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Handr Block

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Handr Block

Handr block 3. Handr block   Ordinary or Capital Gain or Loss for Business Property Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Section 1231 Gains and LossesNonrecaptured section 1231 losses. Handr block Depreciation RecaptureSection 1245 Property Section 1250 Property Installment Sales Gifts Transfers at Death Like-Kind Exchanges and Involuntary Conversions Multiple Properties Introduction When you dispose of business property, your taxable gain or loss is usually a section 1231 gain or loss. Handr block Its treatment as ordinary or capital is determined under rules for section 1231 transactions. Handr block When you dispose of depreciable property (section 1245 property or section 1250 property) at a gain, you may have to recognize all or part of the gain as ordinary income under the depreciation recapture rules. Handr block Any remaining gain is a section 1231 gain. Handr block Topics - This chapter discusses: Section 1231 gains and losses Depreciation recapture Useful Items - You may want to see: Publication 534 Depreciating Property Placed in Service Before 1987 537 Installment Sales 547 Casualties, Disasters and Thefts 551 Basis of Assets 946 How To Depreciate Property Form (and Instructions) 4797 Sales of Business Property See chapter 5 for information about getting publications and forms. Handr block Section 1231 Gains and Losses Section 1231 gains and losses are the taxable gains and losses from section 1231 transactions (discussed below). Handr block Their treatment as ordinary or capital depends on whether you have a net gain or a net loss from all your section 1231 transactions. Handr block If you have a gain from a section 1231 transaction, first determine whether any of the gain is ordinary income under the depreciation recapture rules (explained later). Handr block Do not take that gain into account as section 1231 gain. Handr block Section 1231 transactions. Handr block   The following transactions result in gain or loss subject to section 1231 treatment. Handr block Sales or exchanges of real property or depreciable personal property. Handr block This property must be used in a trade or business and held longer than 1 year. Handr block Generally, property held for the production of rents or royalties is considered to be used in a trade or business. Handr block Depreciable personal property includes amortizable section 197 intangibles (described in chapter 2 under Other Dispositions). Handr block Sales or exchanges of leaseholds. Handr block The leasehold must be used in a trade or business and held longer than 1 year. Handr block Sales or exchanges of cattle and horses. Handr block The cattle and horses must be held for draft, breeding, dairy, or sporting purposes and held for 2 years or longer. Handr block Sales or exchanges of other livestock. Handr block This livestock does not include poultry. Handr block It must be held for draft, breeding, dairy, or sporting purposes and held for 1 year or longer. Handr block Sales or exchanges of unharvested crops. Handr block The crop and land must be sold, exchanged, or involuntarily converted at the same time and to the same person and the land must be held longer than 1 year. Handr block You cannot keep any right or option to directly or indirectly reacquire the land (other than a right customarily incident to a mortgage or other security transaction). Handr block Growing crops sold with a lease on the land, though sold to the same person in the same transaction, are not included. Handr block Cutting of timber or disposal of timber, coal, or iron ore. Handr block The cutting or disposal must be treated as a sale, as described in chapter 2 under Timber and Coal and Iron Ore. Handr block Condemnations. Handr block The condemned property must have been held longer than 1 year. Handr block It must be business property or a capital asset held in connection with a trade or business or a transaction entered into for profit, such as investment property. Handr block It cannot be property held for personal use. Handr block Casualties and thefts. Handr block The casualty or theft must have affected business property, property held for the production of rents and royalties, or investment property (such as notes and bonds). Handr block You must have held the property longer than 1 year. Handr block However, if your casualty or theft losses are more than your casualty or theft gains, neither the gains nor the losses are taken into account in the section 1231 computation. Handr block For more information on casualties and thefts, see Publication 547. Handr block Property for sale to customers. Handr block   A sale, exchange, or involuntary conversion of property held mainly for sale to customers is not a section 1231 transaction. Handr block If you will get back all, or nearly all, of your investment in the property by selling it rather than by using it up in your business, it is property held mainly for sale to customers. Handr block Example. Handr block You manufacture and sell steel cable, which you deliver on returnable reels that are depreciable property. Handr block Customers make deposits on the reels, which you refund if the reels are returned within a year. Handr block If they are not returned, you keep each deposit as the agreed-upon sales price. Handr block Most reels are returned within the 1-year period. Handr block You keep adequate records showing depreciation and other charges to the capitalized cost of the reels. Handr block Under these conditions, the reels are not property held for sale to customers in the ordinary course of your business. Handr block Any gain or loss resulting from their not being returned may be capital or ordinary, depending on your section 1231 transactions. Handr block Copyrights. Handr block    The sale of a copyright, a literary, musical, or artistic composition, or similar property is not a section 1231 transaction if your personal efforts created the property, or if you acquired the property in a way that entitled you to the basis of the previous owner whose personal efforts created it (for example, if you receive the property as a gift). Handr block The sale of such property results in ordinary income and generally is reported in Part II of Form 4797. Handr block Treatment as ordinary or capital. Handr block   To determine the treatment of section 1231 gains and losses, combine all your section 1231 gains and losses for the year. Handr block If you have a net section 1231 loss, it is ordinary loss. Handr block If you have a net section 1231 gain, it is ordinary income up to the amount of your nonrecaptured section 1231 losses from previous years. Handr block The rest, if any, is long-term capital gain. Handr block Nonrecaptured section 1231 losses. Handr block   Your nonrecaptured section 1231 losses are your net section 1231 losses for the previous 5 years that have not been applied against a net section 1231 gain. Handr block Therefore, if in any of your five preceding tax years you had section 1231 losses, a net gain for the current year from the sale of section 1231 assets is ordinary gain to the extent of your prior losses. Handr block These losses are applied against your net section 1231 gain beginning with the earliest loss in the 5-year period. Handr block Example. Handr block In 2013, Ben has a $2,000 net section 1231 gain. Handr block To figure how much he has to report as ordinary income and long-term capital gain, he must first determine his section 1231 gains and losses from the previous 5-year period. Handr block From 2008 through 2012 he had the following section 1231 gains and losses. Handr block Year Amount 2008 -0- 2009 -0- 2010 ($2,500) 2011 -0- 2012 $1,800 Ben uses this information to figure how to report his net section 1231 gain for 2013 as shown below. Handr block 1) Net section 1231 gain (2013) $2,000 2) Net section 1231 loss (2010) ($2,500)   3) Net section 1231 gain (2012) 1,800   4) Remaining net section 1231 loss from prior 5 years ($700)   5) Gain treated as  ordinary income $700 6) Gain treated as long-term  capital gain $1,300 Depreciation Recapture If you dispose of depreciable or amortizable property at a gain, you may have to treat all or part of the gain (even if otherwise nontaxable) as ordinary income. Handr block To figure any gain that must be reported as ordinary income, you must keep permanent records of the facts necessary to figure the depreciation or amortization allowed or allowable on your property. Handr block This includes the date and manner of acquisition, cost or other basis, depreciation or amortization, and all other adjustments that affect basis. Handr block On property you acquired in a nontaxable exchange or as a gift, your records also must indicate the following information. Handr block Whether the adjusted basis was figured using depreciation or amortization you claimed on other property. Handr block Whether the adjusted basis was figured using depreciation or amortization another person claimed. Handr block Corporate distributions. Handr block   For information on property distributed by corporations, see Distributions to Shareholders in Publication 542, Corporations. Handr block General asset accounts. Handr block   Different rules apply to dispositions of property you depreciated using a general asset account. Handr block For information on these rules, see Publication 946. Handr block Section 1245 Property A gain on the disposition of section 1245 property is treated as ordinary income to the extent of depreciation allowed or allowable on the property. Handr block See Gain Treated as Ordinary Income, later. Handr block Any gain recognized that is more than the part that is ordinary income from depreciation is a section 1231 gain. Handr block See Treatment as ordinary or capital under Section 1231 Gains and Losses, earlier. Handr block Section 1245 property defined. Handr block   Section 1245 property includes any property that is or has been subject to an allowance for depreciation or amortization and that is any of the following types of property. Handr block Personal property (either tangible or intangible). Handr block Other tangible property (except buildings and their structural components) used as any of the following. Handr block See Buildings and structural components below. Handr block An integral part of manufacturing, production, or extraction, or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services. Handr block A research facility in any of the activities in (a). Handr block A facility in any of the activities in (a) for the bulk storage of fungible commodities (discussed on the next page). Handr block That part of real property (not included in (2)) with an adjusted basis reduced by (but not limited to) the following. Handr block Amortization of certified pollution control facilities. Handr block The section 179 expense deduction. Handr block Deduction for clean-fuel vehicles and certain refueling property. Handr block Deduction for capital costs incurred in complying with Environmental Protection Agency sulfur regulations. Handr block Deduction for certain qualified refinery property. Handr block Deduction for qualified energy efficient commercial building property. Handr block Amortization of railroad grading and tunnel bores, if in effect before the repeal by the Revenue Reconciliation Act of 1990. Handr block (Repealed by Public Law 99-514, Tax Reform Act of 1986, section 242(a). Handr block ) Certain expenditures for child care facilities if in effect before repeal by Public Law 101-58, Omnibus Budget Reconciliation Act of 1990, section 11801(a)(13) (except with regards to deductions made prior to November 5, 1990). Handr block Expenditures to remove architectural and transportation barriers to the handicapped and elderly. Handr block Deduction for qualified tertiary injectant expenses. Handr block Certain reforestation expenditures. Handr block Deduction for election to expense qualified advanced mine safety equipment property. Handr block Single purpose agricultural (livestock) or horticultural structures. Handr block Storage facilities (except buildings and their structural components) used in distributing petroleum or any primary product of petroleum. Handr block Any railroad grading or tunnel bore. Handr block Buildings and structural components. Handr block   Section 1245 property does not include buildings and structural components. Handr block The term building includes a house, barn, warehouse, or garage. Handr block The term structural component includes walls, floors, windows, doors, central air conditioning systems, light fixtures, etc. Handr block   Do not treat a structure that is essentially machinery or equipment as a building or structural component. Handr block Also, do not treat a structure that houses property used as an integral part of an activity as a building or structural component if the structure's use is so closely related to the property's use that the structure can be expected to be replaced when the property it initially houses is replaced. Handr block   The fact that the structure is specially designed to withstand the stress and other demands of the property and cannot be used economically for other purposes indicates it is closely related to the use of the property it houses. Handr block Structures such as oil and gas storage tanks, grain storage bins, silos, fractionating towers, blast furnaces, basic oxygen furnaces, coke ovens, brick kilns, and coal tipples are not treated as buildings, but as section 1245 property. Handr block Facility for bulk storage of fungible commodities. Handr block   This term includes oil or gas storage tanks and grain storage bins. Handr block Bulk storage means the storage of a commodity in a large mass before it is used. Handr block For example, if a facility is used to store oranges that have been sorted and boxed, it is not used for bulk storage. Handr block To be fungible, a commodity must be such that one part may be used in place of another. Handr block   Stored materials that vary in composition, size, and weight are not fungible. Handr block Materials are not fungible if one part cannot be used in place of another part and the materials cannot be estimated and replaced by simple reference to weight, measure, and number. Handr block For example, the storage of different grades and forms of aluminum scrap is not storage of fungible commodities. Handr block Gain Treated as Ordinary Income The gain treated as ordinary income on the sale, exchange, or involuntary conversion of section 1245 property, including a sale and leaseback transaction, is the lesser of the following amounts. Handr block The depreciation and amortization allowed or allowable on the property. Handr block The gain realized on the disposition (the amount realized from the disposition minus the adjusted basis of the property). Handr block A limit on this amount for gain on like-kind exchanges and involuntary conversions is explained later. Handr block For any other disposition of section 1245 property, ordinary income is the lesser of (1) earlier or the amount by which its fair market value is more than its adjusted basis. Handr block See Gifts and Transfers at Death, later. Handr block Use Part III of Form 4797 to figure the ordinary income part of the gain. Handr block Depreciation taken on other property or taken by other taxpayers. Handr block   Depreciation and amortization include the amounts you claimed on the section 1245 property as well as the following depreciation and amortization amounts. Handr block Amounts you claimed on property you exchanged for, or converted to, your section 1245 property in a like-kind exchange or involuntary conversion. Handr block Amounts a previous owner of the section 1245 property claimed if your basis is determined with reference to that person's adjusted basis (for example, the donor's depreciation deductions on property you received as a gift). Handr block Depreciation and amortization. Handr block   Depreciation and amortization that must be recaptured as ordinary income include (but are not limited to) the following items. Handr block Ordinary depreciation deductions. Handr block Any special depreciation allowance you claimed. Handr block Amortization deductions for all the following costs. Handr block Acquiring a lease. Handr block Lessee improvements. Handr block Certified pollution control facilities. Handr block Certain reforestation expenses. Handr block Section 197 intangibles. Handr block Childcare facility expenses made before 1982, if in effect before the repeal of IRC 188. Handr block Franchises, trademarks, and trade names acquired before August 11, 1993. Handr block The section 179 deduction. Handr block Deductions for all the following costs. Handr block Removing barriers to the disabled and the elderly. Handr block Tertiary injectant expenses. Handr block Depreciable clean-fuel vehicles and refueling property (minus the amount of any recaptured deduction). Handr block Environmental cleanup costs. Handr block Certain reforestation expenses. Handr