U.S. Individual Income Tax Return

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Page 1 of 11 of 2007 Instructions for Schedule J

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Department of the Treasury
Internal Revenue Service

2007 Instructions for Schedule J
Use Schedule J (Form 1040) to elect to figure your 2007 income tax by averaging, over the
previous 3 years (base years), all or part of your 2007 taxable income from your trade or
Income
business of farming or fishing. This election may give you a lower tax if your 2007 income
from farming or fishing is high and your taxable income for one or more of the 3 prior years
Averaging for
was low.
In order to qualify for this election, you are not required to have been in the business of
farming or fishing during any of the base years.
Farmers and
You may elect to average farming or fishing income even if your filing status was not the
same
in the election year and the base years.
Fishermen
This election does not apply when figuring your alternative minimum tax on Form 6251.
Also, you do not have to recompute, because of this election, the tax liability of any minor
child who was required to use your tax rates in the prior years.
A farming business does not include:

General Instructions
Prior Year Tax Returns
You may need copies of your original or
amended income tax returns for 2004,
2005, and 2006 to figure your tax on
Schedule J.
If you do not have copies of those returns, you can get them by filing Form
4506. There is a $39 fee for each return requested. If your main home, principal place
of business, or tax records are located in a
Presidentially declared disaster area, the
fee will be waived if the word “Disaster” is
written across the top of Form 4506 when
filed. If you want a free transcript of your
tax return, use Form 4506-T. See your
Form 1040 instruction booklet to find out
how to get these forms.
Keep a copy of your 2007 income tax
return to use for income averaging in 2008,
2009, or 2010.

Definitions
Farming business. A farming business is

the trade or business of cultivating land or
raising or harvesting any agricultural or
horticultural commodity. This includes:
1. Operating a nursery or sod farm;
2. Raising or harvesting of trees bearing
fruits, nuts, or other crops;
3. Raising ornamental trees (but not evergreen trees that are more than 6 years old
when severed from the roots);
4. Raising, shearing, feeding, caring for,
training, and managing animals; and
5. Leasing land to a tenant engaged in a
farming business, but only if the lease payments are (a) based on a share of the
tenant’s production (not a fixed amount),
and (b) determined under a written agreement entered into before the tenant begins
significant activities on the land.

• Contract harvesting of an agricultural

or horticultural commodity grown or raised
by someone else, or
• Merely buying or reselling plants or
animals grown or raised by someone else.

Fishing business. A fishing business is the

trade or business of fishing in which the
fish harvested, either in whole or in part,
are intended to enter commerce or enter
commerce through sale, barter, or trade.
This includes:
1. The catching, taking, or harvesting of
fish;
2. The attempted catching, taking, or
harvesting of fish;
3. Any other activity which can reasonably be expected to result in the catching,
taking, or harvesting of fish; or
4. Any operations at sea in support of, or
in preparation for, any activity described in
(1) through (3) above.

At the time these instructions
went to print, there were pending Regulations that could
change the definition of a fishing business.
The word fish means finfish, mollusks,
crustaceans, and all other forms of marine
animal and plant life other than marine
mammals and birds.
A fishing business does not include any
scientific research activity which is conducted by a scientific research vessel.

Additional Information
See Pub. 225 and Regulations section
1.1301-1 for more information.

J-1
Cat. No. 25514J

Specific Instructions
Line 2
Elected Farm Income
To figure your elected farm income, first
figure your taxable income from farming or
fishing. This includes all income, gains,
losses, and deductions attributable to any
farming or fishing business. Include the deduction for one-half of self-employment
tax only to the extent that deduction is attributable to your farming or fishing business. However, it does not include gain
from the sale or other disposition of land.
You should find your income, gains,
losses and deductions from farming or fishing reported on different tax forms, such as:
• Form 1040, line 7, income from
wages and other compensation you received as a shareholder in an S corporation
engaged in a farming or fishing business;
• Schedule C or C-EZ;
• Schedule D;
• Schedule E, Part II;
• Schedule F;
• Form 4797; and
• Form 4835.
Your elected farm income is the amount
of your taxable income from farming or
fishing that you elect to include on line 2.
However, you do not have to include all of
your taxable income from farming or fishing on line 2. It may be to your advantage to
include less than the entire amount, depending on how the amount you include on
line 2 affects your tax bracket for the current and prior 3 tax years.
Your elected farm income cannot exceed your taxable income. Also, the portion
of your elected farm income treated as a net
capital gain cannot exceed the smaller of

Page 2 of 11 of 2007 Instructions for Schedule J

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your total net capital gain or your net capital gain attributable to your farming or fishing business. If your elected farm income
includes net capital gain, you must allocate
an equal portion of the net capital gain to
each of the base years. If, for any base year,
you had a capital loss that resulted in a capital loss carryover to the next tax year, do
not reduce the elected farm income allocated to that base year by any part of the
carryover.

