free efile Real property (except inventory) used in your trade or business or held for investment that secured the canceled debt. H&r block free efile Personal property (except inventory and accounts and notes receivable) used in your trade or business or held for investment that secured the canceled debt. H&r block free efile Other property (except inventory and accounts and notes receivable) used in your trade or business or held for investment. H&r block free efile Inventory and accounts and notes receivable. H&r block free efile Other property. H&r block free efile Reduce the basis one dollar for each dollar of excluded canceled debt. H&r block free efile However, the reduction cannot be more than the total basis of property and the amount of money you hold immediately after the debt cancellation minus your total liabilities immediately after the cancellation. H&r block free efile For allocation rules that apply to basis reductions for multiple canceled debts, see Regulations section 1. H&r block free efile 1017-1(b)(2). H&r block free efile Also see Electing to reduce the basis of depreciable property
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The H&r Block Free Efile

H&r block free efile Index A Accelerated death benefits, Accelerated Death Benefits Accounting periods Change in, standard deduction not allowed, Persons not eligible for the standard deduction. H&r block free efile Accrued leave payment Disability retirement and, Accrued leave payment. H&r block free efile Adjusted gross income (AGI), Adjustments to Income Adjustments to income, Adjustments to Income Age Standard deduction for age 65 or older, Higher standard deduction for age (65 or older). H&r block free efile Age 65, Qualified Individual American Association of Retired Persons (AARP), Volunteer Income Tax Assistance and Tax Counseling for the Elderly. H&r block free efile Annuities, Pensions and Annuities Assistance (see Tax help) B Base amount, social security benefits, Base Amount Benefits Accident or health, Other compensation. H&r block free efile Long-term care, Long-Term Care Insurance Contracts No-fault insurance, Other compensation. H&r block free efile Sickness and injury, Sickness and Injury Benefits Social security, Are Any of Your Benefits Taxable? Veterans', Veterans' benefits. H&r block free efile Bequests, Gifts and inheritances. H&r block free efile Blind persons Standard deduction for, Higher standard deduction for blindness. H&r block free efile C Child and dependent care credit, Child and Dependent Care Credit Children Standard deduction for, Standard Deduction for Dependents Chronically ill persons, Chronically ill individual. H&r block free efile Chronically ill, defined, Terminally or chronically ill defined. H&r block free efile Compensation For services, Compensation for Services Loss or disfigurement, Other compensation. H&r block free efile Contributions Foreign employment, Foreign employment contributions. H&r block free efile Pension or annuity, Cost. H&r block free efile Cost, pension or annuity, Cost. H&r block free efile Credit Child and dependent care, Child and Dependent Care Credit Earned income, Earned Income Credit (EIC) The elderly or the disabled, Credit for the Elderly or the Disabled Credit for the elderly or the disabled, Credit for the Elderly or the Disabled D Death benefit, accelerated, Accelerated Death Benefits Decedents, Dependents. H&r block free efile Standard deduction, Decedent's final return. H&r block free efile Deductions Generally, Deductions Insurance premiums, Medical Insurance Premiums Itemized, Itemized Deductions Meals and lodging, Meals and Lodging Medical and dental, Medical and Dental Expenses Standard, Standard Deduction Dependents, Dependents. H&r block free efile Standard deduction for, Standard Deduction for Dependents Disabilities, individuals with Ownership and use test, Exception to use test for individuals with a disability. H&r block free efile Disability Person with, Persons with disabilities. H&r block free efile Physician's statement, Physician's statement. H&r block free efile Total and permanent, Permanent and total disability. H&r block free efile Disability income, Disability Pensions, Other compensation. H&r block free efile , Disability income. H&r block free efile Distributions, retirement plan, Retirement Plan Distributions Drugs (see Medicines) Dual-status taxpayers Standard deduction, Persons not eligible for the standard deduction. H&r block free efile E Early distributions, tax, Tax on Early Distributions Earned income credit, Earned Income Credit (EIC) Elderly or disabled credit, Credit for the Elderly or the Disabled Elderly persons Standard deduction for age 65 or older, Higher standard deduction for age (65 or older). H&r block free efile Employment tax withholding, Reminders Employment taxes, Employment taxes. H&r block free efile Endowment proceeds, Endowment Contract Proceeds Estimated tax, Tax Withholding and Estimated Tax, Estimated Tax, Who Must Make Estimated Tax Payments Excess accumulation, tax on, Tax on Excess Accumulation Exclusion, gain on sale of home, Maximum Amount of Exclusion F Federal Employees Compensation Act (FECA) payments, Federal Employees' Compensation Act (FECA). H&r block free efile Filing requirements