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2012 Income Tax Form

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2012 Income Tax Form

2012 income tax form 9. 2012 income tax 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. 2012 income tax form Depletion unit. 2012 income tax form Introduction Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. 2012 income tax form The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. 2012 income tax form There are two ways of figuring depletion: cost depletion and percentage depletion. 2012 income tax form For mineral property, you generally must use the method that gives you the larger deduction. 2012 income tax form For standing timber, you must use cost depletion. 2012 income tax 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. 2012 income tax form More than one person can have an economic interest in the same mineral deposit or timber. 2012 income tax form In the case of leased property, the depletion deduction is divided between the lessor and the lessee. 2012 income tax form You have an economic interest if both the following apply. 2012 income tax form You have acquired by investment any interest in mineral deposits or standing timber. 2012 income tax 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. 2012 income tax 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. 2012 income tax form A production payment carved out of, or retained on the sale of, mineral property is not an economic interest. 2012 income tax form Individuals, corporations, estates, and trusts who claim depletion deductions may be liable for alternative minimum tax. 2012 income tax form Basis adjustment for depletion. 2012 income tax form   You must reduce the basis of your property by the depletion allowed or allowable, whichever is greater. 2012 income tax form Mineral Property Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits). 2012 income tax 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. 2012 income tax form You can treat two or more separate interests as one property or as separate properties. 2012 income tax form See section 614 of the Internal Revenue Code and the related regulations for rules on how to treat separate mineral interests. 2012 income tax form There are two ways of figuring depletion on mineral property. 2012 income tax form Cost depletion. 2012 income tax form Percentage depletion. 2012 income tax form Generally, you must use the method that gives you the larger deduction. 2012 income tax form However, unless you are an independent producer or royalty owner, you generally cannot use percentage depletion for oil and gas wells. 2012 income tax form See Oil and Gas Wells , later. 2012 income tax form Cost Depletion To figure cost depletion you must first determine the following. 2012 income tax form The property's basis for depletion. 2012 income tax form The total recoverable units of mineral in the property's natural deposit. 2012 income tax form The number of units of mineral sold during the tax year. 2012 income tax form Basis for depletion. 2012 income tax form   To figure the property's basis for depletion, subtract all the following from the property's adjusted basis. 2012 income tax form Amounts recoverable through: Depreciation deductions, Deferred expenses (including deferred exploration and development costs), and Deductions other than depletion. 2012 income tax form The residual value of land and improvements at the end of operations. 2012 income tax form The cost or value of land acquired for purposes other than mineral production. 2012 income tax form Adjusted basis. 2012 income tax 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. 2012 income tax form Your adjusted basis can never be less than zero. 2012 income tax form See Publication 551, Basis of Assets, for more information on adjusted basis. 2012 income tax form Total recoverable units. 2012 income tax form   The total recoverable units is the sum of the following. 2012 income tax form The number of units of mineral remaining at the end of the year (including units recovered but not sold). 2012 income tax form The number of units of mineral sold during the tax year (determined under your method of accounting, as explained next). 2012 income tax 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. 2012 income tax form You must include ores and minerals that are developed, in sight, blocked out, or assured. 2012 income tax form You must also include probable or prospective ores or minerals that are believed to exist based on good evidence. 2012 income tax form But see Elective safe harbor for owners of oil and gas property , later. 2012 income tax form Number of units sold. 2012 income tax form   You determine the number of units sold during the tax year based on your method of accounting. 2012 income tax form Use the following table to make this determination. 2012 income tax form    IF you  use . 2012 income tax form . 2012 income tax form . 2012 income tax form THEN the units sold during the year are . 2012 income tax form . 2012 income tax form . 2012 income tax form The cash method of accounting The units sold for which you receive payment during the tax year (regardless of the year of sale). 2012 income tax form An accrual method of accounting The units sold based on your inventories and method of accounting for inventory. 2012 income tax 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. 2012 income tax form Figuring the cost depletion deduction. 2012 income tax 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. 2012 income tax form Step Action Result 1 Divide your property's basis for depletion by total recoverable units. 2012 income tax form Rate per unit. 2012 income tax form 2 Multiply the rate per unit by units sold during the tax year. 2012 income tax form Cost depletion deduction. 2012 income tax form You must keep accounts for the depletion of each property and adjust these accounts each year for units sold and depletion claimed. 2012 income tax form Elective safe harbor for owners of oil and gas property. 2012 income tax form   Instead of using the method described earlier to determine the total recoverable units, you can use an elective safe harbor. 2012 income tax form If you choose the elective safe harbor, the total recoverable units equal 105% of a property's proven reserves (both developed and undeveloped). 2012 income tax form For details, see Revenue Procedure 2004-19 on page 563 of Internal Revenue Bulletin 2004-10, available at www. 2012 income tax form irs. 2012 income tax form gov/pub/irs-irbs/irb04-10. 