block Qualified disaster expenses. Handr block Any basis reduction for the investment credit (minus any basis increase for credit recapture). Handr block Any basis reduction for the qualified electric vehicle credit (minus any basis increase for credit recapture). Handr block Example. Handr block You file your returns on a calendar year basis. Handr block In February 2011, you bought and placed in service for 100% use in your business a light-duty truck (5-year property) that cost $10,000. Handr block You used the half-year convention and your MACRS deductions for the truck were $2,000 in 2011 and $3,200 in 2012. Handr block You did not take the section 179 deduction. Handr block You sold the truck in May 2013 for $7,000. Handr block The MACRS deduction in 2013, the year of sale, is $960 (½ of $1,920). Handr block Figure the gain treated as ordinary income as follows. Handr block 1) Amount realized $7,000 2) Cost (February 2011) $10,000   3) Depreciation allowed or allowable (MACRS deductions: $2,000 + $3,200 + $960) 6,160   4) Adjusted basis (subtract line 3 from line 2) $3,840 5) Gain realized (subtract line 4 from line 1) $3,160 6) Gain treated as ordinary income (lesser of line 3 or line 5) $3,160 Depreciation on other tangible property. Handr block   You must take into account depreciation during periods when the property was not used as an integral part of an activity or did not constitute a research or storage facility, as described earlier under Section 1245 property. Handr block   For example, if depreciation deductions taken on certain storage facilities amounted to $10,000, of which $6,000 is from the periods before their use in a prescribed business activity, you must use the entire $10,000 in determining ordinary income from depreciation. Handr block Depreciation allowed or allowable. Handr block   The greater of the depreciation allowed or allowable is generally the amount to use in figuring the part of gain to report as ordinary income. Handr block However, if in prior years, you have consistently taken proper deductions under one method, the amount allowed for your prior years will not be increased even though a greater amount would have been allowed under another proper method. Handr block If you did not take any deduction at all for depreciation, your adjustments to basis for depreciation allowable are figured by using the straight line method. Handr block   This treatment applies only when figuring what part of gain is treated as ordinary income under the rules for section 1245 depreciation recapture. Handr block Multiple asset accounts. Handr block   In figuring ordinary income from depreciation, you can treat any number of units of section 1245 property in a single depreciation account as one item if the total ordinary income from depreciation figured by using this method is not less than it would be if depreciation on each unit were figured separately. Handr block Example. Handr block In one transaction you sold 50 machines, 25 trucks, and certain other property that is not section 1245 property. Handr block All of the depreciation was recorded in a single depreciation account. Handr block After dividing the total received among the various assets sold, you figured that each unit of section 1245 property was sold at a gain. Handr block You can figure the ordinary income from depreciation as if the 50 machines and 25 trucks were one item. Handr block However, if five of the trucks had been sold at a loss, only the 50 machines and 20 of the trucks could be treated as one item in determining the ordinary income from depreciation. Handr block Normal retirement. Handr block   The normal retirement of section 1245 property in multiple asset accounts does not require recognition of gain as ordinary income from depreciation if your method of accounting for asset retirements does not require recognition of that gain. Handr block Section 1250 Property Gain on the disposition of section 1250 property is treated as ordinary income to the extent of additional depreciation allowed or allowable on the property. Handr block To determine the additional depreciation on section 1250 property, see Additional Depreciation, below. Handr block Section 1250 property defined. Handr block   This includes all real property that is subject to an allowance for depreciation and that is not and never has been section 1245 property. Handr block It includes a leasehold of land or section 1250 property subject to an allowance for depreciation. Handr block A fee simple interest in land is not included because it is not depreciable. Handr block   If your section 1250 property becomes section 1245 property because you change its use, you can never again treat it as section 1250 property. Handr block Additional Depreciation If you hold section 1250 property longer than 1 year, the additional depreciation is the actual depreciation adjustments that are more than the depreciation figured using the straight line method. Handr block For a list of items treated as depreciation adjustments, see Depreciation and amortization under Gain Treated as Ordinary Income, earlier. Handr block For the treatment of unrecaptured section 1250 gain, see Capital Gains Tax Rate, later. Handr block If you hold section 1250 property for 1 year or less, all the depreciation is additional depreciation. Handr block You will not have additional depreciation if any of the following conditions apply to the property disposed of. Handr block You figured depreciation for the property using the straight line method or any other method that does not result in depreciation that is more than the amount figured by the straight line method; you held the property longer than 1 year; and, if the property was qualified property, you made a timely election not to claim any special depreciation allowance. Handr block In addition, if the property was in a renewal community, you must not have elected to claim a commercial revitalization deduction for property placed in service before January 1, 2010. Handr block The property was residential low-income rental property you held for 162/3 years or longer. Handr block For low-income rental housing on which the special 60-month depreciation for rehabilitation expenses was allowed, the 162/3 years start when the rehabilitated property is placed in service. Handr block You chose the alternate ACRS method for the property, which was a type of 15-, 18-, or 19-year real property covered by the section 1250 rules. Handr block The property was residential rental property or nonresidential real property placed in service after 1986 (or after July 31, 1986, if the choice to use MACRS was made); you held it longer than 1 year; and, if the property was qualified property, you made a timely election not to claim any special depreciation allowance. Handr block These properties are depreciated using the straight line method. Handr block In addition, if the property was in a renewal community, you must not have elected to claim a commercial revitalization deduction. Handr block Depreciation taken by other taxpayers or on other property. Handr block   Additional depreciation includes all depreciation adjustments to the basis of section 1250 property whether allowed to you or another person (as carryover basis property). Handr block Example. Handr block Larry Johnson gives his son section 1250 property on which he took $2,000 in depreciation deductions, of which $500 is additional depreciation. Handr block Immediately after the gift, the son's adjusted basis in the property is the same as his father's and reflects the $500 additional depreciation. Handr block On January 1 of the next year, after taking depreciation deductions of $1,000 on the property, of which $200 is additional depreciation, the son sells the property. Handr block At the time of sale, the additional depreciation is $700 ($500 allowed the father plus $200 allowed the son). Handr block Depreciation allowed or allowable. Handr block   The greater of depreciation allowed or allowable (to any person who held the property if the depreciation was used in figuring its adjusted basis in your hands) generally is the amount to use in figuring the part of the gain to be reported as ordinary income. Handr block If you can show that the deduction allowed for any tax year was less than the amount allowable, the lesser figure will be the depreciation adjustment for figuring additional depreciation. Handr block Retired or demolished property. Handr block   The adjustments reflected in adjusted basis generally do not include deductions for depreciation on retired or demolished parts of section 1250 property unless these deductions are reflected in the basis of replacement property that is section 1250 property. Handr block Example. Handr block A wing of your building is totally destroyed by fire. Handr block The depreciation adjustments figured in the adjusted basis of the building after the wing is destroyed do not include any deductions for depreciation on the destroyed wing unless it is replaced and the adjustments for depreciation on it are reflected in the basis of the replacement property. Handr block Figuring straight line depreciation. Handr block   The useful life and salvage value you would have used to figure straight line depreciation are the same as those used under the depreciation method you actually used. Handr block If you did not use a useful life under the depreciation method actually used (such as with the units-of-production method) or if you did not take salvage value into account (such as with the declining balance method), the useful life or salvage value for figuring what would have been the straight line depreciation is the useful life and salvage value you would have used under the straight line method. Handr block   Salvage value and useful life are not used for the ACRS method of depreciation. Handr block Figure straight line depreciation for ACRS real property by using its 15-, 18-, or 19-year recovery period as the property's useful life. Handr block   The straight line method is applied without any basis reduction for the investment credit. Handr block Property held by lessee. Handr block   If a lessee makes a leasehold improvement, the lease period for figuring what would have been the straight line depreciation adjustments includes all renewal periods. Handr block This inclusion of the renewal periods cannot extend the lease period taken into account to a period that is longer than the remaining useful life of the improvement. Handr block The same rule applies to the cost of acquiring a lease. Handr block   The term renewal period means any period for which the lease may be renewed, extended, or continued under an option exercisable by the lessee. Handr block However, the inclusion of renewal periods cannot extend the lease by more than two-thirds of the period that was the basis on which the actual depreciation adjustments were allowed. Handr block Applicable Percentage The applicable percentage used to figure the ordinary income because of additional depreciation depends on whether the real property you disposed of is nonresidential real property, residential rental property, or low-income housing. Handr block The percentages for these types of real property are as follows. Handr block Nonresidential real property. Handr block   For real property that is not residential rental property, the applicable percentage for periods after 1969 is 100%. Handr block For periods before 1970, the percentage is zero and no ordinary income because of additional depreciation before 1970 will result from its disposition. Handr block Residential rental property. Handr block   For residential rental property (80% or more of the gross income is from dwelling units) other than low-income housing, the applicable percentage for periods after 1975 is 100%. Handr block The percentage for periods before 1976 is zero. Handr block Therefore, no ordinary income because of additional depreciation before 1976 will result from a disposition of residential rental property. Handr block Low-income housing. Handr block    Low-income housing includes all the following types of residential rental property. Handr block Federally assisted housing projects if the mortgage is insured under section 221(d)(3) or 236 of the National Housing Act or housing financed or assisted by direct loan or tax abatement under similar provisions of state or local laws. Handr block Low-income rental housing for which a depreciation deduction for rehabilitation expenses was allowed. Handr block Low-income rental housing held for occupancy by families or individuals eligible to receive subsidies under section 8 of the United States Housing Act of 1937, as amended, or under provisions of state or local laws that authorize similar subsidies for low-income families. Handr block Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949. Handr block   The applicable percentage for low-income housing is 100% minus 1% for each full month the property was held over 100 full months. Handr block If you have held low-income housing at least 16 years and 8 months, the percentage is zero and no ordinary income will result from its disposition. Handr block Foreclosure. Handr block   If low-income housing is disposed of because of foreclosure or similar proceedings, the monthly applicable percentage reduction is figured as if you disposed of the property on the starting date of the proceedings. Handr block Example. Handr block On June 1, 2001, you acquired low-income housing property. Handr block On April 3, 2012 (130 months after the property was acquired), foreclosure proceedings were started on the property and on December 3, 2013 (150 months after the property was acquired), the property was disposed of as a result of the foreclosure proceedings. Handr block The property qualifies for a reduced applicable percentage because it was held more than 100 full months. Handr block The applicable percentage reduction is 30% (130 months minus 100 months) rather than 50% (150 months minus 100 months) because it does not apply after April 3, 2012, the starting date of the foreclosure proceedings. Handr block Therefore, 70% of the additional depreciation is treated as ordinary income. Handr block Holding period. Handr block   The holding period used to figure the applicable percentage for low-income housing generally starts on the day after you acquired it. Handr block For example, if you bought low-income housing on January 1, 1997, the holding period starts on January 2, 1997. Handr block If you sold it on January 2, 2013, the holding period is exactly 192 full months. Handr block The applicable percentage for additional depreciation is 8%, or 100% minus 1% for each full month the property was held over 100 full months. Handr block Holding period for constructed, reconstructed, or erected property. Handr block   The holding period used to figure the applicable percentage for low-income housing you constructed, reconstructed, or erected starts on the first day of the month it is placed in service in a trade or business, in an activity for the production of income, or in a personal activity. Handr block Property acquired by gift or received in a tax-free transfer. Handr block   For low-income housing you acquired by gift or in a tax-free transfer the basis of which is figured by reference to the basis in the hands of the transferor, the holding period for the applicable percentage includes the holding period of the transferor. Handr block   If the adjusted basis of the property in your hands just after acquiring it is more than its adjusted basis to the transferor just before transferring it, the holding period of the difference is figured as if it were a separate improvement. Handr block See Low-Income Housing With Two or More Elements, next. Handr block Low-Income Housing With Two or More Elements If you dispose of low-income housing property that has two or more separate elements, the applicable percentage used to figure ordinary income because of additional depreciation may be different for each element. Handr block The gain to be reported as ordinary income is the sum of the ordinary income figured for each element. Handr block The following are the types of separate elements. Handr block A separate improvement (defined below). Handr block The basic section 1250 property plus improvements not qualifying as separate improvements. Handr block The units placed in service at different times before all the section 1250 property is finished. Handr block For example, this happens when a taxpayer builds an apartment building of 100 units and places 30 units in service (available for renting) on January 4, 2011, 50 on July 18, 2011, and the remaining 20 on January 18, 2012. Handr block As a result, the apartment house consists of three separate elements. Handr block The 36-month test for separate improvements. Handr block   A separate improvement is any improvement (qualifying under The 1-year test, below) added to the capital account of the property, but only if the total of the improvements during the 36-month period ending on the last day of any tax year is more than the greatest of the following