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2011 1040 Ez Form

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2011 1040 Ez Form

2011 1040 ez form 36. 2011 1040 ez form   Earned Income Credit (EIC) Table of Contents What's New Reminders Introduction Useful Items - You may want to see: Do You Qualify for the Credit?If Improper Claim Made in Prior Year Part A. 2011 1040 ez form Rules for EveryoneRule 1. 2011 1040 ez form Your AGI Must Be Less Than: Rule 2. 2011 1040 ez form You Must Have a Valid Social Security Number (SSN) Rule 3. 2011 1040 ez form Your Filing Status Cannot Be Married Filing Separately Rule 4. 2011 1040 ez form You Must Be a U. 2011 1040 ez form S. 2011 1040 ez form Citizen or Resident Alien All Year Rule 5. 2011 1040 ez form You Cannot File Form 2555 or Form 2555-EZ Rule 6. 2011 1040 ez form Your Investment Income Must Be $3,300 or Less Rule 7. 2011 1040 ez form You Must Have Earned Income Part B. 2011 1040 ez form Rules If You Have a Qualifying ChildRule 8. 2011 1040 ez form Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Rule 9. 2011 1040 ez form Your Qualifying Child Cannot Be Used By More Than One Person To Claim the EIC Rule 10. 2011 1040 ez form You Cannot Be a Qualifying Child of Another Taxpayer Part C. 2011 1040 ez form Rules If You Do Not Have a Qualifying ChildRule 11. 2011 1040 ez form You Must Be at Least Age 25 but Under Age 65 Rule 12. 2011 1040 ez form You Cannot Be the Dependent of Another Person Rule 13. 2011 1040 ez form You Cannot Be a Qualifying Child of Another Taxpayer Rule 14. 2011 1040 ez form You Must Have Lived in the United States More Than Half of the Year Part D. 2011 1040 ez form Figuring and Claiming the EICRule 15. 2011 1040 ez form Your Earned Income Must Be Less Than: IRS Will Figure the EIC for You How To Figure the EIC Yourself ExamplesExample 1. 2011 1040 ez form John and Janet Smith (Form 1040A) Example 2. 2011 1040 ez form Kelly Green (Form 1040EZ) What's New Earned income amount is more. 2011 1040 ez form  The maximum amount of income you can earn and still get the credit has increased. 2011 1040 ez form You may be able to take the credit if: You have three or more qualifying children and you earned less than $46,227 ($51,567 if married filing jointly), You have two qualifying children and you earned less than $43,038 ($48,378 if married filing jointly), You have one qualifying child and you earned less than $37,870 ($43,210 if married filing jointly), or You do not have a qualifying child and you earned less than $14,340 ($19,680 if married filing jointly). 2011 1040 ez form Your adjusted gross income also must be less than the amount in the above list that applies to you. 2011 1040 ez form For details, see Rules 1 and 15. 2011 1040 ez form Investment income amount is more. 2011 1040 ez form  The maximum amount of investment income you can have and still get the credit has increased to $3,300. 2011 1040 ez form See Rule 6. 2011 1040 ez form Reminders Increased EIC on certain joint returns. 2011 1040 ez form  A married person filing a joint return may get more EIC than someone with the same income but a different filing status. 2011 1040 ez form As a result, the EIC table has different columns for married persons filing jointly than for everyone else. 2011 1040 ez form When you look up your EIC in the EIC Table, be sure to use the correct column for your filing status and the number of children you have. 2011 1040 ez form Online help. 2011 1040 ez form  You can use the EITC Assistant at www. 2011 1040 ez form irs. 2011 1040 ez form gov/eitc to find out if you are eligible for the credit. 2011 1040 ez form The EITC Assistant is available in English and Spanish. 2011 1040 ez form EIC questioned by IRS. 2011 1040 ez form  The IRS may ask you to provide documents to prove you are entitled to claim the EIC. 2011 1040 ez form We will tell you what documents to send us. 2011 1040 ez form These may include: birth certificates, school records, medical records, etc. 2011 1040 ez form The process of establishing your eligibility will delay your refund. 2011 1040 ez form Introduction The earned income credit (EIC) is a tax credit for certain people who work and have less than $51,567 of earned income. 2011 1040 ez form A tax credit usually means more money in your pocket. 2011 1040 ez form It reduces the amount of tax you owe. 2011 1040 ez form The EIC may also give you a refund. 2011 1040 ez form How do you get the earned income credit?   To claim the EIC, you must: Qualify by meeting certain rules, and File a tax return, even if you: Do not owe any tax, Did not earn enough money to file a return, or Did not have income taxes withheld from your pay. 2011 1040 ez form When you complete your return, you can figure your EIC by using a worksheet in the instructions for Form 1040, Form 1040A, or Form 1040EZ. 2011 1040 ez form Or, if you prefer, you can let the IRS figure the credit for you. 2011 1040 ez form How will this chapter help you?   This chapter will explain the following. 2011 1040 ez form The rules you must meet to qualify for the EIC. 2011 1040 ez form How to figure the EIC. 2011 1040 ez form Useful Items - You may want to see: Publication 596 Earned Income Credit (EIC) Form (and Instructions) Schedule EIC Earned Income Credit (Qualifying Child Information) 8862 Information To Claim Earned Income Credit After Disallowance Do You Qualify for the Credit? To qualify to claim the EIC, you must first meet all of the rules explained in Part A, Rules for Everyone . 2011 1040 ez form Then you must meet the rules in Part B, Rules If You Have a Qualifying Child , or Part C, Rules If You Do Not Have a Qualifying Child . 2011 1040 ez form There is one final rule you must meet in Part D, Figuring and Claiming the EIC . 2011 1040 ez form You qualify for the credit if you meet all the rules in each part that applies to you. 2011 1040 ez form If you have a qualifying child, the rules in Parts A, B, and D apply to you. 2011 1040 ez form If you do not have a qualifying child, the rules in Parts A, C, and D apply to you. 2011 1040 ez form Table 36-1, Earned Income Credit in a Nutshell. 2011 1040 ez form   Use Table 36–1 as a guide to Parts A, B, C, and D. 2011 1040 ez form The table is a summary of all the rules in each part. 2011 1040 ez form Do you have a qualifying child?   You have a qualifying child only if you have a child who meets the four tests described in Rule 8 and illustrated in Figure 36–1. 2011 1040 ez form If Improper Claim Made in Prior Year If your EIC for any year after 1996 was denied or reduced for any reason other than a math or clerical error, you must attach a completed Form 8862 to your next tax return to claim the EIC. 2011 1040 ez form You must also qualify to claim the EIC by meeting all the rules described in this chapter. 2011 1040 ez form However, if your EIC was denied or reduced as a result of a math or clerical error, do not attach Form 8862 to your next tax return. 2011 1040 ez form For example, if your arithmetic is incorrect, the IRS can correct it. 2011 1040 ez form If you do not provide a correct social security number, the IRS can deny the EIC. 2011 1040 ez form These kinds of errors are called math or clerical errors. 2011 1040 ez form If your EIC for any year after 1996 was denied and it was determined that your error was due to reckless or intentional disregard of the EIC rules, then you cannot claim the EIC for the next 2 years. 2011 1040 ez form If your error was due to fraud, then you cannot claim the EIC for the next 10 years. 2011 1040 ez form More information. 2011 1040 ez form   See chapter 5 in Publication 596 for more detailed information about the disallowance period and Form 8862. 2011 1040 ez form Part A. 2011 1040 ez form Rules for Everyone This part of the chapter discusses Rules 1 through 7. 2011 1040 ez form You must meet all seven rules to qualify for the earned income credit. 2011 1040 ez form If you do not meet all seven rules, you cannot get the credit and you do not need to read the rest of the chapter. 2011 1040 ez form If you meet all seven rules in this part, then read either Part B or Part C (whichever applies) for more rules you must meet. 2011 1040 ez form Rule 1. 2011 1040 ez form Your AGI Must Be Less Than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. 2011 1040 ez form Adjusted gross income (AGI). 2011 1040 ez form   AGI is the amount on line 38 (Form 1040), line 22 (Form 1040A), or line 4 (Form 1040EZ). 2011 1040 ez form If your AGI is equal to or more than the applicable limit listed above, you cannot claim the EIC. 2011 1040 ez form Example. 2011 1040 ez form Your AGI is $38,550, you are single, and you have one qualifying child. 2011 1040 ez form You cannot claim the EIC because your AGI is not less than $37,870. 2011 1040 ez form However, if your filing status was married filing jointly, you might be able to claim the EIC because your AGI is less than $43,210. 2011 1040 ez form Community property. 2011 1040 ez form   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3 ), and live in a state that has community property laws, your AGI includes that portion of both your and your spouse's wages that you are required to include in gross income. 2011 1040 ez form This is different from the community property rules that apply under Rule 7 . 2011 1040 ez form Rule 2. 2011 1040 ez form You Must Have a Valid Social Security Number (SSN) To claim the EIC, you (and your spouse, if filing a joint return) must have a valid SSN issued by the Social Security Administration (SSA). 2011 1040 ez form Any qualifying child listed on Schedule EIC also must have a valid SSN. 2011 1040 ez form (See Rule 8 if you have a qualifying child. 2011 1040 ez form ) If your social security card (or your spouse's, if filing a joint return) says “Not valid for employment” and your SSN was issued so that you (or your spouse) could get a federally funded benefit, you cannot get the EIC. 2011 1040 ez form An example of a federally funded benefit is Medicaid. 2011 1040 ez form If you have a card with the legend “Not valid for employment” and your immigration status has changed so that you are now a U. 2011 1040 ez form S. 2011 1040 ez form citizen or permanent resident, ask the SSA for a new social security card without the legend. 2011 1040 ez form U. 2011 1040 ez form S. 2011 1040 ez form citizen. 2011 1040 ez form   If you were a U. 2011 1040 ez form S. 2011 1040 ez form citizen when you received your SSN, you have a valid SSN. 2011 1040 ez form Valid for work only with INS or DHS authorization. 2011 1040 ez form   If your social security card reads “Valid for work only with INS authorization” or “Valid for work only with DHS authorization,” you have a valid SSN, but only if that authorization is still valid. 2011 1040 ez form SSN missing or incorrect. 2011 1040 ez form   If an SSN for you or your spouse is missing from your tax return or is incorrect, you may not get the EIC. 2011 1040 ez form Other taxpayer identification number. 2011 1040 ez form   You cannot get the EIC if, instead of an SSN, you (or your spouse, if filing a joint return) have an individual taxpayer identification number (ITIN). 2011 1040 ez form ITINs are issued by the Internal Revenue Service to noncitizens who cannot get an SSN. 2011 1040 ez form No SSN. 2011 1040 ez form   If you do not have a valid SSN, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). 2011 1040 ez form You cannot claim the EIC. 2011 1040 ez form Getting an SSN. 2011 1040 ez form   If you (or your spouse, if filing a joint return) do not have an SSN, you can apply for one by filing Form SS-5, Application for a Social Security Card, with the SSA. 2011 1040 ez form You can get Form SS-5 online at www. 2011 1040 ez form socialsecurity. 2011 1040 ez form gov, from your local SSA office, or by calling the SSA at 1-800-772-1213. 2011 1040 ez form Filing deadline approaching and still no SSN. 2011 1040 ez form   If the filing deadline is approaching and you still do not have an SSN, you have two choices. 2011 1040 ez form Request an automatic 6-month extension of time to file your return. 2011 1040 ez form You can get this extension by filing Form 4868, Application for Automatic Extension of Time to File U. 2011 1040 ez form S. 2011 1040 ez form Individual Income Tax Return. 2011 1040 ez form For more information, see chapter 1 . 2011 1040 ez form File the return on time without claiming the EIC. 2011 1040 ez form After receiving the SSN, file an amended return (Form 1040X, Amended U. 2011 1040 ez form S. 2011 1040 ez form Individual Income Tax Return) claiming the EIC. 2011 1040 ez form Attach a filled-in Schedule EIC if you have a qualifying child. 2011 1040 ez form Table 36-1. 2011 1040 ez form Earned Income Credit in a Nutshell First, you must meet all the rules in this column. 2011 1040 ez form Second, you must meet all the rules in one of these columns, whichever applies. 2011 1040 ez form Third, you must meet the rule in this column. 2011 1040 ez form Part A. 2011 1040 ez form  Rules for Everyone Part B. 2011 1040 ez form  Rules If You Have a Qualifying Child Part C. 2011 1040 ez form  Rules If You Do Not Have a Qualifying Child Part D. 2011 1040 ez form  Figuring and Claiming the EIC 1. 2011 1040 ez form Your adjusted gross income (AGI) must be less than: • $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children,  • $43,038 ($48,378 for married filing jointly) if you have two qualifying children,  • $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or   • $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. 2011 1040 ez form 2. 2011 1040 ez form You must have a valid social security number. 2011 1040 ez form  3. 2011 1040 ez form Your filing status cannot be “Married filing separately. 2011 1040 ez form ” 4. 2011 1040 ez form You must be a U. 2011 1040 ez form S. 2011 1040 ez form citizen or resident alien all year. 2011 1040 ez form  5. 2011 1040 ez form You cannot file Form 2555 or Form 2555-EZ (relating to foreign earned income). 2011 1040 ez form  6. 2011 1040 ez form Your investment income must be $3,300 or less. 2011 1040 ez form  7. 2011 1040 ez form You must have earned income. 2011 1040 ez form 8. 2011 1040 ez form Your child must meet the relationship, age, residency, and joint return tests. 2011 1040 ez form  9. 2011 1040 ez form Your qualifying child cannot be used by more than one person to claim the EIC. 2011 1040 ez form  10. 2011 1040 ez form You cannot be a qualifying child of another person. 2011 1040 ez form 11. 2011 1040 ez form You must be at least age 25 but under age 65. 2011 1040 ez form  12. 2011 1040 ez form You cannot be the dependent of another person. 2011 1040 ez form  13. 2011 1040 ez form You cannot be a qualifying child of another person. 2011 1040 ez form  14. 