2012 income tax form pdf. 2012 income tax 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. 2012 income tax form The statement must indicate that you are electing the safe harbor provided by Revenue Procedure 2004-19. 2012 income tax form The election, if made, is effective for the tax year in which it is made and all later years. 2012 income tax form It cannot be revoked for the tax year in which it is elected, but may be revoked in a later year. 2012 income tax form Once revoked, it cannot be re-elected for the next 5 years. 2012 income tax 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. 2012 income tax 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 . 2012 income tax form Rates and other rules for percentage depletion of other specific minerals are found later in Mines and Geothermal Deposits . 2012 income tax form Gross income. 2012 income tax form   When figuring percentage depletion, subtract from your gross income from the property the following amounts. 2012 income tax form Any rents or royalties you paid or incurred for the property. 2012 income tax 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. 2012 income tax form A bonus payment includes amounts you paid as a lessee to satisfy a production payment retained by the lessor. 2012 income tax form   Use the following fraction to figure the part of the bonus you must subtract. 2012 income tax form No. 2012 income tax 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. 2012 income tax form For other property, more information about the definition of gross income from the property is under Mines and Geothermal Deposits , later. 2012 income tax form Taxable income limit. 2012 income tax 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. 2012 income tax 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. 2012 income tax form These deductible items include, but are not limited to, the following. 2012 income tax form Operating expenses. 2012 income tax form Certain selling expenses. 2012 income tax form Administrative and financial overhead. 2012 income tax form Depreciation. 2012 income tax form Intangible drilling and development costs. 2012 income tax form Exploration and development expenditures. 2012 income tax form Deductible taxes (see chapter 5), but not taxes that you capitalize or take as a credit. 2012 income tax form Losses sustained. 2012 income tax form   The following rules apply when figuring your taxable income from the property for purposes of the taxable income limit. 2012 income tax form Do not deduct any net operating loss deduction from the gross income from the property. 2012 income tax form Corporations do not deduct charitable contributions from the gross income from the property. 2012 income tax 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. 2012 income tax form See section 1. 2012 income tax form 613-5(b)(1) of the regulations for information on how to figure the ordinary gain allocable to the property. 2012 income tax form Oil and Gas Wells You cannot claim percentage depletion for an oil or gas well unless at least one of the following applies. 2012 income tax form You are either an independent producer or a royalty owner. 2012 income tax form The well produces natural gas that is either sold under a fixed contract or produced from geopressured brine. 2012 income tax form If you are an independent producer or royalty owner, see Independent Producers and Royalty Owners , next. 2012 income tax 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. 2012 income tax 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. 2012 income tax 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. 2012 income tax form For information on figuring the deduction, see Figuring percentage depletion , later. 2012 income tax form Refiners who cannot claim percentage depletion. 2012 income tax 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. 2012 income tax 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. 2012 income tax form Related person. 2012 income tax 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. 2012 income tax form For example, a corporation, partnership, estate, or trust and anyone who holds a significant ownership interest in it are related persons. 2012 income tax form A partnership and a trust are related persons if one person holds a significant ownership interest in each of them. 2012 income tax 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. 2012 income tax form The value of the outstanding stock of a corporation. 2012 income tax form The interest in the profits or capital of a partnership. 2012 income tax form The beneficial interests in an estate or trust. 2012 income tax 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. 2012 income tax form Retailers who cannot claim percentage depletion. 2012 income tax form   You cannot claim percentage depletion if both the following apply. 2012 income tax form You sell oil or natural gas or their by-products directly or through a related person in any of the following situations. 2012 income tax form Through a retail outlet operated by you or a related person. 2012 income tax 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. 2012 income tax 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. 2012 income tax 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. 2012 income tax form   For the purpose of determining if this rule applies, do not count the following. 2012 income tax form Bulk sales (sales in very large quantities) of oil or natural gas to commercial or industrial users. 2012 income tax form Bulk sales of aviation fuels to the Department of Defense. 2012 income tax 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. 2012 income tax form Related person. 2012 income tax form   To determine if you and another person are related persons, see Related person under Refiners who cannot claim percentage depletion, earlier. 2012 income tax form Sales through a related person. 2012 income tax 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. 2012 income tax form   You are not considered to be selling through a related person who is a retailer if all the following apply. 2012 income tax form You do not have a significant ownership interest in the retailer. 2012 income tax form You sell your production to persons who are not related to either you or the retailer. 