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Amended Michigan Tax Return

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Amended Michigan Tax Return

Amended michigan tax return 21. Amended michigan tax return   Medical and Dental Expenses Table of Contents What's New Introduction Useful Items - You may want to see: What Are Medical Expenses? What Expenses Can You Include This Year?Community property states. Amended michigan tax return How Much of the Expenses Can You Deduct? Whose Medical Expenses Can You Include?Yourself Spouse Dependent Decedent What Medical Expenses Are Includible?Insurance Premiums Meals and Lodging Transportation Disabled Dependent Care Expenses How Do You Treat Reimbursements?Insurance Reimbursement Damages for Personal Injuries How Do You Figure and Report the Deduction on Your Tax Return?What Tax Form Do You Use? Impairment-Related Work Expenses Health Insurance Costs for Self-Employed Persons What's New Medical and dental expenses. Amended michigan tax return  Beginning January 1, 2013, you can deduct only the part of your medical and dental expenses that exceed 10% of your adjusted gross income (AGI) (7. Amended michigan tax return 5% if either you or your spouse is age 65 or older). Amended michigan tax return Standard mileage rate. Amended michigan tax return  The standard mileage rate allowed for operating expenses for a car when you use it for medical reasons is 24 cents per mile. Amended michigan tax return See Transportation under What Medical Expenses Are Includible. Amended michigan tax return Introduction This chapter will help you determine the following. Amended michigan tax return What medical expenses are. Amended michigan tax return What expenses you can include this year. Amended michigan tax return How much of the expenses you can deduct. Amended michigan tax return Whose medical expenses you can include. Amended michigan tax return What medical expenses are includible. Amended michigan tax return How to treat reimbursements. Amended michigan tax return How to report the deduction on your tax return. Amended michigan tax return How to report impairment-related work expenses. Amended michigan tax return How to report health insurance costs if you are self-employed. Amended michigan tax return Useful Items - You may want to see: Publications 502 Medical and Dental Expenses 969 Health Savings Accounts and Other Tax-Favored Health Plans Form (and Instructions) Schedule A (Form 1040) Itemized Deductions What Are Medical Expenses? Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. Amended michigan tax return These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. Amended michigan tax return They include the costs of equipment, supplies, and diagnostic devices needed for these purposes. Amended michigan tax return Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. Amended michigan tax return They do not include expenses that are merely beneficial to general health, such as vitamins or a vacation. Amended michigan tax return Medical expenses include the premiums you pay for insurance that covers the expenses of medical care, and the amounts you pay for transportation to get medical care. Amended michigan tax return Medical expenses also include amounts paid for qualified long-term care services and limited amounts paid for any qualified long-term care insurance contract. Amended michigan tax return What Expenses Can You Include This Year? You can include only the medical and dental expenses you paid this year, regardless of when the services were provided. Amended michigan tax return If you pay medical expenses by check, the day you mail or deliver the check generally is the date of payment. Amended michigan tax return If you use a “pay-by-phone” or “online” account to pay your medical expenses, the date reported on the statement of the financial institution showing when payment was made is the date of payment. Amended michigan tax return If you use a credit card, include medical expenses you charge to your credit card in the year the charge is made, not when you actually pay the amount charged. Amended michigan tax return Separate returns. Amended michigan tax return   If you and your spouse live in a noncommunity property state and file separate returns, each of you can include only the medical expenses each actually paid. Amended michigan tax return Any medical expenses paid out of a joint checking account in which you and your spouse have the same interest are considered to have been paid equally by each of you, unless you can show otherwise. Amended michigan tax return Community property states. Amended michigan tax return   If you and your spouse live in a community property state and file separate returns, or are registered domestic partners in Nevada, Washington, or California, any medical expenses paid out of community funds are divided equally. Amended michigan tax return Each of you should include half the expenses. Amended michigan tax return If medical expenses are paid out of the separate funds of one individual, only the individual who paid the medical expenses can include them. Amended michigan tax return If you live in a community property state, and are not filing a joint return, see Publication 555, Community Property. Amended michigan tax return How Much of the Expenses Can You Deduct? Generally, you can deduct on Schedule A (Form 1040) only the amount of your medical and dental expenses that is more than 10% of your AGI (7. Amended michigan tax return 5% of your AGI if either you or your spouse is age 65 or older)(Form 1040, line 38). Amended michigan tax return Example. Amended michigan tax return You are unmarried and under age 65 and your AGI is $40,000, 10% of which is $4,000. Amended michigan tax return You paid medical expenses of $2,500. Amended michigan tax return You cannot deduct any of your medical expenses because they are not more than 10% of your AGI. Amended michigan tax return Whose Medical Expenses Can You Include? You can generally include medical expenses you pay for yourself, as well as those you pay for someone who was your spouse or your dependent either when the services were provided or when you paid for them. Amended michigan tax return There are different rules for decedents and for individuals who are the subject of multiple support agreements. Amended michigan tax return See Support claimed under a multiple support agreement , later. Amended michigan tax return Yourself You can include medical expenses you paid for yourself. Amended michigan tax return Spouse You can include medical expenses you paid for your spouse. Amended michigan tax return To include these expenses, you must have been married either at the time your spouse received the medical services or at the time you paid the medical expenses. Amended michigan tax return Example 1. Amended michigan tax return Mary received medical treatment before she married Bill. Amended michigan tax return Bill paid for the treatment after they married. Amended michigan tax return Bill can include these expenses in figuring his medical expense deduction even if Bill and Mary file separate returns. Amended michigan tax return If Mary had paid the expenses, Bill could not include Mary's expenses in his separate return. Amended michigan tax return Mary would include the amounts she paid during the year in her separate return. Amended michigan tax return If they filed a joint return, the medical expenses both paid during the year would be used to figure their medical expense deduction. Amended michigan tax return Example 2. Amended michigan tax return This year, John paid medical expenses for his wife Louise, who died last year. Amended michigan tax return John married Belle this year and they file a joint return. Amended michigan tax return Because John was married to Louise when she received the medical services, he can include those expenses in figuring his medical expense deduction for this year. Amended michigan tax return Dependent You can include medical expenses you paid for your dependent. Amended michigan tax return For you to include these expenses, the person must have been your dependent either at the time the medical services were provided or at the time you paid the expenses. Amended michigan tax return A person generally qualifies as your dependent for purposes of the medical expense deduction if both of the following requirements are met. Amended michigan tax return The person was a qualifying child (defined later) or a qualifying relative (defined later), and The person was a U. Amended michigan tax return S. Amended michigan tax return citizen or national, or a resident of the United States, Canada, or Mexico. Amended michigan tax return If your qualifying child was adopted, see Exception for adopted child , next. Amended michigan tax return You can include medical expenses you paid for an individual that would have been your dependent except that: He or she received gross income of $3,900 or more in 2013, He or she filed a joint return for 2013, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. Amended michigan tax return Exception for adopted child. Amended michigan tax return   If you are a U. Amended michigan tax return S. Amended michigan tax return citizen or U. Amended michigan tax return S. Amended michigan tax return national and your adopted child lived with you as a member of your household for 2013, that child does not have to be a U. Amended michigan tax return S. Amended michigan tax return citizen or national or a resident of the United States, Canada, or Mexico. Amended michigan tax return Qualifying Child A qualifying child is a child who: Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew), Was: Under age 19 at the end of 2013 and younger than you (or your spouse, if filing jointly), Under age 24 at the end of 2013, a full-time student, and younger than you (or your spouse, if filing jointly), or Any age and permanently and totally disabled, Lived with you for more than half of 2013, Did not provide over half of his or her own support for 2013, and Did not file a joint return, or, if he or she did, it was only to claim a refund. Amended michigan tax return Adopted child. Amended michigan tax return   A legally adopted child is treated as your own child. Amended michigan tax return This includes a child lawfully placed with you for legal adoption. Amended michigan tax return   You can include medical expenses that you paid for a child before adoption if the child qualified as your dependent when the medical services were provided or when the expenses were paid. Amended michigan tax return   If you pay back an adoption agency or other persons for medical expenses they paid under an agreement with you, you are treated as having paid those expenses provided you clearly substantiate that the payment is directly attributable to the medical care of the child. Amended michigan tax return   But if you pay the agency or other person for medical care that was provided and paid for before adoption negotiations began, you cannot include them as medical expenses. Amended michigan tax return    You may be able to take an adoption credit for other expenses related to an adoption. Amended michigan tax return See the Instructions for Form 8839, Qualified Adoption Expenses, for more information. Amended michigan tax return Child of divorced or separated