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Colorado State Tax Return Online

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Colorado State Tax Return Online

Colorado state tax return online 2. Colorado state tax return online   Ordinary or Capital Gain or Loss Table of Contents IntroductionSection 1231 transactions. Colorado state tax return online Topics - This chapter discusses: Useful Items - You may want to see: Capital Assets Noncapital AssetsCommodities derivative dealer. Colorado state tax return online Sales and Exchanges Between Related PersonsGain Is Ordinary Income Nondeductible Loss Other DispositionsSale of a Business Dispositions of Intangible Property Subdivision of Land Timber Precious Metals and Stones, Stamps, and Coins Coal and Iron Ore Conversion Transactions Introduction 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). Colorado state tax return online You must do this to figure your net capital gain or loss. Colorado state tax return online For individuals, a net capital gain may be taxed at a different tax rate than ordinary income. Colorado state tax return online See Capital Gains Tax Rates in chapter 4. Colorado state tax return online Your deduction for a net capital loss may be limited. Colorado state tax return online See Treatment of Capital Losses in chapter 4. Colorado state tax return online Capital gain or loss. Colorado state tax return online   Generally, you will have a capital gain or loss if you sell or exchange a capital asset. Colorado state tax return online You also may have a capital gain if your section 1231 transactions result in a net gain. Colorado state tax return online Section 1231 transactions. Colorado state tax return online   Section 1231 transactions are sales and exchanges of property held longer than 1 year and either used in a trade or business or held for the production of rents or royalties. Colorado state tax return online They also include certain involuntary conversions of business or investment property, including capital assets. Colorado state tax return online See Section 1231 Gains and Losses in chapter 3 for more information. Colorado state tax return online Topics - This chapter discusses: Capital assets Noncapital assets Sales and exchanges between  related persons Other dispositions Useful Items - You may want to see: Publication 550 Investment Income and Expenses Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 4797 Sales of Business Property 8594 Asset Acquisition Statement Under Section 1060 8949 Sales and Other Dispositions of Capital Assets See chapter 5 for information about getting publications and forms. Colorado state tax return online Capital Assets Almost everything you own and use for personal purposes, pleasure, or investment is a capital asset. Colorado state tax return online For exceptions, see Noncapital Assets, later. Colorado state tax return online The following items are examples of capital assets. Colorado state tax return online Stocks and bonds. Colorado state tax return online A home owned and occupied by you and your family. Colorado state tax return online Timber grown on your home property or investment property, even if you make casual sales of the timber. Colorado state tax return online Household furnishings. Colorado state tax return online A car used for pleasure or commuting. Colorado state tax return online Coin or stamp collections. Colorado state tax return online Gems and jewelry. Colorado state tax return online Gold, silver, and other metals. Colorado state tax return online Personal-use property. Colorado state tax return online   Generally, property held for personal use is a capital asset. Colorado state tax return online Gain from a sale or exchange of that property is a capital gain. Colorado state tax return online Loss from the sale or exchange of that property is not deductible. Colorado state tax return online You can deduct a loss relating to personal-use property only if it results from a casualty or theft. Colorado state tax return online Investment property. Colorado state tax return online   Investment property (such as stocks and bonds) is a capital asset, and a gain or loss from its sale or exchange is a capital gain or loss. Colorado state tax return online This treatment does not apply to property used to produce rental income. Colorado state tax return online See Business assets, later, under Noncapital Assets. Colorado state tax return online Release of restriction on land. Colorado state tax return online   Amounts you receive for the release of a restrictive covenant in a deed to land are treated as proceeds from the sale of a capital asset. Colorado state tax return online Noncapital Assets A noncapital asset is property that is not a capital asset. Colorado state tax return online The following kinds of property are not capital assets. Colorado state tax return online Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business. Colorado state tax return online Inventories are discussed in Publication 538, Accounting Periods and Methods. Colorado state tax return online But, see the Tip below. Colorado state tax return online Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale of any properties described in (1), above. Colorado state tax return online Depreciable property used in your trade or business or as rental property (including section 197 intangibles defined later), even if the property is fully depreciated (or amortized). Colorado state tax return online Sales of this type of property are discussed in chapter 3. Colorado state tax return online Real property used in your trade or business or as rental property, even if the property is fully depreciated. Colorado state tax return online A copyright; a literary, musical, or artistic composition; a letter; a memorandum; or similar property (such as drafts of speeches, recordings, transcripts, manuscripts, drawings, or photographs): Created by your personal efforts, Prepared or produced for you (in the case of a letter, memorandum, or similar property), or Received from a person who created the property or for whom the property was prepared under circumstances (for example, by gift) entitling you to the basis of the person who created the property, or for whom it was prepared or produced. Colorado state tax return online But, see the Tip below. Colorado state tax return online U. Colorado state tax return online S. Colorado state tax return online Government publications you got from the government for free or for less than the normal sales price or that you acquired under circumstances entitling you to the basis of someone who got the publications for free or for less than the normal sales price. Colorado state tax return online Any commodities derivative financial instrument (discussed later) held by a commodities derivatives dealer unless it meets both of the following requirements. Colorado state tax return online It is established to the satisfaction of the IRS that the instrument has no connection to the activities of the dealer as a dealer. Colorado state tax return online The instrument is clearly identified in the dealer's records as meeting (a) by the end of the day on which it was acquired, originated, or entered into. Colorado state tax