2012 income tax form The retailer does not buy oil or natural gas from your customers or persons related to your customers. 2012 income tax 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. 2012 income tax 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. 2012 income tax form Transferees who cannot claim percentage depletion. 2012 income tax 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. 2012 income tax form For a definition of the term “transfer,” see section 1. 2012 income tax form 613A-7(n) of the regulations. 2012 income tax form For a definition of the term “interest in proven oil or gas property,” see section 1. 2012 income tax form 613A-7(p) of the regulations. 2012 income tax form Figuring percentage depletion. 2012 income tax 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. 2012 income tax 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%. 2012 income tax 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. 2012 income tax form   In addition, there is a limit on the percentage depletion deduction. 2012 income tax form See Taxable income limit , later. 2012 income tax form Average daily production. 2012 income tax 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. 2012 income tax form Partial interest. 2012 income tax 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. 2012 income tax form   You have a partial interest in the production from a property if you have a net profits interest in the property. 2012 income tax 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. 2012 income tax form To figure this percentage, you divide the income you receive for your net profits interest by the gross revenue from the property. 2012 income tax form Then multiply the total production from the property by your percentage participation to figure your share of the production. 2012 income tax form Example. 2012 income tax form Javier Robles owns oil property in which Pablo Olmos owns a 20% net profits interest. 2012 income tax form During the year, the property produced 10,000 barrels of oil, which Javier sold for $200,000. 2012 income tax form Javier had expenses of $90,000 attributable to the property. 2012 income tax form The property generated a net profit of $110,000 ($200,000 − $90,000). 2012 income tax form Pablo received income of $22,000 ($110,000 × . 2012 income tax form 20) for his net profits interest. 2012 income tax 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). 2012 income tax form Pablo determined his share of the oil production to be 1,100 barrels (10,000 barrels × 11%). 2012 income tax form Depletable oil or natural gas quantity. 2012 income tax form   Generally, your depletable oil quantity is 1,000 barrels. 2012 income tax 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. 2012 income tax 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. 2012 income tax form Example. 2012 income tax form You have both oil and natural gas production. 2012 income tax form To figure your depletable natural gas quantity, you choose to apply 360 barrels of your 1000-barrel depletable oil quantity. 2012 income tax form Your depletable natural gas quantity is 2. 2012 income tax form 16 million cubic feet of gas (360 × 6000). 2012 income tax form You must reduce your depletable oil quantity to 640 barrels (1000 − 360). 2012 income tax 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. 2012 income tax form Also, see Notice 2012-50, available at www. 2012 income tax form irs. 2012 income tax form gov/irb/2012–31_IRB/index. 2012 income tax form html. 2012 income tax form Business entities and family members. 2012 income tax 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. 2012 income tax 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). 2012 income tax form You and your spouse and minor children. 2012 income tax 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. 2012 income tax form Controlled group of corporations. 2012 income tax form   Members of the same controlled group of corporations are treated as one taxpayer when figuring the depletable oil or natural gas quantity. 2012 income tax form They share the depletable quantity. 2012 income tax 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%. 2012 income tax form ” Gross income from the property. 2012 income tax 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. 2012 income tax 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. 2012 income tax 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. 2012 income tax form   Gross income from the property does not include lease bonuses, advance royalties, or other amounts payable without regard to production from the property. 2012 income tax form Average daily production exceeds depletable quantities. 2012 income tax 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. 2012 income tax form Figure your average daily production of oil or natural gas for the year. 2012 income tax form Figure your depletable oil or natural gas quantity for the year. 2012 income tax form Figure depletion for all oil or natural gas produced from the property using a percentage depletion rate of 15%. 2012 income tax 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). 2012 income tax form This is your depletion allowance for that property for the year. 2012 income tax form Taxable income limit. 2012 income tax 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. 2012 income tax 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. 2012 income tax form For a definition of taxable income from the property, see Taxable income limit , earlier, under Mineral Property. 2012 income tax 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. 2012 income tax form You can carry over to the following year any amount you cannot deduct because of the 65%-of-taxable-income limit. 2012 income tax form Add it to your depletion allowance (before applying any limits) for the following year. 2012 income tax form Partnerships and S Corporations Generally, each partner or S corporation shareholder, and not the partnership or S corporation, figures the depletion allowance separately. 2012 income tax form (However, see Electing large partnerships must figure depletion allowance , later. 2012 income tax form ) Each partner or shareholder must decide whether to use cost or percentage depletion. 2012 income tax 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. 2012 income tax form Partner's or shareholder's adjusted basis. 2012 income tax 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. 