parents. Amended michigan tax return   For purposes of the medical and dental expenses deduction, a child of divorced or separated parents can be treated as a dependent of both parents. Amended michigan tax return Each parent can include the medical expenses he or she pays for the child, even if the other parent claims the child's dependency exemption, if: The child is in the custody of one or both parents for more than half the year, The child receives over half of his or her support during the year from his or her parents, and The child's parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Live apart at all times during the last 6 months of the year. Amended michigan tax return This does not apply if the child's exemption is being claimed under a multiple support agreement (discussed later). Amended michigan tax return Qualifying Relative A qualifying relative is a person: Who is your: Son, daughter, stepchild, foster child, or a descendant of any of them (for example, your grandchild), Brother, sister, half brother, half sister, or a son or daughter of either of them, Father, mother, or an ancestor or sibling of either of them (for example, your grandmother, grandfather, aunt, or uncle), Stepbrother, stepsister, stepfather, stepmother, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law, or Any other person (other than your spouse) who lived with you all year as a member of your household if your relationship did not violate local law, Who was not a qualifying child (see Qualifying Child earlier) of any other person for 2013, and For whom you provided over half of the support in 2013. Amended michigan tax return But see Child of divorced or separated parents , earlier, and Support claimed under a multiple support agreement, next. Amended michigan tax return Support claimed under a multiple support agreement. Amended michigan tax return   If you are considered to have provided more than half of a qualifying relative's support under a multiple support agreement, you can include medical expenses you pay for that person. Amended michigan tax return A multiple support agreement is used when two or more people provide more than half of a person's support, but no one alone provides more than half. Amended michigan tax return   Any medical expenses paid by others who joined you in the agreement cannot be included as medical expenses by anyone. Amended michigan tax return However, you can include the entire unreimbursed amount you paid for medical expenses. Amended michigan tax return Example. Amended michigan tax return You and your three brothers each provide one-fourth of your mother's total support. Amended michigan tax return Under a multiple support agreement, you treat your mother as your dependent. Amended michigan tax return You paid all of her medical expenses. Amended michigan tax return Your brothers reimbursed you for three-fourths of these expenses. Amended michigan tax return In figuring your medical expense deduction, you can include only one-fourth of your mother's medical expenses. Amended michigan tax return Your brothers cannot include any part of the expenses. Amended michigan tax return However, if you and your brothers share the nonmedical support items and you separately pay all of your mother's medical expenses, you can include the unreimbursed amount you paid for her medical expenses in your medical expenses. Amended michigan tax return Decedent Medical expenses paid before death by the decedent are included in figuring any deduction for medical and dental expenses on the decedent's final income tax return. Amended michigan tax return This includes expenses for the decedent's spouse and dependents as well as for the decedent. Amended michigan tax return The survivor or personal representative of a decedent can choose to treat certain expenses paid by the decedent's estate for the decedent's medical care as paid by the decedent at the time the medical services were provided. Amended michigan tax return The expenses must be paid within the 1-year period beginning with the day after the date of death. Amended michigan tax return If you are the survivor or personal representative making this choice, you must attach a statement to the decedent's Form 1040 (or the decedent's amended return, Form 1040X) saying that the expenses have not been and will not be claimed on the estate tax return. Amended michigan tax return Qualified medical expenses paid before death by the decedent are not deductible if paid with a tax-free distribution from any Archer MSA, Medicare Advantage MSA, or health savings account. Amended michigan tax return Amended returns and claims for refund are discussed in chapter 1. Amended michigan tax return What if you pay medical expenses of a deceased spouse or dependent?   If you paid medical expenses for your deceased spouse or dependent, include them as medical expenses on your Form 1040 in the year paid, whether they are paid before or after the decedent's death. Amended michigan tax return The expenses can be included if the person was your spouse or dependent either at the time the medical services were provided or at the time you paid the expenses. Amended michigan tax return What Medical Expenses Are Includible? Use Table 21-1, later, as a guide to determine which medical and dental expenses you can include on Schedule A (Form 1040). Amended michigan tax return This table does not include all possible medical expenses. Amended michigan tax return To determine if an expense not listed can be included in figuring your medical expense deduction, see What Are Medical Expenses , earlier. Amended michigan tax return Insurance Premiums You can include in medical expenses insurance premiums you pay for policies that cover medical care. Amended michigan tax return Medical care policies can provide payment for treatment that includes: Hospitalization, surgical services, X-rays, Prescription drugs and insulin, Dental care, Replacement of lost or damaged contact lenses, and Long-term care (subject to additional limitations). Amended michigan tax return See Qualified Long-Term Care Insurance Contracts in Publication 502. Amended michigan tax return If you have a policy that provides payments for other than medical care, you can include the premiums for the medical care part of the policy if the charge for the medical part is reasonable. Amended michigan tax return The cost of the medical part must be separately stated in the insurance contract or given to you in a separate statement. Amended michigan tax return Note. Amended michigan tax return When figuring the amount of insurance premiums you can include in medical expenses on Schedule A, do not include any health coverage tax credit advance payments shown in box 1 of Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. Amended michigan tax return Also, do not include insurance premiums attributable to a nondependent child under age 27 if your premiums increased as a result of adding this child to your policy. Amended michigan tax return Employer-sponsored health insurance plan. Amended michigan tax return   Do not include in your medical and dental expenses any insurance premiums paid by an employer-sponsored health insurance plan unless the premiums are included in box 1 of your Form W-2. Amended michigan tax return Also, do not include any other medical and dental expenses paid by the plan unless the amount paid is included in box 1 of your Form W-2. Amended michigan tax return Example. Amended michigan tax return You are a federal employee participating in the premium conversion plan of the Federal Employee Health Benefits (FEHB) program. Amended michigan tax return Your share of the FEHB premium is paid by making a pre-tax reduction in your salary. Amended michigan tax return Because you are an employee whose insurance premiums are paid with money that is never included in your gross income, you cannot deduct the premiums paid with that money. Amended michigan tax return Long-term care services. Amended michigan tax return   Contributions made by your employer to provide coverage for qualified long-term care services under a flexible spending or similar arrangement must be included in your income. Amended michigan tax return This amount will be reported as wages in box 1 of your Form W-2. Amended michigan tax return Health reimbursement arrangement (HRA). Amended michigan tax return   If you have medical expenses that are reimbursed by a health reimbursement arrangement, you cannot include those expenses in your medical expenses. Amended michigan tax return This is because an HRA is funded solely by the employer. Amended michigan tax return Retired public safety officers. Amended michigan tax return   If you are a retired public safety officer, do not include as medical expenses any health or long-term care premiums that you elected to have paid with tax-free distributions from your retirement plan. Amended michigan tax return This applies only to distributions that would otherwise be included in income. Amended michigan tax return Medicare A. Amended michigan tax return   If you are covered under social security (or if you are a government employee who paid Medicare tax), you are enrolled in Medicare A. Amended michigan tax return The payroll tax paid for Medicare A is not a medical expense. Amended michigan tax return   If you are not covered under social security (or were not a government employee who paid Medicare tax), you can voluntarily enroll in Medicare A. Amended michigan tax return In this situation you can include the premiums you paid for Medicare A as a medical expense. Amended michigan tax return Medicare B. Amended michigan tax return   Medicare B is supplemental medical insurance. Amended michigan tax return Premiums you pay for Medicare B are a medical expense. Amended michigan tax return Check the information you received from the Social Security Administration to find out your premium. Amended michigan tax return Medicare D. Amended michigan tax return    Medicare D is a voluntary prescription drug insurance program for persons with Medicare A or B. Amended michigan tax return You can include as a medical expense premiums you pay for Medicare D. Amended michigan tax return Prepaid insurance premiums. Amended michigan tax return   Premiums you pay before you are age 65 for insurance for medical care for yourself, your spouse, or your dependents after you reach age 65 are medical care expenses in the year paid if they are: Payable in equal yearly installments, or more often, and Payable for at least 10 years, or until you reach age 65 (but not for less than 5 years). Amended michigan tax return Unused sick leave used to pay premiums. Amended michigan tax return   You must include in gross income cash payments you receive at the time of retirement for unused sick leave. Amended michigan tax return You also must include in gross income the value of unused sick leave that, at your option, your employer applies to the cost of your continuing participation in your employer's health plan after you retire. Amended michigan tax return You can include this cost of continuing participation in the health plan as a medical expense. Amended michigan tax return   If you participate in a health plan where your employer automatically applies the value of unused sick leave to the cost of your continuing participation in the health plan (and