amounts. Handr block Twenty-five percent of the adjusted basis of the property at the start of the first day of the 36-month period, or the first day of the holding period of the property, whichever is later. Handr block Ten percent of the unadjusted basis (adjusted basis plus depreciation and amortization adjustments) of the property at the start of the period determined in (1). Handr block $5,000. Handr block The 1-year test. Handr block   An addition to the capital account for any tax year (including a short tax year) is treated as an improvement only if the sum of all additions for the year is more than the greater of $2,000 or 1% of the unadjusted basis of the property. Handr block The unadjusted basis is figured as of the start of that tax year or the holding period of the property, whichever is later. Handr block In applying the 36-month test, improvements in any one of the 3 years are omitted entirely if the total improvements in that year do not qualify under the 1-year test. Handr block Example. Handr block The unadjusted basis of a calendar year taxpayer's property was $300,000 on January 1 of this year. Handr block During the year, the taxpayer made improvements A, B, and C, which cost $1,000, $600, and $700, respectively. Handr block The sum of the improvements, $2,300, is less than 1% of the unadjusted basis ($3,000), so the improvements do not satisfy the 1-year test and are not treated as improvements for the 36-month test. Handr block However, if improvement C had cost $1,500, the sum of these improvements would have been $3,100. Handr block Then, it would be necessary to apply the 36-month test to figure if the improvements must be treated as separate improvements. Handr block Addition to the capital account. Handr block   Any addition to the capital account made after the initial acquisition or completion of the property by you or any person who held the property during a period included in your holding period is to be considered when figuring the total amount of separate improvements. Handr block   The addition to the capital account of depreciable real property is the gross addition not reduced by amounts attributable to replaced property. Handr block For example, if a roof with an adjusted basis of $20,000 is replaced by a new roof costing $50,000, the improvement is the gross addition to the account, $50,000, and not the net addition of $30,000. Handr block The $20,000 adjusted basis of the old roof is no longer reflected in the basis of the property. Handr block The status of an addition to the capital account is not affected by whether it is treated as a separate property for determining depreciation deductions. Handr block   Whether an expense is treated as an addition to the capital account may depend on the final disposition of the entire property. Handr block If the expense item property and the basic property are sold in two separate transactions, the entire section 1250 property is treated as consisting of two distinct properties. Handr block Unadjusted basis. Handr block   In figuring the unadjusted basis as of a certain date, include the actual cost of all previous additions to the capital account plus those that did not qualify as separate improvements. Handr block However, the cost of components retired before that date is not included in the unadjusted basis. Handr block Holding period. Handr block   Use the following guidelines for figuring the applicable percentage for property with two or more elements. Handr block The holding period of a separate element placed in service before the entire section 1250 property is finished starts on the first day of the month that the separate element is placed in service. Handr block The holding period for each separate improvement qualifying as a separate element starts on the day after the improvement is acquired or, for improvements constructed, reconstructed, or erected, the first day of the month that the improvement is placed in service. Handr block The holding period for each improvement not qualifying as a separate element takes the holding period of the basic property. Handr block   If an improvement by itself does not meet the 1-year test (greater of $2,000 or 1% of the unadjusted basis), but it does qualify as a separate improvement that is a separate element (when grouped with other improvements made during the tax year), determine the start of its holding period as follows. Handr block Use the first day of a calendar month that is closest to the middle of the tax year. Handr block If there are two first days of a month that are equally close to the middle of the year, use the earlier date. Handr block Figuring ordinary income attributable to each separate element. Handr block   Figure ordinary income attributable to each separate element as follows. Handr block   Step 1. Handr block Divide the element's additional depreciation after 1975 by the sum of all the elements' additional depreciation after 1975 to determine the percentage used in Step 2. Handr block   Step 2. Handr block Multiply the percentage figured in Step 1 by the lesser of the additional depreciation after 1975 for the entire property or the gain from disposition of the entire property (the difference between the fair market value or amount realized and the adjusted basis). Handr block   Step 3. Handr block Multiply the result in Step 2 by the applicable percentage for the element. Handr block Example. Handr block You sold at a gain of $25,000 low-income housing property subject to the ordinary income rules of section 1250. Handr block The property consisted of four elements (W, X, Y, and Z). Handr block Step 1. Handr block The additional depreciation for each element is: W-$12,000; X-None; Y-$6,000; and Z-$6,000. Handr block The sum of the additional depreciation for all the elements is $24,000. Handr block Step 2. Handr block The depreciation deducted on element X was $4,000 less than it would have been under the straight line method. Handr block Additional depreciation on the property as a whole is $20,000 ($24,000 − $4,000). Handr block $20,000 is lower than the $25,000 gain on the sale, so $20,000 is used in Step 2. Handr block Step 3. Handr block The applicable percentages to be used in Step 3 for the elements are: W-68%; X-85%; Y-92%; and Z-100%. Handr block From these facts, the sum of the ordinary income for each element is figured as follows. Handr block   Step 1 Step 2 Step 3 Ordinary Income W . Handr block 50 $10,000 68% $ 6,800 X -0- -0- 85% -0- Y . Handr block 25 5,000 92% 4,600 Z . Handr block 25 5,000 100% 5,000 Sum of ordinary income of separate elements $16,400 Gain Treated as Ordinary Income To find what part of the gain from the disposition of section 1250 property is treated as ordinary income, follow these steps. Handr block In a sale, exchange, or involuntary conversion of the property, figure the amount realized that is more than the adjusted basis of the property. Handr block In any other disposition of the property, figure the fair market value that is more than the adjusted basis. Handr block Figure the additional depreciation for the periods after 1975. Handr block Multiply the lesser of (1) or (2) by the applicable percentage, discussed earlier under Applicable Percentage. Handr block Stop here if this is residential rental property or if (2) is equal to or more than (1). Handr block This is the gain treated as ordinary income because of additional depreciation. Handr block Subtract (2) from (1). Handr block Figure the additional depreciation for periods after 1969 but before 1976. Handr block Add the lesser of (4) or (5) to the result in (3). Handr block This is the gain treated as ordinary income because of additional depreciation. Handr block A limit on the amount treated as ordinary income for gain on like-kind exchanges and involuntary conversions is explained later. Handr block Use Form 4797, Part III, to figure the ordinary income part of the gain. Handr block Corporations. Handr block   Corporations, other than S corporations, must recognize an additional amount as ordinary income on the sale or other disposition of section 1250 property. Handr block The additional amount treated as ordinary income is 20% of the excess of the amount that would have been ordinary income if the property were section 1245 property over the amount treated as ordinary income under section 1250. Handr block Report this additional ordinary income on Form 4797, Part III, line 26 (f). Handr block Installment Sales If you report the sale of property under the installment method, any depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale. Handr block This applies even if no payments are received in that year. Handr block If the gain is more than the depreciation recapture income, report the rest of the gain using the rules of the installment method. Handr block For this purpose, include the recapture income in your installment sale basis to determine your gross profit on the installment sale. Handr block If you dispose of more than one asset in a single transaction, you must figure the gain on each asset separately so that it may be properly reported. Handr block To do this, allocate the selling price and the payments you receive in the year of sale to each asset. Handr block Report any depreciation recapture income in the year of sale before using the installment method for any remaining gain. Handr block For a detailed discussion of installment sales, see Publication 537. Handr block Gifts If you make a gift of depreciable personal property or real property, you do not have to report income on the transaction. Handr block However, if the person who receives it (donee) sells or otherwise disposes of the property in a disposition subject to recapture, the donee must take into account the depreciation you deducted in figuring the gain to be reported as ordinary income. Handr block For low-income housing, the donee must take into account the donor's holding period to figure the applicable percentage. Handr block See Applicable Percentage and its discussion Holding period under Section 1250 Property, earlier. Handr block Part gift and part sale or exchange. Handr block   If you transfer depreciable personal property or real property for less than its fair market value in a transaction considered to be partly a gift and partly a sale or exchange and you have a gain because the amount realized is more than your adjusted basis, you must report ordinary income (up to the amount of gain) to recapture depreciation. Handr block If the depreciation (additional depreciation, if section 1250 property) is more than the gain, the balance is carried over to the transferee to be taken into account on any later disposition of the property. Handr block However, see Bargain sale to charity, later. Handr block Example. Handr block You transferred depreciable personal property to your son for $20,000. Handr block When transferred, the property had an adjusted basis to you of $10,000 and a fair market value of $40,000. Handr block You took depreciation of $30,000. Handr block You are considered to have made a gift of $20,000, the difference between the $40,000 fair market value and the $20,000 sale price to your son. Handr block You have a taxable gain on the transfer of $10,000 ($20,000 sale price minus $10,000 adjusted basis) that must be reported as ordinary income from depreciation. Handr block You report $10,000 of your $30,000 depreciation as ordinary income on the transfer of the property, so the remaining $20,000 depreciation is carried over to your son for him to take into account on any later disposition of the property. Handr block Gift to charitable organization. Handr block   If you give property to a charitable organization, you figure your deduction for your charitable contribution by reducing the fair market value of the property by the ordinary income and short-term capital gain that would have resulted had you sold the property at its fair market value at the time of the contribution. Handr block Thus, your deduction for depreciable real or personal property given to a charitable organization does not include the potential ordinary gain from depreciation. Handr block   You also may have to reduce the fair market value of the contributed property by the long-term capital gain (including any section 1231 gain) that would have resulted had the property been sold. Handr block For more information, see Giving Property That Has Increased in Value in Publication 526. Handr block Bargain sale to charity. Handr block   If you transfer section 1245 or section 1250 property to a charitable organization for less than its fair market value and a deduction for the contribution part of the transfer is allowable, your ordinary income from depreciation is figured under different rules. Handr block First, figure the ordinary income as if you had sold the property at its fair market value. Handr block Then, allocate that amount between the sale and the contribution parts of the transfer in the same proportion that you allocated your adjusted basis in the property to figure your gain. Handr block See Bargain Sale under Gain or Loss From Sales and Exchanges in chapter 1. Handr block Report as ordinary income the lesser of the ordinary income allocated to the sale or your gain from the sale. Handr block Example. Handr block You sold section 1245 property in a bargain sale to a charitable organization and are allowed a deduction for your contribution. Handr block Your gain on the sale was $1,200, figured by allocating 20% of your adjusted basis in the property to the part sold. Handr block If you had sold the property at its fair market value, your ordinary income would have been $5,000. Handr block Your ordinary income is $1,000 ($5,000 × 20%) and your section 1231 gain is $200 ($1,200 – $1,000). Handr block Transfers at Death When a taxpayer dies, no gain is reported on depreciable personal property or real property transferred to his or her estate or beneficiary. Handr block For information on the tax liability of a decedent, see Publication 559, Survivors, Executors, and Administrators. Handr block However, if the decedent disposed of the property while alive and, because of his or her method of accounting or for any other reason, the gain from the disposition is reportable by the estate or beneficiary, it must be reported in the same way the decedent would have had to report it if he or she were still alive. Handr block Ordinary income due to depreciation must be reported on a transfer from an executor, administrator, or trustee to an heir, beneficiary, or other individual if the transfer is a sale or exchange on which gain is realized. Handr block Example 1. Handr block Janet Smith owned depreciable property that, upon her death, was inherited by her son. Handr block No ordinary income from depreciation is reportable on the transfer, even though the value used for estate tax purposes is more than the adjusted basis of the property to Janet when she died. Handr block However, if she sold the property before her death and realized a gain and if, because of her method of accounting, the proceeds from the sale are income in respect of a decedent reportable by her son, he must report ordinary income from depreciation. Handr block Example 2. Handr block The trustee of a trust created by a will transfers depreciable property to a beneficiary in satisfaction of a specific bequest of $10,000. Handr block If the property had a value of $9,000 at the date used for estate tax valuation purposes, the $1,000 increase in value to the date of distribution is a gain realized by the trust. Handr block Ordinary income from depreciation must be reported by the trust on the transfer. Handr block Like-Kind Exchanges and Involuntary Conversions A like-kind exchange of your depreciable property or an involuntary conversion of the property into similar or related property will not result in your having to report ordinary income from depreciation unless money or property other than like-kind, similar, or related property is also received in the transaction. Handr block For information on like-kind exchanges and involuntary conversions, see chapter 1. Handr block Depreciable personal property. Handr block   If you have a gain from either a like-kind exchange or an involuntary conversion of your depreciable personal property, the amount to be reported as ordinary income from depreciation is the amount figured under the rules explained earlier (see Section 1245 Property), limited to the sum of the following amounts. Handr block The gain that must be included in income under the rules for like-kind exchanges or involuntary conversions. Handr block The fair market value of the like-kind, similar, or related property other than depreciable personal property acquired in the transaction. Handr block Example 1. Handr block You bought a new machine for $4,300 cash plus your old machine for which you were allowed a $1,360 trade-in. Handr block The old machine cost you $5,000 two years ago. Handr block You took depreciation deductions of $3,950. Handr block Even though you deducted depreciation of $3,950, the $310 gain ($1,360 trade-in allowance minus $1,050 adjusted basis) is not reported because it is postponed under the rules for like-kind exchanges and you received only depreciable personal property in the exchange. Handr block Example 2. Handr block You bought office machinery for $1,500 two years ago and deducted $780 depreciation. Handr block This year a fire destroyed the machinery and you received $1,200 from your fire insurance, realizing a gain of $480 ($1,200 − $720 adjusted basis). Handr block You choose to postpone reporting gain, but replacement machinery cost you only $1,000. Handr block Your taxable gain under the rules for involuntary conversions is limited to the remaining $200 insurance payment. Handr block All your replacement property is depreciable personal property, so your ordinary income from depreciation is limited to $200. Handr block Example 3. Handr block A fire destroyed office machinery you bought for $116,000. Handr block The depreciation deductions were $91,640 and the machinery had an adjusted basis of $24,360. Handr block You received a $117,000 insurance payment, realizing a gain of $92,640. Handr block You immediately spent $105,000 of the insurance payment for replacement machinery and $9,000 for stock that qualifies as replacement property and you choose to postpone reporting the gain. Handr block $114,000 of the $117,000 insurance payment was used to buy replacement property, so the gain that must be included in income under the rules for involuntary conversions is the part not spent, or $3,000. Handr block The part of the insurance payment ($9,000) used to buy the nondepreciable property (the stock) also must be included in figuring the gain from depreciation. Handr block The amount you must report as ordinary income on the transaction is $12,000, figured as follows. Handr block 1) Gain realized on the transaction ($92,640) limited to depreciation ($91,640) $91,640 2) Gain includible in income (amount not spent) 3,000     Plus: fair market value of property other than depreciable personal property (the stock) 9,000 12,000 Amount reportable as ordinary income (lesser of (1) or (2)) $12,000   If, instead of buying $9,000 in stock, you bought $9,000 worth of depreciable personal property similar or related in use to the destroyed property, you would only report $3,000 as ordinary income. Handr block Depreciable real property. Handr block   If you have a gain from either a like-kind exchange or involuntary conversion of your depreciable real property, ordinary income from additional depreciation is figured under the rules explained earlier (see Section 1250 Property), limited to the greater of the following amounts. Handr block The gain that must be reported under the rules for like-kind exchanges or involuntary conversions plus the fair market value of stock bought as replacement property in acquiring control of a corporation. Handr block The gain you would have had to report as ordinary income from additional depreciation had the transaction been a cash sale minus the cost (or fair market value in an exchange) of the depreciable real property acquired. Handr block   The ordinary income not reported for the year of the disposition is carried over to the depreciable real property acquired in the like-kind exchange or involuntary conversion as additional depreciation from the property disposed of. Handr block Further, to figure the applicable percentage of additional depreciation to be treated as ordinary income, the holding period starts over for the new property. Handr block Example. Handr block The state paid you $116,000 when it condemned your depreciable real property for public use. Handr block You bought other real property similar in use to the property condemned for $110,000 ($15,000 for depreciable real property and $95,000 for land). Handr block You also bought stock for $5,000 to get control of a corporation owning property similar in use to the property condemned. Handr block You choose to postpone reporting the gain. Handr block If the transaction had been a sale for cash only, under the rules described earlier, $20,000 would have been reportable as ordinary income because of additional depreciation. Handr block The ordinary income to be reported is $6,000, which is the greater of the following amounts. Handr block The gain that must be reported under the rules for involuntary conversions, $1,000 ($116,000 − $115,000) plus the fair market value of stock bought as qualified replacement property, $5,000, for a total of $6,000. Handr block The gain you would have had to report as ordinary income from additional depreciation ($20,000) had this transaction been a cash sale minus the cost of the depreciable real property bought ($15,000), or $5,000. Handr block   The ordinary income not reported, $14,000 ($20,000 − $6,000), is carried over to the depreciable real property you bought as additional depreciation. Handr block Basis of property acquired. Handr block   If the ordinary income you have to report because of additional depreciation is limited, the total basis of the property you acquired is its fair market value (its cost, if bought to replace property involuntarily converted into money) minus the gain postponed. Handr block   If you acquired more than one item of property, allocate the total basis among the properties in proportion to their fair market value (their cost, in an involuntary conversion into money). Handr block However, if you acquired both depreciable real property and other property, allocate the total basis as follows. Handr block Subtract the ordinary income because of additional depreciation that you do not have to report from the fair market value (or cost) of the depreciable real property acquired. Handr block Add the fair market value (or cost) of the other property acquired to the result in (1). Handr block Divide the result in (1) by the result in (2). Handr block Multiply the total basis by the result in (3). Handr block This is the basis of the depreciable real property acquired. Handr block If you acquired more than one item of depreciable real property, allocate this basis amount among the properties in proportion to their fair market value (or cost). Handr block Subtract the result in (4) from the total basis. Handr block This is the basis of the other property acquired. Handr block If you acquired more than one item of other property, allocate this basis amount among the properties in proportion to their fair market value (or cost). Handr block Example 1. Handr block In 1988, low-income housing property that you acquired and placed in service in 1983 was destroyed by fire and you received a $90,000 insurance payment. Handr block The property's adjusted basis was $38,400, with additional depreciation of $14,932. Handr block On December 1, 1988, you used the insurance payment to acquire and place in service replacement low-income housing property. Handr block Your realized gain from the involuntary conversion was $51,600 ($90,000 − $38,400). Handr block You chose to postpone reporting the gain under the involuntary conversion rules. Handr block Under the rules for depreciation recapture on real property, the ordinary gain was $14,932, but you did not have to report any of it because of the limit for involuntary conversions. Handr block The basis of the replacement low-income housing property was its $90,000 cost minus the $51,600 gain you postponed, or $38,400. Handr block The $14,932 ordinary gain you did not report is treated as additional depreciation on the replacement property. Handr block If you sold the property in 2013, your holding period for figuring the applicable percentage of additional depreciation to report as ordinary income will have begun December 2, 1988, the day after you acquired the property. Handr block Example 2. Handr block John Adams received a $90,000 fire insurance payment for depreciable real property (office building) with an adjusted basis of $30,000. Handr block He uses the whole payment to buy property similar in use, spending $42,000 for depreciable real property and $48,000 for land. Handr block He chooses to postpone reporting the $60,000 gain realized on the involuntary conversion. Handr block Of this gain, $10,000 is ordinary income from additional depreciation but is not reported because of the limit for involuntary conversions of depreciable real property. Handr block The basis of the property bought is $30,000 ($90,000 − $60,000), allocated as follows. Handr block The $42,000 cost of depreciable real property minus $10,000 ordinary income not reported is $32,000. Handr block The $48,000 cost of other property (land) plus the $32,000 figured in (1) is $80,000. Handr block The $32,000 figured in (1) divided by the $80,000 figured in (2) is 0. Handr block 4. Handr block The basis of the depreciable real property is $12,000. Handr block This is the $30,000 total basis multiplied by the 0. Handr block 4 figured in (3). Handr block The basis of the other property (land) is $18,000. Handr block This is the $30,000 total basis minus the $12,000 figured in (4). Handr block The ordinary income that is not reported ($10,000) is carried over as additional depreciation to the depreciable real property that was bought and may be taxed as ordinary income on a later disposition. Handr block Multiple Properties If you dispose of depreciable property and other property in one transaction and realize a gain, you must allocate the amount realized between the two types of property in proportion to their respective fair market values to figure the part of your gain to be reported as ordinary income from depreciation. Handr block Different rules may apply to the allocation of the amount realized on the sale of a business that includes a group of assets. Handr block See chapter 2. Handr block In general, if a buyer and seller have adverse interests as to the allocation of the amount realized between the depreciable property and other property, any arm's length agreement between them will establish the allocation. Handr block In the absence of an agreement, the allocation should be made by taking into account the appropriate facts and circumstances. Handr block These include, but are not limited to, a comparison between the depreciable property and all the other property being disposed of in the transaction. Handr block The comparison should take into account all the following facts and circumstances. Handr block The original cost and reproduction cost of construction, erection, or production. Handr block The remaining economic useful life. Handr block The state of obsolescence. Handr block The anticipated expenditures required to maintain, renovate, or modernize the properties. Handr block Like-kind exchanges and involuntary conversions. Handr block   If you dispose of and acquire depreciable personal property and other property (other than depreciable real property) in a like-kind exchange or involuntary conversion, the amount realized is allocated in the following way. Handr block The amount allocated to the depreciable personal property disposed of is treated as consisting of, first, the fair market value of the depreciable personal property acquired and, second (to the extent of any remaining balance), the fair market value of the other property acquired. Handr block The amount allocated to the other property disposed of is treated as consisting of the fair market value of all property acquired that has not already been taken into account. Handr block   If you dispose of and acquire depreciable real property and other property in a like-kind exchange or involuntary conversion, the amount realized is allocated in the following way. Handr block The amount allocated to each of the three types of property (depreciable real property, depreciable personal property, or other property) disposed of is treated as consisting of, first, the fair market value of that type of property acquired and, second (to the extent of any remaining balance), any excess fair market value of the other types of property acquired. Handr block If the excess fair market value is more than the remaining balance of the amount realized and is from both of the other two types of property, you can apply the unallocated amount in any manner you choose. Handr block Example. Handr block A fire destroyed your property with a total fair market value of $50,000. Handr block It consisted of machinery worth $30,000 and nondepreciable property worth $20,000. Handr block You received an insurance payment of $40,000 and immediately used it with $10,000 of your own funds (for a total of $50,000) to buy machinery with a fair market value of $15,000 and nondepreciable property with a fair market value of $35,000. Handr block The adjusted basis of the destroyed machinery was $5,000 and your depreciation on it was $35,000. Handr block You choose to postpone reporting your gain from the involuntary conversion. Handr block You must report $9,000 as ordinary income from depreciation arising from this transaction, figured as follows. Handr block The $40,000 insurance payment must be allocated between the machinery and the other property destroyed in proportion to the fair market value of each. Handr block The amount allocated to the machinery is 30,000/50,000 × $40,000, or $24,000. Handr block The amount allocated to the other property is 20,000/50,000 × $40,000, or $16,000. Handr block Your gain on the involuntary conversion of the machinery is $24,000 minus $5,000 adjusted basis, or $19,000. Handr block The $24,000 allocated to the machinery disposed of is treated as consisting of the $15,000 fair market value of the replacement machinery bought and $9,000 of the fair market value of other property bought in the transaction. Handr block All $16,000 allocated to the other property disposed of is treated as consisting of the fair market value of the other property that was bought. Handr block Your potential ordinary income from depreciation is $19,000, the gain on the machinery, because it is less than the $35,000 depreciation. Handr block However, the amount you must report as ordinary income is limited to the $9,000 included in the amount realized for the machinery that represents the fair market value of property other than the depreciable property you bought. Handr block Prev  Up  Next   Home   More Online Publications
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The Handr Block

Handr block 2. Handr block   Fuel Tax Credits and Refunds Table of Contents Gasoline and Aviation Gasoline Undyed Diesel Fuel and Undyed Kerosene (Other Than Kerosene Used in Aviation)Sales by Registered Ultimate Vendors Diesel-Water Fuel Emulsion Kerosene for Use in AviationSales by Registered Ultimate Vendors Other Fuels (Including Alternative Fuels) Refunds of Second TaxOptional reporting. Handr block Providing information. Handr block Definitions of Nontaxable UsesCustom application of fertilizer and pesticide. Handr block Fuel used between airfield and farm. Handr block Fuel not used for farming. Handr block Vehicles not considered highway vehicles. Handr block Biodiesel or Renewable Diesel Mixture Credit, Alternative Fuel Credit, and Alternative Fuel Mixture CreditHow to Claim the Credit Filing Claims Claiming A Refund Claiming a Credit on Form 4136 Including the Credit or Refund in Income Federal excise taxes are imposed on certain fuels as discussed in chapter 1. Handr block This chapter lists the nontaxable uses of each fuel and defines the nontaxable uses. Handr block Information on the refund of second tax is included. Handr block This chapter also explains credits and refunds for the biodiesel or renewable diesel mixture credits, and the alternative fuel mixture and alternative fuel credits. Handr block Information on how to make a claim for credit or refund is included in this chapter and in the instructions for: Form 720, Form 4136, and Form 8849. Handr block Exported taxable fuel. Handr block   The claim rates for exported taxable fuel are listed on Schedule C (Form 720), Schedule 1 (Form 8849), and Form 4136. Handr block Taxpayers making a claim for exported taxable fuel must include with their records proof of exportation. Handr block Proof of exportation includes: A copy of the export bill of lading issued by the delivering carrier, A certificate by the agent or representative of the export carrier showing actual exportation of the fuel, A certificate of lading signed by a customs officer of the foreign country to which the fuel is exported, or A statement of the foreign consignee showing receipt of the fuel. Handr block Gasoline and Aviation Gasoline Ultimate Purchasers. Handr block   The following are the uses of gasoline (defined earlier) for which a credit or refund may be allowable to an ultimate purchaser. Handr block On a farm for farming purposes (credit only). Handr block Off-highway business use. Handr block Export. Handr block In a boat engaged in commercial fishing. Handr block In certain intercity and local buses. Handr block In a school bus. Handr block Exclusive use by a qualified blood collector organization. Handr block In a highway vehicle owned by the United States that is not used on a highway. Handr block Exclusive use by a nonprofit