2011 1040 ez form You must have lived in the United States more than half of the year. 2011 1040 ez form 15. 2011 1040 ez form Your earned income must be less than: • $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children,  • $43,038 ($48,378 for married filing jointly) if you have two qualifying children,  • $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or   • $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. 2011 1040 ez form Rule 3. 2011 1040 ez form Your Filing Status Cannot Be Married Filing Separately If you are married, you usually must file a joint return to claim the EIC. 2011 1040 ez form Your filing status cannot be “Married filing separately. 2011 1040 ez form ” Spouse did not live with you. 2011 1040 ez form   If you are married and your spouse did not live in your home at any time during the last 6 months of the year, you may be able to file as head of household, instead of married filing separately. 2011 1040 ez form In that case, you may be able to claim the EIC. 2011 1040 ez form For detailed information about filing as head of household, see chapter 2 . 2011 1040 ez form Rule 4. 2011 1040 ez form You Must Be a U. 2011 1040 ez form S. 2011 1040 ez form Citizen or Resident Alien All Year If you (or your spouse, if married) were a nonresident alien for any part of the year, you cannot claim the earned income credit unless your filing status is married filing jointly. 2011 1040 ez form You can use that filing status only if one spouse is a U. 2011 1040 ez form S. 2011 1040 ez form citizen or resident alien and you choose to treat the nonresident spouse as a U. 2011 1040 ez form S. 2011 1040 ez form resident. 2011 1040 ez form If you make this choice, you and your spouse are taxed on your worldwide income. 2011 1040 ez form If you (or your spouse, if married) were a nonresident alien for any part of the year and your filing status is not married filing jointly, enter “No” on the dotted line next to line 64a (Form 1040) or in the space to the left of line 38a (Form 1040A). 2011 1040 ez form If you need more information on making this choice, get Publication 519, U. 2011 1040 ez form S. 2011 1040 ez form Tax Guide for Aliens. 2011 1040 ez form Rule 5. 2011 1040 ez form You Cannot File Form 2555 or Form 2555-EZ You cannot claim the earned income credit if you file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. 2011 1040 ez form You file these forms to exclude income earned in foreign countries from your gross income, or to deduct or exclude a foreign housing amount. 2011 1040 ez form U. 2011 1040 ez form S. 2011 1040 ez form possessions are not foreign countries. 2011 1040 ez form See Publication 54, Tax Guide for U. 2011 1040 ez form S. 2011 1040 ez form Citizens and Resident Aliens Abroad, for more detailed information. 2011 1040 ez form Rule 6. 2011 1040 ez form Your Investment Income Must Be $3,300 or Less You cannot claim the earned income credit unless your investment income is $3,300 or less. 2011 1040 ez form If your investment income is more than $3,300, you cannot claim the credit. 2011 1040 ez form For most people, investment income is the total of the following amounts. 2011 1040 ez form Taxable interest (line 8a of Form 1040 or 1040A). 2011 1040 ez form Tax-exempt interest (line 8b of Form 1040 or 1040A). 2011 1040 ez form Dividend income (line 9a of Form 1040 or 1040A). 2011 1040 ez form Capital gain net income (line 13 of Form 1040, if more than zero, or line 10 of Form 1040A). 2011 1040 ez form If you file Form 1040EZ, your investment income is the total of the amount of line 2 and the amount of any tax-exempt interest you wrote to the right of the words “Form 1040EZ” on line 2. 2011 1040 ez form However, see Rule 6 in chapter 1 of Publication 596 if: You are filing Schedule E (Form 1040), Form 4797, or Form 8814, or You are reporting income from the rental of personal property on Form 1040, line 21. 2011 1040 ez form Rule 7. 2011 1040 ez form You Must Have Earned Income This credit is called the “earned income” credit because, to qualify, you must work and have earned income. 2011 1040 ez form If you are married and file a joint return, you meet this rule if at least one spouse works and has earned income. 2011 1040 ez form If you are an employee, earned income includes all the taxable income you get from your employer. 2011 1040 ez form If you are self-employed or a statutory employee, you will figure your earned income on EIC Worksheet B in the instructions for Form 1040. 2011 1040 ez form Earned Income Earned income includes all of the following types of income. 2011 1040 ez form Wages, salaries, tips, and other taxable employee pay. 2011 1040 ez form Employee pay is earned income only if it is taxable. 2011 1040 ez form Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. 2011 1040 ez form But there is an exception for nontaxable combat pay, which you can choose to include in earned income, as explained below. 2011 1040 ez form Net earnings from self-employment. 2011 1040 ez form Gross income received as a statutory employee. 2011 1040 ez form Wages, salaries, and tips. 2011 1040 ez form   Wages, salaries, and tips you receive for working are reported to you on Form W-2, in box 1. 2011 1040 ez form You should report these on line 1 (Form 1040EZ) or line 7 (Forms 1040A and 1040). 2011 1040 ez form Nontaxable combat pay election. 2011 1040 ez form   You can elect to include your nontaxable combat pay in earned income for the earned income credit. 2011 1040 ez form Electing to include nontaxable combat pay in earned income may increase or decrease your EIC. 2011 1040 ez form Figure the credit with and without your nontaxable combat pay before making the election. 2011 1040 ez form   If you make the election, you must include in earned income all nontaxable combat pay you received. 2011 1040 ez form If you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election. 2011 1040 ez form In other words, if one of you makes the election, the other one can also make it but does not have to. 2011 1040 ez form   The amount of your nontaxable combat pay should be shown in box 12 of your Form W-2 with code “Q. 2011 1040 ez form ” Self-employed persons and statutory employees. 2011 1040 ez form   If you are self-employed or received income as a statutory employee, you must use the Form 1040 instructions to see if you qualify to get the EIC. 2011 1040 ez form Approved Form 4361 or Form 4029 This section is for persons who have an approved: Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, or Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits. 2011 1040 ez form Each approved form exempts certain income from social security taxes. 2011 1040 ez form Each form is discussed here in terms of what is or is not earned income for the EIC. 2011 1040 ez form Form 4361. 2011 1040 ez form   Whether or not you have an approved Form 4361, amounts you received for performing ministerial duties as an employee count as earned income. 2011 1040 ez form This includes wages, salaries, tips, and other taxable employee compensation. 2011 1040 ez form A nontaxable housing allowance or the nontaxable rental value of a home is not earned income. 2011 1040 ez form Also, amounts you received for performing ministerial duties, but not as an employee, do not count as earned income. 2011 1040 ez form Examples include fees for performing marriages and honoraria for delivering speeches. 2011 1040 ez form Form 4029. 2011 1040 ez form   Whether or not you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation count as earned income. 2011 1040 ez form However, amounts you received as a self-employed individual do not count as earned income. 2011 1040 ez form Also, in figuring earned income, do not subtract losses on Schedule C, C-EZ, or F from wages on line 7 of Form 1040. 2011 1040 ez form Disability Benefits If you retired on disability, taxable benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. 2011 1040 ez form Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. 2011 1040 ez form You must report your taxable disability payments on line 7 of either Form 1040 or Form 1040A until you reach minimum retirement age. 2011 1040 ez form Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income. 2011 1040 ez form Report taxable pension payments on Form 1040, lines 16a and 16b (or Form 1040A, lines 12a and 12b). 2011 1040 ez form Disability insurance payments. 2011 1040 ez form   Payments you received from a disability insurance policy that you paid the premiums for are not earned income. 2011 1040 ez form It does not matter whether you have reached minimum retirement age. 2011 1040 ez form If this policy is through your employer, the amount may be shown in box 12 of your Form W-2 with code “J. 2011 1040 ez form ” Income That Is Not Earned Income Examples of items that are not earned income include interest and dividends, pensions and annuities, social security and railroad retirement benefits (including disability benefits), alimony and child support, welfare benefits, workers' compensation benefits, unemployment compensation (insurance), nontaxable foster care payments, and veterans' benefits, including VA rehabilitation payments. 2011 1040 ez form Do not include any of these items in your earned income. 2011 1040 ez form Earnings while an inmate. 2011 1040 ez form   Amounts received for work performed while an inmate in a penal institution are not earned income when figuring the earned income credit. 2011 1040 ez form This includes amounts for work performed while in a work release program or while in a halfway house. 2011 1040 ez form Workfare payments. 2011 1040 ez form   Nontaxable workfare payments are not earned income for the EIC. 2011 1040 ez form These are cash payments certain people receive from a state or local agency that administers public assistance programs funded under the federal Temporary Assistance for Needy Families (TANF) program in return for certain work activities such as (1) work experience activities (including remodeling or repairing public housing) if private sector employment is not available, or (2) community service program activities. 2011 1040 ez form Community property. 2011 1040 ez form   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3 ), and live in a state that has community property laws, your earned income for the EIC does not include any amount earned by your spouse that is treated as belonging to you under those laws. 2011 1040 ez form That amount is not earned income for the EIC, even though you must include it in your gross income on your income tax return. 2011 1040 ez form Your earned income includes the entire amount you earned, even if part of it is treated as belonging to your spouse under your state's community property laws. 2011 1040 ez form Nevada, Washington, and California domestic partners. 2011 1040 ez form   If you are a registered domestic partner in Nevada, Washington, or California, the same rules apply. 2011 1040 ez form Your earned income for the EIC does not include any amount earned by your partner. 2011 1040 ez form Your earned income includes the entire amount you earned. 2011 1040 ez form For details, see Publication 555. 2011 1040 ez form Conservation Reserve Program (CRP) payments. 2011 1040 ez form   If you were receiving social security retirement benefits or social security disability benefits at the time you received any CRP payments, your CRP payments are not earned income for the EIC. 2011 1040 ez form Nontaxable military pay. 2011 1040 ez form   Nontaxable pay for members of the Armed Forces is not considered earned income for the EIC. 2011 1040 ez form Examples of nontaxable military pay are combat pay, the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS). 2011 1040 ez form See Publication 3, Armed Forces' Tax Guide, for more information. 2011 1040 ez form    Combat pay. 2011 1040 ez form You can elect to include your nontaxable combat pay in earned income for the EIC. 2011 1040 ez form See Nontaxable combat pay election, earlier. 2011 1040 ez form Part B. 2011 1040 ez form Rules If You Have a Qualifying Child If you have met all of the rules in Part A , read Part B to see if you have a qualifying child. 2011 1040 ez form Part B discusses Rules 8 through 10. 2011 1040 ez form You must meet all three of these rules, in addition to the rules in Parts A and D , to qualify for the earned income credit with a qualifying child. 2011 1040 ez form You must file Form 1040 or Form 1040A to claim the EIC with a qualifying child. 2011 1040 ez form (You cannot file Form 1040EZ. 2011 1040 ez form ) You also must complete Schedule EIC and attach it to your return. 2011 1040 ez form If you meet all the rules in Part A and this part, read Part D to find out what to do next. 2011 1040 ez form If you do not meet Rule 8, you do not have a qualifying child. 2011 1040 ez form Read Part C to find out if you can get the earned income credit without a qualifying child. 2011 1040 ez form Rule 8. 2011 1040 ez form Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Your child is a qualifying child if your child meets four tests. 2011 1040 ez form The four tests are: Relationship, Age, Residency, and Joint return. 2011 1040 ez form The four tests are illustrated in Figure 36–1. 2011 1040 ez form The paragraphs that follow contain more information about each test. 2011 1040 ez form Relationship Test To be your qualifying child, a child must be your: Son, daughter, stepchild, foster child, or a descendant of any of them (for example, your grandchild), or Brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them (for example, your niece or nephew). 2011 1040 ez form The following definitions clarify the relationship test. 2011 1040 ez form Adopted child. 2011 1040 ez form   An adopted child is always treated as your own child. 2011 1040 ez form The term “adopted child” includes a child who was lawfully placed with you for legal adoption. 2011 1040 ez form Foster child. 2011 1040 ez form   For the EIC, a person is your foster child if the child is placed with you by an authorized placement agency or by judgement, decree, or other order of any court of competent jurisdiction. 2011 1040 ez form An authorized placement agency includes a state or local government agency. 2011 1040 ez form It also includes a tax-exempt organization licensed by a state. 2011 1040 ez form In addition, it includes an Indian tribal government or an organization authorized by an Indian tribal government to place Indian children. 2011 1040 ez form Example. 2011 1040 ez form Debbie, who is 12 years old, was placed in your care 2 years ago by an authorized agency responsible for placing children in foster homes. 2011 1040 ez form Debbie is your foster child. 