you do not have the option to receive cash), do not include the value of the unused sick leave in gross income. Amended michigan tax return You cannot include this cost of continuing participation in that health plan as a medical expense. Amended michigan tax return Table 21-1. Amended michigan tax return Medical and Dental Expenses Checklist. Amended michigan tax return See Publication 502 for more information about these and other expenses. Amended michigan tax return You can include: You cannot include: Bandages Birth control pills prescribed by your doctor Body scan Braille books Breast pump and supplies Capital expenses for equipment or improvements to your home needed for medical care (see the worksheet in Publication 502) Diagnostic devices Expenses of an organ donor Eye surgery—to promote the correct function of the eye Fertility enhancement, certain procedures Guide dogs or other animals aiding the blind, deaf, and disabled Hospital services fees (lab work, therapy, nursing services, surgery, etc. Amended michigan tax return ) Lead-based paint removal Legal abortion Legal operation to prevent having children such as a vasectomy or tubal ligation Long-term care contracts, qualified Meals and lodging provided by a hospital during medical treatment Medical services fees (from doctors, dentists, surgeons, specialists, and other medical practitioners) Medicare Part D premiums Medical and hospital insurance premiums Nursing services Oxygen equipment and oxygen Part of life-care fee paid to retirement home designated for medical care Physical examination Pregnancy test kit Prescription medicines (prescribed by a doctor) and insulin Psychiatric and psychological treatment Social security tax, Medicare tax, FUTA, and state employment tax for worker providing medical care (see Wages for nursing services, below) Special items (artificial limbs, false teeth, eye-glasses, contact lenses, hearing aids, crutches, wheelchair, etc. Amended michigan tax return ) Special education for mentally or physically disabled persons Stop-smoking programs Transportation for needed medical care Treatment at a drug or alcohol center (includes meals and lodging provided by the center) Wages for nursing services Weight-loss, certain expenses for obesity Baby sitting and childcare Bottled water Contributions to Archer MSAs (see Publication 969) Diaper service Expenses for your general health (even if following your doctor's advice) such as— —Health club dues —Household help (even if recommended by a doctor) —Social activities, such as dancing or swimming lessons —Trip for general health improvement Flexible spending account reimbursements for medical expenses (if contributions were on a pre-tax basis) Funeral, burial, or cremation expenses Health savings account payments for medical expenses Illegal operation, treatment, or medicine Life insurance or income protection policies, or policies providing payment for loss of life, limb, sight, etc. Amended michigan tax return Maternity clothes Medical insurance included in a car insurance policy covering all persons injured in or by your car Medicine you buy without a prescription Nursing care for a healthy baby Prescription drugs you brought in (or ordered shipped) from another country, in most cases Nutritional supplements, vitamins, herbal supplements, “natural medicines,” etc. Amended michigan tax return , unless recommended by a medical practitioner as a treatment for a specific medical condition diagnosed by a physician Surgery for purely cosmetic reasons Toothpaste, toiletries, cosmetics, etc. Amended michigan tax return Teeth whitening Weight-loss expenses not for the treatment of obesity or other disease Meals and Lodging You can include in medical expenses the cost of meals and lodging at a hospital or similar institution if a principal reason for being there is to get medical care. Amended michigan tax return See Nursing home , later. Amended michigan tax return You may be able to include in medical expenses the cost of lodging not provided in a hospital or similar institution. Amended michigan tax return You can include the cost of such lodging while away from home if all of the following requirements are met. Amended michigan tax return The lodging is primarily for and essential to medical care. Amended michigan tax return The medical care is provided by a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital. Amended michigan tax return The lodging is not lavish or extravagant under the circumstances. Amended michigan tax return There is no significant element of personal pleasure, recreation, or vacation in the travel away from home. Amended michigan tax return The amount you include in medical expenses for lodging cannot be more than $50 for each night for each person. Amended michigan tax return You can include lodging for a person traveling with the person receiving the medical care. Amended michigan tax return For example, if a parent is traveling with a sick child, up to $100 per night can be included as a medical expense for lodging. Amended michigan tax return Meals are not included. Amended michigan tax return Nursing home. Amended michigan tax return   You can include in medical expenses the cost of medical care in a nursing home, home for the aged, or similar institution, for yourself, your spouse, or your dependents. Amended michigan tax return This includes the cost of meals and lodging in the home if a principal reason for being there is to get medical care. Amended michigan tax return   Do not include the cost of meals and lodging if the reason for being in the home is personal. Amended michigan tax return You can, however, include in medical expenses the part of the cost that is for medical or nursing care. Amended michigan tax return Transportation Include in medical expenses amounts paid for transportation primarily for, and essential to, medical care. Amended michigan tax return You can include: Bus, taxi, train, or plane fares, or ambulance service, Transportation expenses of a parent who must go with a child who needs medical care, Transportation expenses of a nurse or other person who can give injections, medications, or other treatment required by a patient who is traveling to get medical care and is unable to travel alone, and Transportation expenses for regular visits to see a mentally ill dependent, if these visits are recommended as a part of treatment. Amended michigan tax return Car expenses. Amended michigan tax return   You can include out-of-pocket expenses, such as the cost of gas and oil, when you use your car for medical reasons. Amended michigan tax return You cannot include depreciation, insurance, general repair, or maintenance expenses. Amended michigan tax return   If you do not want to use your actual expenses for 2013, you can use the standard medical mileage rate of 24 cents per mile. Amended michigan tax return    You can also include parking fees and tolls. Amended michigan tax return You can add these fees and tolls to your medical expenses whether you use actual expenses or use the standard mileage rate. Amended michigan tax return Example. Amended michigan tax return In 2013, Bill Jones drove 2,800 miles for medical reasons. Amended michigan tax return He spent $500 for gas, $30 for oil, and $100 for tolls and parking. Amended michigan tax return He wants to figure the amount he can include in medical expenses both ways to see which gives him the greater deduction. Amended michigan tax return He figures the actual expenses first. Amended michigan tax return He adds the $500 for gas, the $30 for oil, and the $100 for tolls and parking for a total of $630. Amended michigan tax return He then figures the standard mileage amount. Amended michigan tax return He multiplies 2,800 miles by 24 cents a mile for a total of $672. Amended michigan tax return He then adds the $100 tolls and parking for a total of $772. Amended michigan tax return Bill includes the $772 of car expenses with his other medical expenses for the year because the $772 is more than the $630 he figured using actual expenses. Amended michigan tax return Transportation expenses you cannot include. Amended michigan tax return   You cannot include in medical expenses the cost of transportation in the following situations. Amended michigan tax return Going to and from work, even if your condition requires an unusual means of transportation. Amended michigan tax return Travel for purely personal reasons to another city for an operation or other medical care. Amended michigan tax return Travel that is merely for the general improvement of one's health. Amended michigan tax return The costs of operating a specially equipped car for other than medical reasons. Amended michigan tax return Disabled Dependent Care Expenses Some disabled dependent care expenses may qualify as either: Medical expenses, or Work-related expenses for purposes of taking a credit for dependent care. Amended michigan tax return (See chapter 32 and Publication 503, Child and Dependent Care Expenses. Amended michigan tax return ) You can choose to apply them either way as long as you do not use the same expenses to claim both a credit and a medical expense deduction. Amended michigan tax return How Do You Treat Reimbursements? You can include in medical expenses only those amounts paid during the taxable year for which you received no insurance or other reimbursement. Amended michigan tax return Insurance Reimbursement You must reduce your total medical expenses for the year by all reimbursements for medical expenses that you receive from insurance or other sources during the year. Amended michigan tax return This includes payments from Medicare. Amended michigan tax return Even if a policy provides reimbursement for only certain specific medical expenses, you must use amounts you receive from that policy to reduce your total medical expenses, including those it does not reimburse. Amended michigan tax return Example. Amended michigan tax return You have insurance policies that cover your hospital and doctors' bills but not your nursing bills. Amended michigan tax return The insurance you receive for the hospital and doctors' bills is more than their charges. Amended michigan tax return In figuring your medical deduction, you must reduce the total amount you spent for medical care by the total amount of insurance you received, even if the policies do not cover some of your medical expenses. Amended michigan tax return Health reimbursement arrangement (HRA). Amended michigan tax return   A health reimbursement arrangement is an employer-funded plan that reimburses employees for medical care expenses and allows unused amounts to be carried forward. Amended michigan tax return An HRA is funded solely by the employer and the reimbursements for medical expenses, up to a maximum dollar amount for a coverage period, are not included in your income. Amended michigan tax return Other reimbursements. Amended michigan tax return   Generally, you do not reduce medical expenses by payments you receive for: Permanent loss or loss of use of a member or function of the body (loss of limb, sight, hearing, etc. Amended michigan tax return ) or disfigurement to the extent the payment is based on the nature of the injury without regard to the amount of time lost from work, or Loss of earnings. Amended michigan tax return   You must, however, reduce