educational organization (see Sales by registered ultimate vendors and Credit Card Purchases, later). Handr block Exclusive use by a state, political subdivision of a state, or the District of Columbia (see Sales by registered ultimate vendors and Credit Card Purchases, later). Handr block In an aircraft or vehicle owned by an aircraft museum. Handr block   The following are the uses of aviation gasoline for which a credit or refund may be allowable to an ultimate purchaser. Handr block On a farm for farming purposes (credit only). Handr block Export. Handr block In foreign trade. Handr block Certain helicopter and fixed-wing air ambulance uses. Handr block In commercial aviation (other than foreign trade). Handr block Exclusive use by a qualified blood collector organization. Handr block Exclusive use by a nonprofit education organization (see Sales by registered ultimate vendors and Credit card purchases, later). Handr block Exclusive use by a state, political subdivision of a state, or the District of Columbia (see Sales by registered ultimate vendors and Credit and purchases, later). Handr block In an aircraft owned by an aircraft museum. Handr block In military aircraft. Handr block Claims by persons who paid the tax to the government. Handr block   Except for sales to nonprofit educational organizations and states and local governments, a credit or refund is allowable to the person that paid the tax to the government if the gasoline was sold to the ultimate purchaser (including an exporter) by either that person or by a retailer and the fuel was exported; used or sold for use as supplies for vessels or aircraft, including military aircraft, commercial fishing, and foreign trade; sold to a qualified blood collector organization; or used or sold for use in the production of Other Fuels. Handr block See Filing Claims, later. Handr block Sales by registered ultimate vendors. Handr block   This is an ultimate vendor that sells gasoline or aviation gasoline to any of the following and that is purchased without the use of a credit card. Handr block A state or local government for its exclusive use (including essential government use by an Indian tribal government). Handr block A nonprofit educational organization for its exclusive use. Handr block   The registered ultimate vendor may make the claim if the ultimate purchaser did not use a credit card and waives its right to the credit or refund by providing the registered ultimate vendor with a certificate. Handr block A sample certificate is included as Model Certificate M in the Appendix. Handr block The registered ultimate vendor must have the certificate at the time the credit or refund is claimed. Handr block   The ultimate vendor must be registered by the IRS. Handr block See Registration Requirements, earlier. Handr block Credit card purchases. Handr block   If gasoline and aviation gasoline are purchased with a credit card issued to a state or local government for its exclusive use (including essential government use by an Indian tribal government), or a nonprofit educational organization for its exclusive use, the person who extended credit to the ultimate purchaser (the credit card issuer) is treated as the person that paid the tax and makes the claim if the credit card issuer: Is registered by the IRS, Has established that the amount of tax has not been collected from the person who purchased the gasoline or has obtained written consent from the ultimate purchaser to the allowance of the credit or refund, and Has repaid or agreed to repay the amount of the tax to the ultimate vendor, has obtained the written consent of the ultimate vendor to the allowance of the credit or refund, or has made arrangements that provide the ultimate vendor with reimbursement of the tax. Handr block   If the requirements above are not met by the credit card issuer, the credit card issuer must collect the tax from the ultimate purchaser and only the ultimate purchaser may make the claim. Handr block How to make the claim. Handr block   If the claim is made by the credit card issuer, see Schedule C  (Form 720) or Schedule 8 (Form 8849). Handr block Undyed Diesel Fuel and Undyed Kerosene (Other Than Kerosene Used in Aviation) For conditions to an allowance of a credit or refund on exported dyed diesel fuel and dyed kerosene, see Exported taxable fuel, earlier. Handr block Ultimate purchasers. Handr block   The following are nontaxable uses of diesel fuel and kerosene (defined earlier) for which a credit or refund may be allowable to an ultimate purchaser. Handr block On a farm for farming purposes. Handr block Off-highway business use. Handr block Export. Handr block In a qualified local bus. Handr block In a school bus. Handr block Other than as a fuel in a propulsion engine of a diesel-powered highway vehicle (such as home heating oil). Handr block Exclusive use by a qualified blood collector organization. Handr block In a highway vehicle owned by the United States that is not used on a highway. Handr block Exclusive use by a nonprofit educational organization (see Sales by Registered Ultimate Vendors and Credit Card Purchases, later). Handr block Exclusive use by a state, political subdivision of a state, or the District of Columbia (see Sales by Registered Ultimate Vendors and Credit Card Purchases, later). Handr block In a vehicle owned by an aircraft museum. Handr block As a fuel in a propulsion engine of a diesel-powered train. Handr block Sales by Registered Ultimate Vendors The following are the sales for which a credit or refund may be allowable to the registered ultimate vendor only. Handr block Undyed diesel fuel or undyed kerosene sold for the exclusive use by a state or local government (if credit card rules (defined later) do not apply), Undyed kerosene sold from a blocked pump (defined below), or Undyed diesel fuel or undyed kerosene used in certain intercity and local buses, only if the ultimate purchaser waives its right to the credit or refund by providing the registered ultimate vendor with a waiver. Handr block Registered ultimate vendor (state use). Handr block   This is a person that sells undyed diesel fuel or undyed kerosene to a state or local government for its exclusive use (including essential government use by an Indian tribal government). Handr block The diesel fuel or kerosene must be purchased by the state without the use of a credit card, issued to the state by the credit card issuer, in order for the ultimate vendor to make the claim. Handr block The ultimate vendor must be registered by the IRS. Handr block See Registration Requirements, earlier. Handr block Registered ultimate vendor (blocked pump). Handr block   This is an ultimate vendor that sells undyed kerosene from a blocked pump. Handr block   A credit or refund may be allowable to a registered ultimate vendor (blocked pump) if the vendor sold to a buyer undyed kerosene from a blocked pump for use other than as a fuel in a diesel-powered highway vehicle and the vendor had no reason to believe the kerosene would not be used in that manner. Handr block Blocked pump. Handr block   A blocked pump is a fuel pump that meets all the following requirements. Handr block It is used to make retail sales of undyed kerosene for use by the buyer in any nontaxable use. Handr block It is at a fixed location. Handr block It is identified with a legible and conspicuous notice stating, “UNDYED UNTAXED KEROSENE, NONTAXABLE USE ONLY. Handr block ” It meets either of the following conditions. Handr block It cannot reasonably be used to dispense fuel directly into the fuel supply tank of a diesel-powered highway vehicle or train. Handr block It is locked by the vendor after each sale and unlocked by the vendor only in response to a buyer's request for undyed kerosene for use other than as a fuel in a diesel-powered highway vehicle or train. Handr block Registered ultimate vendor (certain intercity and local buses). Handr block   This is an ultimate vendor that sells undyed diesel fuel or undyed kerosene to the ultimate purchaser for use in certain intercity and local buses. Handr block   The registered ultimate vendor may make the claim if the ultimate purchaser waives its right to the credit or refund by providing the registered ultimate vendor with a waiver. Handr block A sample waiver is included as Model Waiver N in the Appendix. Handr block The registered ultimate vendor must have the waiver at the time the credit or payment is claimed. Handr block Credit Card Purchases. Handr block   If undyed diesel fuel or kerosene is purchased with a credit card issued to a state, the person who extended credit to the state (the credit card issuer) is treated as the person that paid the tax and makes the claim if the credit card issuer: Is registered by the IRS, Has established that the amount of tax has not been collected from the person who purchased the diesel fuel or kerosene, or has obtained written consent from the ultimate purchaser to the allowance of the credit or refund, and Has repaid or agreed to repay the amount of the tax to the ultimate vendor, has obtained the written consent of the ultimate vendor to the allowance of the credit or refund, or has made arrangements that provide the ultimate vendor with reimbursement of the tax. Handr block   If the requirements above are not met by the credit card issuer, the credit card issuer must collect the tax from the ultimate purchaser and only the ultimate purchaser may make the claim. Handr block Diesel-Water Fuel Emulsion A claim for credit or refund may be made for the nontaxable use of a diesel-water fuel emulsion and for undyed diesel fuel used to produce a diesel-water fuel emulsion. Handr block The claim rate for nontaxable use of a diesel-water fuel emulsion taxed at $. Handr block 198 per gallon is $. Handr block 197 (if exported, the claim rate is $. Handr block 198). Handr block The following are the nontaxable uses for a diesel-water fuel emulsion for which a credit or refund may be allowable to an ultimate purchaser. Handr block On a farm for farming purposes. Handr block Off-highway business use. Handr block Export. Handr block In a qualified local bus. Handr block In a school bus. Handr block Other than as fuel in the propulsion engine of a train or diesel-powered highway vehicle (but not off-highway use). Handr block Exclusive use by a qualified blood collector organization. Handr block In a highway vehicle owned by the United States that is not used on a highway. Handr block Exclusive use by a nonprofit educational organization. Handr block Exclusive use by a state, political subdivision of a state, or the District of Columbia. Handr block In an aircraft or vehicle owned by an aircraft museum. Handr block Blender claims. Handr block   The claim rate for undyed diesel fuel taxed at $. Handr block 244 and used to produce a diesel-water fuel emulsion is $. Handr block 046 per gallon of diesel fuel so used. Handr block The blender must be registered by the IRS in order to make the claim. Handr block The blender must attach a statement to the claim certifying that: The diesel-water fuel emulsion contains at least 14% water, The emulsion additive is registered by a United States manufacturer with the EPA under section 211 of the Clean Air Act as in effect on March 31, 2003, Undyed diesel fuel taxed at $. Handr block 244 was used to produce the diesel-water fuel emulsion, and The diesel-water fuel emulsion was used or sold for use in the blender's trade or business. Handr block Kerosene for Use in Aviation Ultimate purchasers. Handr block   Ultimate purchasers of kerosene used in certain aviation uses may make a claim if the rate of tax on their use is less than the rate of tax that was charged on the kerosene. Handr block   The ultimate purchaser of the kerosene used in commercial aviation (other than foreign trade) and noncommercial aviation (other than nonexempt, noncommercial aviation and exclusive use by a state, political subdivision of a state, or the District of Columbia) is eligible to make a claim if the ultimate purchaser certifies that the right to make the claim has not been waived. Handr block Generally, the ultimate purchaser is the aircraft operator. Handr block   The following are the nontaxable uses of kerosene used in noncommercial aviation for which a credit or refund may be allowable to the ultimate purchaser. Handr block On a farm for farming purposes. Handr block Certain helicopter and fixed-wing aircraft uses. Handr block Exclusive use by a qualified blood collector organization. Handr block Exclusive use by a nonprofit educational organization. Handr block In an aircraft owned by an aircraft museum. Handr block In military aircraft. Handr block Kerosene for use partly in commercial aviation and partly in nonexempt, noncommercial aviation. Handr block   If the fuel is used partly for use in commercial aviation and partly for use in nonexempt, noncommercial aviation, the operator may identify, either at the time of purchase or after the kerosene has been used, the amount that will be (or has been) used in commercial aviation. Handr block At the same time, the operator would either make the claim or waive the right to make the claim for credit or refund of the kerosene for use in commercial and nonexempt, noncommercial aviation. Handr block   If the operator does not identify the amount of kerosene that will be (or has been) used in commercial aviation, the operator may provide a certificate to the ultimate vendor similar to Model Certificate Q in the Appendix. Handr block For kerosene purchased with the certificate, used in commercial aviation, and taxed at $. Handr block 244 per gallon, use of the certificate will be treated as a waiver of the right to claim a credit or refund for the $. Handr block 025 per gallon part of the tax. Handr block The ultimate vendor may make this claim. Handr block The operator may make a claim for the $. Handr block 175 tax per gallon of the kerosene, but cannot waive the right to make the claim for the $. Handr block 175 tax per gallon. Handr block Sales by Registered Ultimate Vendors Kerosene for use in commercial aviation or noncommercial aviation. Handr block   The registered ultimate vendor of kerosene for use in commercial aviation (other than foreign trade) or noncommercial aviation (other than nonexempt, noncommercial aviation and exclusive use by a state, political subdivision of a state, or the District of Columbia) may make this claim if the ultimate purchaser waives its right to the credit or payment by providing the registered ultimate vendor with a waiver. Handr block A sample waiver is included as Model Waiver L in the Appendix. Handr block The registered ultimate vendor must have the waiver at the time the credit or payment is claimed. Handr block   Noncommercial aviation means any use of an aircraft not described as commercial aviation. Handr block For the definition of commercial aviation, see Commercial aviation on page 11. Handr block Kerosene for use in nonexempt, noncommercial aviation. Handr block   Only the registered ultimate vendor may claim a credit or payment for sales of kerosene for use in nonexempt, noncommercial aviation. Handr block The ultimate vendor must be registered by the IRS (activity letter UA) and have the required certificate from the ultimate purchaser. Handr block A sample certificate is included as Model Certificate Q in the Appendix. Handr block The registered ultimate vendor must have the certificate at the time the credit or payment is claimed. Handr block Kerosene for use in aviation by a state or local government. Handr block   Only the registered ultimate vendor may claim a credit or payment for sales of kerosene for use in aviation to a state or local government for its exclusive use (including essential government use by an Indian tribal government). Handr block The kerosene for use in aviation must be purchased by the state without the use of a credit card in order for the ultimate vendor to make the claim. Handr block The ultimate vendor must be registered by the IRS (activity letter UV) and have the required certificate from the ultimate purchaser. Handr block A sample certificate is included as Model Certificate P in the Appendix. Handr block The registered ultimate vendor must have the certificate at the time the credit or payment is claimed. Handr block Credit card purchases. Handr block   If taxed kerosene for use in aviation is purchased with a credit card issued to a state, the person who extended credit to the state (the credit card issuer) is treated as the person that paid the tax and makes the claim if the credit card issuer: Is registered by the IRS, Has established that the amount of tax has not been collected from the person who purchased the kerosene, or has obtained written consent from the ultimate purchaser to the allowance of the credit or refund, and Has repaid or agreed to repay the amount of the tax to the ultimate vendor, has obtained the written consent of the ultimate vendor to the allowance of the credit or refund, or has made arrangements that provide the ultimate vendor with reimbursement of the tax. Handr block   If the requirements above are not met by the