been claimed as an item of expense, the actual purchase price of such stock, less any depreciation which may have been previously claimed, may be deducted as a loss. Property destroyed by order of the authorities of a State, or of the United States, may, in a like manner, be claimed as a loss. If reimbursement, however, is made by a State, or the United States, in whole or in part, on account of stock killed or property destroyed, the amount received shall be reported as income for the year in which reimbursement is made. Farm Machinery The cost of farm machinery is not an allowable deduction as an item of expense, but the cost of ordinary tools may be included under this item. Depreciation of Farm Property A reasonable allowance may be claimed for depreciation on farm buildings (other than a dwelling occupied by the owner), farm machinery and other physical property, including stock purchased for breeding purposes, but no claim for depreciation on stock raised or purchased for resale will be allowed. Accounts of Farmers Farmers who keep books, according to some approved method of accounting, which clearly shows the net income, may prepare their returns from such books. Farms Operated Not for Profit A person cultivating or operating a farm for recreation or pleasure, on a basis other than the recognized principles of commercial farming, the result of which is a continual loss from year to year, is not regarded as a farmer. In such cases, if the expenses incurred in connection with the farm are in excess of the receipts therefrom, the entire receipts from sale of products may be ignored in rendering a return of income; and the expenses incurred, being regarded as personal expenses, will not constitute allowable deductions in the return of income derived from other sources. Estates and Trusts Estates in Process of Settlement Income received by estates of deceased persons during the period of administration or settlement of the estate shall be subject to the normal tax and surtax. Accumulated Income Income from estates or any kind of property held in trust, including such income accumulated in trust for the benefit of unborn or unascertained persons, or persons with contingent inter ests, and income held for future distribution under the terms of the will or trust, shall be subject to the normal tax and surtax. The tax in each instance, except when the income is returned for the purpose of the tax by the beneficiary, shall be assessed to the fiduciary. Annual Income In case income is to be distributed annually or regularly between existing heirs or legatees, or beneficiaries, the rate of tax and method of computing the same shall be based in each case upon the amount of the individual share to be distributed. Non-Resident Aliens Non-resident aliens are required to enter in their returns their total income received from sources within the United States, including interest on bonds, notes, or other interest-bearing obligations of residents, corporate or otherwise. Exempt Income The following classes of income are exempt from tax and shall not be returned as gross income: Insurance The proceeds of life insurance policies paid to individual beneficiaries upon the death of the insured; and the amount received by the insured, as a return of premium or premiums paid by him under life insurance, endowment, or annuity contracts either during the term or at the maturity of the term mentioned in the contract or upon the surrender of the contract are exempt from taxation. Dividends received on life insurance policies that have not matured are likewise not taxable income. Property Acquired by Gift, Devise or Descent The value of property acquired by gift, devise, or descent is exempt from taxation, but the income from such property shall be included as income subject to tax. Bonus or Special Compensation A bonus to an employee in the nature of a voluntary contribution or donation, and not as compensation for services rendered, is not income subject to the tax. Such payments are likewise not proper deductions from the gross income of the employer. Government and Municipal Bonds Interest upon the obligations of a State or any political subdivision thereof, or upon the obligations of the United States (to the extent exempt under the Act authorizing the issue) or its territories or possessions, or securities issued under the provisions of the Federal Farm Loan Act of July 17, 1916, is exempt. Four Per Centum Liberty Bonds and Interest on all government obligations issued prior to September 1, 1917, are exempt from income tax. By the Act of September 24, 1917, the interest on 4% Liberty Loan Bonds and War Savings Certificates (in excess of $5,000 principal), is subject to surtaxes and to excess profits taxes. If purchased and owned separately, a husband, wife and each minor child, may hold $5,000 in such bonds and certificates, and the interest therefrom will be exempt from tax. Political Subdivision Defined Special assessment districts created under the laws of the several States for public purposes, |