your medical expenses by any part of these payments that is designated for medical costs. Amended michigan tax return See How Do You Figure and Report the Deduction on Your Tax Return , later. Amended michigan tax return   For how to treat damages received for personal injury or sickness, see Damages for Personal Injuries , later. Amended michigan tax return You do not have a medical deduction if you are reimbursed for all of your medical expenses for the year. Amended michigan tax return Excess reimbursement. Amended michigan tax return   If you are reimbursed more than your medical expenses, you may have to include the excess in income. Amended michigan tax return You may want to use Figure 21-A to help you decide if any of your reimbursement is taxable. Amended michigan tax return Premiums paid by you. Amended michigan tax return   If you pay either the entire premium for your medical insurance or all of the costs of a plan similar to medical insurance and your insurance payments or other reimbursements are more than your total medical expenses for the year, you have an excess reimbursement. Amended michigan tax return Generally, you do not include the excess reimbursement in your gross income. Amended michigan tax return Premiums paid by you and your employer. Amended michigan tax return   If both you and your employer contribute to your medical insurance plan and your employer's contributions are not included in your gross income, you must include in your gross income the part of your excess reimbursement that is from your employer's contribution. Amended michigan tax return   See Publication 502 to figure the amount of the excess reimbursement you must include in gross income. Amended michigan tax return Reimbursement in a later year. Amended michigan tax return   If you are reimbursed in a later year for medical expenses you deducted in an earlier year, you generally must report the reimbursement as income up to the amount you previously deducted as medical expenses. Amended michigan tax return   However, do not report as income the amount of reimbursement you received up to the amount of your medical deductions that did not reduce your tax for the earlier year. Amended michigan tax return For more information about the recovery of an amount that you claimed as an itemized deduction in an earlier year, see Itemized Deduction Recoveries in chapter 12. Amended michigan tax return Figure 21-A. Amended michigan tax return Is Your Excess Medical Reimbursement Taxable? Please click here for the text description of the image. Amended michigan tax return Figure 21-A. Amended michigan tax return Is Your Excess Medical Reimbursement Taxable? Medical expenses not deducted. Amended michigan tax return   If you did not deduct a medical expense in the year you paid it because your medical expenses were not more than 10% of your AGI (7. Amended michigan tax return 5% of your AGI if either you or your spouse was age 65 or older), or because you did not itemize deductions, do not include the reimbursement up to the amount of the expense in income. Amended michigan tax return However, if the reimbursement is more than the expense, see Excess reimbursement , earlier. Amended michigan tax return Example. Amended michigan tax return For 2013, you were unmarried and under age 65 and you had medical expenses of $500. Amended michigan tax return You cannot deduct the $500 because it is less than 10% of your AGI. Amended michigan tax return If, in a later year, you are reimbursed for any of the $500 in medical expenses, you do not include the amount reimbursed in your gross income. Amended michigan tax return Damages for Personal Injuries If you receive an amount in settlement of a personal injury suit, part of that award may be for medical expenses that you deducted in an earlier year. Amended michigan tax return If it is, you must include that part in your income in the year you receive it to the extent it reduced your taxable income in the earlier year. Amended michigan tax return See Reimbursement in a Later Year , discussed under How Do You Treat Reimbursements, earlier. Amended michigan tax return Future medical expenses. Amended michigan tax return   If you receive an amount in settlement of a damage suit for personal injuries, part of that award may be for future medical expenses. Amended michigan tax return If it is, you must reduce any future medical expenses for these injuries until the amount you received has been completely used. Amended michigan tax return How Do You Figure and Report the Deduction on Your Tax Return? Once you have determined which medical expenses you can include, you figure and report the deduction on your tax return. Amended michigan tax return What Tax Form Do You Use? You figure your medical expense deduction on Schedule A (Form 1040). Amended michigan tax return You cannot claim medical expenses on Form 1040A or Form 1040EZ. Amended michigan tax return If you need more information on itemized deductions or you are not sure if you can itemize, see chapter 20. Amended michigan tax return Enter the amount you paid for medical and dental expenses on Schedule A (Form 1040). Amended michigan tax return This should be your expenses that were not reimbursed by insurance or any other sources. Amended michigan tax return Generally, you can deduct only the amount of your medical and dental expenses that is more than 10% of your AGI (7. Amended michigan tax return 5% if either you or your spouse was age 65 or older) shown on line 38, Form 1040. Amended michigan tax return Impairment-Related Work Expenses If you are a person with a disability, you can take a business deduction for expenses that are necessary for you to be able to work. Amended michigan tax return If you take a business deduction for impairment-related work expenses, do not take a medical deduction for the same expenses. Amended michigan tax return You have a disability if you have: A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed, or A physical or mental impairment (for example, a sight or hearing impairment) that substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, or working. Amended michigan tax return Impairment-related expenses defined. Amended michigan tax return   Impairment-related expenses are those ordinary and necessary business expenses that are: Necessary for you to do your work satisfactorily, For goods and services not required or used, other than incidentally, in your personal activities, and Not specifically covered under other income tax laws. Amended michigan tax return Where to report. Amended michigan tax return   If you are self-employed, deduct the business expenses on the appropriate form (Schedule C, C-EZ, E, or F) used to report your business income and expenses. Amended michigan tax return   If you are an employee, complete Form 2106, Employee Business Expenses, or Form 2106-EZ, Unreimbursed Employee Business Expenses. Amended michigan tax return Enter on Schedule A (Form 1040), that part of the amount on Form 2106, or Form 2106-EZ, that is related to your impairment. Amended michigan tax return Enter the amount that is unrelated to your impairment also on Schedule A (Form 1040). Amended michigan tax return Your impairment-related work expenses are not subject to the 2%-of-adjusted-gross-income limit that applies to other employee business expenses. Amended michigan tax return Example. Amended michigan tax return You are blind. Amended michigan tax return You must use a reader to do your work. Amended michigan tax return You use the reader both during your regular working hours at your place of work and outside your regular working hours away from your place of work. Amended michigan tax return The reader's services are only for your work. Amended michigan tax return You can deduct your expenses for the reader as business expenses. Amended michigan tax return Health Insurance Costs for Self-Employed Persons If you were self-employed and had a net profit for the year, you may be able to deduct, as an adjustment to income, amounts paid for medical and qualified long-term care insurance on behalf of yourself, your spouse, your dependents, and, your children who were under age 27 at the end of 2013. Amended michigan tax return For this purpose, you were self-employed if you were a general partner (or a limited partner receiving guaranteed payments) or you received wages from an S corporation in which you were more than a 2% shareholder. Amended michigan tax return The insurance plan must be established under your trade or business and the deduction cannot be more than your earned income from that trade or business. Amended michigan tax return You cannot deduct payments for medical insurance for any month in which you were eligible to participate in a health plan subsidized by your employer, your spouse's employer, or, an employer of your dependent or your child under age 27 at the end of 2013. Amended michigan tax return You cannot deduct payments for a qualified long-term care insurance contract for any month in which you were eligible to participate in a long-term care insurance plan subsidized by your employer or your spouse's employer. Amended michigan tax return If you qualify to take the deduction, use the Self-Employed Health Insurance Deduction Worksheet in the Form 1040 instructions to figure the amount you can deduct. Amended michigan tax return But if any of the following applies, do not use that worksheet. Amended michigan tax return You had more than one source of income subject to self-employment tax. Amended michigan tax return You file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. Amended michigan tax return You are using amounts paid for qualified long-term care insurance to figure the deduction. Amended michigan tax return If you cannot use the worksheet in the Form 1040 instructions, use the worksheet in Publication 535, Business Expenses, to figure your deduction. Amended michigan tax return Note. Amended michigan tax return When figuring the amount you can deduct for insurance premiums, do not include any advance payments shown on Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. Amended michigan tax return If you are claiming the health coverage tax credit, subtract the amount shown on Form 8885, from the total insurance premiums you paid. Amended michigan tax return Do not include amounts paid for health insurance coverage with retirement plan distributions that were tax-free because you are a retired public safety officer. Amended michigan tax return Where to report. Amended michigan tax return    You take this deduction on Form 1040. Amended michigan tax return If you itemize your deductions and do not claim 100% of your self-employed health insurance on Form 1040, you can generally include any remaining premiums with all other medical expenses on Schedule A (Form 1040), subject to the 10% limit (7. Amended michigan tax return 5% if either you or your spouse was age 65 or older). Amended michigan tax return See Self-Employed Health Insurance Deduction in chapter 6 of Publication 535, Business Expenses, and Medical and Dental Expenses in the Instructions for Schedule A (Form 1040), for more information. Amended michigan tax return Prev  Up  Next   Home   More Online Publications
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Page Last Reviewed or Updated: 13-Mar-2014

