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Do State Taxes Free

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Do State Taxes Free

Do state taxes free Internal Revenue Bulletin:  2011-12  March 21, 2011  Rev. Do state taxes free Proc. Do state taxes free 2011-21 Table of Contents SECTION 1. Do state taxes free PURPOSE SECTION 2. Do state taxes free BACKGROUND SECTION 3. Do state taxes free SCOPE SECTION 4. Do state taxes free APPLICATION SECTION 5. Do state taxes free EFFECTIVE DATE SECTION 6. Do state taxes free EFFECT ON OTHER DOCUMENTS SECTION 7. Do state taxes free DRAFTING INFORMATION SECTION 1. Do state taxes free PURPOSE This revenue procedure provides: (1) limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2011, including separate tables of limitations on depreciation deductions for trucks and vans; (2) the amounts that must be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2011, including a separate table of inclusion amounts for lessees of trucks and vans; and (3) revised tables of depreciation limitations and lessee inclusion amounts for passenger automobiles that were first placed in service or first leased by the taxpayer, respectively, during 2010 and to which the 50 percent additional first year depreciation deduction under § 168(k)(1)(A) of the Internal Revenue Code or the 100 percent additional first year depreciation deduction under § 168(k)(5) applies. Do state taxes free The tables detailing these depreciation limitations and lessee inclusion amounts reflect the automobile price inflation adjustments required by § 280F(d)(7). Do state taxes free SECTION 2. Do state taxes free BACKGROUND . Do state taxes free 01 For owners of passenger automobiles, § 280F(a) imposes dollar limitations on the depreciation deduction for the year the taxpayer places the passenger automobile in service and for each succeeding year. Do state taxes free For passenger automobiles placed in service after 1988, § 280F(d)(7) requires the Internal Revenue Service to increase the amounts allowable as depreciation deductions by a price inflation adjustment amount. Do state taxes free The method of calculating this price inflation amount for trucks and vans placed in service in or after calendar year 2003 uses a different CPI “automobile component” (the “new trucks” component) than that used in the price inflation amount calculation for other passenger automobiles (the “new cars” component), resulting in somewhat higher depreciation deductions for trucks and vans. Do state taxes free This change reflects the higher rate of price inflation for trucks and vans since 1988. Do state taxes free . Do state taxes free 02 Section 2022(a) of the Small Business Jobs Act of 2010, Pub. Do state taxes free L. Do state taxes free No. Do state taxes free 111-240, 124 Stat. Do state taxes free 2504 (September 27, 2010), extended the 50 percent additional first year depreciation deduction under § 168(k) to qualified property (as defined in § 168(k)(2)) acquired by the taxpayer after December 31, 2007, and before January 1, 2011, if no written binding contract for the acquisition of the property existed before January 1, 2008, and if the taxpayer places the property in service generally before January 1, 2011. Do state taxes free Section 401(a) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. Do state taxes free L. Do state taxes free No. Do state taxes free 111-312, 124 Stat. Do state taxes free 3296 (Dec. Do state taxes free 17, 2010) (the “Act”) further extended the 50 percent additional first year depreciation deduction under § 168(k) to qualified property acquired by the taxpayer after December 31, 2007, and before January 1, 2013, if no written binding contract for the acquisition of the property existed before January 1, 2008, and if the taxpayer places the property in service generally before January 1, 2013. Do state taxes free Section 401(b) of the Act further amended § 168(k) by adding § 168(k)(5). Do state taxes free It allows a 100 percent additional first year depreciation deduction for qualified property acquired by a taxpayer after September 8, 2010, and before January 1, 2012, if the taxpayer places the property in service generally before January 1, 2012. Do state taxes free Section 168(k)(2)(F)(i) increases the first year depreciation allowed under § 280F(a)(1)(A)(i) by $8,000 for passenger automobiles to which the additional first year depreciation deduction under § 168(k) (hereinafter, referred to as “§ 168(k) additional first year depreciation deduction”) applies. Do state taxes free . Do state taxes free 03 Section 168(k)(2)(D)(i) provides that the § 168(k) additional first year depreciation deduction does not apply to any property required to be depreciated under the alternative depreciation system of § 168(g), including property described in § 280F(b)(1). Do state taxes free Section 168(k)(2)(D)(iii) permits a taxpayer to elect out of the § 168(k) additional first year depreciation deduction for any class of property. Do state taxes free Section 168(k)(4), as amended by the Act, permits a corporation to elect to increase the alternative minimum tax (“AMT”) credit limitation under § 53(c), instead of claiming the § 168(k) additional first year depreciation deduction for all eligible qualified property placed in service after December 31, 2010, that is round 2 extension property (as defined in § 168(k)(4)(I)(iv). Do state taxes free Accordingly, this revenue procedure provides tables for passenger automobiles for which the § 168(k) additional first year depreciation deduction applies. Do state taxes free This revenue procedure also provides tables for passenger automobiles for which the § 168(k) additional first year depreciation deduction does not apply, either because taxpayer (1) purchased the passenger automobile used; (2) did not use the passenger automobile during 2011 more than 50 percent for business purposes; (3) elected out of the § 168(k) additional first year depreciation deduction pursuant to § 168(k)(2)(D)(iii); or (4) elected to increase the § 53 AMT credit limitation in lieu of claiming § 168(k) additional first year depreciation. Do state taxes free . Do state taxes free 04 Section 280F(c) requires a reduction in the deduction allowed to the lessee of a leased passenger automobile. Do state taxes free The reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. Do state taxes free Under § 1. Do state taxes free 280F-7(a) of the Income Tax Regulations, this reduction requires a lessee to include in gross income an amount determined by applying a formula to the amount obtained from a table. Do state taxes free One table applies to lessees of trucks and vans and another table applies to all other passenger automobiles. Do state taxes free Each table shows inclusion amounts for a range of fair market values for each taxable year after the passenger automobile is first leased. Do state taxes free SECTION 3. Do state taxes free SCOPE . Do state taxes free 01 The limitations on depreciation deductions in section 4. Do state taxes free 01(2) of this revenue procedure apply to passenger automobiles (other than leased passenger automobiles) that are placed in service by the taxpayer in calendar year 2011, and continue to apply for each taxable year that the passenger automobile remains in service. Do state taxes free . Do state taxes free 02 The tables in section 4. Do state taxes free 02 of this revenue procedure apply to leased passenger automobiles for which the lease term begins during calendar year 2011. Do state taxes free Lessees of these passenger automobiles must use these tables to determine the inclusion amount for each taxable year during which the passenger automobile is leased. Do state taxes free See Rev. Do state taxes free Proc. Do state taxes free 2006-18, 2006-1 C. Do state taxes free B. Do state taxes free 645, for passenger automobiles first leased during calendar year 2006; Rev. Do state taxes free Proc. Do state taxes free 2007-30, 2007-1 C. Do state taxes free B. Do state taxes free 1104, for passenger automobiles first leased during calendar year 2007; Rev. Do state taxes free Proc. Do state taxes free 2008-22, 2008-1 C. Do state taxes free B. Do state taxes free 658, for passenger automobiles first leased during calendar year 2008; Rev. Do state taxes free Proc. Do state taxes free 2009-24, 2009-1 C. Do state taxes free B. Do state taxes free 885, for passenger automobiles first leased during calendar year 2009; and Rev. Do state taxes free Proc. Do state taxes free 2010-18, 2010-1 C. Do state taxes free B. Do state taxes free 427, as amplified and modified by section 4. Do state taxes free 03 of this revenue procedure, for passenger automobiles first leased during calendar year 2010. Do state taxes free SECTION 4. Do state taxes free APPLICATION . Do state taxes free 01 Limitations on Depreciation Deductions for Certain Automobiles. Do state taxes free (1) Amount of the inflation adjustment. Do state taxes free (a) Passenger automobiles (other than trucks or vans). Do state taxes free Under § 280F(d)(7)(B)(i), the automobile price inflation adjustment for any calendar year is the percentage (if any) by which the CPI automobile component for October of the preceding calendar year exceeds the CPI automobile component for October 1987. Do state taxes free Section 280F(d)(7)(B)(ii) defines the term “CPI automobile component” as the automobile component of the Consumer Price Index for all Urban Consumers published by the Department of Labor. Do state taxes free The new car component of the CPI was 115. Do state taxes free 2 for October 1987 and 137. Do state taxes free 880 for October 2010. Do state taxes free The October 2010 index exceeded the October 1987 index by 22. Do state taxes free 680. Do state taxes free Therefore, the automobile price inflation adjustment for 2011 for passenger automobiles (other than trucks and vans) is 19. Do state taxes free 69 percent (22. Do state taxes free 680/115. Do state taxes free 2 x 100%). Do state taxes free The dollar limitations in § 280F(a) are multiplied by a factor of 0. Do state taxes free 1969, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to passenger automobiles (other than trucks and vans) for calendar year 2011. Do state taxes free This adjustment applies to all passenger automobiles (other than trucks and vans) that are first placed in service in calendar year 2011. Do state taxes free (b) Trucks and vans. Do state taxes free To determine the dollar limitations for trucks and vans first placed in service during calendar year 2011, the Service uses the new truck component of the CPI instead of the new car component. Do state taxes free The new truck component of the CPI was 112. Do state taxes free 4 for October 1987 and 142. Do state taxes free 556 for October 2010. Do state taxes free The October 2010 index exceeded the October 1987 index by 30. Do state taxes free 156. Do state taxes free Therefore, the automobile price inflation adjustment for 2011 for trucks and vans is 26. Do state taxes free 83 percent (30. Do state taxes free 156/112. Do state taxes free 4 x 100%). Do state taxes free The dollar limitations in § 280F(a) are multiplied by a factor of 0. Do state taxes free 2683, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations for trucks and vans. Do state taxes free This adjustment applies to all trucks and vans that are first placed in service in calendar year 2011. Do state taxes free (2) Amount of the limitation. Do state taxes free Tables 1 through 4 contain the dollar amount of the depreciation limitation for each taxable year for passenger automobiles a taxpayer places in service in calendar year 2011. Do state taxes free Use Table 1 for a passenger automobile (other than a truck or van), and Table 2 for a truck or van, placed in service in calendar year 2011 for which the § 168(k) additional first year depreciation deduction applies. Do state