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2012 Amended Tax Form

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2012 Amended Tax Form

2012 amended tax form There are three ways you can request an automatic extension of time to file a U.S. individual income tax return: (1) you can electronically file Form 4868 (PDF), Application For Automatic Extension of Time To File U.S. Individual Tax Return; (2) you can pay all or part of your estimated income tax due using a credit or debit card or by using the Electronic Federal Tax Payment System (EFTPS); or (3) you can file a paper Form 4868 by mail. 2012 amended tax form 2012 amended tax form If you file your Form 4868 electronically you will receive an acknowledgement or confirmation number for your records and you do not need to mail in Form 4868. If you need to pay additional taxes when filing Form 4868 electronically, you may do so through the outside service provider or through e-file. You can refer to your tax software or tax professional for ways to file electronically using e-file services. Several companies offer free filing of Form 4868 through the Free File program that you can access on the IRS.gov website. If you wish to file electronically, be sure to have a copy of last year's tax return. You will be asked to provide the adjusted gross income (AGI) from the return for taxpayer verification. 2012 amended tax form 2012 amended tax form A second way of requesting an automatic extension of time to file your individual income tax return is to pay part or your entire estimated income tax due by credit card or debit card or by using EFTPS. You may pay by phone or Internet through one of the service providers listed on Form 4868. Each service provider will charge a convenience fee based on the amount of the tax payment. At the completion of the transaction, you will receive a confirmation number for your records. 2012 amended tax form 2012 amended tax form Finally, you can request an automatic extension of time to file your individual income tax return by completing paper Form 4868 and mailing it to the appropriate address provided on the form. 2012 amended tax form 2012 amended tax form Please be aware that an extension of time to file is NOT an extension of time to pay.
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Land Mobile Radio (LMR) Subscriber Unit

***Government One-Time Registration***

Welcome to the Land Mobile Radio (LMR) Subscriber Unit web page. On this site, you will find information and guidance to help you fulfill LMR Project 25 Subscriber Unit Radio equipment requirements through the LMR subscriber unit contracts.

The Government requires effective, reliable, and secure wireless communications capabilities to successfully carry out a wide range of enforcement, protective, and security missions. LMR subscriber units are a primary tool for the Government to communicate in the field. LMR equipment and systems provide command, control, and communications capabilities not available on commercial wireless networks. While the Government relies on commercial wireless services for routine voice communications, private LMR networks provide a unique level of reliability and privacy required by enforcement, protective, and security missions.

The LMR subscriber unit contracts provide standards-based and standards-compliant LMR equipment to enable communications interoperability with similarly configured equipment. The TIA/EIA-102 suite of standards, also known as Project 25, provides the basis for the required LMR technical specifications. The TIA/EIA-102 standards, also known as the Project 25 Standards, specify radio equipment that allows for a smooth migration from analog operating in the 25 kHz bandwidth to 12.5 kHz digital operations. TIA/EIA-102 standards also provide for a “Common Air Interface” (CAI) across which radio equipment from multiple contractors will interoperate.

The LMR subscriber unit equipment contracts are for portable and mobile radios, portable repeaters and portable base stations, encryption key loaders and ancillary support accessories. The contracts provide standards-based equipment to capitalize on contractor and product diversity and to provide effective solutions for the Government.

LMR Overview

LMR Contractors - List of Contractors under the Land Mobile Radio Program and information regarding their contracts (CLINs, Modifications, DUNS number, contractor points of contact and links to contractor websites).

Government Point of Contact

Contract - the general terms and conditions of the LMR contracts. Individual modifications to the contracts can be found under the link to LMR Contractors.

LMR Authorized Users

Customer Information - Step by Step Guide and Ordering Guide to provide information on how to use our contracts.

Frequently Asked Questions

508 Requirements/Policy - The requirements for the Section 508 of the Rehabilitation Act Amendments of 1998 (25 U.S.C. paragraph 794 (d)) has been waived based on the National Security Intelligence Exception in the calss-action waiver of contracts for subscriber unit Land Mobile Radio (LMR) equipment.


Questions about the Procurement information on this site, please contact the webmaster.
Contact the Office of Procurement for other Procurement related questions.

