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Amended Return Form 1040x

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Amended Return Form 1040x

Amended return form 1040x Publication 939 - Main Content Table of Contents General Information Taxation of Periodic PaymentsInvestment in the Contract Expected Return Computation Under the General Rule How To Use Actuarial TablesUnisex Annuity Tables Special Elections Worksheets for Determining Taxable Annuity Actuarial Tables Requesting a Ruling on Taxation of Annuity How To Get Tax HelpLow Income Taxpayer Clinics General Information Some of the terms used in this publication are defined in the following paragraphs. Amended return form 1040x A pension is generally a series of payments made to you after you retire from work. Amended return form 1040x Pension payments are made regularly and are for past services with an employer. Amended return form 1040x An annuity is a series of payments under a contract. Amended return form 1040x You can buy the contract alone or you can buy it with the help of your employer. Amended return form 1040x Annuity payments are made regularly for more than one full year. Amended return form 1040x Note. Amended return form 1040x Distributions from pensions and annuities follow the same rules as outlined in this publication unless otherwise noted. Amended return form 1040x Types of pensions and annuities. Amended return form 1040x   Particular types of pensions and annuities include: Fixed period annuities. Amended return form 1040x You receive definite amounts at regular intervals for a definite length of time. Amended return form 1040x Annuities for a single life. Amended return form 1040x You receive definite amounts at regular intervals for life. Amended return form 1040x The payments end at death. Amended return form 1040x Joint and survivor annuities. Amended return form 1040x The first annuitant receives a definite amount at regular intervals for life. Amended return form 1040x After he or she dies, a second annuitant receives a definite amount at regular intervals for life. Amended return form 1040x The amount paid to the second annuitant may or may not differ from the amount paid to the first annuitant. Amended return form 1040x Variable annuities. Amended return form 1040x You receive payments that may vary in amount for a definite length of time or for life. Amended return form 1040x The amounts you receive may depend upon such variables as profits earned by the pension or annuity funds or cost-of-living indexes. Amended return form 1040x Disability pensions. Amended return form 1040x You are under minimum retirement age and receive payments because you retired on disability. Amended return form 1040x If, at the time of your retirement, you were permanently and totally disabled, you may be eligible for the credit for the elderly or the disabled discussed in Publication 524. Amended return form 1040x If your annuity starting date is after November 18, 1996, the General Rule cannot be used for the following qualified plans. Amended return form 1040x A qualified employee plan is an employer's stock bonus, pension, or profit-sharing plan that is for the exclusive benefit of employees or their beneficiaries. Amended return form 1040x This plan must meet Internal Revenue Code requirements. Amended return form 1040x It qualifies for special tax benefits, including tax deferral for employer contributions and rollover distributions. Amended return form 1040x However, you must use the General Rule if you were 75 or over and the annuity payments are guaranteed for more than 5 years. Amended return form 1040x A qualified employee annuity is a retirement annuity purchased by an employer for an employee under a plan that meets Internal Revenue Code requirements. Amended return form 1040x A tax-sheltered annuity is a special annuity plan or contract purchased for an employee of a public school or tax-exempt organization. Amended return form 1040x   The General Rule is used to figure the tax treatment of various types of pensions and annuities, including nonqualified employee plans. Amended return form 1040x A nonqualified employee plan is an employer's plan that does not meet Internal Revenue Code requirements. Amended return form 1040x It does not qualify for most of the tax benefits of a qualified plan. Amended return form 1040x Annuity worksheets. Amended return form 1040x   The worksheets found near the end of the text of this publication may be useful to you in figuring the taxable part of your annuity. Amended return form 1040x Request for a ruling. Amended return form 1040x   If you are unable to determine the income tax treatment of your pension or annuity, you may ask the Internal Revenue Service to figure the taxable part of your annuity payments. Amended return form 1040x This is treated as a request for a ruling. Amended return form 1040x See Requesting a Ruling on Taxation of Annuity near the end of this publication. Amended return form 1040x Withholding tax and estimated tax. Amended return form 1040x   Your pension or annuity is subject to federal income tax withholding unless you choose not to have tax withheld. Amended return form 1040x If you choose not to have tax withheld from your pension or annuity, or if you do not have enough income tax withheld, you may have to make estimated tax payments. Amended return form 1040x Taxation of Periodic Payments This section explains how the periodic payments you receive under a pension or annuity plan are taxed under the General Rule. Amended return form 1040x Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for a period of time greater than one year (such as for 15 years or for life). Amended return form 1040x These payments are also known as amounts received as an annuity. Amended return form 1040x If you receive an amount from your plan that is a nonperiodic payment (amount not received as an annuity), see Taxation of Nonperiodic Payments in Publication 575. Amended return form 1040x In general, you can recover your net cost of the pension or annuity tax free over the period you are to receive the payments. Amended return form 1040x The amount of each payment that is more than the part that represents your net cost is taxable. Amended return form 1040x Under the General Rule, the part of each annuity payment that represents your net cost is in the same proportion that your investment in the contract is to your expected return. Amended return form 1040x These terms are explained in the following discussions. Amended return form 1040x Investment in the Contract In figuring how much of your pension or annuity is taxable under the General Rule, you must figure your investment in the contract. Amended return form 1040x First, find your net cost of the contract as of the annuity starting date (defined later). Amended return form 1040x To find this amount, you must first figure the total premiums, contributions, or other amounts paid. Amended return form 1040x This includes the amounts your employer contributed if you were required to include these amounts in income. Amended return form 1040x It also includes amounts you actually contributed (except amounts for health and accident benefits and deductible voluntary employee contributions). Amended return form 1040x From this total cost you subtract: Any refunded premiums, rebates, dividends, or unrepaid loans (any of which were not included in your income) that you received by the later of the annuity starting date or the date on which you received your first payment. Amended return form 1040x Any additional premiums paid for double indemnity or disability benefits. Amended return form 1040x Any other tax-free amounts you received under the contract or plan before the later of the dates in (1). Amended return form 1040x The annuity starting date   is the later of the first day of the first period for which you receive payment under the contract or the date on which the obligation under the contract becomes fixed. Amended return form 1040x Example. Amended return form 1040x On January 1 you completed all your payments required under an annuity contract providing for monthly payments starting on August 1, for the period beginning July 1. Amended return form 1040x The annuity starting date is July 1. Amended return form 1040x This is the date you use in figuring your investment in the contract and your expected return (discussed later). Amended return form 1040x Adjustments If any of the following items apply, adjust (add or subtract) your total cost to find your net cost. Amended return form 1040x Foreign employment. Amended return form 1040x   If you worked abroad, your cost may include contributions by your employer to the retirement plan, but only if those contributions would be excludible from your gross income had they been paid directly to you as compensation. Amended return form 1040x The contributions that apply are: Contributions before 1963 by your employer, Contributions after 1962 by your employer if the contributions would be excludible from your gross income (without regard to the foreign earned income exclusion) had they been paid directly to you, or Contributions after 1996 by your employer on your behalf if you performed the services of a foreign missionary (a duly ordained, commissioned, or licensed minister of a church or a lay person) if the contributions would be excludible from your gross income had they been paid directly to you. Amended return form 1040x Foreign employment contributions while a nonresident alien. Amended return form 1040x   In determining your cost, special rules apply if you are a U. Amended return form 1040x S. Amended return form 1040x citizen or resident alien who received distributions from a plan to which contributions were made while you were a nonresident alien. Amended return form 1040x Your contributions and your employer's contributions are not included in your cost if the contributions: Were made based on compensation which was for services performed outside the United States which you were a nonresident alien, and Were not subject to income tax under the laws of the United States or any foreign country, but only if the contribution would have been subject to income tax if they had been paid as cash compensation when the services were performed. Amended return form 1040x Death benefit exclusion. Amended return form 1040x   If you are the beneficiary of a deceased employee (or former employee), who died before August 21, 1996, you may qualify for a death benefit exclusion of up to $5,000. Amended return form 1040x The beneficiary of a deceased employee who died after August 20, 1996, will not qualify for the death benefit exclusion. Amended return form 1040x How to adjust your total cost. Amended return form 1040x   If you are eligible, treat the amount of any allowable death benefit exclusion as additional cost paid by the employee. Amended return form 1040x Add it to the cost or unrecovered cost of the annuity at the annuity starting date. Amended return form 1040x See Example 3 under Computation Under General Rule for an illustration of the adjustment to the cost of the contract. Amended return form 1040x Net cost. Amended return form 1040x   Your total cost plus certain adjustments and minus other