return online Any hedging transaction (defined later) that is clearly identified as a hedging transaction by the end of the day on which it was acquired, originated, or entered into. Colorado state tax return online Supplies of a type you regularly use or consume in the ordinary course of your trade or business. Colorado state tax return online You can elect to treat as capital assets certain self-created musical compositions or copyrights you sold or exchanged. Colorado state tax return online See chapter 4 of Publication 550 for details. Colorado state tax return online Property held mainly for sale to customers. Colorado state tax return online   Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business are not capital assets. Colorado state tax return online Inventories are discussed in Publication 538. Colorado state tax return online Business assets. Colorado state tax return online   Real property and depreciable property used in your trade or business or as rental property (including section 197 intangibles defined later under Dispositions of Intangible Property) are not capital assets. Colorado state tax return online The sale or disposition of business property is discussed in chapter 3. Colorado state tax return online Letters and memoranda. Colorado state tax return online   Letters, memoranda, and similar property (such as drafts of speeches, recordings, transcripts, manuscripts, drawings, or photographs) are not treated as capital assets (as discussed earlier) if your personal efforts created them or if they were prepared or produced for you. Colorado state tax return online Nor is this property a capital asset if your basis in it is determined by reference to the person who created it or the person for whom it was prepared. Colorado state tax return online For this purpose, letters and memoranda addressed to you are considered prepared for you. Colorado state tax return online If letters or memoranda are prepared by persons under your administrative control, they are considered prepared for you whether or not you review them. Colorado state tax return online Commodities derivative financial instrument. Colorado state tax return online   A commodities derivative financial instrument is a commodities contract or other financial instrument for commodities (other than a share of corporate stock, a beneficial interest in a partnership or trust, a note, bond, debenture, or other evidence of indebtedness, or a section 1256 contract) the value or settlement price of which is calculated or determined by reference to a specified index (as defined in section 1221(b) of the Internal Revenue Code). Colorado state tax return online Commodities derivative dealer. Colorado state tax return online   A commodities derivative dealer is a person who regularly offers to enter into, assume, offset, assign, or terminate positions in commodities derivative financial instruments with customers in the ordinary course of a trade or business. Colorado state tax return online Hedging transaction. Colorado state tax return online   A hedging transaction is any transaction you enter into in the normal course of your trade or business primarily to manage any of the following. Colorado state tax return online Risk of price changes or currency fluctuations involving ordinary property you hold or will hold. Colorado state tax return online Risk of interest rate or price changes or currency fluctuations for borrowings you make or will make, or ordinary obligations you incur or will incur. Colorado state tax return online Sales and Exchanges Between Related Persons This section discusses the rules that may apply to the sale or exchange of property between related persons. Colorado state tax return online If these rules apply, gains may be treated as ordinary income and losses may not be deductible. Colorado state tax return online See Transfers to Spouse in chapter 1 for rules that apply to spouses. Colorado state tax return online Gain Is Ordinary Income If a gain is recognized on the sale or exchange of property to a related person, the gain may be ordinary income even if the property is a capital asset. Colorado state tax return online It is ordinary income if the sale or exchange is a depreciable property transaction or a controlled partnership transaction. Colorado state tax return online Depreciable property transaction. Colorado state tax return online   Gain on the sale or exchange of property, including a leasehold or a patent application, that is depreciable property in the hands of the person who receives it is ordinary income if the transaction is either directly or indirectly between any of the following pairs of entities. Colorado state tax return online A person and the person's controlled entity or entities. Colorado state tax return online A taxpayer and any trust in which the taxpayer (or his or her spouse) is a beneficiary unless the beneficiary's interest in the trust is a remote contingent interest; that is, the value of the interest computed actuarially is 5% or less of the value of the trust property. Colorado state tax return online An executor and a beneficiary of an estate unless the sale or exchange is in satisfaction of a pecuniary bequest (a bequest for a sum of money). Colorado state tax return online An employer (or any person related to the employer under rules (1), (2), or (3)) and a welfare benefit fund (within the meaning of section 419(e) of the Internal Revenue Code) that is controlled directly or indirectly by the employer (or any person related to the employer). Colorado state tax return online Controlled entity. Colorado state tax return online   A person's controlled entity is either of the following. Colorado state tax return online A corporation in which more than 50% of the value of all outstanding stock, or a partnership in which more than 50% of the capital interest or profits interest, is directly or indirectly owned by or for that person. Colorado state tax return online An entity whose relationship with that person is one of the following. Colorado state tax return online A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest or profits interest in the partnership. Colorado state tax return online Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 50%” is substituted for “at least 80%” in that definition. Colorado state tax return online Two S corporations, if the same persons own more than 50% in value of the outstanding stock of each corporation. Colorado state tax return online Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Colorado state tax return online Controlled partnership transaction. Colorado state tax return online   A gain recognized in a controlled partnership transaction may be ordinary income. Colorado state tax return online The gain is ordinary income if it results from the sale or exchange of property that, in the hands of the party who receives it, is a noncapital asset such as trade accounts receivable, inventory, stock in trade, or depreciable or real property used in a trade or business. Colorado state tax return online   A controlled partnership transaction is a transaction directly or indirectly between either of the following pairs of entities. Colorado state tax return online A partnership and a