Page Last Reviewed or Updated: 22-Apr-2013

The 2012 Amended Tax Form

2012 amended tax form 4. 2012 amended tax form   Interest Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Allocation of InterestOrder of funds spent. 2012 amended tax form Payments from checking accounts. 2012 amended tax form Amounts paid within 30 days. 2012 amended tax form Optional method for determining date of reallocation. 2012 amended tax form Interest on a segregated account. 2012 amended tax form How to report. 2012 amended tax form Interest You Can DeductStatement. 2012 amended tax form Expenses paid to obtain a mortgage. 2012 amended tax form Prepayment penalty. 2012 amended tax form De minimis OID. 2012 amended tax form Constant-yield method. 2012 amended tax form Loan or mortgage ends. 2012 amended tax form Interest You Cannot DeductPenalties. 2012 amended tax form Who is a key person? Exceptions for pre-June 1997 contracts. 2012 amended tax form Interest allocated to unborrowed policy cash value. 2012 amended tax form Capitalization of Interest When To Deduct InterestPrepaid interest. 2012 amended tax form Discounted loan. 2012 amended tax form Refunds of interest. 2012 amended tax form Prepaid interest. 2012 amended tax form Discounted loan. 2012 amended tax form Tax deficiency. 2012 amended tax form Related person. 2012 amended tax form Below-Market LoansLimit on forgone interest for gift loans of $100,000 or less. 2012 amended tax form Introduction This chapter discusses the tax treatment of business interest expense. 2012 amended tax form Business interest expense is an amount charged for the use of money you borrowed for business activities. 2012 amended tax form Topics - This chapter discusses: Allocation of interest Interest you can deduct Interest you cannot deduct Capitalization of interest When to deduct interest Below-market loans Useful Items - You may want to see: Publication 537 Installment Sales 550 Investment Income and Expenses 936 Home Mortgage Interest Deduction Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch E (Form 1040) Supplemental Income and Loss Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. 2012 amended tax form Sch K-1 (Form 1120S) Shareholder's Share of Income, Deductions, Credits, etc. 2012 amended tax form 1098 Mortgage Interest Statement 3115 Application for Change in Accounting Method 4952 Investment Interest Expense Deduction 8582 Passive Activity Loss Limitations See chapter 12 for information about getting publications and forms. 2012 amended tax form Allocation of Interest The rules for deducting interest vary, depending on whether the loan proceeds are used for business, personal, or investment activities. 2012 amended tax form If you use the proceeds of a loan for more than one type of expense, you must allocate the interest based on the use of the loan's proceeds. 2012 amended tax form Allocate your interest expense to the following categories. 2012 amended tax form Nonpassive trade or business activity interest Passive trade or business activity interest Investment interest Portfolio interest Personal interest In general, you allocate interest on a loan the same way you allocate the loan proceeds. 2012 amended tax form You allocate loan proceeds by tracing disbursements to specific uses. 2012 amended tax form The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. 2012 amended tax form Secured loan. 2012 amended tax form   The allocation of loan proceeds and the related interest is not generally affected by the use of property that secures the loan. 2012 amended tax form Example. 2012 amended tax form You secure a loan with property used in your business. 2012 amended tax form You use the loan proceeds to buy an automobile for personal use. 2012 amended tax form You must allocate interest expense on the loan to personal use (purchase of the automobile) even though the loan is secured by business property. 2012 amended tax form    If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. 2012 amended tax form The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. 2012 amended tax form For more information, see Publication 936. 2012 amended tax form Allocation period. 2012 amended tax form   The period for which a loan is allocated to a particular use begins on the date the proceeds are used and ends on the earlier of the following dates. 2012 amended tax form The date the loan is repaid. 2012 amended tax form The date the loan is reallocated to another use. 2012 amended tax form Proceeds not disbursed to borrower. 2012 amended tax form   Even if the lender disburses the loan proceeds to a third party, the allocation of the loan is still based on your use of the funds. 2012 amended tax form This applies whether you pay for property, services, or anything else by incurring a loan, or you take property subject to a debt. 2012 amended tax form Proceeds deposited in borrower's account. 2012 amended tax form   Treat loan proceeds deposited in an account as property held for investment. 2012 amended tax form It does not matter whether the account pays interest. 2012 amended tax form Any interest you pay on the loan is investment interest expense. 2012 amended tax form If you withdraw the proceeds of the loan, you must reallocate the loan based on the use of the funds. 2012 amended tax form Example. 2012 amended tax form Celina, a calendar-year taxpayer, borrows $100,000 on January 4 and immediately uses the proceeds to open a checking account. 2012 amended tax form No other amounts are deposited in the account during the year and no part of the loan principal is repaid during the year. 2012 amended tax form On April 2, Celina uses $20,000 from the checking account for a passive activity expenditure. 2012 amended tax form On September 4, Celina uses an additional $40,000 from the account for personal purposes. 2012 amended tax form Under the interest allocation rules, the entire $100,000 loan is treated as property held for investment for the period from January 4 through April 1. 2012 amended tax form From April 2 through September 3, Celina must treat $20,000 of the loan as used in the passive activity and $80,000 of the loan as property held for investment. 2012 amended tax form From September 4 through December 31, she must treat $40,000 of the loan as used for personal purposes, $20,000 as used in the passive activity, and $40,000 as property held for investment. 2012 amended tax form Order of funds spent. 