The Amended Michigan Tax Return

Amended michigan tax return Internal Revenue Bulletin:  2013-7  February 11, 2013  Rev. Amended michigan tax return Proc. Amended michigan tax return 2013-16 Table of Contents SECTION 1. Amended michigan tax return PURPOSE SECTION 2. Amended michigan tax return BACKGROUND—HAMP AND THE HAMP PRINCIPAL REDUCTION ALTERNATIVE SECTION 3. Amended michigan tax return BACKGROUND—APPLICABLE PROVISIONS OF LAW SECTION 4. Amended michigan tax return FEDERAL INCOME TAX TREATMENT SECTION 5. Amended michigan tax return INFORMATION-REPORTING OBLIGATIONS SECTION 6. Amended michigan tax return HAMP-PRA BORROWERS’ REPORTING OF DISCHARGES OF INDEBTEDNESS UNDER HAMP-PRA SECTION 7. Amended michigan tax return PENALTY RELIEF FOR 2012 SECTION 8. Amended michigan tax return SCOPE AND EFFECTIVE DATE SECTION 9. Amended michigan tax return DRAFTING INFORMATION SECTION 1. Amended michigan tax return PURPOSE This revenue procedure provides guidance to mortgage loan holders, loan servicers, and borrowers who are participating in the Department of the Treasury’s (Treasury) and Department of Housing and Urban Development’s (HUD) Home Affordable Modification Program® (HAMP®). Amended michigan tax return Under HAMP, a borrower may be eligible for principal reduction of the outstanding balance of a qualifying mortgage pursuant to the program’s Principal Reduction AlternativeSM (PRA). Amended michigan tax return In appropriate cases, HAMP has been offering the PRA as part of a HAMP loan modification since the last quarter of 2010. Amended michigan tax return Current plans call for HAMP to continue accepting new borrowers through the end of 2013. Amended michigan tax return The Internal Revenue Service (Service) is providing this guidance to address the tax consequences for borrowers (HAMP-PRA borrowers) who are participating in the PRA and the reporting obligations for participating mortgage loan holders and servicers. Amended michigan tax return SECTION 2. Amended michigan tax return BACKGROUND—HAMP AND THE HAMP PRINCIPAL REDUCTION ALTERNATIVE . Amended michigan tax return 01 To help distressed borrowers lower their monthly mortgage payments, Treasury and HUD established HAMP for mortgage loans that are not owned or guaranteed by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). Amended michigan tax return A description of the program can be found at www. Amended michigan tax return makinghomeaffordable. Amended michigan tax return gov. Amended michigan tax return . Amended michigan tax return 02 Under HAMP, a participating loan servicer, acting on behalf of the mortgage loan holder, must consider a sequence of modification steps for each eligible borrower’s mortgage loan until the borrower’s monthly payment is reduced to a monthly payment amount determined under the HAMP guidelines. Amended michigan tax return These steps include a reduction in the mortgage loan’s interest rate, an extension of the mortgage loan’s term, and a reduction in the mortgage loan’s principal balance. Amended michigan tax return . Amended michigan tax return 03 In some cases, the unpaid principal balance of the modified mortgage loan is divided into (1) an amount that bears stated interest and that is used to calculate the borrower’s new monthly mortgage payment (the “Non-forbearance Portion”), and (2) a forbearance amount, which does not bear stated interest and on which periodic payments of stated principal are not required. Amended michigan tax return The stated principal of the forbearance amount is due upon the earliest of the borrower’s transfer of the property, payoff of the balance on the Non-forbearance Portion of the mortgage loan, or maturity of the mortgage loan. Amended michigan tax return However, as noted in section 2. Amended michigan tax return 06 of this revenue procedure, a HAMP-PRA borrower sometimes may not have to pay all or a portion of the forbearance amount. Amended michigan tax return (The forbearance amount associated with a HAMP-PRA principal reduction is called the “PRA Forbearance Amount. Amended michigan tax return ”) . Amended michigan tax return 04 If a mortgage loan is being considered for a HAMP modification and the amount owed on the mortgage loan is greater than 115 percent of the value of the property, then the servicer must consider whether principal reduction under PRA should be used as part of the HAMP modification. Amended michigan tax return . Amended michigan tax return 05 The first step toward a HAMP modification is a trial period plan, in which the borrower’s monthly mortgage payment is set at a monthly payment amount determined under the HAMP guidelines. Amended michigan tax return The trial period plan effective date is the due date for the first of the reduced payments that are to be made under the trial period plan. Amended michigan tax return (It is the first day of either the first or the second month after the servicer transmits the trial period notice to the borrower. Amended michigan tax return ) In general, the trial period is three months, and, during this period, the borrower must satisfy certain conditions before the changes to the terms of the mortgage loan become permanent (the “Trial Period Conditions”). Amended michigan tax return Specifically, depending on the borrower’s trial period payment history, the borrower’s compliance with HAMP and servicer guidelines, and his or her satisfaction of all other Trial Period Conditions, the borrower will be offered a permanent modification of the terms of the mortgage loan, including monthly mortgage payments that are lower than those under the old mortgage loan. Amended michigan tax return Until the effective date of a permanent modification, the terms of the existing mortgage loan continue to apply. Amended michigan tax return . Amended michigan tax return 06 After the mortgage loan is permanently modified under HAMP, if the modified mortgage loan is in good standing on the first, second, or third annual anniversary of the trial period plan effective date (the “Three-year Period”), the servicer must reduce the unpaid principal balance of the mortgage loan on the respective anniversary date by one-third of the initial PRA Forbearance Amount. Amended michigan tax return (The servicer allocates the entire reduction to the remaining PRA Forbearance Amount. Amended michigan tax return ) In general, if a HAMP-PRA borrower’s mortgage loan is in good standing and if the HAMP-PRA borrower pays in full the Non-forbearance Portion of the mortgage loan prior to the reduction of the entire PRA Forbearance Amount, the servicer must reduce the remaining outstanding principal balance of the mortgage loan by the remaining PRA Forbearance Amount. Amended michigan tax return . Amended michigan tax return 07 In connection with every HAMP loan modification, the HAMP program administrator (acting on behalf of the federal government) provides incentives to the borrower, the servicer, and the investor (that is, the holder of the mortgage loan). Amended michigan tax return If a HAMP loan modification includes a PRA principal reduction, the HAMP program administrator makes additional incentive payments to the investor. Amended michigan tax return These additional incentives are called “PRA Investor Incentive Payments” and are generally spread over three years. Amended michigan tax return The size of the PRA Investor Incentive Payments depends on the amount of principal reduced, the loan-to-value ratio at the time of the HAMP modification, and the loan’s payment history before the modification. Amended michigan tax return The PRA Investor Incentive Payments range from 18 to 63 percent of the principal amounts reduced. Amended michigan tax return For purposes of this revenue procedure, the excess of the initial PRA Forbearance Amount of a mortgage loan over the aggregate PRA Investor Incentive Payments scheduled to be paid with respect to that loan is called the “PRA Adjusted Forbearance Amount. Amended michigan tax return ” . Amended michigan tax return 08 A PRA Investor Incentive Payment is earned by the investor on each date on which the servicer reduces the unpaid principal balance of the mortgage loan by a portion of the PRA Forbearance Amount (generally, on the first three annual anniversaries of the trial period plan effective date). Amended michigan tax return . Amended michigan tax return 09 If a HAMP-PRA borrower’s early payment in full of the Non-forbearance Portion of the mortgage loan accelerates the reduction of the remaining PRA Forbearance Amount (described above in section 2. Amended michigan tax return 06 of this revenue procedure), the remaining PRA Investor Incentive Payments from the HAMP program administrator are also accelerated. Amended michigan tax return . Amended michigan tax return 10 If, prior to completion of the Three-year Period, a mortgage loan ceases to be in good standing because of the HAMP-PRA borrower’s payment history, then the remaining PRA Forbearance Amount is not further reduced and is due when the HAMP-PRA borrower transfers the property, the HAMP-PRA borrower refinances, or otherwise pays off the Non-forbearance Portion of the mortgage loan, or the mortgage loan matures. Amended michigan tax return SECTION 3. Amended michigan tax return BACKGROUND—APPLICABLE PROVISIONS OF LAW . Amended michigan tax return 01 Under § 61 of the Internal Revenue Code, except as otherwise provided in subtitle A, gross income means all income from whatever source derived, including income from discharge of indebtedness. Amended michigan tax return See § 61(a)(12). Amended michigan tax return . Amended michigan tax return 02 Under § 1. Amended michigan tax return 1001-3 of the Income Tax Regulations, if a debt instrument undergoes a significant modification, then the modification results in an exchange of the original debt instrument for the modified debt instrument. Amended michigan tax return In general, an agreement to change a term of a debt instrument is a modification at the time the borrower and holder enter into the agreement, even if the change in term is not immediately effective. Amended michigan tax return However, if the change is conditioned on reasonable closing conditions, a modification occurs on the closing date of the agreement. Amended michigan tax return See § 1. Amended michigan tax return 1001-3(c)(6). Amended michigan tax return . Amended michigan tax return 03 Under § 108(e)(10), in the case of a debt-for-debt exchange (including a deemed exchange under § 1. Amended michigan tax return 1001-3), the borrower is treated as having satisfied the original debt instrument with an amount of money equal to the issue price of the new debt instrument. Amended michigan tax return If the amount of debt satisfied in this manner exceeds that issue price, the borrower realizes discharge of indebtedness income on the exchange. Amended michigan tax return See also § 1. Amended michigan tax return 61-12(c). Amended michigan tax return . Amended michigan tax return 04 The issue price of a non-publicly traded debt instrument issued for non-publicly traded property generally reflects the amount of principal that the borrower is required to pay to the holder of the instrument. Amended michigan tax return If a borrower has the ability to avoid paying certain amounts (including principal) without violating the terms of the instrument, the payment schedule for the