person who directly or indirectly owns more than 50% of the capital interest or profits interest in the partnership. Colorado state tax return online Two partnerships, if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships. Colorado state tax return online Determining ownership. Colorado state tax return online   In the transactions under Depreciable property transaction and Controlled partnership transaction, earlier, use the following rules to determine the ownership of stock or a partnership interest. Colorado state tax return online Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Colorado state tax return online (However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more in value of the stock of the corporation. Colorado state tax return online ) An individual is considered as owning the stock or partnership interest directly or indirectly owned by or for his or her family. Colorado state tax return online Family includes only brothers, sisters, half-brothers, half-sisters, spouse, ancestors, and lineal descendants. Colorado state tax return online For purposes of applying (1) or (2), above, stock or a partnership interest constructively owned by a person under (1) is treated as actually owned by that person. Colorado state tax return online But stock or a partnership interest constructively owned by an individual under (2) is not treated as owned by the individual for reapplying (2) to make another person the constructive owner of that stock or partnership interest. Colorado state tax return online Nondeductible Loss A loss on the sale or exchange of property between related persons is not deductible. Colorado state tax return online This applies to both direct and indirect transactions, but not to distributions of property from a corporation in a complete liquidation. Colorado state tax return online For the list of related persons, see Related persons next. Colorado state tax return online If a sale or exchange is between any of these related persons and involves the lump-sum sale of a number of blocks of stock or pieces of property, the gain or loss must be figured separately for each block of stock or piece of property. Colorado state tax return online The gain on each item is taxable. Colorado state tax return online The loss on any item is nondeductible. Colorado state tax return online Gains from the sales of any of these items may not be offset by losses on the sales of any of the other items. Colorado state tax return online Related persons. Colorado state tax return online   The following is a list of related persons. Colorado state tax return online Members of a family, including only brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Colorado state tax return online ), and lineal descendants (children, grandchildren, etc. Colorado state tax return online ). Colorado state tax return online An individual and a corporation if the individual directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. Colorado state tax return online Two corporations that are members of the same controlled group as defined in section 267(f) of the Internal Revenue Code. Colorado state tax return online A trust fiduciary and a corporation if the trust or the grantor of the trust directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. Colorado state tax return online A grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Colorado state tax return online Fiduciaries of two different trusts, and the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. Colorado state tax return online A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization, or a member of that person's family. Colorado state tax return online A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest or profits interest in the partnership. Colorado state tax return online Two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. Colorado state tax return online Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Colorado state tax return online An executor and a beneficiary of an estate unless the sale or exchange is in satisfaction of a pecuniary bequest. Colorado state tax return online Two partnerships if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships. Colorado state tax return online A person and a partnership if the person directly or indirectly owns more than 50% of the capital interest or profits interest in the partnership. Colorado state tax return online Partnership interests. Colorado state tax return online   The nondeductible loss rule does not apply to a sale or exchange of an interest in the partnership between the related persons described in (12) or (13) above. Colorado state tax return online Controlled groups. Colorado state tax return online   Losses on transactions between members of the same controlled group described in (3) earlier are deferred rather than denied. Colorado state tax return online   For more information, see section 267(f) of the Internal Revenue Code. Colorado state tax return online Ownership of stock or partnership interests. Colorado state tax return online   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership for a loss on a sale or exchange, the following rules apply. Colorado state tax return online Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Colorado state tax return online (However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more in value of the stock of the corporation. Colorado state tax return online ) An individual is considered as owning the stock or partnership interest directly or indirectly owned by or for his or her family. Colorado state tax return online Family includes only brothers, sisters, half-brothers, half-sisters, spouse, ancestors, and lineal descendants. Colorado state tax return online An individual owning (other than by applying (2)) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. Colorado state tax return online For purposes of applying (1), (2), or (3), stock or a partnership interest constructively owned by a person under (1) is treated as actually owned by that person. Colorado state tax return online But stock or a partnership interest constructively owned by an individual under (2) or (3) is not treated as owned by the individual for reapplying either (2) or (3) to make another person the constructive owner of that stock or partnership interest. Colorado state tax return online Indirect transactions. Colorado state tax return online   You cannot deduct your loss on the sale of stock through your broker if under a prearranged plan a related person or entity buys the same stock you had owned. Colorado state tax return online This does not apply to a cross-trade between related parties through an exchange that is purely coincidental and is not prearranged. Colorado state tax return online Property received from a related person. Colorado state tax return online   If, in a purchase or exchange, you received property from a related person who had a loss that was not allowable and you later sell or exchange the property at a gain, you recognize the gain only to the extent it is more than the loss previously disallowed to the related person. Colorado state tax return online This rule applies only to the original transferee. Colorado state tax return online Example 