2011 1040 ez form Age Test Your child must be: Under age 19 at the end of 2013 and younger than you (or your spouse, if filing jointly), Under age 24 at the end of 2013, a student, and younger than you (or your spouse, if filing jointly), or Permanently and totally disabled at any time during 2013, regardless of age. 2011 1040 ez form    The following examples and definitions clarify the age test. 2011 1040 ez form Example 1—child not under age 19. 2011 1040 ez form Your son turned 19 on December 10. 2011 1040 ez form Unless he was permanently and totally disabled or a student, he is not a qualifying child because, at the end of the year, he was not under age 19. 2011 1040 ez form Example 2—child not younger than you or your spouse. 2011 1040 ez form Your 23-year-old brother, who is a full-time student and unmarried, lives with you and your spouse. 2011 1040 ez form He is not disabled. 2011 1040 ez form Both you and your spouse are 21 years old and you file a joint return. 2011 1040 ez form Your brother is not your qualifying child because he is not younger than you or your spouse. 2011 1040 ez form Example 3—child younger than your spouse but not younger than you. 2011 1040 ez form The facts are the same as in Example 2 except that your spouse is 25 years old. 2011 1040 ez form Because your brother is younger than your spouse, he is your qualifying child even though he is not younger than you. 2011 1040 ez form Student defined. 2011 1040 ez form   To qualify as a student, your child must be, during some part of each of any 5 calendar months during the calendar year: A full-time student at a school that has a regular teaching staff, course of study, and regular student body at the school, or A student taking a full-time, on-farm training course given by a school described in (1), or a state, county, or local government. 2011 1040 ez form The 5 calendar months need not be consecutive. 2011 1040 ez form   A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance. 2011 1040 ez form School defined. 2011 1040 ez form   A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. 2011 1040 ez form However, on-the-job training courses, correspondence schools, and schools offering courses only through the Internet do not count as schools for the EIC. 2011 1040 ez form Vocational high school students. 2011 1040 ez form   Students who work in co-op jobs in private industry as a part of a school's regular course of classroom and practical training are considered full-time students. 2011 1040 ez form Permanently and totally disabled. 2011 1040 ez form   Your child is permanently and totally disabled if both of the following apply. 2011 1040 ez form He or she cannot engage in any substantial gainful activity because of a physical or mental condition. 2011 1040 ez form A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death. 2011 1040 ez form Residency Test Your child must have lived with you in the United States for more than half of 2013. 2011 1040 ez form The following definitions clarify the residency test. 2011 1040 ez form United States. 2011 1040 ez form   This means the 50 states and the District of Columbia. 2011 1040 ez form It does not include Puerto Rico or U. 2011 1040 ez form S. 2011 1040 ez form possessions such as Guam. 2011 1040 ez form Homeless shelter. 2011 1040 ez form   Your home can be any location where you regularly live. 2011 1040 ez form You do not need a traditional home. 2011 1040 ez form For example, if your child lived with you for more than half the year in one or more homeless shelters, your child meets the residency test. 2011 1040 ez form Military personnel stationed outside the United States. 2011 1040 ez form    U. 2011 1040 ez form S. 2011 1040 ez form military personnel stationed outside the United States on extended active duty are considered to live in the United States during that duty period for purposes of the EIC. 2011 1040 ez form Figure 36-1. 2011 1040 ez form Tests for Qualifying Child Please click here for the text description of the image. 2011 1040 ez form Qualifying child Extended active duty. 2011 1040 ez form   Extended active duty means you are called or ordered to duty for an indefinite period or for a period of more than 90 days. 2011 1040 ez form Once you begin serving your extended active duty, you are still considered to have been on extended active duty even if you do not serve more than 90 days. 2011 1040 ez form Birth or death of a child. 2011 1040 ez form   A child who was born or died in 2013 is treated as having lived with you for more than half of 2013 if your home was the child's home for more than half the time he or she was alive in 2013. 2011 1040 ez form Temporary absences. 2011 1040 ez form   Count time that you or your child is away from home on a temporary absence due to a special circumstance as time the child lived with you. 2011 1040 ez form Examples of a special circumstance include illness, school attendance, business, vacation, military service, and detention in a juvenile facility. 2011 1040 ez form Kidnapped child. 2011 1040 ez form    A kidnapped child is treated as living with you for more than half of the year if the child lived with you for more than half the part of the year before the date of the kidnapping. 2011 1040 ez form The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or your child's family. 2011 1040 ez form This treatment applies for all years until the child is returned. 2011 1040 ez form However, the last year this treatment can apply is the earlier of: The year there is a determination that the child is dead, or The year the child would have reached age 18. 2011 1040 ez form   If your qualifying child has been kidnapped and meets these requirements, enter “KC,” instead of a number, on line 6 of Schedule EIC. 2011 1040 ez form Joint Return Test To meet this test, the child cannot file a joint return for the year. 2011 1040 ez form Exception. 2011 1040 ez form   An exception to the joint return test applies if your child and his or her spouse file a joint return only to claim a refund of income tax withheld or estimated tax paid. 2011 1040 ez form Example 1—child files joint return. 2011 1040 ez form You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. 2011 1040 ez form He earned $25,000 for the year. 2011 1040 ez form The couple files a joint return. 2011 1040 ez form Because your daughter and her husband filed a joint return, she is not your qualifying child. 2011 1040 ez form Example 2—child files joint return only to claim a refund of withheld tax. 2011 1040 ez form Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. 2011 1040 ez form They do not have a child. 2011 1040 ez form Neither is required to file a tax return. 2011 1040 ez form Taxes were taken out of their pay, so they filed a joint return only to get a refund of the withheld taxes. 2011 1040 ez form The exception to the joint return test applies, so your son may be your qualifying child if all the other tests are met. 2011 1040 ez form Example 3—child files joint return to claim American opportunity credit. 2011 1040 ez form The facts are the same as in Example 2 except no taxes were taken out of your son's pay. 2011 1040 ez form He and his wife are not required to file a tax return, but they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. 2011 1040 ez form Because claiming the American opportunity credit is their reason for filing the return, they are not filing it only to get a refund of income tax withheld or estimated tax paid. 2011 1040 ez form The exception to the joint return test does not apply, so your son is not your qualifying child. 2011 1040 ez form Married child. 2011 1040 ez form   Even if your child does not file a joint return, if your child was married at the end of the year, he or she cannot be your qualifying child unless: You can claim an exemption for the child, or The reason you cannot claim an exemption for the child is that you let the child's other parent claim the exemption under the Special rule for divorced or separated parents (or parents who live apart) , described later. 2011 1040 ez form Social security number. 2011 1040 ez form   The qualifying child must have a valid social security number (SSN) unless the child was born and died in 2013 and you attach to your return a copy of the child's birth certificate, death certificate, or hospital records showing a live birth. 2011 1040 ez form You cannot claim the EIC on the basis of a qualifying child if: The qualifying child's SSN is missing from your tax return or is incorrect, The qualifying child's social security card says “Not valid for employment” and was issued for use in getting a federally funded benefit, or Instead of an SSN, the qualifying child has: An individual taxpayer identification number (ITIN), which is issued to a noncitizen who cannot get an SSN, or An adoption taxpayer identification number (ATIN), which is issued to adopting parents who cannot get an SSN for the child being adopted until the adoption is final. 2011 1040 ez form   If you have more than one qualifying child and only one has a valid SSN, you can use only that child to claim the EIC. 2011 1040 ez form For more information about SSNs, see Rule 2 . 2011 1040 ez form Rule 9. 2011 1040 ez form Your Qualifying Child Cannot Be Used By More Than One Person To Claim the EIC Sometimes a child meets the tests to be a qualifying child of more than one person. 2011 1040 ez form However, only one of these persons can actually treat the child as a qualifying child. 2011 1040 ez form Only that person can use the child as a qualifying child to take all of the following tax benefits (provided the person is eligible for each benefit). 2011 1040 ez form The exemption for the child. 2011 1040 ez form The child tax credit. 2011 1040 ez form Head of household filing status. 2011 1040 ez form The credit for child and dependent care expenses. 2011 1040 ez form The exclusion for dependent care benefits. 2011 1040 ez form The EIC. 2011 1040 ez form The other person cannot take any of these benefits based on this qualifying child. 2011 1040 ez form In other words, you and the other person cannot agree to divide these tax benefits between you. 2011 1040 ez form The other person cannot take any of these tax benefits unless he or she has a different qualifying child. 2011 1040 ez form The tiebreaker rules explained next explain who, if anyone, can claim the EIC when more than one person has the same qualifying child. 2011 1040 ez form However, the tiebreaker rules do not apply if the other person is your spouse and you file a joint return. 2011 1040 ez form Tiebreaker rules. 2011 1040 ez form   To determine which person can treat the child as a qualifying child to claim the six tax benefits just listed, the following tiebreaker rules apply. 2011 1040 ez form If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. 2011 1040 ez form If the parents file a joint return together and can claim the child as a qualifying child, the child is treated as the qualifying child of the parents. 2011 1040 ez form If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. 2011 1040 ez form If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year. 2011 1040 ez form If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year. 2011 1040 ez form If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. 2011 1040 ez form If the child's parents file a joint return with each other, this rule can be applied by treating the parents' total AGI as divided evenly between them. 2011 1040 ez form See Example 8 . 2011 1040 ez form   Subject to these tiebreaker rules, you and the other person may be able to choose which of you claims the child as a qualifying child. 2011 1040 ez form See Examples 1 through 13 . 2011 1040 ez form   If you cannot claim the EIC because your qualifying child is treated under the tiebreaker rules as the qualifying child of another person for 2013, you may be able to take the EIC using a different qualifying child, but you cannot take the EIC using the rules in Part C for people who do not have a qualifying child. 2011 1040 ez form If the other person cannot claim the EIC. 2011 1040 ez form   If you and someone else have the same qualifying child but the other person cannot claim the EIC because he or she is not eligible or his or her earned income or AGI is too high, you may be able to treat the child as a qualifying child. 2011 1040 ez form See Examples 6 and 7 . 2011 1040 ez form But you cannot treat the child as a qualifying child to claim the EIC if the other person uses the child to claim any of the other six tax benefits listed earlier. 2011 1040 ez form Examples. 2011 1040 ez form The following examples may help you in determining whether you can claim the EIC when you and someone else have the same qualifying child. 2011 1040 ez form Example 1. 2011 1040 ez form You and your 2-year-old son Jimmy lived with your mother all year. 2011 1040 ez form You are 25 years old, unmarried, and your AGI is $9,000. 2011 1040 ez form Your only income was $9,000 from a part-time job. 2011 1040 ez form Your mother's only income was $20,000 from her job, and her AGI is $20,000. 2011 1040 ez form Jimmy's father did not live with you or Jimmy. 2011 1040 ez form The special rule explained later for divorced or separated parents (or parents who live apart) does not apply. 2011 1040 ez form Jimmy is a qualifying child of both you and your mother because he meets the relationship, age, residency, and joint return tests for both you and your mother. 2011 1040 ez form However, only one of you can treat him as a qualifying child to claim the EIC (and the other tax benefits listed earlier for which that person qualifies). 2011 1040 ez form He is not a qualifying child of anyone else, including his father. 2011 1040 ez form If you do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can treat him as a qualifying child to claim the EIC (and any of the other tax benefits listed earlier for which she qualifies). 2011 1040 ez form Example 2. 2011 1040 ez form The facts are the same as in Example 1 except your AGI is $25,000. 2011 1040 ez form Because your mother's AGI is not higher than yours, she cannot claim Jimmy as a qualifying child. 2011 1040 ez form Only you can claim him. 2011 1040 ez form Example 3. 2011 1040 ez form The facts are the same as in Example 1 except that you and your mother both claim Jimmy as a qualifying child. 2011 1040 ez form In this case, you as the child's parent will be the only one allowed to claim Jimmy as a qualifying child for the EIC and the other tax benefits listed earlier for which you qualify. 2011 1040 ez form The IRS will disallow your mother's claim to the EIC and any of the other tax benefits listed earlier unless she has another qualifying child. 2011 1040 ez form Example 4. 