credit card issuer, the credit card issuer must collect the tax from the ultimate purchaser and only the ultimate purchaser may make the claim. Handr block Other Fuels (Including Alternative Fuels) Credit or refund for nontaxable use of taxed Other Fuels may be allowable to an ultimate purchaser. Handr block While tax is generally imposed on delivery, Other Fuels are taxed prior to delivery in the case of certain bulk sales described in chapter 1. Handr block The following are the nontaxable uses of Other Fuels for which a credit or refund may be allowable to the ultimate purchaser. Handr block On a farm for farming purposes. Handr block Off-highway business use. Handr block In a boat engaged in commercial fishing. Handr block In certain intercity and local buses. Handr block In a school bus. Handr block In a qualified local bus. Handr block Exclusive use by a qualified blood collector organization. Handr block Exclusive use by a nonprofit educational organization. Handr block Exclusive use by a state, political subdivision of a state, or the District of Columbia. Handr block In an aircraft or vehicle owned by an aircraft museum. Handr block Use in any boat operated by the United States for its exclusive use or any vessel of war of any foreign nation. Handr block See Biodiesel or Renewable Diesel Mixture Credit, Alternative Fuel Credit, and Alternative Fuel Mixture Credit, later. Handr block Refunds of Second Tax The tax on dyed diesel fuel for inland waterways fuel use applies at the rate listed on Form 720. Handr block This is in addition to all other taxes imposed on the sale or use of the fuel. Handr block The section 4081(e) refund (discussed below) cannot be claimed. Handr block If the tax is paid and reported to the government on more than one taxable event for a taxable fuel under section 4081, the person paying the “second tax” may claim a refund (without interest) of that tax if certain conditions and reporting requirements are met. Handr block No credit against any tax is allowed for this tax. Handr block For information about taxable events, see the discussions under Gasoline, Diesel Fuel and Kerosene and Kerosene for Use in Aviation in chapter 1. Handr block Conditions to allowance of refund. Handr block   A claim for refund of the tax is allowed only if all the following conditions are met. Handr block A tax on the fuel was paid to the government and not credited or refunded (the “first tax”). Handr block After the first tax was imposed, another tax was imposed on the same fuel and was paid to the government (the “second tax”). Handr block The person that paid the second tax filed a timely claim for refund containing the information required (see Refund claim, later). Handr block The person that paid the first tax has met the reporting requirements, discussed next. Handr block Reporting requirements. Handr block   Generally, the person that paid the first tax must file a “First Taxpayer's Report” with its Form 720 for the quarter to which the report relates. Handr block A model first taxpayer's report is shown in the Appendix as Model Certificate B. Handr block The report must contain all information needed to complete the model. Handr block   By the due date for filing the Form 720, you must also send a separate copy of the report to the following address. Handr block Department of the Treasury Internal Revenue Service  Cincinnati, OH 45999-0555 Write “EXCISE – FIRST TAXPAYER'S REPORT” across the top of that copy. Handr block Optional reporting. Handr block   A first taxpayer's report is not required for the tax imposed on: Removal at a terminal rack, Nonbulk entries into the United States, and Removals or sales by blenders. Handr block However, if the person liable for the tax expects that another tax will be imposed on that fuel, that person should (but is not required to) file a first taxpayer's report. Handr block Providing information. Handr block   The first taxpayer must give a copy of the report to the buyer of the fuel within the bulk transfer/terminal system or to the owner of the fuel immediately before the first tax was imposed, if the first taxpayer is not the owner at that time. Handr block If an optional report is filed, a copy should (but is not required to) be given to the buyer or owner. Handr block   A person that receives a copy of the first taxpayer's report and later sells the fuel within the bulk transfer/terminal system must give the copy and a “Statement of Subsequent Seller” to the buyer. Handr block If the later sale is outside the bulk transfer/terminal system and that person expects that another tax will be imposed, that person should (but is not required to) give the copy and the statement to the buyer. Handr block A model statement of subsequent seller is shown in the Appendix as Model Certificate A. Handr block The statement must contain all information necessary to complete the model. Handr block   If the first taxpayer's report relates to fuel sold to more than one buyer, copies of that report must be made when the fuel is divided. Handr block Each buyer must be given a copy of the report. Handr block Refund claim. Handr block   You must have filed Form 720 and paid the second tax before you file for a refund of that tax. Handr block You must make your claim for refund on Form 8849. Handr block Complete Schedule 5 (Form 8849) and attach it to your Form 8849. Handr block Do not include this claim with a claim under another tax provision. Handr block You must not have included the second tax in the price of the fuel and must not have collected it from the purchaser. Handr block You must submit the following information with your claim. Handr block A copy of the first taxpayer's report (discussed earlier). Handr block A copy of the statement of subsequent seller if the fuel was bought from someone other than the first taxpayer. Handr block Definitions of Nontaxable Uses This section provides definitions of the terms used in Table 2-1 for nontaxable uses. Handr block If applicable, the type of use number from Table 2-1 is indicated in each heading. Handr block Type of use table. Handr block   The first column of the table is the number you enter on Form 4136, Form 8849, or Schedule C (Form 720) for that type of use. Handr block For type of use 2, the mobile machinery parenthetical applies only to Form 8849 and Form 720. Handr block Table 2-1. Handr block Type of Use Table No. Handr block Type of Use 1 On a farm for farming purposes 2 Off-highway business use (for business use other than in a highway vehicle registered or required to be registered for highway use) (other than use in mobile machinery) 3 Export 4 In a boat engaged in commercial fishing 5 In certain intercity and local buses 6 In a qualified local bus 7 In a bus transporting students and employees of schools (school buses) 8 For diesel fuel and kerosene (other than kerosene used in aviation) used other than as a fuel in the propulsion engine of a train or diesel-powered highway vehicle (but not off-highway business use) 9 In foreign trade 10 Certain helicopter and fixed-wing aircraft uses 11 Exclusive use by a qualified blood collector organization 12 In a highway vehicle owned by the United States that is not used on a highway 13 Exclusive use by a nonprofit educational organization 14 Exclusive use by a state, political subdivision of a state, or the District of Columbia 15 In an aircraft or vehicle owned by an aircraft museum 16 In military aircraft On a farm for farming purposes (No. Handr block 1). Handr block   On a farm for farming purposes means fuel used in carrying on a trade or business of farming, on a farm in the United States, and for farming purposes. Handr block Farm. Handr block   A farm includes livestock, dairy, fish, poultry, fruit, fur-bearing animals, and truck farms; orchards; plantations; ranches; nurseries; ranges; and feed yards for fattening cattle. Handr block It also includes structures such as greenhouses used primarily for the raising of agricultural or horticultural commodities. Handr block A fish farm is an area where fish are grown or raised — not merely caught or harvested. Handr block Farming purposes. Handr block   As an owner, tenant, or operator, you use fuel on a farm for farming purposes if you use it in any of the following ways. Handr block To cultivate the soil or to raise or harvest any agricultural or horticultural commodity. Handr block To raise, shear, feed, care for, train, or manage livestock, bees, poultry, fur-bearing animals, or wildlife. Handr block To operate, manage, conserve, improve, or maintain your farm and its tools and equipment. Handr block To handle, dry, pack, grade, or store any raw agricultural or horticultural commodity. Handr block For this use to qualify, you must have produced more than half the commodity so treated during the tax year. Handr block Commodity means a single raw product. Handr block For example, apples and peaches are two separate commodities. Handr block To plant, cultivate, care for, or cut trees or to prepare (other than sawing logs into lumber, chipping, or other milling) trees for market, but only if the planting, etc. Handr block , is incidental to your farming operations. Handr block Your tree operations will be incidental only if they are minor in nature when compared to the total farming operations. Handr block   If any other person, such as a neighbor or custom operator, performs a service for you on your farm for any of the purposes listed in (1) or (2), you are considered to be the ultimate purchaser that used the fuel on a farm for farming purposes. Handr block However, see Custom application of fertilizer and pesticide, next. Handr block   If doubt exists whether the owner, the tenant, or the operator of the farm bought the fuel, determine who bore the cost of the fuel. Handr block For example, if the owner of a farm and the tenant equally share the cost of gasoline that is used on a farm for farming purposes, each can claim a credit for the tax on one-half the fuel used. Handr block Custom application of fertilizer and pesticide. Handr block   Fuel used on a farm for farming purposes includes fuel used in the application of fertilizer, pesticides, or other substances, including aerial applications. Handr block Generally, the applicator is treated as having used the fuel on a farm for farming purposes. Handr block For aviation gasoline, the aerial applicator makes the claim as the ultimate purchaser. Handr block For kerosene used in aviation, the ultimate purchaser may make the claim or waive their right to make the claim to the registered ultimate vendor. Handr block Fuel used between airfield and farm. Handr block   Fuel used by an aerial applicator for the direct flight between the airfield and one or more farms is treated as a farming purpose. Handr block Fuel not used for farming. Handr block   Fuel is not used on a farm for farming purposes if it is used in any of the following ways. Handr block Off the farm, such as on the highway or in noncommercial aviation, other than fuel used between the airfield and farm described above, even if the fuel is used in transporting livestock, feed, crops, or equipment. Handr block For personal use, such as mowing the lawn. Handr block In processing, packaging, freezing, or canning operations. Handr block In processing crude gum into gum spirits of turpentine or gum resin or in processing maple sap into maple syrup or maple sugar. Handr block Off-highway business use (No. Handr block 2). Handr block   Off-highway business use means fuel used in a trade or business or in an income-producing activity other than as a fuel in a highway vehicle registered or required to be registered for use on public highways. Handr block The terms “highway vehicle,” “public highway,” and “registered” are defined below. Handr block Do not consider any use in a boat as an off-highway business use. Handr block   Off-highway business use includes fuels used in any of the following ways. Handr block In stationary machines such as generators, compressors, power saws, and similar equipment. Handr block For cleaning purposes. Handr block In forklift trucks, bulldozers, and earthmovers. Handr block   Generally, this use does not include nonbusiness use of fuel, such as use by minibikes, snowmobiles, power lawn mowers, chain saws, and other yard equipment. Handr block Example. Handr block Caroline owns a landscaping business. Handr block She uses power lawn mowers and chain saws in her business. Handr block The gasoline used in the power lawn mowers and chain saws qualifies as fuel used in an off-highway business use. Handr block The gasoline used in her personal lawn mower at home does not qualify. Handr block Highway vehicle. Handr block   A highway vehicle is any self-propelled vehicle designed to carry a load over public highways, whether or not it is also designed to perform other functions. Handr block Examples of vehicles designed to carry a load over public highways are passenger automobiles, motorcycles, buses, and highway-type trucks and truck tractors. Handr block A vehicle is a highway vehicle even though the vehicle's design allows it to perform a highway transportation function for only one of the following. Handr block A particular type of load, such as passengers, furnishings, and personal effects (as in a house, office, or utility trailer). Handr block A special kind of cargo, goods, supplies, or materials. Handr block Some off-highway task unrelated to highway transportation, except as discussed next. Handr block Vehicles not considered highway vehicles. Handr block   Generally, the following kinds of vehicles are not considered highway vehicles for purposes of the credit or refund of fuel taxes. Handr block Specially designed mobile machinery for nontransportation functions. Handr block A self-propelled vehicle is not a highway vehicle if all the following apply. Handr block The chassis has permanently mounted to it machinery or equipment used to perform certain operations (construction, manufacturing, drilling, mining, timbering, processing, farming, or similar operations) if the operation of the machinery or equipment is unrelated to transportation on or off the public highways. Handr block The chassis has been specially designed to serve only as a mobile carriage and mount (and power source, if applicable) for the machinery or equipment, whether or not the machinery or equipment is in operation. Handr block The chassis could not, because of its special design and without substantial structural modification, be used as part of a vehicle designed to carry any other load. Handr block The vehicle must have traveled less than 7,500 miles on public highways during the taxable year. Handr block Vehicles specially designed for off-highway transportation. Handr block A vehicle is not treated as a highway vehicle if the vehicle is specially designed for the primary function of transporting a particular type of load other than over the public highway and because of this special design, the vehicle's capability to transport a load over a public highway is substantially limited or impaired. Handr block To make this determination, you can take into account the vehicle's size, whether the vehicle is subject to licensing, safety, or other requirements, and whether the vehicle can transport a load at a sustained speed of at least 25 miles per hour. Handr block It does not matter that the vehicle can carry heavier loads off highway than it is allowed to carry over the highway. Handr block Nontransportation trailers and semitrailers. Handr block A trailer or semi-trailer is not treated as a highway vehicle if it is specially designed to function only as an enclosed stationary shelter for carrying on a nontransportation function at an off-highway site. Handr block For example, a trailer that is capable only of functioning as an office for an off-highway construction operation is not a highway vehicle. Handr block Public highway. Handr block   A public highway includes any road in the United States that is not a private roadway. Handr block This includes federal, state, county, and city roads and streets. Handr block Registered. Handr block   A vehicle is considered registered when it is registered or required to be registered for highway use under the law of any state, the District of Columbia, or any foreign country in which it is operated or situated. Handr block Any highway vehicle operated under a dealer's tag, license, or permit is considered registered. Handr block A highway vehicle is not considered registered solely because a special permit allows the vehicle to be operated at particular times and under specified conditions. Handr block Dual use of propulsion motor. Handr block   Off-highway business use does not include any fuel used in the propulsion motor of a registered highway vehicle even though that motor also operates special equipment by means of a power take-off or power transfer. Handr block It does not matter if the special equipment is mounted on the vehicle. Handr block Example. Handr block The motor of a registered concrete-mixer truck operates both the engine and the mixing unit by means of a power take-off. Handr