1. Colorado state tax return online Your brother sold stock to you for $7,600. Colorado state tax return online His cost basis was $10,000. Colorado state tax return online His loss of $2,400 was not deductible. Colorado state tax return online You later sell the same stock to an unrelated party for $10,500, realizing a gain of $2,900 ($10,500 − $7,600). Colorado state tax return online Your recognized gain is only $500, the gain that is more than the $2,400 loss not allowed to your brother. Colorado state tax return online Example 2. Colorado state tax return online Assume the same facts as in Example 1, except that you sell the stock for $6,900 instead of $10,500. Colorado state tax return online Your recognized loss is only $700 ($7,600 − $6,900). Colorado state tax return online You cannot deduct the loss not allowed to your brother. Colorado state tax return online Other Dispositions This section discusses rules for determining the treatment of gain or loss from various dispositions of property. Colorado state tax return online Sale of a Business The sale of a business usually is not a sale of one asset. Colorado state tax return online Instead, all the assets of the business are sold. Colorado state tax return online Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss. Colorado state tax return online A business usually has many assets. Colorado state tax return online When sold, these assets must be classified as capital assets, depreciable property used in the business, real property used in the business, or property held for sale to customers, such as inventory or stock in trade. Colorado state tax return online The gain or loss on each asset is figured separately. Colorado state tax return online The sale of capital assets results in capital gain or loss. Colorado state tax return online The sale of real property or depreciable property used in the business and held longer than 1 year results in gain or loss from a section 1231 transaction (discussed in chapter 3). Colorado state tax return online The sale of inventory results in ordinary income or loss. Colorado state tax return online Partnership interests. Colorado state tax return online   An interest in a partnership or joint venture is treated as a capital asset when sold. Colorado state tax return online The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary gain or loss. Colorado state tax return online For more information, see Disposition of Partner's Interest in Publication 541. Colorado state tax return online Corporation interests. Colorado state tax return online   Your interest in a corporation is represented by stock certificates. Colorado state tax return online When you sell these certificates, you usually realize capital gain or loss. Colorado state tax return online For information on the sale of stock, see chapter 4 in Publication 550. Colorado state tax return online Corporate liquidations. Colorado state tax return online   Corporate liquidations of property generally are treated as a sale or exchange. Colorado state tax return online Gain or loss generally is recognized by the corporation on a liquidating sale of its assets. Colorado state tax return online Gain or loss generally is recognized also on a liquidating distribution of assets as if the corporation sold the assets to the distributee at fair market value. Colorado state tax return online   In certain cases in which the distributee is a corporation in control of the distributing corporation, the distribution may not be taxable. Colorado state tax return online For more information, see section 332 of the Internal Revenue Code and the related regulations. Colorado state tax return online Allocation of consideration paid for a business. Colorado state tax return online   The sale of a trade or business for a lump sum is considered a sale of each individual asset rather than of a single asset. Colorado state tax return online Except for assets exchanged under any nontaxable exchange rules, both the buyer and seller of a business must use the residual method (explained later) to allocate the consideration to each business asset transferred. Colorado state tax return online This method determines gain or loss from the transfer of each asset and how much of the consideration is for goodwill and certain other intangible property. Colorado state tax return online It also determines the buyer's basis in the business assets. Colorado state tax return online Consideration. Colorado state tax return online   The buyer's consideration is the cost of the assets acquired. Colorado state tax return online The seller's consideration is the amount realized (money plus the fair market value of property received) from the sale of assets. Colorado state tax return online Residual method. Colorado state tax return online   The residual method must be used for any transfer of a group of assets that constitutes a trade or business and for which the buyer's basis is determined only by the amount paid for the assets. Colorado state tax return online This applies to both direct and indirect transfers, such as the sale of a business or the sale of a partnership interest in which the basis of the buyer's share of the partnership assets is adjusted for the amount paid under section 743(b) of the Internal Revenue Code. Colorado state tax return online Section 743(b) applies if a partnership has an election in effect under section 754 of the Internal Revenue Code. Colorado state tax return online   A group of assets constitutes a trade or business if either of the following applies. Colorado state tax return online Goodwill or going concern value could, under any circumstances, attach to them. Colorado state tax return online The use of the assets would constitute an active trade or business under section 355 of the Internal Revenue Code. Colorado state tax return online   The residual method provides for the consideration to be reduced first by the amount of Class I assets (defined below). Colorado state tax return online The consideration remaining after this reduction must be allocated among the various business assets in a certain order. Colorado state tax return online See Classes of assets next for the complete order. Colorado state tax return online Classes of assets. Colorado state tax return online   The following definitions are the classifications for deemed or actual asset acquisitions. Colorado state tax return online Allocate the consideration among the assets in the following order. Colorado state tax return online The amount allocated to an asset, other than a Class VII asset, cannot exceed its fair market value on the purchase date. Colorado state tax return online The amount you can allocate to an asset also is subject to any applicable limits under the Internal Revenue Code or general principles of tax law. Colorado state tax return online Class I assets are cash and general deposit accounts (including checking and savings accounts but excluding certificates of deposit). Colorado state tax return online Class II assets are certificates of deposit, U. Colorado state tax return online S. Colorado state tax return online Government securities, foreign currency, and actively traded personal property, including stock and securities. Colorado