taxes free Use Table 3 for a passenger automobile (other than a truck or van), and Table 4 for a truck or van, placed in service in calendar year 2011 for which the § 168(k) additional first year depreciation deduction does not apply. Do state taxes free The Service intends to issue additional guidance addressing the interaction between the 100 percent additional first year depreciation deduction and § 280F(a) for the taxable years subsequent to the first taxable year. Do state taxes free REV. Do state taxes free PROC. Do state taxes free 2011-21 TABLE 1 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE IN CALENDAR YEAR 2011 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,060 2nd Tax Year $4,900 3rd Tax Year $2,950 Each Succeeding Year $1,775 REV. Do state taxes free PROC. Do state taxes free 2011-21 TABLE 2 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE IN CALENDAR YEAR 2011 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,260 2nd Tax Year $5,200 3rd Tax Year $3,150 Each Succeeding Year $1,875 REV. Do state taxes free PROC. Do state taxes free 2011-21 TABLE 3 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE IN CALENDAR YEAR 2011 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $3,060 2nd Tax Year $4,900 3rd Tax Year $2,950 Each Succeeding Year $1,775 REV. Do state taxes free PROC. Do state taxes free 2011-21 TABLE 4 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE IN CALENDAR YEAR 2011 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $3,260 2nd Tax Year $5,200 3rd Tax Year $3,150 Each Succeeding Year $1,875 . Do state taxes free 02 Inclusions in Income of Lessees of Passenger Automobiles. Do state taxes free A taxpayer must follow the procedures in § 1. Do state taxes free 280F-7(a) for determining the inclusion amounts for passenger automobiles first leased in calendar year 2011. Do state taxes free In applying these procedures, lessees of passenger automobiles other than trucks and vans should use Table 5 of this revenue procedure, while lessees of trucks and vans should use Table 6 of this revenue procedure. Do state taxes free REV. Do state taxes free PROC. Do state taxes free 2011-21 TABLE 5 DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2011 Fair Market Value of Passenger Automobile Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & later $18,500 $19,000 3 8 11 13 16 19,000 19,500 4 9 13 15 18 19,500 20,000 4 10 15 17 20 20,000 20,500 5 11 16 19 23 20,500 21,000 5 12 18 21 25 21,000 21,500 6 13 19 24 26 21,500 22,000 6 14 21 26 29 22,000 23,000 7 16 23 29 32 23,000 24,000 8 18 27 32 37 24,000 25,000 9 20 30 36 42 25,000 26,000 10 23 33 40 46 26,000 27,000 11 25 36 44 51 27,000 28,000 12 27 40 48 55 28,000 29,000 13 29 43 52 60 29,000 30,000 14 31 47 55 65 30,000 31,000 15 34 49 60 69 31,000 32,000 16 36 53 63 73 32,000 33,000 17 38 56 68 77 33,000 34,000 18 40 60 71 82 34,000 35,000 19 42 63 75 87 35,000 36,000 20 45 66 79 91 36,000 37,000 21 47 69 83 96 37,000 38,000 22 49 73 87 100 38,000 39,000 23 51 76 91 105 39,000 40,000 24 53 80 94 110 40,000 41,000 25 56 82 99 114 41,000 42,000 26 58 86 102 119 42,000 43,000 27 60 89 107 123 43,000 44,000 28 62 93 110 128 44,000 45,000 29 64 96 114 133 45,000 46,000 30 67 98 119 137 46,000 47,000 31 69 102 122 141 47,000 48,000 32 71 105 127 145 48,000 49,000 33 73 109 130 150 49,000 50,000 34 76 111 134 155 50,000 51,000 35 78 115 138 159 51,000 52,000 36 80 118 142 164 52,000 53,000 37 82 122 146 168 53,000 54,000 38 84 125 150 173 54,000 55,000 39 87 128 153 178 55,000 56,000 40 89 131 158 182 56,000 57,000 41 91 135 161 187 57,000 58,000 42 93 138 166 191 58,000 59,000 43 95 142 169 196 59,000 60,000 44 98 144 174 200 60,000 62,000 46 101 149 179 207 62,000 64,000 48 105 156 187 216 64,000 66,000 50 109 163 195 225 66,000 68,000 52 114 169 203 234 68,000 70,000 54 118 176 211 243 70,000 72,000 56 123 182 218 253 72,000 74,000 58 127 189 226 262 74,000 76,000 60 132 195 234 270 76,000 78,000 62 136 202 242 279 78,000 80,000 64 140 209 250 288 80,000 85,000 67 148 220 264 304 85,000 90,000 72 159 237 283 327 90,000 95,000 77 170 253 303 350 95,000 100,000 82 181 269 323 372 100,000 110,000 90 198 293 352 406 110,000 120,000 100 220 326 391 452 120,000 130,000 110 242 359 430 497 130,000 140,000 120 264 392 469 543 140,000 150,000 130 286 424 509 588 150,000 160,000 140 308 457 548 633 160,000 170,000 150 330 490 587 679 170,000 180,000 160 352 523 626 724 180,000 190,000 170 374 555 666 769 190,000 200,000 180 396 588 705 815 200,000 210,000 190 418 621 744 860 210,000 220,000 200 440 654 784 904 220,000 230,000 210 462 687 823 950 230,000 240,000 220 484 719 863 995 240,000 And up 230 506 752 902 1,040 REV. Do state taxes free PROC. Do state taxes free 2011-21 TABLE 6 DOLLAR AMOUNTS FOR TRUCKS AND VANS WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2011 Fair Market Value of Truck or Van Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & later $19,000 $19,500 3 7 9 12 13 19,500 20,000 3 8 11 14 15 20,000 20,500 4 9 13 15 18 20,500 21,000 4 10 15 17 20 21,000 21,500 5 11 16 20 22 21,500 22,000 5 12 18 22 24 22,000 23,000 6 14 20 24 29 23,000 24,000 7 16 24 28 32 24,000 25,000 8 18 27 32 37 25,000 26,000 9 20 31 36 41 26,000 27,000 10 23 33 40 46 27,000 28,000 11 25 37 43 51 28,000 29,000 12 27 40 48 55 29,000 30,000 13 29 43 52 60 30,000 31,000 14 31 47 56 64 31,000 32,000 15 34 49 60 69 32,000 33,000 16 36 53 63 74 33,000 34,000 17 38 56 68 78 34,000 35,000 18 40 60 71 83 35,000 36,000 19 43 62 76 87 36,000 37,000 20 45 66 79 92 37,000 38,000 21 47 69 83 97 38,000 39,000 22 49 73 87 101 39,000 40,000 23 51 76 91 105 40,000 41,000 24 54 79 95 109 41,000 42,000 25 56 82 99 114 42,000 43,000 26 58 86 103 118 43,000 44,000 27 60 89 107 123 44,000 45,000 28 62 93 110 128 45,000 46,000 29 65 95 115 132 46,000 47,000 30 67 99 118 137 47,000 48,000 31 69 102 123 141 48,000 49,000 32 71 106 126 146 49,000 50,000 33 73 109 130 151 50,000 51,000 34 76 112 134 155 51,000 52,000 35 78 115 138 160 52,000 53,000 36 80 118 143 164 53,000 54,000 37 82 122 146 169 54,000 55,000 38 84 125 150 173 55,000 56,000 39 87 128 154 177 56,000 57,000 40 89 131 158 182 57,000 58,000 41 91 135 162 186 58,000 59,000 42 93 138 166 191 59,000 60,000 43 95 142 169 196 60,000 62,000 45 99 146 175 203 62,000 64,000 47 103 153 183 212 64,000 66,000 49 107 160 191 221 66,000 68,000 51 112 166 199 229 68,000 70,000 53 116 173 206 239 70,000 72,000 55 121 179 214 248 72,000 74,000 57 125 186 222 257 74,000 76,000 59 129 192 231 266 76,000 78,000 61 134 198 239 275 78,000 80,000 63 138 205 246 285 80,000 85,000 66 146 217 260 300 85,000 90,000 71 157 233 280 322 90,000 95,000 76 168 250 299 345 95,000 100,000 81 179 266 319 368 100,000 110,000 89 196 290 348 402 110,000 120,000 99 218 323 387 447 120,000 130,000 109 240 355 427 493 130,000 140,000 119 262 388 466 538 140,000 150,000 129 284 421 505 583 150,000 160,000 139 306 454 544 629 160,000 170,000 149 328 487 583 674 170,000 180,000 159 350 519 623 719 180,000 190,000 169 372 552 662 765 190,000 200,000 179 394 585 701 810 200,000 210,000 189 416 618 740 856 210,000 220,000 199 438 651 779 901 220,000 230,000 209 460 683 819 946 230,000 240,000 219 482 716 858 992 240,000 And up 229 504 749 897 1,037 . Do state taxes free 03 Revised Amounts for Passenger Automobiles Placed in Service During 2010. Do state taxes free (1) Calculation of the Revised Amount. Do state taxes free The revised depreciation limits provided in this section 4. Do state taxes free 03 were calculated by increasing the existing limitations on the first year allowance in Rev. Do state taxes free Proc. Do state taxes free 2010-18 by $8,000 as provided in § 168(k)(2)(F)(i). Do state taxes free (2) Amount of the Revised Limitation. Do state taxes free For passenger automobiles (that are not trucks or vans) placed in service by the taxpayer in calendar year 2010 for which the § 168(k) additional first year depreciation deduction applies, Table 7 of this revenue procedure contains the revised dollar amount of the depreciation limitations for each taxable year. Do state taxes free For trucks or vans placed in service by the taxpayer in calendar year 2010 for which the § 168(k) additional first year depreciation deduction applies, Table 8 of this revenue procedure contains the revised dollar amount of the depreciation limitations for each taxable year. Do state taxes free If the § 168(k) additional first year depreciation deduction does not apply to a passenger automobile placed in service by the taxpayer in calendar year 2010, the depreciation limitations for each taxable year in Tables 1 and 2 of Rev. Do state taxes free Proc. Do state taxes free 2010-18 apply. Do state taxes free REV. Do state taxes free PROC. Do state taxes free 2011-21 TABLE 7 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE IN CALENDAR YEAR 2010 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,060 2nd Tax Year $4,900 3rd Tax Year $2,950 Each Succeeding Year $1,775 REV. Do state taxes free PROC. Do state taxes free 2011-21 TABLE 8 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE IN CALENDAR YEAR 2010 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,160 2nd Tax Year $5,100 3rd Tax Year $3,050 Each Succeeding Year $1,875 (3) Modification to lease inclusion amounts for 2010. Do state taxes free The lease inclusion amounts in Tables 3 and 4 of Rev. Do state taxes free Proc. Do state taxes free 2010-18 are modified by striking the first four lines of the inclusion amounts in each table. Do state taxes free Consequently, Table 3 of Rev. Do state taxes free Proc. Do state taxes free 2010-18 applies to passenger automobiles (other than trucks and vans) that are first leased by the taxpayer in calendar year 2010 with a fair market value over $18,500, and Table 4 of Rev. Do state taxes free Proc. Do state taxes free 2010-18 applies to trucks and vans that are first leased by the taxpayer in calendar year 2010 with a fair market value over $19,000. Do state taxes free SECTION 5. Do state taxes free EFFECTIVE DATE This revenue procedure, with the exception of section 4. Do state taxes free 03, applies to passenger automobiles that a taxpayer first places in service or first leases during calendar year 2011. Do state taxes free Section 4. Do state taxes free 03 of this revenue procedure applies to passenger automobiles that a taxpayer first places in service or first leases during calendar year 2010. Do state taxes free SECTION 6. Do state taxes free EFFECT ON OTHER DOCUMENTS Rev. Do state taxes free Proc. Do state taxes free 2010-18 is amplified and modified. Do state taxes free SECTION 7. Do state taxes free DRAFTING INFORMATION The principal author of this revenue procedure is Bernard P. Do state taxes free Harvey of the Office of Associate Chief Counsel (Income Tax & Accounting). Do state taxes free For further information regarding this revenue procedure, contact Mr. Do state taxes free Harvey at (202) 622-4930 (not a toll-free call). Do state taxes free Prev  Up  Next   Home   More Internal Revenue Bulletins
