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Last Day File Taxes 2012

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Last day file taxes 2012 15. Last day file taxes 2012   Selling Your Home Table of Contents Reminder Introduction Useful Items - You may want to see: Main Home Figuring Gain or LossSelling Price Amount Realized Adjusted Basis Amount of Gain or Loss Dispositions Other Than Sales Determining Basis Excluding the GainMaximum Exclusion Ownership and Use Tests Reduced Maximum Exclusion Business Use or Rental of Home Reporting the SaleSeller-financed mortgage. Last day file taxes 2012 More information. Last day file taxes 2012 Special SituationsException for sales to related persons. Last day file taxes 2012 Recapturing (Paying Back) a Federal Mortgage Subsidy Reminder Home sold with undeducted points. Last day file taxes 2012  If you have not deducted all the points you paid to secure a mortgage on your old home, you may be able to deduct the remaining points in the year of the sale. Last day file taxes 2012 See Mortgage ending early under Points in chapter 23. Last day file taxes 2012 Introduction This chapter explains the tax rules that apply when you sell your main home. Last day file taxes 2012 In most cases, your main home is the one in which you live most of the time. Last day file taxes 2012 If you sold your main home in 2013, you may be able to exclude from income any gain up to a limit of $250,000 ($500,000 on a joint return in most cases). Last day file taxes 2012 See Excluding the Gain , later. Last day file taxes 2012 Generally, if you can exclude all the gain, you do not need to report the sale on your tax return. Last day file taxes 2012 If you have gain that cannot be excluded, it is taxable. Last day file taxes 2012 Report it on Form 8949, Sales and Other Dispositions of Capital Assets, and Schedule D (Form 1040). Last day file taxes 2012 You may also have to complete Form 4797, Sales of Business Property. Last day file taxes 2012 See Reporting the Sale , later. Last day file taxes 2012 If you have a loss on the sale, you generally cannot deduct it on your return. Last day file taxes 2012 However, you may need to report it. Last day file taxes 2012 See Reporting the Sale , later. Last day file taxes 2012 The following are main topics in this chapter. Last day file taxes 2012 Figuring gain or loss. Last day file taxes 2012 Basis. Last day file taxes 2012 Excluding the gain. Last day file taxes 2012 Ownership and use tests. Last day file taxes 2012 Reporting the sale. Last day file taxes 2012 Other topics include the following. Last day file taxes 2012 Business use or rental of home. Last day file taxes 2012 Recapturing a federal mortgage subsidy. Last day file taxes 2012 Useful Items - You may want to see: Publication 523 Selling Your Home 530 Tax Information for Homeowners 547 Casualties, Disasters, and Thefts Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 982 Reduction of Tax Attributes Due to Discharge of Indebtedness 8828 Recapture of Federal Mortgage Subsidy 8949 Sales and Other Dispositions of Capital Assets Main Home This section explains the term “main home. Last day file taxes 2012 ” Usually, the home you live in most of the time is your main home and can be a: House, Houseboat, Mobile home, Cooperative apartment, or Condominium. Last day file taxes 2012 To exclude gain under the rules of this chapter, you in most cases must have owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. Last day file taxes 2012 Land. Last day file taxes 2012   If you sell the land on which your main home is located, but not the house itself, you cannot exclude any gain you have from the sale of the land. Last day file taxes 2012 However, if you sell vacant land used as part of your main home and that is adjacent to it, you may be able to exclude the gain from the sale under certain circumstances. Last day file taxes 2012 See Vacant land under Main Home in Publication 523 for more information. Last day file taxes 2012 Example. Last day file taxes 2012 You buy a piece of land and move your main home to it. Last day file taxes 2012 Then you sell the land on which your main home was located. Last day file taxes 2012 This sale is not considered a sale of your main home, and you cannot exclude any gain on the sale of the land. Last day file taxes 2012 More than one home. Last day file taxes 2012   If you have more than one home, you can exclude gain only from the sale of your main home. Last day file taxes 2012 You must include in income gain from the sale of any other home. Last day file taxes 2012 If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time during the year. Last day file taxes 2012 Example 1. Last day file taxes 2012 You own two homes, one in New York and one in Florida. Last day file taxes 2012 From 2009 through 2013, you live in the New York home for 7 months and in the Florida residence for 5 months of each year. Last day file taxes 2012 In the absence of facts and circumstances indicating otherwise, the New York home is your main home. Last day file taxes 2012 You would be eligible to exclude the gain from the sale of the New York home but not of the Florida home in 2013. Last day file taxes 2012 Example 2. Last day file taxes 2012 You own a house, but you live in another house that you rent. Last day file taxes 2012 The rented house is your main home. Last day file taxes 2012 Example 3. Last day file taxes 2012 You own two homes, one in Virginia and one in New Hampshire. Last day file taxes 2012 In 2009 and 2010, you lived in the Virginia home. Last day file taxes 2012 In 2011 and 2012, you lived in the New Hampshire home. Last day file taxes 2012 In 2013, you lived again in the Virginia home. Last day file taxes 2012 Your main home in 2009, 2010, and 2013 is the Virginia home. Last day file taxes 2012 Your main home in 2011 and 2012 is the New Hampshire home. Last day file taxes 2012 You would be eligible to exclude gain from the sale of either home (but not both) in 2013. Last day file taxes 2012 Property used partly as your main home. Last day file taxes 2012   If you use only part of the property as your main home, the rules discussed in this publication apply only to the gain or loss on the sale of that part of the property. Last day file taxes 2012 For details, see Business Use or Rental of Home , later. Last day file taxes 2012 Figuring Gain or Loss To figure the gain or loss on the sale of your main home, you must know the selling price, the amount realized, and the adjusted basis. Last day file taxes 2012 Subtract the adjusted basis from the amount realized to get your gain or loss. Last day file taxes 2012     Selling price     − Selling expenses       Amount realized       Amount realized     − Adjusted