state tax return online Class III assets are accounts receivable, other debt instruments, and assets that you mark to market at least annually for federal income tax purposes. Colorado state tax return online However, see section 1. Colorado state tax return online 338-6(b)(2)(iii) of the regulations for exceptions that apply to debt instruments issued by persons related to a target corporation, contingent debt instruments, and debt instruments convertible into stock or other property. Colorado state tax return online Class IV assets are property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held by the taxpayer primarily for sale to customers in the ordinary course of business. Colorado state tax return online Class V assets are all assets other than Class I, II, III, IV, VI, and VII assets. Colorado state tax return online    Note. Colorado state tax return online Furniture and fixtures, buildings, land, vehicles, and equipment, which constitute all or part of a trade or business are generally Class V assets. Colorado state tax return online Class VI assets are section 197 intangibles (other than goodwill and going concern value). Colorado state tax return online Class VII assets are goodwill and going concern value (whether the goodwill or going concern value qualifies as a section 197 intangible). Colorado state tax return online   If an asset described in one of the classifications described above can be included in more than one class, include it in the lower numbered class. Colorado state tax return online For example, if an asset is described in both Class II and Class IV, choose Class II. Colorado state tax return online Example. Colorado state tax return online The total paid in the sale of the assets of Company SKB is $21,000. Colorado state tax return online No cash or deposit accounts or similar accounts were sold. Colorado state tax return online The company's U. Colorado state tax return online S. Colorado state tax return online Government securities sold had a fair market value of $3,200. Colorado state tax return online The only other asset transferred (other than goodwill and going concern value) was inventory with a fair market value of $15,000. Colorado state tax return online Of the $21,000 paid for the assets of Company SKB, $3,200 is allocated to U. Colorado state tax return online S. Colorado state tax return online Government securities, $15,000 to inventory assets, and the remaining $2,800 to goodwill and going concern value. Colorado state tax return online Agreement. Colorado state tax return online   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value of any of the assets. Colorado state tax return online This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. Colorado state tax return online Reporting requirement. Colorado state tax return online   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. Colorado state tax return online Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. Colorado state tax return online Generally, the buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. Colorado state tax return online See the Instructions for Form 8594. Colorado state tax return online Dispositions of Intangible Property Intangible property is any personal property that has value but cannot be seen or touched. Colorado state tax return online It includes such items as patents, copyrights, and the goodwill value of a business. Colorado state tax return online Gain or loss on the sale or exchange of amortizable or depreciable intangible property held longer than 1 year (other than an amount recaptured as ordinary income) is a section 1231 gain or loss. Colorado state tax return online The treatment of section 1231 gain or loss and the recapture of amortization and depreciation as ordinary income are explained in chapter 3. Colorado state tax return online See chapter 8 of Publication 535, Business Expenses, for information on amortizable intangible property and chapter 1 of Publication 946, How To Depreciate Property, for information on intangible property that can and cannot be depreciated. Colorado state tax return online Gain or loss on dispositions of other intangible property is ordinary or capital depending on whether the property is a capital asset or a noncapital asset. Colorado state tax return online The following discussions explain special rules that apply to certain dispositions of intangible property. Colorado state tax return online Section 197 Intangibles Section 197 intangibles are certain intangible assets acquired after August 10, 1993 (after July 25, 1991, if chosen), and held in connection with the conduct of a trade or business or an activity entered into for profit whose costs are amortized over 15 years. Colorado state tax return online They include the following assets. Colorado state tax return online Goodwill. Colorado state tax return online Going concern value. Colorado state tax return online Workforce in place. Colorado state tax return online Business books and records, operating systems, and other information bases. Colorado state tax return online Patents, copyrights, formulas, processes, designs, patterns, know how, formats, and similar items. Colorado state tax return online Customer-based intangibles. Colorado state tax return online Supplier-based intangibles. Colorado state tax return online Licenses, permits, and other rights granted by a governmental unit. Colorado state tax return online Covenants not to compete entered into in connection with the acquisition of a business. Colorado state tax return online Franchises, trademarks, and trade names. Colorado state tax return online See chapter 8 of Publication 535 for a description of each intangible. Colorado state tax return online Dispositions. Colorado state tax return online   You cannot deduct a loss from the disposition or worthlessness of a section 197 intangible you acquired in the same transaction (or series of related transactions) as another section 197 intangible you still hold. Colorado state tax return online Instead, you must increase the adjusted basis of your retained section 197 intangible by the nondeductible loss. Colorado state tax return online If you retain more than one section 197 intangible, increase each intangible's adjusted basis. Colorado state tax return online Figure the increase by multiplying the nondeductible loss by a fraction, the numerator (top number) of which is the retained intangible's adjusted basis on the date of the loss and the denominator (bottom number) of which is the total adjusted basis of all retained intangibles on the date of the loss. Colorado state tax return online   In applying this rule, members of the same controlled group of corporations and commonly controlled businesses are treated as a single entity. Colorado state tax return online For example, a corporation cannot deduct a loss on the sale of a section 197 intangible if, after the sale, a member of the same controlled group retains other section 197 intangibles acquired in the same transaction as the intangible sold. Colorado state tax return online Covenant not to compete. Colorado state tax return online   A covenant not to compete (or similar arrangement) that is a section 197 intangible cannot be treated as