Line 4
Figure the tax on the amount on line 3 using
the 2007 Tax Table, Tax Computation
Worksheet, Qualified Dividends and Capital Gain Tax Worksheet, or Foreign Earned
Income Tax Worksheet from the 2007 Instructions for Form 1040. The tax can also
be figured on the Schedule D Tax Worksheet in the 2007 Instructions for Schedule
D. Enter the tax on line 4.
If you use the Foreign Earned Income
Tax Worksheet, enter the amount from
Schedule J, line 3, on line 3 of the worksheet. Do not complete lines 1 and 2 of the
worksheet.

Line 5
If you used Schedule J to figure your tax for
2006 (that is, you entered the amount from
the 2006 Schedule J, line 22, on your 2006
Form 1040, line 44, 2006 Form 1040NR,
line 41, or on Form 1040X), enter on line 5
the amount from your 2006 Schedule J, line
11. If you used Schedule J to figure your
tax for 2005 but not 2006, enter on line 5
the amount from your 2005 Schedule J, line
15. If you used Schedule J to figure your
tax for 2004 but not 2005 or 2006, enter on
line 5 the amount from your 2004 Schedule
J, line 3.
If you figured your tax for 2004, 2005,
and 2006 without using Schedule J, enter

on line 5 the taxable income from your
2004 tax return (or as previously adjusted
by the IRS, or corrected on an amended return). But if that amount is zero or less,
complete the worksheet below to figure the
amount to enter on line 5.
If you filed your 2004 tax return using
TeleFile, enter the taxable income from
your TeleFile Tax Record. If you did not
file a tax return for 2004, use the amount
you would have reported as your taxable
income had you been required to file a tax
return. Be sure to keep all your records for
2004 for at least 3 years after April 15,
2008 (or the date you file your 2007 tax
return, if later).

of elected farm income on Schedule J, line
2. The taxable income before subtracting
exemptions on his 2004 Form 1040, line
40, is $4,050. A deduction for exemptions
of $3,100 is shown on line 41, and line 42,
taxable income, is $950. However, John
had a $21,900 NOL for 2005, $9,000 of
which was remaining to carry to 2004 after
the NOL was carried back to 2003. To
complete line 1 of the worksheet, John
combines the $9,000 NOL deduction with
the $950 from his 2004 Form 1040, line 42.
The result is a negative $8,050, John’s
2004 taxable income, which he enters as a
positive amount on line 1 of the 2004 worksheet.

Instructions for 2004 Taxable
Income Worksheet

When John filed his 2004 tax return, he
had a $3,000 net capital loss deduction on
Schedule D, line 21 (which was also entered on Form 1040, line 13), a $7,000 loss
on Schedule D, line 16, and a $4,000 capital loss carryover to 2005. However, when
John carried back the 2005 NOL to 2004,
he refigured his 2004 capital loss carryover
to 2005 as $7,000. John adds the $3,000
from Schedule D, line 21, and the $7,000
carryover. He subtracts from the $10,000
result the $7,000 loss on his Schedule D,
line 16, and enters $3,000 on line 2 of the
worksheet.

Line 2. Any net capital loss deduction on

your 2004 Schedule D, line 21, is not allowed for income averaging purposes to the
extent it did not reduce your capital loss
carryover to 2005. This could happen if the
taxable income before subtracting exemptions — shown on your 2004 Form 1040,
line 40 (or as previously adjusted) — was
less than zero. Enter on line 2 the amount
by which your 2004 capital loss carryover
to 2005 (the sum of your short- and
long-term capital loss carryovers) exceeds
the excess of the loss on your 2004 Schedule D, line 16, over the loss on your 2004
Schedule D, line 21. If you had any net operating loss (NOL) carrybacks to 2004, be
sure you refigured your 2004 capital loss
carryover to 2005.
Line 3. If you had an NOL for 2004, enter

the amount of that NOL from line 24 of the
2004 Form 1045, Schedule A, you filed
with Form 1045 or Form 1040X. If you did
not have an NOL for 2004, enter the portion, if any, of the NOL carryovers and carrybacks to 2004 that were not used in 2004
and were carried to years after 2004.
Example. John Farmington, who is single,
did not use income averaging for 2004,
2005, or 2006. For 2007, John has $18,000

2004 Taxable Income Worksheet—Line 5

John had $950 of taxable income in
2004 that reduced the 2005 NOL carryback. The $3,100 of exemptions and
$3,000 net capital loss deduction also reduced the amount of the 2005 NOL carryback. Therefore, only $1,950 was
available to carry to 2006 and later years, as
shown on line 9 of his 2005 Form 1045,
Schedule B. John enters the $1,950 on line
3 of the worksheet, and $4,950 ($1,950 plus
the $3,000 line 2 amount) on line 4. He then
subtracts the $4,950 from the $8,050 on
line 1 and enters the result, $3,100, on line
5 of the worksheet. He enters a negative
$3,100 on Schedule J, line 5. He combines
that amount with the $6,000 on Schedule J,
line 6, and enters $2,900 on Schedule J, line
7.

