U.S. Individual Income Tax Return

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Page 1 of 12 of 2008 Instructions for Schedule J

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Department of the Treasury
Internal Revenue Service

2008 Instructions for Schedule J
Use Schedule J (Form 1040) to elect to figure your 2008 income tax by averaging, over the
previous 3 years (base years), all or part of your 2008 taxable income from your trade or
Income
business of farming or fishing. This election may give you a lower tax if your 2008 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.

What’s New
Exxon Valdez litigation. If you received

taxable income from this civil action, you
may qualify to include the amount received
as fishing income for income averaging
purposes. See Settlement from Exxon
Valdez litigation on page 2.
New rules for averaging farming and
fishing income. The four items discussed

below are effective for tax years beginning
after July 22, 2008. However, you can apply these provisions to tax years beginning
after December 31, 2003, and before July
23, 2008, if all provisions are consistently
applied in each tax year.
Farming and fishing businesses. If you
conduct both farming and fishing businesses, you must figure elected farm income by combining income, gains, losses,
and deductions attributable to your farming
and fishing businesses.
Lessors of fishing vessels. A lessor of a
fishing vessel is engaged in a fishing business for income averaging purposes with
respect to payments received under the
lease, but only if the lease payments are (a)
based on a share of the catch (or a share of
the proceeds from the sale of the catch)
from the lessee’s use of the vessel in a fishing business (not a fixed payment), and (b)
determined under a written lease agreement
entered into before the lessee begins any
significant fishing activities resulting in the
catch.
Crew members on fishing vessels. A
crew member on a fishing vessel is engaged in a fishing business for income
averaging purposes with respect to the
compensation earned as a crew member on
a vessel engaged in a fishing business, but
only if the compensation is based on a share
of the catch (or a share of the proceeds from
the sale of the catch).

Merchant Marine Capital Construction
Fund (CCF) deposits. If you reduced your
taxable income on Form 1040, line 43, or
Form 1040NR, line 40, by any amount deposited into a CCF account, take into account the CCF reduction in figuring taxable
income for income averaging purposes.
Also, the CCF reduction is treated as a deduction attributable to your fishing business in figuring elected farm income.
However, if any earnings (without regard
to the carryback of any net operating or net
capital loss) from the operation of agreement vessels in the fisheries of the United
States or in the foreign or domestic commerce of the United States are not attributable to your fishing business, such amounts
are not deductible when figuring elected
farm income.

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.
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 2005,
2006, and 2007 to figure your tax on
Schedule J.
If you need copies of your tax returns,
use Form 4506. There is a $57 fee (subject
to change) for each return requested. If
your main home, principal place of business, or tax records are located in a federally declared disaster area, this fee will be
waived. If you want a free transcript of
your tax return or account, use Form
4506-T. See your Form 1040 instruction
booklet to find out how to get these forms.
Keep a copy of your 2008 income tax
return to use for income averaging in 2009,
2010, or 2011.

Definitions
Farming business. A farming business is

the trade or business of cultivating land or

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Cat. No. 25514J

• 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;
4. Any operations at sea in support of, or
in preparation for, any activity described in
(1) through (3) above;
5. Leasing a fishing vessel, but only if
the lease payments are (a) based on a share
of the catch (or a share of the proceeds from

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the sale of the catch) from the lessee’s use
of the vessel in a fishing business (not a
fixed payment), and (b) determined under a
written lease entered into before the lessee
begins any significant fishing activities resulting in the catch; and
6. Compensation as a crew member on a
vessel engaged in a fishing business, but
only if the compensation is based on a share
of the catch (or a share of the proceeds from
the sale of the catch).
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.
Settlement from Exxon Valdez litigation. You will be treated as engaged in a
fishing business with respect to any qualified settlement income you received if either of the following applies.
1. You were a plaintiff in the civil action
In re Exxon Valdez, No. 89-095-CV
(HRH) (Consolidated) (D.Alaska); or
2. All of the following apply.
a. You were a beneficiary of a plaintiff
described in (1) above,
b. You acquired the right to receive
qualified settlement income from that
plaintiff, and
c. You were the spouse or an immediate
relative of that plaintiff.
Qualified settlement income is any taxable interest and punitive damage awards
you received (whether as lump sums or periodic payments) in connection with the
Exxon Valdez civil action described above.
Qualified settlement income includes all
such awards, whether received before or after the judgement and whether related to a
settlement or a judgement.