amounts already recovered before the annuity starting date is your net cost. Amended return form 1040x This is the unrecovered investment in the contract as of the annuity starting date. Amended return form 1040x If your annuity starting date is after 1986, this is the maximum amount that you may recover tax free under the contract. Amended return form 1040x Refund feature. Amended return form 1040x   Adjustment for the value of the refund feature is only applicable when you report your pension or annuity under the General Rule. Amended return form 1040x Your annuity contract has a refund feature if: The expected return ( discussed later) of an annuity depends entirely or partly on the life of one or more individuals, The contract provides that payments will be made to a beneficiary or the estate of an annuitant on or after the death of the annuitant if a stated amount or a stated number of payments has not been paid to the annuitant or annuitants before death, and The payments are a refund of the amount you paid for the annuity contract. Amended return form 1040x   If your annuity has a refund feature, you must reduce your net cost of the contract by the value of the refund feature (figured using Table III or VII at the end of this publication, also see How To Use Actuarial Tables , later) to find the investment in the contract. Amended return form 1040x Zero value of refund feature. Amended return form 1040x   For a joint and survivor annuity, the value of the refund feature is zero if: Both annuitants are age 74 or younger, The payments are guaranteed for less than 2½ years, and The survivor's annuity is at least 50% of the first annuitant's annuity. Amended return form 1040x   For a single-life annuity without survivor benefit, the value of the refund feature is zero if: The payments are guaranteed for less than 2½ years, and The annuitant is: Age 57 or younger (if using the new (unisex) annuity tables), Age 42 or younger (if male and using the old annuity tables), or Age 47 or younger (if female and using the old annuity tables). Amended return form 1040x   If you do not meet these requirements, you will have to figure the value of the refund feature, as explained in the following discussion. Amended return form 1040x Examples. Amended return form 1040x The first example shows how to figure the value of the refund feature when there is only one beneficiary. Amended return form 1040x Example 2 shows how to figure the value of the refund feature when the contract provides, in addition to a whole life annuity, one or more temporary life annuities for the lives of children. Amended return form 1040x In both examples, the taxpayer elects to use Tables V through VIII. Amended return form 1040x If you need the value of the refund feature for a joint and survivor annuity, write to the Internal Revenue Service as explained under Requesting a Ruling on Taxation of Annuity near the end of this publication. Amended return form 1040x Example 1. Amended return form 1040x At age 65, Barbara bought for $21,053 an annuity with a refund feature. Amended return form 1040x She will get $100 a month for life. Amended return form 1040x Barbara's contract provides that if she does not live long enough to recover the full $21,053, similar payments will be made to her surviving beneficiary until a total of $21,053 has been paid under the contract. Amended return form 1040x In this case, the contract cost and the total guaranteed return are the same ($21,053). Amended return form 1040x Barbara's investment in the contract is figured as follows: Net cost $21,053 Amount to be received annually $1,200   Number of years for which payment is guaranteed ($21,053 divided by $1,200) 17. Amended return form 1040x 54   Rounded to nearest whole number of years 18   Percentage from Actuarial Table VII for age 65 with 18 years of guaranteed payments 15%   Value of the refund feature (rounded to the nearest dollar)—15% of $21,053 3,158 Investment in the contract, adjusted for value of refund feature $17,895       If the total guaranteed return were less than the $21,053 net cost of the contract, Barbara would apply the appropriate percentage from the tables to the lesser amount. Amended return form 1040x For example, if the contract guaranteed the $100 monthly payments for 17 years to Barbara's estate or beneficiary if she were to die before receiving all the payments for that period, the total guaranteed return would be $20,400 ($100 × 12 × 17 years). Amended return form 1040x In this case, the value of the refund feature would be $2,856 (14% of $20,400) and Barbara's investment in the contract would be $18,197 ($21,053 minus $2,856) instead of $17,895. Amended return form 1040x Example 2. Amended return form 1040x John died while still employed. Amended return form 1040x His widow, Eleanor, age 48, receives $171 a month for the rest of her life. Amended return form 1040x John's son, Elmer, age 9, receives $50 a month until he reaches age 18. Amended return form 1040x John's contributions to the retirement fund totaled $7,559. Amended return form 1040x 45, with interest on those contributions of $1,602. Amended return form 1040x 53. Amended return form 1040x The guarantee or total refund feature of the contract is $9,161. Amended return form 1040x 98 ($7,559. Amended return form 1040x 45 plus $1,602. Amended return form 1040x 53). Amended return form 1040x The adjustment in the investment in the contract is figured as follows: A) Expected return:*       1) Widow's expected return:         Annual annuity ($171 × 12) $2,052       Multiplied by factor from Table V         (nearest age 48) 34. Amended return form 1040x 9 $71,614. Amended return form 1040x 80   2) Child's expected return:         Annual annuity ($50 × 12) $600       Multiplied by factor from         Table VIII (nearest age 9         for term of 9 years) 9. Amended return form 1040x 0 5,400. Amended return form 1040x 00   3) Total expected return   $77,014. Amended return form 1040x 80 B) Adjustment for refund feature:       1) Contributions (net cost) $7,559. Amended return form 1040x 45   2) Guaranteed amount (contributions of $7,559. Amended return form 1040x 45 plus interest of $1,602. Amended return form 1040x 53) $9,161. Amended return form 1040x 98   3) Minus: Expected return under child's (temporary life) annuity (A(2)) 5,400. Amended return form 1040x 00   4) Net guaranteed amount $3,761. Amended return form 1040x 98   5) Multiple from Table VII (nearest age 48 for 2 years duration (recovery of $3,761. Amended return form 1040x 98 at $171 a month to nearest whole year)) 0%   6) Adjustment required for value of refund feature rounded to the nearest whole dollar  (0% × $3,761. Amended return form 1040x 98, the smaller of B(3) or B(6)) 0 *Expected return is the total amount you and other eligible annuitants can expect to receive under the contract. Amended return form 1040x See the discussion of expected return, later in this publication. Amended return form 1040x Free IRS help. Amended return form 1040x   If you need to request assistance to figure the value of the refund feature, see Requesting a Ruling on Taxation of Annuity near the end of this publication. Amended return form 1040x Expected Return Your expected return is the total amount you and other eligible annuitants can expect to receive under the contract. Amended return form 1040x The following discussions explain how to figure the expected return with each type of annuity. Amended return form 1040x A person's age, for purposes of figuring the expected return, is the age at the birthday nearest to the annuity starting date. Amended return form 1040x Fixed period annuity. Amended return form 1040x   If you will get annuity payments for a fixed number of years, without regard to your life expectancy, you must figure your expected return based on that fixed number of years. Amended return form 1040x It is the total amount you will get beginning at the annuity starting date. Amended return form 1040x You will receive specific periodic payments for a definite period of time, such as a fixed number of months (but not less than 13). Amended return form 1040x To figure your expected return, multiply the fixed number of months for which payments are to be made by the amount of the payment specified for each period. Amended return form 1040x Single life annuity. Amended return form 1040x   If you are to get annuity payments for the rest of your life, find your expected return as follows. Amended return form 1040x You must multiply the amount of the annual payment by a multiple based on your life expectancy as of the annuity starting date. Amended return form 1040x These multiples are set out in actuarial Tables I and V near the end of this publication (see How To Use Actuarial Tables , later). Amended return form 1040x   You may need to adjust these multiples if the payments are made quarterly, semiannually, or annually. Amended return form 1040x See Adjustments to Tables I, II, V, VI, and VIA following Table I. Amended return form 1040x Example. Amended return form 1040x Henry bought an annuity contract that will give him an annuity of $500 a month for his life. Amended return form 1040x If at the annuity starting date Henry's nearest birthday is 66, the expected return is figured as follows: Annual payment ($500 × 12 months) $6,000 Multiple shown in Table V, age 66 × 19. Amended return form 1040x 2 Expected return $115,200 If the payments were to be made to Henry quarterly and the first payment was made one full month after the annuity starting date, Henry would adjust the 19. Amended return form 1040x 2 multiple by +. Amended return form 1040x 1. Amended return form 1040x His expected return would then be $115,800 ($6,000 × 19. Amended return form 1040x 3). Amended return form 1040x Annuity for shorter of life or specified period. Amended return form 1040x   With this type of annuity, you are to get annuity payments either for the rest of your life or until the end of a specified period, whichever period is shorter. Amended return form 1040x To figure your expected return, multiply the amount of your annual payment by a multiple in Table IV or VIII for temporary life annuities. Amended return form 1040x Find the proper multiple based on your sex (if using Table IV), your age at the annuity starting date, and the nearest whole number of years in the specified period. Amended return form 1040x Example. Amended return form 1040x Harriet purchased an annuity this year that will pay her $200 each month for five years or until she dies, whichever period is shorter. Amended return form 1040x She was age 65 at her birthday nearest the annuity starting date. Amended return form 1040x She figures the expected return as follows: Annual payment ($200 × 12 months) $2,400 Multiple shown in Table VIII, age 65, 5-year term × 4. Amended return form 1040x 9 Expected return $11,760 She uses Table VIII (not Table IV) because all her contributions were made after June 30, 1986. Amended return form 1040x See Special Elections, later. Amended return form 1040x Joint and survivor annuities. Amended return form 1040x   If you have an annuity that pays you a periodic income for life and after your death provides an identical lifetime periodic income to your spouse (or some other