Keep for Your Records

Complete this worksheet if you did not use Schedule J to figure your tax for both 2005 and 2006 and your 2004 taxable income
was zero or less. See the instructions above before completing this worksheet.
1. Figure the taxable income from your 2004 tax return (or as previously adjusted) without limiting it to
zero. If you had an NOL for 2004, do not include any NOL carryovers or carrybacks to 2004. Enter
the result as a positive amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. If there is a loss on your 2004 Schedule D, line 21, add that loss (as a positive
amount) and your 2004 capital loss carryover to 2005. Subtract from that sum the
amount of the loss on your 2004 Schedule D, line 16, and enter the result . . . . . . . 2.
3. If you had an NOL for 2004, enter it as a positive amount. Otherwise, enter as a
positive amount the portion, if any, of the NOL carryovers and carrybacks to 2004
that were not used in 2004 and were carried to years after 2004 . . . . . . . . . . . . . . 3.
4. Add lines 2 and 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5. Subtract line 4 from line 1. Enter the result as a negative amount on Schedule J, line 5 . . . . . . . . . . .

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5.

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Line 8
If line 7 is zero, enter -0- on line 8. Otherwise, figure the tax on the amount on line 7
using:
• The 2004 Tax Rate Schedules below,
• The 2004 Qualified Dividends and
Capital Gain Tax Worksheet on the next
page, or

• The 2004 Schedule D Tax Worksheet
in the Schedule D instructions (but use the
2004 Tax Rate Schedules below instead of

the 2004 Tax Table when figuring the tax
on lines 34 and 36 of the Schedule D Tax
Worksheet.)

2004 Tax Rate Schedules—Line 8
Schedule X — Use if your 2004 filing status was Single or you checked
filing status box 1 or 2 on Form 1040NR
If Schedule J,
line 7, is:
Over —

But not
over —

$0
7,150
29,050
70,350
146,750
319,100

$7,150
29,050
70,350
146,750
319,100
.............

of the
amount
over —

Enter on
Schedule J,
line 8
...........
$715.00 +
4,000.00 +
14,325.00 +
35,717.00 +
92,592.50 +

10%
15%
25%
28%
33%
35%

$0
7,150
29,050
70,350
146,750
319,100

Schedule Y-2 — Use if your 2004 filing status was Married filing
separately or you checked filing status box 3, 4, or 5 on
Form 1040NR
If Schedule J,
line 7, is:
Over —
$0
7,150
29,050
58,625
89,325
159,550

But not
over —
$7,150
29,050
58,625
89,325
159,550
.............

of the
amount
over —

Enter on
Schedule J,
line 8
...........
$715.00 +
4,000.00 +
11,393.75 +
19,989.75 +
43,164.00 +

10%
15%
25%
28%
33%
35%

$0
7,150
29,050
58,625
89,325
159,550

Schedule Y-1 — Use if your 2004 filing status was Married filing
jointly or Qualifying widow(er) or you checked filing
status box 6 on Form 1040NR
Schedule Z — Use if your 2004 filing status was Head of household
If Schedule J,
line 7, is:
Over —

But not
over —

$0
14,300
58,100
117,250
178,650
319,100

$14,300
58,100
117,250
178,650
319,100
............

of the
amount
over —

Enter on
Schedule J,
line 8
...........
$1,430.00 +
8,000.00 +
22,787.50 +
39,979.50 +
86,328.00 +

10%
15%
25%
28%
33%
35%

$0
14,300
58,100
117,250
178,650
319,100

If Schedule J,
line 7, is:
Over —
$0
10,200
38,900
100,500
162,700
319,100

J-3

But not
over —
$10,200
38,900
100,500
162,700
319,100
.............

of the
amount
over —

Enter on
Schedule J,
line 8
...........
$1,020.00 +
5,325.00 +
20,725.00 +
38,141.00 +
89,753.00 +

10%
15%
25%
28%
33%
35%

$0
10,200
38,900
100,500
162,700
319,100

Page 4 of 11 of 2007 Instructions for Schedule J

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2004 Qualified Dividends and Capital Gain Tax Worksheet—Line 8