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

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 your
farming or fishing business. If you conduct
both farming and fishing businesses, you
must figure your elected farm income by
combining income, gains, losses, and deductions attributable to your farming and
fishing businesses.

Elected farm income also includes any
gain or loss from the sale or other disposition of property regularly used in your
farming or fishing business for a substantial
period of time. However, if such gain or
loss is realized after cessation of the farming or fishing business, the gain or loss is
treated as attributable to a farming or fishing business only if the property is sold
within a reasonable time after cessation of
the farming or fishing business. A sale or
other disposition within one year of the cessation is considered to be within a reasonable time.
Elected farm income does not include
income, gain, or loss from the sale or other
disposition of land or from the sale of development rights, grazing rights, and other
similar rights.
You should find your income, gains,
losses, and deductions from farming or
fishing reported on different tax forms,
such as:
• Form 1040, line 7, or Form 1040NR,
line 8, income from wages and other compensation you received (a) as a shareholder
in an S corporation engaged in a farming or
fishing business or (b) as a crew member on
a vessel engaged in a fishing business (but
see Fishing business on page 1);
• Form 1040, line 21, or Form 1040NR,
line 21, income from Exxon Valdez litigation;
• Form 1040, line 27, deduction for
one-half of self-employment tax, but only
to the extent that deduction is attributable
to your farming or fishing business;
• Form 1040, line 43, or Form 1040NR,
line 40, CCF reduction, except to the extent
that any earnings (without regard to the carryback of any net operating or net capital
loss) from the operation of agreement vessels in the fisheries of the United States or
in the foreign or domestic commerce of the
United States are not attributable to your
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
your total net capital gain or your net capital gain attributable to your farming or fish-

J-2

ing 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 2008 Tax Table, Tax Computation Worksheet, Qualified Dividends and
Capital Gain Tax Worksheet, or Foreign
Earned Income Tax Worksheet from the
2008 Instructions for Form 1040 or Form
1040NR; or
• The Schedule D Tax Worksheet in the
2008 Instructions for Schedule D.
Enter the tax on line 4.

Line 5
If you used Schedule J to figure your tax
for:
• 2007 (that is, you entered the amount
from the 2007 Schedule J, line 22, on line
44 of your 2007 Form 1040, on line 41 of
your 2007 Form 1040NR, or on Form
1040X for 2007), enter on line 5 the
amount from your 2007 Schedule J, line 11.
• 2006 but not 2007, enter on line 5 the
amount from your 2006 Schedule J, line 15.
• 2005 but not 2006 or 2007, enter on
line 5 the amount from your 2005 Schedule
J, line 3.
If you figured your tax for 2005, 2006,
and 2007 without using Schedule J, enter
on line 5 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 on page J-3 to figure the amount to enter on line 5.
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 for at least 3 years after
April 15, 2009 (or the date you file your
2008 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 your 2005 Form 1040NR, line
38 (or as previously adjusted) — was less
than zero. Enter on line 2 the amount by

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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 net operating loss
(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, who is single,
did not use income averaging for 2005,
2006, or 2007. For 2008, John has $18,000
of elected farm income on Schedule J, line
2. The taxable income before subtracting
exemptions on his 2005 Form 1040, line

41, is $4,050. A deduction for exemptions
of $3,200 is shown on line 42, and line 43,
taxable income, is $850. However, John
had a $21,750 NOL for 2006, $9,000 of
which was remaining to carry to 2005 after
the NOL was carried back to 2004. To
complete line 1 of the 2005 Taxable Income Worksheet, John combines the
$9,000 NOL deduction with the $850 from
his 2005 Form 1040, line 43. The result is a
negative $8,150, John’s 2005 taxable income, which he enters as a positive amount
on line 1 of the 2005 Taxable Income
Worksheet.
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), a $7,000 loss
on Schedule D, line 16, and a $4,000 capital loss carryover to 2006. However, when
John carried back the 2006 NOL ($9,000 of
which was carried to 2005), he refigured
his 2005 capital loss carryover to 2006 as

2005 Taxable Income Worksheet—Line 5

$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.
John had $850 of taxable income in
2005 that reduced the 2006 NOL carryback. The $3,200 exemption deduction
and $3,000 net capital loss deduction also
reduced the amount of the 2006 NOL carryback. Therefore, only $1,950 was available to carry to 2007 and later years, as
shown on line 10 of his 2006 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 $8,150 on
line 1 and enters the result, $3,200, on line
5 of the worksheet. He enters a negative
$3,200 on Schedule J, line 5. He combines
that amount with the $6,000 on Schedule J,
line 6, and enters $2,800 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 2006 and 2007 and your 2005 taxable
income was zero or less. See the instructions that begin on page J-2 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 5 . . . . . . . . . . .