basis       Gain or loss   Selling Price The selling price is the total amount you receive for your home. Last day file taxes 2012 It includes money and the fair market value of any other property or any other services you receive and all notes, mortgages or other debts assumed by the buyer as part of the sale. Last day file taxes 2012 Payment by employer. Last day file taxes 2012   You may have to sell your home because of a job transfer. Last day file taxes 2012 If your employer pays you for a loss on the sale or for your selling expenses, do not include the payment as part of the selling price. Last day file taxes 2012 Your employer will include it as wages in box 1 of your Form W-2, and you will include it in your income on Form 1040, line 7. Last day file taxes 2012 Option to buy. Last day file taxes 2012   If you grant an option to buy your home and the option is exercised, add the amount you receive for the option to the selling price of your home. Last day file taxes 2012 If the option is not exercised, you must report the amount as ordinary income in the year the option expires. Last day file taxes 2012 Report this amount on Form 1040, line 21. Last day file taxes 2012 Form 1099-S. Last day file taxes 2012   If you received Form 1099-S, Proceeds From Real Estate Transactions, box 2 (Gross proceeds) should show the total amount you received for your home. Last day file taxes 2012   However, box 2 will not include the fair market value of any services or property other than cash or notes you received or will receive. Last day file taxes 2012 Instead, box 4 will be checked to indicate your receipt or expected receipt of these items. Last day file taxes 2012 Amount Realized The amount realized is the selling price minus selling expenses. Last day file taxes 2012 Selling expenses. Last day file taxes 2012   Selling expenses include: Commissions, Advertising fees, Legal fees, and Loan charges paid by the seller, such as loan placement fees or “points. Last day file taxes 2012 ” Adjusted Basis While you owned your home, you may have made adjustments (increases or decreases) to the basis. Last day file taxes 2012 This adjusted basis must be determined before you can figure gain or loss on the sale of your home. Last day file taxes 2012 For information on how to figure your home's adjusted basis, see Determining Basis , later. Last day file taxes 2012 Amount of Gain or Loss To figure the amount of gain or loss, compare the amount realized to the adjusted basis. Last day file taxes 2012 Gain on sale. Last day file taxes 2012   If the amount realized is more than the adjusted basis, the difference is a gain and, except for any part you can exclude, in most cases is taxable. Last day file taxes 2012 Loss on sale. Last day file taxes 2012   If the amount realized is less than the adjusted basis, the difference is a loss. Last day file taxes 2012 A loss on the sale of your main home cannot be deducted. Last day file taxes 2012 Jointly owned home. Last day file taxes 2012   If you and your spouse sell your jointly owned home and file a joint return, you figure your gain or loss as one taxpayer. Last day file taxes 2012 Separate returns. Last day file taxes 2012   If you file separate returns, each of you must figure your own gain or loss according to your ownership interest in the home. Last day file taxes 2012 Your ownership interest is generally determined by state law. Last day file taxes 2012 Joint owners not married. Last day file taxes 2012   If you and a joint owner other than your spouse sell your jointly owned home, each of you must figure your own gain or loss according to your ownership interest in the home. Last day file taxes 2012 Each of you applies the rules discussed in this chapter on an individual basis. Last day file taxes 2012 Dispositions Other Than Sales Some special rules apply to other dispositions of your main home. Last day file taxes 2012 Foreclosure or repossession. Last day file taxes 2012   If your home was foreclosed on or repossessed, you have a disposition. Last day file taxes 2012 See Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, to determine if you have ordinary income, gain, or loss. Last day file taxes 2012 Abandonment. Last day file taxes 2012   If you abandon your home, see Publication 4681 to determine if you have ordinary income, gain, or loss. Last day file taxes 2012 Trading (exchanging) homes. Last day file taxes 2012   If you trade your old home for another home, treat the trade as a sale and a purchase. Last day file taxes 2012 Example. Last day file taxes 2012 You owned and lived in a home with an adjusted basis of $41,000. Last day file taxes 2012 A real estate dealer accepted your old home as a trade-in and allowed you $50,000 toward a new home priced at $80,000. Last day file taxes 2012 This is treated as a sale of your old home for $50,000 with a gain of $9,000 ($50,000 – $41,000). Last day file taxes 2012 If the dealer had allowed you $27,000 and assumed your unpaid mortgage of $23,000 on your old home, your sales price would still be $50,000 (the $27,000 trade-in allowed plus the $23,000 mortgage assumed). Last day file taxes 2012 Transfer to spouse. Last day file taxes 2012   If you transfer your home to your spouse or you transfer it to your former spouse incident to your divorce, you in most cases have no gain or loss. Last day file taxes 2012 This is true even if you receive cash or other consideration for the home. Last day file taxes 2012 As a result, the rules in this chapter do not apply. Last day file taxes 2012 More information. Last day file taxes 2012   If you need more information, see Transfer to spouse in Publication 523 and Property Settlements in Publication 504, Divorced or Separated Individuals. Last day file taxes 2012 Involuntary conversion. Last day file taxes 2012   You have a disposition when your home is destroyed or condemned and you receive other property or money in payment, such as insurance or a condemnation award. Last day file taxes 2012 This is treated as a sale and you may be able to exclude all or part of any gain from the destruction or condemnation of your home, as explained later under Special Situations . Last day file taxes 2012 Determining Basis You need to know your basis in your home to figure any gain or loss when you sell it. Last day file taxes 2012 Your basis in your home is determined by how you got the home. Last day file taxes 2012 Generally, your basis is its cost if you bought it or built it. Last day file taxes 2012 If you got it in some other way (inheritance, gift, etc. Last day file taxes 2012 ), your basis is generally either its fair market value when you received it or the adjusted basis of the previous owner. Last day file taxes 2012 While you owned your