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Efile State Tax Free

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Efile State Tax Free

Efile state tax free Part Four -   Adjustments to Income The three chapters in this part discuss some of the adjustments to income that you can deduct in figuring your adjusted gross income. Efile state tax free These chapters cover: Contributions you make to traditional individual retirement arrangements (IRAs) — chapter 17, Alimony you pay — chapter 18, and Student loan interest you pay — chapter 19. Efile state tax free Other adjustments to income are discussed elsewhere. Efile state tax free See Table V below. Efile state tax free Table V. Efile state tax free Other Adjustments to Income  Use this table to find information about other adjustments to income not covered in this part of the publication. Efile state tax free IF you are looking for more information about the deduction for. Efile state tax free . Efile state tax free . Efile state tax free THEN see. Efile state tax free . Efile state tax free . Efile state tax free Certain business expenses of reservists, performing artists, and fee-basis officials Chapter 26. Efile state tax free Contributions to a health savings account Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Efile state tax free Moving expenses Publication 521, Moving Expenses. Efile state tax free Part of your self-employment tax Chapter 22. Efile state tax free Self-employed health insurance Chapter 21. Efile state tax free Payments to self-employed SEP, SIMPLE, and qualified plans Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). Efile state tax free Penalty on the early withdrawal of savings Chapter 7. Efile state tax free Contributions to an Archer MSA Publication 969. Efile state tax free Reforestation amortization or expense Chapters 7 and 8 of Publication 535, Business Expenses. Efile state tax free Contributions to Internal Revenue Code section 501(c)(18)(D) pension plans Publication 525, Taxable and Nontaxable Income. Efile state tax free Expenses from the rental of personal property Chapter 12. Efile state tax free Certain required repayments of supplemental unemployment benefits (sub-pay) Chapter 12. Efile state tax free Foreign housing costs Chapter 4 of Publication 54, Tax Guide for U. Efile state tax free S. Efile state tax free Citizens and Resident Aliens Abroad. Efile state tax free Jury duty pay given to your employer Chapter 12. Efile state tax free Contributions by certain chaplains to Internal Revenue Code section 403(b) plans Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Efile state tax free Attorney fees and certain costs for actions involving certain unlawful discrimination claims or awards to whistleblowers Publication 525. Efile state tax free Domestic production activities deduction Form 8903, Domestic Production Activities Deduction. Efile state tax free Table of Contents 17. Efile state tax free   Individual Retirement Arrangements (IRAs)What's New Reminders Introduction Useful Items - You may want to see: Traditional IRAsWho Can Open a Traditional IRA? When and How Can a Traditional IRA Be Opened? How Much Can Be Contributed? When Can Contributions Be Made? How Much Can You Deduct? Nondeductible Contributions Inherited IRAs Can You Move Retirement Plan Assets? When Can You Withdraw or Use IRA Assets? When Must You Withdraw IRA Assets? (Required Minimum Distributions) Are Distributions Taxable? What Acts Result in Penalties or Additional Taxes? Roth IRAsWhat Is a Roth IRA? When Can a Roth IRA Be Opened? Can You Contribute to a Roth IRA? Can You Move Amounts Into a Roth IRA? Are Distributions Taxable? 18. Efile state tax free   AlimonyIntroductionSpouse or former spouse. Efile state tax free Divorce or separation instrument. Efile state tax free Useful Items - You may want to see: General RulesMortgage payments. Efile state tax free Taxes and insurance. Efile state tax free Other payments to a third party. Efile state tax free Instruments Executed After 1984Payments to a third party. Efile state tax free Exception. Efile state tax free Substitute payments. Efile state tax free Specifically designated as child support. Efile state tax free Contingency relating to your child. Efile state tax free Clearly associated with a contingency. Efile state tax free How To Deduct Alimony Paid How To Report Alimony Received Recapture Rule 19. Efile state tax free   Education- Related AdjustmentsIntroduction Useful Items - You may want to see: Student Loan Interest DeductionStudent Loan Interest Defined Can You Claim the Deduction How Much Can You Deduct How Do You Figure the Deduction Tuition and Fees DeductionCan You Claim the Deduction What Expenses Qualify Who Is an Eligible Student Who Can Claim a Dependent's Expenses How Much Can You Deduct Educator Expenses Prev  Up  Next   Home   More Online Publications
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Research Your Options

  • Learn what rights you have when buying a used car. Contact your state or local consumer protection office.
  • Find out in advance what paperwork you will need to register a vehicle. Contact your state's motor vehicle department.
  • Check prices of similar models using the NADA Official Used Car Guide published by the National Automobile Dealer Association or the Kelley Blue Book. These guides are usually available at local libraries.