2011 1040 ez form The facts are the same as in Example 1 except that you also have two other young children who are qualifying children of both you and your mother. 2011 1040 ez form Only one of you can claim each child. 2011 1040 ez form However, if your mother's AGI is higher than yours, you can allow your mother to claim one or more of the children. 2011 1040 ez form For example, if you claim one child, your mother can claim the other two. 2011 1040 ez form Example 5. 2011 1040 ez form The facts are the same as in Example 1 except that you are only 18 years old. 2011 1040 ez form This means you are a qualifying child of your mother. 2011 1040 ez form Because of Rule 10 , discussed next, you cannot claim the EIC and cannot claim Jimmy as a qualifying child. 2011 1040 ez form Only your mother may be able to treat Jimmy as a qualifying child to claim the EIC. 2011 1040 ez form If your mother meets all the other requirements for claiming the EIC and you do not claim Jimmy as a qualifying child for any of the other tax benefits listed earlier, your mother can claim both you and Jimmy as qualifying children for the EIC. 2011 1040 ez form Example 6. 2011 1040 ez form The facts are the same as in Example 1 except that your mother earned $50,000 from her job. 2011 1040 ez form Because your mother's earned income is too high for her to claim the EIC, only you can claim the EIC using your son. 2011 1040 ez form Example 7. 2011 1040 ez form The facts are the same as in Example 1 except that you earned $50,000 from your job and your AGI is $50,500. 2011 1040 ez form Your earned income is too high for you to claim the EIC. 2011 1040 ez form But your mother cannot claim the EIC either, because her AGI is not higher than yours. 2011 1040 ez form Example 8. 2011 1040 ez form The facts are the same as in Example 1 except that you and Jimmy's father are married to each other, live with Jimmy and your mother, and have an AGI of $30,000 on a joint return. 2011 1040 ez form If you and your husband do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can claim him instead. 2011 1040 ez form Even though the AGI on your joint return, $30,000, is more than your mother's AGI of $20,000, for this purpose half of the joint AGI can be treated as yours and half as your husband's. 2011 1040 ez form In other words, each parent's AGI can be treated as $15,000. 2011 1040 ez form Example 9. 2011 1040 ez form You, your husband, and your 10-year-old son Joey lived together until August 1, 2013, when your husband moved out of the household. 2011 1040 ez form In August and September, Joey lived with you. 2011 1040 ez form For the rest of the year, Joey lived with your husband, who is Joey's father. 2011 1040 ez form Joey is a qualifying child of both you and your husband because he lived with each of you for more than half the year and because he met the relationship, age, and joint return tests for both of you. 2011 1040 ez form At the end of the year, you and your husband still were not divorced, legally separated, or separated under a written separation agreement, so the special rule for divorced or separated parents (or parents who live apart) does not apply. 2011 1040 ez form You and your husband will file separate returns. 2011 1040 ez form Your husband agrees to let you treat Joey as a qualifying child. 2011 1040 ez form This means, if your husband does not claim Joey as a qualifying child for any of the tax benefits listed earlier, you can claim him as a qualifying child for any tax benefit listed earlier for which you qualify. 2011 1040 ez form However, your filing status is married filing separately, so you cannot claim the EIC or the credit for child and dependent care expenses. 2011 1040 ez form See Rule 3 . 2011 1040 ez form Example 10. 2011 1040 ez form The facts are the same as in Example 9 except that you and your husband both claim Joey as a qualifying child. 2011 1040 ez form In this case, only your husband will be allowed to treat Joey as a qualifying child. 2011 1040 ez form This is because, during 2013, the boy lived with him longer than with you. 2011 1040 ez form You cannot claim the EIC (either with or without a qualifying child). 2011 1040 ez form However, your husband's filing status is married filing separately, so he cannot claim the EIC or the credit for child and dependent care expenses. 2011 1040 ez form See Rule 3 . 2011 1040 ez form Example 11. 2011 1040 ez form You, your 5-year-old son and your son's father lived together all year. 2011 1040 ez form You and your son's father are not married. 2011 1040 ez form Your son is a qualifying child of both you and his father because he meets the relationship, age, residency, and joint return tests for both you and his father. 2011 1040 ez form Your earned income and AGI are $12,000, and your son's father's earned income and AGI are $14,000. 2011 1040 ez form Neither of you had any other income. 2011 1040 ez form Your son's father agrees to let you treat the child as a qualifying child. 2011 1040 ez form This means, if your son's father does not claim your son as a qualifying child for the EIC or any of the other tax benefits listed earlier, you can claim him as a qualifying child for the EIC and any of the other tax benefits listed earlier for which you qualify. 2011 1040 ez form Example 12. 2011 1040 ez form The facts are the same as in Example 11 except that you and your son's father both claim your son as a qualifying child. 2011 1040 ez form In this case, only your son's father will be allowed to treat your son as a qualifying child. 2011 1040 ez form This is because his AGI, $14,000, is more than your AGI, $12,000. 2011 1040 ez form You cannot claim the EIC (either with or without a qualifying child). 2011 1040 ez form Example 13. 2011 1040 ez form You and your 7-year-old niece, your sister's child, lived with your mother all year. 2011 1040 ez form You are 25 years old, and your AGI is $9,300. 2011 1040 ez form Your only income was from a part-time job. 2011 1040 ez form Your mother's AGI is $15,000. 2011 1040 ez form Her only income was from her job. 2011 1040 ez form Your niece's parents file jointly, have an AGI of less than $9,000, and do not live with you or their child. 2011 1040 ez form Your niece is a qualifying child of both you and your mother because she meets the relationship, age, residency, and joint return tests for both you and your mother. 2011 1040 ez form However, only your mother can treat her as a qualifying child. 2011 1040 ez form This is because your mother's AGI, $15,000, is more than your AGI, $9,300. 2011 1040 ez form Special rule for divorced or separated parents (or parents who live apart). 2011 1040 ez form   A child will be treated as the qualifying child of his or her noncustodial parent (for purposes of claiming an exemption and the child tax credit, but not for the EIC) if all of the following statements are true. 2011 1040 ez form The parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Lived apart at all times during the last 6 months of 2013, whether or not they are or were married. 2011 1040 ez form The child received over half of his or her support for the year from the parents. 2011 1040 ez form The child is in the custody of one or both parents for more than half of 2013. 2011 1040 ez form Either of the following statements is true. 2011 1040 ez form The custodial parent signs Form 8332 or a substantially similar statement that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches the form or statement to his or her return. 2011 1040 ez form If the divorce decree or separation agreement went into effect after 1984 and before 2009, the noncustodial parent may be able to attach certain pages from the decree or agreement instead of Form 8332. 2011 1040 ez form A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2013 provides that the noncustodial parent can claim the child as a dependent, and the noncustodial parent provides at least $600 for support of the child during 2013. 2011 1040 ez form  For details, see chapter 3. 2011 1040 ez form Also see Applying Rule 9 to divorced or separated parents (or parents who live apart) , next. 2011 1040 ez form Applying Rule 9 to divorced or separated parents (or parents who live apart). 2011 1040 ez form   If a child is treated as the qualifying child of the noncustodial parent under the special rule just described for children of divorced or separated parents (or parents who live apart), only the noncustodial parent can claim an exemption and the child tax credit for the child. 2011 1040 ez form However, the custodial parent, if eligible, or another eligible taxpayer can claim the child as a qualifying child for the EIC and other tax benefits listed earlier in this chapter. 2011 1040 ez form If the child is the qualifying child of more than one person for these benefits, then the tiebreaker rules determine which person can treat the child as a qualifying child. 2011 1040 ez form Example 1. 2011 1040 ez form You and your 5-year-old son lived all year with your mother, who paid the entire cost of keeping up the home. 2011 1040 ez form Your AGI is $10,000. 2011 1040 ez form Your mother’s AGI is $25,000. 2011 1040 ez form Your son's father did not live with you or your son. 2011 1040 ez form Under the special rule for children of divorced or separated parents (or parents who live apart), your son is treated as the qualifying child of his father, who can claim an exemption and the child tax credit for the child. 2011 1040 ez form However, your son's father cannot claim your son as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the EIC. 2011 1040 ez form You and your mother did not have any child care expenses or dependent care benefits. 2011 1040 ez form If you do not claim your son as a qualifying child, your mother can claim him as a qualifying child for the EIC and head of household filing status, if she qualifies for these tax benefits. 2011 1040 ez form Example 2. 2011 1040 ez form The facts are the same as in Example 1 except that your AGI is $25,000 and your mother's AGI is $21,000. 2011 1040 ez form Your mother cannot claim your son as a qualifying child for any purpose because her AGI is not higher than yours. 2011 1040 ez form Example 3. 2011 1040 ez form The facts are the same as in Example 1 except that you and your mother both claim your son as a qualifying child for the EIC. 2011 1040 ez form Your mother also claims him as a qualifying child for head of household filing status. 2011 1040 ez form You as the child's parent will be the only one allowed to claim your son as a qualifying child for the EIC. 2011 1040 ez form The IRS will disallow your mother's claim to the EIC and head of household filing status unless she has another qualifying child. 2011 1040 ez form Rule 10. 2011 1040 ez form You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. 2011 1040 ez form ) if all of the following statements are true. 2011 1040 ez form You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. 2011 1040 ez form Or, you are that person's brother, sister, half brother, half sister, stepbrother, or stepsister (or a descendant of any of them). 2011 1040 ez form You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student, and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. 2011 1040 ez form You lived with that person in the United States for more than half of the year. 2011 1040 ez form You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). 2011 1040 ez form For more details about the tests to be a qualifying child, see Rule 8 . 2011 1040 ez form If you are a qualifying child of another taxpayer, you cannot claim the EIC. 2011 1040 ez form This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. 2011 1040 ez form Put “No” beside line 64a (Form 1040) or line 38a (Form 1040A). 2011 1040 ez form Example. 2011 1040 ez form You and your daughter lived with your mother all year. 2011 1040 ez form You are 22 years old, unmarried, and attended a trade school full time. 2011 1040 ez form You had a part-time job and earned $5,700. 2011 1040 ez form You had no other income. 2011 1040 ez form Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother. 2011 1040 ez form She can claim the EIC if she meets all the other requirements. 2011 1040 ez form Because you are your mother's qualifying child, you cannot claim the EIC. 2011 1040 ez form This is so even if your mother cannot or does not claim the EIC. 2011 1040 ez form Child of person not required to file a return. 2011 1040 ez form   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you meet the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. 2011 1040 ez form Example. 2011 1040 ez form The facts are the same as in the last example except your mother had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. 2011 1040 ez form As a result, you are not your mother's qualifying child. 2011 1040 ez form You can claim the EIC if you meet all the other requirements to do so. 2011 1040 ez form   See Rule 10 in Publication 596 for additional examples. 2011 1040 ez form Part C. 2011 1040 ez form Rules If You Do Not Have a Qualifying Child Read this part if you: Do not have a qualifying child, and Have met all the rules in Part A . 2011 1040 ez form  Part C discusses Rules 11 through 14. 2011 1040 ez form You must meet all four of these rules, in addition to the rules in Parts A and D , to qualify for the earned income credit without a qualifying child. 2011 1040 ez form If you have a qualifying child, the rules in this part do not apply to you. 2011 1040 ez form You can claim the credit only if you meet all the rules in Parts A, B, and D. 2011 1040 ez form See Rule 8 to find out if you have a qualifying child. 2011 1040 ez form Rule 11. 2011 1040 ez form You Must Be at Least Age 25 but Under Age 65 You must be at least age 25 but under age 65 at the end of 2013. 2011 1040 ez form If you are married filing a joint return, either you or your spouse must be at least age 25 but under age 65 at the end of 2013. 2011 1040 ez form It does not matter which spouse meets the age test, as long as one of the spouses does. 2011 1040 ez form You meet the age test if you were born after December 31, 1948, and before January 2, 1989. 2011 1040 ez form If you are married filing a joint return, you meet the age test if either you or your spouse was born after December 31, 1948, and before January 2, 1989. 2011 1040 ez form If neither you nor your spouse meets the age test, you cannot claim the EIC. 2011 1040 ez form Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). 2011 1040 ez form Death of spouse. 2011 1040 ez form   If you are filing a joint return with your spouse who died in 2013, you meet the age test if your spouse was at least age 25 but under age 65 at the time of death. 2011 1040 ez form Example 1. 