home, you may have made adjustments (increases or decreases) to your home's basis. Last day file taxes 2012 The result of these adjustments is your home's adjusted basis, which is used to figure gain or loss on the sale of your home. Last day file taxes 2012 See Adjusted Basis , later. Last day file taxes 2012 You can find more information on basis and adjusted basis in chapter 13 of this publication and in Publication 523. Last day file taxes 2012 Cost As Basis The cost of property is the amount you paid for it in cash, debt obligations, other property, or services. Last day file taxes 2012 Purchase. Last day file taxes 2012   If you bought your home, your basis is its cost to you. Last day file taxes 2012 This includes the purchase price and certain settlement or closing costs. Last day file taxes 2012 In most cases, your purchase price includes your down payment and any debt, such as a first or second mortgage or notes you gave the seller in payment for the home. Last day file taxes 2012 If you build, or contract to build, a new home, your purchase price can include costs of construction, as discussed in Publication 523. Last day file taxes 2012 Settlement fees or closing costs. Last day file taxes 2012   When you bought your home, you may have paid settlement fees or closing costs in addition to the contract price of the property. Last day file taxes 2012 You can include in your basis some of the settlement fees and closing costs you paid for buying the home, but not the fees and costs for getting a mortgage loan. Last day file taxes 2012 A fee paid for buying the home is any fee you would have had to pay even if you paid cash for the home (that is, without the need for financing). Last day file taxes 2012    Chapter 13 lists some of the settlement fees and closing costs that you can include in the basis of property, including your home. Last day file taxes 2012 It also lists some settlement costs that cannot be included in basis. Last day file taxes 2012   Also see Publication 523 for additional items and a discussion of basis other than cost. Last day file taxes 2012 Adjusted Basis Adjusted basis is your cost or other basis increased or decreased by certain amounts. Last day file taxes 2012 To figure your adjusted basis, you can use Worksheet 1 in Publication 523. Last day file taxes 2012 Do not use Worksheet 1 if you acquired an interest in your home from a decedent who died in 2010 and whose executor filed Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent. Last day file taxes 2012 Increases to basis. Last day file taxes 2012   These include the following. Last day file taxes 2012 Additions and other improvements that have a useful life of more than 1 year. Last day file taxes 2012 Special assessments for local improvements. Last day file taxes 2012 Amounts you spent after a casualty to restore damaged property. Last day file taxes 2012 Improvements. Last day file taxes 2012   These add to the value of your home, prolong its useful life, or adapt it to new uses. Last day file taxes 2012 You add the cost of additions and other improvements to the basis of your property. Last day file taxes 2012   For example, putting a recreation room or another bathroom in your unfinished basement, putting up a new fence, putting in new plumbing or wiring, putting on a new roof, or paving your unpaved driveway are improvements. Last day file taxes 2012 An addition to your house, such as a new deck, a sunroom, or a new garage, is also an improvement. Last day file taxes 2012 Repairs. Last day file taxes 2012   These maintain your home in good condition but do not add to its value or prolong its life. Last day file taxes 2012 You do not add their cost to the basis of your property. Last day file taxes 2012   Examples of repairs include repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering, and replacing broken window panes. Last day file taxes 2012 Decreases to basis. Last day file taxes 2012   These include the following. Last day file taxes 2012 Discharge of qualified principal residence indebtedness that was excluded from income. Last day file taxes 2012 Some or all of the cancellation of debt income that was excluded due to your bankruptcy or insolvency. Last day file taxes 2012 For details, see Publication 4681. Last day file taxes 2012 Gain you postponed from the sale of a previous home before May 7, 1997. Last day file taxes 2012 Deductible casualty losses. Last day file taxes 2012 Insurance payments you received or expect to receive for casualty losses. Last day file taxes 2012 Payments you received for granting an easement or right-of-way. Last day file taxes 2012 Depreciation allowed or allowable if you used your home for business or rental purposes. Last day file taxes 2012 Energy-related credits allowed for expenditures made on the residence. Last day file taxes 2012 (Reduce the increase in basis otherwise allowable for expenditures on the residence by the amount of credit allowed for those expenditures. Last day file taxes 2012 ) Adoption credit you claimed for improvements added to the basis of your home. Last day file taxes 2012 Nontaxable payments from an adoption assistance program of your employer you used for improvements you added to the basis of your home. Last day file taxes 2012 Energy conservation subsidy excluded from your gross income because you received it (directly or indirectly) from a public utility after 1992 to buy or install any energy conservation measure. Last day file taxes 2012 An energy conservation measure is an installation or modification primarily designed either to reduce consumption of electricity or natural gas or to improve the management of energy demand for a home. Last day file taxes 2012 District of Columbia first-time homebuyer credit (allowed on the purchase of a principal residence in the District of Columbia beginning on August 5, 1997 and before January 1, 2012). Last day file taxes 2012 General sales taxes (allowed beginning 2004 and ending before 2014) claimed as an itemized deduction on Schedule A (Form 1040) that were imposed on the purchase of personal property, such as a houseboat used as your home or a mobile home. Last day file taxes 2012 Discharges of qualified principal residence indebtedness. Last day file taxes 2012   You may be able to exclude from gross income a discharge of qualified principal residence indebtedness. Last day file taxes 2012 This exclusion applies to discharges made after 2006 and before 2014. Last day file taxes 2012 If you choose to exclude this income, you must reduce (but not below zero) the basis of the principal residence by the amount excluded from your gross income. Last day file taxes 2012   File Form 982 with your tax return. Last day file taxes 2012 See the form's