If you dispose of a fishing permit/license, you may have a gain or loss that should be reported on your tax return. However, in some cases you may have a gain that is not taxable or a loss that is not deductible. A disposition of property includes the following transactions.
- You sell property for cash or other property
- You exchange property for other property
- You transfer property to satisfy a debt
- Your bank or other financial institution forecloses on your mortgage or repossesses your property
- Your property is condemned, or disposed of under the threat of condemnation, and you receive property or money in payment
- You abandon property
- You give property away
Fishing Deferred Income
Certain exchanges of property are not taxable. They include Like-Kind Exchanges and Installment Sales. A like-kind exchange is the exchange of business property for similar business property rather than being sold for cash. An installment sale is a sale of property where you receive at least one payment after the tax year of the sale.
Fishing Taxable Exchanges
When disposing of business property, you will most likely be making a taxable exchange. They include gains, losses, Buy-Backs and Condemnations.
Transfer of Limited Entry Permits Between Family
Under Internal Revenue Code section 1041, no gain or loss is recognized on a transfer of property from an individual to a spouse. Find out more information regarding the rules of transfers due to death, reasons other than death, and the method of sale.
Limited Entry Permits and Anti-Churning Rules
Some special rules may apply to permits acquired before August 10, 1993.
Reporting Emergency Transfer of a Limited Entry Permits
Reporting emergency transfer of a limited entry permit depends on two things. First, is the rental of a limited entry fishing permit considered to be the continuation of the Schedule C business?
- If YES, it would be reported on the fishing Schedule C subject to self-employment tax.
- If NO, whether it would be reported on the front of the Form 1040 as "Other Income" (not subject to self-employment tax) or on the Schedule C (subject to self-employment tax) is dependent upon how long the emergency transfer lasts.
If it is just one fishing season, it would be reported as other income not subject to self-employment tax. If two or more seasons, it is likely that the income will be reported on Schedule C, subject to self-employment tax.