Decedents, Dependents. H&r block free efile General requirements, General Requirements Surviving spouse, Surviving spouse. H&r block free efile Final return for decedent Standard deduction, Decedent's final return. H&r block free efile First-time homebuyer credit Recapture, Repaying the first-time homebuyer credit because you sold your home. H&r block free efile Form, Credit for the Elderly or the Disabled, Physician's statement. H&r block free efile 1099-R, Form 1099-R. H&r block free efile , Form 1099-R. H&r block free efile 5329, Form 5329. H&r block free efile 8853, Accelerated Death Benefits Schedule R, Credit for the Elderly or the Disabled, Physician's statement. H&r block free efile W-4P, Withholding. H&r block free efile Free tax services, Free help with your tax return. H&r block free efile G Gain on sale of home (see Sale of home) General rule, pension or annuity, Pensions and Annuities Gifts, Gifts and inheritances. H&r block free efile H Help (see Tax help) Home care (see Nursing services) Home improvements, Home Improvements Home, sale of, Sale of Home Hospital services, Hospital Services Household help, Household Help I Income Adjustments, Adjustments to Income Disability, Disability Pensions, Disability income. H&r block free efile Gross, defined, Gross income. H&r block free efile Nontaxable, Taxable and Nontaxable Income Sale of home, Sale of Home Self-employment, Self-employed persons. H&r block free efile Taxable, Taxable and Nontaxable Income Individual retirement arrangement (IRA) Adjustments to income, Individual Retirement Arrangement (IRA) Contributions and Deductions Contributions, Contributions. H&r block free efile Deductible contribution, Deductible contribution. H&r block free efile Distributions, Individual Retirement Arrangements (IRAs) Inheritances, Gifts and inheritances. H&r block free efile Injury benefits, Sickness and Injury Benefits, Cost paid by you. H&r block free efile Insurance Accident and health, Other compensation. H&r block free efile , Medical Insurance Premiums Benefits, long-term care, Long-Term Care Insurance Contracts Benefits, no-fault insurance, Other compensation. H&r block free efile Life insurance proceeds, Life Insurance Proceeds Proceeds paid after death, Life Insurance Proceeds Proceeds paid before death, Accelerated Death Benefits Insurance premiums for retired public safety officers, Insurance Premiums for Retired Public Safety Officers Itemized deductions, Itemized Deductions Married filing separately One spouse has itemized, Persons not eligible for the standard deduction. H&r block free efile L Life insurance proceeds, Life Insurance Proceeds Long-term care, Long-Term Care Chronically ill individuals, Chronically ill individual. H&r block free efile Maintenance and personal care services, Maintenance and personal care services. H&r block free efile Qualified insurance contracts, Qualified long-term care insurance contracts. H&r block free efile Qualified services, Qualified long-term care services. H&r block free efile Long-term care insurance, Long-Term Care Insurance Contracts Loss or disfigurement compensation, Other compensation. H&r block free efile Lump-sum distributions, Lump-sum distributions. H&r block free efile Lump-sum election, social security, Lump-Sum Election M Maintenance and personal care services, Maintenance and personal care services. H&r block free efile Married filing separately Itemized deductions One spouse has itemized so other must as well, Persons not eligible for the standard deduction. H&r block free efile Married taxpayers Age 65 or older spouse Standard deduction, Spouse 65 or older or blind. H&r block free efile Blind spouse Standard deduction, Spouse 65 or older or blind. H&r block free efile Meals and lodging expenses, Meals and Lodging Medical expenses, Medical and Dental Expenses Medicare, Medicare Part A. H&r block free efile , Medicare Part B. H&r block free efile , Medicare Part D. H&r block free efile Benefits, Medicare. H&r block free efile Medicines, Medicines Imported, Imported medicines and drugs. H&r block free efile Military retirement pay, Military Retirement Pay Minimum distributions, Tax on Excess Accumulation Minimum wage, Substantial gainful activity. H&r block free efile Missing children, Reminders Mortgage assistance payments, Mortgage assistance payments. H&r block free efile N Nonperiodic distributions, Nonperiodic Distributions Nonqualified use, Period of nonqualified use. H&r block free efile Nonresident aliens Standard deduction, Persons not eligible for the standard deduction. H&r block free efile Nontaxable income, Payments from a state fund for victims of crime. H&r block free efile Accident or health insurance benefits, Other compensation. H&r block free efile Bequests, Gifts and inheritances. H&r block free efile Generally, Taxable and Nontaxable Income Gifts, Gifts and inheritances. H&r block free efile Inheritances, Gifts and inheritances. H&r block free efile Mortgage assistance payments, Mortgage assistance payments. H&r block free efile No-fault insurance benefits, Other compensation. H&r block free efile Nutrition program for elderly, Nutrition Program for the Elderly. H&r block free efile Public assistance payments, Welfare benefits. H&r block free efile Sickness and