instructions for detailed information. Last day file taxes 2012 Recordkeeping. Last day file taxes 2012 You should keep records to prove your home's adjusted basis. Last day file taxes 2012 Ordinarily, you must keep records for 3 years after the due date for filing your return for the tax year in which you sold your home. Last day file taxes 2012 But if you sold a home before May 7, 1997, and postponed tax on any gain, the basis of that home affects the basis of the new home you bought. Last day file taxes 2012 Keep records proving the basis of both homes as long as they are needed for tax purposes. Last day file taxes 2012 The records you should keep include: Proof of the home's purchase price and purchase expenses, Receipts and other records for all improvements, additions, and other items that affect the home's adjusted basis, Any worksheets or other computations you used to figure the adjusted basis of the home you sold, the gain or loss on the sale, the exclusion, and the taxable gain, Any Form 982 you filed to report any discharge of qualified principal residence indebtedness, Any Form 2119, Sale of Your Home, you filed to postpone gain from the sale of a previous home before May 7, 1997, and Any worksheets you used to prepare Form 2119, such as the Adjusted Basis of Home Sold Worksheet or the Capital Improvements Worksheet from the Form 2119 instructions, or other source of computations. Last day file taxes 2012 Excluding the Gain You may qualify to exclude from your income all or part of any gain from the sale of your main home. Last day file taxes 2012 This means that, if you qualify, you will not have to pay tax on the gain up to the limit described under Maximum Exclusion , next. Last day file taxes 2012 To qualify, you must meet the ownership and use tests described later. Last day file taxes 2012 You can choose not to take the exclusion by including the gain from the sale in your gross income on your tax return for the year of the sale. Last day file taxes 2012 You can use Worksheet 2 in Publication 523 to figure the amount of your exclusion and your taxable gain, if any. Last day file taxes 2012 If you have any taxable gain from the sale of your home, you may have to increase your withholding or make estimated tax payments. Last day file taxes 2012 See Publication 505, Tax Withholding and Estimated Tax. Last day file taxes 2012 Maximum Exclusion You can exclude up to $250,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if all of the following are true. Last day file taxes 2012 You meet the ownership test. Last day file taxes 2012 You meet the use test. Last day file taxes 2012 During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. Last day file taxes 2012 For details on gain allocated to periods of nonqualified use, see Periods of nonqualified use , later. Last day file taxes 2012 You may be able to exclude up to $500,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if you are married and file a joint return and meet the requirements listed in the discussion of the special rules for joint returns, later, under Married Persons . Last day file taxes 2012 Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. Last day file taxes 2012 This means that during the 5-year period ending on the date of the sale, you must have: Owned the home for at least 2 years (the ownership test), and Lived in the home as your main home for at least 2 years (the use test). Last day file taxes 2012 Exception. Last day file taxes 2012   If you owned and lived in the property as your main home for less than 2 years, you can still claim an exclusion in some cases. Last day file taxes 2012 However, the maximum amount you may be able to exclude will be reduced. Last day file taxes 2012 See Reduced Maximum Exclusion , later. Last day file taxes 2012 Example 1—home owned and occupied for at least 2 years. Last day file taxes 2012 Mya bought and moved into her main home in September 2011. Last day file taxes 2012 She sold the home at a gain in October 2013. Last day file taxes 2012 During the 5-year period ending on the date of sale in October 2013, she owned and lived in the home for more than 2 years. Last day file taxes 2012 She meets the ownership and use tests. Last day file taxes 2012 Example 2—ownership test met but use test not met. Last day file taxes 2012 Ayden bought a home, lived in it for 6 months, moved out, and never occupied the home again. Last day file taxes 2012 He later sold the home for a gain. Last day file taxes 2012 He owned the home during the entire 5-year period ending on the date of sale. Last day file taxes 2012 He meets the ownership test but not the use test. Last day file taxes 2012 He cannot exclude any part of his gain on the sale unless he qualified for a reduced maximum exclusion (explained later). Last day file taxes 2012 Period of Ownership and Use The required 2 years of ownership and use during the 5-year period ending on the date of the sale do not have to be continuous nor do they both have to occur at the same time. Last day file taxes 2012 You meet the tests if you can show that you owned and lived in the property as your main home for either 24 full months or 730 days (365 × 2) during the 5-year period ending on the date of sale. Last day file taxes 2012 Temporary absence. Last day file taxes 2012   Short temporary absences for vacations or other seasonal absences, even if you rent out the property during the absences, are counted as periods of use. Last day file taxes 2012 The following examples assume that the reduced maximum exclusion (discussed later) does not apply to the sales. Last day file taxes 2012 Example 1. Last day file taxes 2012 David Johnson, who is single, bought and moved into his home on February 1, 2011. Last day file taxes 2012 Each year during 2011 and 2012, David left his home for a 2-month summer vacation. Last day file taxes 2012 David sold the house on March 1, 2013. Last day file taxes 2012 Although the total time David used his home is less than 2 years (21 months), he meets the requirement and may exclude gain. Last day file taxes 2012 The 2-month vacations are short temporary absences and are counted as periods of use in determining whether David used the home for the required 2 years. Last day file taxes 2012 Example 2. Last day file taxes 2012 Professor Paul Beard, who is single, bought and moved into a house on August 18, 2010. Last day file taxes 2012 He lived in it as his main home continuously until January 5, 2012, when he went abroad for a 1-year sabbatical leave. Last day file taxes 2012 On February 6, 2013, 1 month after returning from the leave, Paul sold the house at a gain. Last day file taxes 2012 Because his leave was not a short temporary absence, he cannot include the period of