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1.

4.
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 2005 Tax Rate Schedules below,

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

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

2005 Tax Rate Schedules—Line 8
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 7, 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 8
...........
$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 7, 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 8
...........
$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 7, 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 8
...........
$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 7, is:
Over —
$0
10,450
39,800
102,800
166,450
326,450

J-4

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

of the
amount
over —

Enter on
Schedule J,
line 8
...........
$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

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2005 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 your 2008 Schedule J, lines 5 and 6, 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 your 2008 Schedule J, line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
2. Amount from your 2005 Form 1040, line 9b (or your
2005 Form 1040A, line 9b, or 2005 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 your 2005 Form 1040,
line 13 (or your 2005 Form 1040A, line 10,
or 2005 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-4 . . . . . . . . . . .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-4 . . . . . . . . . . .18.
19. Tax. Enter the smaller of line 17 or line 18 here and on your 2008 Schedule J, line 8 . . . . . . . . . . . .19.

}

}

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Line 9
If you used Schedule J to figure your tax
for:
• 2007 (that is, you entered the amount
from the 2007 Schedule J, line 22, on line
44 of your 2007 Form 1040, on line 41 of
2007 Form 1040NR, or on Form 1040X for
2007), enter on line 9 the amount from your
2007 Schedule J, line 15.
• 2006 but not 2007, enter on line 9 the
amount from your 2006 Schedule J, line 3.
If you figured your tax for both 2006
and 2007 without using Schedule J, enter
on line 9 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 9.
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, 2009 (or the date you file your
2008 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 your 2006 Form 1040NR, line
38, (or as previously adjusted) — was less
than zero. Enter on line 2 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. If you had any NOL carrybacks to
2006, be sure you refigured your 2006 capital loss carryover to 2007.
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 2005, 2006, or 2007.
The taxable income before subtracting exemptions on his 2006 Form 1040, line 41,
is a negative $29,900. A deduction for exemptions of $3,300 is shown on line 42,
and line 43, taxable income, is limited to
zero. John subtracts from the $29,900 loss
the $3,300 deduction for exemptions. The
result is a negative $33,200, John’s 2006
taxable income, which he enters as a positive amount on line 1 of the 2006 Taxable
Income Worksheet.

2006 Taxable Income Worksheet—Line 9

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), and a $7,000
loss on Schedule D, line 16 (as adjusted).
He also had a $7,000 capital loss carryover
to 2007. 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 $21,750 on line 3 of the
worksheet, the 2006 NOL from his 2006
Form 1045, Schedule A, line 25. Of the
$33,200 negative taxable income, the
$3,300 deduction for exemptions, the
$3,000 capital loss deduction, and his
$5,150 standard deduction were not allowed in figuring the NOL. John had a
$21,750 loss on his 2006 Schedule F, the
only other item on his 2006 tax return.
John enters $24,750 (the $3,000 line 2
amount plus the $21,750 line 3 amount) on
line 4 and $8,450 (the $33,200 line 1
amount minus the $24,750 line 4 amount)
on line 5. He enters $8,450 as a negative
amount on Schedule J, line 9. He enters
$6,000 on Schedule J, line 10, and a negative $2,450 on Schedule J, line 11. If he
uses Schedule J to figure his tax for 2009,
he will enter the negative $2,450 amount on
his 2009 Schedule J as his 2006 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 2007 and your 2006 taxable income was 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 9 . . . . . . . . . . .

J-6

1.

4.
5.

Page 7 of 12 of 2008 Instructions for Schedule J

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

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 2006 Tax Rate Schedules below,

• The 2006 Qualified Dividends and
Capital Gain Tax Worksheet on page J-8,
• The 2006 Schedule D Tax Worksheet
in the 2006 Schedule D instructions (but
use the 2006 Tax Rate Schedules below

2006 Tax Rate Schedules—Line 12

Keep for Your Records

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 11, 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 12
...........
$755.00 +
4,220.00 +
15,107.50 +
37,675.50 +
97,653.00 +

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

when figuring the tax on the Schedule D
Tax Worksheet, lines 34 and 36), or
• The 2006 Foreign Earned Income Tax
Worksheet below.