2012 amended tax form   Generally, you treat loan proceeds deposited in an account as used (spent) before either of the following amounts. 2012 amended tax form Any unborrowed amounts held in the same account. 2012 amended tax form Any amounts deposited after these loan proceeds. 2012 amended tax form Example. 2012 amended tax form On January 9, Olena opened a checking account, depositing $500 of the proceeds of Loan A and $1,000 of unborrowed funds. 2012 amended tax form The following table shows the transactions in her account during the tax year. 2012 amended tax form Date Transaction January 9 $500 proceeds of Loan A and $1,000 unborrowed funds deposited January 14 $500 proceeds of Loan B  deposited February 19 $800 used for personal purposes February 27 $700 used for passive activity June 19 $1,000 proceeds of Loan C  deposited November 20 $800 used for an investment December 18 $600 used for personal purposes Olena treats the $800 used for personal purposes as made from the $500 proceeds of Loan A and $300 of the proceeds of Loan B. 2012 amended tax form She treats the $700 used for a passive activity as made from the remaining $200 proceeds of Loan B and $500 of unborrowed funds. 2012 amended tax form She treats the $800 used for an investment as made entirely from the proceeds of Loan C. 2012 amended tax form She treats the $600 used for personal purposes as made from the remaining $200 proceeds of Loan C and $400 of unborrowed funds. 2012 amended tax form For the periods during which loan proceeds are held in the account, Olena treats them as property held for investment. 2012 amended tax form Payments from checking accounts. 2012 amended tax form   Generally, you treat a payment from a checking or similar account as made at the time the check is written if you mail or deliver it to the payee within a reasonable period after you write it. 2012 amended tax form You can treat checks written on the same day as written in any order. 2012 amended tax form Amounts paid within 30 days. 2012 amended tax form   If you receive loan proceeds in cash or if the loan proceeds are deposited in an account, you can treat any payment (up to the amount of the proceeds) made from any account you own, or from cash, as made from those proceeds. 2012 amended tax form This applies to any payment made within 30 days before or after the proceeds are received in cash or deposited in your account. 2012 amended tax form   If the loan proceeds are deposited in an account, you can apply this rule even if the rules stated earlier under Order of funds spent would otherwise require you to treat the proceeds as used for other purposes. 2012 amended tax form If you apply this rule to any payments, disregard those payments (and the proceeds from which they are made) when applying the rules stated under Order of funds spent. 2012 amended tax form   If you received the loan proceeds in cash, you can treat the payment as made on the date you received the cash instead of the date you actually made the payment. 2012 amended tax form Example. 2012 amended tax form Giovanni gets a loan of $1,000 on August 4 and receives the proceeds in cash. 2012 amended tax form Giovanni deposits $1,500 in an account on August 18 and on August 28 writes a check on the account for a passive activity expense. 2012 amended tax form Also, Giovanni deposits his paycheck, deposits other loan proceeds, and pays his bills during the same period. 2012 amended tax form Regardless of these other transactions, Giovanni can treat $1,000 of the deposit he made on August 18 as being paid on August 4 from the loan proceeds. 2012 amended tax form In addition, Giovanni can treat the passive activity expense he paid on August 28 as made from the $1,000 loan proceeds treated as deposited in the account. 2012 amended tax form Optional method for determining date of reallocation. 2012 amended tax form   You can use the following method to determine the date loan proceeds are reallocated to another use. 2012 amended tax form You can treat all payments from loan proceeds in the account during any month as taking place on the later of the following dates. 2012 amended tax form The first day of that month. 2012 amended tax form The date the loan proceeds are deposited in the account. 2012 amended tax form However, you can use this optional method only if you treat all payments from the account during the same calendar month in the same way. 2012 amended tax form Interest on a segregated account. 2012 amended tax form   If you have an account that contains only loan proceeds and interest earned on the account, you can treat any payment from that account as being made first from the interest. 2012 amended tax form When the interest earned is used up, any remaining payments are from loan proceeds. 2012 amended tax form Example. 2012 amended tax form You borrowed $20,000 and used the proceeds of this loan to open a new savings account. 2012 amended tax form When the account had earned interest of $867, you withdrew $20,000 for personal purposes. 2012 amended tax form You can treat the withdrawal as coming first from the interest earned on the account, $867, and then from the loan proceeds, $19,133 ($20,000 − $867). 2012 amended tax form All the interest charged on the loan from the time it was deposited in the account until the time of the withdrawal is investment interest expense. 2012 amended tax form The interest charged on the part of the proceeds used for personal purposes ($19,133) from the time you withdrew it until you either repay it or reallocate it to another use is personal interest expense. 2012 amended tax form The interest charged on the loan proceeds you left in the account ($867) continues to be investment interest expense until you either repay it or reallocate it to another use. 2012 amended tax form Loan repayment. 2012 amended tax form   When you repay any part of a loan allocated to more than one use, treat it as being repaid in the following order. 2012 amended tax form Personal use. 2012 amended tax form Investments and passive activities (other than those included in (3)). 2012 amended tax form Passive activities in connection with a rental real estate activity in which you actively participate. 2012 amended tax form Former passive activities. 2012 amended tax form Trade or business use and expenses for certain low-income housing projects. 2012 amended tax form Line of credit (continuous borrowings). 2012 amended tax form   The following rules apply if you have a line of credit or similar arrangement. 