injury benefits, Sickness and Injury Benefits Veterans' benefits, Veterans' benefits. H&r block free efile Winter energy use, Payments to reduce cost of winter energy use. H&r block free efile Workers' compensation, Workers' Compensation Nursing home, Nursing home. H&r block free efile Nursing services, Nursing Services Chronically ill individuals, Chronically ill individual. H&r block free efile Nutrition program for elderly, Nutrition Program for the Elderly. H&r block free efile O Old-age, survivors, and disability insurance benefits (OASDI), Old-age, survivors, and disability insurance benefits (OASDI). H&r block free efile Other items, Other Items Overall limitation, Overall limitation. H&r block free efile P Payments, estimated tax, Estimated Tax Pensions, Pensions and Annuities Pensions, disability, Disability Pensions Photographs, missing children, Reminders Physician's statement, disability, Physician's statement. H&r block free efile Prepaid insurance premiums, Prepaid insurance premiums. H&r block free efile Preparer, paid, Reminders Preparing your return, Return preparation assistance. H&r block free efile Profit-sharing plan, Retirement and profit-sharing plans. H&r block free efile Public assistance payments, Welfare benefits. H&r block free efile Publications (see Tax help) Q Qualified retirement plan, Tax on Early Distributions R Railroad retirement benefits, Railroad Retirement Benefits, Social Security and Equivalent Railroad Retirement Benefits Repayments Social security benefits, Repayment of Benefits Reporting pension income, How to report. H&r block free efile Residence, sale of, Sale of Home Retirement plans, distributions, Retirement Plan Distributions Returns Decedent, Dependents. H&r block free efile Executors and administrators, Dependents. H&r block free efile Filing requirements, 2013 Filing Requirements Surviving spouse, Surviving spouse. H&r block free efile Reverse mortgages, Reverse Mortgages S Salaries (see Compensation) Sale of Home First-time homebuyer credit, Repaying the first-time homebuyer credit because you sold your home. H&r block free efile Surviving spouse, Reminders Sale of home, Sale of Home Self-employed, Self-employed persons. H&r block free efile Short tax year Change in annual accounting period, Persons not eligible for the standard deduction. H&r block free efile Sickness and injury benefits, Sickness and Injury Benefits Simplified method, Pensions and Annuities Social security benefits, Social Security and Equivalent Railroad Retirement Benefits Standard deduction, Standard Deduction Age 65 or older, Higher standard deduction for age (65 or older). H&r block free efile Blind persons, Higher standard deduction for blindness. H&r block free efile Dependents, Standard Deduction for Dependents Final return of decedent, Decedent's final return. H&r block free efile Married filing separately One spouse has itemized, Persons not eligible for the standard deduction. H&r block free efile Starting date, annuity, Cost. H&r block free efile State fund for victims of crime, Payments from a state fund for victims of crime. H&r block free efile Substantial gainful activity, Substantial gainful activity. H&r block free efile Surrender of Iife insurance, Surrender of policy for cash. H&r block free efile Surviving Spouse, Reminders Surviving spouse, Surviving spouse. H&r block free efile Surviving spouse, insurance, Surviving spouse. H&r block free efile Survivors of retirees, Survivors of retirees. H&r block free efile T Tax Early distributions, Tax on Early Distributions Estimated, Tax Withholding and Estimated Tax, Estimated Tax Excess accumulation, Tax on Excess Accumulation Tax counseling for the elderly (TCE), Volunteer Income Tax Assistance and Tax Counseling for the Elderly. H&r block free efile Tax help, How To Get Tax Help Tax option, 10-year, Lump-sum distributions. H&r block free efile Tax return preparers, Reminders Taxable income, Taxable and Nontaxable Income Taxation of benefits, Are Any of Your Benefits Taxable? Terminally ill, defined, Terminally or chronically ill defined. H&r block free efile Total and permanent disability, defined, Permanent and total disability. H&r block free efile Transportation expenses, Transportation TTY/TDD information, How To Get Tax Help U U. H&r block free efile S. H&r block free efile citizen or resident, U. H&r block free efile S. H&r block free efile citizen or resident alien. H&r block free efile Unemployment compensation, Unemployment compensation. H&r block free efile V Veterans' benefits, Veterans' benefits. H&r block free efile Viatical settlement, Accelerated Death Benefits Victims of crime, Payments from a state fund for victims of crime. H&r block free efile Volunteer income tax assistance (VITA), Volunteer Income Tax Assistance and Tax Counseling for the Elderly. H&r block free efile Volunteer work, Volunteer work. H&r block free efile W Wages (see Compensation) Winter energy use payments, Payments to reduce cost of winter energy use. H&r block free efile Withholding Employment tax, Reminders Pensions and annuities, Withholding. H&r block free efile Workers' compensation, Workers' Compensation Worksheets, social security, Which worksheet to use. H&r block free efile Prev  Up     Home   More Online Publications