instrument is generally determined based on an assumption that the borrower will avoid any requirement to make those payments. Amended michigan tax return See, e. Amended michigan tax return g. Amended michigan tax return , §§ 1. Amended michigan tax return 1272-1(c)(5) and 1. Amended michigan tax return 1274-2(d). Amended michigan tax return . Amended michigan tax return 05 Under § 108(a), gross income does not include any amount that but for § 108(a) would be includible in gross income by reason of the discharge (in whole or in part) of a taxpayer’s indebtedness if (1) the indebtedness discharged is qualified principal residence indebtedness that is discharged before January 1, 2014, or (2) the discharge occurs when the taxpayer is insolvent. Amended michigan tax return Section 108(a)(1)(E) and 108(a)(1)(B). Amended michigan tax return (Although § 108 contains other exclusions as well, this revenue procedure focuses on these two exclusions because they are the most likely to apply to the greatest number of HAMP-PRA borrowers. Amended michigan tax return ) . Amended michigan tax return 06 Under §§ 108(h) and 163(h)(3)(B), qualified principal residence indebtedness is any indebtedness that is incurred by a borrower to buy, build, or substantially improve the borrower’s principal residence and is secured by that residence. Amended michigan tax return . Amended michigan tax return 07 Qualified principal residence indebtedness also includes a loan secured by the borrower’s principal residence that refinances qualified principal residence indebtedness, but only to the extent of the amount of the refinanced indebtedness. Amended michigan tax return See §§ 108(h) and 163(h)(3)(B)(i). Amended michigan tax return . Amended michigan tax return 08 The maximum amount of discharged indebtedness that a borrower may exclude from gross income under the qualified principal residence indebtedness exclusion is $2,000,000 ($1,000,000 for a married individual filing a separate return). Amended michigan tax return Under § 108(h)(4), if only part of the discharged indebtedness is qualified principal residence indebtedness, then the exclusion applies only to the amount of the discharged indebtedness that exceeds the amount of the loan (determined immediately before the discharge) that is not qualified principal residence indebtedness. Amended michigan tax return . Amended michigan tax return 09 Under § 108(a)(3), the insolvency exclusion applies to the lesser of the amount of the debt discharged or the amount by which the taxpayer is insolvent immediately before the discharge. Amended michigan tax return . Amended michigan tax return 10 Section 108(d)(3) provides that, for purposes of the insolvency exclusion, a taxpayer is insolvent to the extent that the taxpayer’s total liabilities exceed the fair market value of all of the taxpayer’s assets immediately before the discharge of indebtedness. Amended michigan tax return Under § 108(a)(2)(C), the qualified principal residence indebtedness exclusion takes precedence over the insolvency exclusion when both exclusions apply to discharged indebtedness, unless the taxpayer elects to apply the insolvency exclusion. Amended michigan tax return . Amended michigan tax return 11 If an amount is excluded from gross income as a discharge of qualified principal residence indebtedness, the taxpayer must reduce the basis of the taxpayer’s principal residence. Amended michigan tax return See § 108(h)(1). Amended michigan tax return If a discharged amount is excluded from gross income because the taxpayer was insolvent when the discharge occurred, the taxpayer must reduce certain tax attributes (possibly including basis). Amended michigan tax return See § 108(b). Amended michigan tax return For further discussion of income from the discharge of indebtedness, the qualified principal residence indebtedness exclusion, the insolvency exclusion, and other exclusions from gross income that may apply, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). Amended michigan tax return . Amended michigan tax return 12 Taxpayers who exclude any discharged amounts from gross income report both the exclusion and the resulting reduction in basis or other tax attributes on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). Amended michigan tax return See Form 982 instructions and Publication 4681. Amended michigan tax return This form is to be filed with the tax return for the taxable year in which the amount is discharged but is excluded from gross income. Amended michigan tax return . Amended michigan tax return 13 Governmental payments made to or on behalf of individuals or other persons are included within the broad definition of gross income under § 61 unless an exception applies. Amended michigan tax return See Notice 2003-18, 2003-1 C. Amended michigan tax return B. Amended michigan tax return 699, and Rev. Amended michigan tax return Rul. Amended michigan tax return 79-356, 1979-2 C. Amended michigan tax return B. Amended michigan tax return 28. Amended michigan tax return However, if disbursements are made by a governmental unit to individuals in the interest of the general welfare (that is, are generally based on individual or family need) and the disbursements do not represent compensation for services, then the amounts disbursed are excluded from the income of the recipient (general welfare exclusion). Amended michigan tax return See Rev. Amended michigan tax return Rul. Amended michigan tax return 2005-46, 2005-2 C. Amended michigan tax return B. Amended michigan tax return 120, and Rev. Amended michigan tax return Rul. Amended michigan tax return 75-246, 1975-1 C. Amended michigan tax return B. Amended michigan tax return 24. Amended michigan tax return . Amended michigan tax return 14 Under § 451 and § 1. Amended michigan tax return 451-1(a), a taxpayer that uses the cash receipts and disbursements method of accounting includes income in gross income when the taxpayer actually or constructively receives the income. Amended michigan tax return . Amended michigan tax return 15 Section 6041 requires every person engaged in a trade or business (including the United States and its agencies) to (1) file an information return (Form 1099-MISC, Miscellaneous Income, is used for this purpose) for each calendar year in which the person makes, in the course of its trade or business, payments to another person of fixed or determinable income aggregating $600 or more, and (2) furnish a copy of the information return to that other person. Amended michigan tax return See § 6041(a) and (d) and § 1. Amended michigan tax return 6041-1(a)(1) and (b). Amended michigan tax return . Amended michigan tax return 16 Section 6050P requires applicable entities (including the United States and its agencies, financial entities, and any organization a significant trade or business of which is the lending of money) to (1) file an information return (Form 1099-C, Cancellation of Debt, is used for this purpose) for each calendar year in which it discharges indebtedness of another person of $600 or more, and (2) furnish a copy of the information return to that other person. Amended michigan tax return See § 6050P(a)-(c) and §§ 1. Amended michigan tax return 6050P-1(a) and 1. Amended michigan tax return 6050P-2(a) and (d). Amended michigan tax return . Amended michigan tax return 17 Section 6721 imposes penalties with respect to information returns required to be filed with the Service. Amended michigan tax return These penalties apply in the case of a failure to timely file an information return, a failure to include all required information on the return, or the inclusion of incorrect information on the return. Amended michigan tax return Section 6724(d)(1) includes Forms 1099-MISC and 1099-C in the term “information return. Amended michigan tax return ” . Amended michigan tax return 18 Section 6722 imposes penalties with respect to payee statements required to be furnished to payees. Amended michigan tax return These penalties apply in the case of a failure to timely furnish a payee statement, a failure to include all required information on the statement, or the inclusion of incorrect information on the payee statement. Amended michigan tax return Section 6724(d)(2) includes in the term “payee statement” copies of Forms 1099-MISC and 1099-C that are required to be furnished to taxpayers. Amended michigan tax return SECTION 4. Amended michigan tax return FEDERAL INCOME TAX TREATMENT . Amended michigan tax return 01 Because a HAMP modification with a PRA principal reduction is a significant modification, it results in a deemed debt-for-debt exchange in which the HAMP-PRA borrower satisfies the old mortgage loan by issuing a new one. Amended michigan tax return See § 1. Amended michigan tax return 1001-3. Amended michigan tax return At the time of the modification, therefore, under § 108 and this revenue procedure, the HAMP-PRA borrower realizes discharge of indebtedness income equal to any excess of the adjusted issue price of the old mortgage loan (which was satisfied in the deemed exchange) over the issue price of the new (post-modification) mortgage loan. Amended michigan tax return See also § 61(a)(12) and § 1. Amended michigan tax return 61-12(c). Amended michigan tax return . Amended michigan tax return 02 A HAMP-PRA borrower has the ability to avoid payment of the PRA Adjusted Forbearance Amount. Amended michigan tax return Because the HAMP-PRA borrower has this ability, that amount should not be taken into account in determining the issue price of the new mortgage loan. Amended michigan tax return Because the issue price of the new mortgage loan does not include the PRA Adjusted Forbearance Amount, the PRA Adjusted Forbearance Amount contributes to the excess of the adjusted issue price of the old mortgage loan (which was satisfied in the deemed exchange) over the issue price of the new mortgage loan. Amended michigan tax return . Amended michigan tax return 03 On the other hand, the investor has not given up its right to receive the remainder of the PRA Forbearance Amount, because the HAMP program administrator is expected to make those payments on the HAMP-PRA borrower’s behalf by making the PRA Investor Incentive Payments. Amended michigan tax return Because the remainder of the PRA Forbearance Amount is payable in this manner, that remainder is included in the issue price of the new mortgage loan. Amended michigan tax return . Amended michigan tax return 04 The Trial Period Conditions are reasonable closing conditions that must be satisfied before the changes to the terms of the mortgage loan become permanent. Amended michigan tax return Therefore, for purposes of § 1. Amended michigan tax return 1001-3, the date of the modification is the date of the permanent modification. Amended michigan tax return . Amended michigan tax return 05 Unless an exclusion applies, the HAMP-PRA borrower includes in gross income the discharge of indebtedness income described in section 4. Amended michigan tax return 01 of this revenue procedure for the taxable year in which the permanent modification occurs. Amended michigan tax return Under certain conditions, however, section 6 of this revenue procedure permits a borrower to report the discharge of indebtedness under HAMP-PRA over the Three-year Period. Amended michigan tax return The qualified principal