2012 amended tax form Treat all borrowed funds on which interest accrues at the same fixed or variable rate as a single loan. 2012 amended tax form Treat borrowed funds or parts of borrowed funds on which interest accrues at different fixed or variable rates as different loans. 2012 amended tax form Treat these loans as repaid in the order shown on the loan agreement. 2012 amended tax form Loan refinancing. 2012 amended tax form   Allocate the replacement loan to the same uses to which the repaid loan was allocated. 2012 amended tax form Make the allocation only to the extent you use the proceeds of the new loan to repay any part of the original loan. 2012 amended tax form Debt-financed distribution. 2012 amended tax form   A debt-financed distribution occurs when a partnership or S corporation borrows funds and allocates those funds to distributions made to partners or shareholders. 2012 amended tax form The manner in which you report the interest expense associated with the distributed debt proceeds depends on your use of those proceeds. 2012 amended tax form How to report. 2012 amended tax form   If the proceeds were used in a nonpassive trade or business activity, report the interest on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership or S corporation in column (a) and the amount in column (h). 2012 amended tax form If the proceeds were used in a passive activity, follow the Instructions for Form 8582, Passive Activity Loss Limitations, to determine the amount of interest expense that can be reported on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership in column (a) and the amount in column (f). 2012 amended tax form If the proceeds were used in an investment activity, enter the interest on Form 4952. 2012 amended tax form If the proceeds are used for personal purposes, the interest is generally not deductible. 2012 amended tax form Interest You Can Deduct You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your trade or business. 2012 amended tax form Interest relates to your trade or business if you use the proceeds of the loan for a trade or business expense. 2012 amended tax form It does not matter what type of property secures the loan. 2012 amended tax form You can deduct interest on a debt only if you meet all the following requirements. 2012 amended tax form You are legally liable for that debt. 2012 amended tax form Both you and the lender intend that the debt be repaid. 2012 amended tax form You and the lender have a true debtor-creditor relationship. 2012 amended tax form Partial liability. 2012 amended tax form   If you are liable for part of a business debt, you can deduct only your share of the total interest paid or accrued. 2012 amended tax form Example. 2012 amended tax form You and your brother borrow money. 2012 amended tax form You are liable for 50% of the note. 2012 amended tax form You use your half of the loan in your business, and you make one-half of the loan payments. 2012 amended tax form You can deduct your half of the total interest payments as a business deduction. 2012 amended tax form Mortgage. 2012 amended tax form   Generally, mortgage interest paid or accrued on real estate you own legally or equitably is deductible. 2012 amended tax form However, rather than deducting the interest currently, you may have to add it to the cost basis of the property as explained later under Capitalization of Interest. 2012 amended tax form Statement. 2012 amended tax form   If you paid $600 or more of mortgage interest (including certain points) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement. 2012 amended tax form You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. 2012 amended tax form A governmental unit is a person for purposes of furnishing the statement. 2012 amended tax form   If you receive a refund of interest you overpaid in an earlier year, this amount will be reported in box 3 of Form 1098. 2012 amended tax form You cannot deduct this amount. 2012 amended tax form For information on how to report this refund, see Refunds of interest, later in this chapter. 2012 amended tax form Expenses paid to obtain a mortgage. 2012 amended tax form   Certain expenses you pay to obtain a mortgage cannot be deducted as interest. 2012 amended tax form These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses. 2012 amended tax form If the property mortgaged is business or income-producing property, you can amortize the costs over the life of the mortgage. 2012 amended tax form Prepayment penalty. 2012 amended tax form   If you pay off your mortgage early and pay the lender a penalty for doing this, you can deduct the penalty as interest. 2012 amended tax form Interest on employment tax deficiency. 2012 amended tax form   Interest charged on employment taxes assessed on your business is deductible. 2012 amended tax form Original issue discount (OID). 2012 amended tax form   OID is a form of interest. 2012 amended tax form A loan (mortgage or other debt) generally has OID when its proceeds are less than its principal amount. 2012 amended tax form The OID is the difference between the stated redemption price at maturity and the issue price of the loan. 2012 amended tax form   A loan's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on it other than qualified stated interest. 2012 amended tax form Qualified stated interest is stated interest that is unconditionally payable in cash or property (other than another loan of the issuer) at least annually over the term of the loan at a single fixed rate. 2012 amended tax form You generally deduct OID over the term of the loan. 2012 amended tax form Figure the amount to deduct each year using the constant-yield method, unless the OID on the loan is de minimis. 2012 amended tax form De minimis OID. 2012 amended tax form   The OID is de minimis if it is less than one-fourth of 1% (. 2012 amended tax form 0025) of the stated redemption price of the loan at maturity multiplied by the number of full years from the date of original issue to maturity (the term of the loan). 2012 amended tax form   If the OID is de minimis, you can choose one of the following ways to figure the amount you can deduct each year. 2012 amended tax form On a constant-yield basis over the term of the loan. 2012 amended tax form On a straight-line basis over the term of the loan. 2012 amended tax form In proportion to stated interest payments. 2012 amended tax form In its entirety at maturity of the loan. 2012 amended tax form You make this choice by deducting the OID in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued. 2012 amended tax form Example. 