2012 income tax form The partnership or S corporation makes the allocation as of the date it acquires the oil or gas property. 2012 income tax 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. 2012 income tax form However, in some cases, it is figured according to the partner's interest in partnership income. 2012 income tax 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. 2012 income tax form Recordkeeping. 2012 income tax 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. 2012 income tax form The partner or shareholder must reduce his or her adjusted basis by the depletion allowed or allowable on the property each year. 2012 income tax 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. 2012 income tax form Reporting the deduction. 2012 income tax 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). 2012 income tax form Deduct oil and gas depletion for your partnership or S corporation interest on Schedule E (Form 1040). 2012 income tax form The depletion deducted on Schedule E is included in figuring income or loss from rental real estate or royalty properties. 2012 income tax 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. 2012 income tax form Form 6198, At-Risk Limitations. 2012 income tax form Form 8582, Passive Activity Loss Limitations. 2012 income tax form Electing large partnerships must figure depletion allowance. 2012 income tax form   An electing large partnership, rather than each partner, generally must figure the depletion allowance. 2012 income tax 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. 2012 income tax form Also, the adjusted basis of a partner's interest in the partnership is not affected by the depletion allowance. 2012 income tax form   An electing large partnership is one that meets both the following requirements. 2012 income tax form The partnership had 100 or more partners in the preceding year. 2012 income tax form The partnership chooses to be an electing large partnership. 2012 income tax form Disqualified persons. 2012 income tax form   An electing large partnership does not figure the depletion allowance of its partners that are disqualified persons. 2012 income tax form Disqualified persons must figure it themselves, as explained earlier. 2012 income tax form   All the following are disqualified persons. 2012 income tax form Refiners who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). 2012 income tax form Retailers who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). 2012 income tax 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. 2012 income tax form Average daily production is discussed earlier. 2012 income tax 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. 2012 income tax form Natural gas sold under a fixed contract. 2012 income tax form   Natural gas sold under a fixed contract qualifies for a percentage depletion rate of 22%. 2012 income tax 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. 2012 income tax form The contract must have been in effect from February 1, 1975, until the date of sale of the gas. 2012 income tax 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. 2012 income tax form Natural gas from geopressured brine. 2012 income tax form   Qualified natural gas from geopressured brine is eligible for a percentage depletion rate of 10%. 2012 income tax form This is natural gas that is both the following. 2012 income tax form Produced from a well you began to drill after September 1978 and before 1984. 2012 income tax form Determined in accordance with section 503 of the Natural Gas Policy Act of 1978 to be produced from geopressured brine. 2012 income tax form Mines and Geothermal Deposits Certain mines, wells, and other natural deposits, including geothermal deposits, qualify for percentage depletion. 2012 income tax form Mines and other natural deposits. 2012 income tax 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. 2012 income tax form   The following is a list of the percentage depletion rates for the more common minerals. 2012 income tax 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. 2012 income tax form Corporate deduction for iron ore and coal. 2012 income tax 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). 2012 income tax form Gross income from the property. 2012 income tax 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. 2012 income tax form Mining includes all the following. 2012 income tax form Extracting ores or minerals from the ground. 2012 income tax form Applying certain treatment processes described later. 2012 income tax 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. 2012 income tax form Excise tax. 2012 income tax 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. 2012 income tax form Extraction. 2012 income tax 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. 2012 income tax 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. 2012 income tax form Treatment processes. 2012 income tax form   The processes included as mining depend on the ore or mineral mined. 2012 income tax form To qualify as mining, the treatment processes must be applied by the mine owner or operator. 2012 income tax form For a listing of treatment processes considered as mining, see section 613(c)(4) of the Internal Revenue Code and the related regulations. 2012 income tax form Transportation of more than 50 miles. 2012 income tax 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. 2012 income tax 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. 2012 income tax 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. 2012 income tax form For more information about requesting an advance ruling, see Revenue Procedure 2013-1, available at www. 2012 income tax form irs. 2012 income tax form gov/irb/2013-01_IRB/ar11. 2012 income tax form html. 2012 income tax form Disposal of coal or iron ore. 2012 income tax form   You cannot take a depletion deduction for coal (including lignite) or iron ore mined in the United States if both the following apply. 2012 income tax form You disposed of it after holding it for more than 1 year. 2012 income tax form You disposed of it under a contract under which you retain an economic interest in the coal or iron ore. 2012 income tax form Treat any gain on the disposition as a capital gain. 2012 income tax form Disposal to related person. 2012 income tax form   This rule does not apply if you dispose of the coal or iron ore to one of the following persons. 2012 income tax form A related person (as listed in chapter 2 of Publication 544). 