File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

2013 Tax Forms 1040ez

How To Amend My 2012 Tax ReturnFree Military Taxes1040ezWww Irs Gov EfileHow To Prepare An Amended Tax ReturnFree State Taxes EfileFile A 2011 Tax ReturnTax Return H&r BlockAmended Tax Form1040x 2010Can Tax Form 1040x Be Filed OnlineTax Act 2009State Ms Income Tax Form 2005Irs Free File Fillable FormsFree Ez Tax FormCan I Still E File My 2011 TaxesFiling State Income Tax ReturnTax Return AmendmentTax Forms For 2009File 2011 Taxes2012 Form 1040 FormHow To Fill Out A 1040x Step By Step2010 Tax Form 1040File Free 2012 Tax ReturnAmending 2009 Tax ReturnAmend A Tax Return 2011Need Do 2011 Taxes1040nr Ez InstructionsFind 1040ez Irs Form 20102012 Income Tax Form 1040Irs 1040ez File Online2010 E File TaxesTax Amendment Form 2011Irs Tax Forms 1040ezTax Information For StudentsRevise Tax ReturnTax Return Military2013 Federal Tax Forms 1040ezFree State And Federal Tax FilingDo I Need To File Taxes If I Was Unemployed

2013 Tax Forms 1040ez

2013 tax forms 1040ez Index A Accuracy of deposits rule, Accuracy of Deposits Rule Additional Medicare Tax, Reminders, Additional Medicare Tax withholding. 2013 tax forms 1040ez , Additional Medicare Tax withholding adjustments. 2013 tax forms 1040ez Adjustments, 13. 2013 tax forms 1040ez Reporting Adjustments to Form 941 or Form 944 Aliens, nonresident, Withholding income taxes on the wages of nonresident alien employees. 2013 tax forms 1040ez , Withholding of social security and Medicare taxes on nonresident aliens. 2013 tax forms 1040ez Allocated tips, Allocated tips. 2013 tax forms 1040ez Archer MSAs, Health Savings Accounts and medical savings accounts. 2013 tax forms 1040ez Assistance (see Tax help) B Backup withholding, Nonpayroll Income Tax Withholding Business expenses, employee, Employee business expense reimbursements. 2013 tax forms 1040ez C Calendar, Calendar Certain foreign persons treated as American employers, Foreign persons treated as American employers. 2013 tax forms 1040ez Change of business address or responsible party, Change of Business Address or Responsible Party COBRA premium assistance credit, COBRA premium assistance credit. 2013 tax forms 1040ez Correcting employment taxes, Correcting employment taxes. 2013 tax forms 1040ez Correcting errors, (prior period adjustments) Form 941, Prior Period Adjustments D Delivery services, private, Private Delivery Services Depositing taxes Penalties, Deposit Penalties Rules, 11. 2013 tax forms 1040ez Depositing Taxes Differential wage payments, Differential wage payments. 2013 tax forms 1040ez E E-file, Electronic filing by reporting agents. 2013 tax forms 1040ez Election worker, State and local government employers. 2013 tax forms 1040ez Electronic, Electronic deposit requirement. 2013 tax forms 1040ez Electronic deposit requirement, Electronic deposit requirement. 2013 tax forms 1040ez Electronic Federal Tax Payment System (EFTPS), Electronic deposit requirement. 2013 tax forms 1040ez Electronic filing, Electronic Filing and Payment, Electronic filing by reporting agents. 2013 tax forms 1040ez Eligibility for employment, Hiring New Employees Employees defined, Employee status under common law. 2013 tax forms 1040ez Employer identification number (EIN), 1. 2013 tax forms 1040ez Employer Identification Number (EIN) Employer responsibilities, Paying Wages, Pensions, or Annuities F Family employees, 3. 2013 tax forms 1040ez Family Employees Final return, Final return. 2013 tax forms 1040ez Form 944, 12. 2013 tax forms 1040ez Filing Form 941 or Form 944 Fringe benefits, Fringe benefits. 2013 tax forms 1040ez FUTA tax, 14. 2013 tax forms 1040ez Federal Unemployment (FUTA) Tax G Government employers, Federal Government employers. 2013 tax forms 1040ez H Health insurance plans, Health insurance plans. 2013 tax forms 1040ez Health Savings Accounts (HSAs), Health Savings Accounts and medical savings accounts. 2013 tax forms 1040ez Hiring new employees, Hiring New Employees Household employees, Exceptions. 2013 tax forms 1040ez I Income tax withholding, Income Tax Withholding, 16. 2013 tax forms 1040ez How To Use the Income Tax Withholding Tables Information returns, Information Returns International social security agreements, International social security agreements. 2013 tax forms 1040ez L Long-term care insurance, Health insurance plans. 2013 tax forms 1040ez Lookback period, When To Deposit M Meals and lodging, Meals and lodging. 2013 tax forms 1040ez Medical care, Medical care reimbursements. 2013 tax forms 1040ez Medical savings accounts, Health Savings Accounts and medical savings accounts. 2013 tax forms 1040ez Medicare tax, Social Security and Medicare Taxes Mileage, Per diem or other fixed allowance. 2013 tax forms 1040ez Monthly deposit schedule, Monthly Deposit Schedule Moving expenses, Moving expenses. 2013 tax forms 1040ez N New employees, Hiring New Employees Noncash wages, Wages not paid in money. 2013 tax forms 1040ez Nonemployee compensation, Nonpayroll Income Tax Withholding P Part-time workers, Part-Time Workers Payroll period, 8. 2013 tax forms 1040ez Payroll Period Penalties, Deposit Penalties, Penalties. 2013 tax forms 1040ez Private delivery services, Private Delivery Services Publications (see Tax help) R Reconciling Forms W-2 and Forms 941 or 944, Reconciling Forms W-2, W-3, and 941 or 944. 2013 tax forms 1040ez Recordkeeping, Recordkeeping Reimbursements, Accountable plan. 2013 tax forms 1040ez , Nonaccountable plan. 2013 tax forms 1040ez , Per diem or other fixed allowance. 2013 tax forms 1040ez Repayments, wages, Wage Repayments S Seasonal employers, Exceptions. 2013 tax forms 1040ez Semiweekly deposit schedule, Semiweekly Deposit Schedule Sick pay, Sick pay. 2013 tax forms 1040ez Social security and Medicare taxes, Social Security and Medicare Taxes Social security number, employee, 4. 2013 tax forms 1040ez Employee's Social Security Number (SSN) Spouse, Business Owned and Operated by Spouses Standard mileage rate, Per diem or other fixed allowance. 2013 tax forms 1040ez Statutory employees, Employee status under common law. 2013 tax forms 1040ez Statutory nonemployees, Statutory employees. 2013 tax forms 1040ez Successor employer, Successor employer. 2013 tax forms 1040ez , Successor employer. 2013 tax forms 1040ez Supplemental wages, 7. 2013 tax forms 1040ez Supplemental Wages T Tax help, How To Get Tax Help Telephone help, Telephone Help Third-party sick pay tax adjustment, Adjustment of tax on third-party sick pay. 2013 tax forms 1040ez Tip Rate Determination Agreement, Tip Rate Determination and Education Program. 2013 tax forms 1040ez Tip Rate Determination and Education Program, Tip Rate Determination and Education Program. 2013 tax forms 1040ez Tips, 6. 2013 tax forms 1040ez Tips, Tips treated as supplemental wages. 2013 tax forms 1040ez Trust fund recovery penalty, Trust fund recovery penalty. 2013 tax forms 1040ez TTY/TDD information, How To Get Tax Help U Unemployment tax, federal, 14. 2013 tax forms 1040ez Federal Unemployment (FUTA) Tax V Vacation pay, Vacation pay. 2013 tax forms 1040ez W Wage repayments, Wage Repayments Wages defined, 5. 2013 tax forms 1040ez Wages and Other Compensation Wages not paid in money, Wages not paid in money. 2013 tax forms 1040ez Withholding Backup, Nonpayroll Income Tax Withholding Certificate, Using Form W-4 to figure withholding. 2013 tax forms 1040ez Exemption, Exemption from federal income tax withholding. 2013 tax forms 1040ez Fringe benefits, Withholding on fringe benefits. 2013 tax forms 1040ez Income tax, Income Tax Withholding Levies, Amounts exempt from levy on wages, salary, and other income. 2013 tax forms 1040ez Nonresident aliens, Withholding of social security and Medicare taxes on nonresident aliens. 2013 tax forms 1040ez Pensions and annuities, Nonpayroll Income Tax Withholding Percentage method, Percentage Method Social security and Medicare taxes, Social Security and Medicare Taxes Table instructions, 16. 2013 tax forms 1040ez How To Use the Income Tax Withholding Tables Tips, Tips treated as supplemental wages. 2013 tax forms 1040ez Wage bracket method, Wage Bracket Method Z Zero wage return, Paying Wages, Pensions, or Annuities Prev  Up     Home   More Online Publications
Print - Click this link to Print this page