2012 amended tax form On January 1, 2013, you took out a $100,000 discounted loan and received $98,500 in proceeds. 2012 amended tax form The loan will mature on January 1, 2023 (a 10-year term), and the $100,000 principal is payable on that date. 2012 amended tax form Interest of $10,000 is payable on January 1 of each year, beginning January 1, 2014. 2012 amended tax form The $1,500 OID on the loan is de minimis because it is less than $2,500 ($100,000 × . 2012 amended tax form 0025 × 10). 2012 amended tax form You choose to deduct the OID on a straight-line basis over the term of the loan. 2012 amended tax form Beginning in 2013, you can deduct $150 each year for 10 years. 2012 amended tax form Constant-yield method. 2012 amended tax form   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. 2012 amended tax form You figure your deduction for the first year using the following steps. 2012 amended tax form Determine the issue price of the loan. 2012 amended tax form Generally, this equals the proceeds of the loan. 2012 amended tax form If you paid points on the loan (as discussed later), the issue price generally is the difference between the proceeds and the points. 2012 amended tax form Multiply the result in (1) by the yield to maturity. 2012 amended tax form Subtract any qualified stated interest payments from the result in (2). 2012 amended tax form This is the OID you can deduct in the first year. 2012 amended tax form   To figure your deduction in any subsequent year, follow the above steps, except determine the adjusted issue price in step (1). 2012 amended tax form To get the adjusted issue price, add to the issue price any OID previously deducted. 2012 amended tax form Then follow steps (2) and (3) above. 2012 amended tax form   The yield to maturity is generally shown in the literature you receive from your lender. 2012 amended tax form If you do not have this information, consult your lender or tax advisor. 2012 amended tax form In general, the yield to maturity is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the principal amount of the loan. 2012 amended tax form Example. 2012 amended tax form The facts are the same as in the previous example, except that you deduct the OID on a constant yield basis over the term of the loan. 2012 amended tax form The yield to maturity on your loan is 10. 2012 amended tax form 2467%, compounded annually. 2012 amended tax form For 2013, you can deduct $93 [($98,500 × . 2012 amended tax form 102467) − $10,000]. 2012 amended tax form For 2014, you can deduct $103 [($98,593 × . 2012 amended tax form 102467) − $10,000]. 2012 amended tax form Loan or mortgage ends. 2012 amended tax form   If your loan or mortgage ends, you may be able to deduct any remaining OID in the tax year in which the loan or mortgage ends. 2012 amended tax form A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. 2012 amended tax form If you refinance with the original lender, you generally cannot deduct the remaining OID in the year in which the refinancing occurs, but you may be able to deduct it over the term of the new mortgage or loan. 2012 amended tax form See Interest paid with funds borrowed from original lender under Interest You Cannot Deduct, later. 2012 amended tax form Points. 2012 amended tax form   The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a loan or a mortgage. 2012 amended tax form These charges are also called loan origination fees, maximum loan charges, discount points, or premium charges. 2012 amended tax form If any of these charges (points) are solely for the use of money, they are interest. 2012 amended tax form   Because points are prepaid interest, you generally cannot deduct the full amount in the year paid. 2012 amended tax form However, you can choose to fully deduct points in the year paid if you meet certain tests. 2012 amended tax form For exceptions to the general rule, see Publication 936. 2012 amended tax form The points reduce the issue price of the loan and result in original issue discount (OID), deductible as explained in the preceding discussion. 2012 amended tax form Partial payments on a nontax debt. 2012 amended tax form   If you make partial payments on a debt (other than a debt owed the IRS), the payments are applied, in general, first to interest and any remainder to principal. 2012 amended tax form You can deduct only the interest. 2012 amended tax form This rule does not apply when it can be inferred that the borrower and lender understood that a different allocation of the payments would be made. 2012 amended tax form Installment purchase. 2012 amended tax form   If you make an installment purchase of business property, the contract between you and the seller generally provides for the payment of interest. 2012 amended tax form If no interest or a low rate of interest is charged under the contract, a portion of the stated principal amount payable under the contract may be recharacterized as interest (unstated interest). 2012 amended tax form The amount recharacterized as interest reduces your basis in the property and increases your interest expense. 2012 amended tax form For more information on installment sales and unstated interest, see Publication 537. 2012 amended tax form Interest You Cannot Deduct Certain interest payments cannot be deducted. 2012 amended tax form In addition, certain other expenses that may seem to be interest but are not, cannot be deducted as interest. 2012 amended tax form You cannot currently deduct interest that must be capitalized, and you generally cannot deduct personal interest. 2012 amended tax form Interest paid with funds borrowed from original lender. 2012 amended tax form   If you use the cash method of accounting, you cannot deduct interest you pay with funds borrowed from the original lender through a second loan, an advance, or any other arrangement similar to a loan. 2012 amended tax form You can deduct the interest expense once you start making payments on the new loan. 2012 amended tax form   When you make a payment on the new loan, you first apply the payment to interest and then to the principal. 2012 amended tax form All amounts you apply to the interest on the first loan are deductible, along with any interest you pay on the second loan, subject to any limits that apply. 2012 amended tax form Capitalized interest. 2012 amended tax form   You cannot currently deduct interest you are required to capitalize under the uniform capitalization rules. 