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Tax Return Forms 2012

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Tax Return Forms 2012

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

Tax return forms 2012 10. Tax return forms 2012   Retirement Savings Contributions Credit (Saver's Credit) Table of Contents Full-time student. Tax return forms 2012 Adjusted gross income. Tax return forms 2012 Distributions received by spouse. Tax return forms 2012 Testing period. Tax return forms 2012 If you or your employer make eligible contributions (defined later) to a retirement plan, you may be able to take a credit of up to $1,000 (up to $2,000 if filing jointly). Tax return forms 2012 This credit could reduce the federal income tax you pay dollar for dollar. Tax return forms 2012 Can you claim the credit?   If you or your employer make eligible contributions to a retirement plan, you can claim the credit if all of the following apply. Tax return forms 2012 You are not under age 18. Tax return forms 2012 You are not a full-time student (explained next). Tax return forms 2012 No one else, such as your parent(s), claims an exemption for you on their tax return. Tax return forms 2012 Your adjusted gross income (defined later) is not more than: $59,000 for 2013 ($60,000 for 2014) if your filing status is married filing jointly, $44,250 for 2013 ($45,000 for 2014) if your filing status is head of household (with qualifying person), or $29,500 for 2013 ($30,000 for 2014) if your filing status is single, married filing separately, or qualifying widow(er) with dependent child. Tax return forms 2012 Full-time student. Tax return forms 2012   You are a full-time student if, during some part of each of 5 calendar months (not necessarily consecutive) during the calendar year, you are either: A full-time student at a school that has a regular teaching staff, course of study, and regularly enrolled body of students in attendance, or A student taking a full-time, on-farm training course given by either a school that has a regular teaching staff, course of study, and regularly enrolled body of students in attendance, or a state, county, or local government. Tax return forms 2012 You are a full-time student if you are enrolled for the number of hours or courses the school considers to be full-time. Tax return forms 2012 Adjusted gross income. Tax return forms 2012   This is generally the amount on line 38 of your 2013 Form 1040 or line 22 of your 2013 Form 1040A. Tax return forms 2012 However, you must add to that amount any exclusion or deduction claimed for the year for: Foreign earned income, Foreign housing costs, Income for bona fide residents of American Samoa, and Income from Puerto Rico. Tax return forms 2012 Eligible contributions. Tax return forms 2012   These include: Contributions to a traditional or Roth IRA, Elective deferrals, including amounts designated as after-tax Roth contributions, to: A 401(k) plan (including a SIMPLE 401(k)), A section 403(b) annuity, An eligible deferred compensation plan of a state or local government (a governmental 457 plan), A SIMPLE IRA plan, or A salary reduction SEP, and Contributions to a section 501(c)(18) plan. Tax return forms 2012 They also include voluntary after-tax employee contributions to a tax-qualified retirement plan or a section 403(b) annuity. Tax return forms 2012 For purposes of the credit, an employee contribution will be voluntary as long as it is not required as a condition of employment. Tax return forms 2012 Reducing eligible contributions. Tax return forms 2012   Reduce your eligible contributions (but not below zero) by the total distributions you received during the testing period (defined later) from any IRA, plan, or annuity included earlier under Eligible contributions. Tax return forms 2012 Also reduce your eligible contributions by any distribution from a Roth IRA that is not rolled over, even if the distribution is not taxable. Tax return forms 2012      Do not reduce your eligible contributions by any of the following: The portion of any distribution which is not includible in income because it is a trustee-to-trustee transfer or a rollover distribution. Tax return forms 2012 Any distribution that is a return of a contribution to an IRA (including a Roth IRA) made during the year for which you claim the credit if: The distribution is made before the due date (including extensions) of your tax return for that year, You do not take a deduction for the contribution, and The distribution includes any income attributable to the contribution. Tax return forms 2012 Loans from a qualified employer plan treated as a distribution. Tax return forms 2012 Distributions of excess contributions or deferrals (and income attributable to excess contributions and deferrals). Tax return forms 2012 Distributions of dividends paid on stock held by an employee stock ownership plan under section 404(k). Tax return forms 2012 Distributions from an eligible retirement plan that are converted or rolled over to a Roth IRA. Tax return forms 2012 Distributions from a military retirement plan. Tax return forms 2012 Distributions received by spouse. Tax return forms 2012   Any distributions your spouse receives are treated as received by you if you file a joint return with your spouse both for the year of the distribution and for the year for which you claim the credit. Tax return forms 2012 Testing period. Tax return forms 2012   The testing period consists of: The year in which you claim the credit, The 2 years before the year in which you claim the credit, and The period after the end of the year in which you claim the credit and before the due date of the return (including extensions) for filing your return for the year in which you claimed the credit. Tax return forms 2012 Example. Tax return forms 2012 You and your spouse filed joint returns in 2011 and 2012, and plan to do so in 2013 and 2014. Tax return forms 2012 You received a taxable distribution from a qualified plan in 2011 and a taxable distribution from an eligible section 457(b) deferred compensation plan in 2012. Tax return forms 2012 Your spouse received taxable distributions from a Roth IRA in 2013 and tax-free distributions from a Roth IRA in 2014 before April 15. Tax return forms 2012 You made eligible contributions to an IRA in 2013 and you otherwise qualify for this credit. Tax return forms 2012 You must reduce the amount of your qualifying contributions in 2013 by the total of the distributions you and your spouse received in 2011, 2012, 2013, and 2014. Tax return forms 2012 Maximum eligible contributions. Tax return forms 2012   After your contributions are reduced, the maximum annual contribution on which you can base the credit is $2,000 per person. Tax return forms 2012 Effect on other credits. Tax return forms 2012   The amount of this credit will not change the amount of your refundable tax credits. Tax return forms 2012 A refundable tax credit, such as the earned income credit or the additional child tax credit, is an amount that you would receive as a refund even if you did not otherwise owe any taxes. Tax return forms 2012 Maximum credit. Tax return forms 2012   This is a nonrefundable credit. Tax return forms 2012 The amount of the credit in any year cannot be more than the amount of tax that you would otherwise pay (not counting any refundable credits or the adoption credit) in any year. Tax return forms 2012 If your tax liability is reduced to zero because of other nonrefundable credits, such as the education credits, then you will not be entitled to this credit. Tax return forms 2012 How to figure and report the credit. Tax return forms 2012   The amount of the credit you can get is based on the contributions you make and your credit rate. Tax return forms 2012 The credit rate can be as low as 10% or as high as 50%. Tax return forms 2012 Your credit rate depends on your income and your filing status. Tax return forms 2012 See Form 8880, Credit for Qualified Retirement Savings Contributions, to determine your credit rate. Tax return forms 2012   The maximum contribution taken into account is $2,000 per person. Tax return forms 2012 On a joint return, up to $2,000 is taken into account for each spouse. Tax return forms 2012   Figure the credit on Form 8880. Tax return forms 2012 Report the credit on line 50 of your Form 1040 or line 32 of your Form 1040A, and attach Form 8880 to your return. Tax return forms 2012 Prev  Up  Next   Home   More Online Publications