Tax Relief for Victims of Severe Storms, Tornadoes, Straight-line Winds and Flooding in Kentucky

Updated 3/13/2012 to include Grayson, Larue, Ohio, Russell and Trimble counties.
Updated 3/12/2012 to include Magoffin and Wolfe counties.
Updated 3/9/2012 to include Bath, Campbell, Carroll, Grant, Martin, Montgomery and Rowan counties.

KY-2012-08, March 7, 2012

DETROIT — Victims of the severe storms, tornadoes, straight-line winds and flooding that started on Feb. 29, 2012 in parts of Kentucky may qualify for tax relief from the Internal Revenue Service.

The President has declared Bath, Campbell, Carroll, Grant, Grayson, Johnson, Kenton, Larue, Laurel, Lawrence, Magoffin, Martin, Menifee, Montgomery, Morgan, Ohio, Pendleton, Rowan, Russell, Trimble and Wolfe counties a federal disaster area. Individuals who reside or have a business in these counties may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Feb. 29, and on or before May 31, have been postponed to May 31, 2012. This includes the April 17 deadline for filing 2011 individual income tax returns, making income tax payments and making 2011 contributions to an individual retirement account (IRA).  

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Feb. 29, and on or before March 15, as long as the deposits are made by March 15, 2012.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until May 31 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Feb. 29 and on or before May 31.

The IRS also gives affected taxpayers until May 31 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after Feb. 29 and on or before May 31.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after Feb. 29 and on or before March 15 provided the taxpayer makes these deposits by March 15.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Kentucky, Severe Storms, Tornadoes, Straight-line Winds, and Flooding” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 800-TAX-FORM (800-829-3676). The IRS toll-free number for general tax questions is 800-829-1040.