disposed of or worthless before you have disposed of your entire interest in the trade or business for which the covenant was entered into. Colorado state tax return online Members of the same controlled group of corporations and commonly controlled businesses are treated as a single entity in determining whether a member has disposed of its entire interest in a trade or business. Colorado state tax return online Anti-churning rules. Colorado state tax return online   Anti-churning rules prevent a taxpayer from converting section 197 intangibles that do not qualify for amortization into property that would qualify for amortization. Colorado state tax return online However, these rules do not apply to part of the basis of property acquired by certain related persons if the transferor elects to do both the following. Colorado state tax return online Recognize gain on the transfer of the property. Colorado state tax return online Pay income tax on the gain at the highest tax rate. Colorado state tax return online   If the transferor is a partnership or S corporation, the partnership or S corporation (not the partners or shareholders) can make the election. Colorado state tax return online But each partner or shareholder must pay the tax on his or her share of gain. Colorado state tax return online   To make the election, you, as the transferor, must attach a statement containing certain information to your income tax return for the year of the transfer. Colorado state tax return online You must file the tax return by the due date (including extensions). Colorado state tax return online You must also notify the transferee of the election in writing by the due date of the return. Colorado state tax return online   If you timely filed your return without making the election, you can make the election by filing an amended return within 6 months after the due date of the return (excluding extensions). Colorado state tax return online Attach the statement to the amended return and write “Filed pursuant to section 301. Colorado state tax return online 9100-2” at the top of the statement. Colorado state tax return online File the amended return at the same address the original return was filed. Colorado state tax return online For more information about making the election, see Regulations section 1. Colorado state tax return online 197-2(h)(9). Colorado state tax return online For information about reporting the tax on your income tax return, see the Instructions for Form 4797. Colorado state tax return online Patents The transfer of a patent by an individual is treated as a sale or exchange of a capital asset held longer than 1 year. Colorado state tax return online This applies even if the payments for the patent are made periodically during the transferee's use or are contingent on the productivity, use, or disposition of the patent. Colorado state tax return online For information on the treatment of gain or loss on the transfer of capital assets, see chapter 4. Colorado state tax return online This treatment applies to your transfer of a patent if you meet all the following conditions. Colorado state tax return online You are the holder of the patent. Colorado state tax return online You transfer the patent other than by gift, inheritance, or devise. Colorado state tax return online You transfer all substantial rights to the patent or an undivided interest in all such rights. Colorado state tax return online You do not transfer the patent to a related person. Colorado state tax return online Holder. Colorado state tax return online   You are the holder of a patent if you are either of the following. Colorado state tax return online The individual whose effort created the patent property and who qualifies as the original and first inventor. Colorado state tax return online The individual who bought an interest in the patent from the inventor before the invention was tested and operated successfully under operating conditions and who is neither related to, nor the employer of, the inventor. Colorado state tax return online All substantial rights. Colorado state tax return online   All substantial rights to patent property are all rights that have value when they are transferred. Colorado state tax return online A security interest (such as a lien), or a reservation calling for forfeiture for nonperformance, is not treated as a substantial right for these rules and may be kept by you as the holder of the patent. Colorado state tax return online   All substantial rights to a patent are not transferred if any of the following apply to the transfer. Colorado state tax return online The rights are limited geographically within a country. Colorado state tax return online The rights are limited to a period less than the remaining life of the patent. Colorado state tax return online The rights are limited to fields of use within trades or industries and are less than all the rights that exist and have value at the time of the transfer. Colorado state tax return online The rights are less than all the claims or inventions covered by the patent that exist and have value at the time of the transfer. Colorado state tax return online Related persons. Colorado state tax return online   This tax treatment does not apply if the transfer is directly or indirectly between you and a related person as defined earlier in the list under Nondeductible Loss, with the following changes. Colorado state tax return online Members of your family include your spouse, ancestors, and lineal descendants, but not your brothers, sisters, half-brothers, or half-sisters. Colorado state tax return online Substitute “25% or more” ownership for “more than 50%. Colorado state tax return online ”   If you fit within the definition of a related person independent of family status, the brother-sister exception in (1), earlier, does not apply. Colorado state tax return online For example, a transfer between a brother and a sister as beneficiary and fiduciary of the same trust is a transfer between related persons. Colorado state tax return online The brother-sister exception does not apply because the trust relationship is independent of family status. Colorado state tax return online Franchise, Trademark, or Trade Name If you transfer or renew a franchise, trademark, or trade name for a price contingent on its productivity, use, or disposition, the amount you receive generally is treated as an amount realized from the sale of a noncapital asset. Colorado state tax return online A franchise includes an agreement that gives one of the parties the right to distribute, sell, or provide goods, services, or facilities within a specified area. Colorado state tax return online Significant power, right, or continuing interest. Colorado state tax return online   If you keep any significant power, right, or continuing interest in the subject matter of a franchise, trademark, or trade name that you transfer or renew, the amount you receive is ordinary royalty income rather than an amount realized from a sale or exchange. Colorado state tax return online   A significant power, right, or continuing interest in a franchise, trademark, or trade name includes, but is not limited to, the following rights in the transferred interest. Colorado