person), you figure the expected return based on your combined life expectancies. Amended return form 1040x To figure the expected return, multiply the annual payment by a multiple in Table II or VI based on your joint life expectancies. Amended return form 1040x If your payments are made quarterly, semiannually, or annually, you may need to adjust these multiples. Amended return form 1040x See Adjustments to Tables I, II, V, VI, and VIA following Table I near the end of this publication. Amended return form 1040x Example. Amended return form 1040x John bought a joint and survivor annuity providing payments of $500 a month for his life, and, after his death, $500 a month for the remainder of his wife's life. Amended return form 1040x At John's annuity starting date, his age at his nearest birthday is 70 and his wife's at her nearest birthday is 67. Amended return form 1040x The expected return is figured as follows: Annual payment ($500 × 12 months) $6,000 Multiple shown in Table VI, ages 67 and 70 × 22. Amended return form 1040x 0 Expected return $132,000 Different payments to survivor. Amended return form 1040x   If your contract provides that payments to a survivor annuitant will be different from the amount you receive, you must use a computation which accounts for both the joint lives of the annuitants and the life of the survivor. Amended return form 1040x Example 1. Amended return form 1040x Gerald bought a contract providing for payments to him of $500 a month for life and, after his death, payments to his wife, Mary, of $350 a month for life. Amended return form 1040x If, at the annuity starting date, Gerald's nearest birthday is 70 and Mary's is 67, the expected return under the contract is figured as follows: Combined multiple for Gerald and Mary, ages 70 and 67 (from Table VI)   22. Amended return form 1040x 0 Multiple for Gerald, age 70 (from Table V)   16. Amended return form 1040x 0 Difference: Multiple applicable to Mary   6. Amended return form 1040x 0 Gerald's annual payment ($500 × 12) $6,000   Gerald's multiple 16. Amended return form 1040x 0   Gerald's expected return   $96,000 Mary's annual payment ($350 × 12) $4,200   Mary's multiple 6. Amended return form 1040x 0   Mary's expected return   25,200 Total expected return under the contract   $121,200 Example 2. Amended return form 1040x Your husband died while still employed. Amended return form 1040x Under the terms of his employer's retirement plan, you are entitled to get an immediate annuity of $400 a month for the rest of your life or until you remarry. Amended return form 1040x Your daughters, Marie and Jean, are each entitled to immediate temporary life annuities of $150 a month until they reach age 18. Amended return form 1040x You were 50 years old at the annuity starting date. Amended return form 1040x Marie was 16 and Jean was 14. Amended return form 1040x Using the multiples shown in Tables V and VIII at the end of this publication, the total expected return on the annuity starting date is $169,680, figured as follows: Widow, age 50 (multiple from Table V—33. Amended return form 1040x 1 × $4,800 annual payment) $158,880 Marie, age 16 for 2 years duration (multiple from Table VIII—2. Amended return form 1040x 0 × $1,800 annual payment) 3,600 Jean, age 14 for 4 years duration (multiple from Table VIII—4. Amended return form 1040x 0 × $1,800 annual payment) 7,200 Total expected return $169,680 No computation of expected return is made based on your husband's age at the date of death because he died before the annuity starting date. Amended return form 1040x Computation Under the General Rule Note. Amended return form 1040x Variable annuities use a different computation for determining the exclusion amounts. Amended return form 1040x See Variable annuities later. Amended return form 1040x Under the General Rule, you figure the taxable part of your annuity by using the following steps: Step 1. Amended return form 1040x   Figure the amount of your investment in the contract, including any adjustments for the refund feature and the death benefit exclusion, if applicable. Amended return form 1040x See Death benefit exclusion , earlier. Amended return form 1040x Step 2. Amended return form 1040x   Figure your expected return. Amended return form 1040x Step 3. Amended return form 1040x   Divide Step 1 by Step 2 and round to three decimal places. Amended return form 1040x This will give you the exclusion percentage. Amended return form 1040x Step 4. Amended return form 1040x   Multiply the exclusion percentage by the first regular periodic payment. Amended return form 1040x The result is the tax-free part of each pension or annuity payment. Amended return form 1040x   The tax-free part remains the same even if the total payment increases due to variation in the annuity amount such as cost of living increases, or you outlive the life expectancy factor used. Amended return form 1040x However, if your annuity starting date is after 1986, the total amount of annuity income that is tax free over the years cannot exceed your net cost. Amended return form 1040x   Each annuitant applies the same exclusion percentage to his or her initial payment called for in the contract. Amended return form 1040x Step 5. Amended return form 1040x   Multiply the tax-free part of each payment (step 4) by the number of payments received during the year. Amended return form 1040x This will give you the tax-free part of the total payment for the year. Amended return form 1040x    In the first year of your annuity, your first payment or part of your first payment may be for a fraction of the payment period. Amended return form 1040x This fractional amount is multiplied by your exclusion percentage to get the tax-free part. Amended return form 1040x Step 6. Amended return form 1040x   Subtract the tax-free part from the total payment you received. Amended return form 1040x The rest is the taxable part of your pension or annuity. Amended return form 1040x Example 1. Amended return form 1040x You purchased an annuity with an investment in the contract of $10,800. Amended return form 1040x Under its terms, the annuity will pay you $100 a month for life. Amended return form 1040x The multiple for your age (age 65) is 20. Amended return form 1040x 0 as shown in Table V. Amended return form 1040x Your expected return is $24,000 (20 × 12 × $100). Amended return form 1040x Your cost of $10,800, divided by your expected return of $24,000, equals 45. Amended return form 1040x 0%. Amended return form 1040x This is the percentage you will not have to include in income. Amended return form 1040x Each year, until your net cost is recovered, $540 (45% of $1,200) will be tax free and you will include $660 ($1,200 − $540) in your income. Amended return form 1040x If you had received only six payments of $100 ($600) during the year, your exclusion would have been $270 (45% of $100 × 6 payments). Amended return form 1040x Example 2. Amended return form 1040x Gerald bought a joint and survivor annuity. Amended return form 1040x Gerald's investment in the contract is $62,712 and the expected return is $121,200. Amended return form 1040x The exclusion percentage is 51. Amended return form 1040x 7% ($62,712 ÷ $121,200). Amended return form 1040x Gerald will receive $500 a month ($6,000 a year). Amended return form 1040x Each year, until his net cost is recovered, $3,102 (51. Amended return form 1040x 7% of his total payments received of $6,000) will be tax free and $2,898 ($6,000 − $3,102) will be included in his income. Amended return form 1040x If Gerald dies, his wife will receive $350 a month ($4,200 a year). Amended return form 1040x If Gerald had not recovered all of his net cost before his death, his wife will use the same exclusion percentage (51. Amended return form 1040x 7%). Amended return form 1040x Each year, until the entire net cost is recovered, his wife will receive $2,171. Amended return form 1040x 40 (51. Amended return form 1040x 7% of her payments received of $4,200) tax free. Amended return form 1040x She will include $2,028. Amended return form 1040x 60 ($4,200 − $2,171. Amended return form 1040x 40) in her income tax return. Amended return form 1040x Example 3. Amended return form 1040x Using the same facts as Example 2 under Different payments to survivor, you are to receive an annual annuity of $4,800 until you die or remarry. Amended return form 1040x Your two daughters each receive annual annuities of $1,800 until they reach age 18. Amended return form 1040x Your husband contributed $25,576 to the plan. Amended return form 1040x You are eligible for the $5,000 death benefit exclusion because your husband died before August 21, 1996. Amended return form 1040x Adjusted Investment in the Contract Contributions $25,576 Plus: Death benefit exclusion 5,000 Adjusted investment in the contract $30,576 The total expected return, as previously figured (in Example 2 under Different payments to survivor), is $169,680. Amended return form 1040x The exclusion percentage of 18. Amended return form 1040x 0% ($30,576 ÷ $169,680) applies to the annuity payments you and each of your daughters receive. Amended return form 1040x Each full year $864 (18. Amended return form 1040x 0% × $4,800) will be tax free to you, and you must include $3,936 in your income tax return. Amended return form 1040x Each year, until age 18, $324 (18. Amended return form 1040x 0% × $1,800) of each of your daughters' payments will be tax free and each must include the balance, $1,476, as income on her own income tax return. Amended return form 1040x Part-year payments. Amended return form 1040x   If you receive payments for only part of a year, apply the exclusion percentage to the first regular periodic payment, and multiply the result by the number of payments received during the year. Amended return form 1040x   If you receive amounts during the year that represent 12 payments, one for each month in that year, and an amount that represents payments for months in a prior year, apply the exclusion percentage to the first regular periodic payment, and multiply the result by the number of payments the amounts received represent. Amended return form 1040x For instance, if you received amounts during the year that represent the 12 payments for that year plus an amount that represents three payments for a prior year, multiply that amount by the 15 (12 + 3) payments received that the year. Amended return form 1040x   If you received a fractional payment, follow Step 5, discussed earlier. Amended return form 1040x This gives you the tax-free part of your total payment. Amended return form 1040x Example. Amended return form 1040x On September 28, Mary bought an annuity contract for $22,050 that will give her $125 a month for life, beginning October 30. Amended return form 1040x The applicable multiple from Table V is 23. Amended return form 1040x 3 (age 61). Amended return form 1040x Her expected return is $34,950 ($125 × 12 × 23. Amended return form 1040x 3). Amended return form 1040x Mary's investment in the contract of $22,050, divided by her expected return of $34,950, equals 63. Amended return form 1040x 1%. Amended return form 1040x Each payment received will consist of 63. Amended return form 1040x 1% return of cost and 36. Amended return