2011 1040 ez form You are age 28 and unmarried. 2011 1040 ez form You meet the age test. 2011 1040 ez form Example 2—spouse meets age test. 2011 1040 ez form You are married and filing a joint return. 2011 1040 ez form You are age 23 and your spouse is age 27. 2011 1040 ez form You meet the age test because your spouse is at least age 25 but under age 65. 2011 1040 ez form Example 3—spouse dies in 2013. 2011 1040 ez form You are married and filing a joint return with your spouse who died in August 2013. 2011 1040 ez form You are age 67. 2011 1040 ez form Your spouse would have become age 65 in November 2013. 2011 1040 ez form Because your spouse was under age 65 when she died, you meet the age test. 2011 1040 ez form Rule 12. 2011 1040 ez form You Cannot Be the Dependent of Another Person If you are not filing a joint return, you meet this rule if: You checked box 6a on Form 1040 or 1040A, or You did not check the “You” box on line 5 of Form 1040EZ, and you entered $10,000 on that line. 2011 1040 ez form If you are filing a joint return, you meet this rule if: You checked both box 6a and box 6b on Form 1040 or 1040A, or You and your spouse did not check either the “You” box or the “Spouse” box on line 5 of Form 1040EZ, and you entered $20,000 on that line. 2011 1040 ez form If you are not sure whether someone else can claim you (or your spouse, if filing a joint return) as a dependent, read the rules for claiming a dependent in chapter 3. 2011 1040 ez form If someone else can claim you (or your spouse, if filing a joint return) as a dependent on his or her return, but does not, you still cannot claim the credit. 2011 1040 ez form Example 1. 2011 1040 ez form In 2013, you were age 25, single, and living at home with your parents. 2011 1040 ez form You worked and were not a student. 2011 1040 ez form You earned $7,500. 2011 1040 ez form Your parents cannot claim you as a dependent. 2011 1040 ez form When you file your return, you claim an exemption for yourself by not checking the “You” box on line 5 of your Form 1040EZ and by entering $10,000 on that line. 2011 1040 ez form You meet this rule. 2011 1040 ez form You can claim the EIC if you meet all the other requirements. 2011 1040 ez form Example 2. 2011 1040 ez form The facts are the same as in Example 1 , except that you earned $2,000. 2011 1040 ez form Your parents can claim you as a dependent but decide not to. 2011 1040 ez form You do not meet this rule. 2011 1040 ez form You cannot claim the credit because your parents could have claimed you as a dependent. 2011 1040 ez form Joint returns. 2011 1040 ez form   You generally cannot be claimed as a dependent by another person if you are married and file a joint return. 2011 1040 ez form   However, another person may be able to claim you as a dependent if you and your spouse file a joint return only to get a refund of income tax withheld or estimated tax paid. 2011 1040 ez form But neither you nor your spouse can be claimed as a dependent by another person if you claim the EIC on your joint return. 2011 1040 ez form Example 1. 2011 1040 ez form You are 26 years old. 2011 1040 ez form You and your wife live with your parents and had $800 of wages from part-time jobs and no other income. 2011 1040 ez form Neither you nor your wife is required to file a tax return. 2011 1040 ez form You do not have a child. 2011 1040 ez form Taxes were taken out of your pay, so you file a joint return only to get a refund of the withheld taxes. 2011 1040 ez form Your parents are not disqualified from claiming an exemption for you just because you filed a joint return. 2011 1040 ez form They can claim exemptions for you and your wife if all the other tests to do so are met. 2011 1040 ez form Example 2. 2011 1040 ez form The facts are the same as in Example 1 except no taxes were taken out of your pay. 2011 1040 ez form Also, you and your wife are not required to file a tax return, but you file a joint return to claim an EIC of $63 and get a refund of that amount. 2011 1040 ez form Because claiming the EIC is your reason for filing the return, you are not filing it only to get a refund of income tax withheld or estimated tax paid. 2011 1040 ez form Your parents cannot claim an exemption for either you or your wife. 2011 1040 ez form Rule 13. 2011 1040 ez form You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. 2011 1040 ez form ) if all of the following statements are true. 2011 1040 ez form You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. 2011 1040 ez form Or, you are that person's brother, sister, half brother, half sister, stepbrother, or stepsister (or a descendant of any of them). 2011 1040 ez form You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student (as defined in Rule 8 ), and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. 2011 1040 ez form You lived with that person in the United States for more than half of the year. 2011 1040 ez form You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). 2011 1040 ez form For more details about the tests to be a qualifying child, see Rule 8 . 2011 1040 ez form If you are a qualifying child of another taxpayer, you cannot claim the EIC. 2011 1040 ez form This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. 2011 1040 ez form Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). 2011 1040 ez form Example. 2011 1040 ez form You lived with your mother all year. 2011 1040 ez form You are age 26, unmarried, and permanently and totally disabled. 2011 1040 ez form Your only income was from a community center where you went three days a week to answer telephones. 2011 1040 ez form You earned $5,000 for the year and provided more than half of your own support. 2011 1040 ez form Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother for the EIC. 2011 1040 ez form She can claim the EIC if she meets all the other requirements. 2011 1040 ez form Because you are a qualifying child of your mother, you cannot claim the EIC. 2011 1040 ez form This is so even if your mother cannot or does not claim the EIC. 2011 1040 ez form Joint returns. 2011 1040 ez form   You generally cannot be a qualifying child of another taxpayer if you are married and file a joint return. 2011 1040 ez form   However, you may be a qualifying child of another taxpayer if you and your spouse file a joint return for the year only to get a refund of income tax withheld or estimated tax paid. 2011 1040 ez form But neither you nor your spouse can be a qualifying child of another taxpayer if you claim the EIC on your joint return. 2011 1040 ez form Child of person not required to file a return. 2011 1040 ez form   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you meet the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. 2011 1040 ez form Example. 2011 1040 ez form You lived all year with your father. 2011 1040 ez form You are 27 years old, unmarried, permanently and totally disabled, and earned $13,000. 2011 1040 ez form You have no other income, no children, and provided more than half of your own support. 2011 1040 ez form Your father had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. 2011 1040 ez form As a result, you are not your father's qualifying child. 2011 1040 ez form You can claim the EIC if you meet all the other requirements to do so. 2011 1040 ez form   See Rule 13 in Publication 596 for additional examples. 2011 1040 ez form Rule 14. 2011 1040 ez form You Must Have Lived in the United States More Than Half of the Year Your home (and your spouse's, if filing a joint return) must have been in the United States for more than half the year. 2011 1040 ez form If it was not, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). 2011 1040 ez form United States. 2011 1040 ez form   This means the 50 states and the District of Columbia. 2011 1040 ez form It does not include Puerto Rico or U. 2011 1040 ez form S. 2011 1040 ez form possessions such as Guam. 2011 1040 ez form Homeless shelter. 2011 1040 ez form   Your home can be any location where you regularly live. 2011 1040 ez form You do not need a traditional home. 2011 1040 ez form If you lived in one or more homeless shelters in the United States for more than half the year, you meet this rule. 2011 1040 ez form Military personnel stationed outside the United States. 2011 1040 ez form   U. 2011 1040 ez form S. 2011 1040 ez form military personnel stationed outside the United States on extended active duty (defined in Rule 8 ) are considered to live in the United States during that duty period for purposes of the EIC. 2011 1040 ez form Part D. 2011 1040 ez form Figuring and Claiming the EIC Read this part if you have met all the rules in Parts A and B, or all the rules in Parts A and C. 2011 1040 ez form Part D discusses Rule 15 . 2011 1040 ez form You must meet this rule, in addition to the rules in Parts A and B , or Parts A and C , to qualify for the earned income credit. 2011 1040 ez form This part of the chapter also explains how to figure the amount of your credit. 2011 1040 ez form You have two choices. 2011 1040 ez form Have the IRS figure the EIC for you. 2011 1040 ez form If you want to do this, see IRS Will Figure the EIC for You . 2011 1040 ez form Figure the EIC yourself. 2011 1040 ez form If you want to do this, see How To Figure the EIC Yourself . 2011 1040 ez form Rule 15. 2011 1040 ez form Your Earned Income Must Be Less Than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. 2011 1040 ez form Earned income generally means wages, salaries, tips, other taxable employee pay, and net earnings from self-employment. 2011 1040 ez form Employee pay is earned income only if it is taxable. 2011 1040 ez form Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. 2011 1040 ez form But there is an exception for nontaxable combat pay, which you can choose to include in earned income. 2011 1040 ez form Earned income is explained in detail in Rule 7 . 2011 1040 ez form Figuring earned income. 2011 1040 ez form   If you are self-employed, a statutory employee, or a member of the clergy or a church employee who files Schedule SE (Form 1040), you will figure your earned income when you fill out Part 4 of EIC Worksheet B in the Form 1040 instructions. 2011 1040 ez form   Otherwise, figure your earned income by using the worksheet in Step 5 of the Form 1040 instructions for lines 64a and 64b or the Form 1040A instructions for lines 38a and 38b, or the worksheet in Step 2 of the Form 1040EZ instructions for lines 8a and 8b. 2011 1040 ez form   When using one of those worksheets to figure your earned income, you will start with the amount on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). 2011 1040 ez form You will then reduce that amount by any amount included on that line and described in the following list: Scholarship or fellowship grants not reported on a Form W-2, Inmate's income, and Pension or annuity from deferred compensation plans. 2011 1040 ez form Scholarship or fellowship grants not reported on a Form W-2. 2011 1040 ez form   A scholarship or fellowship grant that was not reported to you on a Form W-2 is not considered earned income for the earned income credit. 2011 1040 ez form Inmate's income. 2011 1040 ez form   Amounts received for work performed while an inmate in a penal institution are not earned income for the earned income credit. 2011 1040 ez form This includes amounts received for work performed while in a work release program or while in a halfway house. 2011 1040 ez form If you received any amount for work done while an inmate in a penal institution and that amount is included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “PRI” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). 2011 1040 ez form Pension or annuity from deferred compensation plans. 2011 1040 ez form   A pension or annuity from a nonqualified deferred compensation plan or a nongovernmental section 457 plan is not considered earned income for the earned income credit. 2011 1040 ez form If you received such an amount and it was included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “DFC” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). 2011 1040 ez form This amount may be reported in box 11 of your Form W-2. 2011 1040 ez form If you received such an amount but box 11 is blank, contact your employer for the amount received as a pension or annuity. 2011 1040 ez form Clergy. 2011 1040 ez form   If you are a member of the clergy who files Schedule SE and the amount on line 2 of that schedule includes an amount that was also reported on line 7 (Form 1040), subtract that amount from the amount on line 7 (Form 1040) and enter the result in the first space of the worksheet in Step 5 of the Form 1040 instructions for lines 64a and 64b. 2011 1040 ez form Put “Clergy” on the dotted line next to line 64a (Form 1040). 2011 1040 ez form Church employees. 2011 1040 ez form    A church employee means an employee (other than a minister or member of a religious order) of a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes. 2011 1040 ez form If you received wages as a
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Page Last Reviewed or Updated: 18-Feb-2014

The 2011 1040 Ez Form

