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Revise Tax Return

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Revise Tax Return

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

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