form 1040x 9% taxable income, until her net cost of the contract is fully recovered. Amended return form 1040x During the first year, Mary received three payments of $125, or $375, of which $236. Amended return form 1040x 63 (63. Amended return form 1040x 1% × $375) is a return of cost. Amended return form 1040x The remaining $138. Amended return form 1040x 37 is included in income. Amended return form 1040x Increase in annuity payments. Amended return form 1040x   The tax-free amount remains the same as the amount figured at the annuity starting date, even if the payment increases. Amended return form 1040x All increases in the installment payments are fully taxable. Amended return form 1040x   However, if your annuity payments are scheduled to increase at a definite date in the future you must figure the expected return for that annuity using the method described in section 1. Amended return form 1040x 72-5(a)(5) of the regulations. Amended return form 1040x Example. Amended return form 1040x Joe's wife died while she was still employed and, as her beneficiary, he began receiving an annuity of $147 per month. Amended return form 1040x In figuring the taxable part, Joe elects to use Tables V through VIII. Amended return form 1040x The cost of the contract was $7,938, consisting of the sum of his wife's net contributions, adjusted for any refund feature. Amended return form 1040x His expected return as of the annuity starting date is $35,280 (age 65, multiple of 20. Amended return form 1040x 0 × $1,764 annual payment). Amended return form 1040x The exclusion percentage is $7,938 ÷ $35,280, or 22. Amended return form 1040x 5%. Amended return form 1040x During the year he received 11 monthly payments of $147, or $1,617. Amended return form 1040x Of this amount, 22. Amended return form 1040x 5% × $147 × 11 ($363. Amended return form 1040x 83) is tax free as a return of cost and the balance of $1,253. Amended return form 1040x 17 is taxable. Amended return form 1040x Later, because of a cost-of-living increase, his annuity payment was increased to $166 per month, or $1,992 a year (12 × $166). Amended return form 1040x The tax-free part is still only 22. Amended return form 1040x 5% of the annuity payments as of the annuity starting date (22. Amended return form 1040x 5% × $147 × 12 = $396. Amended return form 1040x 90 for a full year). Amended return form 1040x The increase of $228 ($1,992 − $1,764 (12 × $147)) is fully taxable. Amended return form 1040x Variable annuities. Amended return form 1040x   For variable annuity payments, figure the amount of each payment that is tax free by dividing your investment in the contract (adjusted for any refund feature) by the total number of periodic payments you expect to get under the contract. Amended return form 1040x   If the annuity is for a definite period, you determine the total number of payments by multiplying the number of payments to be made each year by the number of years you will receive payments. Amended return form 1040x If the annuity is for life, you determine the total number of payments by using a multiple from the appropriate actuarial table. Amended return form 1040x Example. Amended return form 1040x Frank purchased a variable annuity at age 65. Amended return form 1040x The total cost of the contract was $12,000. Amended return form 1040x The annuity starting date is January 1 of the year of purchase. Amended return form 1040x His annuity will be paid, starting July 1, in variable annual installments for his life. Amended return form 1040x The tax-free amount of each payment, until he has recovered his cost of his contract, is: Investment in the contract $12,000 Number of expected annual payments (multiple for age 65 from Table V) 20 Tax-free amount of each payment ($12,000 ÷ 20) $600 If Frank's first payment is $920, he includes only $320 ($920 − $600) in his gross income. Amended return form 1040x   If the tax-free amount for a year is more than the payments you receive in that year, you may choose, when you receive the next payment, to refigure the tax-free part. Amended return form 1040x Divide the amount of the periodic tax-free part that is more than the payment you received by the remaining number of payments you expect. Amended return form 1040x The result is added to the previously figured periodic tax-free part. Amended return form 1040x The sum is the amount of each future payment that will be tax free. Amended return form 1040x Example. Amended return form 1040x Using the facts of the previous example about Frank, assume that after Frank's $920 payment, he received $500 in the following year, and $1,200 in the year after that. Amended return form 1040x Frank does not pay tax on the $500 (second year) payment because $600 of each annual pension payment is tax free. Amended return form 1040x Since the $500 payment is less than the $600 annual tax-free amount, he may choose to refigure his tax-free part when he receives his $1,200 (third year) payment, as follows: Amount tax free in second year $600. Amended return form 1040x 00 Amount received in second year 500. Amended return form 1040x 00 Difference $100. Amended return form 1040x 00 Number of remaining payments after the first 2 payments (age 67, from Table V) 18. Amended return form 1040x 4 Amount to be added to previously determined annual tax-free part ($100 ÷ 18. Amended return form 1040x 4) $5. Amended return form 1040x 43 Revised annual tax-free part for third and later years ($600 + $5. Amended return form 1040x 43) $605. Amended return form 1040x 43 Amount taxable in third year ($1,200 − $605. Amended return form 1040x 43) $594. Amended return form 1040x 57 If you choose to refigure your tax-free amount,   you must file a statement with your income tax return stating that you are refiguring the tax-free amount in accordance with the rules of section 1. Amended return form 1040x 72–4(d)(3) of the Income Tax Regulations. Amended return form 1040x The statement must also show the following information: The annuity starting date and your age on that date. Amended return form 1040x The first day of the first period for which you received an annuity payment in the current year. Amended return form 1040x Your investment in the contract as originally figured. Amended return form 1040x The total of all amounts received tax free under the annuity from the annuity starting date through the first day of the first period for which you received an annuity payment in the current tax year. Amended return form 1040x Exclusion Limits Your annuity starting date determines the total amount of annuity income that you can exclude from income over the years. Amended return form 1040x Exclusion limited to net cost. Amended return form 1040x   If your annuity starting date is after 1986, the total amount of annuity income that you can exclude over the years as a return of your cost cannot exceed your net cost (figured without any reduction for a refund feature). Amended return form 1040x This is the unrecovered investment in the contract as of the annuity starting date. Amended return form 1040x   If your annuity starting date is after July 1, 1986, any unrecovered net cost at your (or last annuitant's) death is allowed as a miscellaneous itemized deduction on the final return of the decedent. Amended return form 1040x This deduction is not subject to the 2%-of-adjusted-gross-income limit. Amended return form 1040x Example 1. Amended return form 1040x Your annuity starting date is after 1986. Amended return form 1040x Your total cost is $12,500, and your net cost is $10,000, taking into account certain adjustments. Amended return form 1040x There is no refund feature. Amended return form 1040x Your monthly annuity payment is $833. Amended return form 1040x 33. Amended return form 1040x Your exclusion ratio is 12% and you exclude $100 a month. Amended return form 1040x Your exclusion ends after 100 months, when you have excluded your net cost of $10,000. Amended return form 1040x Thereafter, your annuity payments are fully taxable. Amended return form 1040x Example 2. Amended return form 1040x The facts are the same as in Example 1, except that there is a refund feature, and you die after 5 years with no surviving annuitant. Amended return form 1040x The adjustment for the refund feature is $1,000, so the investment in the contract is $9,000. Amended return form 1040x The exclusion ratio is 10. Amended return form 1040x 8%, and your monthly exclusion is $90. Amended return form 1040x After 5 years (60 months), you have recovered tax free only $5,400 ($90 x 60). Amended return form 1040x An itemized deduction for the unrecovered net cost of $4,600 ($10,000 net cost minus $5,400) may be taken on your final income tax return. Amended return form 1040x Your unrecovered investment is determined without regard to the refund feature adjustment, discussed earlier, under Adjustments. Amended return form 1040x Exclusion not limited to net cost. Amended return form 1040x   If your annuity starting date was before 1987, you could continue to take your monthly exclusion for as long as you receive your annuity. Amended return form 1040x If you choose a joint and survivor annuity, your survivor continues to take the survivor's exclusion figured as of the annuity starting date. Amended return form 1040x The total exclusion may be more than your investment in the contract. Amended return form 1040x How To Use Actuarial Tables In figuring, under the General Rule, the taxable part of your annuity payments that you are to get for the rest of your life (rather than for a fixed number of years), you must use one or more of the actuarial tables in this publication. Amended return form 1040x Unisex Annuity Tables Effective July 1, 1986, the Internal Revenue Service adopted new annuity Tables V through VIII, in which your sex is not considered when determining the applicable factor. Amended return form 1040x These tables correspond to the old Tables I through IV. Amended return form 1040x In general, Tables V through VIII must be used if you made contributions to the retirement plan after June 30, 1986. Amended return form 1040x If you made no contributions to the plan after June 30, 1986, generally you must use only Tables I through IV. Amended return form 1040x However, if you received an annuity payment after June 30, 1986, you may elect to use Tables V through VIII (see Annuity received after June 30, 1986, later). Amended return form 1040x Special Elections Although you generally must use Tables V through VIII if you made contributions to the retirement plan after June 30, 1986, and Tables I through IV if you made no contributions after June 30, 1986, you can make the following special elections to select which tables to use. Amended return form 1040x Contributions made both before July 1986 and after June 1986. Amended return form 1040x   If you made contributions to the retirement plan both before July 1986 and after June 1986, you may elect to use Tables I through IV for the pre-July 1986 cost of the contract, and Tables V through VIII for the post-June 1986 cost. Amended return form 1040x (See the examples below. Amended return form 1040x )    Making the election. Amended return form 1040x Attach this statement to your income tax return for the first