2011 1040 ez form 9. 2011 1040 ez form   Depletion Table of Contents Introduction Topics - This chapter discusses: Who Can Claim Depletion? Mineral PropertyCost Depletion Percentage Depletion Oil and Gas Wells Mines and Geothermal Deposits Lessor's Gross Income TimberTimber units. 2011 1040 ez form Depletion unit. 2011 1040 ez form Introduction Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. 2011 1040 ez form The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. 2011 1040 ez form There are two ways of figuring depletion: cost depletion and percentage depletion. 2011 1040 ez form For mineral property, you generally must use the method that gives you the larger deduction. 2011 1040 ez form For standing timber, you must use cost depletion. 2011 1040 ez form Topics - This chapter discusses: Who can claim depletion Mineral property Timber Who Can Claim Depletion? If you have an economic interest in mineral property or standing timber, you can take a deduction for depletion. 2011 1040 ez form More than one person can have an economic interest in the same mineral deposit or timber. 2011 1040 ez form In the case of leased property, the depletion deduction is divided between the lessor and the lessee. 2011 1040 ez form You have an economic interest if both the following apply. 2011 1040 ez form You have acquired by investment any interest in mineral deposits or standing timber. 2011 1040 ez form You have a legal right to income from the extraction of the mineral or cutting of the timber to which you must look for a return of your capital investment. 2011 1040 ez form A contractual relationship that allows you an economic or monetary advantage from products of the mineral deposit or standing timber is not, in itself, an economic interest. 2011 1040 ez form A production payment carved out of, or retained on the sale of, mineral property is not an economic interest. 2011 1040 ez form Individuals, corporations, estates, and trusts who claim depletion deductions may be liable for alternative minimum tax. 2011 1040 ez form Basis adjustment for depletion. 2011 1040 ez form   You must reduce the basis of your property by the depletion allowed or allowable, whichever is greater. 2011 1040 ez form Mineral Property Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits). 2011 1040 ez form For this purpose, the term “property” means each separate interest you own in each mineral deposit in each separate tract or parcel of land. 2011 1040 ez form You can treat two or more separate interests as one property or as separate properties. 2011 1040 ez form See section 614 of the Internal Revenue Code and the related regulations for rules on how to treat separate mineral interests. 2011 1040 ez form There are two ways of figuring depletion on mineral property. 2011 1040 ez form Cost depletion. 2011 1040 ez form Percentage depletion. 2011 1040 ez form Generally, you must use the method that gives you the larger deduction. 2011 1040 ez form However, unless you are an independent producer or royalty owner, you generally cannot use percentage depletion for oil and gas wells. 2011 1040 ez form See Oil and Gas Wells , later. 2011 1040 ez form Cost Depletion To figure cost depletion you must first determine the following. 2011 1040 ez form The property's basis for depletion. 2011 1040 ez form The total recoverable units of mineral in the property's natural deposit. 2011 1040 ez form The number of units of mineral sold during the tax year. 2011 1040 ez form Basis for depletion. 2011 1040 ez form   To figure the property's basis for depletion, subtract all the following from the property's adjusted basis. 2011 1040 ez form Amounts recoverable through: Depreciation deductions, Deferred expenses (including deferred exploration and development costs), and Deductions other than depletion. 2011 1040 ez form The residual value of land and improvements at the end of operations. 2011 1040 ez form The cost or value of land acquired for purposes other than mineral production. 2011 1040 ez form Adjusted basis. 2011 1040 ez form   The adjusted basis of your property is your original cost or other basis, plus certain additions and improvements, and minus certain deductions such as depletion allowed or allowable and casualty losses. 2011 1040 ez form Your adjusted basis can never be less than zero. 2011 1040 ez form See Publication 551, Basis of Assets, for more information on adjusted basis. 2011 1040 ez form Total recoverable units. 2011 1040 ez form   The total recoverable units is the sum of the following. 2011 1040 ez form The number of units of mineral remaining at the end of the year (including units recovered but not sold). 2011 1040 ez form The number of units of mineral sold during the tax year (determined under your method of accounting, as explained next). 2011 1040 ez form   You must estimate or determine recoverable units (tons, pounds, ounces, barrels, thousands of cubic feet, or other measure) of mineral products using the current industry method and the most accurate and reliable information you can obtain. 2011 1040 ez form You must include ores and minerals that are developed, in sight, blocked out, or assured. 2011 1040 ez form You must also include probable or prospective ores or minerals that are believed to exist based on good evidence. 2011 1040 ez form But see Elective safe harbor for owners of oil and gas property , later. 2011 1040 ez form Number of units sold. 2011 1040 ez form   You determine the number of units sold during the tax year based on your method of accounting. 2011 1040 ez form Use the following table to make this determination. 2011 1040 ez form    IF you  use . 2011 1040 ez form . 2011 1040 ez form . 2011 1040 ez form THEN the units sold during the year are . 2011 1040 ez form . 2011 1040 ez form . 2011 1040 ez form The cash method of accounting The units sold for which you receive payment during the tax year (regardless of the year of sale). 2011 1040 ez form An accrual method of accounting The units sold based on your inventories and method of accounting for inventory. 2011 1040 ez form   The number of units sold during the tax year does not include any for which depletion deductions were allowed or allowable in earlier years. 2011 1040 ez form Figuring the cost depletion deduction. 2011 1040 ez form   Once you have figured your property's basis for depletion, the total recoverable units, and the number of units sold during the tax year, you can figure your cost depletion deduction by taking the following steps. 2011 1040 ez form Step Action Result 1 Divide your property's basis for depletion by total recoverable units. 2011 1040 ez form Rate per unit. 2011 1040 ez form 2 Multiply the rate per unit by units sold during the tax year. 2011 1040 ez form Cost depletion deduction. 2011 1040 ez form You must keep accounts for the depletion of each property and adjust these accounts each year for units sold and depletion claimed. 2011 1040 ez form Elective safe harbor for owners of oil and gas property. 2011 1040 ez form   Instead of using the method described earlier to determine the total recoverable units, you can use an elective safe harbor. 2011 1040 ez form If you choose the elective safe harbor, the total recoverable units equal 105% of a property's proven reserves (both developed and undeveloped). 2011 1040 ez form For details, see Revenue Procedure 2004-19 on page 563 of Internal Revenue Bulletin 2004-10, available at www. 2011 1040 ez form irs. 2011 1040 ez form gov/pub/irs-irbs/irb04-10. 2011 1040 ez form pdf. 2011 1040 ez form   To make the election, attach a statement to your timely filed (including extensions) original return for the first tax year for which the safe harbor is elected. 2011 1040 ez form The statement must indicate that you are electing the safe harbor provided by Revenue Procedure 2004-19. 2011 1040 ez form The election, if made, is effective for the tax year in which it is made and all later years. 2011 1040 ez form It cannot be revoked for the tax year in which it is elected, but may be revoked in a later year. 2011 1040 ez form Once revoked, it cannot be re-elected for the next 5 years. 2011 1040 ez form Percentage Depletion To figure percentage depletion, you multiply a certain percentage, specified for each mineral, by your gross income from the property during the tax year. 2011 1040 ez form The rates to be used and other rules for oil and gas wells are discussed later under Independent Producers and Royalty Owners and under Natural Gas Wells . 2011 1040 ez form Rates and other rules for percentage depletion of other specific minerals are found later in Mines and Geothermal Deposits . 2011 1040 ez form Gross income. 2011 1040 ez form   When figuring percentage depletion, subtract from your gross income from the property the following amounts. 2011 1040 ez form Any rents or royalties you paid or incurred for the property. 2011 1040 ez form The part of any bonus you paid for a lease on the property allocable to the product sold (or that otherwise gives rise to gross income) for the tax year. 2011 1040 ez form A bonus payment includes amounts you paid as a lessee to satisfy a production payment retained by the lessor. 2011 1040 ez form   Use the following fraction to figure the part of the bonus you must subtract. 2011 1040 ez form No. 2011 1040 ez form of units sold in the tax year Recoverable units from the property × Bonus Payments For oil and gas wells and geothermal deposits, more information about the definition of gross income from the property is under Oil and Gas Wells , later. 2011 1040 ez form For other property, more information about the definition of gross income from the property is under Mines and Geothermal Deposits , later. 2011 1040 ez form Taxable income limit. 2011 1040 ez form   The percentage depletion deduction generally cannot be more than 50% (100% for oil and gas property) of your taxable income from the property figured without the depletion deduction and the domestic production activities deduction. 2011 1040 ez form   Taxable income from the property means gross income from the property minus all allowable deductions (except any deduction for depletion or domestic production activities) attributable to mining processes, including mining transportation. 2011 1040 ez form These deductible items include, but are not limited to, the following. 2011 1040 ez form Operating expenses. 2011 1040 ez form Certain selling expenses. 2011 1040 ez form Administrative and financial overhead. 2011 1040 ez form Depreciation. 2011 1040 ez form Intangible drilling and development costs. 2011 1040 ez form Exploration and development expenditures. 2011 1040 ez form Deductible taxes (see chapter 5), but not taxes that you capitalize or take as a credit. 2011 1040 ez form Losses sustained. 2011 1040 ez form   The following rules apply when figuring your taxable income from the property for purposes of the taxable income limit. 2011 1040 ez form Do not deduct any net operating loss deduction from the gross income from the property. 2011 1040 ez form Corporations do not deduct charitable contributions from the gross income from the property. 2011 1040 ez form If, during the year, you dispose of an item of section 1245 property that was used in connection with mineral property, reduce any allowable deduction for mining expenses by the part of any gain you must report as ordinary income that is allocable to the mineral property. 2011 1040 ez form See section 1. 2011 1040 ez form 613-5(b)(1) of the regulations for information on how to figure the ordinary gain allocable to the property. 2011 1040 ez form Oil and Gas Wells You cannot claim percentage depletion for an oil or gas well unless at least one of the following applies. 2011 1040 ez form You are either an independent producer or a royalty owner. 2011 1040 ez form The well produces natural gas that is either sold under a fixed contract or produced from geopressured brine. 2011 1040 ez form If you are an independent producer or royalty owner, see Independent Producers and Royalty Owners , next. 2011 1040 ez form For information on the depletion deduction for wells that produce natural gas that is either sold under a fixed contract or produced from geopressured brine, see Natural Gas Wells , later. 2011 1040 ez form Independent Producers and Royalty Owners If you are an independent producer or royalty owner, you figure percentage depletion using a rate of 15% of the gross income from the property based on your average daily production of domestic crude oil or domestic natural gas up to your depletable oil or natural gas quantity. 2011 1040 ez form However, certain refiners, as explained next, and certain retailers and transferees of proven oil and gas properties, as explained next, cannot claim percentage depletion. 2011 1040 ez form For information on figuring the deduction, see Figuring percentage depletion , later. 2011 1040 ez form Refiners who cannot claim percentage depletion. 2011 1040 ez form   You cannot claim percentage depletion if you or a related person refine crude oil and you and the related person refined more than 75,000 barrels on any day during the tax year based on average (rather than actual) daily refinery runs for the tax year. 2011 1040 ez form The average daily refinery run is computed by dividing total refinery runs for the tax year by the total number of days in the tax year. 2011 1040 ez form Related person. 2011 1040 ez form   You and another person are related persons if either of you holds a significant ownership interest in the other person or if a third person holds a significant ownership interest in both of you. 2011 1040 ez form For example, a corporation, partnership, estate, or trust and anyone who holds a significant ownership interest in it are related persons. 2011 1040 ez form A partnership and a trust are related persons if one person holds a significant ownership interest in each of them. 2011 1040 ez form For purposes of the related person rules, significant ownership interest means direct or indirect ownership of 5% or more in any one of the following. 2011 1040 ez form The value of the outstanding stock of a corporation. 2011 1040 ez form The interest in the profits or capital of a partnership. 2011 1040 ez form The beneficial interests in an estate or trust. 2011 1040 ez form Any interest owned by or for a corporation, partnership, trust, or estate is considered to be owned directly both by itself and proportionately by its shareholders, partners, or beneficiaries. 2011 1040 ez form Retailers who cannot claim percentage depletion. 2011 1040 ez form   You cannot claim percentage depletion if both the following apply. 2011 1040 ez form You sell oil or natural gas or their by-products directly or through a related person in any of the following situations. 2011 1040 ez form Through a retail outlet operated by you or a related person. 2011 1040 ez form To any person who is required under an agreement with you or a related person to use a trademark, trade name, or service mark or name owned by you or a related person in marketing or distributing oil, natural gas, or their by-products. 2011 1040 ez form To any person given authority under an agreement with you or a related person to occupy any retail outlet owned, leased, or controlled by you or a related person. 2011 1040 ez form The combined gross receipts from sales (not counting resales) of oil, natural gas, or their by-products by all retail outlets taken into account in (1) are more than $5 million for the tax year. 2011 1040 ez form   For the purpose of determining if this rule applies, do not count the following. 2011 1040 ez form Bulk sales (sales in very large quantities) of oil or natural gas to commercial or industrial users. 2011 1040 ez form Bulk sales of aviation fuels to the Department of Defense. 2011 1040 ez form Sales of oil or natural gas or their by-products outside the United States if none of your domestic production or that of a related person is exported during the tax year or the prior tax year. 2011 1040 ez form Related person. 2011 1040 ez form   To determine if you and another person are related persons, see Related person under Refiners who cannot claim percentage depletion, earlier. 2011 1040 ez form Sales through a related person. 