2004 Instructions for Form 1040 (ALL) - Supreme Law Firm

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Department of the Treasury Internal Revenue Service 2004 Instructions for Schedule D Capital Gains form or schedule. and Losses Use Schedule D (Form 1040) to report the following. • The sale or exchange of a capital asset (defined on this page) not reported on another • Gains from involuntary conversions (other than from casualty or theft) of capital assets not held for business or profit. • Capital gain distributions not reported directly on Form 1040, line 13. • Nonbusiness bad debts. Additional information. See Pub. 544 and Pub. 550 for more details. For a comprehensive filled-in example of Schedule D, see Pub. 550. Section references are to the Internal Revenue Code unless otherwise noted. 4. Ordinary loss on the sale, exchange, (a) or (b), in a way (such as by gift) that or worthlessness of small business invest- entitled you to the basis of the previous General Instructions ment company (section 1242) stock. owner. What’s New 5. Ordinary loss on the sale, exchange, • U.S. Government publications, in- Tax computation using maximum capital or worthlessness of small business (section cluding the Congressional Record, that you gains rates. You will now use the Qualiby purchase at the normal sales price, or 1244) stock. received from the government, other than fied Dividends and Capital Gain Tax 6. Ordinary gain or loss on securities Worksheet on page 34 of the Instructions held in connection with your trading busi- that you got from someone who had refor Form 1040 to figure your tax if you ness, if you previously made a ceived it in a similar way, if your basis is have net capital gain or qualified dividends. mark-to-market election. See Traders in determined by reference to the previous However, if you have any 25% rate gain Securities on page D-3. owner’s basis. (unrecaptured section 1250 gain) or 28% • Certain commodities derivative finanrate gain, you will still use the Schedule D Use Form 4684 to report involuntary cial instruments held by a dealer. See sec- Tax Worksheet on page D-9 to figure your conversions of property due to casualty or tion 1221(a)(6). tax. Part IV of Schedule D has been elimiinto in the normal course of your trade or theft. • Certain hedging transactions entered nated. Use Form 6781 to report gains and losses from section 1256 contracts and business. See section 1221(a)(7). Capital Loss Carryover Worksheet. Use straddles. • Supplies regularly used in your trade the Capital Loss Carryover Worksheet on Use Form 8824 to report like-kind expage D-6 to figure your capital loss carry- changes. A like-kind exchange occurs or business. over from 2003 to 2004. You will need a when you exchange business or investment Short Term or Long Term copy of your 2003 Form 1040 and Sched- property for property of a like kind. Separate your capital gains and losses acule D. cording to how long you held or owned the Capital Asset property. The holding period for short-term Gain on home acquired in a like-kind ex- Most property you own and use for perchange. If you sold or exchanged your sonal purposes, pleasure, or investment is a The holding period for long-term capital capital gains and losses is 1 year or less. main home that you acquired in a like-kind capital asset. For example, your house, furexchange, you may not be able to exclude niture, car, stocks, and bonds are capital as- figure the holding period, begin counting gains and losses is more than 1 year. To any of the gain. See Sale of Your Home on sets. A capital asset is any property held by on the day after you received the property page D-2 for details. you except the following. and include the day you disposed of it. • Stock in trade or other property in- If you disposed of property that you ac- Other Forms You May Have cluded in inventory or held mainly for sale quired by inheritance, report the disposition To File to customers. as a long-term gain or loss, regardless of • Accounts or notes receivable for serv- how long you held the property. Use Form 4797 to report the following. ices performed in the ordinary course of A nonbusiness bad debt must be treated 1. The sale or exchange of: your trade or business or as an employee, or as a short-term capital loss. See Pub. 550 a. Property used in a trade or business; from the sale of stock in trade or other for what qualifies as a nonbusiness bad property held mainly for sale to customers. b. Depreciable and amortizable propdebt and how to enter it on Schedule D. erty; • Depreciable property used in your trade or business, even if it is fully deprecic. Oil, gas, geothermal, or other mineral ated. These distributions are paid by a mutual Capital Gain Distributions property; and • Real estate used in your trade or busid. Section 126 property. ness. pany) or real estate investment trust from fund (or other regulated investment com- 2. The