leave to meet the 2-year use test. Last day file taxes 2012 He cannot exclude any part of his gain, because he did not use the residence for the required 2 years. Last day file taxes 2012 Ownership and use tests met at different times. Last day file taxes 2012   You can meet the ownership and use tests during different 2-year periods. Last day file taxes 2012 However, you must meet both tests during the 5-year period ending on the date of the sale. Last day file taxes 2012 Example. Last day file taxes 2012 Beginning in 2002, Helen Jones lived in a rented apartment. Last day file taxes 2012 The apartment building was later converted to condominiums, and she bought her same apartment on December 3, 2010. Last day file taxes 2012 In 2011, Helen became ill and on April 14 of that year she moved to her daughter's home. Last day file taxes 2012 On July 12, 2013, while still living in her daughter's home, she sold her condominium. Last day file taxes 2012 Helen can exclude gain on the sale of her condominium because she met the ownership and use tests during the 5-year period from July 13, 2008, to July 12, 2013, the date she sold the condominium. Last day file taxes 2012 She owned her condominium from December 3, 2010, to July 12, 2013 (more than 2 years). Last day file taxes 2012 She lived in the property from July 13, 2008 (the beginning of the 5-year period), to April 14, 2011 (more than 2 years). Last day file taxes 2012 The time Helen lived in her daughter's home during the 5-year period can be counted toward her period of ownership, and the time she lived in her rented apartment during the 5-year period can be counted toward her period of use. Last day file taxes 2012 Cooperative apartment. Last day file taxes 2012   If you sold stock as a tenant-stockholder in a cooperative housing corporation, the ownership and use tests are met if, during the 5-year period ending on the date of sale, you: Owned the stock for at least 2 years, and Lived in the house or apartment that the stock entitles you to occupy as your main home for at least 2 years. Last day file taxes 2012 Exceptions to Ownership and Use Tests The following sections contain exceptions to the ownership and use tests for certain taxpayers. Last day file taxes 2012 Exception for individuals with a disability. Last day file taxes 2012   There is an exception to the use test if: You become physically or mentally unable to care for yourself, and You owned and lived in your home as your main home for a total of at least 1 year during the 5-year period before the sale of your home. Last day file taxes 2012 Under this exception, you are considered to live in your home during any time within the 5-year period that you own the home and live in a facility (including a nursing home) licensed by a state or political subdivision to care for persons in your condition. Last day file taxes 2012 If you meet this exception to the use test, you still have to meet the 2-out-of-5-year ownership test to claim the exclusion. Last day file taxes 2012 Previous home destroyed or condemned. Last day file taxes 2012   For the ownership and use tests, you add the time you owned and lived in a previous home that was destroyed or condemned to the time you owned and lived in the replacement home on whose sale you wish to exclude gain. Last day file taxes 2012 This rule applies if any part of the basis of the home you sold depended on the basis of the destroyed or condemned home. Last day file taxes 2012 Otherwise, you must have owned and lived in the same home for 2 of the 5 years before the sale to qualify for the exclusion. Last day file taxes 2012 Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps. Last day file taxes 2012   You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve on “qualified official extended duty” as a member of the uniformed services or Foreign Service of the United States, or as an employee of the intelligence community. Last day file taxes 2012 You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve outside the United States either as an employee of the Peace Corps on "qualified official extended duty" or as an enrolled volunteer or volunteer leader of the Peace Corps. Last day file taxes 2012 This means that you may be able to meet the 2-year use test even if, because of your service, you did not actually live in your home for at least the required 2 years during the 5-year period ending on the date of sale. Last day file taxes 2012   If this helps you qualify to exclude gain, you can choose to have the 5-year test period suspended by filing a return for the year of sale that does not include the gain. Last day file taxes 2012 For more information about the suspension of the 5-year test period, see Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps in Publication 523. Last day file taxes 2012 Married Persons If you and your spouse file a joint return for the year of sale and one spouse meets the ownership and use tests, you can exclude up to $250,000 of the gain. Last day file taxes 2012 (But see Special rules for joint returns , next. Last day file taxes 2012 ) Special rules for joint returns. Last day file taxes 2012   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. Last day file taxes 2012 You are married and file a joint return for the year. Last day file taxes 2012 Either you or your spouse meets the ownership test. Last day file taxes 2012 Both you and your spouse meet the use test. Last day file taxes 2012 During the 2-year period ending on the date of the sale, neither you nor your spouse excluded gain from the sale of another home. Last day file taxes 2012 If either spouse does not satisfy all these requirements, the maximum exclusion that can be claimed by the couple is the total of the maximum exclusions that each spouse would qualify for if not married and the amounts were figured separately. Last day file taxes 2012 For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property. Last day file taxes 2012 Example 1—one spouse sells a home. Last day file taxes 2012 Emily sells her home in June 2013 for a gain of $300,000. Last day file taxes 2012 She marries Jamie later in the year. Last day file taxes 2012 She meets the ownership and use tests, but Jamie does not. Last day file taxes 2012 Emily can exclude up to $250,000 of gain on a separate or joint return for 2013. Last day file taxes 2012 The $500,000 maximum exclusion for certain joint returns does not apply because Jamie does not meet the use test. Last day file taxes 2012 Example 2—each spouse sells a home. Last day file taxes 2012 The facts are the same as in Example 1 except that Jamie also sells a home in 2013 for a gain of $200,000 before he marries Emily. Last day file taxes 2012 He meets the ownership and use tests on