Keep for Your Records

Use this worksheet only if both of the following apply.
• Your elected farm income on Schedule J, lines 5 and 6, does not include any net capital gain.
• You (a) entered qualified dividends on your 2004 Form 1040, line 9b (or your 2004 Form 1040A, line 9b, or 2004 Form
1040NR, line 10b), (b) entered capital gain distributions directly on your 2004 Form 1040, line 13 (or your 2004 Form
1040A, line 10, or 2004 Form 1040NR, line 14) and checked the box on that line, or (c) filed Schedule D in 2004 and you
answered “Yes” on lines 17 and 20 of that Schedule D.
1. Amount from Schedule J, line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
2. Amount from your 2004 Form 1040, line 9b (or Form
1040A, line 9b, or Form 1040NR, line 10b) . . . . . . . . . .
2.
3. Did you file Schedule D in 2004?
Yes. Enter the smaller of line 15 or 16 of your
2004 Schedule D, but do not enter less than
-03.
No. Enter the amount from Form 1040, line 13
(or Form 1040A, line 10, or Form 1040NR,
line 14)
4. Add lines 2 and 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.
5. Amount, if any, from your 2004 Form 4952, line 4g . . . .
5.
6. Subtract line 5 from line 4. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . 6.
7. Subtract line 6 from line 1. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . 7.
8. Enter the smaller of:
• The amount on line 1, or
• $29,050 if single or married filing separately or if you
checked filing status box 1, 2, 3, 4, or 5 on Form 1040NR, . . . . . . . . . . . 8.
$58,100 if married filing jointly or qualifying widow(er),
or if you checked filing status box 6 on Form 1040NR,
$38,900 if head of household.
9. Is the amount on line 7 equal to or more than the amount on line 8?
Yes. Skip lines 9 through 11; go to line 12 and check the ‘‘No’’ box.
No. Enter the amount from line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.
10. Subtract line 9 from line 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.
11. Multiply line 10 by 5% (.05) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.
12. Are the amounts on lines 6 and 10 the same?
Yes. Skip lines 12 through 15; go to line 16.
No. Enter the smaller of line 1 or line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.
13. Enter the amount from line 10 (if line 10 is blank, enter -0-) . . . . . . . . . . . . . . . 13.
14. Subtract line 13 from line 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.
15. Multiply line 14 by 15% (.15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15.
16. Figure the tax on the amount on line 7. Use the 2004 Tax Rate Schedules on page J-3 . . . . . . . . . . .16.
17. Add lines 11, 15, and 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17.
18. Figure the tax on the amount on line 1. Use the 2004 Tax Rate Schedules on page J-3 . . . . . . . . . . .18.
19. Tax. Enter the smaller of line 17 or line 18 here and on Schedule J, line 8 . . . . . . . . . . . . . . . . . . . .19.

}

}

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Line 9
If you used Schedule J to figure your tax for
2006 (that is, you entered the amount from
the 2006 Schedule J, line 22, on your 2006
Form 1040, line 44, 2006 Form 1040NR,
line 41, or on Form 1040X), enter on line 9
the amount from your 2006 Schedule J, line
15. If you used Schedule J to figure your
tax for 2005 but not 2006, enter on line 9
the amount from your 2005 Schedule J, line
3.
If you figured your tax for both 2005
and 2006 without using Schedule J, enter
on line 9 the taxable income from your
2005 tax return (or as previously adjusted
by the IRS or corrected on an amended return). But if that amount is zero or less,
complete the worksheet below to figure the
amount to enter on line 9.
If you did not file a tax return for 2005,
use the amount you would have reported as
your taxable income had you been required
to file a tax return. Be sure to keep all your
records for 2005 until at least 3 years after
April 15, 2008 (or the date you file your
2007 tax return, if later).

Instructions for 2005 Taxable
Income Worksheet
Line 2. Any net capital loss deduction on

your 2005 Schedule D, line 21, is not allowed for income averaging purposes to the
extent it did not reduce your capital loss
carryover to 2006. This could happen if the

taxable income before subtracting exemptions — shown on your 2005 Form 1040,
line 41 (or as previously adjusted) — was
less than zero. Enter on line 2 the amount
by which your 2005 capital loss carryover
to 2006 (the sum of your short- and
long-term capital loss carryovers) exceeds
the excess of the loss on your 2005 Schedule D, line 16, over the loss on your 2005
Schedule D, line 21. If you had any NOL
carrybacks to 2005, be sure you refigured
your 2005 capital loss carryover to 2006.
Line 3. If you had an NOL for 2005, enter

the amount of that NOL from line 25 of the
2005 Form 1045, Schedule A, you filed
with Form 1045 or Form 1040X. If you did
not have an NOL for 2005, enter the portion, if any, of the NOL carryovers and carrybacks to 2005 that were not used in 2005
and were carried to years after 2005.
Example. John Farmington did not use income averaging for 2004, 2005, or 2006.
The taxable income before subtracting exemptions on his 2005 Form 1040, line 41,
is a negative $29,900. A deduction for exemptions of $3,200 is shown on line 42,
and line 43, taxable income, is limited to
zero. John subtracts from the $29,900 loss
the $3,200 deduction for exemptions. The
result is a negative $33,100, John’s 2005
taxable income, which he enters as a positive amount on line 1 of the 2005 worksheet.

2005 Taxable Income Worksheet—Line 9

When John filed his 2005 tax return, he
had a $3,000 net capital loss deduction on
Schedule D, line 21 (which was also entered on Form 1040, line 13), and a $7,000
loss on Schedule D, line 16 (as adjusted).
He also had a $7,000 capital loss carryover
to 2006. John adds the $3,000 from Schedule D, line 21, and the $7,000 carryover. He
subtracts from the $10,000 result the
$7,000 loss on his Schedule D, line 16, and
enters $3,000 on line 2 of the worksheet.
John enters $21,900 on line 3 of the
worksheet, the 2005 NOL from his 2005
Form 1045, Schedule A, line 25. Of the
$33,100 negative taxable income, the
$3,200 deduction for exemptions, the
$3,000 capital loss deduction, and his
$5,000 standard deduction were not allowed in figuring the NOL. John had a
$21,900 loss on his 2005 Schedule F, the
only other item on his 2005 tax return.
John enters $24,900 (the $3,000 line 2
amount plus the $21,900 line 3 amount) on
line 4 and $8,200 (the $33,100 line 1
amount minus the $24,900 line 4 amount)
on line 5. He enters $8,200 as a negative
amount on Schedule J, line 9. He enters
$6,000 on Schedule J, line 10, and a negative $2,200 on Schedule J, line 11. If he
uses Schedule J to figure his tax for 2008,
he will enter the negative $2,200 amount on
his 2008 Schedule J as his 2005 taxable income for income averaging purposes.