Related Information

Page Last Reviewed or Updated: 30-Jan-2014

The 2013 Tax Forms 1040ez

2013 tax forms 1040ez 3. 2013 tax forms 1040ez   Investment Expenses Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Limits on DeductionsPassive activity. 2013 tax forms 1040ez Other income (nonpassive income). 2013 tax forms 1040ez Expenses. 2013 tax forms 1040ez Additional information. 2013 tax forms 1040ez Interest ExpensesInvestment Interest Limit on Deduction Bond Premium AmortizationSpecial rules to determine amounts payable on a bond. 2013 tax forms 1040ez Basis. 2013 tax forms 1040ez How To Figure Amortization Choosing To Amortize How To Report Amortization Expenses of Producing IncomeFees to buy or sell. 2013 tax forms 1040ez Including mutual fund or REMIC expenses in income. 2013 tax forms 1040ez Nondeductible ExpensesUsed as collateral. 2013 tax forms 1040ez Short-sale expenses. 2013 tax forms 1040ez Expenses for both tax-exempt and taxable income. 2013 tax forms 1040ez State income taxes. 2013 tax forms 1040ez Nondeductible amount. 2013 tax forms 1040ez Basis adjustment. 2013 tax forms 1040ez How To Report Investment Expenses When To Report Investment Expenses Topics - This chapter discusses: Limits on Deductions , Interest Expenses , Bond Premium Amortization , Expenses of Producing Income , Nondeductible Expenses , How To Report Investment Expenses , and When To Report Investment Expenses . 2013 tax forms 1040ez Useful Items - You may want to see: Publication 535 Business Expenses 925 Passive Activity and At-Risk Rules 929 Tax Rules for Children and Dependents Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 4952 Investment Interest Expense Deduction See chapter 5, How To Get Tax Help , for information about getting these publications and forms. 2013 tax forms 1040ez Limits on Deductions Your deductions for investment expenses may be limited by: The at-risk rules, The passive activity loss limits, The limit on investment interest, or The 2% limit on certain miscellaneous itemized deductions. 2013 tax forms 1040ez The at-risk rules and passive activity rules are explained briefly in this section. 2013 tax forms 1040ez The limit on investment interest is explained later in this chapter under Interest Expenses . 2013 tax forms 1040ez The 2% limit is explained later in this chapter under Expenses of Producing Income . 2013 tax forms 1040ez At-risk rules. 2013 tax forms 1040ez   Special at-risk rules apply to most income-producing activities. 2013 tax forms 1040ez These rules limit the amount of loss you can deduct to the amount you risk losing in the activity. 2013 tax forms 1040ez Generally, this is the cash and the adjusted basis of property you contribute to the activity. 2013 tax forms 1040ez It also includes money you borrow for use in the activity if you are personally liable for repayment or if you use property not used in the activity as security for the loan. 2013 tax forms 1040ez For more information, see Publication 925. 2013 tax forms 1040ez Passive activity losses and credits. 2013 tax forms 1040ez   The amount of losses and tax credits you can claim from passive activities is limited. 2013 tax forms 1040ez Generally, you are allowed to deduct passive activity losses only up to the amount of your passive activity income. 2013 tax forms 1040ez Also, you can use credits from passive activities only against tax on the income from passive activities. 2013 tax forms 1040ez There are exceptions for certain activities, such as rental real estate activities. 2013 tax forms 1040ez Passive activity. 2013 tax forms 1040ez   A passive activity generally is any activity involving the conduct of any trade or business in which you do not materially participate and any rental activity. 2013 tax forms 1040ez However, if you are involved in renting real estate, the activity is not a passive activity if both of the following are true. 2013 tax forms 1040ez More than one-half of the personal services you perform during the year in all trades or businesses are performed in real property trades or businesses in which you materially participate. 2013 tax forms 1040ez You perform more than 750 hours of services during the year in real property trades or businesses in which you materially participate. 2013 tax forms 1040ez  The term “trade or business” generally means any activity that involves the conduct of a trade or business, is conducted in anticipation of starting a trade or business, or involves certain research or experimental expenditures. 2013 tax forms 1040ez However, it does not include rental activities or certain activities treated as incidental to holding property for investment. 2013 tax forms 1040ez   You are considered to materially participate in an activity if you are involved on a regular, continuous, and substantial basis in the operations of the activity. 2013 tax forms 1040ez Other income (nonpassive income). 2013 tax forms 1040ez    Generally, you can use losses from passive activities only to offset income from passive activities. 2013 tax forms 1040ez You cannot use passive activity losses to offset your other income, such as your wages or your portfolio income. 2013 tax forms 1040ez Portfolio income includes gross income from interest, dividends, annuities, or royalties that is not derived in the ordinary course of a trade or business. 2013 tax forms 1040ez It also includes gains or losses (not derived in the ordinary course of a trade or business) from the sale or trade of property (other than an interest in a passive activity) producing portfolio income or held for investment. 2013 tax forms 1040ez This includes capital gain distributions from mutual funds (and other regulated investment companies) and real estate investment trusts. 2013 tax forms 1040ez   You cannot use passive activity losses to offset Alaska Permanent Fund dividends. 2013 tax forms 1040ez Expenses. 2013 tax forms 1040ez   Do not include in the computation of your passive activity income or loss: Expenses (other than interest) that are clearly and directly allocable to your portfolio income, or Interest expense properly allocable to portfolio income. 2013 tax forms 1040ez However, this interest and other expenses may be subject to other limits. 2013 tax forms 1040ez These limits are explained in the rest of this chapter. 2013 tax forms 1040ez Additional information. 2013 tax forms 1040ez   For more information about determining and reporting income and losses from passive activities, see Publication 925. 2013 tax forms 1040ez Interest Expenses This section discusses interest expenses you may be able to deduct as an investor. 2013 tax forms 1040ez For information on business interest, see chapter 4 of Publication 535. 2013 tax forms 1040ez You cannot deduct personal interest expenses other than qualified home mortgage interest, as explained in Publication 936, Home Mortgage Interest Deduction, and interest on certain student loans, as explained in Publication 970. 2013 tax forms 1040ez Investment Interest If you borrow money to buy property you hold for investment, the interest you pay is investment interest. 2013 tax forms 1040ez You can deduct investment interest subject to the limit discussed later. 2013 tax forms 1040ez However, you cannot deduct interest you incurred to produce tax-exempt income. 2013 tax forms 1040ez See Tax-exempt income under Nondeductible Expenses, later. 2013 tax forms 1040ez You also cannot deduct interest expenses on straddles discussed under Interest expense and carrying charges on straddles , later. 2013 tax forms 1040ez Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. 2013 tax forms 1040ez Investment property. 2013 tax forms 1040ez   Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. 2013 tax forms 1040ez It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). 2013 tax forms 1040ez Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity). 2013 tax forms 1040ez Partners, shareholders, and beneficiaries. 2013 tax forms 1040ez   To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest. 2013 tax forms 1040ez Allocation of Interest Expense If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. 2013 tax forms 1040ez Only the interest expense on the part of the debt used for investment purposes is treated as investment interest. 2013 tax forms 1040ez The allocation is not affected by the use of property that secures the debt. 2013 tax forms 1040ez Example 1. 2013 tax forms 1040ez You borrow $10,000 and use $8,000 to buy stock. 2013 tax forms 1040ez You use the other $2,000 to buy items for your home. 2013 tax forms 1040ez Since 80% of the debt is used for, and allocated to, investment purposes, 80% of the interest on that debt is investment interest. 2013 tax forms 1040ez The other 20% is nondeductible personal interest. 2013 tax forms 1040ez Debt proceeds received in cash. 2013 tax forms 1040ez   If you receive debt proceeds in cash, the proceeds are generally not treated as investment property. 2013 tax forms 1040ez Debt proceeds deposited in account. 2013 tax forms 1040ez   If you deposit debt proceeds in an account, that deposit is treated as investment property, regardless of whether the account bears interest. 2013 tax forms 1040ez But, if you withdraw the funds and use them for another purpose, you must reallocate the debt to determine the amount considered to be for investment purposes. 2013 tax forms 1040ez Example 2. 