block The fuel used in the motor to run the mixer is not off-highway business use. Handr block Use in separate motor. Handr block   Off-highway business use includes fuel used in a separate motor to operate special equipment, such as a refrigeration unit, pump, generator, or mixing unit. Handr block If you draw fuel from the same tank that supplies fuel to the propulsion motor, you must figure the quantity used in the separate motor operating the special equipment. Handr block You may make a reasonable estimate based on your operating experience and supported by your records. Handr block   You can use devices that measure the miles the vehicle has traveled (such as hubometers) to figure the gallons of fuel used to propel the vehicle. Handr block Add to this amount the fuel consumed while idling or warming up the motor before propelling the vehicle. Handr block The difference between your total fuel used and the fuel used to propel the vehicle is the fuel used in the separate motor. Handr block Example. Handr block Hazel owns a refrigerated truck. Handr block It has a separate motor for the refrigeration unit. Handr block The same tank supplies both motors. Handr block Using the truck's hubometer, Hazel figures that 90% of the fuel was used to propel the truck. Handr block Therefore, 10% of the fuel is used in an off-highway business use. Handr block Fuel lost or destroyed. Handr block   You cannot treat fuel lost or destroyed through spillage, fire, or other casualty as fuel used in an off-highway business use. Handr block Export (No. Handr block 3). Handr block   Export means fuel transported from the United States with the intention that the fuel remain in a foreign country or possession of the United States. Handr block Fuel is not exported if it is in the fuel supply tank of a vehicle or aircraft. Handr block In a boat engaged in commercial fishing (No. Handr block 4). Handr block   In a boat engaged in commercial fishing means fuel used in taking, catching, processing, or transporting fish, shellfish, or other aquatic life for commercial purposes, such as selling or processing the catch, on a specific trip basis. Handr block They include boats used in both fresh and salt water fishing. Handr block They do not include boats used for both sport fishing and commercial fishing on the same trip. Handr block In certain intercity and local buses (No. Handr block 5). Handr block   In certain intercity and local buses means fuel used in a bus engaged in furnishing (for compensation) passenger land transportation available to the general public. Handr block The bus must be engaged in one of the following activities. Handr block Scheduled transportation along regular routes. Handr block Nonscheduled operations if the seating capacity of the bus is at least 20 adults, not including the driver. Handr block Vans and similar vehicles used for van-pooling or taxi service do not qualify. Handr block Available to the general public. Handr block   This means you offer service to more than a limited number of persons or organizations. Handr block If a bus operator normally provides charter operations through travel agencies but has buses available for chartering by the general public, this service is available to the general public. Handr block A bus does not qualify when its operator uses it to provide exclusive services to only one person, group, or organization. Handr block Also, intercity bus transportation does not include transporting students and employees of schools or intercity transportation in a qualified local bus. Handr block In a qualified local bus (No. Handr block 6). Handr block   In a qualified local bus means fuel used in a bus meeting all the following requirements. Handr block It is engaged in furnishing (for compensation) intracity passenger land transportation available to the general public. Handr block It operates along scheduled, regular routes. Handr block It has a seating capacity of at least 20 adults (excluding the driver). Handr block It is under contract with (or is receiving more than a nominal subsidy from) any state or local government to furnish the transportation. Handr block Intracity passenger land transportation. Handr block   This is the land transportation of passengers between points located within the same metropolitan area. Handr block It includes transportation along routes that cross state, city, or county boundaries if the routes remain within the metropolitan area. Handr block Under contract. Handr block   A bus is under contract with a state or local government only if the contract imposes a bona fide obligation on the bus operator to furnish the transportation. Handr block More than a nominal subsidy. Handr block   A subsidy is more than nominal if it is reasonably expected to exceed an amount equal to 3 cents multiplied by the number of gallons of fuel used in buses on subsidized routes. Handr block A company that operates its buses along subsidized and unsubsidized intracity routes may consider its buses qualified local buses only when the buses are used on the subsidized intracity routes. Handr block In a school bus (No. Handr block 7). Handr block   In a school bus means fuel used in a bus engaged in the transportation of students or employees of schools. Handr block A school is an educational organization with a regular faculty and curriculum and a regularly enrolled body of students who attend the place where the educational activities occur. Handr block For diesel fuel and kerosene (other than kerosene used in aviation) used other than as a fuel (No. Handr block 8). Handr block   Diesel fuel and kerosene (other than kerosene used in aviation) used other than as a fuel in the propulsion engine of a diesel-powered highway vehicle or diesel-powered train (not including off-highway business use) means undyed diesel fuel and undyed kerosene used: For home heating, lighting, and cooking; In boats; In stationary machines, such as generators and compressors; For cleaning purposes; or In minibikes and snowmobiles. Handr block In foreign trade (No. Handr block 9). Handr block   In foreign trade means fuel used in civil aircraft employed in foreign trade or trade between the United States and any of its possessions. Handr block The term trade includes the transportation of persons or property for hire and the making of the necessary preparations for such transportation. Handr block In the case of aircraft registered in a foreign country, the country must allow reciprocal benefits for aircraft registered in the United States. Handr block Certain helicopter and fixed-wing aircraft uses (No. Handr block 10). Handr block   Includes: Certain helicopter uses. Handr block   Certain helicopter uses means fuel used by a helicopter for any of the following purposes. Handr block Transporting individuals, equipment, or supplies in the exploration for, or the development or removal of, hard minerals, oil, or gas. Handr block Planting, cultivating, cutting, transporting, or caring for trees (including logging operations). Handr block Providing emergency medical transportation. Handr block   During a use described in items (1) and (2), the helicopter must not take off from, or land at, a facility eligible for assistance under the Airport and Airway Development Act of 1970, or otherwise use services provided pursuant to section 44509 or 44913(b) or subchapter I of chapter 471 of title 49, United States Code. Handr block For item (1), treat each flight segment as a separate flight. Handr block Fixed-wing aircraft uses. Handr block   Fixed-wing aircraft uses means fuel used by a fixed-wing aircraft for any of the following purposes. Handr block Planting, cultivating, cutting, transporting, or caring for trees (including logging operations). Handr block Providing emergency medical transportation. Handr block The aircraft must be equipped for and exclusively dedicated on that flight to acute care emergency medical services. Handr block During a use described in item (1), the aircraft must not take off from, or land at, a facility eligible for assistance under the Airport and Airway Development Act of 1970, or otherwise use services provided pursuant to section 44509 or 44913(b) or subchapter I of chapter 471 of title 49, United States Code. Handr block Exclusive use by a qualified blood collector organization (No. Handr block 11). Handr block   Exclusive use by a qualified blood collector organization means fuel used by the qualified blood collector organization for its exclusive use in the collection, storage, or transportation of blood. Handr block Qualified blood collector organization. Handr block   A qualified blood collector organization is one that is: Described in section 501(c)(3) and exempt from tax under section 501(a), Primarily engaged in the activity of collecting human blood, Registered by the IRS, and Registered by the Food and Drug Administration to collect blood. Handr block In a highway vehicle owned by the United States that is not used on a highway (No. Handr block 12). Handr block   In a highway vehicle owned by the United States that is not used on a highway means fuel used in a vehicle that was not used on public highways during the period covered by the claim. Handr block This use applies whether or not the vehicle is registered or required to be registered for highway use. Handr block Exclusive use by a nonprofit educational organization (No. Handr block 13). Handr block   Exclusive use by a nonprofit educational organization means fuel used by an organization exempt from income tax under section 501(a) that meets both of the following requirements. Handr block It has a regular faculty and curriculum. Handr block It has a regularly enrolled body of students who attend the place where the instruction normally occurs. Handr block   A nonprofit educational organization also includes a school operated by a church or other organization described in section 501(c)(3) if the school meets the above requirements. Handr block Exclusive use by a state, political subdivision of a state, or the District of Columbia (No. Handr block 14). Handr block   Exclusive use by a state, political subdivision of a state, or the District of Columbia means fuel purchased by the state or local government for its exclusive use. Handr block A state or local government is any state, any political subdivision thereof, or the District of Columbia. Handr block An Indian tribal government is treated as a state only if the fuel is used in an activity that involves the exercise of an essential tribal government function. Handr block Gasoline, diesel fuel, and kerosene used by the American Red Cross is considered to be the use of these fuels by a state. Handr block In an aircraft or vehicle owned by an aircraft museum (No. Handr block 15). Handr block   In an aircraft or vehicle owned by an aircraft museum means fuel used in an aircraft or vehicle that is owned by an organization that meets all the following requirements. Handr block It is exempt from income tax as an organization described in section 501(c)(3). Handr block It is operated as a museum under a state (or District of Columbia) charter. Handr block It is operated exclusively for acquiring, exhibiting, and caring for aircraft of the type used for combat or transport in  World War II. Handr block   The aircraft or vehicle (such as a ground servicing vehicle for aircraft) must be used exclusively for the purposes described in item (3). Handr block In military aircraft (No. Handr block 16). Handr block   In a military aircraft means fuel used in an aircraft owned by the United States or any foreign nation and constituting a part of its armed forces. Handr block In commercial aviation (other than foreign trade). Handr block   See Commercial aviation, earlier, for the definition. Handr block Use in a train. Handr block   Use in a train means fuel used in the propulsion engine of equipment or machinery that rides on rails. Handr block This includes use in a locomotive, work train, switching engine, and track maintenance machine. Handr block Biodiesel or Renewable Diesel Mixture Credit, Alternative Fuel Credit, and Alternative Fuel Mixture Credit For alternative fuel mixtures produced after December 31, 2011, see How to Claim the Credit below. Handr block The section 6426 credit for biodiesel and alternative fuel consists of the biodiesel or renewable diesel mixture credit, alternative fuel credit, and alternative fuel mixture credit. Handr block Biodiesel or renewable diesel mixture credit claimant. Handr block   Claimant produced a biodiesel mixture by mixing biodiesel with diesel fuel. Handr block Claimant produced a renewable diesel mixture by mixing renewable diesel with liquid fuel (other than renewable diesel). Handr block   The person that produced and sold or used the mixture in their trade or business is the only person eligible to make this claim. Handr block The credit is based on the gallons of biodiesel or renewable diesel in the mixture. Handr block Renewable diesel does not include any fuel derived from coprocessing biomass (as defined in section 45K(c)(3)) with a feedstock that is not biomass. Handr block Claim requirements. Handr block   See the Instructions for Form 720 for the biodiesel or renewable diesel mixture claim requirements. Handr block Alternative fuel credit claimant. Handr block   For the alternative fuel credit, the registered alternative fueler who (1) sold an alternative fuel at retail delivered it into the fuel supply tank of a motor vehicle or motorboat, (2) sold an alternative fuel, delivered it in bulk taxable use in a motor vehicle or motorboat, and received required statement from the buyer, (3) used an alternative fuel (not sold at retail or in bulk as previously described) motor vehicle or motorboat, or (4) sold an alternative fuel used as a fuel in aviation is the only person eligible to make this claim. Handr block Carbon capture requirement. Handr block   A credit for Fischer-Tropsch process liquid fuel derived from coal (including peat) can be claimed only if the fuel is derived from coal produced at a gasification facility that separates and sequesters at least 75% of the facility's total carbon dioxide emissions. Handr block Alternative fuel credit. Handr block   The registered alternative fueler is the person eligible to make the claim. Handr block An alternative fueler is the person liable for tax on alternative fuel under the rules for taxable events for Other Fuels (discussed in chapter 1) or would be liable but for an exemption for nontaxable uses. Handr block An alternative fueler includes a person who sells for use or uses an alternative fuel in aviation. Handr block Alternative fuel mixture credit claimant. Handr block   For the alternative fuel mixture credit, the registered alternative fueler that produced and sold or used the mixture as a fuel in their trade or business is the only person eligible to make this claim. Handr block The credit is based on the gallons of alternative fuel in the mixture. Handr block An alternative fuel mixture is a mixture of alternative fuel and section 4081 taxable fuel (gasoline, diesel fuel, or kerosene). Handr block Registration. Handr block   You must be registered by the IRS to be eligible to claim the section 6426 fuel credit. Handr block See Registration Requirements in chapter 1. Handr block Credits for fuel provide incentive for United States production. Handr block   The section 6426 fuel credit may not be claimed for alternative fuel that is produced outside the United States for use as a fuel outside the United States. Handr block The United States includes any possession of the United States. Handr block Credit for fuels derived from paper or pulp production. Handr block   Credit for alternative fuels and alternative fuel mixtures for any fuel derived from the production of paper or pulp are not available for fuel sold or used on or after December 31, 2009. Handr block How to Claim the Credit Any biodiesel or renewable diesel mixture credit must first be claimed on Schedule C to reduce your taxable fuel liability reported on Form 720. Handr block Any excess credit may be claimed on Schedule C (Form 720), Schedule 3 (Form 8849), Form 4136, or Form 8864, Biodiesel and Renewable Diesel Fuels Credit. Handr block See Notice 2005-4 and the Instructions for Form 720 for more information. Handr block Also see Notice 2013-26 on page 984 of I. Handr block R. Handr block B. Handr block 2013-18 at www. Handr block irs. Handr block gov/pub/irs-irbs/irb13-18. Handr block pdf; and see chapter 2, later. Handr block Coordination with income tax credit. Handr block   Only one credit may be taken for any amount of biodiesel or renewable diesel. Handr block If any amount is claimed (or will be claimed) for any amount of biodiesel or renewable diesel on Form 720, Form 8849, or Form 4136, then a claim cannot be made on Form 8864 for that amount of biodiesel or renewable diesel. Handr block   Any alternative fuel credit must first be claimed on Schedule C (Form 720) to reduce your section 4041 taxable fuel liability for alternative fuel and CNG reported on Form 720. Handr block Any excess credit may claimed on Schedule C (Form 