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Do state taxes free 2. Do state taxes free   Taxable and Nontaxable Income Table of Contents Compensation for Services Retirement Plan DistributionsIndividual Retirement Arrangements (IRAs) Pensions and Annuities Social Security and Equivalent Railroad Retirement BenefitsAre Any of Your Benefits Taxable? How Much Is Taxable? How To Report Your Benefits Lump-Sum Election Repayments More Than Gross Benefits Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Life Insurance ProceedsInstallments for life. Do state taxes free Surviving spouse. Do state taxes free Endowment Contract Proceeds Accelerated Death Benefits Sale of HomeMaximum Amount of Exclusion Ownership and Use Tests Married Persons Business Use or Rental of Home Reporting the Sale Reverse Mortgages Other ItemsWelfare benefits. Do state taxes free Payments from a state fund for victims of crime. Do state taxes free Home Affordable Modification Program (HAMP). Do state taxes free Mortgage assistance payments. Do state taxes free Payments to reduce cost of winter energy use. Do state taxes free Nutrition Program for the Elderly. Do state taxes free Reemployment Trade Adjustment Assistance (RTAA). Do state taxes free Generally, income is taxable unless it is specifically exempt (not taxed) by law. Do state taxes free Your taxable income may include compensation for services, interest, dividends, rents, royalties, income from partnerships, estate or trust income, gain from sales or exchanges of property, and business income of all kinds. Do state taxes free Under special provisions of the law, certain items are partially or fully exempt from tax. Do state taxes free Provisions that are of special interest to older taxpayers are discussed in this chapter. Do state taxes free Compensation for Services Generally, you must include in gross income everything you receive in payment for personal services. Do state taxes free In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. Do state taxes free You need not receive the compensation in cash for it to be taxable. Do state taxes free Payments you receive in the form of goods or services generally must be included in gross income at their fair market value. Do state taxes free Volunteer work. Do state taxes free   Do not include in your gross income amounts you receive for supportive services or reimbursements for out-of-pocket expenses under any of the following volunteer programs. Do state taxes free Retired Senior Volunteer Program (RSVP). Do state taxes free Foster Grandparent Program. Do state taxes free Senior Companion Program. Do state taxes free Service Corps of Retired Executives (SCORE). Do state taxes free Unemployment compensation. Do state taxes free   You must include in income all unemployment compensation you or your spouse (if married filing jointly) received. Do state taxes free More information. Do state taxes free   See Publication 525, Taxable and Nontaxable Income, for more detailed information on specific types of income. Do state taxes free Retirement Plan Distributions This section summarizes the tax treatment of amounts you receive from traditional individual retirement arrangements (IRA), employee pensions or annuities, and disability pensions or annuities. Do state taxes free A traditional IRA is any IRA that is not a Roth or SIMPLE IRA. Do state taxes free A Roth IRA is an individual retirement plan that can be either an account or an annuity and features nondeductible contributions and tax-free distributions. Do state taxes free A SIMPLE IRA is a tax-favored retirement plan that certain small employers (including self-employed individuals) can set up for the benefit of their employees. Do state taxes free More detailed information can be found in Publication 590, Individual Retirement Arrangements (IRAs), and Publication 575, Pension and Annuity Income. Do state taxes free Individual Retirement Arrangements (IRAs) In general, distributions from a traditional IRA are taxable in the year you receive them. Do state taxes free Exceptions to the general rule are rollovers, tax-free withdrawals of contributions, and the return of nondeductible contributions. Do state taxes free These are discussed in Publication 590. Do state taxes free If you made nondeductible contributions to a traditional IRA, you must file Form 8606, Nondeductible IRAs. Do state taxes free If you do not file Form 8606 with your return, you may have to pay a $50 penalty. Do state taxes free Also, when you receive distributions from your traditional IRA, the amounts will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. Do state taxes free Early distributions. Do state taxes free   Generally, early distributions are amounts distributed from your traditional IRA account or annuity before you are age 59½, or amounts you receive when you cash in retirement bonds before you are age  59½. Do state taxes free You must include early distributions of taxable amounts in your gross income. Do state taxes free These taxable amounts are also subject to an additional 10% tax unless the distribution qualifies for an exception. Do state taxes free For purposes of the additional 10% tax, an IRA is a qualified retirement plan. Do state taxes free For more information about this tax, see Tax on Early Distributions under Pensions and Annuities, later. Do state taxes free After age 59½ and before age 70½. Do state taxes free   After you reach age 59½, you can receive distributions from your traditional IRA without having to pay the 10% additional tax. Do state taxes free Even though you can receive distributions after you reach age 59½, distributions are not required until you reach  age 70½. Do state taxes free Required distributions. Do state taxes free   If you are the owner of a traditional IRA, you generally must receive the entire balance in your IRA or start receiving periodic distributions from your IRA by April 1 of the year following the year in which you reach age 70½. Do state taxes free See When Must You Withdraw Assets? (Required Minimum Distributions) in Publication 590. Do state taxes free If distributions from your traditional IRA(s) are less than the required minimum distribution for the year, you may have to pay a 50% excise tax for that year on the amount not distributed as required. Do state taxes free For purposes of the 50% excise tax, an IRA is a qualified retirement plan. Do state taxes free For more information about this tax, see Tax on Excess Accumulation under Pensions and Annuities, later. Do state taxes free See also Excess Accumulations (Insufficient Distributions) in Publication 590. Do state taxes free Pensions and Annuities Generally, if you did not pay any part of the cost of your employee pension or annuity, and your employer did not withhold part of the cost of the contract from your pay while you worked, the amounts you receive each year are fully taxable. Do state taxes free However, see Insurance Premiums for Retired Public Safety Officers , later. Do state taxes free If you paid part of the cost of your pension or annuity plan (see Cost , later), you can exclude part of each annuity payment from income as a recovery of your cost (investment in the contract). Do state taxes free This tax-free part of the payment is figured when your annuity starts and remains the same each year, even if the amount of the payment changes. Do state taxes free The rest of each payment is taxable. Do state taxes free However, see Insurance Premiums for Retired Public Safety Officers , later. Do state taxes free You figure the tax-free part of the payment using one of the following methods. Do state taxes free Simplified Method. Do state taxes free You generally must use this method if your annuity is paid under a qualified plan (a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity plan or contract). Do state taxes free You cannot use this method if your annuity is paid under a nonqualified plan. Do state taxes free General Rule. Do state taxes free You must use this method if your annuity is paid under a nonqualified plan. Do state taxes free You generally cannot use this method if your annuity is paid under a qualified plan. Do state taxes free Contact your employer or plan administrator to find out if your pension or annuity is paid under a qualified or nonqualified plan. Do state taxes free You determine which method to use when you first begin receiving your annuity, and you continue using it each year that you recover part of your cost. Do state taxes free Exclusion limit. Do state taxes free   If your annuity starting date is after 1986, the total amount of annuity income you can exclude over the years as a recovery of the cost cannot exceed your total cost. Do state taxes free Any unrecovered cost at your (or the last annuitant's) death is allowed as a miscellaneous itemized deduction on the final return of the decedent. Do state taxes free This deduction is not subject to the 2%-of-adjusted-gross-income limit on miscellaneous deductions. Do state taxes free   If you contributed to your pension or annuity and your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. Do state taxes free If you chose a joint and survivor annuity, your survivor can continue to take the survivor's exclusion figured as of the annuity starting date. Do state taxes free The total exclusion may be more than your cost. Do state taxes free Cost. Do state taxes free   Before you can figure how much, if any, of your pension or annuity benefits are taxable, you must determine your cost in the plan (your investment in the contract). Do state taxes free Your total cost in the plan includes everything that you paid. Do state taxes free It also includes amounts your employer contributed that were taxable to you when paid. Do state taxes free However, see Foreign employment contributions , later. Do state taxes free   From this total cost, subtract any refunded premiums, rebates, dividends, unrepaid loans, or other tax-free amounts you received by the later of the annuity starting date or the date on which you received your first payment. Do state taxes free   The annuity starting date is the later of the first day of the first period for which you received a payment from the plan or the date on which the plan's obligations became fixed. Do state taxes free    The amount of your contributions to the plan may be shown in box 9b of any Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Do state taxes free , that you receive. Do state taxes free Foreign employment contributions. Do state taxes free   If you worked abroad, certain amounts your employer paid into your retirement plan that were not includible in your gross income may be considered part of your cost. Do state taxes free For details, see Foreign employment contributions in Publication 575. Do state taxes free Withholding. Do state taxes free   The payer of your pension, profit-sharing, stock bonus, annuity, or deferred compensation plan will withhold income tax on the taxable part of amounts paid to you. Do state taxes free However, you can choose not to have tax withheld on the payments you receive, unless they are eligible rollover distributions. Do state taxes free (These are distributions that are eligible for rollover treatment but are not paid directly to another qualified retirement plan or to a traditional IRA. Do state taxes free ) See Withholding Tax and Estimated Tax and Rollovers in Publication 575 for more information. Do state taxes free   For payments other than eligible rollover distributions, you can tell the payer how much to withhold by filing a Form W-4P, Withholding Certificate for Pension or Annuity Payments. Do state taxes free Simplified Method. Do state taxes free   Under the Simplified Method, you figure the tax-free part of each annuity payment by dividing your cost by the total number of anticipated monthly payments. Do state taxes free For an annuity that is payable over the lives of the annuitants, this number is based on the annuitants' ages on the annuity starting date and is determined from a table. Do state taxes free For any other annuity, this number is the number of monthly annuity payments under the contract. Do state taxes free Who must use the Simplified Method. Do state taxes free   You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you receive your pension or annuity payments from a qualified plan or annuity, unless you were at least 75 years old and entitled to at least 5 years of guaranteed payments (defined next). Do state taxes free   In addition, if your annuity starting date is after July 1, 1986, and before November 19, 1996, you could have chosen to use the Simplified Method for payments from a qualified plan, unless you were at least 75 years old and entitled to at least 5 years of guaranteed payments. Do state taxes free If you chose to