his home, but Emily does not. Last day file taxes 2012 Emily can exclude $250,000 of gain and Jamie can exclude $200,000 of gain on the respective sales of their individual homes. Last day file taxes 2012 However, Emily cannot use Jamie's unused exclusion to exclude more than $250,000 of gain. Last day file taxes 2012 Therefore, Emily and Jamie must recognize $50,000 of gain on the sale of Emily's home. Last day file taxes 2012 The $500,000 maximum exclusion for certain joint returns does not apply because Emily and Jamie do not both meet the use test for the same home. Last day file taxes 2012 Sale of main home by surviving spouse. Last day file taxes 2012   If your spouse died and you did not remarry before the date of sale, you are considered to have owned and lived in the property as your main home during any period of time when your spouse owned and lived in it as a main home. Last day file taxes 2012   If you meet all of the following requirements, you may qualify to exclude up to $500,000 of any gain from the sale or exchange of your main home. Last day file taxes 2012 The sale or exchange took place after 2008. Last day file taxes 2012 The sale or exchange took place no more than 2 years after the date of death of your spouse. Last day file taxes 2012 You have not remarried. Last day file taxes 2012 You and your spouse met the use test at the time of your spouse's death. Last day file taxes 2012 You or your spouse met the ownership test at the time of your spouse's death. Last day file taxes 2012 Neither you nor your spouse excluded gain from the sale of another home during the last 2 years. Last day file taxes 2012 Example. Last day file taxes 2012   Harry owned and used a house as his main home since 2009. Last day file taxes 2012 Harry and Wilma married on July 1, 2013, and from that date they use Harry's house as their main home. Last day file taxes 2012 Harry died on August 15, 2013, and Wilma inherited the property. Last day file taxes 2012 Wilma sold the property on September 3, 2013, at which time she had not remarried. Last day file taxes 2012 Although Wilma owned and used the house for less than 2 years, Wilma is considered to have satisfied the ownership and use tests because her period of ownership and use includes the period that Harry owned and used the property before death. Last day file taxes 2012 Home transferred from spouse. Last day file taxes 2012   If your home was transferred to you by your spouse (or former spouse if the transfer was incident to divorce), you are considered to have owned it during any period of time when your spouse owned it. Last day file taxes 2012 Use of home after divorce. Last day file taxes 2012   You are considered to have used property as your main home during any period when: You owned it, and Your spouse or former spouse is allowed to live in it under a divorce or separation instrument and uses it as his or her main home. Last day file taxes 2012 Reduced Maximum Exclusion If you fail to meet the requirements to qualify for the $250,000 or $500,000 exclusion, you may still qualify for a reduced exclusion. Last day file taxes 2012 This applies to those who: Fail to meet the ownership and use tests, or Have used the exclusion within 2 years of selling their current home. Last day file taxes 2012 In both cases, to qualify for a reduced exclusion, the sale of your main home must be due to one of the following reasons. Last day file taxes 2012 A change in place of employment. Last day file taxes 2012 Health. Last day file taxes 2012 Unforeseen circumstances. Last day file taxes 2012 Unforeseen circumstances. Last day file taxes 2012   The sale of your main home is because of an unforeseen circumstance if your primary reason for the sale is the occurrence of an event that you could not reasonably have anticipated before buying and occupying your main home. Last day file taxes 2012   See Publication 523 for more information and to use Worksheet 3 to figure your reduced maximum exclusion. Last day file taxes 2012 Business Use or Rental of Home You may be able to exclude gain from the sale of a home you have used for business or to produce rental income. Last day file taxes 2012 But you must meet the ownership and use tests. Last day file taxes 2012 Periods of nonqualified use. Last day file taxes 2012   In most cases, gain from the sale or exchange of your main home will not qualify for the exclusion to the extent that the gains are allocated to periods of nonqualified use. Last day file taxes 2012 Nonqualified use is any period after 2008 during which neither you nor your spouse (or your former spouse) used the property as a main home with the following exceptions. Last day file taxes 2012 Exceptions. Last day file taxes 2012   A period of nonqualified use does not include: Any portion of the 5-year period ending on the date of the sale or exchange after the last date you (or your spouse) use the property as a main home; Any period (not to exceed an aggregate period of 10 years) during which you (or your spouse) are serving on qualified official extended duty: As a member of the uniformed services; As a member of the Foreign Service of the United States; or As an employee of the intelligence community; and Any other period of temporary absence (not to exceed an aggregate period of 2 years) due to change of employment, health conditions, or such other unforeseen circumstances as may be specified by the IRS. Last day file taxes 2012 The gain resulting from the sale of the property is allocated between qualified and nonqualified use periods based on the amount of time the property was held for qualified and nonqualified use. Last day file taxes 2012 Gain from the sale or exchange of a main home allocable to periods of qualified use will continue to qualify for the exclusion for the sale of your main home. Last day file taxes 2012 Gain from the sale or exchange of property allocable to nonqualified use will not qualify for the exclusion. Last day file taxes 2012 Calculation. Last day file taxes 2012   To figure the portion of the gain allocated to the period of nonqualified use, multiply the gain by the following fraction:   Total nonqualified use during the period of ownership after 2008      Total period of ownership     This calculation can be found in Worksheet 2, line 10, in Publication 523. Last day file taxes 2012 Example 1. Last day file taxes 2012 On May 23, 2007, Amy, who is unmarried for all years in this example, bought a house. Last day file taxes 2012 She moved in on that date and lived in it until May 31, 2009, when she moved out of the house and put it up for rent. Last day file taxes 2012 The house was rented from June 1, 2009, to March 31, 2011. Last day file taxes 2012 Amy claimed depreciation deductions