residence indebtedness exclusion under § 108(a)(1)(E) and the insolvency exclusion under § 108(a)(1)(B) are two exclusions that may apply to the discharge. Amended michigan tax return . Amended michigan tax return 06 The PRA Investor Incentive Payment is treated as a payment on the mortgage loan by the HAMP program administrator on behalf of the HAMP-PRA borrower. Amended michigan tax return . Amended michigan tax return 07 To the extent that the HAMP-PRA borrower uses the property as the HAMP-PRA borrower’s principal residence or the property is occupied by the HAMP-PRA borrower’s legal dependent, parent, or grandparent without rent being charged or collected, the HAMP-PRA borrower excludes from his or her gross income under the general welfare exclusion the PRA Investor Incentive Payments that the HAMP program administrator makes to the investor in the mortgage loan. Amended michigan tax return This is consistent with Rev. Amended michigan tax return Rul. Amended michigan tax return 2009-19, 2009-28 I. Amended michigan tax return R. Amended michigan tax return B. Amended michigan tax return 111, which addressed the treatment of Pay-for-Performance Success Payments. Amended michigan tax return . Amended michigan tax return 08 To the extent that the HAMP-PRA borrower uses the property as a rental property or holds the property vacant and available for rent, the HAMP-PRA borrower includes PRA Investor Incentive Payments in gross income. Amended michigan tax return If the HAMP-PRA borrower uses the cash receipts and disbursements method of accounting, then the HAMP-PRA borrower includes a PRA Investor Incentive Payment in gross income in the taxable year in which it is applied as a payment on the HAMP-PRA borrower’s mortgage loan. Amended michigan tax return . Amended michigan tax return 09 As described in section 2. Amended michigan tax return 09 of this revenue procedure, if a HAMP-PRA borrower pays in full the Non-forbearance Portion of the mortgage loan while the loan is in good standing and prior to completion of the Three-year Period, that payment accelerates both the reduction in the remaining PRA Forbearance Amount and the PRA Investor Incentive Payments from the HAMP program administrator. Amended michigan tax return To the extent that the HAMP-PRA borrower is described in section 4. Amended michigan tax return 07 of this revenue procedure, the HAMP-PRA borrower excludes from his or her gross income under the general welfare exclusion the accelerated PRA Investor Incentive Payments. Amended michigan tax return To the extent that the HAMP-PRA borrower is described in section 4. Amended michigan tax return 08 of this revenue procedure, the HAMP-PRA borrower includes in income in the year of the acceleration the remaining amount of the PRA Investor Incentive Payment. Amended michigan tax return SECTION 5. Amended michigan tax return INFORMATION-REPORTING OBLIGATIONS . Amended michigan tax return 01 Under § 6050P, the investor is required to file a Form 1099-C with respect to a borrower who realizes discharge of indebtedness of $600 or more. Amended michigan tax return A copy of this form is required to be furnished to the borrower. Amended michigan tax return . Amended michigan tax return 02 As stated in sections 4. Amended michigan tax return 01 and 4. Amended michigan tax return 04 of this revenue procedure, the HAMP-PRA discharge of indebtedness is realized at the time of the permanent modification of the mortgage loan. Amended michigan tax return . Amended michigan tax return 03 An investor is an applicable entity that is required under § 1. Amended michigan tax return 6050P-1 and this revenue procedure to issue a Form 1099-C for discharge of indebtedness. Amended michigan tax return Under § 1. Amended michigan tax return 6050P-1(b)(2)(F), the permanent modification of a mortgage loan is an identifiable event. Amended michigan tax return Identifiable events determine when Forms 1099-C have to be issued. Amended michigan tax return Thus, the Form 1099-C is issued for the calendar year in which the permanent mortgage loan modification occurs. Amended michigan tax return This rule under § 1. Amended michigan tax return 6050P-1(b)(2)(F) applies even if, under section 6 of this revenue procedure, the HAMP-PRA borrower chooses to treat the HAMP-PRA discharge as being realized at the times when the unpaid principal balance of the new mortgage loan is reduced. Amended michigan tax return . Amended michigan tax return 04 The investor (or the loan servicer acting on behalf of the investor) reports the full amount of the discharge on the Form 1099-C regardless of whether some or all of the amount is excludible from income under the qualified principal residence indebtedness exclusion, the insolvency exclusion, or any other exclusion that may apply. Amended michigan tax return That discharged amount will generally be the PRA Adjusted Forbearance Amount (which does not include the amounts expected to be satisfied by PRA Investor Incentive Payments). Amended michigan tax return . Amended michigan tax return 05 To the extent that PRA Investor Incentive Payments are made on behalf of a HAMP-PRA borrower who is described in section 4. Amended michigan tax return 07 of this revenue procedure, the PRA Investor Incentive Payments are excluded from the gross income of the HAMP-PRA borrower, and thus they are not fixed or determinable income to the HAMP-PRA borrower. Amended michigan tax return Under § 6041, these payments are not subject to information reporting. Amended michigan tax return See Notice 2011-14, 2011-11 I. Amended michigan tax return R. Amended michigan tax return B. Amended michigan tax return 544, 546. Amended michigan tax return . Amended michigan tax return 06 To the extent that PRA Investor Incentive Payments are made on behalf of a HAMP-PRA borrower who is described in section 4. Amended michigan tax return 08 of this revenue procedure, the PRA Investor Incentive Payments are includible in gross income as fixed or determinable income in the taxable year required by the HAMP-PRA borrower’s method of accounting. Amended michigan tax return The payment is subject to the information reporting requirements of § 6041, as described in section 3. Amended michigan tax return 15 of this revenue procedure. Amended michigan tax return Accordingly, the HAMP program administrator is required to issue a Form 1099-MISC reporting the PRA Investor Incentive Payment. Amended michigan tax return SECTION 6. Amended michigan tax return HAMP-PRA BORROWERS’ REPORTING OF DISCHARGES OF INDEBTEDNESS UNDER HAMP-PRA . Amended michigan tax return 01 In general. Amended michigan tax return The HAMP-PRA program began in the last quarter of 2010, and since that time there has been uncertainty about whether the amount of the discharge of indebtedness should be reported in the year of the permanent modification or over the Three-year Period (when the unpaid principal balance on the new mortgage loan is reduced). Amended michigan tax return As a result, some HAMP-PRA borrowers have been reporting the discharge of indebtedness under HAMP-PRA over the Three-year Period. Amended michigan tax return Given the temporary nature of the program and the issuance of this guidance after participation in the program has begun, in the interests of equitable and sound tax administration, HAMP-PRA borrowers may report discharges of indebtedness under HAMP-PRA under the rules in this section 6. Amended michigan tax return A HAMP-PRA borrower may choose to report discharges of indebtedness under HAMP-PRA pursuant to the rules in this section 6 only if the borrower applies the same borrower option under section 6. Amended michigan tax return 02 of this revenue procedure consistently to the taxable year of the permanent modification and to all subsequent taxable years. Amended michigan tax return Thus, a HAMP-PRA borrower may not choose a borrower option under section 6. Amended michigan tax return 02 of this revenue procedure if a statute of limitations has expired for any of the taxable years that are necessary for consistent application of that option. Amended michigan tax return . Amended michigan tax return 02 HAMP-PRA borrower options. Amended michigan tax return A HAMP-PRA borrower may treat the HAMP-PRA discharge as being realized in either of the following ways— (1) One hundred percent of the PRA Adjusted Forbearance Amount at the time of the permanent modification; or (2) One third of the PRA Adjusted Forbearance Amount on each of the first three annual anniversaries of the trial period plan effective date (described in section 2. Amended michigan tax return 06 of this revenue procedure), when, as required by the terms of the new mortgage loan, the servicer reduces the unpaid principal balance of the new mortgage loan. Amended michigan tax return If some or all of the reduction in the unpaid principal balance is accelerated (as described in section 2. Amended michigan tax return 06 of this revenue procedure) because the HAMP-PRA borrower prepays the Non-forbearance Portion of the mortgage loan, then the HAMP-PRA discharge represented by the amount of the reduction that was accelerated is treated as being realized at the time of the accelerated reduction. Amended michigan tax return . Amended michigan tax return 03 HAMP-PRA borrowers who choose to realize the HAMP-PRA discharge at the time of the permanent modification. Amended michigan tax return (1) If a HAMP-PRA borrower chooses to treat the HAMP-PRA discharge as being realized at the time of the permanent modification, then for the taxable year in which the permanent modification occurs, the HAMP-PRA borrower reports on Form 982 the amount, if any, of the discharge that is excluded from gross income and includes in gross income any remaining discharge. Amended michigan tax return (2) If a HAMP-PRA borrower’s mortgage loan was permanently modified under HAMP in 2010 or 2011, and if the borrower was reporting the discharge of indebtedness using the method described in section 6. Amended michigan tax return 02(2) of this revenue procedure, then the borrower may change to reporting the discharge of indebtedness using the method described in section 6. Amended michigan tax return 02(1) of this revenue procedure by filing a 2012 Form 982 with the borrower’s timely filed (with extensions) 2012 income tax return. Amended michigan tax return This section 6. Amended michigan tax return 03(2) applies only if the change to reporting the discharge using the method described in section 6. Amended michigan tax return 02(1) of this revenue procedure does not change the borrower’s federal income tax liability (including any change in federal income tax liability due to a change in basis or tax attributes (under § 108(h)(1) or § 108(b))) for any taxable year prior to the borrower’s 2012 taxable year. Amended michigan tax return To make this change, the borrower must— (i) Compute the amount of discharge of indebtedness that would be included in income under § 61(a)(12) or excluded from gross income under § 108, basing the computation of the discharge on the facts as of the year of the permanent modification; and (ii) Report on a 2012 Form 982 the reduction in basis or tax attributes (under § 108(h)(1) or § 108(b)) due to the permanent modification that the borrower would have reported on the Form 982 for the taxable year of the permanent