year in which you receive an annuity:    “I elect to apply the provisions of paragraph (d) of section 1. Amended return form 1040x 72–6 of the Income Tax Regulations. Amended return form 1040x ”   The statement must also include your name, address, social security number, and the amount of the pre-July 1986 investment in the contract. Amended return form 1040x   If your investment in the contract includes post-June 1986 contributions to the plan, and you do not make the election to use Tables I through IV and Tables V through VIII, then you can only use Tables V through VIII in figuring the taxable part of your annuity. Amended return form 1040x You must also use Tables V through VIII if you are unable or do not wish to determine the portions of your contributions which were made before July 1, 1986, and after June 30, 1986. Amended return form 1040x    Advantages of election. Amended return form 1040x In general, a lesser amount of each annual annuity payment is taxable if you separately figure your exclusion ratio for pre-July 1986 and post-June 1986 contributions. Amended return form 1040x    If you intend to make this election, save your records that substantiate your pre-July 1986 and post-June 1986 contributions. Amended return form 1040x If the death benefit exclusion applies (see discussion, earlier), you do not have to apportion it between the pre-July 1986 and the post-June 1986 investment in the contract. Amended return form 1040x   The following examples illustrate the separate computations required if you elect to use Tables I through IV for your pre-July 1986 investment in the contract and Tables V through VIII for your post-June 1986 investment in the contract. Amended return form 1040x Example 1. Amended return form 1040x Bill, who is single, contributed $42,000 to the retirement plan and will receive an annual annuity of $24,000 for life. Amended return form 1040x Payment of the $42,000 contribution is guaranteed under a refund feature. Amended return form 1040x Bill is 55 years old as of the annuity starting date. Amended return form 1040x For figuring the taxable part of Bill's annuity, he chose to make separate computations for his pre-July 1986 investment in the contract of $41,300, and for his post-June 1986 investment in the contract of $700. Amended return form 1040x       Pre- July 1986   Post- June 1986 A. Amended return form 1040x Adjustment for refund feature         1) Net cost $41,300   $700   2) Annual annuity—$24,000  ($41,300/$42,000 × $24,000) $23,600       ($700/$42,000 × $24,000)     $400   3) Guarantee under contract $41,300   $700   4) No. Amended return form 1040x of years payments  guaranteed (rounded), A(3) ÷ A(2) 2   2   5) Applicable percentage from  Tables III and VII 1%   0%   6) Adjustment for value of refund  feature, A(5) × smaller of A(1)  or A(3) $413   $0 B. Amended return form 1040x Investment in the contract         1) Net cost $41,300   $700   2) Minus: Amount in A(6) 413   0   3) Investment in the contract $40,887   $700 C. Amended return form 1040x Expected return         1) Annual annuity receivable $24,000   $24,000   2) Multiples from Tables I and V 21. Amended return form 1040x 7   28. Amended return form 1040x 6   3) Expected return, C(1) × C(2) $520,800   $686,400 D. Amended return form 1040x Tax-free part of annuity         1) Exclusion ratio as decimal,  B(3) ÷ C(3) . Amended return form 1040x 079   . Amended return form 1040x 001   2) Tax-free part, C(1) × D(1) $1,896   $24 The tax-free part of Bill's total annuity is $1,920 ($1,896 plus $24). Amended return form 1040x The taxable part of his annuity is $22,080 ($24,000 minus $1,920). Amended return form 1040x If the annuity starting date is after 1986, the exclusion over the years cannot exceed the net cost (figured without any reduction for a refund feature). Amended return form 1040x Example 2. Amended return form 1040x Al is age 62 at his nearest birthday to the annuity starting date. Amended return form 1040x Al's wife is age 60 at her nearest birthday to the annuity starting date. Amended return form 1040x The joint and survivor annuity pays $1,000 per month to Al for life, and $500 per month to Al's surviving wife after his death. Amended return form 1040x The pre-July 1986 investment in the contract is $53,100 and the post-June 1986 investment in the contract is $7,000. Amended return form 1040x Al makes the election described in Example 1 . Amended return form 1040x For purposes of this example, assume the refund feature adjustment is zero. Amended return form 1040x If an adjustment is required, IRS will figure the amount. Amended return form 1040x See Requesting a Ruling on Taxation of Annuity near the end of this publication. Amended return form 1040x       Pre-  July 1986   Post-  June 1986 A. Amended return form 1040x Adjustment for refund feature         1) Net cost $53,100   $7,000   2) Annual annuity—$12,000  ($53,100/$60,100 × $12,000) $10,602       ($7,000/$60,100 × $12,000)     $1,398   3) Guaranteed under the contract $53,100   $7,000   4) Number of years guaranteed,  rounded, A(3) ÷ A(2) 5   5   5) Applicable percentages 0%   0%   6) Refund feature adjustment, A(5) × smaller of A(1) or A(3) 0   0 B. Amended return form 1040x Investment in the contract         1) Net cost $53,100   $7,000   2) Refund feature adjustment 0   0   3) Investment in the contract adjusted for refund feature $53,100   $7,000 C. Amended return form 1040x Expected return         1) Multiple for both annuitants from Tables II and VI 25. Amended return form 1040x 4   28. Amended return form 1040x 8   2) Multiple for first annuitant from Tables I and V 16. Amended return form 1040x 9   22. Amended return form 1040x 5   3) Multiple applicable to surviving annuitant, subtract C(2) from C(1) 8. Amended return form 1040x 5   6. Amended return form 1040x 3   4) Annual annuity to surviving annuitant $6,000   $6,000   5) Portion of expected return for surviving annuitant, C(4) × C(3) $51,000   $37,800   6) Annual annuity to first annuitant $12,000   $12,000   7) Plus: Portion of expected return for first annuitant, C(6) × C(2) $202,800   $270,000   8) Expected return for both annuitants, C(5) + C(7) $253,800   $307,800 D. Amended return form 1040x Tax-free part of annuity         1) Exclusion ratio as a decimal, B(3) ÷ C(8) . Amended return form 1040x 209   . Amended return form 1040x 023   2) Retiree's tax-free part of annuity, C(6) × D(1) $2,508   $276   3) Survivor's tax-free part of annuity, C(4) × D(1) $1,254   $138 The tax-free part of Al's total annuity is $2,784 ($2,508 + $276). Amended return form 1040x The taxable part of his annuity is $9,216 ($12,000 − $2,784). Amended return form 1040x The exclusion over the years cannot exceed the net cost of the contract (figured without any reduction for a refund feature) if the annuity starting date is after 1986. Amended return form 1040x After Al's death, his widow will apply the same exclusion percentages (20. Amended return form 1040x 9% and 2. Amended return form 1040x 3%) to her annual annuity of $6,000 to figure the tax-free part of her annuity. Amended return form 1040x Annuity received after June 30, 1986. Amended return form 1040x   If you receive an annuity payment after June 30, 1986, (regardless of your annuity starting date), you may elect to treat the entire cost of the contract as post-June 1986 cost (even if you made no post-June 1986 contributions to the plan) and use Tables V through VIII. Amended return form 1040x Once made, you cannot revoke the election, which will apply to all payments during the year and in any later year. Amended return form 1040x    Make the election by attaching the following statement to your income tax return. Amended return form 1040x    “I elect, under section 1. Amended return form 1040x 72–9 of the Income Tax Regulations, to treat my entire cost of the contract as a post-June 1986 cost of the plan. Amended return form 1040x ”   The statement must also include your name, address, and social security number. Amended return form 1040x   You should also indicate you are making this election if you are unable or do not wish to determine the parts of your contributions which were made before July 1, 1986, and after June 30, 1986. Amended return form 1040x Disqualifying form of payment or settlement. Amended return form 1040x   If your annuity starting date is after June 30, 1986, and the contract provides for a disqualifying form of payment or settlement, such as an option to receive a lump sum in full discharge of the obligation under the contract, the entire investment in the contract is treated as post-June 1986 investment in the contract. Amended return form 1040x See regulations section 1. Amended return form 1040x 72–6(d)(3) for additional examples of disqualifying forms of payment or settlement. Amended return form 1040x You can find the Income Tax Regulations in many libraries and at Internal Revenue Service Offices. Amended return form 1040x Worksheets for Determining Taxable Annuity Worksheets I and II. Amended return form 1040x   Worksheets I and II follow for determining your taxable annuity under Regulations Section 1. Amended return form 1040x 72–6(d)(6) Election. Amended return form 1040x Worksheet I For Determining Taxable Annuity Under Regulations Section 1. Amended return form 1040x 72-6(d)(6) Election For Single Annuitant With No Survivor Annuity               Pre-July 1986   Post-June 1986 A. Amended return form 1040x   Refund Feature Adjustment             1)   Net cost (total cost less returned premiums, dividends, etc. Amended return form 1040x )             2)   Annual annuity allocation:                   Portion of net cost in A(1) x annual annuity                   Net cost             3)   Guaranteed under the contract             4)   Number of years guaranteed, rounded to whole years:                   A(3) divided by A(2)             5)   Applicable percentages* from Tables III and VII                   *If your annuity meets the three conditions listed in Zero value of refund feature in Investment in the Contract, earlier, both percentages are 0. Amended return form 1040x If not, the IRS will calculate the refund feature percentage. Amended return form 1040x             6)   Refund feature adjustment:                   A(5) times lesser of A(1) or A(3)                             B. Amended return form 1040x   Investment in the Contract             1)   Net cost:                   A(1)             2)   Refund feature adjustment:                   A(6)             3)   Investment in the contract adjusted for refund feature:                   B(1) minus B(2)                             C. Amended return form 1040x   Expected Return             1)   Annual Annuity:                   12 times monthly annuity**             2)   Expected return multiples from Tables I and V             3)     Expected return:                   C(1) times C(2)                             D. Amended return form 1040x   Tax-Free Part of Annuity             1)     Exclusion ratio, as a decimal rounded to 3 places:                   B(3) divided by C(3)             2)     Tax-free part of annuity:                   C(1) times D(1)             **If the annuity is not paid monthly, figure the amount to enter by using the total number of periodic