Instructions For Schedule D - Gain or (Loss) From Sale of Real Estate, Stocks, Bonds, Mutual Funds, Capital Gains, etc.
Purpose of Schedule
Use Schedule D (Form 40) to report the sale of real estate, stocks, bonds, etc.
Enter all sales for the entire year if you were a resident of Alabama for the entire year. If you were a resident of Alabama for only a part of the year, you should report all sales made during your period of residence.
If you sold property located in Alabama after you ceased to be a resident of Alabama, you should report the sales on Form 40NR, Nonresident Alabama Income Tax Return.
Under Alabama law the entire gain is taxable, and the entire loss is deductible in the year in which it occurs.
Mutual Funds. If you received a mutual fund or brokerage statement reporting capital or ordinary gains, you must include these amounts on Schedule D. List the mutual fund or brokerage firm’s name in Column A “Kind of Property” and the net capital or ordinary gains in Column H, “Net Profit or Loss.”
Gain From Sale of a Personal Residence. If you sold your personal residence, any gain realized is taxable to the same extent as reported on your federal return.
Note: A loss on the sale of a personal residence is NOT deductible.
Gain or (Loss) From Sale of Business Property. If you sold business property use Schedule D to report the net gain (or loss). You should complete Federal Form 4797 and attach a copy to your Alabama return.
State the following facts: (a) For real estate (including owneroccupied residence) – location and description of land and improvements; (b) for bonds or other evidence of indebtedness – name of issuing corporation, particular issue, denomination, and amount; (c) for stocks – name of corporation, class of stock, number of shares, and capital changes affecting basis (including nontaxable distributions). If more space is needed, use separate sheets with identical columnar headings (a) through (h) inclusive.
Cost or Other Basis. Act 85515, known as the Corporate Income Tax Act of 1985, conformed certain rules concerning the determination of basis in assets acquired to the federal income tax rules.
The basis for computing gain or loss from the sale or other disposition of property will usually be the cost of such property. You may have to use a basis other than actual cost if you acquired the property by bequest, gift, or involuntary conversion. If you do not use cash cost, please attach an explanation of your basis.
The basis of property acquired prior to December 31, 1932, shall be the fair market value on December 31, 1932.
Gifts or Transfer in Trust. The basis of property ac quired by gift or transfer in trust depends upon the date acquired.
If property was acquired by gift or transfer in trust on or after December 31, 1932 and prior to March 15, 1985, the basis shall be the fair market value on the date of acquisition.
If acquired by gift on or after March 15, 1985, the basis shall be the same as it would be in the hands of the donor or the preceding owner by whom it was not acquired by gift (except that if such basis is greater than the fair market value of the property at the time of the gift, then for the purpose of determining loss, the basis shall be the fair market value).
If the property was acquired by a transfer in trust (other than a transfer in trust by gift, bequest, or devise) on or after March 15, 1985, the basis shall be the same as it would be in the hands of the grantor, increased in the amount of gain, or decreased in the amount of loss, recognized to the grantor of such transfer.
Property Transmitted at Death. Basis shall be the fair and reasonable market value of the property at the time of death of the decedent.
The value of property as of the date of the decedent’s death as appraised for the purpose of the federal estate tax or the alternate value as appraised for such purpose, whichever is applicable, shall be deemed to be its fair market value for Alabama income tax purposes.
Involuntary Conversion. If a taxpayer elects to determine gain under 26 U.S.C. §1033 (relating to involuntary conversions), the amount of gain recognized for Alabama purposes shall be determined in accordance with the same federal statute.
Installment Sales. Alabama law was changed to conform the Alabama code to the federal law regarding the installment method of reporting income. For taxable years beginning after December 31, 1984, income arising from an installment sale shall be reported in accordance with Internal Revenue Code Section 453 with the exception of 453(i) which deals with the recognition of recapture income.
Sales of property under revolving credit plans and sales of stock, securities, and other property traded on established markets can no longer be reported on the installment method effective for sales made after 1987.
Instructions For Schedule E - Supplemental Income
Purpose of Schedule
Use Schedule E to report income or (loss) from rents, royalties, partnerships, S corporations, estates, and trusts.
Part I - Rental and Royalty Income or (Loss)
If you receive rent from property owned or controlled by you, or royalties from copyrights, mineral leases, and similar rights, report the total amount received in Part I, columns (a) through (c). If property other than cash was received as rent, its fair market value should be reported.
Line 1. Indicate the kind of rental real estate property you rented out (brick house, apartment complex, etc). Include the street address, city, or town, and state, and your percentage of ownership in the property if less than 100%.
Line 2. Check “Yes” if you or your family used the unit this year for personal purposes more than the greater of: 14 days; or 10% of the total days it was rented to others at a fair rental price. Otherwise, check “No”.