modification, minus any reductions due to the permanent modification that the borrower actually reported on Forms 982 for taxable years prior to 2012. Amended michigan tax return (3) Example. Amended michigan tax return The following example illustrates the application of section 6. Amended michigan tax return 03(2) of this revenue procedure. Amended michigan tax return In 2010, B’s basis in B’s principal residence was $330,000. Amended michigan tax return In 2010, B’s mortgage loan on the principal residence is permanently modified under HAMP-PRA. Amended michigan tax return B realized $30,000 of cancellation of indebtedness from the permanent modification, all of which qualifies for the exclusion from income for qualified principal residence indebtedness under § 108(a)(1)(E). Amended michigan tax return The trial period plan effective date also fell in 2010. Amended michigan tax return B’s federal income tax return for 2010 was consistent with B’s reporting this discharge of indebtedness using the method described in section 6. Amended michigan tax return 02(2) of this revenue procedure. Amended michigan tax return That is, B’s 2010 return did not include income from discharge of indebtedness under HAMP-PRA, nor did the return contain a Form 982 reporting exclusion of any such discharge of indebtedness. Amended michigan tax return The next year, B reported on line 10(b) of the 2011 Form 982 that B filed with B’s 2011 federal income tax return a $10,000 reduction in basis in the principal residence. Amended michigan tax return For 2012, B chooses to change to reporting the discharge of indebtedness using the method described in section 6. Amended michigan tax return 02(1) of this revenue procedure. Amended michigan tax return Thus, B files a 2012 Form 982 with B’s timely filed (including extensions) 2012 federal income tax return, and on line 10(b) of that form, B reports a $20,000 basis reduction in the principal residence ($30,000 basis reduction that B would have excluded from income in 2010 using the method described in section 6. Amended michigan tax return 02(1) of this revenue procedure, minus the $10,000 basis reduction that B reported on B’s 2011 Form 982). Amended michigan tax return (4) If a HAMP-PRA borrower reports the entire HAMP-PRA discharge using the method described in section 6. Amended michigan tax return 02(1) of this revenue procedure, and if that HAMP-PRA borrower’s mortgage loan ceases to be in good standing during the Three-year Period as described in section 2. Amended michigan tax return 10 of this revenue procedure, then some or all of the anticipated reductions in the PRA Adjusted Forbearance Amount will not take place. Amended michigan tax return Because the amount of these anticipated reductions was not included in determining the issue price of the new mortgage loan that, pursuant to § 1. Amended michigan tax return 1001-3, the HAMP-PRA borrower is deemed to issue in satisfaction of the old mortgage loan, the issue price of the new mortgage loan was understated. Amended michigan tax return Under these circumstances, the discharge of indebtedness income determined as of the date of the permanent modification will have been overstated. Amended michigan tax return (5) The Service will not challenge a HAMP-PRA borrower who is described in section 6. Amended michigan tax return 03(4) of this revenue procedure and who takes the following corrective measures: (i) If a HAMP-PRA borrower included any of the discharge of indebtedness in gross income, the HAMP-PRA borrower may file an amended return that does not include the amount of the discharge of indebtedness that was previously reported as gross income but that, because of the HAMP-PRA borrower’s failure to keep the new mortgage loan in good standing, was not ultimately discharged. Amended michigan tax return The amended return should be for the taxable year in which the income was included (that is, the year of the permanent modification), provided the applicable statute of limitations remains open for that taxable year. Amended michigan tax return (ii) If the HAMP-PRA borrower did not include any of the discharge of indebtedness in gross income (that is, if the HAMP-PRA borrower excluded all of it), the HAMP-PRA borrower may file a new Form 982 that the Service will treat as superseding the earlier Form 982. Amended michigan tax return The new Form 982 will reflect the revised reduction in basis or in tax attributes (under § 108(h)(1) or § 108(b)). Amended michigan tax return The new Form 982 should be the Form 982 for the year of the permanent modification and should be filed with the return for the taxable year in which the HAMP-PRA borrower’s mortgage loan ceased to be in good standing. Amended michigan tax return . Amended michigan tax return 04 HAMP-PRA borrowers who choose to treat the HAMP-PRA discharge as being realized on the dates on which the unpaid principal balance of the mortgage loan is reduced. Amended michigan tax return (1) If a HAMP-PRA borrower chooses to realize the HAMP-PRA discharge at the times that the unpaid principal balance on the new mortgage loan is reduced, instead of at the time of the permanent modification, then the HAMP-PRA borrower’s federal income tax returns for the taxable year that contains the permanent modification and for the subsequent taxable years must not treat any of the discharge as being realized at the time of the permanent modification and must treat the entire HAMP-PRA discharge as being realized in the amounts—and at the times—of the reductions in the unpaid principal balance. Amended michigan tax return Except as described in the last sentence of this paragraph, therefore, the income tax return for the year of the permanent modification must include no gross income from—nor report on Form 982 an exclusion of—any amount of the HAMP-PRA discharge. Amended michigan tax return Instead, the HAMP-PRA discharge is included in gross income (or is reported on Form 982 as excluded from gross income) in the subsequent years in which the unpaid principal balance is reduced. Amended michigan tax return If the first such reduction occurs in the year of the permanent modification, however, then the amount of any such reduction is reflected as an inclusion or exclusion on the federal income tax return for that year. Amended michigan tax return (2) A HAMP-PRA borrower who has been using the method described in section 6. Amended michigan tax return 02(1) of this revenue procedure may change to the method described in section 6. Amended michigan tax return 02(2) but must comply with the consistency and open-year requirements described in section 6. Amended michigan tax return 01 of this revenue procedure. Amended michigan tax return SECTION 7. Amended michigan tax return PENALTY RELIEF FOR 2012 . Amended michigan tax return 01 The Service will not assert penalties under § 6721 or § 6722 against an investor for failing to timely file and furnish a 2012 Form 1099-C as required by section 5. Amended michigan tax return 03 through 5. Amended michigan tax return 04 and section 8. Amended michigan tax return 02 of this revenue procedure with respect to discharge of indebtedness resulting from HAMP-PRA permanent modifications that take place during calendar year 2012 if the following requirements are satisfied: (1) Not later than February 28, 2013, a statement is sent to the HAMP-PRA borrower containing the following: (a) The HAMP-PRA borrower’s name, address, and taxpayer identification number; and (b) The date and amount of the discharge of indebtedness (as described in sections 4. Amended michigan tax return 01 through 4. Amended michigan tax return 04 of this revenue procedure) that is required to be reported for 2012. Amended michigan tax return (2) Not later than March 28, 2013, a statement is sent to the Service. Amended michigan tax return It must be in the form of a single statement that separately lists for each HAMP-PRA borrower the information specified in section 7. Amended michigan tax return 01(1) of this revenue procedure. Amended michigan tax return The statement should be sent to the Service at the following address: Internal Revenue Service Center Stop 6728AUSC Austin, TX 73301 . Amended michigan tax return 02 The Service will not assert penalties under § 6721 or § 6722 with respect to any Forms 1099-MISC for 2012 that sections 5. Amended michigan tax return 06 and 8. Amended michigan tax return 02 of this revenue procedure require to be filed with the Service and furnished to taxpayers. Amended michigan tax return . Amended michigan tax return 03 Section 8. Amended michigan tax return 03 and 8. Amended michigan tax return 04 of this revenue procedure, below, describes penalty relief regarding Forms 1099-C and 1099-MISC for 2010 and 2011. Amended michigan tax return SECTION 8. Amended michigan tax return SCOPE AND EFFECTIVE DATE . Amended michigan tax return 01 This revenue procedure applies to all borrowers, investors, and servicers who participate, or have participated, in the HAMP-PRA, regardless of when the permanent modification occurs. Amended michigan tax return . Amended michigan tax return 02 Section 5 of this revenue procedure is effective for Forms 1099-C and 1099-MISC due or filed after January 24, 2013. Amended michigan tax return . Amended michigan tax return 03 Because of the effective date in section 8. Amended michigan tax return 02 of this revenue procedure, an investor is not subject to penalties under § 6721 or § 6722 on the grounds that the investor failed to timely file and furnish a 2010 or 2011 Form 1099-C as described in section 5. Amended michigan tax return 03 through 5. Amended michigan tax return 04 of this revenue procedure (or on the grounds that the investor filed or furnished a 2010 or 2011 Form 1099-C that is inconsistent with section 5. Amended michigan tax return 03 through 5. Amended michigan tax return 04 of this revenue procedure), provided that the investor demonstrates a good faith attempt to comply with the requirements of § 6050P and that the failure was not due to willful neglect. Amended michigan tax return . Amended michigan tax return 04 Because of the effective date in section 8. Amended michigan tax return 02 of this revenue procedure, the Service will not assert penalties under § 6721 or § 6722 on the grounds of a failure to timely file and furnish a 2010 or 2011 Form 1099-MISC, as described in section 5. Amended michigan tax return 06 of this revenue procedure. Amended michigan tax return SECTION 9. Amended michigan tax return DRAFTING INFORMATION The principal authors of this revenue procedure are Ronald J. Amended michigan tax return Goldstein of the Office of Chief Counsel (Procedure and Administration); Shareen S. Amended michigan tax return Pflanz and Sheldon A. Amended michigan tax return Iskow of the Office of Chief Counsel (Income Tax and Accounting); and Andrea M. Amended michigan tax return Hoffenson of the Office of Chief Counsel (Financial Institutions and Products). Amended michigan tax return For further information regarding this revenue procedure, contact Procedure and Administration branch 1 at (202) 622-4910, Income Tax and Accounting branch 4 at (202) 622-4920, or Financial Institutions and Products branch 1 at (202) 622-3920 (not toll-free calls). Amended michigan tax return Prev  Up  Next   Home   More Internal Revenue Bulletins