2013 tax forms 1040ez Assume in Example 1 that you borrowed the money on March 1 and immediately bought the stock for $8,000. 2013 tax forms 1040ez You did not buy the household items until June 1. 2013 tax forms 1040ez You had deposited the $2,000 in the bank. 2013 tax forms 1040ez You had no other transactions on the bank account until June. 2013 tax forms 1040ez You did not sell the stock, and you made no principal payments on the debt. 2013 tax forms 1040ez You paid interest from another account. 2013 tax forms 1040ez The $8,000 is treated as being used for an investment purpose. 2013 tax forms 1040ez The $2,000 is treated as being used for an investment purpose for the 3-month period. 2013 tax forms 1040ez Your total interest expense for 3 months on this debt is investment interest. 2013 tax forms 1040ez In June, when you spend the $2,000 for household items, you must begin to allocate 80% of the debt and the interest expense to investment purposes and 20% to personal purposes. 2013 tax forms 1040ez Amounts paid within 30 days. 2013 tax forms 1040ez   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. 2013 tax forms 1040ez This applies to any payment made within 30 days before or after the proceeds are received in cash or deposited in your account. 2013 tax forms 1040ez   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. 2013 tax forms 1040ez Payments on debt may require new allocation. 2013 tax forms 1040ez   As you repay a debt used for more than one purpose, you must reallocate the balance. 2013 tax forms 1040ez You must first reduce the amount allocated to personal purposes by the repayment. 2013 tax forms 1040ez You then reallocate the rest of the debt to find what part is for investment purposes. 2013 tax forms 1040ez Example 3. 2013 tax forms 1040ez If, in Example 2 , you repay $500 on November 1, the entire repayment is applied against the amount allocated to personal purposes. 2013 tax forms 1040ez The debt balance is now allocated as $8,000 for investment purposes and $1,500 for personal purposes. 2013 tax forms 1040ez Until the next reallocation is necessary, 84% ($8,000 ÷ $9,500) of the debt and the interest expense is allocated to investment. 2013 tax forms 1040ez Pass-through entities. 2013 tax forms 1040ez   If you use borrowed funds to buy an interest in a partnership or S corporation, then the interest on those funds must be allocated based on the assets of the entity. 2013 tax forms 1040ez If you contribute to the capital of the entity, you can make the allocation using any reasonable method. 2013 tax forms 1040ez Additional allocation rules. 2013 tax forms 1040ez   For more information about allocating interest expense, see chapter 4 of Publication 535. 2013 tax forms 1040ez When To Deduct Investment Interest If you use the cash method of accounting, you must pay the interest before you can deduct it. 2013 tax forms 1040ez If you use an accrual method of accounting, you can deduct interest over the period it accrues, regardless of when you pay it. 2013 tax forms 1040ez For an exception, see Unpaid expenses owed to related party under When To Report Investment Expenses, later in this chapter. 2013 tax forms 1040ez Example. 2013 tax forms 1040ez You borrowed $1,000 on August 26, 2013, payable in 90 days at 12% interest. 2013 tax forms 1040ez On November 26, 2013, you paid this with a new note for $1,030, due on February 26, 2014. 2013 tax forms 1040ez If you use the cash method of accounting, you cannot deduct any part of the $30 interest on your return for 2013 because you did not actually pay it. 2013 tax forms 1040ez If you use an accrual method, you may be able to deduct a portion of the interest on the loans through December 31, 2013, on your return for 2013. 2013 tax forms 1040ez Interest paid in advance. 2013 tax forms 1040ez   Generally, if you pay interest in advance for a period that goes beyond the end of the tax year, you must spread the interest over the tax years to which it belongs under the OID rules discussed in chapter 1. 2013 tax forms 1040ez You can deduct in each year only the interest for that year. 2013 tax forms 1040ez Interest on margin accounts. 2013 tax forms 1040ez   If you are a cash method taxpayer, you can deduct interest on margin accounts to buy taxable securities as investment interest in the year you paid it. 2013 tax forms 1040ez You are considered to have paid interest on these accounts only when you actually pay the broker or when payment becomes available to the broker through your account. 2013 tax forms 1040ez Payment may become available to the broker through your account when the broker collects dividends or interest for your account, or sells securities held for you or received from you. 2013 tax forms 1040ez   You cannot deduct any interest on money borrowed for personal reasons. 2013 tax forms 1040ez Limit on interest deduction for market discount bonds. 2013 tax forms 1040ez   The amount you can deduct for interest expense you paid or accrued during the year to buy or carry a market discount bond may be limited. 2013 tax forms 1040ez This limit does not apply if you accrue the market discount and include it in your income currently. 2013 tax forms 1040ez   Under this limit, the interest is deductible only to the extent it is more than: The total interest and OID includible in gross income for the bond for the year, plus The market discount for the number of days you held the bond during the year. 2013 tax forms 1040ez Figure the amount in (2) above using the rules for figuring accrued market discount in chapter 1 under Market Discount Bonds . 2013 tax forms 1040ez Interest not deducted due to limit. 2013 tax forms 1040ez   In the year you dispose of the bond, you can deduct any interest expense you were not allowed to deduct in earlier years because of the limit. 2013 tax forms 1040ez Choosing to deduct disallowed interest expense before the year of disposition. 2013 tax forms 1040ez   You can choose to deduct disallowed interest expense in any year before the year you dispose of the bond, up to your net interest income from the bond during the year. 2013 tax forms 1040ez The rest of the disallowed interest expense remains deductible in the year you dispose of the bond. 2013 tax forms 1040ez Net interest income. 2013 tax forms 1040ez   This is the interest income (including OID) from the bond that you include in income for the year, minus the interest expense paid or accrued during the year to purchase or carry the bond. 2013 tax forms 1040ez Limit on interest deduction for short-term obligations. 2013 tax forms 1040ez   If the current income inclusion rules discussed in chapter 1 under Discount on Short-Term Obligations do not apply to you, the amount you can deduct for interest expense you paid or accrued during the year to buy or carry a short-term obligation is limited. 2013 tax forms 1040ez   The interest is deductible only to the extent it is more than: The amount of acquisition discount or OID on the obligation for the tax year, plus The amount of any interest payable on the obligation for the year that is not included in income because of your accounting method (other than interest taken into account in determining the amount of acquisition discount or OID). 2013 tax forms 1040ez The method of determining acquisition discount and OID for short-term obligations is discussed in chapter 1 under Discount on Short-Term Obligations . 2013 tax forms 1040ez Interest not deducted due to limit. 2013 tax forms 1040ez   In the year you dispose of the obligation, or, if you choose, in another year in which you have net interest income from the obligation, you can deduct any interest expense you were not allowed to deduct for an earlier year because of the limit. 2013 tax forms 1040ez Follow the same rules provided in the earlier discussion under Limit on interest deduction for market discount bonds , earlier. 2013 tax forms 1040ez Limit on Deduction Generally, your deduction for investment interest expense is limited to your net investment income. 2013 tax forms 1040ez You can carry over the amount of investment interest you could not deduct because of this limit to the next tax year. 2013 tax forms 1040ez The interest carried over is treated as investment interest paid or accrued in that next year. 2013 tax forms 1040ez You can carry over disallowed investment interest to the next tax year even if it is more than your taxable income in the year the interest was paid or accrued. 2013 tax forms 1040ez Net Investment Income Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income. 2013 tax forms 1040ez Investment income. 2013 tax forms 1040ez   This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). 2013 tax forms 1040ez Investment income does not include Alaska Permanent Fund dividends. 2013 tax forms 1040ez It also does not include qualified dividends or net capital gain unless you choose to include them. 2013 tax forms 1040ez Choosing to include qualified dividends. 2013 tax forms 1040ez   Investment income generally does not include qualified dividends, discussed in chapter 1. 2013 tax forms 1040ez However, you can choose to include all or part of your qualified dividends in investment income. 2013 tax forms 1040ez   You make this choice by completing Form 4952, line 4g, according to its instructions. 2013 tax forms 1040ez   If you choose to include any of your qualified dividends in investment income, you must reduce your qualified dividends that are eligible for the lower capital gains tax rates by the same amount. 