payments for the year times the amount of the periodic payment. Amended return form 1040x     Worksheet II For Determining Taxable Annuity Under Regulations Section 1. Amended return form 1040x 72-6(d)(6) Election For Joint and Survivor Annuity               Pre-July 1986   Post-June 1986 A. Amended return form 1040x   Refund Feature Adjustment             1)   Net cost (total cost less returned premiums, dividends, etc. Amended return form 1040x )             2)   Annual annuity allocation:                   Portion of net cost in A(1) x annual annuity                   Net cost             3)   Guaranteed under the contract             4)     Number of years guaranteed, rounded to whole years:                   A(3) divided by A(2)             5)   Applicable percentages*                   *If your annuity meets the three conditions listed in Zero value of refund feature in Investment in the Contract, earlier, both percentages are 0. Amended return form 1040x If not, the IRS will calculate the refund feature percentage. Amended return form 1040x             6)   Refund feature adjustment:                   A(5) times lesser of A(1) or A(3)                             B. Amended return form 1040x   Investment in the Contract             1)   Net cost:                   A(1)             2)   Refund feature adjustment:                   A(6)             3)   Investment in the contract adjusted for refund future:                   B(1) minus B(2)                             C. Amended return form 1040x   Expected Return             1)   Multiples for both annuitants, Tables II and VI             2)   Multiple for retiree. Amended return form 1040x Tables I and VI             3)   Multiple for survivor:                   C(1) minus C(2)             4)   Annual annuity to survivor:                   12 times potential monthly rate for survivor**             5)   Expected return for survivor:                   C(3) times C(4)             6)   Annual annuity to retiree:                   12 times monthly rate for retiree**             7)   Expected return for retiree:                   C(2) times C(6)             8)   Total expected return:                   C(5) plus C(7)                             D. Amended return form 1040x   Tax-Free Part of Annuity             1)   Exclusion ratio, as a decimal rounded to 3 places:                   B(3) divided by C(8)             2)   Retiree's tax-free part of annuity:                   C(6) times D(1)             3)   Survivor's tax-free part of annuity, if surviving after death of retiree:                   C(4) times D(1)             **If the annuity is not paid monthly, figure the amount to enter by using the total number of periodic payments for the year times the amount of the periodic payment. Amended return form 1040x   Actuarial Tables Please click here for the text description of the image. Amended return form 1040x Actuarial Tables Please click here for the text description of the image. Amended return form 1040x Actuarial Tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. 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Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Please click here for the text description of the image. Amended return form 1040x Actuarial tables Requesting a Ruling on Taxation of Annuity If you are a retiree, or the survivor of an employee or retiree, you may ask the Internal Revenue Service to help you determine the taxation of your annuity. Amended return form 1040x If you make this request, you are asking for a ruling. Amended return form 1040x User fee. Amended return form 1040x   Under the law in effect at the time this publication went to print, the IRS must charge a user fee for all ruling requests. Amended return form 1040x You should call the IRS for the proper fee. Amended return form 1040x A request solely for the value of the refund feature is not treated as a ruling request and requires no fee. Amended return form 1040x Send your request to:     Internal Revenue Service  Attention: EP Letter Rulings P. Amended return form 1040x O. Amended return form 1040x Box 27063 McPherson Station Washington, DC 20038 The user fee is allowed as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit. Amended return form 1040x When to make the request. Amended return form 1040x   Please note that requests sent between February 1 and April 15 may experience some delay. Amended return form 1040x We process requests in the order received, and we will reply to your request as soon as we can process it. Amended return form 1040x If you do not receive your ruling by the required filing date, you may use Form 4868, Application for Automatic Extension of Time To File U. Amended return form 1040x S. Amended return form 1040x Individual Income Tax Return, to get an extension of time to file. Amended return form 1040x Information you must furnish. Amended return form 1040x   You must furnish the information listed below so the IRS can comply with your request. Amended return form 1040x Failure to furnish the information will result in a delay in processing your request. Amended return form 1040x Please send only copies of the following documents, as the IRS retains all material sent for its records: A letter explaining the question(s) you wish to have resolved or the information you need from the ruling. Amended return form 1040x Copies of any documents showing distributions, annuity rates, and annuity options available to you. Amended return form 1040x A copy of any Form 1099–R you received since your annuity began. Amended return form 1040x A statement indicating whether you have filed your return for the year for which you are making the request. Amended return form 1040x If you have requested an extension of time to file that return, please indicate the extension date. Amended return form 1040x Your daytime phone number. Amended return form 1040x Your current mailing address. Amended return form 1040x A power of attorney if someone other than you, an attorney, a certified public accountant, or an enrolled agent is signing this request. Amended return form 1040x Form 2848, Power of Attorney and Declaration of Representative, may be used for this purpose. Amended return form 1040x A completed Tax Information Sheet (or facsimile) shown on the next page. Amended return form 1040x Sign and date the Disclosure and Perjury Statement (or facsimile) at the end of the tax information sheet. Amended return form 1040x This statement must be signed by the retiree or the survivor annuitant. Amended return form 1040x It cannot be signed by a representative. Amended return form 1040x Tax Information Sheet Please click here for the text description of the image. Amended return form 1040x Tax Information Sheet Please click here for the text description of the image. Amended return form 1040x Tax Information Sheet (continued) How To Get Tax Help Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. Amended return form 1040x Free help with your tax return. Amended return form 1040x   You can get free help preparing your return nationwide from IRS-certified volunteers. Amended return form 1040x The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. Amended return form 1040x The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Amended return form 1040x Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Amended return form 1040x In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. Amended return form 1040x To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. Amended return form 1040x gov, download the IRS2Go app, or call 1-800-906-9887. Amended return form 1040x   As part of the TCE program, AARP offers the Tax-Aide counseling program. Amended return form 1040x To find the nearest AARP Tax-Aide site, visit AARP's website at www. Amended return form 1040x aarp. Amended return form 1040x org/money/taxaide or call 1-888-227-7669. Amended return form 1040x For more information on these programs, go to IRS. Amended return form 1040x gov and enter “VITA” in the search box. Amended return form 1040x Internet. Amended return form 1040x    IRS. Amended return form 1040x gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. Amended return form 1040x Download the free IRS2Go app from the iTunes app store or from Google Play. Amended return form 1040x Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. Amended return form 1040x Check the status of your 2013 refund with the Where's My Refund? application on IRS. Amended return form 1040x gov or download the IRS2Go app and select the Refund Status option. Amended return form 1040x The IRS issues more than 9 out of 10 refunds in less than 21 days. Amended return form 1040x Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. Amended return form 1040x You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. Amended return form 1040x The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Amended return form 1040x Use the Interactive Tax Assistant (ITA) to research your tax questions. Amended return form 1040x No need to wait on the phone or stand in line. Amended return form 1040x The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. Amended return form 1040x When you reach the response screen, you can print the entire interview and the final response for your records. Amended return form 1040x New subject areas are added on a regular basis. Amended return form 1040x  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. Amended return form 1040x gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. Amended return form 1040x You can use the IRS Tax Map, to search publications and instructions by topic or keyword. Amended return form 1040x The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. Amended return form 1040x When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. Amended return form 1040x Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. Amended return form 1040x You can also ask the IRS to mail a return or an account transcript to you. Amended return form 1040x Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. Amended return form 1040x gov or by calling 1-800-908-9946. Amended return form 1040x Tax return and tax account transcripts are generally available for the current year and the past three years. Amended return form 1040x Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. Amended return form 1040x Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. Amended return form 1040x If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. Amended return form 1040x Check the status of your amended return using Where's My Amended Return? Go to IRS. Amended return form 1040x gov and enter Where's My Amended Return? in the search box. Amended return form 1040x You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Amended return form 1040x It can take up to 3 weeks from the date you mailed it to show up in our system. Amended return form 1040x Make a payment using one of several safe and convenient electronic payment options available on IRS. Amended return form 1040x gov. Amended return form 1040x Select the Payment tab on the front page of IRS. Amended return form 1040x gov for more information. Amended return form 1040x Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. Amended return form 1040x Figure