2012 income tax form A person owned or controlled by the same interests that own or control you. 2012 income tax form Geothermal deposits. 2012 income tax form   Geothermal deposits located in the United States or its possessions qualify for a percentage depletion rate of 15%. 2012 income tax form A geothermal deposit is a geothermal reservoir of natural heat stored in rocks or in a watery liquid or vapor. 2012 income tax form For percentage depletion purposes, a geothermal deposit is not considered a gas well. 2012 income tax form   Figure gross income from the property for a geothermal steam well in the same way as for oil and gas wells. 2012 income tax form See Gross income from the property , earlier, under Oil and Gas Wells. 2012 income tax form Percentage depletion on a geothermal deposit cannot be more than 50% of your taxable income from the property. 2012 income tax form Lessor's Gross Income In the case of leased property, the depletion deduction is divided between the lessor and the lessee. 2012 income tax 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. 2012 income tax form Bonuses and advanced royalties. 2012 income tax 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. 2012 income tax 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. 2012 income tax form Figuring cost depletion. 2012 income tax 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. 2012 income tax 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. 2012 income tax form Figuring percentage depletion. 2012 income tax 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 . 2012 income tax 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. 2012 income tax 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. 2012 income tax form Ending the lease. 2012 income tax 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. 2012 income tax form Do this for the year the lease ends or is abandoned. 2012 income tax form Also increase your adjusted basis in the property to restore the depletion deduction you previously subtracted. 2012 income tax 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. 2012 income tax form Include this amount in income for the year the lease ends. 2012 income tax form Increase your adjusted basis in the property by the amount you include in income. 2012 income tax form Delay rentals. 2012 income tax form   These are payments for deferring development of the property. 2012 income tax form Since delay rentals are ordinary rent, they are ordinary income that is not subject to depletion. 2012 income tax form These rentals can be avoided by either abandoning the lease, beginning development operations, or obtaining production. 2012 income tax form Timber You can figure timber depletion only by the cost method. 2012 income tax form Percentage depletion does not apply to timber. 2012 income tax form Base your depletion on your cost or other basis in the timber. 2012 income tax form Your cost does not include the cost of land or any amounts recoverable through depreciation. 2012 income tax form Depletion takes place when you cut standing timber. 2012 income tax form You can figure your depletion deduction when the quantity of cut timber is first accurately measured in the process of exploitation. 2012 income tax form Figuring cost depletion. 2012 income tax form   To figure your cost depletion allowance, you multiply the number of timber units cut by your depletion unit. 2012 income tax form Timber units. 2012 income tax form   When you acquire timber property, you must make an estimate of the quantity of marketable timber that exists on the property. 2012 income tax form You measure the timber using board feet, log scale, cords, or other units. 2012 income tax form If you later determine that you have more or less units of timber, you must adjust the original estimate. 2012 income tax form   The term “timber property” means your economic interest in standing timber in each tract or block representing a separate timber account. 2012 income tax form Depletion unit. 2012 income tax form   You figure your depletion unit each year by taking the following steps. 2012 income tax form Determine your cost or adjusted basis of the timber on hand at the beginning of the year. 2012 income tax form Adjusted basis is defined under Cost Depletion in the discussion on Mineral Property. 2012 income tax form Add to the amount determined in (1) the cost of any timber units acquired during the year and any additions to capital. 2012 income tax 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. 2012 income tax form Divide the result of (2) by the result of (3). 2012 income tax form This is your depletion unit. 2012 income tax form Example. 2012 income tax form You bought a timber tract for $160,000 and the land was worth as much as the timber. 2012 income tax form Your basis for the timber is $80,000. 2012 income tax 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). 2012 income tax form If you cut 500 MBF of timber, your depletion allowance would be $40,000 (500 MBF × $80). 2012 income tax form When to claim depletion. 2012 income tax 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). 2012 income tax 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. 2012 income tax form The inventory is your basis for determining gain or loss in the tax year you sell the timber products. 2012 income tax form Example. 2012 income tax 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. 2012 income tax form You would deduct $20,000 of the $40,000 depletion that year. 2012 income tax form You would add the remaining $20,000 depletion to your closing inventory of timber products. 2012 income tax form Electing to treat the cutting of timber as a sale or exchange. 2012 income tax form   You can elect, under certain circumstances, to treat the cutting of timber held for more than 1 year as a sale or exchange. 2012 income tax form You must make the election on your income tax return for the tax year to which it applies. 2012 income tax 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. 2012 income tax form You generally report the gain as long-term capital gain. 2012 income tax 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. 2012 income tax form For more information, see Timber in chapter 2 of Publication 544, Sales and Other Dispositions of Assets. 2012 income tax form   You may revoke an election to treat the cutting of timber as a sale or exchange without IRS's consent. 2012 income tax form The prior election (and revocation) is disregarded for purposes of making a subsequent election. 2012 income tax form See Form T (Timber), Forest Activities Schedule, for more information. 2012 income tax form Form T. 2012 income tax 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. 2012 income tax form Prev  Up  Next   Home   More Online Publications