Keep for Your Records

Complete this worksheet if you did not use Schedule J to figure your tax for 2006 and your 2005 taxable income was zero or
less. See the instructions above before completing this worksheet.
1. Figure the taxable income from your 2005 tax return (or as previously adjusted) without limiting it to
zero. If you had an NOL for 2005, do not include any NOL carryovers or carrybacks to 2005. Enter
the result as a positive amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. If there is a loss on your 2005 Schedule D, line 21, add that loss (as a positive
amount) and your 2005 capital loss carryover to 2006. Subtract from that sum the
amount of the loss on your 2005 Schedule D, line 16, and enter the result . . . . . .
2.
3. If you had an NOL for 2005, enter it as a positive amount. Otherwise, enter as a
positive amount the portion, if any, of the NOL carryovers and carrybacks to 2005
that were not used in 2005 and were carried to years after 2005 . . . . . . . . . . . . .
3.
4. Add lines 2 and 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5. Subtract line 4 from line 1. Enter the result as a negative amount on Schedule J, line 9 . . . . . . . . . . .

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4.
5.

Page 6 of 11 of 2007 Instructions for Schedule J

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Line 12
If line 11 is zero or less, enter -0- on line 12.
Otherwise, figure the tax on the amount on
line 11 using:
• The 2005 Tax Rate Schedules below,

• The 2005 Qualified Dividends and
Capital Gain Tax Worksheet on page J-7,
or
• The 2005 Schedule D Tax Worksheet
in the Schedule D instructions (but use the

2005 Tax Rate Schedules below instead of
the 2005 Tax Table when figuring the tax
on the Schedule D Tax Worksheet, lines 34
and 36).

2005 Tax Rate Schedules—Line 12
Schedule X — Use if your 2005 filing status was Single or you checked
filing status box 1 or 2 on Form 1040NR
If Schedule J,
line 11, is:
Over —

But not
over —

$0
7,300
29,700
71,950
150,150
326,450

$7,300
29,700
71,950
150,150
326,450
.............

of the
amount
over —

Enter on
Schedule J,
line 12
...........
$730.00 +
4,090.00 +
14,652.50 +
36,548.50 +
94,727.50 +

10%
15%
25%
28%
33%
35%

$0
7,300
29,700
71,950
150,150
326,450

Schedule Y-2 — Use if your 2005 filing status was Married filing
separately or you checked filing status box 3, 4, or 5 on
Form 1040NR
If Schedule J,
line 11, is:
Over —
$0
7,300
29,700
59,975
91,400
163,225

But not
over —
$7,300
29,700
59,975
91,400
163,225
.............

of the
amount
over —

Enter on
Schedule J,
line 12
...........
$730.00 +
4,090.00 +
11,658.75 +
20,457.75 +
44,160.00 +

10%
15%
25%
28%
33%
35%

$0
7,300
29,700
59,975
91,400
163,225

Schedule Y-1 — Use if your 2005 filing status was Married filing
jointly or Qualifying widow(er) or you checked filing
status box 6 on Form 1040NR
Schedule Z — Use if your 2005 filing status was Head of household
If Schedule J,
line 11, is:
Over —

But not
over —

$0
14,600
59,400
119,950
182,800
326,450

$14,600
59,400
119,950
182,800
326,450
............

of the
amount
over —

Enter on
Schedule J,
line 12
...........
$1,460.00 +
8,180.00 +
23,317.50 +
40,915.50 +
88,320.00 +

10%
15%
25%
28%
33%
35%

$0
14,600
59,400
119,950
182,800
326,450

If Schedule J,
line 11, is:
Over —
$0
10,450
39,800
102,800
166,450
326,450

J-6

But not
over —
$10,450
39,800
102,800
166,450
326,450
.............

of the
amount
over —

Enter on
Schedule J,
line 12
...........
$1,045.00 +
5,447.50 +
21,197.50 +
39,019.50 +
91,819.50 +