2011 1040 ez form   You are considered to be selling through a related person if any sale by the related person produces gross income from which you may benefit because of your direct or indirect ownership interest in the person. 2011 1040 ez form   You are not considered to be selling through a related person who is a retailer if all the following apply. 2011 1040 ez form You do not have a significant ownership interest in the retailer. 2011 1040 ez form You sell your production to persons who are not related to either you or the retailer. 2011 1040 ez form The retailer does not buy oil or natural gas from your customers or persons related to your customers. 2011 1040 ez form There are no arrangements for the retailer to acquire oil or natural gas you produced for resale or made available for purchase by the retailer. 2011 1040 ez form Neither you nor the retailer knows of or controls the final disposition of the oil or natural gas you sold or the original source of the petroleum products the retailer acquired for resale. 2011 1040 ez form Transferees who cannot claim percentage depletion. 2011 1040 ez form   You cannot claim percentage depletion if you received your interest in a proven oil or gas property by transfer after 1974 and before October 12, 1990. 2011 1040 ez form For a definition of the term “transfer,” see section 1. 2011 1040 ez form 613A-7(n) of the regulations. 2011 1040 ez form For a definition of the term “interest in proven oil or gas property,” see section 1. 2011 1040 ez form 613A-7(p) of the regulations. 2011 1040 ez form Figuring percentage depletion. 2011 1040 ez form   Generally, as an independent producer or royalty owner, you figure your percentage depletion by computing your average daily production of domestic oil or gas and comparing it to your depletable oil or gas quantity. 2011 1040 ez form If your average daily production does not exceed your depletable oil or gas quantity, you figure your percentage depletion by multiplying the gross income from the oil or gas property (defined later) by 15%. 2011 1040 ez form If your average daily production of domestic oil or gas exceeds your depletable oil or gas quantity, you must make an allocation as explained later under Average daily production. 2011 1040 ez form   In addition, there is a limit on the percentage depletion deduction. 2011 1040 ez form See Taxable income limit , later. 2011 1040 ez form Average daily production. 2011 1040 ez form   Figure your average daily production by dividing your total domestic production of oil or gas for the tax year by the number of days in your tax year. 2011 1040 ez form Partial interest. 2011 1040 ez form   If you have a partial interest in the production from a property, figure your share of the production by multiplying total production from the property by your percentage of interest in the revenues from the property. 2011 1040 ez form   You have a partial interest in the production from a property if you have a net profits interest in the property. 2011 1040 ez form To figure the share of production for your net profits interest, you must first determine your percentage participation (as measured by the net profits) in the gross revenue from the property. 2011 1040 ez form To figure this percentage, you divide the income you receive for your net profits interest by the gross revenue from the property. 2011 1040 ez form Then multiply the total production from the property by your percentage participation to figure your share of the production. 2011 1040 ez form Example. 2011 1040 ez form Javier Robles owns oil property in which Pablo Olmos owns a 20% net profits interest. 2011 1040 ez form During the year, the property produced 10,000 barrels of oil, which Javier sold for $200,000. 2011 1040 ez form Javier had expenses of $90,000 attributable to the property. 2011 1040 ez form The property generated a net profit of $110,000 ($200,000 − $90,000). 2011 1040 ez form Pablo received income of $22,000 ($110,000 × . 2011 1040 ez form 20) for his net profits interest. 2011 1040 ez form Pablo determined his percentage participation to be 11% by dividing $22,000 (the income he received) by $200,000 (the gross revenue from the property). 2011 1040 ez form Pablo determined his share of the oil production to be 1,100 barrels (10,000 barrels × 11%). 2011 1040 ez form Depletable oil or natural gas quantity. 2011 1040 ez form   Generally, your depletable oil quantity is 1,000 barrels. 2011 1040 ez form Your depletable natural gas quantity is 6,000 cubic feet multiplied by the number of barrels of your depletable oil quantity that you choose to apply. 2011 1040 ez form If you claim depletion on both oil and natural gas, you must reduce your depletable oil quantity (1,000 barrels) by the number of barrels you use to figure your depletable natural gas quantity. 2011 1040 ez form Example. 2011 1040 ez form You have both oil and natural gas production. 2011 1040 ez form To figure your depletable natural gas quantity, you choose to apply 360 barrels of your 1000-barrel depletable oil quantity. 2011 1040 ez form Your depletable natural gas quantity is 2. 2011 1040 ez form 16 million cubic feet of gas (360 × 6000). 2011 1040 ez form You must reduce your depletable oil quantity to 640 barrels (1000 − 360). 2011 1040 ez form If you have production from marginal wells, see section 613A(c)(6) of the Internal Revenue Code to figure your depletable oil or natural gas quantity. 2011 1040 ez form Also, see Notice 2012-50, available at www. 2011 1040 ez form irs. 2011 1040 ez form gov/irb/2012–31_IRB/index. 2011 1040 ez form html. 2011 1040 ez form Business entities and family members. 2011 1040 ez form   You must allocate the depletable oil or gas quantity among the following related persons in proportion to each entity's or family member's production of domestic oil or gas for the year. 2011 1040 ez form Corporations, trusts, and estates if 50% or more of the beneficial interest is owned by the same or related persons (considering only persons that own at least 5% of the beneficial interest). 2011 1040 ez form You and your spouse and minor children. 2011 1040 ez form A related person is anyone mentioned in the related persons discussion under Nondeductible loss in chapter 2 of Publication 544, except that for purposes of this allocation, item (1) in that discussion includes only an individual, his or her spouse, and minor children. 2011 1040 ez form Controlled group of corporations. 2011 1040 ez form   Members of the same controlled group of corporations are treated as one taxpayer when figuring the depletable oil or natural gas quantity. 2011 1040 ez form They share the depletable quantity. 2011 1040 ez form A controlled group of corporations is defined in section 1563(a) of the Internal Revenue Code, except that, for this purpose, the stock ownership requirement in that definition is “more than 50%” rather than “at least 80%. 2011 1040 ez form ” Gross income from the property. 2011 1040 ez form   For purposes of percentage depletion, gross income from the property (in the case of oil and gas wells) is the amount you receive from the sale of the oil or gas in the immediate vicinity of the well. 2011 1040 ez form If you do not sell the oil or gas on the property, but manufacture or convert it into a refined product before sale or transport it before sale, the gross income from the property is the representative market or field price (RMFP) of the oil or gas, before conversion or transportation. 2011 1040 ez form   If you sold gas after you removed it from the premises for a price that is lower than the RMFP, determine gross income from the property for percentage depletion purposes without regard to the RMFP. 2011 1040 ez form   Gross income from the property does not include lease bonuses, advance royalties, or other amounts payable without regard to production from the property. 2011 1040 ez form Average daily production exceeds depletable quantities. 2011 1040 ez form   If your average daily production for the year is more than your depletable oil or natural gas quantity, figure your allowance for depletion for each domestic oil or natural gas property as follows. 2011 1040 ez form Figure your average daily production of oil or natural gas for the year. 2011 1040 ez form Figure your depletable oil or natural gas quantity for the year. 2011 1040 ez form Figure depletion for all oil or natural gas produced from the property using a percentage depletion rate of 15%. 2011 1040 ez form Multiply the result figured in (3) by a fraction, the numerator of which is the result figured in (2) and the denominator of which is the result figured in (1). 2011 1040 ez form This is your depletion allowance for that property for the year. 2011 1040 ez form Taxable income limit. 2011 1040 ez form   If you are an independent producer or royalty owner of oil and gas, your deduction for percentage depletion is limited to the smaller of the following. 2011 1040 ez form 100% of your taxable income from the property figured without the deduction for depletion and the deduction for domestic production activities under section 199 of the Internal Revenue Code. 2011 1040 ez form For a definition of taxable income from the property, see Taxable income limit , earlier, under Mineral Property. 2011 1040 ez form 65% of your taxable income from all sources, figured without the depletion allowance, the deduction for domestic production activities, any net operating loss carryback, and any capital loss carryback. 2011 1040 ez form You can carry over to the following year any amount you cannot deduct because of the 65%-of-taxable-income limit. 2011 1040 ez form Add it to your depletion allowance (before applying any limits) for the following year. 2011 1040 ez form Partnerships and S Corporations Generally, each partner or S corporation shareholder, and not the partnership or S corporation, figures the depletion allowance separately. 2011 1040 ez form (However, see Electing large partnerships must figure depletion allowance , later. 2011 1040 ez form ) Each partner or shareholder must decide whether to use cost or percentage depletion. 2011 1040 ez form If a partner or shareholder uses percentage depletion, he or she must apply the 65%-of-taxable-income limit using his or her taxable income from all sources. 2011 1040 ez form Partner's or shareholder's adjusted basis. 2011 1040 ez form   The partnership or S corporation must allocate to each partner or shareholder his or her share of the adjusted basis of each oil or gas property held by the partnership or S corporation. 2011 1040 ez form The partnership or S corporation makes the allocation as of the date it acquires the oil or gas property. 2011 1040 ez form   Each partner's share of the adjusted basis of the oil or gas property generally is figured according to that partner's interest in partnership capital. 2011 1040 ez form However, in some cases, it is figured according to the partner's interest in partnership income. 2011 1040 ez form   The partnership or S corporation adjusts the partner's or shareholder's share of the adjusted basis of the oil and gas property for any capital expenditures made for the property and for any change in partnership or S corporation interests. 2011 1040 ez form Recordkeeping. 2011 1040 ez form Each partner or shareholder must separately keep records of his or her share of the adjusted basis in each oil and gas property of the partnership or S corporation. 2011 1040 ez form The partner or shareholder must reduce his or her adjusted basis by the depletion allowed or allowable on the property each year. 2011 1040 ez form The partner or shareholder must use that reduced adjusted basis to figure cost depletion or his or her gain or loss if the partnership or S corporation disposes of the property. 2011 1040 ez form Reporting the deduction. 2011 1040 ez form   Information that you, as a partner or shareholder, use to figure your depletion deduction on oil and gas properties is reported by the partnership or S corporation on Schedule K-1 (Form 1065) or on Schedule K-1 (Form 1120S). 2011 1040 ez form Deduct oil and gas depletion for your partnership or S corporation interest on Schedule E (Form 1040). 2011 1040 ez form The depletion deducted on Schedule E is included in figuring income or loss from rental real estate or royalty properties. 2011 1040 ez form The instructions for Schedule E explain where to report this income or loss and whether you need to file either of the following forms. 2011 1040 ez form Form 6198, At-Risk Limitations. 2011 1040 ez form Form 8582, Passive Activity Loss Limitations. 2011 1040 ez form Electing large partnerships must figure depletion allowance. 2011 1040 ez form   An electing large partnership, rather than each partner, generally must figure the depletion allowance. 2011 1040 ez form The partnership figures the depletion allowance without taking into account the 65-percent-of-taxable-income limit and the depletable oil or natural gas quantity. 2011 1040 ez form Also, the adjusted basis of a partner's interest in the partnership is not affected by the depletion allowance. 2011 1040 ez form   An electing large partnership is one that meets both the following requirements. 2011 1040 ez form The partnership had 100 or more partners in the preceding year. 2011 1040 ez form The partnership chooses to be an electing large partnership. 2011 1040 ez form Disqualified persons. 2011 1040 ez form   An electing large partnership does not figure the depletion allowance of its partners that are disqualified persons. 2011 1040 ez form Disqualified persons must figure it themselves, as explained earlier. 2011 1040 ez form   All the following are disqualified persons. 2011 1040 ez form Refiners who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). 2011 1040 ez form Retailers who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). 2011 1040 ez form Any partner whose average daily production of domestic crude oil and natural gas is more than 500 barrels during the tax year in which the partnership tax year ends. 2011 1040 ez form Average daily production is discussed earlier. 2011 1040 ez form Natural Gas Wells You can use percentage depletion for a well that produces natural gas that is either Sold under a fixed contract, or Produced from geopressured brine. 2011 1040 ez form Natural gas sold under a fixed contract. 2011 1040 ez form   Natural gas sold under a fixed contract qualifies for a percentage depletion rate of 22%. 2011 1040 ez form This is domestic natural gas sold by the producer under a contract that does not provide for a price increase to reflect any increase in the seller's tax liability because of the repeal of percentage depletion for gas. 2011 1040 ez form The contract must have been in effect from February 1, 1975, until the date of sale of the gas. 2011 1040 ez form Price increases after February 1, 1975, are presumed to take the increase in tax liability into account unless demonstrated otherwise by clear and convincing evidence. 