your income tax withholding with the IRS Withholding Calculator on IRS. Amended return form 1040x gov. Amended return form 1040x Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. Amended return form 1040x Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. Amended return form 1040x gov. Amended return form 1040x Request an Electronic Filing PIN by going to IRS. Amended return form 1040x gov and entering Electronic Filing PIN in the search box. Amended return form 1040x Download forms, instructions and publications, including accessible versions for people with disabilities. Amended return form 1040x Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. Amended return form 1040x gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. Amended return form 1040x An employee can answer questions about your tax account or help you set up a payment plan. Amended return form 1040x Before you visit, check the Office Locator on IRS. Amended return form 1040x gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. Amended return form 1040x If you have a special need, such as a disability, you can request an appointment. Amended return form 1040x Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. Amended return form 1040x Apply for an Employer Identification Number (EIN). Amended return form 1040x Go to IRS. Amended return form 1040x gov and enter Apply for an EIN in the search box. Amended return form 1040x Read the Internal Revenue Code, regulations, or other official guidance. Amended return form 1040x Read Internal Revenue Bulletins. Amended return form 1040x Sign up to receive local and national tax news and more by email. Amended return form 1040x Just click on “subscriptions” above the search box on IRS. Amended return form 1040x gov and choose from a variety of options. Amended return form 1040x    Phone. Amended return form 1040x You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. Amended return form 1040x Download the free IRS2Go app from the iTunes app store or from Google Play. Amended return form 1040x Call to locate the nearest volunteer help site, 1-800-906-9887 or you can use the VITA Locator Tool on IRS. Amended return form 1040x gov, or download the IRS2Go app. Amended return form 1040x Low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Amended return form 1040x The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Amended return form 1040x Mos
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Online Videos and Podcasts of the Appeals Process

2011 IRS Nationwide Tax Forum Videos

2009 IRS Nationwide Tax Forum Videos

The Appeals Process-Videos
The first video provides an overview of appealing a tax dispute and the IRS Office of Appeals. The other two videos, each approximately 9 to 10 minutes long, take you through the Appeals process and your appeal rights.

The Appeals Process-Podcasts 
The following audio podcasts, less than 5 minutes long, offers you general information about Appeals.

Page Last Reviewed or Updated: 21-Mar-2013

The Amended Return Form 1040x

Amended return form 1040x 4. Amended return form 1040x   Special Situations Table of Contents Condominiums CooperativesDepreciation Property Changed to Rental UseBasis of Property Changed to Rental Use Figuring the Depreciation Deduction Renting Part of Property Not Rented for ProfitPostponing decision. Amended return form 1040x Example—Property Changed to Rental Use This chapter discusses some rental real estate activities that are subject to additional rules. Amended return form 1040x Condominiums A condominium is most often a dwelling unit in a multi-unit building, but can also take other forms, such as a townhouse or garden apartment. Amended return form 1040x If you own a condominium, you also own a share of the common elements, such as land, lobbies, elevators, and service areas. Amended return form 1040x You and the other condominium owners may pay dues or assessments to a special corporation that is organized to take care of the common elements. Amended return form 1040x Special rules apply if you rent your condominium to others. Amended return form 1040x You can deduct as rental expenses all the expenses discussed in chapters 1 and 2. Amended return form 1040x In addition, you can deduct any dues or assessments paid for maintenance of the common elements. Amended return form 1040x You cannot deduct special assessments you pay to a condominium management corporation for improvements. Amended return form 1040x However, you may be able to recover your share of the cost of any improvement by taking depreciation. Amended return form 1040x Cooperatives If you live in a cooperative, you do not own your apartment. Amended return form 1040x Instead, a corporation owns the apartments and you are a tenant-stockholder in the cooperative housing corporation. Amended return form 1040x If you rent your apartment to others, you usually can deduct, as a rental expense, all the maintenance fees you pay to the cooperative housing corporation. Amended return form 1040x In addition to the maintenance fees paid to the cooperative housing corporation, you can deduct your direct payments for repairs, upkeep, and other rental expenses, including interest paid on a loan used to buy your stock in the corporation. Amended return form 1040x Depreciation You will be depreciating your stock in the corporation rather than the apartment itself. Amended return form 1040x Figure your depreciation deduction as follows. Amended return form 1040x Figure the depreciation for all the depreciable real property owned by the corporation. Amended return form 1040x (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. Amended return form 1040x ) If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. Amended return form 1040x Multiply your cost per share by the total number of outstanding shares. Amended return form 1040x Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. Amended return form 1040x Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. Amended return form 1040x Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. Amended return form 1040x Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Amended return form 1040x Multiply the result of (2) by the percentage you figured in (3). Amended return form 1040x This is your depreciation on the stock. Amended return form 1040x Your depreciation deduction for the year cannot be more than the part of your adjusted basis (defined in chapter 2) in the stock of the corporation that is allocable to your rental property. Amended return form 1040x Payments added to capital account. Amended return form 1040x   Payments earmarked for a capital asset or improvement, or otherwise charged to the corporation's capital account are added to the basis of your stock in the corporation. Amended return form 1040x For example, you cannot deduct a payment used to pave a community parking lot, install a new roof, or pay the principal of the corporation's mortgage. Amended return form 1040x   Treat as a capital cost the amount you were assessed for capital items. Amended return form 1040x This cannot be more than the amount by which your payments to the corporation exceeded your share of the corporation's mortgage interest and real estate taxes. Amended return form 1040x   Your share of interest and taxes is the amount the corporation elected to allocate to you, if it reasonably reflects those expenses for your apartment. Amended return form 1040x Otherwise, figure your share in the following manner. Amended return form 1040x Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Amended return form 1040x Multiply the corporation's deductible interest by the number you figured in (1). Amended return form 1040x This is your share of the interest. Amended return form 1040x Multiply the corporation's deductible taxes by the number you figured in (1). Amended return form 1040x This is your share of the taxes. Amended return form 1040x Property Changed to Rental Use If you change your home or other property (or a part of it) to rental use at any time other than the beginning of your tax year, you must divide yearly expenses, such as taxes and insurance, between rental use and personal use. Amended return form 1040x You can deduct as rental expenses only the part of the expense that is for the part of the year the property was used or held for rental purposes. Amended return form 1040x You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. Amended return form 1040x However, you can include the home mortgage interest, qualified mortgage insurance premiums, and real estate tax expenses for the part of the year the property was held for personal use as an itemized deduction on Schedule A (Form 1040). Amended return form 1040x Example. Amended return form 1040x Your tax year is the calendar year. Amended return form 1040x You moved from your home in May and started renting it out on June 1. Amended return form 1040x You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. Amended return form 1040x Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. Amended return form 1040x When figuring depreciation, treat the property as placed in service on June 1. Amended return form 1040x Basis of Property Changed to Rental Use When you change property you held for personal use to rental use (for example, you rent your former home), the basis for depreciation will be the lesser of fair market value or adjusted basis on the date of conversion. Amended return form 1040x Fair market value. Amended return form 1040x   This is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. Amended return form 1040x Sales of similar property, on or about the same date, may be helpful in figuring the fair market value of the property. Amended return form 1040x Figuring the basis. Amended return form 1040x   The basis for depreciation is the lesser of: The fair market value of the property on the date you changed it to rental use, or Your adjusted basis on the date of the change—that is, your original cost or other basis of the property, plus the cost of permanent additions or improvements since you acquired it, minus deductions for any casualty or theft losses claimed on earlier years' income tax returns and other decreases to basis. Amended return form 1040x For other increases and decreases to basis, see Adjusted Basis in chapter 2. Amended return form 1040x Example. Amended return form 1040x Several years ago you built your home for $140,000 on a lot that cost you $14,000. Amended return form 1040x Before changing the property to rental use this year, you added $28,000 of permanent improvements to the house and claimed a $3,500 casualty loss deduction for damage to the house. Amended return form 1040x Part of the improvements qualified for a $500 residential energy credit, which you claimed on your 2010 tax return. Amended return form 1040x Because land is not depreciable, you can only include the cost of the house when figuring the basis for depreciation. Amended return form 1040x The adjusted basis of the house at the time of the change in its use was $164,000 ($140,000 + $28,000 − $3,500 − $500). Amended return form 1040x On the date of the change in use, your property had a fair market value of $168,000, of which $21,000 was for the land and $147,000 was for the house. Amended