use the Simplified Method, you must continue to use it each year that you recover part of your cost. Do state taxes free Guaranteed payments. Do state taxes free   Your annuity contract provides guaranteed payments if a minimum number of payments or a minimum amount (for example, the amount of your investment) is payable even if you and any survivor annuitant do not live to receive the minimum. Do state taxes free If the minimum amount is less than the total amount of the payments you are to receive, barring death, during the first 5 years after payments begin (figured by ignoring any payment increases), you are entitled to less than 5 years of guaranteed payments. Do state taxes free Who cannot use the Simplified Method. Do state taxes free   You cannot use the Simplified Method and must use the General Rule if you receive pension or annuity payments from: A nonqualified plan, such as a private annuity, a purchased commercial annuity, or a nonqualified employee plan, or A qualified plan if you are age 75 or older on your annuity starting date and you are entitled to at least 5 years of guaranteed payments (defined above). Do state taxes free   In addition, you had to use the General Rule for either circumstance described above if your annuity starting date is after July 1, 1986, and before November 19, 1996. Do state taxes free If you did not have to use the General Rule, you could have chosen to use it. Do state taxes free You also had to use the General Rule for payments from a qualified plan if your annuity starting date is before July 2, 1986, and you did not qualify to use the Three-Year Rule. Do state taxes free   If you had to use the General Rule (or chose to use it), you must continue to use it each year that you recover your cost. Do state taxes free   Unless your annuity starting date was before 1987, once you have recovered all of your non-taxable investment, all of each remaining payment you receive is fully taxable. Do state taxes free Once your remaining payments are fully taxable, there is no longer a concern with the General Rule or Simplified Method. Do state taxes free   Complete information on the General Rule, including the actuarial tables you need, is contained in Publication 939, General Rule for Pensions and Annuities. Do state taxes free How to use the Simplified Method. Do state taxes free   Complete the Simplified Method Worksheet in the Form 1040, Form 1040A, or Form 1040NR instructions or in Publication 575 to figure your taxable annuity for 2013. Do state taxes free Be sure to keep the completed worksheet; it will help you figure your taxable annuity next year. Do state taxes free   To complete line 3 of the worksheet, you must determine the total number of expected monthly payments for your annuity. Do state taxes free How you do this depends on whether the annuity is for a single life, multiple lives, or a fixed period. Do state taxes free For this purpose, treat an annuity that is payable over the life of an annuitant as payable for that annuitant's life even if the annuity has a fixed-period feature or also provides a temporary annuity payable to the annuitant's child under age 25. Do state taxes free    You do not need to complete line 3 of the worksheet or make the computation on line 4 if you received annuity payments last year and used last year's worksheet to figure your taxable annuity. Do state taxes free Instead, enter the amount from line 4 of last year's worksheet on line 4 of this year's worksheet. Do state taxes free Single-life annuity. Do state taxes free   If your annuity is payable for your life alone, use Table 1 at the bottom of the worksheet to determine the total number of expected monthly payments. Do state taxes free Enter on line 3 the number shown for your age on your annuity starting date. Do state taxes free This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Do state taxes free Multiple-lives annuity. Do state taxes free   If your annuity is payable for the lives of more than one annuitant, use Table 2 at the bottom of the worksheet to determine the total number of expected monthly payments. Do state taxes free Enter on line 3 the number shown for the annuitants' combined ages on the annuity starting date. Do state taxes free For an annuity payable to you as the primary annuitant and to more than one survivor annuitant, combine your age and the age of the youngest survivor annuitant. Do state taxes free For an annuity that has no primary annuitant and is payable to you and others as survivor annuitants, combine the ages of the oldest and youngest annuitants. Do state taxes free Do not treat as a survivor annuitant anyone whose entitlement to payments depends on an event other than the primary annuitant's death. Do state taxes free   However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages. Do state taxes free Instead, you must use Table 1 at the bottom of the worksheet and enter on line 3 the number shown for the primary annuitant's age on the annuity starting date. Do state taxes free This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Do state taxes free Fixed-period annuities. Do state taxes free   If your annuity does not depend in whole or in part on anyone's life expectancy, the total number of expected monthly payments to enter on line 3 of the worksheet is the number of monthly annuity payments under the contract. Do state taxes free Line 6. Do state taxes free   The amount on line 6 should include all amounts that could have been recovered in prior years. Do state taxes free If you did not recover an amount in a prior year, you may be able to amend your returns for the affected years. Do state taxes free    Be sure to keep a copy of the completed worksheet; it will help you figure your taxable annuity in later years. Do state taxes free Example. Do state taxes free Bill Smith, age 65, began receiving retirement benefits in 2013, under a joint and survivor annuity. Do state taxes free Bill's annuity starting date is January 1, 2013. Do state taxes free The benefits are to be paid over the joint lives of Bill and his wife, Kathy, age 65. Do state taxes free Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. Do state taxes free Bill is to receive a retirement benefit of $1,200 a month, and Kathy is to receive a monthly survivor benefit of $600 upon Bill's death. Do state taxes free Bill must use the Simplified Method to figure his taxable annuity because his payments are from a qualified plan and he is under age 75. Do state taxes free See the illustrated Worksheet 2-A, Simplified Method Worksheet, later. Do state taxes free You can find a blank version of this worksheet in Publication 575. Do state taxes free (The references in the illustrated worksheet are to sections in Publication 575). Do state taxes free His annuity is payable over the lives of more than one annuitant, so Bill uses his and Kathy's combined ages, 130 (65 + 65), and Table 2 at the bottom of the worksheet in completing line 3 of the worksheet and finds the line 3 amount to be 310. Do state taxes free Bill's tax-free monthly amount is $100 ($31,000 ÷ 310 as shown on line 4 of the worksheet). Do state taxes free Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. Do state taxes free The full amount of any annuity payments received after 310 payments are paid must generally be included in gross income. Do state taxes free If Bill and Kathy die before 310 payments are made, a miscellaneous itemized deduction will be allowed for the unrecovered cost on the final income tax return of the last to die. Do state taxes free This deduction is not subject to the 2%-of-adjusted-gross-income limit. Do state taxes free Worksheet 2-A. Do state taxes free Simplified Method Worksheet—Illustrated 1. Do state taxes free Enter the total pension or annuity payments received this year. Do state taxes free Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Do state taxes free $ 14,400 2. Do state taxes free Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion* See Cost (Investment in the Contract), earlier 2. Do state taxes free 31,000   Note. Do state taxes free If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if the amount of your pension or annuity has changed). Do state taxes free Otherwise, go to line 3. Do state taxes free     3. Do state taxes free Enter the appropriate number from Table 1 below. Do state taxes free But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2 below 3. Do state taxes free 310 4. Do state taxes free Divide line 2 by the number on line 3 4. Do state taxes free 100 5. Do state taxes free Multiply line 4 by the number of months for which this year's payments were made. Do state taxes free If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Do state taxes free Otherwise, go to line 6 5. Do state taxes free 1,200 6. Do state taxes free Enter any amount previously recovered tax free in years after 1986. Do state taxes free This is the amount shown on line 10 of your worksheet for last year 6. Do state taxes free 0 7. Do state taxes free Subtract line 6 from line 2 7. Do state taxes free 31,000 8. Do state taxes free Enter the smaller of line 5 or line 7 8. Do state taxes free 1,200 9. Do state taxes free Taxable amount for year. Do state taxes free Subtract line 8 from line 1. Do state taxes free Enter the result, but not less than zero. Do state taxes free Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Do state taxes free Note. Do state taxes free If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. Do state taxes free If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers, earlier, before entering an amount on your tax return. Do state taxes free 9. Do state taxes free $ 13,200 10. Do state taxes free Was your annuity starting date before 1987? □ Yes. Do state taxes free STOP. Do state taxes free Do not complete the rest of this worksheet. Do state taxes free  ☑ No. Do state taxes free Add lines 6 and 8. Do state taxes free This is the amount you have recovered tax free through 2013. Do state taxes free You will need this number if you need to fill out this worksheet next year. Do state taxes free 10. Do state taxes free 1,200 11. Do state taxes free Balance of cost to be recovered. Do state taxes free Subtract line 10 from line 2. Do state taxes free If zero, you will not have to complete this worksheet next year. Do state taxes free The payments you receive next year will generally be fully taxable 11. Do state taxes free $ 29,800 * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. Do state taxes free   Table 1 for Line 3 Above       AND your annuity starting date was—   IF your age on your annuity starting date was . Do state taxes free . Do state taxes free . Do state taxes free   BEFORE November 19, 1996, enter on line 3 . Do state taxes free . Do state taxes free . Do state taxes free AFTER November 18, 1996, enter on line 3 . Do state taxes free . Do state taxes free . Do state taxes free   55 or under 300 360   56-60 260 310   61-65 240 260   66-70 170 210   71 or over 120 160 Table 2 for Line 3 Above   IF the annuitants' combined ages on your annuity starting date were . Do state taxes free . Do state taxes free . Do state taxes free   THEN enter on line 3 . Do state taxes free . Do state taxes free . Do state taxes free         110 or under   410         111-120   360         121-130   310         131-140   260         141 or over   210       Survivors of retirees. Do state taxes free   Benefits paid to you as a survivor under a joint and survivor annuity must be included in your gross income in the same way the retiree would have included them in gross income. Do state taxes free   If you receive a survivor annuity because of the death of a retiree who had reported the annuity under the Three-Year Rule, include the total received in your income. Do state taxes free The retiree's cost has already been recovered tax free. Do state taxes free   If the retiree was reporting the