  • Research the vehicle's history. Ask the seller for details concerning past owners, use, and maintenance. Next, find out whether the car has been damaged in a flood, involved in a crash, been labeled a lemon or had its odometer rolled back. The vehicle identification number (VIN) will help you do this.
  • Your state motor vehicle department can research the car's title history. Inspect the title for "salvage," "rebuilt", or similar notations.
  • The National Highway Traffic Safety Administration lists VINs of its crash-test vehicles and will let you search an online database of manufacturer service bulletins.
  • Vehiclehistory.gov and the National Insurance Crime Bureau’s free database are centralized places for consumers to buy information on the history of vehicles gathered from state motor vehicle departments and other sources. These reports are helpful but do not guarantee that a vehicle is accident-free.
  • The Center for Auto Safety provides information on safety defects, recalls, and lemons, as well as service bulletins.
  • Make sure any mileage disclosures match the odometer reading on the car.
  • Check the warranty. If a manufacturer's warranty is still in effect, contact the manufacturer to make sure you can use the coverage.
  • Ask about the dealer's return policy. Get it in writing and read it carefully.
  • Have the car inspected by your mechanic. Talk to the seller and agree in advance that you'll pay for the examination if the car passes inspection, but the seller will pay if significant problems are discovered. A qualified mechanic should check the vehicle's frame, tires, air bags and undercarriage, as well as the engine.
  • Examine dealer documents carefully. Make sure you are buying- not leasing- the vehicle. Leases use terms such as "balloon payment" and "base mileage" disclosures.

The Efile State Tax Free

Efile state tax free 4. Efile state tax free   Interest Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Allocation of InterestOrder of funds spent. Efile state tax free Payments from checking accounts. Efile state tax free Amounts paid within 30 days. Efile state tax free Optional method for determining date of reallocation. Efile state tax free Interest on a segregated account. Efile state tax free How to report. Efile state tax free Interest You Can DeductStatement. Efile state tax free Expenses paid to obtain a mortgage. Efile state tax free Prepayment penalty. Efile state tax free De minimis OID. Efile state tax free Constant-yield method. Efile state tax free Loan or mortgage ends. Efile state tax free Interest You Cannot DeductPenalties. Efile state tax free Who is a key person? Exceptions for pre-June 1997 contracts. Efile state tax free Interest allocated to unborrowed policy cash value. Efile state tax free Capitalization of Interest When To Deduct InterestPrepaid interest. Efile state tax free Discounted loan. Efile state tax free Refunds of interest. Efile state tax free Prepaid interest. Efile state tax free Discounted loan. Efile state tax free Tax deficiency. Efile state tax free Related person. Efile state tax free Below-Market LoansLimit on forgone interest for gift loans of $100,000 or less. Efile state tax free Introduction This chapter discusses the tax treatment of business interest expense. Efile state tax free Business interest expense is an amount charged for the use of money you borrowed for business activities. Efile state tax free Topics - This chapter discusses: Allocation of interest Interest you can deduct Interest you cannot deduct Capitalization of interest When to deduct interest Below-market loans Useful Items - You may want to see: Publication 537 Installment Sales 550 Investment Income and Expenses 936 Home Mortgage Interest Deduction Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch E (Form 1040) Supplemental Income and Loss Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. Efile state tax free Sch K-1 (Form 1120S) Shareholder's Share of Income, Deductions, Credits, etc. Efile state tax free 1098 Mortgage Interest Statement 3115 Application for Change in Accounting Method 4952 Investment Interest Expense Deduction 8582 Passive Activity Loss Limitations See chapter 12 for information about getting publications and forms. Efile state tax free Allocation of Interest The rules for deducting interest vary, depending on whether the loan proceeds are used for business, personal, or investment activities. Efile state tax free If you use the proceeds of a loan for more than one type of expense, you must allocate the interest based on the use of the loan's proceeds. Efile state tax free Allocate your interest expense to the following categories. Efile state tax free Nonpassive trade or business activity interest Passive trade or business activity interest Investment interest Portfolio interest Personal interest In general, you allocate interest on a loan the same way you allocate the loan proceeds. Efile state tax free You allocate loan proceeds by tracing disbursements to specific uses. Efile state tax free The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. Efile state tax free Secured loan. Efile state tax free   The allocation of loan proceeds and the related interest is not generally affected by the use of property that secures the loan. Efile state tax free Example. Efile state tax free You secure a loan with property used in your business. Efile state tax free You use the loan proceeds to buy an automobile for personal use. Efile state tax free You must allocate interest expense on the loan to personal use (purchase of the automobile) even though the loan is secured by business property. Efile state tax free    If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. Efile state tax free The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. Efile state tax free For more information, see Publication 936. Efile state tax free Allocation period. Efile state tax free   The period for which a loan is allocated to a particular use