$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 11, 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 12
...........
$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 11, 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 12
...........
$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 11, is:
Over —
$0
10,750
41,050
106,000
171,650
336,550

2006 Foreign Earned Income Tax Worksheet—Line 12

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

of the
amount
over —

Enter on
Schedule J,
line 12
...........
$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

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 your 2008 Schedule J, line 11 . . . . . . . . . . . . . . . . . . . 1.
2. Enter the amount from your (and your spouse’s, if
filing jointly) 2006 Form 2555, line 45, or Form
2555-EZ, line 18 . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.
3. Enter the total amount of any itemized deductions you
could not claim in 2006 because they were 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 above, 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 above . . . . . . . . . . . . . . . . . . . . . . . .
8. Subtract line 7 from line 6. Enter the result here and on your 2008 Schedule J, line 12 . . . . . . . . . .

6.
7.
8.

*Enter the amount from line 5 above on line 1 of the 2006 Qualified Dividends and Capital Gain Tax Worksheet on page J-8 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.

J-7

Page 8 of 12 of 2008 Instructions for Schedule J

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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 12

Keep for Your Records

Use this worksheet only if both of the following apply.
• Your elected farm income on the your 2008 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 your 2008 Schedule J, line 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
2. Amount from your 2006 Form 1040, line 9b (or your
2006 Form 1040A, line 9b, or 2006 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 your 2006 Form 1040,
line 13 (or your 2006 Form 1040A, line 10,
or 2006 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 box 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-7 . . . . . . . . . . . 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-7 . . . . . . . . . . . 18.
19. Tax. Enter the smaller of line 17 or line 18 here and on your 2008 Schedule J, line 12 . . . . . . . . . . . 19.

}

}

J-8

Page 9 of 12 of 2008 Instructions for Schedule J

13:59 - 8-NOV-2008

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
2007 (that is, you entered the amount from
the 2007 Schedule J, line 22, on line 44 of
your 2007 Form 1040, on line 41 of your
2007 Form 1040NR, or on Form 1040X for
2007), enter on line 13 the amount from
your 2007 Schedule J, line 3.
If you did not use Schedule J to figure
your tax for 2007, enter on line 13 the taxable income from your 2007 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 2007,
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 2007 until at least 3 years after
April 15, 2009 (or the date you file your
2008 tax return, if later).

Instructions for 2007 Taxable
Income Worksheet
Line 2. Any net capital loss deduction on
your 2007 Schedule D, line 21, is not allowed for income averaging purposes to the
extent it did not reduce your capital loss
carryover to 2008. This could happen if the
taxable income before subtracting exemptions — shown on your 2007 Form 1040,
line 41, or your 2007 Form 1040NR, line
38 (or as previously adjusted) — was less
than zero. Enter on line 2 the amount by
which your 2007 capital loss carryover to
2008 (the sum of your short- and long-term
capital loss carryovers) exceeds the excess
of the loss on your 2007 Schedule D, line
16, over the loss on your 2007 Schedule D,
line 21.

Line 3. If you had an NOL for 2007, enter

the amount of that NOL from line 25 of the
2007 Form 1045, Schedule A, you filed
with Form 1045 or Form 1040X. If you did
not have an NOL for 2007, enter the portion, if any, of the NOL carryovers and carrybacks to 2007 that were not used in 2007
and were carried to years after 2007.
Example. John Farmington did not use income averaging for 2005, 2006, or 2007.
The taxable income before subtracting exemptions on his 2007 Form 1040, line 41,
is a negative $1,000. This amount includes
an NOL deduction on his 2007 Form 1040,
line 21, of $1,950. The $1,950 is the portion of the 2006 NOL that was remaining
from 2005 to be carried to 2007. See the
examples on pages J-3 and J-6. A deduction
for exemptions of $3,400 is shown on Form
1040, line 42, and line 43, taxable income,
is limited to zero. John does not have an
NOL for 2007. John subtracts from the
$1,000 negative amount on Form 1040, line
41, the $3,400 deduction for exemptions.
The result is a negative $4,400, John’s
2007 taxable income, which he enters as a
positive amount on line 1 of the 2007 Taxable Income Worksheet.
When John filed his 2007 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 2008 (his 2007 capital
loss carryover to 2008 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.