2013 tax forms 1040ez Choosing to include net capital gain. 2013 tax forms 1040ez    Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). 2013 tax forms 1040ez However, you can choose to include all or part of your net capital gain in investment income. 2013 tax forms 1040ez   You make this choice by completing Form 4952, line 4g, according to its instructions. 2013 tax forms 1040ez   If you choose to include any of your net capital gain in investment income, you must reduce your net capital gain that is eligible for the lower capital gains tax rates by the same amount. 2013 tax forms 1040ez   For more information about the capital gains rates, see Capital Gain Tax Rates in chapter 4. 2013 tax forms 1040ez    Before making either choice, consider the overall effect on your tax liability. 2013 tax forms 1040ez Compare your tax if you make one or both of these choices with your tax if you do not. 2013 tax forms 1040ez Investment income of child reported on parent's return. 2013 tax forms 1040ez   Investment income includes the part of your child's interest and dividend income you choose to report on your return. 2013 tax forms 1040ez If the child does not have qualified dividends, Alaska Permanent Fund dividends, or capital gain distributions, this is the amount on line 6 of Form 8814. 2013 tax forms 1040ez Include it on line 4a of Form 4952. 2013 tax forms 1040ez Example. 2013 tax forms 1040ez Your 8-year-old son has interest income of $2,200, which you choose to report on your own return. 2013 tax forms 1040ez You enter $2,200 on Form 8814, lines 1a and 4, and $200 on lines 6 and 12 and complete Part II. 2013 tax forms 1040ez Also enter $200 on Form 1040, line 21. 2013 tax forms 1040ez Your investment income includes this $200. 2013 tax forms 1040ez Child's qualified dividends. 2013 tax forms 1040ez   If part of the amount you report is your child's qualified dividends, that part (which is reported on Form 1040, line 9b) generally does not count as investment income. 2013 tax forms 1040ez However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. 2013 tax forms 1040ez   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends). 2013 tax forms 1040ez Child's Alaska Permanent Fund dividends. 2013 tax forms 1040ez   If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. 2013 tax forms 1040ez To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. 2013 tax forms 1040ez Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. 2013 tax forms 1040ez Subtract the result from the amount on Form 8814, line 12. 2013 tax forms 1040ez Example. 2013 tax forms 1040ez Your 10-year-old child has taxable interest income of $4,000 and Alaska Permanent Fund dividends of $2,000. 2013 tax forms 1040ez You choose to report this on your return. 2013 tax forms 1040ez You enter $4,000 on Form 8814, line 1a, $2,000 on line 2a, and $6,000 on line 4. 2013 tax forms 1040ez You then enter $4,000 on Form 8814, lines 6 and 12, and Form 1040, line 21. 2013 tax forms 1040ez You figure the amount of your child's income that you can consider your investment income as follows: $4,000 − ($4,000 × ($2,000 ÷ $6,000)) = $2,667 You include the result, $2,667, on Form 4952, line 4a. 2013 tax forms 1040ez Child's capital gain distributions. 2013 tax forms 1040ez   If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D (Form 1040), line 13, or Form 1040, line 13) generally does not count as investment income. 2013 tax forms 1040ez However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. 2013 tax forms 1040ez   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends , earlier). 2013 tax forms 1040ez Investment expenses. 2013 tax forms 1040ez   Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. 2013 tax forms 1040ez Investment expenses that are included as a miscellaneous itemized deduction on Schedule A (Form 1040) are allowable deductions after applying the 2% limit that applies to miscellaneous itemized deductions. 2013 tax forms 1040ez Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A (Form 1040), line 27. 2013 tax forms 1040ez See Expenses of Producing Income , later, for a discussion of the 2% limit. 2013 tax forms 1040ez Losses from passive activities. 2013 tax forms 1040ez   Income or expenses that you used in computing income or loss from a passive activity are not included in determining your investment income or investment expenses (including investment interest expense). 2013 tax forms 1040ez See Publication 925 for information about passive activities. 2013 tax forms 1040ez Example. 2013 tax forms 1040ez Ted is a partner in a partnership that operates a business. 2013 tax forms 1040ez However, he does not materially participate in the partnership's business. 2013 tax forms 1040ez Ted's interest in the partnership is considered a passive activity. 2013 tax forms 1040ez Ted's investment income from interest and dividends (other than qualified dividends) is $10,000. 2013 tax forms 1040ez His investment expenses (other than interest) are $3,200 after taking into account the 2% limit on miscellaneous itemized deductions. 2013 tax forms 1040ez His investment interest expense is $8,000. 2013 tax forms 1040ez Ted also has income from the partnership of $2,000. 2013 tax forms 1040ez Ted figures his net investment income and the limit on his investment interest expense deduction in the following way: Total investment income $10,000 Minus: Investment expenses (other than interest) 3,200 Net investment income $6,800 Deductible investment interest expense for the year $6,800 The $2,000 of income from the passive activity is not used in determining Ted's net investment income. 2013 tax forms 1040ez His investment interest deduction for the year is limited to $6,800, the amount of his net investment income. 2013 tax forms 1040ez Form 4952 Use Form 4952 to figure your deduction for investment interest. 2013 tax forms 1040ez See Form 4952 for more information. 2013 tax forms 1040ez Exception to use of Form 4952. 2013 tax forms 1040ez   You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. 2013 tax forms 1040ez Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. 2013 tax forms 1040ez You do not have any other deductible investment expenses. 2013 tax forms 1040ez You have no carryover of investment interest expense from 2012. 2013 tax forms 1040ez   If you meet all of these tests, you can deduct all of your investment interest. 2013 tax forms 1040ez    Bond Premium Amortization If you pay a premium to buy a bond, the premium is part of your basis in the bond. 2013 tax forms 1040ez If the bond yields taxable interest, you can choose to amortize the premium. 2013 tax forms 1040ez This generally means that each year, over the life of the bond, you use a part of the premium to reduce the amount of interest includible in your income. 2013 tax forms 1040ez If you make this choice, you must reduce your basis in the bond by the amortization for the year. 2013 tax forms 1040ez If the bond yields tax-exempt interest, you must amortize the premium. 2013 tax forms 1040ez This amortized amount is not deductible in determining taxable income. 2013 tax forms 1040ez However, each year you must reduce your basis in the bond (and tax-exempt interest otherwise reportable on Form 1040, line 8b) by the amortization for the year. 2013 tax forms 1040ez Bond premium. 2013 tax forms 1040ez   Bond premium is the amount by which your basis in the bond right after you get it is more than the total of all amounts payable on the bond after you get it (other than payments of qualified stated interest). 2013 tax forms 1040ez For example, a bond with a maturity value of $1,000 generally would have a $50 premium if you buy it for $1,050. 2013 tax forms 1040ez Special rules to determine amounts payable on a bond. 2013 tax forms 1040ez   For special rules that apply to determine the amounts payable on a variable rate bond, an inflation-indexed debt instrument, a bond that provides for certain alternative payment schedules (for example, a bond callable prior to the stated maturity date of the bond), or a bond that provides for remote or incidental contingencies, see Regulations section 1. 2013 tax forms 1040ez 171-3. 2013 tax forms 1040ez Basis. 2013 tax forms 1040ez   In general, your basis for figuring bond premium amortization is the same as your basis for figuring any loss on the sale of the bond. 2013 tax forms 1040ez However, you may need to use a different basis for: Convertible bonds, Bonds you got in a trade, and Bonds whose basis has to be determined using the basis of the person who transferred the bond to you. 2013 tax forms 1040ez See Regulations section 1. 2013 tax forms 1040ez 171-1(e). 2013 tax forms 1040ez Dealers. 2013 tax forms 1040ez   A dealer in taxable bonds (or anyone who holds them mainly for sale to customers in the ordinary course of a trade or business or who would properly include bonds in inventory at the close of the tax year) cannot claim a deduction for amortizable bond premium. 2013 tax forms 1040ez   See section 75 of the Internal Revenue Code for the treatment of bond premium by a dealer in tax-exempt bonds. 2013 tax forms 1040ez How To Figure Amortization For bonds issued after September 27, 1985, you must amortize bond premium using a constant yield method on the basis of the bond's yield to maturity, determined by using the bond's basis and compounding at the close of each accrual period. 