annuity payments under the General Rule, you must apply the same exclusion percentage the retiree used to your initial payment called for in the contract. Do state taxes free The resulting tax-free amount will then remain fixed. Do state taxes free Any increases in the survivor annuity are fully taxable. Do state taxes free   If the retiree was reporting the annuity payments under the Simplified Method, the part of each payment that is tax free is the same as the tax-free amount figured by the retiree at the annuity starting date. Do state taxes free See Simplified Method , earlier. Do state taxes free How to report. Do state taxes free   If you file Form 1040, report your total annuity on line 16a, and the taxable part on line 16b. Do state taxes free If your pension or annuity is fully taxable, enter it on line 16b. Do state taxes free Do not make an entry on line 16a. Do state taxes free   If you file Form 1040A, report your total annuity on line 12a, and the taxable part on line 12b. Do state taxes free If your pension or annuity is fully taxable, enter it on line 12b. Do state taxes free Do not make an entry on line 12a. Do state taxes free   If you file Form 1040NR, report your total annuity on line 17a, and the taxable part on line 17b. Do state taxes free If your pension or annuity is fully taxable, enter it on line 17b. Do state taxes free Do not make an entry on line 17a. Do state taxes free Example. Do state taxes free You are a Form 1040 filer and you received monthly payments totaling $1,200 (12 months x $100) during 2013 from a pension plan that was completely financed by your employer. Do state taxes free You had paid no tax on the payments that your employer made to the plan, and the payments were not used to pay for accident, health, or long-term care insurance premiums (as discussed later under Insurance Premiums for Retired Public Safety Officers ). Do state taxes free The entire $1,200 is taxable. Do state taxes free You include $1,200 only on Form 1040, line 16b. Do state taxes free Joint return. Do state taxes free   If you file a joint return and you and your spouse each receive one or more pensions or annuities, report the total of the pensions and annuities on line 16a of Form 1040, line 12a of Form 1040A, or line 17a of Form 1040NR. Do state taxes free Report the total of the taxable parts on line 16b of Form 1040, line 12b of Form 1040A, or line 17b of Form 1040NR. Do state taxes free Form 1099-R. Do state taxes free   You should receive a Form 1099-R for your pension or annuity. Do state taxes free Form 1099-R shows your pension or annuity for the year and any income tax withheld. Do state taxes free You should receive a Form W-2 if you receive distributions from certain nonqualified plans. Do state taxes free You must attach Forms 1099-R or Forms W-2 to your 2013 tax return if federal income tax was withheld. Do state taxes free Generally, you should be sent these forms by January 31, 2014. Do state taxes free Nonperiodic Distributions If you receive a nonperiodic distribution from your retirement plan, you may be able to exclude all or part of it from your income as a recovery of your cost. Do state taxes free Nonperiodic distributions include cash withdrawals, distributions of current earnings (dividends) on your investment, and certain loans. Do state taxes free For information on how to figure the taxable amount of a nonperiodic distribution, see Taxation of Nonperiodic Payments in Publication 575. Do state taxes free The taxable part of a nonperiodic distribution may be subject to an additional 10% tax. Do state taxes free See Tax on Early Distributions, later. Do state taxes free Lump-sum distributions. Do state taxes free   If you receive a lump-sum distribution from a qualified employee plan or qualified employee annuity and the plan participant was born before January 2, 1936, you may be able to elect optional methods of figuring the tax on the distribution. Do state taxes free The part from active participation in the plan before 1974 may qualify as capital gain subject to a 20% tax rate. Do state taxes free The part from participation after 1973 (and any part from participation before 1974 that you do not report as capital gain) is ordinary income. Do state taxes free You may be able to use the 10-year tax option to figure tax on the ordinary income part. Do state taxes free Form 1099-R. Do state taxes free   If you receive a total distribution from a plan, you should receive a Form 1099-R. Do state taxes free If the distribution qualifies as a lump-sum distribution, box 3 shows the capital gain part of the distribution. Do state taxes free The amount in box 2a, Taxable amount, minus the amount in box 3, Capital gain, is the ordinary income part. Do state taxes free More information. Do state taxes free   For more detailed information on lump-sum distributions, see Publication 575 or Form 4972, Tax on Lump-Sum Distributions. Do state taxes free Tax on Early Distributions Most distributions you receive from your qualified retirement plan and nonqualified annuity contracts before you reach age 59½ are subject to an additional tax of 10%. Do state taxes free The tax applies to the taxable part of the distribution. Do state taxes free For this purpose, a qualified retirement plan is: A qualified employee plan (including a qualified cash or deferred arrangement (CODA) under Internal Revenue Code section 401(k)), A qualified employee annuity plan, A tax-sheltered annuity plan (403(b) plan), or An eligible state or local government section 457 deferred compensation plan (to the extent that any distribution is attributable to amounts the plan received in a direct transfer or rollover from one of the other plans listed here or an IRA). Do state taxes free  An IRA is also a qualified retirement plan for purposes of this tax. Do state taxes free General exceptions to tax. Do state taxes free   The early distribution tax does not apply to any distributions that are: Made as part of a series of substantially equal periodic payments (made at least annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary (if from a qualified retirement plan, the payments must begin after separation from service), Made because you are totally and permanently disabled, or Made on or after the death of the plan participant or contract holder. Do state taxes free Additional exceptions. Do state taxes free   There are additional exceptions to the early distribution tax for certain distributions from qualified retirement plans and nonqualified annuity contracts. Do state taxes free See Publication 575 for details. Do state taxes free Reporting tax. Do state taxes free   If you owe only the tax on early distributions and distribution code 1 (early distribution, no known exception) is correctly shown in Form 1099-R, box 7, multiply the taxable part of the early distribution by 10% (. Do state taxes free 10) and enter the result on Form 1040, line 58, or Form 1040NR, line 56. Do state taxes free See the instructions for line 58 of Form 1040 or line 56 of Form 1040NR for more information about reporting the early distribution tax. Do state taxes free Tax on Excess Accumulation To make sure that most of your retirement benefits are paid to you during your lifetime, rather than to your beneficiaries after your death, the payments that you receive from qualified retirement plans must begin no later than your required beginning date. Do state taxes free Unless the rule for 5% owners applies, this is generally April 1 of the year that follows the later of: The calendar year in which you reach age 70½, or The calendar year in which you retire from employment with the employer maintaining the plan. Do state taxes free However, your plan may require you to begin to receive payments by April 1 of the year that follows the year in which you reach 70½, even if you have not retired. Do state taxes free For this purpose, a qualified retirement plan includes: A qualified employee plan, A qualified employee annuity plan, An eligible section 457 deferred compensation plan, or A tax-sheltered annuity plan (403(b) plan) (for benefits accruing after 1986). Do state taxes free  An IRA is also a qualified retirement plan for purposes of this tax. Do state taxes free An excess accumulation is the undistributed remainder of the required minimum distribution that was left in your qualified retirement plan. Do state taxes free 5% owners. Do state taxes free   If you own (or are considered to own under section 318 of the Internal Revenue Code) more than 5% of the company maintaining your qualified retirement plan, you must begin to receive distributions from the plan by April 1 of the year after the calendar year in which you reach age 70½. Do state taxes free See Publication 575 for more information. Do state taxes free Amount of tax. Do state taxes free   If you do not receive the required minimum distribution, you are subject to an additional tax. Do state taxes free The tax equals 50% of the difference between the amount that must be distributed and the amount that was distributed during the tax year. Do state taxes free You can get this excise tax excused if you establish that the shortfall in distributions was due to reasonable error and that you are taking reasonable steps to remedy the shortfall. Do state taxes free Form 5329. Do state taxes free   You must file a Form 5329 if you owe a tax because you did not receive a minimum required distribution from your qualified retirement plan. Do state taxes free Additional information. Do state taxes free   For more detailed information on the tax on excess accumulation, see Publication 575. Do state taxes free Insurance Premiums for Retired Public Safety Officers If you are an eligible retired public safety officer (law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew), you can elect to exclude from income distributions made from your eligible retirement plan that are used to pay the premiums for accident or health insurance or long-term care insurance. Do state taxes free The premiums can be for coverage for you, your spouse, or dependent(s). Do state taxes free The distribution must be made directly from the plan to the insurance provider. Do state taxes free You can exclude from income the smaller of the amount of the insurance premiums or $3,000. Do state taxes free You can only make this election for amounts that would otherwise be included in your income. Do state taxes free The amount excluded from your income cannot be used to claim a medical expense deduction. Do state taxes free An eligible retirement plan is a governmental plan that is a: Qualified trust, Section 403(a) plan, Section 403(b) annuity, or Section 457(b) plan. Do state taxes free If you make this election, reduce the otherwise taxable amount of your pension or annuity by the amount excluded. Do state taxes free The taxable amount shown in box 2a of any Form 1099-R that you receive does not reflect the exclusion. Do state taxes free Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Do state taxes free Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Do state taxes free Enter “PSO” next to the appropriate line on which you report the taxable amount. Do state taxes free Railroad Retirement Benefits Benefits paid under the Railroad Retirement Act fall into two categories. Do state taxes free These categories are treated differently for income tax purposes. Do state taxes free Social security equivalent benefits. Do state taxes free   The first category is the amount of tier 1 railroad retirement benefits that equals the social security benefit that a railroad employee or beneficiary would have been entitled to receive under the social security system. Do state taxes free This part of the tier 1 benefit is the social security equivalent benefit (SSEB) and is treated for tax purposes like social security benefits. Do state taxes free (See Social Security and Equivalent Railroad