Lines 3 & 4. If you receive rent from property owned or controlled by you, or royalties from copyrights, mineral leases, and similar rights, report the total amount received in Part I, columns (a) through (c). If property other than cash was received as rent, its fair market value should be reported.
Lines 5-18. Enter your rental and royalty expenses for each property in the appropriate column. You can deduct all ordinary and necessary expenses, such as taxes, interest, repairs, insurance, management fees, and agent’s commissions. Do Not deduct the value of your own labor or amounts paid for capital investments or capital improvements.
Line 20. Depreciation. A reasonable allowance for the exhaustion, wear, and obsolescence of property used in a trade or business, or of property held by the taxpayer for the production of income shall be allowed as a depreciation deduction. The allowance does not apply to inventories or stockintrade nor to land apart from the improvements or physical development added to it.
Depreciation computed using the “Accelerated Cost Recovery System” (ACRS) for assets placed in service on or after January 1, 1981, and before January 1, 1987, in the same manner with the same limitations provided for federal income tax returns will be considered to be a “reasonable allowance” for Alabama purposes.
For assets placed in service after December 31, 1986, depreciation using the “Modified Accelerated Cost Recovery System” provided for in I.R.C. §168 (as modified by §201(a) of P.L. 99514) will be considered a “reasonable allowance” for depreciation.
For taxable years beginning after December 31, 1989, Alabama will allow the depreciation allowed by Federal 26 U.S.C. §179.
Depletion. A depletion expense deduction is allowable in computing net royalty income from mines, oil wells, and gas wells.
In the case of oil and gas wells, the allowance for depletion shall be 12 percent of the gross income from the property during the taxable year, excluding from such gross income an amount equal to any rents or royalties paid or incurred by the taxpayer in respect to the property. Such amounts shall not exceed 50 percent of the net income of the taxpayer, computed without allowance for depletion, from the property, except that in no case shall the depletion allowance be less than the amount allowable under federal income tax law.
Part II - Income or (Loss) From Partnerships, S Corporations, Estates, and Trusts
If you received income from a partnership, S corporation, estate, or trust, the amounts should be reported in Part II, column (j). The name and address must be given in column (g) showing the source of the income received. Check column (h), and enter the FEIN in column (i).
Partnerships. A partnership does not pay income tax in the firm’s name. If you are a member of a partnership or joint venture, include in this part your share of the partnership income (whether you received it or not) or net loss (not to exceed your basis) for the partnership tax year that ends during the year covered by your return. You should receive a statement from the partnership advising you of the amount to report. Do not attach the statement to your return. Keep it for your records.
The partner’s share of partnership income and deductions reflected on Alabama Schedule K (Form 65) should be reported as follows:
Line M – Nonseparately Stated Income Allocated and Apportioned to Alabama. Enter this amount on Schedule E, Part II, column (j).
Line N – Federal “Guaranteed” Payment To Partner. Enter this amount on Form 40, Schedule E, Part II, column (j).
Line O – Section 179 Expense. This amount should be used to complete Part I of Federal Form 4562.
Lines P, Q, and R – Investment Income and Expenses. Investment interest expense may be limited.
See the instructions for Alabama Form 4952A. The amounts entered in columns (g), (h), and (i) should be used to complete Alabama Form 4952A.
Line S – Charitable Contributions. Enter on Schedule A (Form 40). The partnership will give you a schedule that shows which contributions were subject to the 50%, 30%, and 20% limitations. For further information, see the instructions on page 19.
Line T – Other Deductions. The partnership should give you a description of the amount of your share for each of the following items:
- Itemized deductions (Form 40 filers); enter on Alabama Schedule A. Note: If there was a gain (loss) from a casualty or theft to property not used in a trade or business or for incomeproducing purposes, you will be notified by the partnership. You will have to complete your own Federal Form 4684. (See the instructions on page 20.)
- Any penalty on early withdrawal of savings should be entered on Form 40, Part II, line 3 as an adjustment to income.
- Expenditures for the removal of architectural and transportation barriers to the elderly and disabled that the partnership elected to treat as a current expense. This deduction should be entered on Schedule A, line 24. See Federal Rules.
- Payments on behalf of a partner to an IRA, Keogh, or a Simplified Employee Pension (SEP) plan. See the instructions for Part II, Form 40, to figure your IRA deduction. Payments to a Keogh or SEP plan will be entered on Form 40, Part II, line 2.
S Corporations. An “Alabama S corporation” is a corporation with respect to which an election under 26 U.S.C. §1362 is in effect.
If you are a shareholder of an S corporation, you should receive a Schedule K1 from the S corporation. Report your pro rata share of the income (whether you received it or not) or net loss (not to exceed your basis) of the corporation as shown on your Schedule K1.
Estates and Trusts. If you are a beneficiary of an estate or trust, you should receive a statement from the fiduciary advising you of the amount to report. Do not attach the statement to your return. Keep it for your records. Report your taxable part of the income (whether you received it or not) in Part II.
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