2013 tax forms 1040ez Constant yield method. 2013 tax forms 1040ez   Figure the bond premium amortization for each accrual period as follows. 2013 tax forms 1040ez Step 1: Determine your yield. 2013 tax forms 1040ez   Your yield is the discount rate that, when used in figuring the present value of all remaining payments to be made on the bond (including payments of qualified stated interest), produces an amount equal to your basis in the bond. 2013 tax forms 1040ez Figure the yield as of the date you got the bond. 2013 tax forms 1040ez It must be constant over the term of the bond and must be figured to at least two decimal places when expressed as a percentage. 2013 tax forms 1040ez   If you do not know the yield, consult your broker or tax advisor. 2013 tax forms 1040ez Databases available to them are likely to show the yield at the date of purchase. 2013 tax forms 1040ez Step 2: Determine the accrual periods. 2013 tax forms 1040ez   You can choose the accrual periods to use. 2013 tax forms 1040ez They may be of any length and may vary in length over the term of the bond, but each accrual period can be no longer than 1 year and each scheduled payment of principal or interest must occur either on the first or the final day of an accrual period. 2013 tax forms 1040ez The computation is simplest if accrual periods are the same as the intervals between interest payment dates. 2013 tax forms 1040ez Step 3: Determine the bond premium for the accrual period. 2013 tax forms 1040ez   To do this, multiply your adjusted acquisition price at the beginning of the accrual period by your yield. 2013 tax forms 1040ez Then subtract the result from the qualified stated interest for the period. 2013 tax forms 1040ez   Your adjusted acquisition price at the beginning of the first accrual period is the same as your basis. 2013 tax forms 1040ez After that, it is your basis decreased by the amount of bond premium amortized for earlier periods and the amount of any payment previously made on the bond other than a payment of qualified stated interest. 2013 tax forms 1040ez Example. 2013 tax forms 1040ez On February 1, 2012, you bought a taxable bond for $110,000. 2013 tax forms 1040ez The bond has a stated principal amount of $100,000, payable at maturity on February 1, 2019, making your premium $10,000 ($110,000 − $100,000). 2013 tax forms 1040ez The bond pays qualified stated interest of $10,000 on February 1 of each year. 2013 tax forms 1040ez Your yield is 8. 2013 tax forms 1040ez 07439% compounded annually. 2013 tax forms 1040ez You choose to use annual accrual periods ending on February 1 of each year. 2013 tax forms 1040ez To find your bond premium amortization for the accrual period ending on February 1, 2013, you multiply the adjusted acquisition price at the beginning of the period ($110,000) by your yield. 2013 tax forms 1040ez When you subtract the result ($8,881. 2013 tax forms 1040ez 83) from the qualified stated interest for the period ($10,000), you find that your bond premium amortization for the period is $1,118. 2013 tax forms 1040ez 17. 2013 tax forms 1040ez Special rules to figure amortization. 2013 tax forms 1040ez   For special rules to figure the bond premium amortization on a variable rate bond, an inflation-indexed debt instrument, a bond that provides for certain alternative payment schedules (for example, a bond callable prior to the stated maturity date of the bond), or a bond that provides for remote or incidental contingencies, see Regulations section 1. 2013 tax forms 1040ez 171-3. 2013 tax forms 1040ez Bonds Issued Before September 28, 1985 For these bonds, you can amortize bond premium using any reasonable method. 2013 tax forms 1040ez Reasonable methods include: The straight-line method, and The Revenue Ruling 82-10 method. 2013 tax forms 1040ez Straight-line method. 2013 tax forms 1040ez   Under this method, the amount of your bond premium amortization is the same each month. 2013 tax forms 1040ez Divide the number of months you held the bond during the year by the number of months from the beginning of the tax year (or, if later, the date of acquisition) to the date of maturity or earlier call date. 2013 tax forms 1040ez Then multiply the result by the bond premium (reduced by any bond premium amortization claimed in earlier years). 2013 tax forms 1040ez This gives you your bond premium amortization for the year. 2013 tax forms 1040ez Revenue Ruling 82-10 method. 2013 tax forms 1040ez   Under this method, the amount of your bond premium amortization increases each month over the life of the bond. 2013 tax forms 1040ez This method is explained in Revenue Ruling 82-10, 1982-1 C. 2013 tax forms 1040ez B. 2013 tax forms 1040ez 46. 2013 tax forms 1040ez Choosing To Amortize You choose to amortize the premium on taxable bonds by reporting the amortization for the year on your income tax return for the first tax year you want the choice to apply. 2013 tax forms 1040ez You should attach a statement to your return that you are making this choice under section 171. 2013 tax forms 1040ez See How To Report Amortization, next. 2013 tax forms 1040ez This choice is binding for the year you make it and for later tax years. 2013 tax forms 1040ez It applies to all taxable bonds you own in the year you make the choice and also to those you acquire in later years. 2013 tax forms 1040ez You can change your decision to amortize bond premium only with the written approval of the IRS. 2013 tax forms 1040ez To request approval, use Form 3115. 2013 tax forms 1040ez For more information on requesting approval, see section 5 of the Appendix to Revenue Procedure 2011-14 in Internal Revenue Bulletin 2011-4. 2013 tax forms 1040ez You can find Revenue Procedure 2011-14 at www. 2013 tax forms 1040ez irs. 2013 tax forms 1040ez gov/irb/2011-04_IRB/ar08. 2013 tax forms 1040ez html. 2013 tax forms 1040ez How To Report Amortization Subtract the bond premium amortization from your interest income from these bonds. 2013 tax forms 1040ez Report the bond's interest on Schedule B (Form 1040A or 1040), line 1. 2013 tax forms 1040ez Under your last entry on line 1, put a subtotal of all interest listed on line 1. 2013 tax forms 1040ez Below this subtotal, print “ABP Adjustment,” and the total interest you received. 2013 tax forms 1040ez Subtract this amount from the subtotal, and enter the result on line 2. 2013 tax forms 1040ez Bond premium amortization more than interest. 2013 tax forms 1040ez   If the amount of your bond premium amortization for an accrual period is more than the qualified stated interest for the period, you can deduct the difference as a miscellaneous itemized deduction on Schedule A (Form 1040), line 28. 2013 tax forms 1040ez    But your deduction is limited to the amount by which your total interest inclusions on the bond in prior accrual periods is more than your total bond premium deductions on the bond in prior periods. 2013 tax forms 1040ez Any amount you cannot deduct because of this limit can be carried forward to the next accrual period. 2013 tax forms 1040ez Pre-1998 election to amortize bond premium. 2013 tax forms 1040ez   Generally, if you first elected to amortize bond premium before 1998, the above treatment of the premium does not apply to bonds you acquired before 1988. 2013 tax forms 1040ez Bonds acquired before October 23, 1986. 2013 tax forms 1040ez   The amortization of the premium on these bonds is a miscellaneous itemized deduction not subject to the 2%-of-adjusted-gross-income limit. 2013 tax forms 1040ez Bonds acquired after October 22, 1986, but before 1988. 2013 tax forms 1040ez    The amortization of the premium on these bonds is investment interest expense subject to the investment interest limit, unless you choose to treat it as an offset to interest income on the bond. 2013 tax forms 1040ez Expenses of Producing Income You deduct investment expenses (other than interest expenses) as miscellaneous itemized deductions on Schedule A (Form 1040). 2013 tax forms 1040ez To be deductible, these expenses must be ordinary and necessary expenses paid or incurred: To produce or collect income, or To manage property held for producing income. 2013 tax forms 1040ez The expenses must be directly related to the income or income-producing property, and the income must be taxable to you. 2013 tax forms 1040ez The deduction for most income-producing expenses is subject to a 2% limit that also applies to certain other miscellaneous itemized deductions. 2013 tax forms 1040ez The amount deductible is limited to the total of these miscellaneous deductions that is more than 2% of your adjusted gross income. 2013 tax forms 1040ez For information on how to report expenses of producing income, see How To Report Investment Expenses , later. 2013 tax forms 1040ez Attorney or accounting fees. 2013 tax forms 1040ez   You can deduct attorney or accounting fees that are necessary to produce or collect taxable income. 2013 tax forms 1040ez However, in some cases, attorney or accounting fees are part of the basis of property. 2013 tax forms 1040ez See Basis of Investment Property in chapter 4. 2013 tax forms 1040ez Automatic investment service and dividend reinvestment plans. 2013 tax forms 1040ez   A bank may offer its checking account customers an automatic investment service so that, for a charge, each customer can choose to invest a part of the checking account each month in common stock. 