Retirement Benefits , later. Do state taxes free ) Non-social security equivalent benefits. Do state taxes free   The second category contains the rest of the tier 1 benefits, called the non-social security equivalent benefit (NSSEB). Do state taxes free It also contains any tier 2 benefit, vested dual benefit (VDB), and supplemental annuity benefit. Do state taxes free This category of benefits is treated as an amount received from a qualified employee plan. Do state taxes free This allows for the tax-free (nontaxable) recovery of employee contributions from the tier 2 benefits and the NSSEB part of the tier 1 benefits. Do state taxes free Vested dual benefits and supplemental annuity benefits are non-contributory pensions and are fully taxable. Do state taxes free More information. Do state taxes free   For more information about railroad retirement benefits, see Publication 575. Do state taxes free Military Retirement Pay Military retirement pay based on age or length of service is taxable and must be included in income as a pension on Form 1040, lines 16a and 16b; on Form 1040A, lines 12a and 12b; or on Form 1040NR, lines 17a and 17b. Do state taxes free But, certain military and government disability pensions that are based on a percentage of disability from active service in the Armed Forces of any country generally are not taxable. Do state taxes free For more information, including information about veterans' benefits and insurance, see Publication 525. Do state taxes free Social Security and Equivalent Railroad Retirement Benefits This discussion explains the federal income tax rules for social security benefits and equivalent tier 1 railroad retirement benefits. Do state taxes free Social security benefits include monthly retirement, survivor, and disability benefits. Do state taxes free They do not include supplemental security income (SSI) payments, which are not taxable. Do state taxes free Equivalent tier 1 railroad retirement benefits are the part of tier 1 benefits that a railroad employee or beneficiary would have been entitled to receive under the social security system. Do state taxes free They commonly are called the social security equivalent benefit (SSEB) portion of tier 1 benefits. Do state taxes free If you received these benefits during 2013, you should have received a Form SSA-1099 or Form RRB-1099 (Form SSA-1042S or Form RRB-1042S if you are a nonresident alien), showing the amount of the benefits. Do state taxes free Are Any of Your Benefits Taxable? Note. Do state taxes free When the term “benefits” is used in this section, it applies to both social security benefits and the SSEB portion of tier 1 railroad retirement benefits. Do state taxes free  To find out whether any of your benefits may be taxable, compare the base amount for your filing status (explained later) with the total of: One-half of your benefits, plus All your other income, including tax-exempt interest. Do state taxes free When making this comparison, do not reduce your other income by any exclusions for: Interest from qualified U. Do state taxes free S. Do state taxes free savings bonds, Employer-provided adoption benefits, Foreign earned income or foreign housing, or Income earned in American Samoa or Puerto Rico by bona fide residents. Do state taxes free Figuring total income. Do state taxes free   To figure the total of one-half of your benefits plus your other income, use Worksheet 2-B. Do state taxes free If that total amount is more than your base amount, part of your benefits may be taxable. Do state taxes free If you are married and file a joint return for 2013, you and your spouse must combine your incomes and your benefits to figure whether any of your combined benefits are taxable. Do state taxes free Even if your spouse did not receive any benefits, you must add your spouse's income to yours to figure whether any of your benefits are taxable. Do state taxes free If the only income you received during 2013 was your social security or the SSEB portion of tier 1 railroad retirement benefits, your benefits generally are not taxable and you probably do not have to file a return. Do state taxes free If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable. Do state taxes free Worksheet 2-B. Do state taxes free A Quick Way To Check if Your Benefits May Be Taxable A. Do state taxes free Enter the amount from box 5 of all your Forms SSA-1099 and RRB-1099. Do state taxes free Include  the full amount of any lump-sum benefit payments received in 2013, for 2013 and  earlier years. Do state taxes free (If you received more than one form, combine the amounts from box 5  and enter the total. Do state taxes free ) A. Do state taxes free     Note. Do state taxes free If the amount on line A is zero or less, stop here; none of your benefits are  taxable this year. Do state taxes free     B. Do state taxes free Enter one-half of the amount on line A B. Do state taxes free   C. Do state taxes free Enter your taxable pensions, wages, interest, dividends, and other taxable income C. Do state taxes free   D. Do state taxes free Enter any tax-exempt interest income (such as interest on municipal bonds) plus any exclusions from income for: •Interest from qualified U. Do state taxes free S. Do state taxes free savings bonds, •Employer-provided adoption benefits, •Foreign earned income or foreign housing, or •Income earned in American Samoa or Puerto Rico by bona fide residents D. Do state taxes free   E. Do state taxes free Add lines B, C, and D and enter the total E. Do state taxes free   F. Do state taxes free If you are: •Married filing jointly, enter $32,000 •Single, head of household, qualifying widow(er), or married filing separately and you  lived apart from your spouse for all of 2013, enter $25,000 •Married filing separately and you lived with your spouse at any time during 2013,  enter -0- F. Do state taxes free   G. Do state taxes free Is the amount on line F less than or equal to the amount on line E? □ No. Do state taxes free None of your benefits are taxable this year. Do state taxes free  □ Yes. Do state taxes free Some of your benefits may be taxable. Do state taxes free To figure how much of your benefits  are taxable, see Which worksheet to use under How Much Is Taxable. Do state taxes free     Base Amount Your base amount is: $25,000 if you are single, head of household, or qualifying widow(er) with dependent child, $25,000 if you are married filing separately and lived apart from your spouse for all of 2013, $32,000 if you are married filing jointly, or $0 if you are married filing separately and lived with your spouse at any time during 2013. Do state taxes free Repayment of Benefits Any repayment of benefits you made during 2013 must be subtracted from the gross benefits you received in 2013. Do state taxes free It does not matter whether the repayment was for a benefit you received in 2013 or in an earlier year. Do state taxes free If you repaid more than the gross benefits you received in 2013, see Repayments More Than Gross Benefits , later. Do state taxes free Your gross benefits are shown in box 3 of Form SSA-1099 or Form RRB-1099. Do state taxes free Your repayments are shown in box 4. Do state taxes free The amount in box 5 shows your net benefits for 2013 (box 3 minus box 4). Do state taxes free Use the amount in box 5 to figure whether any of your benefits are taxable. Do state taxes free Tax Withholding and Estimated Tax You can choose to have federal income tax withheld from your social security and/or the SSEB portion of your tier 1 railroad retirement benefits. Do state taxes free If you choose to do this, you must complete a Form W-4V, Voluntary Withholding Request. Do state taxes free If you do not choose to have income tax withheld, you may have to request additional withholding from other income, or pay estimated tax during the year. Do state taxes free For details, see Publication 505, Tax Withholding and Estimated Tax, or the instructions for Form 1040-ES, Estimated Tax for Individuals. Do state taxes free How Much Is Taxable? If part of your benefits is taxable, how much is taxable depends on the total amount of your benefits and other income. Do state taxes free Generally, the higher that total amount, the greater the taxable part of your benefits. Do state taxes free Maximum taxable part. Do state taxes free   The taxable part of your benefits usually cannot be more than 50%. Do state taxes free However, up to 85% of your benefits can be taxable if either of the following situations applies to you. Do state taxes free The total of one-half of your benefits and all your other income is more than $34,000 ($44,000 if you are married filing jointly). Do state taxes free You are married filing separately and lived with your spouse at any time during 2013. Do state taxes free   If you are a nonresident alien, 85% of your benefits are taxable. Do state taxes free However, this income is exempt under some tax treaties. Do state taxes free Which worksheet to use. Do state taxes free   A worksheet to figure your taxable benefits is in the instructions for your Form 1040 or 1040A. Do state taxes free However, you will need to use a different worksheet(s) if any of the following situations applies to you. Do state taxes free You contributed to a traditional individual retirement arrangement (IRA) and you or your spouse were covered by a retirement plan at work. Do state taxes free In this situation, you must use the special worksheets in Appendix B of Publication 590 to figure both your IRA deduction and your taxable benefits. Do state taxes free Situation (1) does not apply and you take one or more of the following exclusions. Do state taxes free Interest from qualified U. Do state taxes free S. Do state taxes free savings bonds (Form 8815). Do state taxes free Employer-provided adoption benefits (Form 8839). Do state taxes free Foreign earned income or housing (Form 2555 or Form 2555-EZ). Do state taxes free Income earned in American Samoa (Form 4563) or Puerto Rico by bona fide residents. Do state taxes free In these situations, you must use Worksheet 1 in Publication 915, Social Security and Equivalent Railroad Retirement Benefits, to figure your taxable benefits. Do state taxes free You received a lump-sum payment for an earlier year. Do state taxes free In this situation, also complete Worksheet 2 or 3 and Worksheet 4 in Publication 915. Do state taxes free See Lump-Sum Election , later. Do state taxes free How To Report Your Benefits If part of your benefits are taxable, you must use Form 1040, Form 1040A, or Form 1040NR. Do state taxes free You cannot use Form 1040EZ. Do state taxes free Reporting on Form 1040. Do state taxes free   Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 20a and the taxable part on line 20b. Do state taxes free If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 20a. Do state taxes free Reporting on Form 1040A. Do state taxes free   Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 14a and the taxable part on line 14b. Do state taxes free If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 14a. Do state taxes free Reporting on Form 1040NR. Do state taxes free   Report 85% of the total amount of your benefits (box 5 of your Form SSA-1042S or Form RRB-1042S) in the appropriate column of Form 1040NR, Schedule NEC, line 8. Do state taxes free Benefits not taxable. Do state taxes free   If you are filing Form 1040EZ, do not report any benefits on your tax return. Do state taxes free If you are filing Form 1040 or Form 1040A, report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on Form 1040, line 20a, or Form 1040A, line 14a. Do state taxes free Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Do state taxes free If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Do state taxes free Lump-Sum Election You must include the taxable part of a lump-sum (retroactive) payment of benefits received in 2013 in