2007 Taxable Income Worksheet—Line 13

John enters -0- on line 3 of the worksheet because he does not have an NOL for
2007 and did not have an NOL carryover
from 2007 available to carry to 2008 and
later years. The NOL deduction for 2007 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 $3,400 exemption deduction to negative taxable income (figured
without regard to the NOL deduction) of
$2,450. John enters $1,000 on line 4 and
$3,400 on line 5. He enters $3,400 as a negative amount on Schedule J, line 13. He enters $6,000 on Schedule J, line 14, and
$2,600 on Schedule J, line 15. If he uses
Schedule J to figure his tax for 2009, he
will enter $2,600 on his 2009 Schedule J as
his 2007 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 2007 Tax Rate Schedules on page
J-10,
• The 2007 Qualified Dividends and
Capital Gain Tax Worksheet on page J-11,
• The 2007 Schedule D Tax Worksheet
in the 2007 Schedule D instructions (but
use the 2007 Tax Rate Schedules on page
J-10 when figuring the tax on the Schedule
D Tax Worksheet, lines 34 and 36), or
• The 2007 Foreign Earned Income Tax
Worksheet on page J-12.

Keep for Your Records

Complete this worksheet if your 2007 taxable income was zero or less. See the instructions above before completing this
worksheet.
1. Figure the taxable income from your 2007 tax return (or as previously adjusted) without limiting it to
zero. If you had an NOL for 2007, do not include any NOL carryovers or carrybacks to 2007. Enter
the result as a positive amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. If there is a loss on your 2007 Schedule D, line 21, add that loss (as a positive
amount) and your 2007 capital loss carryover to 2008. Subtract from that sum the
amount of the loss on your 2007 Schedule D, line 16, and enter the result . . . . . .
2.
3. If you had an NOL for 2007, enter it as a positive amount. Otherwise, enter as a
positive amount the portion, if any, of the NOL carryovers and carrybacks to 2007
that were not used in 2007 and were carried to years after 2007 . . . . . . . . . . . . .
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-9

1.

4.
5.

Page 10 of 12 of 2008 Instructions for Schedule J

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

2007 Tax Rate Schedules—Line 16
Schedule X — Use if your 2007 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 —

Enter on
Schedule J,
line 16

$0
7,825
31,850
77,100
160,850
349,700

$7,825
31,850
77,100
160,850
349,700
.............

...........
$782.50 +
4,386.25 +
15,698.75 +
39,148.75 +
101,469.25+

of the
amount
over —
10%
15%
25%
28%
33%
35%

$0
7,825
31,850
77,100
160,850
349,700

Schedule Y-2 — Use if your 2007 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
7,825
31,850
64,250
97,925
174,850

But not
over —
$7,825
31,850
64,250
97,925
174,850
.............

of the
amount
over —

Enter on
Schedule J,
line 16
...........
$782.50 +
4,386.25 +
12,486.25 +
21,915.25 +
47,300.50 +

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

$0
7,825
31,850
64,250
97,925
174,850

Schedule Y-1 — Use if your 2007 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 2007 filing status was Head of household
If Schedule J,
line 15, is:
Over —

But not
over —

$0
15,650
63,700
128,500
195,850
349,700

$15,650
63,700
128,500
195,850
349,700
............

of the
amount
over —

Enter on
Schedule J,
line 16
...........
$1,565.00 +
8,772.50 +
24,972.50 +
43,830.50 +
94,601.00 +

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

$0
15,650
63,700
128,500
195,850
349,700

If Schedule J,
line 15, is:
Over —
$0
11,200
42,650
110,100
178,350
349,700

J-10

But not
over —
$11,200
42,650
110,100
178,350
349,700
.............

of the
amount
over —

Enter on
Schedule J,
line 16
...........
$1,120.00 +
5,837.50 +
22,700.00 +
41,810.00 +
98,355.50 +