2012 amended tax form See Capitalization of Interest, later. 2012 amended tax form In addition, if you buy property and pay interest owed by the seller (for example, by assuming the debt and any interest accrued on the property), you cannot deduct the interest. 2012 amended tax form Add this interest to the basis of the property. 2012 amended tax form Commitment fees or standby charges. 2012 amended tax form   Fees you incur to have business funds available on a standby basis, but not for the actual use of the funds, are not deductible as interest payments. 2012 amended tax form You may be able to deduct them as business expenses. 2012 amended tax form   If the funds are for inventory or certain property used in your business, the fees are indirect costs and you generally must capitalize them under the uniform capitalization rules. 2012 amended tax form See Capitalization of Interest, later. 2012 amended tax form Interest on income tax. 2012 amended tax form   Interest charged on income tax assessed on your individual income tax return is not a business deduction even though the tax due is related to income from your trade or business. 2012 amended tax form Treat this interest as a business deduction only in figuring a net operating loss deduction. 2012 amended tax form Penalties. 2012 amended tax form   Penalties on underpaid deficiencies and underpaid estimated tax are not interest. 2012 amended tax form You cannot deduct them. 2012 amended tax form Generally, you cannot deduct any fines or penalties. 2012 amended tax form Interest on loans with respect to life insurance policies. 2012 amended tax form   You generally cannot deduct interest on a debt incurred with respect to any life insurance, annuity, or endowment contract that covers any individual unless that individual is a key person. 2012 amended tax form   If the policy or contract covers a key person, you can deduct the interest on up to $50,000 of debt for that person. 2012 amended tax form However, the deduction for any month cannot be more than the interest figured using Moody's Composite Yield on Seasoned Corporate Bonds (formerly known as Moody's Corporate Bond Yield Average-Monthly Average Corporates) (Moody's rate) for that month. 2012 amended tax form Who is a key person?   A key person is an officer or 20% owner. 2012 amended tax form However, the number of individuals you can treat as key persons is limited to the greater of the following. 2012 amended tax form Five individuals. 2012 amended tax form The lesser of 5% of the total officers and employees of the company or 20 individuals. 2012 amended tax form Exceptions for pre-June 1997 contracts. 2012 amended tax form   You can generally deduct the interest if the contract was issued before June 9, 1997, and the covered individual is someone other than an employee, officer, or someone financially interested in your business. 2012 amended tax form If the contract was purchased before June 21, 1986, you can generally deduct the interest no matter who is covered by the contract. 2012 amended tax form Interest allocated to unborrowed policy cash value. 2012 amended tax form   Corporations and partnerships generally cannot deduct any interest expense allocable to unborrowed cash values of life insurance, annuity, or endowment contracts. 2012 amended tax form This rule applies to contracts issued after June 8, 1997, that cover someone other than an officer, director, employee, or 20% owner. 2012 amended tax form For more information, see section 264(f) of the Internal Revenue Code. 2012 amended tax form Capitalization of Interest Under the uniform capitalization rules, you generally must capitalize interest on debt equal to your expenditures to produce real property or certain tangible personal property. 2012 amended tax form The property must be produced by you for use in your trade or business or for sale to customers. 2012 amended tax form You cannot capitalize interest related to property that you acquire in any other manner. 2012 amended tax form Interest you paid or incurred during the production period must be capitalized if the property produced is designated property. 2012 amended tax form Designated property is any of the following. 2012 amended tax form Real property. 2012 amended tax form Tangible personal property with a class life of 20 years or more. 2012 amended tax form Tangible personal property with an estimated production period of more than 2 years. 2012 amended tax form Tangible personal property with an estimated production period of more than 1 year if the estimated cost of production is more than $1 million. 2012 amended tax form Property you produce. 2012 amended tax form   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow it. 2012 amended tax form Treat property produced for you under a contract as produced by you up to the amount you pay or incur for the property. 2012 amended tax form Carrying charges. 2012 amended tax form   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. 2012 amended tax form You can choose to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. 2012 amended tax form For more information, see chapter 7. 2012 amended tax form Capitalized interest. 2012 amended tax form   Treat capitalized interest as a cost of the property produced. 2012 amended tax form You recover your interest when you sell or use the property. 2012 amended tax form If the property is inventory, recover capitalized interest through cost of goods sold. 2012 amended tax form If the property is used in your trade or business, recover capitalized interest through an adjustment to basis, depreciation, amortization, or other method. 2012 amended tax form Partnerships and S corporations. 2012 amended tax form   The interest capitalization rules are applied first at the partnership or S corporation level. 2012 amended tax form The rules are then applied at the partners' or shareholders' level to the extent the partnership or S corporation has insufficient debt to support the production or construction costs. 2012 amended tax form   If you are a partner or a shareholder, you may have to capitalize interest you incur during the tax year for the production costs of the partnership or S corporation. 2012 amended tax form You may also have to capitalize interest incurred by the partnership or S corporation for your own production costs. 