your 2013 income, even if the payment includes benefits for an earlier year. Do state taxes free This type of lump-sum benefit payment should not be confused with the lump-sum death benefit that both the SSA and RRB pay to many of their beneficiaries. Do state taxes free No part of the lump-sum death benefit is subject to tax. Do state taxes free For more information about the lump-sum death benefit, visit the Social Security Administration website at www. Do state taxes free SSA. Do state taxes free gov, and use keyword: death benefit. Do state taxes free Generally, you use your 2013 income to figure the taxable part of the total benefits received in 2013. Do state taxes free However, you may be able to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year. Do state taxes free You can elect this method if it lowers your taxable benefits. Do state taxes free See Publication 915 for more information. Do state taxes free Repayments More Than Gross Benefits In some situations, your Form SSA-1099 or Form RRB-1099 will show that the total benefits you repaid (box 4) are more than the gross benefits (box 3) you received. Do state taxes free If this occurred, your net benefits in box 5 will be a negative figure (a figure in parentheses) and none of your benefits will be taxable. Do state taxes free If you receive more than one form, a negative figure in box 5 of one form is used to offset a positive figure in box 5 of another form for that same year. Do state taxes free If you have any questions about this negative figure, contact your local Social Security Administration office or your local U. Do state taxes free S. Do state taxes free Railroad Retirement Board field office. Do state taxes free Joint return. Do state taxes free   If you and your spouse file a joint return, and your Form SSA-1099 or RRB-1099 has a negative figure in box 5 but your spouse's does not, subtract the box 5 amount on your form from the box 5 amount on your spouse's form. Do state taxes free You do this to get your net benefits when figuring if your combined benefits are taxable. Do state taxes free Repayment of benefits received in an earlier year. Do state taxes free   If the total amount shown in box 5 of all of your Forms SSA-1099 and RRB-1099 is a negative figure, you can take an itemized deduction for the part of this negative figure that represents benefits you included in gross income in an earlier year. Do state taxes free   If this deduction is $3,000 or less, it is subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions. Do state taxes free Claim it on Schedule A (Form 1040), line 23. Do state taxes free   If this deduction is more than $3,000, you have to follow some special instructions. Do state taxes free See Publication 915 for those instructions. Do state taxes free Sickness and Injury Benefits Generally, you must report as income any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer. Do state taxes free If both you and your employer pay for the plan, only the amount you receive that is due to your employer's payments is reported as income. Do state taxes free However, certain payments may not be taxable to you. Do state taxes free Some of these payments are discussed later in this section. Do state taxes free Also, see Military and Government Disability Pensions and Other Sickness and Injury Benefits in Publication 525. Do state taxes free Cost paid by you. Do state taxes free   If you pay the entire cost of an accident or health plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return. Do state taxes free If your plan reimbursed you for medical expenses you deducted in an earlier year, you may have to include some, or all, of the reimbursement in your income. Do state taxes free Disability Pensions If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. Do state taxes free You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A or on line 8 of Form 1040NR until you reach minimum retirement age. Do state taxes free Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Do state taxes free If you were 65 or older by the end of 2013 or you were retired on permanent and total disability and received taxable disability income, you may be able to claim the credit for the elderly or the disabled. Do state taxes free See Credit for the Elderly or the Disabled, later. Do state taxes free For more information on this credit, see Publication 524, Credit for the Elderly or the Disabled. Do state taxes free Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Do state taxes free Report the payments on lines 16a and 16b of Form 1040, on lines 12a and 12b of Form 1040A, or on lines 17a and 17b of Form 1040NR. Do state taxes free For more information on pensions and annuities, see Publication 575. Do state taxes free Retirement and profit-sharing plans. Do state taxes free   If you receive payments from a retirement or profit-sharing plan that does not provide for disability retirement, do not treat the payments as a disability pension. Do state taxes free The payments must be reported as a pension or annuity. Do state taxes free Accrued leave payment. Do state taxes free   If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. Do state taxes free The payment is not a disability payment. Do state taxes free Include it in your income in the tax year you receive it. Do state taxes free Long-Term Care Insurance Contracts In most cases, long-term care insurance contracts generally are treated as accident and health insurance contracts. Do state taxes free Amounts you receive from them (other than policyholder dividends or premium refunds) generally are excludable from income as amounts received for personal injury or sickness. Do state taxes free However, the amount you can exclude may be limited. Do state taxes free Long-term care insurance contracts are discussed in more detail in Publication 525. Do state taxes free Workers' Compensation Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act. Do state taxes free The exemption also applies to your survivors. Do state taxes free The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury. Do state taxes free If part of your workers' compensation reduces your social security or equivalent railroad retirement benefits, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Do state taxes free For a discussion of the taxability of these benefits, see Social Security and Equivalent Railroad Retirement Benefits, earlier. Do state taxes free Return to work. Do state taxes free   If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties are taxable as wages. Do state taxes free Other Sickness and Injury Benefits In addition to disability pensions and annuities, you may receive other payments for sickness or injury. Do state taxes free Federal Employees' Compensation Act (FECA). Do state taxes free   Payments received under this Act for personal injury or sickness, including payments to beneficiaries in case of death, are not taxable. Do state taxes free However, you are taxed on amounts you receive under this Act as continuation of pay for up to 45 days while a claim is being decided. Do state taxes free Report this income on Form 1040, line 7; Form 1040A, line 7; on Form 1040EZ, line 1; or Form 1040NR, line 8. Do state taxes free Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages. Do state taxes free    If part of the payments you receive under FECA reduces your social security or equivalent railroad retirement benefits, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Do state taxes free For a discussion of the taxability of these benefits, see Social Security and Equivalent Railroad Retirement Benefits, earlier. Do state taxes free Other compensation. Do state taxes free   Many other amounts you receive as compensation for sickness or injury are not taxable. Do state taxes free These include the following amounts. Do state taxes free Benefits you receive under an accident or health insurance policy on which either you paid the premiums or your employer paid the premiums but you had to include them in your income. Do state taxes free Disability benefits you receive for loss of income or earning capacity as a result of injuries under a no-fault car insurance policy. Do state taxes free Compensation you receive for permanent loss or loss of use of a part or function of your body, for your permanent disfigurement, or for such loss or disfigurement suffered by your spouse or dependent(s). Do state taxes free This compensation must be based only on the injury and not on the period of your absence from work. Do state taxes free These benefits are not taxable even if your employer pays for the accident and health plan that provides these benefits. Do state taxes free Life Insurance Proceeds Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. Do state taxes free This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. Do state taxes free Proceeds not received in installments. Do state taxes free   If death benefits are paid to you in a lump sum or other than at regular intervals, include in your income only the benefits that are more than the amount payable to you at the time of the insured person's death. Do state taxes free If the benefit payable at death is not specified, you include in your income the benefit payments that are more than the present value of the payments at the time of death. Do state taxes free Proceeds received in installments. Do state taxes free   If you receive life insurance proceeds in installments, you can exclude part of each installment from your income. Do state taxes free   To determine the excluded part, divide the amount held by the insurance company (generally the total lump sum payable at the death of the insured person) by the number of installments to be paid. Do state taxes free Include anything over this excluded part in your income as interest. Do state taxes free Installments for life. Do state taxes free   If, as the beneficiary under an insurance contract, you are entitled to receive the proceeds in installments for the rest of your life without a refund or period-certain guarantee, you figure the excluded part of each installment by dividing the amount held by the insurance company by your life expectancy. Do state taxes free If there is a refund or period-certain guarantee, the amount held by the insurance company for this purpose is reduced by the actuarial value of the guarantee. Do state taxes free Surviving spouse. Do state taxes free   If your spouse died before October 23, 1986, and insurance proceeds paid to you because of the death of your spouse are received in installments, you can exclude, in any year, up to $1,000 of the interest included in the installments. Do state taxes free If you remarry, you can continue to take the exclusion. Do state taxes free Surrender of policy for cash. Do state taxes free   If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Do state taxes free In general, your cost (or investment in the contract) is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income. Do state taxes free You should receive a Form 1099-R showing the total proceeds and the taxable part. Do state taxes free Report these amounts on Form 1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or Form 1040NR, lines 17a and 17b. Do state taxes free Endowment Contract Proceeds An endowment contract is a policy that pays over to you a specified amount of money on a certain date unless you die before that date, in which case, the money is paid to your designated beneficiary. Do state taxes free Endowment proceeds paid in a lump sum to you at maturity are taxable only if the proceeds are more than the cost of the policy. Do state taxes free To determine your cost, subtract from the total premiums (or other consideration) paid for the contract any amount that you previously received under the contract and excluded from your income. Do state taxes free Include in your income the part of the