2013 tax forms 1040ez Or a bank that is a dividend disbursing agent for a number of publicly-owned corporations may set up an automatic dividend reinvestment service. 2013 tax forms 1040ez Through that service, cash dividends are reinvested in more shares of stock after the bank deducts a service charge. 2013 tax forms 1040ez   A corporation in which you own stock also may have a dividend reinvestment plan. 2013 tax forms 1040ez This plan lets you choose to use your dividends to buy more shares of stock in the corporation instead of receiving the dividends in cash. 2013 tax forms 1040ez   You can deduct the monthly service charge you pay to a bank to participate in an automatic investment service. 2013 tax forms 1040ez If you participate in a dividend reinvestment plan, you can deduct any service charge subtracted from your cash dividends before the dividends are used to buy more shares of stock. 2013 tax forms 1040ez Deduct the charges in the year you pay them. 2013 tax forms 1040ez Clerical help and office rent. 2013 tax forms 1040ez   You can deduct office expenses, such as rent and clerical help, you incurred in connection with your investments and collecting the taxable income on your investments. 2013 tax forms 1040ez Cost of replacing missing securities. 2013 tax forms 1040ez   To replace your taxable securities that are mislaid, lost, stolen, or destroyed, you may have to post an indemnity bond. 2013 tax forms 1040ez You can deduct the premium you pay to buy the indemnity bond and the related incidental expenses. 2013 tax forms 1040ez   You may, however, get a refund of part of the bond premium if the missing securities are recovered within a specified time. 2013 tax forms 1040ez Under certain types of insurance policies, you can recover some of the expenses. 2013 tax forms 1040ez   If you receive the refund in the tax year you pay the amounts, you can deduct only the difference between the expenses paid and the amount refunded. 2013 tax forms 1040ez If the refund is made in a later tax year, you must include the refund in income in the year you received it, but only to the extent that the expenses decreased your tax in the year you deducted them. 2013 tax forms 1040ez Fees to collect income. 2013 tax forms 1040ez   You can deduct fees you pay to a broker, bank, trustee, or similar agent to collect investment income, such as your taxable bond or mortgage interest, or your dividends on shares of stock. 2013 tax forms 1040ez Fees to buy or sell. 2013 tax forms 1040ez   You cannot deduct a fee you pay to a broker to acquire investment property, such as stocks or bonds. 2013 tax forms 1040ez You must add the fee to the cost of the property. 2013 tax forms 1040ez See Basis of Investment Property in chapter 4. 2013 tax forms 1040ez    You cannot deduct any broker's fees, commissions, or option premiums you pay (or that were netted out) in connection with the sale of investment property. 2013 tax forms 1040ez They can be used only to figure gain or loss from the sale. 2013 tax forms 1040ez See Reporting Capital Gains and Losses , in chapter 4, for more information about the treatment of these sale expenses. 2013 tax forms 1040ez Investment counsel and advice. 2013 tax forms 1040ez   You can deduct fees you pay for counsel and advice about investments that produce taxable income. 2013 tax forms 1040ez This includes amounts you pay for investment advisory services. 2013 tax forms 1040ez Safe deposit box rent. 2013 tax forms 1040ez   You can deduct rent you pay for a safe deposit box if you use the box to store taxable income-producing stocks, bonds, or other investment-related papers and documents. 2013 tax forms 1040ez If you also use the box to store tax-exempt securities or personal items, you can deduct only part of the rent. 2013 tax forms 1040ez See Tax-exempt income under Nondeductible Expenses, later, to figure what part you can deduct. 2013 tax forms 1040ez State and local transfer taxes. 2013 tax forms 1040ez   You cannot deduct the state and local transfer taxes you pay when you buy or sell securities. 2013 tax forms 1040ez If you pay these transfer taxes when you buy securities, you must treat them as part of the cost of the property. 2013 tax forms 1040ez If you pay these transfer taxes when you sell securities, you must treat them as a reduction in the amount realized. 2013 tax forms 1040ez Trustee's commissions for revocable trust. 2013 tax forms 1040ez   If you set up a revocable trust and have its income distributed to you, you can deduct the commission you pay the trustee for managing the trust to the extent it is to produce or collect taxable income or to manage property. 2013 tax forms 1040ez However, you cannot deduct any part of the commission used for producing or collecting tax-exempt income or for managing property that produces tax-exempt income. 2013 tax forms 1040ez   If you are a cash-basis taxpayer and pay the commissions for several years in advance, you must deduct a part of the commission each year. 2013 tax forms 1040ez You cannot deduct the entire amount in the year you pay it. 2013 tax forms 1040ez Investment expenses from pass-through entities. 2013 tax forms 1040ez   If you hold an interest in a partnership, S corporation, real estate mortgage investment conduit (REMIC), or a nonpublicly offered mutual fund, you can deduct your share of that entity's investment expenses. 2013 tax forms 1040ez A partnership or S corporation will show your share of these expenses on your Schedule K-1 (Form 1065) or Schedule K-1 (Form 1120S). 2013 tax forms 1040ez A nonpublicly offered mutual fund will indicate your share of these expenses in box 5 of Form 1099-DIV (or substitute statement). 2013 tax forms 1040ez Publicly-offered mutual funds are discussed later. 2013 tax forms 1040ez   If you hold an interest in a REMIC, any expenses relating to your residual interest investment will be shown on Schedule Q (Form 1066), line 3b. 2013 tax forms 1040ez Any expenses relating to your regular interest investment will appear in box 5 of Form 1099-INT (or substitute statement) or box 9 of Form 1099-OID (or substitute statement). 2013 tax forms 1040ez   Report your share of these investment expenses on Schedule A (Form 1040), subject to the 2% limit, in the same manner as your other investment expenses. 2013 tax forms 1040ez Including mutual fund or REMIC expenses in income. 2013 tax forms 1040ez   Your share of the investment expenses of a REMIC or a nonpublicly offered mutual fund, as described above, are considered to be indirect deductions through that pass-through entity. 2013 tax forms 1040ez You must include in your gross income an amount equal to the expenses allocated to you, whether or not you are able to claim a deduction for those expenses. 2013 tax forms 1040ez If you are a shareholder in a nonpublicly offered mutual fund, you must include on your return the full amount of ordinary dividends or other distributions of stock, as shown in box 1a of Form 1099-DIV (or substitute statement). 2013 tax forms 1040ez If you are a residual interest holder in a REMIC, you must report as ordinary income on Schedule E (Form 1040) the total amounts shown on Schedule Q (Form 1066), lines 1b and 3b. 2013 tax forms 1040ez If you are a REMIC regular interest holder, you must include the amount of any expense allocation you received on Form 1040, line 8a. 2013 tax forms 1040ez Publicly-offered mutual funds. 2013 tax forms 1040ez   Most mutual funds are publicly offered. 2013 tax forms 1040ez These mutual funds, generally, are traded on an established securities exchange. 2013 tax forms 1040ez These funds do not pass investment expenses through to you. 2013 tax forms 1040ez Instead, the dividend income they report to you in box 1a of Form 1099-DIV (or substitute statement) is already reduced by your share of investment expenses. 2013 tax forms 1040ez As a result, you cannot deduct the expenses on your return. 2013 tax forms 1040ez   Include the amount from box 1a of Form 1099-DIV (or substitute statement) in your income. 2013 tax forms 1040ez    A publicly offered mutual fund is one that: Is continuously offered pursuant to a public offering, Is regularly traded on an established securities market, and Is held by or for no fewer than 500 persons at any time during the year. 2013 tax forms 1040ez Contact your mutual fund if you are not sure whether it is publicly offered. 2013 tax forms 1040ez Nondeductible Expenses Some expenses that you incur as an investor are not deductible. 2013 tax forms 1040ez Stockholders' meetings. 2013 tax forms 1040ez   You cannot deduct transportation and other expenses you pay to attend stockholders' meetings of companies in which you have no interest other than owning stock. 2013 tax forms 1040ez This is true even if your purpose in attending is to get information that would be useful in making further investments. 2013 tax forms 1040ez Investment-related seminar. 2013 tax forms 1040ez   You cannot deduct expenses for attending a convention, seminar, or similar meeting for investment purposes. 2013 tax forms 1040ez Single-premium life insurance, endowment, and annuity contracts. 2013 tax forms 1040ez   You cannot deduct interest on money you borrow to buy or carry a single-premium life insurance, endowment, or annuity contract. 2013 tax forms 1040ez Used as collateral. 