begins on the date the proceeds are used and ends on the earlier of the following dates. Efile state tax free The date the loan is repaid. Efile state tax free The date the loan is reallocated to another use. Efile state tax free Proceeds not disbursed to borrower. Efile state tax free   Even if the lender disburses the loan proceeds to a third party, the allocation of the loan is still based on your use of the funds. Efile state tax free This applies whether you pay for property, services, or anything else by incurring a loan, or you take property subject to a debt. Efile state tax free Proceeds deposited in borrower's account. Efile state tax free   Treat loan proceeds deposited in an account as property held for investment. Efile state tax free It does not matter whether the account pays interest. Efile state tax free Any interest you pay on the loan is investment interest expense. Efile state tax free If you withdraw the proceeds of the loan, you must reallocate the loan based on the use of the funds. Efile state tax free Example. Efile state tax free Celina, a calendar-year taxpayer, borrows $100,000 on January 4 and immediately uses the proceeds to open a checking account. Efile state tax free No other amounts are deposited in the account during the year and no part of the loan principal is repaid during the year. Efile state tax free On April 2, Celina uses $20,000 from the checking account for a passive activity expenditure. Efile state tax free On September 4, Celina uses an additional $40,000 from the account for personal purposes. Efile state tax free Under the interest allocation rules, the entire $100,000 loan is treated as property held for investment for the period from January 4 through April 1. Efile state tax free From April 2 through September 3, Celina must treat $20,000 of the loan as used in the passive activity and $80,000 of the loan as property held for investment. Efile state tax free From September 4 through December 31, she must treat $40,000 of the loan as used for personal purposes, $20,000 as used in the passive activity, and $40,000 as property held for investment. Efile state tax free Order of funds spent. Efile state tax free   Generally, you treat loan proceeds deposited in an account as used (spent) before either of the following amounts. Efile state tax free Any unborrowed amounts held in the same account. Efile state tax free Any amounts deposited after these loan proceeds. Efile state tax free Example. Efile state tax free On January 9, Olena opened a checking account, depositing $500 of the proceeds of Loan A and $1,000 of unborrowed funds. Efile state tax free The following table shows the transactions in her account during the tax year. Efile state tax free Date Transaction January 9 $500 proceeds of Loan A and $1,000 unborrowed funds deposited January 14 $500 proceeds of Loan B  deposited February 19 $800 used for personal purposes February 27 $700 used for passive activity June 19 $1,000 proceeds of Loan C  deposited November 20 $800 used for an investment December 18 $600 used for personal purposes Olena treats the $800 used for personal purposes as made from the $500 proceeds of Loan A and $300 of the proceeds of Loan B. Efile state tax free She treats the $700 used for a passive activity as made from the remaining $200 proceeds of Loan B and $500 of unborrowed funds. Efile state tax free She treats the $800 used for an investment as made entirely from the proceeds of Loan C. Efile state tax free She treats the $600 used for personal purposes as made from the remaining $200 proceeds of Loan C and $400 of unborrowed funds. Efile state tax free For the periods during which loan proceeds are held in the account, Olena treats them as property held for investment. Efile state tax free Payments from checking accounts. Efile state tax free   Generally, you treat a payment from a checking or similar account as made at the time the check is written if you mail or deliver it to the payee within a reasonable period after you write it. Efile state tax free You can treat checks written on the same day as written in any order. Efile state tax free Amounts paid within 30 days. Efile state tax free   If you receive loan proceeds in cash or if the loan proceeds are deposited in an account, you can treat any payment (up to the amount of the proceeds) made from any account you own, or from cash, as made from those proceeds. Efile state tax free This applies to any payment made within 30 days before or after the proceeds are received in cash or deposited in your account. Efile state tax free   If the loan proceeds are deposited in an account, you can apply this rule even if the rules stated earlier under Order of funds spent would otherwise require you to treat the proceeds as used for other purposes. Efile state tax free If you apply this rule to any payments, disregard those payments (and the proceeds from which they are made) when applying the rules stated under Order of funds spent. Efile state tax free   If you received the loan proceeds in cash, you can treat the payment as made on the date you received the cash instead of the date you actually made the payment. Efile state tax free Example. Efile state tax free Giovanni gets a loan of $1,000 on August 4 and receives the proceeds in cash. Efile state tax free Giovanni deposits $1,500 in an account on August 18 and on August 28 writes a check on the account for a passive activity expense. Efile state tax free Also, Giovanni deposits his paycheck, deposits other loan proceeds, and pays his bills during the same period. Efile state tax free Regardless of these other transactions, Giovanni can treat $1,000 of the deposit he made on August 18 as being paid on August 4 from the loan proceeds. Efile state tax free In addition, Giovanni can treat the passive activity expense he paid on August 28 as made from the $1,000 loan proceeds treated as deposited in the account. Efile state tax free Optional method for determining date of reallocation. Efile