lump-sum payment that is more than your cost. Do state taxes free Endowment proceeds that you choose to receive in installments instead of a lump-sum payment at the maturity of the policy are taxed as an annuity. Do state taxes free The tax treatment of an annuity is explained in Publication 575. Do state taxes free For this treatment to apply, you must choose to receive the proceeds in installments before receiving any part of the lump sum. Do state taxes free This election must be made within 60 days after the lump-sum payment first becomes payable to you. Do state taxes free Accelerated Death Benefits Certain amounts paid as accelerated death benefits under a life insurance contract or viatical settlement before the insured's death are generally excluded from income if the insured is terminally or chronically ill. Do state taxes free However, see Exception , later. Do state taxes free For a chronically ill individual, accelerated death benefits paid on the basis of costs incurred for qualified long-term care services are fully excludable. Do state taxes free Accelerated death benefits paid on a per diem or other periodic basis without regard to the costs are excludable up to a limit. Do state taxes free In addition, if any portion of a death benefit under a life insurance contract on the life of a terminally or chronically ill individual is sold or assigned to a viatical settlement provider, the amount received also is excluded from income. Do state taxes free Generally, a viatical settlement provider is one who regularly engages in the business of buying or taking assignment of life insurance contracts on the lives of insured individuals who are terminally or chronically ill. Do state taxes free To report taxable accelerated death benefits made on a per diem or other periodic basis, you must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your return. Do state taxes free Terminally or chronically ill defined. Do state taxes free   A terminally ill person is one who has been certified by a physician as having an illness or physical condition that reasonably can be expected to result in death within 24 months from the date of the certification. Do state taxes free A chronically ill person is one who is not terminally ill but has been certified (within the previous 12 months) by a licensed health care practitioner as meeting either of the following conditions. Do state taxes free The person is unable to perform (without substantial help) at least two activities of daily living (eating, toileting, transferring, bathing, dressing, and continence) for a period of 90 days or more because of a loss of functional capacity. Do state taxes free The person requires substantial supervision to protect himself or herself from threats to health and safety due to severe cognitive impairment. Do state taxes free Exception. Do state taxes free   The exclusion does not apply to any amount paid to a person other than the insured if that other person has an insurable interest in the life of the insured because the insured: Is a director, officer, or employee of the other person, or Has a financial interest in the business of the other person. Do state taxes free Sale of Home You may be able to exclude from income any gain up to $250,000 ($500,000 on a joint return in most cases) on the sale of your main home. Do state taxes free Generally, if you can exclude all of the gain, you do not need to report the sale on your tax return. Do state taxes free You can choose not to take the exclusion by including the gain from the sale in your gross income on your tax return for the year of the sale. Do state taxes free Main home. Do state taxes free   Usually, your main home is the home you live in most of the time and can be a: House, Houseboat, Mobile home, Cooperative apartment, or Condominium. Do state taxes free Repaying the first-time homebuyer credit because you sold your home. Do state taxes free   If you claimed a first-time homebuyer credit for your main home and you sell it, you may have to repay the credit. Do state taxes free For a home purchased in 2008 and used as your main home until sold in 2013, you must file Form 5405 and repay the balance of the unpaid credit on your 2013 tax return. Do state taxes free   For a home purchased after 2008, you generally must repay the entire credit if the home was sold (or otherwise ceased to be your main home) within 36 months of the purchase date. Do state taxes free If you purchased your home in 2009 and used it as your main home until sold in 2013, you do not have to repay the credit or file Form 5405. Do state taxes free If you purchased your home in 2010 and used it as your main home until sold in 2013, you may have to file Form 5405 and repay the entire credit on your 2013 tax return. Do state taxes free   See the Instructions for Form 5405 for more information about repaying the credit and exceptions to repayment that may apply to you. Do state taxes free Maximum Amount of Exclusion You can generally exclude up to $250,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if all of the following are true. Do state taxes free You meet the ownership test. Do state taxes free You meet the use test. Do state taxes free During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. Do state taxes free You may be able to exclude up to $500,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if you are married and file a joint return and meet the requirements listed in the discussion of the special rules for joint returns, later, under Married Persons . Do state taxes free Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. Do state taxes free This means that during the 5-year period ending on the date of the sale, you must have: Owned the home for at least 2 years (the ownership test), and Lived in the home as your main home for at least 2 years (the use test). Do state taxes free Exception to ownership and use tests. Do state taxes free   If you owned and lived in the property as your main home for less than 2 years, you still can claim an exclusion in some cases. Do state taxes free Generally, you must have sold the home due to a change in place of employment, health, or unforeseen circumstances. Do state taxes free The maximum amount you can exclude will be reduced. Do state taxes free See Publication 523, Selling Your Home, for more information. Do state taxes free Exception to use test for individuals with a disability. Do state taxes free   There is an exception to the use test if, during the 5-year period before the sale of your home: You become physically or mentally unable to care for yourself, and You owned and lived in your home as your main home for a total of at least 1 year. Do state taxes free Under this exception, you are considered to live in your home during any time that you own the home and live in a facility (including a nursing home) that is licensed by a state or political subdivision to care for persons in your condition. Do state taxes free   If you meet this exception to the use test, you still have to meet the 2-out-of-5-year ownership test to claim the exclusion. Do state taxes free Exception to ownership test for property acquired in a like-kind exchange. Do state taxes free   You must have owned your main home for at least 5 years to qualify for the exclusion if you acquired your main home in a like-kind exchange. Do state taxes free This special 5-year ownership rule continues to apply to a home you acquired in a like-kind exchange and gave to another person. Do state taxes free A like-kind exchange is an exchange of property held for productive use in a trade or business or for investment. Do state taxes free See Publication 523 for more information. Do state taxes free Period of nonqualified use. Do state taxes free   Generally, the gain from the sale or exchange of your main home will not qualify for the exclusion to the extent that the gain is allocated to periods of nonqualified use. Do state taxes free Nonqualified use is any period after December 31, 2008, during which the property is not used as the main home. Do state taxes free See Publication 523 for more information. Do state taxes free Married Persons In the special situations discussed below, if you and your spouse file a joint return for the year of sale and one spouse meets the ownership and use test, you can exclude up to $250,000 of gain. Do state taxes free However, see Special rules for joint returns , next. Do state taxes free Special rules for joint returns. Do state taxes free   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. Do state taxes free You are married and file a joint return for the year. Do state taxes free Either you or your spouse meets the ownership test. Do state taxes free Both you and your spouse meet the use test. Do state taxes free During the 2-year period ending on the date of the sale, neither you nor your spouse exclude gain from the sale of another home. Do state taxes free Sale of home by surviving spouse. Do state taxes free   If your spouse died and you did not remarry before the date of sale, you are considered to have owned and lived in the property as your main home during any period of time when your spouse owned and lived in it as a main home. Do state taxes free   If you meet all of the following requirements, you may qualify to exclude up to $500,000 of any gain from the sale or exchange of your main home in 2013. Do state taxes free The sale or exchange took place no more than 2 years after the date of death of your spouse. Do state taxes free You have not remarried. Do state taxes free You and your spouse met the use test at the time of your spouse's death. Do state taxes free You or your spouse met the ownership test at the time of your spouse's death. Do state taxes free Neither you nor your spouse excluded gain from the sale of another home during the last 2 years. Do state taxes free Home transferred from spouse. Do state taxes free   If your home was transferred to you by your spouse (or former spouse if the transfer was incident to divorce), you are considered to have owned it during any period of time when your spouse owned it. Do state taxes free Use of home after divorce. Do state taxes free   You are considered to have used property as your main home during any period when: You owned it, and Your spouse or former spouse is allowed to live in it under a divorce or separation instrument and uses it as his or her main home. Do state taxes free Business Use or Rental of Home You may be able to exclude gain from the sale of a home that you have used for business or to produce rental income. Do state taxes free However, you must meet the ownership and use tests. Do state taxes free See Publication 523 for more information. Do state taxes free Depreciation after May 6, 1997. Do state taxes free   If you were entitled to take depreciation deductions because you used your home for business purposes or as rental property, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. Do state taxes free See Publication 523 for more information. Do state taxes free Reporting the Sale Do not report the 2013 sale of your main home on your tax return unless: You have a gain and you do not qualify to exclude all of it, You have a gain and you choose not to exclude it, or You received Form 1099-S. Do state taxes free If you have a gain that you cannot or choose not to exclude, if you received a Form 1099-S, or if you have a deductible loss, report the sale on your tax return. Do state taxes free Report the sale on Part I or Part II of Form 8949 as a short-term or long-term transaction, depending on how long you owned the home. Do state taxes free If you used your home for business or to produce rental income, you may have to use Form 4797, Sales of Business Property, to report the sale of the business or rental part. Do state taxes free See Publication 523 for more information. Do state taxes free Reverse Mortgages A revers