2013 tax forms 1040ez   If you use a single premium annuity contract as collateral to obtain or continue a mortgage loan, you cannot deduct any interest on the loan that is collateralized by the annuity contract. 2013 tax forms 1040ez Figure the amount of interest expense disallowed by multiplying the current interest rate on the mortgage loan by the lesser of the amount of the annuity contract used as collateral or the amount of the loan. 2013 tax forms 1040ez Borrowing on insurance. 2013 tax forms 1040ez   Generally, you cannot deduct interest on money you borrow to buy or carry a life insurance, endowment, or annuity contract if you plan to systematically borrow part or all of the increases in the cash value of the contract. 2013 tax forms 1040ez This rule applies to the interest on the total amount borrowed to buy or carry the contract, not just the interest on the borrowed increases in the cash value. 2013 tax forms 1040ez Tax-exempt income. 2013 tax forms 1040ez   You cannot deduct expenses you incur to produce tax-exempt income. 2013 tax forms 1040ez Nor can you deduct interest on money you borrow to buy tax-exempt securities or shares in a mutual fund or other regulated investment company that distributes only exempt-interest dividends. 2013 tax forms 1040ez Short-sale expenses. 2013 tax forms 1040ez   The rule disallowing a deduction for interest expenses on tax-exempt securities applies to amounts you pay in connection with personal property used in a short sale or amounts paid by others for the use of any collateral in connection with the short sale. 2013 tax forms 1040ez However, it does not apply to the expenses you incur if you deposit cash as collateral for the property used in the short sale and the cash does not earn a material return during the period of the sale. 2013 tax forms 1040ez Short sales are discussed in Short Sales in chapter 4. 2013 tax forms 1040ez Expenses for both tax-exempt and taxable income. 2013 tax forms 1040ez   You may have expenses that are for both tax-exempt and taxable income. 2013 tax forms 1040ez If you cannot specifically identify what part of the expenses is for each type of income, you can divide the expenses, using reasonable proportions based on facts and circumstances. 2013 tax forms 1040ez You must attach a statement to your return showing how you divided the expenses and stating that each deduction claimed is not based on tax-exempt income. 2013 tax forms 1040ez   One accepted method for dividing expenses is to do it in the same proportion that each type of income is to the total income. 2013 tax forms 1040ez If the expenses relate in part to capital gains and losses, include the gains, but not the losses, in figuring this proportion. 2013 tax forms 1040ez To find the part of the expenses that is for the tax-exempt income, divide your tax-exempt income by the total income and multiply your expenses by the result. 2013 tax forms 1040ez Example. 2013 tax forms 1040ez You received $6,000 interest; $4,800 was tax-exempt and $1,200 was taxable. 2013 tax forms 1040ez In earning this income, you had $500 of expenses. 2013 tax forms 1040ez You cannot specifically identify the amount of each expense item that is for each income item, so you must divide your expenses. 2013 tax forms 1040ez 80% ($4,800 tax-exempt interest divided by $6,000 total interest) of your expenses is for the tax-exempt income. 2013 tax forms 1040ez You cannot deduct $400 (80% of $500) of the expenses. 2013 tax forms 1040ez You can deduct $100 (the rest of the expenses) because they are for the taxable interest. 2013 tax forms 1040ez State income taxes. 2013 tax forms 1040ez   If you itemize your deductions, you can deduct, as taxes, state income taxes on interest income that is exempt from federal income tax. 2013 tax forms 1040ez But you cannot deduct, as either taxes or investment expenses, state income taxes on other exempt income. 2013 tax forms 1040ez Interest expense and carrying charges on straddles. 2013 tax forms 1040ez   You cannot deduct interest and carrying charges allocable to personal property that is part of a straddle. 2013 tax forms 1040ez The nondeductible interest and carrying charges are added to the basis of the straddle property. 2013 tax forms 1040ez However, this treatment does not apply if: All the offsetting positions making up the straddle either consist of one or more qualified covered call options and the optioned stock, or consist of section 1256 contracts (and the straddle is not part of a larger straddle); or The straddle is a hedging transaction. 2013 tax forms 1040ez  For information about straddles, including definitions of the terms used in this discussion, see Straddles in chapter 4. 2013 tax forms 1040ez   Interest includes any amount you pay or incur in connection with personal property used in a short sale. 2013 tax forms 1040ez However, you must first apply the rules discussed in Payments in lieu of dividends under Short Sales in chapter 4. 2013 tax forms 1040ez   To determine the interest on market discount bonds and short-term obligations that are part of a straddle, you must first apply the rules discussed under Limit on interest deduction for market discount bonds and Limit on interest deduction for short-term obligations (both under Interest Expenses, earlier). 2013 tax forms 1040ez Nondeductible amount. 2013 tax forms 1040ez   Figure the nondeductible interest and carrying charges on straddle property as follows. 2013 tax forms 1040ez Add: Interest on indebtedness incurred or continued to buy or carry the personal property, and All other amounts (including charges to insure, store, or transport the personal property) paid or incurred to carry the personal property. 2013 tax forms 1040ez Subtract from the amount in (1): Interest (including OID) includible in gross income for the year on the personal property, Any income from the personal property treated as ordinary income on the disposition of short-term government obligations or as ordinary income under the market discount and short-term bond provisions — see Discount on Debt Instruments in chapter 1, The dividends includible in gross income for the year from the personal property, and Any payment on a loan of the personal property for use in a short sale that is includible in gross income. 2013 tax forms 1040ez Basis adjustment. 2013 tax forms 1040ez   Add the nondeductible amount to the basis of your straddle property. 2013 tax forms 1040ez How To Report Investment Expenses To deduct your investment expenses, you must itemize deductions on Schedule A (Form 1040). 2013 tax forms 1040ez Enter your deductible investment interest expense on Schedule A (Form1040), line 14. 2013 tax forms 1040ez Include any deductible short sale expenses. 2013 tax forms 1040ez (See Short Sales in chapter 4 for information on these expenses. 2013 tax forms 1040ez ) Also attach a completed Form 4952 if you used that form to figure your investment interest expense. 2013 tax forms 1040ez Enter the total amount of your other investment expenses (other than interest expenses) on Schedule A (Form 1040), line 23. 2013 tax forms 1040ez List the type and amount of each expense on the dotted lines next to line 23. 2013 tax forms 1040ez (If necessary, you can show the required information on an attached statement. 2013 tax forms 1040ez ) For information on how to report amortizable bond premium, see Bond Premium Amortization , earlier in this chapter. 2013 tax forms 1040ez When To Report Investment Expenses If you use the cash method to report income and expenses, you generally deduct your expenses, except for certain prepaid interest, in the year you pay them. 2013 tax forms 1040ez If you use an accrual method, you generally deduct your expenses when you incur a liability for them, rather than when you pay them. 2013 tax forms 1040ez Also see When To Deduct Investment Interest , earlier in this chapter. 2013 tax forms 1040ez Unpaid expenses owed to related party. 2013 tax forms 1040ez   If you use an accrual method, you cannot deduct interest and other expenses owed to a related cash-basis person until payment is made and the amount is includible in the gross income of that person. 2013 tax forms 1040ez The relationship, for purposes of this rule, is determined as of the end of the tax year for which the interest or expense would otherwise be deductible. 2013 tax forms 1040ez If a deduction is denied under this rule, this rule will continue to apply even if your relationship with the person ceases to exist before the amount is includible in the gross income of that person. 2013 tax forms 1040ez   This rule generally applies to those relationships listed in chapter 4 under Related Party Transactions . 2013 tax forms 1040ez It also applies to accruals by partnerships to partners, partners to partnerships, shareholders to S corporations, and S corporations to shareholders. 2013 tax forms 1040ez   The postponement of deductions for unpaid expenses and interest under the related party rule does not apply to OID, regardless of when payment is made. 2013 tax forms 1040ez This rule also does not apply to loans with below-market interest rates or to certain payments for the use of property and services when the lender or recipient has to include payments periodically in income, even if a payment has not been made. 2013 tax forms 1040ez Prev  Up  Next   Home   More Online Publications