Steve and Linda Green have two
children, a loss from a dairy farm, and a net capital gain from
selling cows.
Steve and Linda Green have two children, Amy, age 8, and Carol, age
10, who lived with them all year.
Steve owns and operates a dairy farm that had a loss of $2,000 in
2000. Steve reports this loss on Schedule F and on Form 1040, line 18.
Steve qualifies and chooses to use the optional method to figure net
earnings, so he uses Section B of Schedule SE. He enters $1,600 on
lines 15 and 4b of Section B of Schedule SE. Steve figures
self-employment tax of $244. He deducts one-half of it ($122) on line
27 (Form 1040).
Linda had wages of $15,000, which she reports on Form 1040, line 7.
She also received advance EIC payments of $1,140, which she reports on
Form 1040, line 55.
Steve and Linda had a $1,000 loss from the sale of stock and a
$5,000 gain from the sale of raised dairy cows they had held for 3
years. They report the $5,000 gain on Form 4797, Sales of
Business Property. They do not have any other sales to report on
Form 4797, so they enter $5,000 on line 7, column (g), of Form 4797
and on line 11, column (f), of Schedule D. (They have no prior year
section 1231 losses.) They report their net capital gain of $4,000
from Schedule D on Form 1040, line 13.
The Greens read Publication 596
to see if they can claim the EIC.
They use Worksheet 1 (shown here) to figure their
investment income, which is zero. They use Worksheet 3 (not
shown) to figure their modified AGI. They start with their AGI of
$16,878 ($15,000 + $4,000 - $2,000 - $122). When they add
75% of their farm loss to their AGI, they find their modified AGI is
$18,378 ($16,878 + $1,500). They find that they are eligible to get
the EIC. They use EIC Worksheet B (shown here) to figure
their EIC of $2,691. They also complete Schedule EIC (not shown) and
attach it to their Form 1040.
Greens' Worksheet 1: Invesment Income Worksheet
Greens' EIC Worksheet B, page 1
Greens' EIC Worksheet B, page 2
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