10%
15%
25%
28%
33%
35%

$0
10,450
39,800
102,800
166,450
326,450

Page 7 of 11 of 2007 Instructions for Schedule J

10:47 - 28-SEP-2007

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

2005 Qualified Dividends and Capital Gain Tax Worksheet—Line 12

Keep for Your Records

Use this worksheet only if both of the following apply.
• Your elected farm income on Schedule J, line 2, does not include any net capital gain.
• You (a) entered qualified dividends on your 2005 Form 1040, line 9b (or your 2005 Form 1040A, line 9b, or 2005 Form
1040NR, line 10b) (b) entered capital gain distributions directly on your 2005 Form 1040, line 13 (or your 2005 Form 1040A,
line 10, or 2005 Form 1040NR, line 14) and checked the box on that line, or (c) filed Schedule D in 2005 and you answered
“Yes” on lines 17 and 20 of that Schedule D.
1. Amount from Schedule J, line 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
2. Amount from Form 1040, line 9b (or Form 1040A, line
9b, or Form 1040NR, line 10b) . . . . . . . . . . . . . . . . . . .
2.
3. Did you file Schedule D in 2005?
Yes. Enter the smaller of line 15 or 16 of your
2005 Schedule D, but do not enter less than
-03.
No. Enter the amount from Form 1040, line 13
(or Form 1040A, line 10, or Form 1040NR,
line 14)
4. Add lines 2 and 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.
5. Amount, if any, from your 2005 Form 4952, line 4g . . . .
5.
6. Subtract line 5 from line 4. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . 6.
7. Subtract line 6 from line 1. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . 7.
8. Enter the smaller of:
• The amount on line 1, or
• $29,700 if single or married filing separately or if you
checked filing status box 1, 2, 3, 4, or 5 on Form 1040NR, . . . . . . . . . . . 8.
$59,400 if married filing jointly or qualifying widow(er)
or if you checked filing status box 6 on Form 1040NR,
$39,800 if head of household.
9. Is the amount on line 7 equal to or more than the amount on line 8?
Yes. Skip lines 9 through 11; go to line 12 and check the ‘‘No’’ box.
No. Enter the amount from line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.
10. Subtract line 9 from line 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.
11. Multiply line 10 by 5% (.05) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.
12. Are the amounts on lines 6 and 10 the same?
Yes. Skip lines 12 through 15; go to line 16.
No. Enter the smaller of line 1 or line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.
13. Enter the amount from line 10 (if line 10 is blank, enter -0-) . . . . . . . . . . . . . . . 13.
14. Subtract line 13 from line 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.
15. Multiply line 14 by 15% (.15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.
16. Figure the tax on the amount on line 7. Use the 2005 Tax Rate Schedules on page J-6 . . . . . . . . . . . 16.
17. Add lines 11, 15, and 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.
18. Figure the tax on the amount on line 1. Use the 2005 Tax Rate Schedules on page J-6 . . . . . . . . . . . 18.
19. Tax. Enter the smaller of line 17 or line 18 here and on Schedule J, line 12 . . . . . . . . . . . . . . . . . . . 19.

}

}

J-7

Page 8 of 11 of 2007 Instructions for Schedule J

10:47 - 28-SEP-2007

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Line 13
If you used Schedule J to figure your tax for
2006 (that is, you entered the amount from
the 2006 Schedule J, line 22, on your 2006
Form 1040, line 44, 2006 Form 1040NR,
line 41, or on Form 1040X), enter on line
13 the amount from your 2006 Schedule J,
line 3.
If you did not use Schedule J to figure
your tax for 2006, enter on line 13 the taxable income from your 2006 tax return (or
as previously adjusted by the IRS or corrected on an amended return). But if that
amount is zero or less, complete the worksheet below to figure the amount to enter on
line 13.
If you did not file a tax return for 2006,
use the amount you would have reported as
your taxable income had you been required
to file a tax return. Be sure to keep all your
records for 2006 until at least 3 years after
April 15, 2008 (or the date you file your
2007 tax return, if later).

Instructions for 2006 Taxable
Income Worksheet
Line 2. Any net capital loss deduction on
your 2006 Schedule D, line 21, is not allowed for income averaging purposes to the
extent it did not reduce your capital loss
carryover to 2007. This could happen if the
taxable income before subtracting exemptions — shown on your 2006 Form 1040,
line 41 (or as previously adjusted) — was
less than zero. Enter the amount by which
your 2006 capital loss carryover to 2007
(the sum of your short- and long-term capital loss carryovers) exceeds the excess of
the loss on your 2006 Schedule D, line 16,
over the loss on your 2006 Schedule D, line
21.

Line 3. If you had an NOL for 2006, enter

the amount of that NOL from line 25 of the
2006 Form 1045, Schedule A, you filed
with Form 1045 or Form 1040X. If you did
not have an NOL for 2006, enter the portion, if any, of the NOL carryovers and carrybacks to 2006 that were not used in 2006
and were carried to years after 2006.
Example. John Farmington did not use income averaging for 2004, 2005, or 2006.
The taxable income before subtracting exemptions on his 2006 Form 1040, line 41,
is a negative $1,000. This amount includes
an NOL deduction on his 2006 Form 1040,
line 21, of $1,950. The $1,950 is the portion of the 2005 NOL that was remaining
from 2004 to be carried to 2006. See the
examples on pages J-2 and J-5. A deduction
for exemptions of $3,300 is shown on Form
1040, line 42, and line 43, taxable income,
is limited to zero. John does not have an
NOL for 2006. John subtracts from the
$1,000 negative amount on Form 1040, line
41, the $3,300 deduction for exemptions.
The result is a negative $4,300, John’s
2006 taxable income, which he enters as a
positive amount on line 1 of the 2006 worksheet.
When John filed his 2006 tax return, he
had a $3,000 net capital loss deduction on
Schedule D, line 21 (which was also entered on Form 1040, line 13), a $7,000 loss
on Schedule D, line 16, and a $5,000 capital loss carryover to 2007 (his 2006 capital
loss carryover to 2007 was $5,000, not
$4,000, because the amount on his Form
1040, line 41, was a negative $1,000). John
adds the $3,000 from Schedule D, line 21,
and the $5,000 carryover. He subtracts
from the $8,000 result the $7,000 loss on
his Schedule D, line 16, and enters $1,000
on line 2 of the worksheet.