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Page Last Reviewed or Updated: 21-Mar-2014

The 2012 Income Tax Form

2012 income tax form 35. 2012 income tax form   Education Credits Table of Contents Introduction Useful Items - You may want to see: Who Can Claim an Education Credit Qualified Education ExpensesNo Double Benefit Allowed Adjustments to Qualified Education Expenses Introduction For 2013, there are two tax credits available to persons who pay expenses for higher (postsecondary) education. 2012 income tax form They are: The American opportunity credit, and The lifetime learning credit. 2012 income tax form The chapter will present an overview of these education credits. 2012 income tax form To get the detailed information you will need to claim either of the credits, and for examples illustrating that information, see chapters 2 and 3 of Publication 970. 2012 income tax form Can you claim more than one education credit this year?   For each student, you can choose for any year only one of the credits. 2012 income tax form For example, if you choose to take the American opportunity credit for a child on your 2013 tax return, you cannot, for that same child, also claim the lifetime learning credit for 2013. 2012 income tax form   If you are eligible to claim the American opportunity credit and you are also eligible to claim the lifetime learning credit for the same student in the same year, you can choose to claim either credit, but not both. 2012 income tax form   If you pay qualified education expenses for more than one student in the same year, you can choose to take the American opportunity and the lifetime learning credits on a per-student, per-year basis. 2012 income tax form This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. 2012 income tax form Table 35-1. 2012 income tax form Comparison of Education Credits Caution. 2012 income tax form You can claim both the American opportunity credit and the lifetime learning credit on the same return—but not for the same student. 2012 income tax form   American Opportunity Credit Lifetime Learning Credit Maximum credit Up to $2,500 credit per eligible student Up to $2,000 credit per return Limit on modified adjusted gross income (MAGI) $180,000 if married filing jointly;  $90,000 if single, head of household, or qualifying widow(er) $127,000 if married filing jointly;  $63,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable 40% of credit may be refundable Credit limited to the amount of tax you must pay on your taxable income Number of years of postsecondary education Available ONLY if the student had not completed the first 4 years of postsecondary education before 2013 Available for all years of postsecondary education and for courses to acquire or improve job skills Number of tax years credit available Available ONLY for 4 tax years per eligible student (including any year(s) the Hope credit was claimed) Available for an unlimited number of years Type of program required Student must be pursuing a program leading to a degree or other recognized education credential Student does not need to be pursuing a program leading to a degree or other recognized education credential Number of courses Student must be enrolled at least half time for at least one academic period beginning during the tax year Available for one or more courses Felony drug conviction At the end of 2013, the student had not been convicted of a felony for possessing or distributing a controlled substance Felony drug convictions do not make the student ineligible Qualified expenses Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment) Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Differences between the American opportunity and lifetime learning credits. 2012 income tax form   There are several differences between these two credits. 2012 income tax form These differences are summarized in Table 35-1, later. 2012 income tax form Useful Items - You may want to see: Publication 970 Tax Benefits for Education Form (and Instructions) 8863 Education Credits (American Opportunity and Lifetime Learning Credits) Who Can Claim an Education Credit You may be able to claim an education credit if you, your spouse, or a dependent you claim on your tax return was a student enrolled at or attending an eligible educational institution. 2012 income tax form The credits are based on the amount of qualified education expenses paid for the student in 2013 for academic periods beginning in 2013 and in the first 3 months of 2014. 2012 income tax form For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 education credit(s). 2012 income tax form Academic period. 2012 income tax form   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. 2012 income tax form In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. 2012 income tax form Eligible educational institution. 2012 income tax form   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. 2012 income tax form S. 2012 income tax form Department of Education. 2012 income tax form It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. 2012 income tax form The educational institution should be able to tell you if it is an eligible educational institution. 2012 income tax form   Certain educational institutions located outside the United States also participate in the U. 2012 income tax form S. 2012 income tax form Department of Education's Federal Student Aid (FSA) programs. 2012 income tax form Who can claim a dependent's expenses. 2012 income tax form   If an exemption is allowed as a deduction for any person who claims the student as a dependent, all qualified education expenses of the student are treated as having been paid by that person. 2012 income tax form Therefore, only that person can claim an education credit for the student. 2012 income tax form If a student is not claimed as a dependent on another person's tax return, only the student can claim a credit. 2012 income tax form Expenses paid by a third party. 2012 income tax form   Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. 2012 income tax form However, qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. 