involuntary conversion (other • Copyrights, literary, musical, or artistributions of net realized short-term capital its net realized long-term capital gains. Disthan from casualty or theft) of property tic compositions, letters or memoranda, or used in a trade or business and capital as- similar property: (a) created by your perstead, they are included on Form 1099-DIV gains are not treated as capital gains. In- sets held for business or profit. sonal efforts; (b) prepared or produced for 3. The disposition of noncapital assets you (in the case of letters, memoranda, or as ordinary dividends. other than inventory or property held pri- similar property); or (c) that you received Enter on line 13 the total capital gain marily for sale to customers in the ordinary from someone who created them or for distributions paid to you during the year, course of your trade or business. whom they were created, as mentioned in regardless of how long you held your in- D-1 Cat. No. 24331I
Partnership Interests vestment. This amount is shown in box 2a (b) any part of your interest in an activity to of Form 1099-DIV. which the at-risk rules apply, and you have A sale or other disposition of an interest in If there is an amount in box 2b, include amounts in the activity for which you are a partnership may result in ordinary inthat amount on line 11 of the Unrecaptured not at risk, see the Instructions for Form come, collectibles gain (28% rate gain), or Section 1250 Gain Worksheet on page D-8 6198. unrecaptured section 1250 gain. For details if you complete line 19 of Schedule D. on 28% rate gain, see the instructions for If the loss is allowable under the at-risk If there is an amount in box 2c, see Excaptured section 1250 gain, see the instruc- activity rules. See Form 8582 and its in- line 18 on page D-7. For details on unre- rules, it then may be subject to the passive clusion of Gain on Qualified Small Busitions for line 19 beginning on page D-7. structions for details on reporting capital ness (QSB) Stock on page D-4. gains and losses from a passive activity. If there is an amount in box 2d, include Capital Assets Held for that amount on line 4 of the 28% Rate Gain Personal Use Items for Special Treatment Worksheet on page D-7 if you complete line 18 of Schedule D. Generally, gain from the sale or exchange • Transactions by a securities dealer. of a capital asset held for personal use is a If you received capital gain distributions See section 1236. capital gain. Report it on Schedule D, Part I as a nominee (that is, they were paid to you or Part II. However, if you converted • Bonds and other debt instruments. but actually belong to someone else), report depreciable property to personal use, all or See Pub. 550. on line 13 only the amount that belongs to part of the gain on the sale or exchange of • Certain real estate subdivided for sale you. Attach a statement showing the full that property may have to be recaptured as that may be considered a capital asset. See amount you received and the amount you ordinary income. Use Part III of Form 4797 section 1237. received as a nominee. See the Instructions to figure the amount of ordinary income refor Schedule B for filing requirements for • Gain on the sale of depreciable prop- capture. The recapture amount is included Forms 1099-DIV and 1096. erty to a more than 50% owned entity or to on line 31 (and line 13) of Form 4797. Do a trust of which you are a beneficiary. See not enter any gain for this property on line Pub. 544. Sale of Your Home 32 of Form 4797. If you are not completing If you sold or exchanged your main home, • Gain on the disposition of stock in an Part III for any other properties, enter do not report it on your tax return unless interest charge domestic international sales “N/A” on line 32. If the total gain is more your gain exceeds your exclusion amount. corporation. See section 995(c). than the recapture amount, enter “From Your exclusion amount is zero if you ac- Form 4797” in column (a) of line 1 or line 8 • Gain on the sale or exchange of stock quired your home in a like-kind exchange of Schedule D, skip columns (b) through in certain foreign corporations. See section and you sold or exchanged the home after (e), and in column (f) enter the excess of 1248. October 22, 2004, and during the 5-year pe- the total gain over the recapture amount. • Transfer of property to a partnership riod beginning on the date you acquired it. Loss from the sale or exchange of a capthat would be treated as an investment Generally, if you meet the two tests below, ital asset held for personal use is not deyou can exclude up to $250,000 of gain. If company if it were incorporated. See Pub. ductible. But if you had a loss from the sale 541. both you and your spouse meet these tests or exchange of real estate held for personal • Sales of stock received under a quali- and you file a joint return, you can exclude use for which you received