2006 Taxable Income Worksheet—Line 13

John enters -0- on line 3 of the worksheet because he does not have an NOL for
2006 and did not have an NOL carryover
from 2006 available to carry to 2007 and
later years. The NOL deduction for 2006 of
$1,950 was reduced to zero because it did
not exceed his modified taxable income of
$3,950. Modified taxable income is figured
by adding back the $3,000 net capital loss
deduction and the $3,300 of exemptions to
negative taxable income (figured without
regard to the NOL deduction) of $2,350.
John enters $1,000 on line 4 and $3,300 on
line 5. He enters $3,300 as a negative
amount on Schedule J, line 13. He enters
$6,000 on Schedule J, line 14, and $2,700
on Schedule J, line 15. If he uses Schedule J
to figure his tax for 2008, he will enter
$2,700 on his 2008 Schedule J as his 2006
taxable income for income averaging purposes.

Line 16
If line 15 is zero or less, enter -0- on line 16.
Otherwise, figure the tax on the amount on
line 15 using:
• The 2006 Tax Rate Schedules on page
J-9,
• The 2006 Qualified Dividends and
Capital Gain Tax Worksheet on page J-10,
• The 2006 Schedule D Tax Worksheet
in the Schedule D instructions (but use the
2006 Tax Rate Schedules on page J-9 instead of the 2006 Tax Table when figuring
the tax on the Schedule D Tax Worksheet,
lines 34 and 36), or
• The 2006 Foreign Earned Income Tax
Worksheet on page J-11.

Keep for Your Records

Complete this worksheet if your 2006 taxable income is zero or less. See the instructions above before completing this
worksheet.
1. Figure the taxable income from your 2006 tax return (or as previously adjusted) without limiting it to
zero. If you had an NOL for 2006, do not include any NOL carryovers or carrybacks to 2006. Enter
the result as a positive amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. If there is a loss on your 2006 Schedule D, line 21, add that loss (as a positive
amount) and your 2006 capital loss carryover to 2007. Subtract from that sum the
amount of the loss on your 2006 Schedule D, line 16, and enter the result . . . . . .
2.
3. If you had an NOL for 2006, enter it as a positive amount. Otherwise, enter as a
positive amount the portion, if any, of the NOL carryovers and carrybacks to 2006
that were not used in 2006 and were carried to years after 2006 . . . . . . . . . . . . .
3.
4. Add lines 2 and 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5. Subtract line 4 from line 1. Enter the result as a negative amount on Schedule J, line 13 . . . . . . . . . .

J-8

1.

4.
5.

Page 9 of 11 of 2007 Instructions for Schedule J

10:47 - 28-SEP-2007

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

2006 Tax Rate Schedules—Line 16
Schedule X — Use if your 2006 filing status was Single or you checked
filing status box 1 or 2 on Form 1040NR
If Schedule J,
line 15, is:
Over —

But not
over —

$0
7,550
30,650
74,200
154,800
336,550

$7,550
30,650
74,200
154,800
336,550
.............

of the
amount
over —

Enter on
Schedule J,
line 16
...........
$755.00+
4,220.00+
15,107.50+
37,675.50+
97,653.00+

10%
15%
25%
28%
33%
35%

$0
7,550
30,650
74,200
154,800
336,550

Schedule Y-2 — Use if your 2006 filing status was Married filing
separately or you checked filing status
box 3, 4, or 5 on Form 1040NR
If Schedule J,
line 15, is:
Over —
$0
7,550
30,650
61,850
94,225
168,275

But not
over —
$7,550
30,650
61,850
94,225
168,275
.............

of the
amount
over —

Enter on
Schedule J,
line 16
...........
$755.00 +
4,220.00 +
12,020.00 +
21,085.00 +
45,521.50 +

10%
15%
25%
28%
33%
35%

$0
7,550
30,650
61,850
94,225
168,275

Schedule Y-1 — Use if your 2006 filing status was Married filing
jointly or Qualifying widow(er) or you checked filing
status box 6 on Form 1040NR
Schedule Z — Use if your 2006 filing status was Head of household
If Schedule J,
line 15, is:
Over —

But not
over —

$0
15,100
61,300
123,700
188,450
336,550

$15,100
61,300
123,700
188,450
336,550
............

of the
amount
over —

Enter on
Schedule J,
line 16
...........
$1,510.00+
8,440.00+
24,040.00+
42,170.00+
91,043.00+

10%
15%
25%
28%
33%
35%

$0
15,100
61,300
123,700
188,450
336,550

If Schedule J,
line 15, is:
Over —
$0
10,750
41,050
106,000
171,650
336,550

J-9

But not
over —
$10,750
41,050
106,000
171,650
336,550
.............