in 2009 through 2011 totaling $10,000. Last day file taxes 2012 Amy moved back into the house on April 1, 2011, and lived there until she sold it on January 31, 2013, for a gain of $200,000. Last day file taxes 2012 During the 5-year period ending on the date of the sale (January 31, 2008-January 31, 2013), Amy owned and lived in the house for more than 2 years as shown in the following table. Last day file taxes 2012 Five Year Period Used as  Home Used as  Rental 1/31/08 – 5/31/09 16 months       6/1/09 – 3/31/11   22 months 4/1/11 – 1/31/13 22 months         38 months 22 months During the period Amy owned the house (2,080 days), her period of nonqualified use was 668 days. Last day file taxes 2012 Amy divides 668 by 2,080 and obtains a decimal (rounded to at least three decimal places) of 0. Last day file taxes 2012 321. Last day file taxes 2012 To figure her gain attributable to the period of nonqualified use, she multiplies $190,000 (the gain not attributable to the $10,000 depreciation deduction) by 0. Last day file taxes 2012 321. Last day file taxes 2012 Because the gain attributable to periods of nonqualified use is $60,990, Amy can exclude $129,010 of her gain. Last day file taxes 2012 Example 2. Last day file taxes 2012 William owned and used a house as his main home from 2007 through 2010. Last day file taxes 2012 On January 1, 2011, he moved to another state. Last day file taxes 2012 He rented his house from that date until April 30, 2013, when he sold it. Last day file taxes 2012 During the 5-year period ending on the date of sale (May 1, 2008-April 30, 2013), William owned and lived in the house for more than 2 years. Last day file taxes 2012 He must report the sale on Form 4797 because it was rental property at the time of sale. Last day file taxes 2012 Because the period of nonqualified use does not include any part of the 5-year period after the last date William lived in the house, he has no period of nonqualified use. Last day file taxes 2012 Because he met the ownership and use tests, he can exclude gain up to $250,000. Last day file taxes 2012 However, he cannot exclude the part of the gain equal to the depreciation he claimed or could have claimed for renting the house, as explained next. Last day file taxes 2012 Depreciation after May 6, 1997. Last day file taxes 2012   If you were entitled to take depreciation deductions because you used your home for business purposes or as rental property, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. Last day file taxes 2012 If you can show by adequate records or other evidence that the depreciation allowed was less than the amount allowable, then you may limit the amount of gain recognized to the depreciation allowed. Last day file taxes 2012 See Publication 544 for more information. Last day file taxes 2012 Property used partly for business or rental. Last day file taxes 2012   If you used property partly as a home and partly for business or to produce rental income, see Publication 523. Last day file taxes 2012 Reporting the Sale Do not report the 2013 sale of your main home on your tax return unless: You have a gain and do not qualify to exclude all of it, You have a gain and choose not to exclude it, or You received Form 1099-S. Last day file taxes 2012 If any of these conditions apply, report the entire gain or loss. Last day file taxes 2012 For details on how to report the gain or loss, see the Instructions for Schedule D (Form 1040) and the Instructions for Form 8949. Last day file taxes 2012 If you used the home for business or to produce rental income, you may have to use Form 4797 to report the sale of the business or rental part (or the sale of the entire property if used entirely for business or rental). Last day file taxes 2012 See Business Use or Rental of Home in Publication 523 and the Instructions for Form 4797. Last day file taxes 2012 Installment sale. Last day file taxes 2012    Some sales are made under arrangements that provide for part or all of the selling price to be paid in a later year. Last day file taxes 2012 These sales are called “installment sales. Last day file taxes 2012 ” If you finance the buyer's purchase of your home yourself instead of having the buyer get a loan or mortgage from a bank, you probably have an installment sale. Last day file taxes 2012 You may be able to report the part of the gain you cannot exclude on the installment basis. Last day file taxes 2012    Use Form 6252, Installment Sale Income, to report the sale. Last day file taxes 2012 Enter your exclusion on line 15 of Form 6252. Last day file taxes 2012 Seller-financed mortgage. Last day file taxes 2012   If you sell your home and hold a note, mortgage, or other financial agreement, the payments you receive in most cases consist of both interest and principal. Last day file taxes 2012 You must separately report as interest income the interest you receive as part of each payment. Last day file taxes 2012 If the buyer of your home uses the property as a main or second home, you must also report the name, address, and social security number (SSN) of the buyer on line 1 of Schedule B (Form 1040A or 1040). Last day file taxes 2012 The buyer must give you his or her SSN, and you must give the buyer your SSN. Last day file taxes 2012 Failure to meet these requirements may result in a $50 penalty for each failure. Last day file taxes 2012 If either you or the buyer does not have and is not eligible to get an SSN, see Social Security Number in chapter 1. Last day file taxes 2012 More information. Last day file taxes 2012   For more information on installment sales, see Publication 537, Installment Sales. Last day file taxes 2012 Special Situations The situations that follow may affect your exclusion. Last day file taxes 2012 Sale of home acquired in a like-kind exchange. Last day file taxes 2012   You cannot claim the exclusion if: You acquired your home in a like-kind exchange (also known as a section 1031 exchange), or your basis in your home is determined by reference to the basis of the home in the hands of the person who acquired the property in a like-kind exchange (for example, you received the home from that person as a gift), and You sold the home during the 5-year period beginning with the date your home was acquired in the like-kind exchange. Last day file taxes 2012 Gain from a like-kind exchange is not taxable at the time of the exchange. Last day file taxes 2012 This means that gain will not be taxed until you sell or otherwise dispose of the property you receive. Last day file taxes 2012 To defer gain from a like-kind exchange, you must have exchanged business or investment property for business or investment property of a like kind. Last day file taxes 2012 For more information about