state tax return online A right to disapprove any assignment of the interest, or any part of it. Colorado state tax return online A right to end the agreement at will. Colorado state tax return online A right to set standards of quality for products used or sold, or for services provided, and for the equipment and facilities used to promote such products or services. Colorado state tax return online A right to make the recipient sell or advertise only your products or services. Colorado state tax return online A right to make the recipient buy most supplies and equipment from you. Colorado state tax return online A right to receive payments based on the productivity, use, or disposition of the transferred item of interest if those payments are a substantial part of the transfer agreement. Colorado state tax return online Subdivision of Land If you own a tract of land and, to sell or exchange it, you subdivide it into individual lots or parcels, the gain normally is ordinary income. Colorado state tax return online However, you may receive capital gain treatment on at least part of the proceeds provided you meet certain requirements. Colorado state tax return online See section 1237 of the Internal Revenue Code. Colorado state tax return online Timber Standing timber held as investment property is a capital asset. Colorado state tax return online Gain or loss from its sale is reported as a capital gain or loss on Form 8949, and Schedule D (Form 1040), as applicable. Colorado state tax return online If you held the timber primarily for sale to customers, it is not a capital asset. Colorado state tax return online Gain or loss on its sale is ordinary business income or loss. Colorado state tax return online It is reported in the gross receipts or sales and cost of goods sold items of your return. Colorado state tax return online 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. Colorado state tax return online These sales constitute a very minor part of their farm businesses. Colorado state tax return online In these cases, amounts realized from such sales, and the expenses of cutting, hauling, etc. Colorado state tax return online , are ordinary farm income and expenses reported on Schedule F (Form 1040), Profit or Loss From Farming. Colorado state tax return online Different rules apply if you owned the timber longer than 1 year and elect to either: Treat timber cutting as a sale or exchange, or Enter into a cutting contract. Colorado state tax return online Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. Colorado state tax return online This is true whether the timber is cut under contract or whether you cut it yourself. Colorado state tax return online Under the rules discussed below, disposition of the timber is treated as a section 1231 transaction. Colorado state tax return online See chapter 3. Colorado state tax return online Gain or loss is reported on Form 4797. Colorado state tax return online Christmas trees. Colorado state tax return online   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. Colorado state tax return online They qualify for both rules discussed below. Colorado state tax return online Election to treat cutting as a sale or exchange. Colorado state tax return online   Under the general rule, the cutting of timber results in no gain or loss. Colorado state tax return online It is not until a sale or exchange occurs that gain or loss is realized. Colorado state tax return online 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 the timber is cut. Colorado state tax return online 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. Colorado state tax return online Any later sale results in ordinary business income or loss. Colorado state tax return online See Example, later. Colorado state tax return online   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 for use in your trade or business. Colorado state tax return online Making the election. Colorado state tax return online   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 the gain or loss. Colorado state tax return online You do not have to make the election in the first year you cut timber. Colorado state tax return online You can make it in any year to which the election would apply. Colorado state tax return online If the timber is partnership property, the election is made on the partnership return. Colorado state tax return online This election cannot be made on an amended return. Colorado state tax return online   Once you have made the election, it remains in effect for all later years unless you cancel it. Colorado state tax return online   If you previously elected to treat the cutting of timber as a sale or exchange, you may revoke this election without the consent of the IRS. Colorado state tax return online The prior election (and revocation) is disregarded for purposes of making a subsequent election. Colorado state tax return online See Form T (Timber), Forest Activities Schedule, for more information. Colorado state tax return online Gain or loss. Colorado state tax return online   Your gain or loss on the cutting of standing timber is the difference between its adjusted basis for depletion and its fair market value on the first day of your tax year in which it is cut. Colorado state tax return online   Your adjusted basis for depletion of cut timber is based on the number of units (feet board measure, log scale, or other units) of timber cut during the tax year and considered to be sold or exchanged. Colorado state tax return online 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 of the Internal Revenue Code and the related regulations. Colorado state tax return online   Timber depletion is discussed in chapter 9 of Publication 535. Colorado state tax return online Example. Colorado state tax return online In April 2013, you had owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. Colorado state tax return online It had an adjusted basis for depletion of $40 per MBF. Colorado state tax return online You are a calendar year taxpayer. Colorado state tax return online On January 1, 2013, the timber had a fair market value (FMV) of $350 per MBF. Colorado state tax return online It was cut in April for sale. Colorado state tax return online On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. Colorado state tax return online You report the difference between the fair market value and your adjusted basis for depletion as a gain. Colorado state tax return online This amount is reported on Form 4797 along with your other section 1231 gains and losses to figure whether it is treated as capital gain or as ordinary gain. Colorado state tax return online You figure your gain as follows. Colorado state tax return online FMV of timber January 1, 2013 $1,400,000 Minus: Adjusted basis for depletion 160,000 Section 1231 gain $1,240,000 The fair market value 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. Colorado state tax return online Outright sales of timber. Colorado state tax return online   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 below). Colorado state tax return online 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 below). Colorado state tax return online Cutting contract. Colorado state tax return online   