a Form 1099-S, fied public utility dividend reinvestment up to $500,000 of gain (but only one spouse you must report the transaction on Schedneeds to meet the ownership requirement in plan. See Pub. 550. Test 1). ule D even though the loss is not deducti- • Transfer of appreciated property to a ble. For example, you have a loss on the political organization. See section 84. Test 1. You owned and used the home sale of a vacation home that is not your as your main home for 2 years or more dur- • In general, no gain or loss is recog- main home and you received a Form ing the 5-year period ending on the date nized on the transfer of property from an 1099-S for the transaction. Report the you sold or exchanged your home. individual to a spouse or a former spouse if transaction on line 1 or 8, depending on the transfer is incident to a divorce. See Test 2. You have not sold or exchanged how long you owned the home. Complete Pub. 504. another main home during the 2-year pe- columns (a) through (e). Because the loss is riod ending on the date of the sale or exof a debt instrument generally are treated as not deductible, enter -0- in column (f). • Amounts received on the retirement change of your home. Nondeductible Losses received in exchange for the debt instru- Even if you do not meet one or both of ment. See Pub. 550. the above two tests, you still can claim an Do not deduct a loss from the direct or indirect sale or exchange of property between • Any loss on the disposition of con- exclusion if you sold or exchanged the any of the following. verted wetland or highly erodible cropland home because of a change in place of em- that is first used for farming after March 1, ployment, health, or certain unforeseen cir- • Members of a family. 1986, is reported as a long-term capital loss cumstances. In this case, the maximum • A corporation and an individual own- on Schedule D, but any gain is reported as amount of gain you can exclude is reduced. ing more than 50% of the corporation’s ordinary income on Form 4797. You can choose to have the 5-year test stock (unless the loss is from a distribution • If qualified dividends that you rein complete liquidation of a corporation). ported on Form 1040, line 9b, include ex- period for ownership and use in Test 1 above suspended during any period you or • A grantor and a fiduciary of a trust. traordinary dividends, any loss on the sale your spouse serve on qualified official ex- • A fiduciary and a beneficiary of the or exchange of the stock is a long-term captended duty as a member of the uniformed same trust. ital loss to the extent of the extraordinary services or Foreign Service of the United • A fiduciary and a beneficiary of andividends. An extraordinary dividend is a States. This means you may be able to meet other trust created by the same grantor. dividend that equals or exceeds 10% (5% in Test 1 even if, because of your service, you the case of preferred stock) of your basis in did not actually use the home as your main • An executor of an estate and a benefi- the stock. home for at least the required 2 years dur- ciary of that estate, unless the sale or exchange was to satisfy a pecuniary bequest • Amounts received by shareholders in ing the 5-year period ending on the date of (that is, a bequest of a sum of money). corporate liquidations. See Pub. 550. sale. • An individual and a tax-exempt or- • Cash received in lieu of fractional See Pub. 523 for details, including how ganization controlled by the individual or shares of stock as a result of a stock split or to report any taxable gain if: the individual’s family. stock dividend. See Pub. 550. • You (or your spouse if married) used • Mutual fund load charges, which may any part of the home for business or rental See Pub. 544 for more details on sales not be taken into account in determining purposes after May 6, 1997, or and exchanges between related parties. gain or loss on certain dispositions of stock • Your gain exceeds your exclusion If you disposed of (a) an asset used in an in mutual funds if reinvestment rights were amount. activity to which the at-risk rules apply or exercised. See Pub. 564. D-2
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Note. This booklet does not contain
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What is IRS e-file? It’s the fast
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Tax Return Page Reference Questions
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Quick and Easy Access to Tax Help a
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Before You Fill In Form 1040 See Ho
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gross income was over $139,500 ($69
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ured the credit. Check box c and en
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2004 Instructions for Form 1040 (ALL) - Supreme Law Firm

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