2012 amended tax form To properly capitalize interest under these rules, you must be given the required information in an attachment to the Schedule K-1 you receive from the partnership or S corporation. 2012 amended tax form Additional information. 2012 amended tax form   The procedures for applying the uniform capitalization rules are beyond the scope of this publication. 2012 amended tax form For more information, see sections 1. 2012 amended tax form 263A-8 through 1. 2012 amended tax form 263A-15 of the regulations and Notice 88-99. 2012 amended tax form Notice 88-99 is in Cumulative Bulletin 1988-2. 2012 amended tax form When To Deduct Interest If the uniform capitalization rules, discussed under Capitalization of Interest, earlier, do not apply to you, deduct interest as follows. 2012 amended tax form Cash method. 2012 amended tax form   Under the cash method, you can generally deduct only the interest you actually paid during the tax year. 2012 amended tax form You cannot deduct a promissory note you gave as payment because it is a promise to pay and not an actual payment. 2012 amended tax form Prepaid interest. 2012 amended tax form   You generally cannot deduct any interest paid before the year it is due. 2012 amended tax form Interest paid in advance can be deducted only in the tax year in which it is due. 2012 amended tax form Discounted loan. 2012 amended tax form   If interest or a discount is subtracted from your loan proceeds, it is not a payment of interest and you cannot deduct it when you get the loan. 2012 amended tax form For more information, see Original issue discount (OID) under Interest You Can Deduct, earlier. 2012 amended tax form Refunds of interest. 2012 amended tax form   If you pay interest and then receive a refund in the same tax year of any part of the interest, reduce your interest deduction by the refund. 2012 amended tax form If you receive the refund in a later tax year, include the refund in your income to the extent the deduction for the interest reduced your tax. 2012 amended tax form Accrual method. 2012 amended tax form   Under an accrual method, you can deduct only interest that has accrued during the tax year. 2012 amended tax form Prepaid interest. 2012 amended tax form   See Prepaid interest, earlier. 2012 amended tax form Discounted loan. 2012 amended tax form   See Discounted loan, earlier. 2012 amended tax form Tax deficiency. 2012 amended tax form   If you contest a federal income tax deficiency, interest does not accrue until the tax year the final determination of liability is made. 2012 amended tax form If you do not contest the deficiency, then the interest accrues in the year the tax was asserted and agreed to by you. 2012 amended tax form   However, if you contest but pay the proposed tax deficiency and interest, and you do not designate the payment as a cash bond, then the interest is deductible in the year paid. 2012 amended tax form Related person. 2012 amended tax form   If you use an accrual method, you cannot deduct interest owed to a related person who uses the cash method until payment is made and the interest is includible in the gross income of that person. 2012 amended tax form The relationship is determined as of the end of the tax year for which the interest would otherwise be deductible. 2012 amended tax form See section 267 of the Internal Revenue Code for more information. 2012 amended tax form Below-Market Loans If you receive a below-market gift or demand loan and use the proceeds in your trade or business, you may be able to deduct the forgone interest. 2012 amended tax form See Treatment of gift and demand loans, later, in this discussion. 2012 amended tax form A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. 2012 amended tax form A gift or demand loan that is a below-market loan generally is considered an arm's-length transaction in which you, the borrower, are considered as having received both the following. 2012 amended tax form A loan in exchange for a note that requires the payment of interest at the applicable federal rate. 2012 amended tax form An additional payment in an amount equal to the forgone interest. 2012 amended tax form The additional payment is treated as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. 2012 amended tax form Forgone interest. 2012 amended tax form   For any period, forgone interest is The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. 2012 amended tax form Applicable federal rates are published by the IRS each month in the Internal Revenue Bulletin. 2012 amended tax form Internal Revenue Bulletins are available on the IRS web site at www. 2012 amended tax form irs. 2012 amended tax form gov/irb. 2012 amended tax form You can also contact an IRS office to get these rates. 2012 amended tax form Loans subject to the rules. 2012 amended tax form   The rules for below-market loans apply to the following. 2012 amended tax form Gift loans (below-market loans where the forgone interest is in the nature of a gift). 2012 amended tax form Compensation-related loans (below-market loans between an employer and an employee or between an independent contractor and a person for whom the contractor provides services). 2012 amended tax form Corporation-shareholder loans. 2012 amended tax form Tax avoidance loans (below-market loans where the avoidance of federal tax is one of the main purposes of the interest arrangement). 2012 amended tax form Loans to qualified continuing care facilities under a continuing care contract (made after October 11, 1985). 2012 amended tax form   Except as noted in (5) above, these rules apply to demand loans (loans payable in full at any time upon the lender's demand) outstanding after June 6, 1984, and to term loans (loans that are not demand loans) made after that date. 2012 amended tax form Treatment of gift and demand loans. 2012 amended tax form   If you receive a below-market gift loan or demand loan, you are treated as receiving an additional payment (as a gift, dividend, etc. 2012 amended tax form ) equal to the forgone interest on the loan. 2012 amended tax form You are then treated as transferring this amount back to the lender as interest. 2012 amended tax form These transfers are considered to occur annually, generally on December 31. 2012 amended tax form If you use the loan proceeds in your trade or business, you can deduct the forgone interest each year as a business interest expense. 2012 amended tax form The lender must report it as interest income. 