2012 income tax form Therefore, you are treated as having paid expenses that were paid by the third party. 2012 income tax form For more information and an example see Who Can Claim a Dependent's Expenses in Pub. 2012 income tax form 970, chapter 2 or 3. 2012 income tax form Who cannot claim a credit. 2012 income tax form   You cannot take an education credit if any of the following apply. 2012 income tax form You are claimed as a dependent on another person's tax return, such as your parent's return. 2012 income tax form Your filing status is married filing separately. 2012 income tax form You (or your spouse) were a nonresident alien for any part of 2013 and did not elect to be treated as a resident alien for tax purposes. 2012 income tax form Your MAGI is one of the following. 2012 income tax form American opportunity credit: $180,000 or more if married filing jointly, or $90,000 or more if single, head of household, or qualifying widow(er). 2012 income tax form Lifetime learning credit: $127,000 or more if married filing jointly, or $63,000 or more if single, head of household, or qualifying widow(er) . 2012 income tax form   Generally, your MAGI is the amount on your Form 1040, line 38, or Form 1040A, line 22. 2012 income tax form However, if you are filing Form 2555, Form 2555–EZ, or Form 4563, or are excluding income from Puerto RIco, add to the amount on your Form 1040, line 38, or Form 1040A, line 22, the amount of income you excluded. 2012 income tax form For details, see Pub. 2012 income tax form 970. 2012 income tax form    Figure 35-A may be helpful in determining if you can claim an education credit on your tax return. 2012 income tax form The American opportunity credit will always be greater than or equal to the lifetime learning credit for any student who is eligible for both credits. 2012 income tax form However, if any of the conditions for the American opportunity credit, listed in Table 35-1 earlier, are not met for any student, you cannot take the American opportunity credit for that student. 2012 income tax form You may be able to take the lifetime learning credit for part or all of that student's qualified education expenses instead. 2012 income tax form See Pub. 2012 income tax form 970 for information on other education benefits. 2012 income tax form Qualified Education Expenses Generally, qualified education expenses are amounts paid in 2013 for tuition and fees required for the student's enrollment or attendance at an eligible educational institution. 2012 income tax form It does not matter whether the expenses were paid in cash, by check, by credit or debit card, or with borrowed funds. 2012 income tax form For course-related books, supplies, and equipment, only certain expenses qualify. 2012 income tax form American opportunity credit: Qualified education expenses include amounts spent on books, supplies, and equipment needed for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance. 2012 income tax form Lifetime learning credit: Qualified education expenses include amounts for books, supplies, and equipment only if required to be paid to the institution as a condition of enrollment or attendance. 2012 income tax form Qualified education expenses include nonacademic fees, such as student activity fees, athletic fees, or other expenses unrelated to the academic course of instruction, only if the fee must be paid to the institution as a condition of enrollment or attendance. 2012 income tax form However, fees for personal expenses (described below) are never qualified education expenses. 2012 income tax form Qualified education expenses for either credit do not include amounts paid for: Personal expenses. 2012 income tax form This means room and board, insurance, medical expenses (including student health fees), transportation, and other similar personal, living, or family expenses. 2012 income tax form Any course or other education involving sports, games, or hobbies, or any noncredit course, unless such course or other education is part of the student's degree program or (for the lifetime learning credit only) helps the student acquire or improve job skills. 2012 income tax form You should receive Form 1098–T, Tuition Statement, from the institution reporting either payments received in 2013 (box 1) or amounts billed in 2013 (box 2). 2012 income tax form However, the amount in box 1 or 2 of Form 1098–T may be different from the amount you paid (or are treated as having paid). 2012 income tax form In completing Form 8863, use only the amounts you actually paid (plus any amounts you are treated as having paid) in 2013, reduced as necessary, as described in Adjustments to Qualified Education Expenses , later. 2012 income tax form Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. 2012 income tax form Qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. 2012 income tax form If you or the student takes a deduction for higher education expenses, such as on Schedule A or C (Form 1040), you cannot use those expenses in your qualified education expenses when figuring your education credits. 2012 income tax form Qualified education expenses for any academic period must be reduced by any tax-free educational assistance allocable to that academic period. 2012 income tax form See Adjustments to Qualified Education Expenses, later. 2012 income tax form Prepaid Expenses. 2012 income tax form   Qualified education expenses paid in 2013 for an academic period that begins in the first 3 months of 2014 can be used in figuring an education credit for 2013 only. 2012 income tax form See Academic period , earlier. 2012 income tax form For example, if you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). 2012 income tax form    You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). 2012 income tax form Paid with borrowed funds. 2012 income tax form   You can claim an education credit for qualified education expenses paid with the proceeds of a loan. 2012 income tax form Use the expenses to figure the credit for the year in which the expenses are paid, not the year in which the loan is repaid. 2012 income tax form Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account. 2012 income tax form Student withdraws from class(es). 2012 income tax form   You can claim an education credit for qualified education expenses not refunded when a student withdraws. 2012 income tax form No Double Benefit Allowed You cannot do any of the following. 