of the
amount
over —

Enter on
Schedule J,
line 16
...........
$1,075.00 +
5,620.00 +
21,857.50 +
40,239.50 +
94,656.50 +

10%
15%
25%
28%
33%
35%

$0
10,750
41,050
106,000
171,650
336,550

Page 10 of 11 of 2007 Instructions for Schedule J

10:47 - 28-SEP-2007

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

2006 Qualified Dividends and Capital Gain Tax Worksheet—Line 16

Keep for Your Records

Use this worksheet only if both of the following apply.
• Your elected farm income on Schedule J, line 2, does not include any net capital gain.
• You (a) entered qualified dividends on your 2006 Form 1040, line 9b (or your 2006 Form 1040A, line 9b, or 2006 Form
1040NR, line 10b), (b) entered capital gain distributions directly on your 2006 Form 1040, line 13 (or your 2006 Form
1040A, line 10, or 2006 Form 1040NR, line 14) and checked the box on that line, or (c) filed Schedule D in 2006 and you
answered “Yes” on lines 17 and 20 of that Schedule D.
1. Amount from Schedule J, line 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
2. Amount from Form 1040, line 9b (or Form 1040A, line
9b, or Form 1040NR, line 10b) . . . . . . . . . . . . . . . . . . .
2.
3. Did you file Schedule D in 2006?
Yes. Enter the smaller of line 15 or 16 of your
2006 Schedule D, but do not enter less than
-03.
No. Enter the amount from Form 1040, line 13 (or
Form 1040A, line 10, or Form 1040NR, line
14)
4. Add lines 2 and 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.
5. Amount, if any, from your 2006 Form 4952, line 4g . . . .
5.
6. Subtract line 5 from line 4. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . 6.
7. Subtract line 6 from line 1. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . 7.
8. Enter the smaller of:
• The amount on line 1, or
• $30,650 if single or married filing separately, or if you
checked filing status 1, 2, 3, 4, or 5 on Form 1040NR,
. . . . . . . . . . . 8.
$61,300 if married filing jointly or qualifying widow(er) or
if you checked filing status box 6 on Form 1040NR,
$41,050 if head of household.
9. Is the amount on line 7 equal to or more than the amount on line 8?
Yes. Skip lines 9 through 11; go to line 12 and check the ‘‘No’’ box.
No. Enter the amount from line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.
10. Subtract line 9 from line 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.
11. Multiply line 10 by 5% (.05) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.
12. Are the amounts on lines 6 and 10 the same?
Yes. Skip lines 12 through 15; go to line 16.
No. Enter the smaller of line 1 or line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.
13. Enter the amount from line 10 (if line 10 is blank, enter -0-) . . . . . . . . . . . . . . . 13.
14. Subtract line 13 from line 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.
15. Multiply line 14 by 15% (.15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.
16. Figure the tax on the amount on line 7. Use the 2006 Tax Rate Schedules on page J-9 . . . . . . . . . . . 16.
17. Add lines 11, 15, and 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.
18. Figure the tax on the amount on line 1. Use the 2006 Tax Rate Schedules on page J-9 . . . . . . . . . . . 18.
19. Tax. Enter the smaller of line 17 or line 18 here and on Schedule J, line 16 . . . . . . . . . . . . . . . . . . . 19.

}

}

J-10

Page 11 of 11 of 2007 Instructions for Schedule J

10:47 - 28-SEP-2007

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

2006 Foreign Earned Income Tax Worksheet—Line 16

Keep for Your Records

Use this worksheet if you claimed the foreign earned income exclusion or the housing exclusion on your 2006 Form 2555 or
Form 2555-EZ.
1. Enter the amount from Schedule J, line 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
2. Enter the amount from your (and your spouse’s, if
filing jointly) Form 2555, line 45, or Form 2555-EZ,
line 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.
3. Enter the total amount of any itemized deductions you
could not claim because they are related to excluded
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.
4. Subtract line 3 from line 2. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . 4.
5. Combine lines 1 and 4. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . 5.
6. Tax on amount on line 5. Use the 2006 Tax Rate Schedules on page J-9, the 2006 Schedule D Tax
Worksheet*, or the Qualified Dividends and Capital Gain Tax Worksheet*, whichever applies. . . .
7. Tax on amount on line 4. Use the 2006 Tax Rate Schedules on page J-9 . . . . . . . . . . . . . . . . . . . .
8. Subtract line 7 from line 6. Enter the result here and on Schedule J, line 16 . . . . . . . . . . . . . . . . . .

6.
7.
8.

*Enter the amount from line 5 above on line 1 of the Qualified Dividends and Capital Gain Tax Worksheet on page J-10 or Schedule D Tax
Worksheet in the 2006 Schedule D instructions if you use either of those worksheets to figure the tax on line 6 above. Complete the rest of
either of those worksheets according to the worksheet’s instructions. Then complete lines 7 and 8 above.

Lines 18, 19, and 20
If you filed your 2004 tax return using
TeleFile, enter your tax from your
TeleFile Tax Record. The TeleFile Program was discontinued in 2005.

If you amended your return or the IRS
made changes to it, enter the corrected
amount.

J-11
Printed on recycled paper