return form 1040x The basis for depreciation on the house is the fair market value on the date of the change ($147,000), because it is less than your adjusted basis ($164,000). Amended return form 1040x Cooperatives If you change your cooperative apartment to rental use, figure your allowable depreciation as explained earlier. Amended return form 1040x (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. Amended return form 1040x ) The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. Amended return form 1040x The fair market value of the property on the date you change your apartment to rental use. Amended return form 1040x This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. Amended return form 1040x The corporation's adjusted basis in the property on that date. Amended return form 1040x Do not subtract depreciation when figuring the corporation's adjusted basis. Amended return form 1040x If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1) under Depreciation (under Cooperatives, near the beginning of this chapter). Amended return form 1040x The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. Amended return form 1040x Figuring the Depreciation Deduction To figure the deduction, use the depreciation system in effect when you convert your residence to rental use. Amended return form 1040x Generally, that will be MACRS for any conversion after 1986. Amended return form 1040x Treat the property as placed in service on the conversion date. Amended return form 1040x Example. Amended return form 1040x Your converted residence (see previous example under Figuring the basis) was available for rent on August 1. Amended return form 1040x Using Table 2-2d (see chapter 2), the percentage for Year 1 beginning in August is 1. Amended return form 1040x 364% and the depreciation deduction for Year 1 is $2,005 ($147,000 × . Amended return form 1040x 01364). Amended return form 1040x Renting Part of Property If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property. Amended return form 1040x You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). Amended return form 1040x You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity, or painting the outside of the house. Amended return form 1040x There is no change in the types of expenses deductible for the personal-use part of your property. Amended return form 1040x Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). Amended return form 1040x You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. Amended return form 1040x You do not have to divide the expenses that belong only to the rental part of your property. Amended return form 1040x For example, if you paint a room that you rent, or if you pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense. Amended return form 1040x If you install a second phone line strictly for your tenant's use, all of the cost of the second line is deductible as a rental expense. Amended return form 1040x You can deduct depreciation on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. Amended return form 1040x How to divide expenses. Amended return form 1040x   If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between rental use and personal use. Amended return form 1040x You can use any reasonable method for dividing the expense. Amended return form 1040x It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. Amended return form 1040x The two most common methods for dividing an expense are (1) the number of rooms in your home, and (2) the square footage of your home. Amended return form 1040x Example. Amended return form 1040x You rent a room in your house. Amended return form 1040x The room is 12 × 15 feet, or 180 square feet. Amended return form 1040x Your entire house has 1,800 square feet of floor space. Amended return form 1040x You can deduct as a rental expense 10% of any expense that must be divided between rental use and personal use. Amended return form 1040x If your heating bill for the year for the entire house was $600, $60 ($600 × . Amended return form 1040x 10) is a rental expense. Amended return form 1040x The balance, $540, is a personal expense that you cannot deduct. Amended return form 1040x Duplex. Amended return form 1040x   A common situation is the duplex where you live in one unit and rent out the other. Amended return form 1040x Certain expenses apply to the entire property, such as mortgage interest and real estate taxes, and must be split to determine rental and personal expenses. Amended return form 1040x Example. Amended return form 1040x You own a duplex and live in one half, renting the other half. Amended return form 1040x Both units are approximately the same size. Amended return form 1040x Last year, you paid a total of $10,000 mortgage interest and $2,000 real estate taxes for the entire property. Amended return form 1040x You can deduct $5,000 mortgage interest and $1,000 real estate taxes on Schedule E (Form 1040), and if you itemize your deductions, you can deduct the other $5,000 mortgage interest and $1,000 real estate taxes on Schedule A (Form 1040). Amended return form 1040x Not Rented for Profit If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. Amended return form 1040x You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. Amended return form 1040x Where to report. Amended return form 1040x   Report your not-for-profit rental income on Form 1040 or 1040NR, line 21. Amended return form 1040x For example, if you are filing Form 1040, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. Amended return form 1040x   If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Schedule A (Form 1040), line 23, or Schedule A (Form 1040NR), line 9. Amended return form 1040x You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. Amended return form 1040x Presumption of profit. Amended return form 1040x   If your rental income is more than your rental expenses for at least 3 years out of a period of 5 consecutive years, you are presumed to be renting your property to make a profit. Amended return form 1040x Postponing decision. Amended return form 1040x   If you are starting your rental activity and do not have 3 years showing a profit, you can elect to have the presumption made after you have the 5 years of experience required by the test. Amended return form 1040x You may choose to postpone the decision of whether the rental is for profit by filing Form 5213. Amended return form 1040x You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. Amended return form 1040x More information. Amended return form 1040x   For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Publication 535. Amended return form 1040x Example—Property Changed to Rental Use In January, Eileen Johnson bought a condominium apartment to live in. Amended return form 1040x Instead of selling the house she had been living in, she decided to change it to rental property. Amended return form 1040x Eileen selected a tenant and started renting the house on February 1. Amended return form 1040x Eileen charges $750 a month for rent and collects it herself. Amended return form 1040x Eileen also received a $750 security deposit from her tenant. Amended return form 1040x Because she plans to return it to her tenant at the end of the lease, she does not include it in her income. Amended return form 1040x Her rental expenses for the year are as follows. Amended return form 1040x   Mortgage interest $1,800     Fire insurance (1-year policy) 100     Miscellaneous repairs (after renting) 297     Real estate taxes imposed and paid 1,200   Eileen must divide the real estate taxes, mortgage interest, and fire insurance between the personal use of the property and the rental use of the property. Amended return form 1040x She can deduct eleven-twelfths of these expenses as rental expenses. Amended return form 1040x She can include the balance of the allowable taxes and mortgage interest on Schedule A (Form 1040) if she itemizes. Amended return form 1040x She cannot deduct the balance of the fire insurance because it is a personal expense. Amended return form 1040x Eileen bought this house in 1984 for $35,000. Amended return form 1040x Her property tax was based on assessed values of $10,000 for the land and $25,000 for the house. Amended return form 1040x Before changing it to rental property, Eileen added several improvements to the house. Amended return form 1040x She figures her adjusted basis as follows:   Improvements Cost     House $25,000     Remodeled kitchen 4,200     Recreation room 5,800     New roof 1,600     Patio and deck 2,400     Adjusted basis $39,000   On February 1, when Eileen changed her house to rental property, the property had a fair market value of $152,000. Amended return form 1040x Of this amount, $35,000 was for the land and $117,000 was for the house. Amended return form 1040x Because Eileen's adjusted basis is less than the fair market value on the date of the change, Eileen uses $39,000 as her basis for depreciation. Amended return form 1040x As specified for residential rental property, Eileen must use the straight line method of depreciation over the GDS or ADS recovery period. Amended return form 1040x She chooses the GDS recovery period of 27. Amended return form 1040x 5 years. Amended return form 1040x She uses Table 2-2d to find her depreciation percentage. Amended return form 1040x Since she placed the property in service in February, the percentage is 3. Amended return form 1040x 182%. Amended return form 1040x On April 1, Eileen bought a new dishwasher for the rental property at a cost of $425. Amended return form 1040x The dishwasher is personal property used in a rental real estate activity, which has a 5-year recovery period. Amended return form 1040x She uses Table 2-2a to find the percentage for Year 1 under “Half-year convention” (20%) to figure her depreciation deduction. Amended return form 1040x On May 1, Eileen paid $4,000 to have a furnace installed in the house. Amended return form 1040x The furnace is residential rental property. Amended return form 1040x Because she placed the property in service in May, the percentage from Table 2-2d is 2. Amended return form 1040x 273%. Amended return form 1040x Eileen figures her net rental income or loss for the house as follows: Total rental income received  ($750 × 11) $8,250 Minus: Expenses     Mortgage interest ($1,800 × 11/12) $1,650   Fire insurance ($100 × 11/12) 92   Miscellaneous repairs 297   Real estate taxes ($1,200 × 11/12) 1,100   Total expenses 3,139 Balance $5,111 Minus: Depreciation     House ($39,000 × . Amended return form 1040x 03182) $1,241   Dishwasher ($425 × . Amended return form 1040x 20) 85   Furnace ($4,000 × . Amended return form 1040x 02273) 91   Total depreciation 1,417 Net rental income for house   $3,694       Eileen uses Schedule E, Part I, to report her rental income and expenses. Amended return form 1040x She enters her income, expenses, and depreciation for the house in the column for Property A. Amended return form 1040x Since all property was placed in service this year, Eileen must use Form 4562 to figure the depreciation. Amended return form 1040x See the Instructions for Form 4562 for more information on preparing the form. Amended return form 1040x Prev  Up  Next   Home   More Online Publications