Alabama Form 40 Schedule D and E Instructions

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 owner-occupied 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 85-515, 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 acquired 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. Other wise, 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 stock-in-trade 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. 99-514) 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.

Federal Economic Stimulus Act of 2008 Bonus Depreciation. Alabama law has no provision to allow a deduction for the bonus depreciation allowed by the Federal Economic Stimulus Act of 2008.

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).

Federal Economic Stimulus Act of 2008 Bonus Depreciation. Alabama law has no provision to allow a deduction for the bonus depreciation allowed by the Federal Economic Stimulus Act of 2008. If you received a K-1 from a partnership, S corporation, estate or trust you must add back to you income or loss from that entity any bonus depreciation attributable to the Federal Economic Stimulus Act of 2008 deducted by that entity. You should contact the entity that provided you the K-1 to obtain this information.

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.

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 K-1 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 K-1. Information from your partnerships or S corporation K-1's should be reported as follows:

Line M. Pass-through entity owners that are individuals would report this amount less any amount shown on Line Y on Schedule E of the Alabama Form 40 or Alabama Form 40NR.

Line N. Line N applies only to owners of subchapter K entities.

Pass-through entity owners that are individuals would report this amount on Schedule E of the Alabama Form 40 or Alabama Form 40NR.

The entire amount of guaranteed payments received by the owner of the subchapter K entity should be reported on this line of the Schedule K-1, if the owner is an Alabama resident individual. The apportioned amount of the guaranteed payments received by the owner of the subchapter K entity should be reported on this line, if the owner is an individual, but not an Alabama resident.

Line O. Pass-through entity owners that are individuals would claim this amount on the Form 4562, Depreciation and Amortization, which accompanies the individual's Alabama Form 40 or Alabama Form 40NR.

Line P. Pass-through entity owners that are individuals would report this amount on the Alabama Form 4852A that accompanies the individuals Alabama Form 40 or Alabama Form 40NR.

Line Q. Pass-through entity owners that are individuals would report this amount on the appropriate schedule of the Alabama Form 40 or Alabama Form 40NR filed by the individual, depending upon the nature of the portfolio income. Accompanying the Alabama Schedule K-1 should be an explanation of the different types and amounts of portfolio income making up the amount on Line Q.

Line R. Pass-through entity owners that are individuals would claim this amount on Schedule A of the Alabama Form 40 or Alabama Form 40NR, depending upon the nature of the expense. Accompanying the Alabama Schedule K-1 should be an explanation of the different types and amounts of expenses making up the amount on Line R.

Line S. Pass-through entity owners that are individuals would claim this amount on Schedule A of the Alabama Form 40 or Alabama Form 40NR.

Line T. Pass-through entity owners that are individuals would report or claim these items on the appropriate schedule of the Alabama Form 40 or Alabama Form 40NR, filed by the individual, depending upon the nature of the other separately stated business item. Accompanying the Alabama Schedule K-1 should be an explanation of the different types and amounts of other separately stated business items making up the amount on Line T.

Line U. Pass-through entity owners that are individuals would claim this amount on the Alabama Form 40 or Alabama Form 40NR.

Line V. Pass-through entity owners that are individuals would report this amount on the Alabama Form 40 or Alabama Form 40NR.

Line W. Pass-through entity owners that are individuals would claim this amount on the Form 4684 that accompanies the Alabama Form 40 or Alabama Form 40NR.

Line X. Pass-through entity owners that are individuals would report the portion of this amount that represents reportable income on the Schedule D accompanying the Alabama Form 40 or Alabama Form 40NR. Accompanying the Alabama Schedule K-1 should be a detailed explanation of the amount on Line X.

Line Y. Pass through owners should subtract the amount shown on line Y from the amount shown on line M. This figure represents the additional health insurance deduction allowed for small business employers with Alabama employees. For more information on this deduction, see §40-18-15.3.

Line Z. Pass-through entity owners that are individuals should claim this amount on Schedule E of the Alabama Form 40 or Alabama Form 40NR. Accompanying the Alabama Schedule K-1 should be a computation of the amount reported on Line Z. Alabama income tax law concerning oil and gas depletion differs from the federal law - care should be exercised in claiming this deduction, to ensure that the proper amount is deducted.

Line AA. Pass-through entity owners that are individuals would report or claim this amount on the Alabama Form 40 or Alabama Form 40NR, depending upon the nature of the separately stated nonbusiness items. Accompanying the Alabama Schedule K-1 should be an explanation showing the different types of nonbusiness items and amounts making up the amount reported on Line AA.

Line AB. Pass-through entity owners that are individuals are encouraged to disclose the amount of Alabama exempt income on the Alabama Form 40 or Alabama Form 40NR, filed by the individual. Accompanying the Alabama Schedule K-1 should be an explanation showing the different types of Alabama exempt income items and amounts making up the amount reported on Line AB.

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.