2011 1040 ez form Natural gas from geopressured brine. 2011 1040 ez form   Qualified natural gas from geopressured brine is eligible for a percentage depletion rate of 10%. 2011 1040 ez form This is natural gas that is both the following. 2011 1040 ez form Produced from a well you began to drill after September 1978 and before 1984. 2011 1040 ez form Determined in accordance with section 503 of the Natural Gas Policy Act of 1978 to be produced from geopressured brine. 2011 1040 ez form Mines and Geothermal Deposits Certain mines, wells, and other natural deposits, including geothermal deposits, qualify for percentage depletion. 2011 1040 ez form Mines and other natural deposits. 2011 1040 ez form   For a natural deposit, the percentage of your gross income from the property that you can deduct as depletion depends on the type of deposit. 2011 1040 ez form   The following is a list of the percentage depletion rates for the more common minerals. 2011 1040 ez form DEPOSITS RATE Sulphur, uranium, and, if from deposits in the United States, asbestos, lead ore, zinc ore, nickel ore, and mica 22% Gold, silver, copper, iron ore, and certain oil shale, if from deposits in the United States 15% Borax, granite, limestone, marble, mollusk shells, potash, slate, soapstone, and carbon dioxide produced from a well 14% Coal, lignite, and sodium chloride 10% Clay and shale used or sold for use in making sewer pipe or bricks or used or sold for use as sintered or burned lightweight aggregates 7½% Clay used or sold for use in making drainage and roofing tile, flower pots, and kindred products, and gravel, sand, and stone (other than stone used or sold for use by a mine owner or operator as dimension or ornamental stone) 5%   You can find a complete list of minerals and their percentage depletion rates in section 613(b) of the Internal Revenue Code. 2011 1040 ez form Corporate deduction for iron ore and coal. 2011 1040 ez form   The percentage depletion deduction of a corporation for iron ore and coal (including lignite) is reduced by 20% of: The percentage depletion deduction for the tax year (figured without this reduction), minus The adjusted basis of the property at the close of the tax year (figured without the depletion deduction for the tax year). 2011 1040 ez form Gross income from the property. 2011 1040 ez form   For property other than a geothermal deposit or an oil or gas well, gross income from the property means the gross income from mining. 2011 1040 ez form Mining includes all the following. 2011 1040 ez form Extracting ores or minerals from the ground. 2011 1040 ez form Applying certain treatment processes described later. 2011 1040 ez form Transporting ores or minerals (generally, not more than 50 miles) from the point of extraction to the plants or mills in which the treatment processes are applied. 2011 1040 ez form Excise tax. 2011 1040 ez form   Gross income from mining includes the separately stated excise tax received by a mine operator from the sale of coal to compensate the operator for the excise tax the mine operator must pay to finance black lung benefits. 2011 1040 ez form Extraction. 2011 1040 ez form   Extracting ores or minerals from the ground includes extraction by mine owners or operators of ores or minerals from the waste or residue of prior mining. 2011 1040 ez form This does not apply to extraction from waste or residue of prior mining by the purchaser of the waste or residue or the purchaser of the rights to extract ores or minerals from the waste or residue. 2011 1040 ez form Treatment processes. 2011 1040 ez form   The processes included as mining depend on the ore or mineral mined. 2011 1040 ez form To qualify as mining, the treatment processes must be applied by the mine owner or operator. 2011 1040 ez form For a listing of treatment processes considered as mining, see section 613(c)(4) of the Internal Revenue Code and the related regulations. 2011 1040 ez form Transportation of more than 50 miles. 2011 1040 ez form   If the IRS finds that the ore or mineral must be transported more than 50 miles to plants or mills to be treated because of physical and other requirements, the additional authorized transportation is considered mining and included in the computation of gross income from mining. 2011 1040 ez form    If you wish to include transportation of more than 50 miles in the computation of gross income from mining, request an advance ruling from the IRS. 2011 1040 ez form Include in the request the facts about the physical and other requirements that prevented the construction and operation of the plant within 50 miles of the point of extraction. 2011 1040 ez form For more information about requesting an advance ruling, see Revenue Procedure 2013-1, available at www. 2011 1040 ez form irs. 2011 1040 ez form gov/irb/2013-01_IRB/ar11. 2011 1040 ez form html. 2011 1040 ez form Disposal of coal or iron ore. 2011 1040 ez form   You cannot take a depletion deduction for coal (including lignite) or iron ore mined in the United States if both the following apply. 2011 1040 ez form You disposed of it after holding it for more than 1 year. 2011 1040 ez form You disposed of it under a contract under which you retain an economic interest in the coal or iron ore. 2011 1040 ez form Treat any gain on the disposition as a capital gain. 2011 1040 ez form Disposal to related person. 2011 1040 ez form   This rule does not apply if you dispose of the coal or iron ore to one of the following persons. 2011 1040 ez form A related person (as listed in chapter 2 of Publication 544). 2011 1040 ez form A person owned or controlled by the same interests that own or control you. 2011 1040 ez form Geothermal deposits. 2011 1040 ez form   Geothermal deposits located in the United States or its possessions qualify for a percentage depletion rate of 15%. 2011 1040 ez form A geothermal deposit is a geothermal reservoir of natural heat stored in rocks or in a watery liquid or vapor. 2011 1040 ez form For percentage depletion purposes, a geothermal deposit is not considered a gas well. 2011 1040 ez form   Figure gross income from the property for a geothermal steam well in the same way as for oil and gas wells. 2011 1040 ez form See Gross income from the property , earlier, under Oil and Gas Wells. 2011 1040 ez form Percentage depletion on a geothermal deposit cannot be more than 50% of your taxable income from the property. 2011 1040 ez form Lessor's Gross Income In the case of leased property, the depletion deduction is divided between the lessor and the lessee. 2011 1040 ez form A lessor's gross income from the property that qualifies for percentage depletion usually is the total of the royalties received from the lease. 2011 1040 ez form Bonuses and advanced royalties. 2011 1040 ez form   Bonuses and advanced royalties are payments a lessee makes before production to a lessor for the grant of rights in a lease or for minerals, gas, or oil to be extracted from leased property. 2011 1040 ez form If you are the lessor, your income from bonuses and advanced royalties received is subject to an allowance for depletion, as explained in the next two paragraphs. 2011 1040 ez form Figuring cost depletion. 2011 1040 ez form   To figure cost depletion on a bonus, multiply your adjusted basis in the property by a fraction, the numerator of which is the bonus and the denominator of which is the total bonus and royalties expected to be received. 2011 1040 ez form To figure cost depletion on advanced royalties, use the computation explained earlier under Cost Depletion , treating the number of units for which the advanced royalty is received as the number of units sold. 2011 1040 ez form Figuring percentage depletion. 2011 1040 ez form   In the case of mines, wells, and other natural deposits other than gas, oil, or geothermal property, you may use the percentage rates discussed earlier under Mines and Geothermal Deposits . 2011 1040 ez form Any bonus or advanced royalty payments are generally part of the gross income from the property to which the rates are applied in making the calculation. 2011 1040 ez form However, for oil, gas, or geothermal property, gross income does not include lease bonuses, advanced royalties, or other amounts payable without regard to production from the property. 2011 1040 ez form Ending the lease. 2011 1040 ez form   If you receive a bonus on a lease that ends or is abandoned before you derive any income from mineral extraction, include in income the depletion deduction you took. 2011 1040 ez form Do this for the year the lease ends or is abandoned. 2011 1040 ez form Also increase your adjusted basis in the property to restore the depletion deduction you previously subtracted. 2011 1040 ez form   For advanced royalties, include in income the depletion claimed on minerals for which the advanced royalties were paid if the minerals were not produced before the lease ended. 2011 1040 ez form Include this amount in income for the year the lease ends. 2011 1040 ez form Increase your adjusted basis in the property by the amount you include in income. 2011 1040 ez form Delay rentals. 2011 1040 ez form   These are payments for deferring development of the property. 2011 1040 ez form Since delay rentals are ordinary rent, they are ordinary income that is not subject to depletion. 2011 1040 ez form These rentals can be avoided by either abandoning the lease, beginning development operations, or obtaining production. 2011 1040 ez form Timber You can figure timber depletion only by the cost method. 2011 1040 ez form Percentage depletion does not apply to timber. 2011 1040 ez form Base your depletion on your cost or other basis in the timber. 2011 1040 ez form Your cost does not include the cost of land or any amounts recoverable through depreciation. 2011 1040 ez form Depletion takes place when you cut standing timber. 2011 1040 ez form You can figure your depletion deduction when the quantity of cut timber is first accurately measured in the process of exploitation. 2011 1040 ez form Figuring cost depletion. 2011 1040 ez form   To figure your cost depletion allowance, you multiply the number of timber units cut by your depletion unit. 2011 1040 ez form Timber units. 2011 1040 ez form   When you acquire timber property, you must make an estimate of the quantity of marketable timber that exists on the property. 2011 1040 ez form You measure the timber using board feet, log scale, cords, or other units. 2011 1040 ez form If you later determine that you have more or less units of timber, you must adjust the original estimate. 2011 1040 ez form   The term “timber property” means your economic interest in standing timber in each tract or block representing a separate timber account. 2011 1040 ez form Depletion unit. 2011 1040 ez form   You figure your depletion unit each year by taking the following steps. 2011 1040 ez form Determine your cost or adjusted basis of the timber on hand at the beginning of the year. 2011 1040 ez form Adjusted basis is defined under Cost Depletion in the discussion on Mineral Property. 2011 1040 ez form Add to the amount determined in (1) the cost of any timber units acquired during the year and any additions to capital. 2011 1040 ez form Figure the number of timber units to take into account by adding the number of timber units acquired during the year to the number of timber units on hand in the account at the beginning of the year and then adding (or subtracting) any correction to the estimate of the number of timber units remaining in the account. 2011 1040 ez form Divide the result of (2) by the result of (3). 2011 1040 ez form This is your depletion unit. 2011 1040 ez form Example. 2011 1040 ez form You bought a timber tract for $160,000 and the land was worth as much as the timber. 2011 1040 ez form Your basis for the timber is $80,000. 2011 1040 ez form Based on an estimated one million board feet (1,000 MBF) of standing timber, you figure your depletion unit to be $80 per MBF ($80,000 ÷ 1,000). 2011 1040 ez form If you cut 500 MBF of timber, your depletion allowance would be $40,000 (500 MBF × $80). 2011 1040 ez form When to claim depletion. 2011 1040 ez form   Claim your depletion allowance as a deduction in the year of sale or other disposition of the products cut from the timber, unless you choose to treat the cutting of timber as a sale or exchange (explained below). 2011 1040 ez form Include allowable depletion for timber products not sold during the tax year the timber is cut as a cost item in the closing inventory of timber products for the year. 2011 1040 ez form The inventory is your basis for determining gain or loss in the tax year you sell the timber products. 2011 1040 ez form Example. 2011 1040 ez form The facts are the same as in the previous example except that you sold only half of the timber products in the cutting year. 2011 1040 ez form You would deduct $20,000 of the $40,000 depletion that year. 2011 1040 ez form You would add the remaining $20,000 depletion to your closing inventory of timber products. 2011 1040 ez form Electing to treat the cutting of timber as a sale or exchange. 2011 1040 ez form   You can elect, under certain circumstances, to treat the cutting of timber held for more than 1 year as a sale or exchange. 2011 1040 ez form You must make the election on your income tax return for the tax year to which it applies. 2011 1040 ez form If you make this election, subtract the adjusted basis for depletion from the fair market value of the timber on the first day of the tax year in which you cut it to figure the gain or loss on the cutting. 2011 1040 ez form You generally report the gain as long-term capital gain. 2011 1040 ez form The fair market value then becomes your basis for figuring your ordinary gain or loss on the sale or other disposition of the products cut from the timber. 2011 1040 ez form For more information, see Timber in chapter 2 of Publication 544, Sales and Other Dispositions of Assets. 2011 1040 ez form   You may revoke an election to treat the cutting of timber as a sale or exchange without IRS's consent. 2011 1040 ez form The prior election (and revocation) is disregarded for purposes of making a subsequent election. 2011 1040 ez form See Form T (Timber), Forest Activities Schedule, for more information. 2011 1040 ez form Form T. 2011 1040 ez form   Complete and attach Form T (Timber) to your income tax return if you claim a deduction for timber depletion, choose to treat the cutting of timber as a sale or exchange, or make an outright sale of timber. 2011 1040 ez form Prev  Up  Next   Home   More Online Publications