You must treat the disposal of standing timber under a cutting contract as a section 1231 transaction if all the following apply to you. Colorado state tax return online You are the owner of the timber. Colorado state tax return online You held the timber longer than 1 year before its disposal. Colorado state tax return online You kept an economic interest in the timber. Colorado state tax return online   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. Colorado state tax return online   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. Colorado state tax return online Include this amount on Form 4797 along with your other section 1231 gains or losses to figure whether it is treated as capital or ordinary gain or loss. Colorado state tax return online Date of disposal. Colorado state tax return online   The date of disposal is the date the timber is cut. Colorado state tax return online 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. Colorado state tax return online   This election applies only to figure the holding period of the timber. Colorado state tax return online It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). Colorado state tax return online   To make this election, attach a statement to the tax return filed by the due date (including extensions) for the year payment is received. Colorado state tax return online The statement must identify the advance payments subject to the election and the contract under which they were made. Colorado state tax return online   If you timely filed your return for the year you received payment without making the election, you still can make the election by filing an amended return within 6 months after the due date for that year's return (excluding extensions). Colorado state tax return online Attach the statement to the amended return and write “Filed pursuant to section 301. Colorado state tax return online 9100-2” at the top of the statement. Colorado state tax return online File the amended return at the same address the original return was filed. Colorado state tax return online Owner. Colorado state tax return online   The owner of timber is any person who owns an interest in it, including a sublessor and the holder of a contract to cut the timber. Colorado state tax return online 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. Colorado state tax return online Tree stumps. Colorado state tax return online   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. Colorado state tax return online Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. Colorado state tax return online However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. Colorado state tax return online Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. Colorado state tax return online   See Form T (Timber) and its separate instructions for more information about dispositions of timber. Colorado state tax return online Precious Metals and Stones, Stamps, and Coins Gold, silver, gems, stamps, coins, etc. Colorado state tax return online , are capital assets except when they are held for sale by a dealer. Colorado state tax return online Any gain or loss from their sale or exchange generally is a capital gain or loss. Colorado state tax return online If you are a dealer, the amount received from the sale is ordinary business income. Colorado state tax return online Coal and Iron Ore You must treat the disposal of coal (including lignite) or iron ore mined in the United States as a section 1231 transaction if both the following apply to you. Colorado state tax return online You owned the coal or iron ore longer than 1 year before its disposal. Colorado state tax return online You kept an economic interest in the coal or iron ore. Colorado state tax return online For this rule, the date the coal or iron ore is mined is considered the date of its disposal. Colorado state tax return online Your gain or loss is the difference between the amount realized from disposal of the coal or iron ore and the adjusted basis you use to figure cost depletion (increased by certain expenses not allowed as deductions for the tax year). Colorado state tax return online This amount is included on Form 4797 along with your other section 1231 gains and losses. Colorado state tax return online You are considered an owner if you own or sublet an economic interest in the coal or iron ore in place. Colorado state tax return online If you own only an option to buy the coal in place, you do not qualify as an owner. Colorado state tax return online In addition, this gain or loss treatment does not apply to income realized by an owner who is a co-adventurer, partner, or principal in the mining of coal or iron ore. Colorado state tax return online The expenses of making and administering the contract under which the coal or iron ore was disposed of and the expenses of preserving the economic interest kept under the contract are not allowed as deductions in figuring taxable income. Colorado state tax return online Rather, their total, along with the adjusted depletion basis, is deducted from the amount received to determine gain. Colorado state tax return online If the total of these expenses plus the adjusted depletion basis is more than the amount received, the result is a loss. Colorado state tax return online Special rule. Colorado state tax return online   The above treatment does not apply if you directly or indirectly dispose of the iron ore or coal to any of the following persons. Colorado state tax return online A related person whose relationship to you would result in the disallowance of a loss (see Nondeductible Loss under Sales and Exchanges Between Related Persons, earlier). Colorado state tax return online An individual, trust, estate, partnership, association, company, or corporation owned or controlled directly or indirectly by the same interests that own or control your business. Colorado state tax return online Conversion Transactions Recognized gain on the disposition or termination of any position held as part of certain conversion transactions is treated as ordinary income. Colorado state tax return online This applies if substantially all your expected return is attributable to the time value of your net investment (like interest on a loan) and the transaction is any of the following. Colorado state tax return online An applicable straddle (generally, any set of offsetting positions with respect to personal property, including stock). Colorado state tax return online A transaction in which you acquire property and, at or about the same time, you contract to sell the same or substantially identical property at a specified price. Colorado state tax return online Any other transaction that is marketed and sold as producing capital gain from a transaction in which substantially all of your expected return is due to the time value of your net investment. Colorado state tax return online For more information, see chapter 4 of Publication 550. Colorado state tax return online Prev  Up  Next   Home   More Online Publications
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The Colorado State Tax Return Online

Colorado state tax return online Publication 547 - Additional Material Prev  Up  Next   Home   More Online Publications