2012 income tax form Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an education credit based on those same expenses. 2012 income tax form Claim more than one education credit based on the same qualified education expenses. 2012 income tax form Claim an education credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP). 2012 income tax form Claim an education credit based on qualified education expenses paid with educational assistance, such as a tax-free scholarship, grant, or employer-provided educational assistance. 2012 income tax form See Adjustments to Qualified Education Expenses, next. 2012 income tax form Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid in 2013 by or on behalf of that student under the following rules. 2012 income tax form The result is the amount of adjusted qualified education expenses for each student. 2012 income tax form Tax-free educational assistance. 2012 income tax form   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. 2012 income tax form See Academic period , earlier. 2012 income tax form      Tax-free educational assistance includes:    Tax-free parts of scholarships and fellowships (see chapter 12 of this publication and chapter 1 of Pub. 2012 income tax form 970), The tax-free part of Pell grants (see chapter 1 of Pub. 2012 income tax form 970), The tax-free part of employer-provided educational assistance (see Pub. 2012 income tax form 970), Veterans' educational assistance (see chapter 1 of Pub. 2012 income tax form 970), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. 2012 income tax form Generally, any scholarship or fellowship is treated as tax-free educational assistance. 2012 income tax form However, a scholarship or fellowship is not treated as tax-free educational assistance to the extent the student includes it in gross income (if the student is required to file a tax return) for the year the scholarship or fellowship is received and either: The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. 2012 income tax form 970, chapter 1; or The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. 2012 income tax form 970, chapter 1. 2012 income tax form You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year received. 2012 income tax form For details, see Adjustments of Qualified Education Expenses, in chapters 2 and 3 of Pub. 2012 income tax form 970. 2012 income tax form Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. 2012 income tax form This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). 2012 income tax form If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed, later. 2012 income tax form If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed, later. 2012 income tax form Refunds. 2012 income tax form   A refund of qualified education expenses may reduce qualified education expenses for the tax year or may require you to repay (recapture) the credit that you claimed in an earlier year. 2012 income tax form Some tax-free educational assistance received after 2013 may be treated as a refund. 2012 income tax form See Tax-free educational assistance, earlier. 2012 income tax form Refunds received in 2013. 2012 income tax form   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses paid in 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. 2012 income tax form Refunds received after 2013 but before your income tax return is filed. 2012 income tax form   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is received before you file your 2013 income tax return, reduce the amount of qualified education expenses for 2013 by the amount of the refund. 2012 income tax form Refunds received after 2013 and after your income tax return is filed. 2012 income tax form   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is received after you file your 2013 income tax return, you may need to repay some or all of the credit that you claimed. 2012 income tax form See Credit recapture, next. 2012 income tax form Credit recapture. 2012 income tax form    If any tax-free educational assistance for the qualified education expenses paid in 2013, or any refund of your qualified education expenses paid in 2013, is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. 2012 income tax form You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. 2012 income tax form You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). 2012 income tax form Include that amount as an additional tax for the year the refund or tax-free assistance was received. 2012 income tax form Example. 2012 income tax form    You paid $8,000 tuition and fees in December 2013 for your child's Spring semester beginning in January 2014. 2012 income tax form You filed your 2013 tax return on February 3, 2014, and claimed a lifetime learning credit of $1,600 ($8,000 qualified education expense paid x . 2012 income tax form 20). 2012 income tax form You claimed no other tax credits. 2012 income tax form After you filed your return, your child withdrew from two courses and you received a refund of $1,400. 2012 income tax form You must refigure your 2013 lifetime learning credit using $6,600 ($8,000 qualified education expenses − $1,400 refund). 2012 income tax form The refigured credit is $1,320 and your tax liability increased by $280. 2012 income tax form You must include the difference of $280 ($1,600 credit originally claimed − $1,320 refigured credit) as additional tax on your 2014 income tax return. 2012 income tax form See the instructions for your 2014 income tax return to determine where to include this tax. 2012 income tax form If you also pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. 2012 income tax form Amounts that do not reduce qualified education expenses. 2012 income tax form   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. 2012 income tax form   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. 2012 income tax form The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses, as defined in Chapter 1 of Pub. 2012 income tax form 970. 2012 income tax form The use of the money is not restricted. 2012 income tax form   For examples, see chapter 2 in Pub. 2012 income tax form 970. 2012 income tax form Figure 35-A. 2012 income tax form Can You Claim an Education Credit for 2013? This image is too large to be displayed in the current screen. 2012 income tax form Please click the link to view the image. 2012 income tax form Figure 35-A. 2012 income tax form Can You Claim an Education Credit for 2013? Prev  Up  Next   Home   More Online Publications