2012 amended tax form Limit on forgone interest for gift loans of $100,000 or less. 2012 amended tax form   For gift loans between individuals, forgone interest treated as transferred back to the lender is limited to the borrower's net investment income for the year. 2012 amended tax form This limit applies if the outstanding loans between the lender and borrower total $100,000 or less. 2012 amended tax form If the borrower's net investment income is $1,000 or less, it is treated as zero. 2012 amended tax form This limit does not apply to a loan if the avoidance of any federal tax is one of the main purposes of the interest arrangement. 2012 amended tax form Treatment of term loans. 2012 amended tax form   If you receive a below-market term loan other than a gift or demand loan, you are treated as receiving an additional cash payment (as a dividend, etc. 2012 amended tax form ) on the date the loan is made. 2012 amended tax form This payment is equal to the loan amount minus the present value, at the applicable federal rate, of all payments due under the loan. 2012 amended tax form The same amount is treated as original issue discount on the loan. 2012 amended tax form See Original issue discount (OID) under Interest You Can Deduct, earlier. 2012 amended tax form Exceptions for loans of $10,000 or less. 2012 amended tax form   The rules for below-market loans do not apply to any day on which the total outstanding loans between the borrower and lender is $10,000 or less. 2012 amended tax form This exception applies only to the following. 2012 amended tax form Gift loans between individuals if the loan is not directly used to buy or carry income-producing assets. 2012 amended tax form Compensation-related loans or corporation-shareholder loans if the avoidance of any federal tax is not a principal purpose of the interest arrangement. 2012 amended tax form This exception does not apply to a term loan described in (2) above that was previously subject to the below-market loan rules. 2012 amended tax form Those rules will continue to apply even if the outstanding balance is reduced to $10,000 or less. 2012 amended tax form Exceptions for loans without significant tax effect. 2012 amended tax form   The following loans are specifically exempted from the rules for below-market loans because their interest arrangements do not have a significant effect on the federal tax liability of the borrower or the lender. 2012 amended tax form Loans made available by lenders to the general public on the same terms and conditions that are consistent with the lender's customary business practices. 2012 amended tax form Loans subsidized by a federal, state, or municipal government that are made available under a program of general application to the public. 2012 amended tax form Certain employee-relocation loans. 2012 amended tax form Certain loans to or from a foreign person, unless the interest income would be effectively connected with the conduct of a U. 2012 amended tax form S. 2012 amended tax form trade or business and not exempt from U. 2012 amended tax form S. 2012 amended tax form tax under an income tax treaty. 2012 amended tax form Any other loan if the taxpayer can show that the interest arrangement has no significant effect on the federal tax liability of the lender or the borrower. 2012 amended tax form Whether an interest arrangement has a significant effect on the federal tax liability of the lender or the borrower will be determined by all the facts and circumstances. 2012 amended tax form Consider all the following factors. 2012 amended tax form Whether items of income and deduction generated by the loan offset each other. 2012 amended tax form The amount of the items. 2012 amended tax form The cost of complying with the below-market loan provisions if they were to apply. 2012 amended tax form Any reasons, other than taxes, for structuring the transaction as a below-market loan. 2012 amended tax form Exception for loans to qualified continuing care facilities. 2012 amended tax form   The below-market interest rules do not apply to a loan owed by a qualified continuing care facility under a continuing care contract if the lender or lender's spouse is age 62 or older by the end of the calendar year. 2012 amended tax form A qualified continuing care facility is one or more facilities (excluding nursing homes) meeting the requirements listed below. 2012 amended tax form Designed to provide services under continuing care contracts (defined below). 2012 amended tax form Includes an independent living unit, and either an assisted living or nursing facility, or both. 2012 amended tax form Substantially all of the independent living unit residents are covered by continuing care contracts. 2012 amended tax form A continuing care contract is a written contract between an individual and a qualified continuing care facility that includes all of the following conditions. 2012 amended tax form The individual or individual's spouse must be entitled to use the facility for the rest of their life or lives. 2012 amended tax form The individual or individual's spouse will be provided with housing, as appropriate for the health of the individual or individual's spouse in an: independent living unit (which has additional available facilities outside the unit for the provision of meals and other personal care), and assisted living or nursing facility available in the continuing care facility. 2012 amended tax form The individual or individual's spouse will be provided with assisted living or nursing care available in the continuing care facility, as required for the health of the individual or the individual's spouse. 2012 amended tax form For more information, see section 7872(h) of the Internal Revenue Code. 2012 amended tax form Sale or exchange of property. 2012 amended tax form   Different rules generally apply to a loan connected with the sale or exchange of property. 2012 amended tax form If the loan does not provide adequate stated interest, part of the principal payment may be considered interest. 2012 amended tax form However, there are exceptions that may require you to apply the below-market interest rate rules to these loans. 2012 amended tax form See Unstated Interest and Original Issue Discount (OID) in Publication 537. 2012 amended tax form More information. 2012 amended tax form   For more information on below-market loans, see section 7872 of the Internal Revenue Code and section 1. 2012 amended tax form 7872-5 of the regulations. 2012 amended tax form Prev  Up  Next   Home   More Online Publications