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

$0
11,200
42,650
110,100
178,350
349,700

Page 11 of 12 of 2008 Instructions for Schedule J

13:59 - 8-NOV-2008

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

2007 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 your 2008 Schedule J, line 2, does not include any net capital gain.
• You (a) entered qualified dividends on your 2007 Form 1040, line 9b (or your 2007 Form 1040A, line 9b, or 2007 Form
1040NR, line 10b); (b) entered capital gain distributions directly on your 2007 Form 1040, line 13 (or your 2007 Form
1040A, line 10, or 2007 Form 1040NR, line 14) and checked the box on that line; or (c) filed Schedule D in 2007 and you
answered “Yes” on lines 17 and 20 of that Schedule D.
1. Amount from your 2008 Schedule J, line 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
2. Amount from your 2007 Form 1040, line 9b (or your
2007 Form 1040A, line 9b, or 2007 Form 1040NR, line
10b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.
3. Did you file Schedule D in 2007?
Yes. Enter the smaller of line 15 or 16 of your
2007 Schedule D, but do not enter less than
-03.
No. Enter the amount from your 2007 Form 1040,
line 13 (or your 2007 Form 1040A, line 10,
or 2007 Form 1040NR, line 14)
4. Add lines 2 and 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.
5. Amount, if any, from your 2007 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
• $31,850 if single or married filing separately, or if you
checked filing status box 1, 2, 3, 4, or 5 on Form 1040NR; . . . . . . . . . . . 8.
$63,700 if married filing jointly or qualifying widow(er) or
if you checked filing status box 6 on Form 1040NR;
$42,650 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 2007 Tax Rate Schedules on page J-10 . . . . . . . . . . 16.
17. Add lines 11, 15, and 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.
18. Figure the tax on the amount on line 1. Use the 2007 Tax Rate Schedules on page J-10 . . . . . . . . . . 18.
19. Tax. Enter the smaller of line 17 or line 18 here and on your 2008 Schedule J, line 16 . . . . . . . . . . . 19.

}

}

J-11

Page 12 of 12 of 2008 Instructions for Schedule J

13:59 - 8-NOV-2008

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

2007 Foreign Earned Income Tax Worksheet—Line 16
Before you begin:

⻫

Keep for Your Records

If Schedule J, line 15, is zero or less, do not complete this worksheet.

1. Enter the amount from your 2008 Schedule J, line 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Enter the amount from your (and your spouse’s, if filing jointly) 2007 Form 2555, line 45, or Form 2555-EZ,
line 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Add lines 1 and 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4. Tax on the amount on line 3. Use the 2007 Tax Rate Schedules on page J-10, the 2007 Qualified Dividends
and Capital Gain Tax Worksheet on page J-11,* or the 2007 Schedule D Tax Worksheet in the 2007 Schedule
D instructions,* whichever applies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5. Tax on the amount on line 2. Use the 2007 Tax Rate Schedules on page J-10. . . . . . . . . . . . . . . . . . . . . . .
6. Subtract line 5 from line 4. Enter the result. If zero or less, enter -0-. Also include this amount on your 2008
Schedule J, line 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.
2.
3.

4.
5.
6.

*Enter the amount from line 3 above on line 1 of the 2007 Qualified Dividends and Capital Gain Tax Worksheet or the 2007 Schedule D Tax Worksheet if you
use either of those worksheets to figure the tax on line 4 above. Complete the rest of that worksheet through line 6 (line 10 if you use the Schedule D Tax
Worksheet). Next, you must determine if you had a capital gain excess. To find out if you had a capital gain excess, subtract the amount from your 2007 Form
1040, line 43, from line 6 of your 2007 Qualified Dividends and Capital Gain Tax Worksheet (line 10 of your 2007 Schedule D Tax Worksheet). If the result is
more than zero, that amount is your capital gain excess.
If you did not have a capital gain excess, complete the rest of either of those worksheets according to the worksheet’s instructions. Then complete lines 5 and
6 above.
If you had a capital gain excess, complete a second 2007 Qualified Dividends and Capital Gain Tax Worksheet or 2007 Schedule D Tax Worksheet
(whichever applies) as instructed above but in its entirety and with the following additional modifications. Then complete lines 5 and 6 above. These
modifications are to be made only for purposes of filling out the 2007 Foreign Earned Income Tax Worksheet above.
1. Reduce the amount you would otherwise enter on line 3 of your 2007 Qualified Dividends and Capital Gain Tax Worksheet or line 9 of your 2007
Schedule D Tax Worksheet (but not below zero) by your capital gain excess.
2. Reduce the amount you would otherwise enter on your 2007 Form 1040, line 9b, (but not below zero) by any of your capital gain excess not used in (1)
above.
3. Reduce the amount on your 2007 Schedule D (Form 1040), line 18, (but not below zero) by your capital gain excess.
4. Include your capital gain excess as a loss on line 16 of your 2007 Unrecaptured Section 1250 Gain Worksheet on page D-9 of the 2007 Instructions for
Schedule D (Form 1040).

Lines 18, 19, and 20
If you amended your return or the IRS
made changes to it, enter the corrected
amount.

J-12
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