like-kind exchanges, see Publication 544, Sales and Other Dispositions of Assets. Last day file taxes 2012 Home relinquished in a like-kind exchange. Last day file taxes 2012   If you use your main home partly for business or rental purposes and then exchange the home for another property, see Publication 523. Last day file taxes 2012 Expatriates. Last day file taxes 2012   You cannot claim the exclusion if the expatriation tax applies to you. Last day file taxes 2012 The expatriation tax applies to certain U. Last day file taxes 2012 S. Last day file taxes 2012 citizens who have renounced their citizenship (and to certain long-term residents who have ended their residency). Last day file taxes 2012 For more information about the expatriation tax, see Expatriation Tax in chapter 4 of Publication 519, U. Last day file taxes 2012 S. Last day file taxes 2012 Tax Guide for Aliens. Last day file taxes 2012 Home destroyed or condemned. Last day file taxes 2012   If your home was destroyed or condemned, any gain (for example, because of insurance proceeds you received) qualifies for the exclusion. Last day file taxes 2012   Any part of the gain that cannot be excluded (because it is more than the maximum exclusion) can be postponed under the rules explained in: Publication 547, in the case of a home that was destroyed, or Publication 544, chapter 1, in the case of a home that was condemned. Last day file taxes 2012 Sale of remainder interest. Last day file taxes 2012   Subject to the other rules in this chapter, you can choose to exclude gain from the sale of a remainder interest in your home. Last day file taxes 2012 If you make this choice, you cannot choose to exclude gain from your sale of any other interest in the home that you sell separately. Last day file taxes 2012 Exception for sales to related persons. Last day file taxes 2012   You cannot exclude gain from the sale of a remainder interest in your home to a related person. Last day file taxes 2012 Related persons include your brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Last day file taxes 2012 ), and lineal descendants (children, grandchildren, etc. Last day file taxes 2012 ). Last day file taxes 2012 Related persons also include certain corporations, partnerships, trusts, and exempt organizations. Last day file taxes 2012 Recapturing (Paying Back) a Federal Mortgage Subsidy If you financed your home under a federally subsidized program (loans from tax-exempt qualified mortgage bonds or loans with mortgage credit certificates), you may have to recapture all or part of the benefit you received from that program when you sell or otherwise dispose of your home. Last day file taxes 2012 You recapture the benefit by increasing your federal income tax for the year of the sale. Last day file taxes 2012 You may have to pay this recapture tax even if you can exclude your gain from income under the rules discussed earlier; that exclusion does not affect the recapture tax. Last day file taxes 2012 Loans subject to recapture rules. Last day file taxes 2012   The recapture applies to loans that: Came from the proceeds of qualified mortgage bonds, or Were based on mortgage credit certificates. Last day file taxes 2012 The recapture also applies to assumptions of these loans. Last day file taxes 2012 When recapture applies. Last day file taxes 2012   Recapture of the federal mortgage subsidy applies only if you meet both of the following conditions. Last day file taxes 2012 You sell or otherwise dispose of your home at a gain within the first 9 years after the date you close your mortgage loan. Last day file taxes 2012 Your income for the year of disposition is more than that year's adjusted qualifying income for your family size for that year (related to the income requirements a person must meet to qualify for the federally subsidized program). Last day file taxes 2012 When recapture does not apply. Last day file taxes 2012   Recapture does not apply in any of the following situations. Last day file taxes 2012 Your mortgage loan was a qualified home improvement loan (QHIL) of not more than $15,000 used for alterations, repairs, and improvements that protect or improve the basic livability or energy efficiency of your home. Last day file taxes 2012 Your mortgage loan was a QHIL of not more than $150,000 in the case of a QHIL used to repair damage from Hurricane Katrina to homes in the hurricane disaster area; a QHIL funded by a qualified mortgage bond that is a qualified Gulf Opportunity Zone Bond; or a QHIL for an owner-occupied home in the Gulf Opportunity Zone (GO Zone), Rita GO Zone, or Wilma GO Zone. Last day file taxes 2012 For more information, see Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma. Last day file taxes 2012 Also see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. Last day file taxes 2012 The home is disposed of as a result of your death. Last day file taxes 2012 You dispose of the home more than 9 years after the date you closed your mortgage loan. Last day file taxes 2012 You transfer the home to your spouse, or to your former spouse incident to a divorce, where no gain is included in your income. Last day file taxes 2012 You dispose of the home at a loss. Last day file taxes 2012 Your home is destroyed by a casualty, and you replace it on its original site within 2 years after the end of the tax year when the destruction happened. Last day file taxes 2012 The replacement period is extended for main homes destroyed in a federally declared disaster area, a Midwestern disaster area, the Kansas disaster area, and the Hurricane Katrina disaster area. Last day file taxes 2012 For more information, see Replacement Period in Publication 547. Last day file taxes 2012 You refinance your mortgage loan (unless you later meet the conditions listed previously under When recapture applies ). Last day file taxes 2012 Notice of amounts. Last day file taxes 2012   At or near the time of settlement of your mortgage loan, you should receive a notice that provides the federally subsidized amount and other information you will need to figure your recapture tax. Last day file taxes 2012 How to figure and report the recapture. Last day file taxes 2012    The recapture tax is figured on Form 8828. Last day file taxes 2012 If you sell your home and your mortgage is subject to recapture rules, you must file Form 8828 even if you do not owe a recapture tax. Last day file taxes 2012 Attach Form 8828 to your Form 1040. Last day file taxes 2012 For more information, see Form 8828 and its instructions. Last day file taxes 2012 Prev  Up  Next   Home   More Online Publications
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The Last Day File Taxes 2012

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