720), Schedule 3 (Form 8849), or Form 4136. Handr block   For alternative fuel mixtures produced after December 31, 2011, the alternative fuel mixture credit can be claimed on Schedule C (Form 720), not on Form 4136 or Schedule 3 (Form 8849), and only to the extent of your section 4081 taxable fuel liability for gasoline, diesel fuel and kerosene reported on Form 720. Handr block   Calculate the limitation for alternative fuel mixtures separately and enter on Schedule C (Form 720), line 14, only the gallons of mixtures that do not exceed your section 4081 taxable fuel liability. Handr block Filing Claims This section tells you how to make a claim for a credit or refund of excise taxes on fuels. Handr block This section also covers recordkeeping requirements and when to include the credit or refund in your income. Handr block Generally, you will provide all the information needed to claim a credit or refund when you properly complete Form 8849, Form 4136, Schedule C (Form 720), Form 6478, or Form 8864. Handr block In some cases, you will have to attach additional information. Handr block You need to keep records that support your claim for a credit or refund. Handr block Keep at your principal place of business all records needed to enable the IRS to verify that you are the person entitled to claim a credit or refund and the amount you claimed. Handr block Ultimate purchaser. Handr block   Ultimate purchasers may make claims for the nontaxable use of fuels on Form 4136, Schedule 1 (Form 8849), and Schedule C (Form 720) if reporting excise tax liability on that return. Handr block If you are an ultimate purchaser, you must keep the following records. Handr block The number of gallons purchased and used during the period covered by your claim. Handr block The dates of the purchases. Handr block The names and addresses of suppliers and amounts purchased from each in the period covered by your claim. Handr block The nontaxable use for which you used the fuel. Handr block The number of gallons used for each nontaxable use. Handr block It is important that your records show separately the number of gallons used for each nontaxable use that qualifies as a claim. Handr block If the fuel is exported, you must have proof of exportation. Handr block   For more information about keeping records, see Publication 583, Starting a Business and Keeping Records, or chapter 1 of Publication 17, Your Federal Income Tax for Individuals. Handr block Exceptions. Handr block    Generally, the ultimate purchaser may not claim a credit or refund for undyed diesel fuel, undyed kerosene, or kerosene for use in aviation sold for the exclusive use of a state or local government. Handr block However, see Claims by credit card issuers, later, for an exception. Handr block The ultimate purchaser may not claim a credit or refund as follows. Handr block The ultimate purchaser of gasoline or aviation gasoline used by a state or local government for its exclusive use or by a nonprofit educational organization for its exclusive use may waive its right to make a claim by providing a certificate that is signed under penalties of perjury by a person authorized to bind the ultimate purchaser and is in the same format as the Model Certificate M. Handr block A new certificate is required each year or when any information in the current certificate expires. Handr block The ultimate purchaser of kerosene for use in commercial aviation or noncommercial aviation (other than nonexempt, noncommercial aviation and exclusive use by a state, political subdivision of a state, or the District of Columbia) may waive its right to make a claim by providing a waiver that is signed under penalties of perjury by a person authorized to bind the ultimate purchaser and is in the same format as the Model Waiver L. Handr block A new waiver is required each year or when any information in the current waiver expires. Handr block The ultimate purchaser of undyed diesel fuel or undyed kerosene used in certain intercity and local buses may waive its right to make a claim by providing a waiver that is signed under penalties of perjury by a person authorized to bind the ultimate purchaser and is in the same format as the Model Waiver N. Handr block A new waiver is required each year or when any information in the current waiver expires. Handr block The ultimate purchaser of kerosene for use in nonexempt, noncommercial aviation must provide a certificate that is signed under penalties of perjury by a person authorized to bind the ultimate purchaser and is in the same format as the Model Certificate Q. Handr block A new certificate is required each year or when any information in the current certificate expires. Handr block Registered ultimate vendor. Handr block   Registered ultimate vendors may make claims for certain sales of fuels on Form 4136, Schedule 2 (Form 8849), and Schedule C (Form 720) if reporting excise tax liability on that return. Handr block If you are a registered ultimate vendor, you must keep certain information pertaining to the sale of the fuel. Handr block   To make a claim, you must have sold the fuel at a tax-excluded price, repaid the tax to the buyer, or obtained the buyer's written consent to the allowance of the claim. Handr block You are required to have a valid certificate or waiver in your possession in order to make the claim. Handr block   In addition, you must have a registration number that has not been revoked or suspended. Handr block See Form 637. Handr block State use. Handr block   To make a claim as an ultimate vendor (state), you must have a UV registration number and the fuel cannot be purchased with a credit card as explained below. Handr block If you sell undyed diesel fuel, undyed kerosene, or kerosene for use in aviation for use by a state or local government, you must keep the following information. Handr block The name and taxpayer identification number of each person (government unit) that bought the fuel. Handr block The number of gallons sold to each person. Handr block An unexpired certificate from the buyer. Handr block See Model Certificate P in the Appendix. Handr block The certificate expires on the earlier of 1 year after the date of the certificate or the date a new certificate is given to the registered ultimate vendor. Handr block Nonprofit educational organization and state use. Handr block   To make a claim as an ultimate vendor (nonprofit educational organization or state), you must have a UV registration number and the fuel cannot be purchased with a credit card as explained later. Handr block If you sell gasoline or aviation gasoline to a nonprofit educational organization for its exclusive use or to a state or local government for its exclusive use, you must keep the following information. Handr block The name and taxpayer identification number of each person (nonprofit educational organization or government unit) that bought the fuel. Handr block The number of gallons sold to each person. Handr block An unexpired certificate from the buyer. Handr block See Model Certificate M in the Appendix. Handr block  The certificate expires on the earlier of 1 year after the date of the certificate or the date a new certificate is given to the registered ultimate vendor. Handr block Blocked pump. Handr block   To make a claim as an ultimate vendor (blocked pump), you must have a UP registration number. Handr block If you sell undyed kerosene (other than kerosene for use in aviation) from a pump that qualifies as a blocked pump because it is locked by you after each sale and is unlocked by you at the request of the buyer, you must keep the following information for each sale of more than 5 gallons. Handr block The date of each sale. Handr block The name and address of the buyer. Handr block The number of gallons sold to that buyer. Handr block Certain intercity and local bus use. Handr block   To make a claim as an ultimate vendor of undyed diesel fuel or undyed kerosene used in certain intercity and local buses, you must have a UB registration number. Handr block You must keep the following information. Handr block The date of each sale. Handr block The name and address of the buyer. Handr block The number of gallons sold to the buyer. Handr block A copy of the waiver signed by the buyer at the time the credit or payment is claimed. Handr block See Model Waiver N in the Appendix. Handr block Kerosene for use in commercial aviation or noncommercial aviation. Handr block   To make a claim as an ultimate vendor of kerosene for use in commercial aviation (other than foreign trade) or noncommercial aviation (other than nonexempt, noncommercial aviation and exclusive use by a state, political subdivision of a state, or the District of Columbia), you must have a UA registration number. Handr block See Kerosene for use in aviation, earlier, for a list of nontaxable uses. Handr block You must keep the following information. Handr block The date of each sale. Handr block The name and address of the buyer. Handr block The number of gallons sold to the buyer. Handr block A copy of the waiver signed by the buyer at the time the credit or payment is claimed. Handr block See Model Waiver L in the Appendix. Handr block Kerosene for use in nonexempt, noncommercial aviation. Handr block   To make a claim as an ultimate vendor of kerosene for use in nonexempt, noncommercial aviation, you must have a UA registration number. Handr block You must keep the following information. Handr block The date of each sale. Handr block The name and address of the buyer. Handr block The number of gallons sold to the buyer. Handr block A copy of the certificate signed by the buyer at the time the credit or payment is claimed. Handr block See Model Certificate Q in the Appendix. Handr block Claims by credit card issuers. Handr block   For sales of gasoline, aviation gasoline, diesel fuel, kerosene, or kerosene for use in aviation that are purchased by an exempt user with the use of a credit card, the registered credit card issuer is the only person who can make the claim. Handr block An exempt user for this purpose is: For gasoline or aviation gasoline, a state or local government (including essential government use by an Indian tribal government) or a nonprofit educational organization; or For diesel fuel, kerosene, or kerosene for use in aviation, a state or local government (including essential government use by an Indian tribal government). Handr block   If gasoline is purchased without the use of a credit card, then the registered ultimate vendor of the gasoline may make the claim for refund or credit. Handr block However, if the gasoline is purchased with a credit card issued to a state, but the credit card issuer is not registered by the IRS or does not meet the conditions described, the credit card issuer must collect the tax and the state may make the claim. Handr block   If diesel fuel, kerosene, or kerosene for use in aviation is purchased without the use of a credit card, the registered ultimate vendor may make the claim for refund or credit. Handr block A state is not allowed to make a claim for these fuels. Handr block However, if the diesel fuel or kerosene is purchased with a credit card issued to a state, but the credit card issuer is not registered by the IRS or does not meet the conditions described, the credit card issuer must collect the tax and the state may make the claim. Handr block   The claim from the credit card issuer must contain the following information as it applies to the fuel covered in the claim. Handr block The total number of gallons. Handr block Its registration number. Handr block A statement that it has not collected the amount of tax from the ultimate purchaser or has obtained the written consent of the ultimate purchaser to make the claim. Handr block A statement that it has repaid or agreed to repay the amount of tax to the ultimate vendor, has obtained the written consent of the ultimate vendor to make the claim, or has otherwise made arrangements which directly or indirectly provide the ultimate vendor with reimbursement of the tax. Handr block Has in its possession an unexpired certificate similar to Model Certificate R in the Appendix and has no reason to believe any of the information in the certificate is false. Handr block Taxpayer identification number. Handr block   To file a claim, you must have a taxpayer identification number. Handr block Your taxpayer identification number can be an: Employer identification number (EIN), Social security number (SSN), or Individual taxpayer identification number (ITIN), if you are an alien individual and do not have and are not eligible to get an SSN. Handr block   If you normally file only a U. Handr block S. Handr block individual income tax return (such as Form 1040 or 1040NR), use your SSN or ITIN. Handr block You get an SSN by filing Form SS-5, Application for a Social Security Card, with the Social Security Administration. Handr block To get an ITIN, file Form W-7, Application for IRS Individual Taxpayer Identification Number, with the IRS. Handr block   If you operate a business, use your EIN. Handr block If you do not have an EIN, you may apply for one online. Handr block Go to the IRS website at irs. Handr block gov/businesses/small and click on the “Employer ID Numbers (EINs)” link. Handr block You may also apply for an EIN by calling 1-800-829-4933, or you can fax or mail Form SS-4, Application for Employer Identification Number, to the IRS. Handr block Claiming A Refund Generally, you may claim a refund of excise taxes on Form 8849. Handr block Complete and attach to Form 8849 the appropriate Form 8849 schedules. Handr block The instructions for Form 8849 and the separate instructions for each schedule explain the requirements for making a claim for refund. Handr block If you file Form 720, you can use the Schedule C (Form 720) for your refund claims for the quarter. Handr block See the Instructions for Form 720. Handr block Do not claim a refund on Form 8849 for any amount for which you have filed or will file a claim on Schedule C (Form 720) or Form 4136. Handr block The alternative fuel mixture credit must be claimed on Schedule C (Form 720) against your section 4081 taxable fuel liability for gasoline, diesel, and kerosene and any excess is not allowed. Handr block The alternative fuel credit must first be claimed on Schedule C (Form 720) against your section 4041 taxable fuel liability for alternative fuel and CNG. Handr block To the extent the alternative fuel credit exceeds this taxable fuel liability, a payment is allowed and may be claimed as a credit on Schedule C (Form 720), or as an income tax credit on Forms 4136, 6478, or 8864, as applicable. Handr block Only one claim may be made for any particular amount of alternative fuel. Handr block Claiming a Credit on Form 4136 For alternative fuel mixtures produced after December 31, 2011, the alternative fuel mixture credit cannot be claimed on Form 4136. Handr block See Biodiesel or Renewable Diesel Mixture Credit, Alternative Fuel Credit and Alternative Fuel Mixture Credit in chapter 2, earlier. Handr block A credit may be claimed for certain uses and sales of fuels on Form 4136 when you file your income tax return at the end of the year. Handr block If you meet certain requirements (discussed earlier), you may be able to make a claim during the year. Handr block Credit only. Handr block   You can claim the following taxes only as a credit on Form 4136. Handr block Tax on fuels used for nontaxable uses if the total for your tax year is less than $750. Handr block Tax on fuel you did not include in any claim for refund previously filed for any quarter of your tax year. Handr block Tax on fuel you used in mobile machinery (off-highway business use) that traveled less than 7,500 miles on public highways. Handr block Do not claim a credit for any amount for which you have filed a refund claim on Form 8849 or credit on Schedule C (Form 720). Handr block When to file. Handr block   You can claim a fuel tax credit on your income tax return for the year you used the fuel (or sold the fuel in the case of a registered ultimate vendor claim). Handr block You may be able to make a fuel tax claim on an amended income tax return for the year you used the fuel. Handr block Generally, you must file an amended return by the later of 3 years from the date you filed your original return or within 2 years from the date you paid the income tax. Handr block How to claim a credit. Handr block   How you claim a credit depends on whether you are an individual, partnership, corporation, S corporation, or farmers' cooperative association. Handr block Individuals. Handr block   You claim the credit on the “Credits from” line of Form 1040. Handr block Also check box b on that line. Handr block If you would not otherwise have to file an income tax return, you must do so to get a fuel tax credit. Handr block Partnerships. Handr block   Partnerships (other than electing large partnerships) claim the credit by including a statement on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Handr block , showing each partner's share of the number of gallons of each fuel sold or used for a non