state tax free   You can use the following method to determine the date loan proceeds are reallocated to another use. Efile state tax free You can treat all payments from loan proceeds in the account during any month as taking place on the later of the following dates. Efile state tax free The first day of that month. Efile state tax free The date the loan proceeds are deposited in the account. Efile state tax free However, you can use this optional method only if you treat all payments from the account during the same calendar month in the same way. Efile state tax free Interest on a segregated account. Efile state tax free   If you have an account that contains only loan proceeds and interest earned on the account, you can treat any payment from that account as being made first from the interest. Efile state tax free When the interest earned is used up, any remaining payments are from loan proceeds. Efile state tax free Example. Efile state tax free You borrowed $20,000 and used the proceeds of this loan to open a new savings account. Efile state tax free When the account had earned interest of $867, you withdrew $20,000 for personal purposes. Efile state tax free You can treat the withdrawal as coming first from the interest earned on the account, $867, and then from the loan proceeds, $19,133 ($20,000 − $867). Efile state tax free All the interest charged on the loan from the time it was deposited in the account until the time of the withdrawal is investment interest expense. Efile state tax free The interest charged on the part of the proceeds used for personal purposes ($19,133) from the time you withdrew it until you either repay it or reallocate it to another use is personal interest expense. Efile state tax free The interest charged on the loan proceeds you left in the account ($867) continues to be investment interest expense until you either repay it or reallocate it to another use. Efile state tax free Loan repayment. Efile state tax free   When you repay any part of a loan allocated to more than one use, treat it as being repaid in the following order. Efile state tax free Personal use. Efile state tax free Investments and passive activities (other than those included in (3)). Efile state tax free Passive activities in connection with a rental real estate activity in which you actively participate. Efile state tax free Former passive activities. Efile state tax free Trade or business use and expenses for certain low-income housing projects. Efile state tax free Line of credit (continuous borrowings). Efile state tax free   The following rules apply if you have a line of credit or similar arrangement. Efile state tax free Treat all borrowed funds on which interest accrues at the same fixed or variable rate as a single loan. Efile state tax free Treat borrowed funds or parts of borrowed funds on which interest accrues at different fixed or variable rates as different loans. Efile state tax free Treat these loans as repaid in the order shown on the loan agreement. Efile state tax free Loan refinancing. Efile state tax free   Allocate the replacement loan to the same uses to which the repaid loan was allocated. Efile state tax free Make the allocation only to the extent you use the proceeds of the new loan to repay any part of the original loan. Efile state tax free Debt-financed distribution. Efile state tax free   A debt-financed distribution occurs when a partnership or S corporation borrows funds and allocates those funds to distributions made to partners or shareholders. Efile state tax free The manner in which you report the interest expense associated with the distributed debt proceeds depends on your use of those proceeds. Efile state tax free How to report. Efile state tax free   If the proceeds were used in a nonpassive trade or business activity, report the interest on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership or S corporation in column (a) and the amount in column (h). Efile state tax free If the proceeds were used in a passive activity, follow the Instructions for Form 8582, Passive Activity Loss Limitations, to determine the amount of interest expense that can be reported on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership in column (a) and the amount in column (f). Efile state tax free If the proceeds were used in an investment activity, enter the interest on Form 4952. Efile state tax free If the proceeds are used for personal purposes, the interest is generally not deductible. Efile state tax free Interest You Can Deduct You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your trade or business. Efile state tax free Interest relates to your trade or business if you use the proceeds of the loan for a trade or business expense. Efile state tax free It does not matter what type of property secures the loan. Efile state tax free You can deduct interest on a debt only if you meet all the following requirements. Efile state tax free You are legally liable for that debt. Efile state tax free Both you and the lender intend that the debt be repaid. Efile state tax free You and the lender have a true debtor-creditor relationship. Efile state tax free Partial liability. Efile state tax free   If you are liable for part of a business debt, you can deduct only your share of the total interest paid or accrued. Efile state tax free Example. Efile state tax free You and your brother borrow money. Efile state tax free You are liable for 50% of the note. Efile state tax free You use your half of the loan in your business, and you make one-half of the loan payments. Efile state tax free You can deduct your half of the total interest payments as a business deduction. Efile state tax free Mortgage. Efile state tax free   Generally, mortgage interest paid or accrued on real estate you own legally or equitably is deductible. Efile state tax free However, rather than deducting the interest currently, you may have to add it to the cost basis of the property as explained later under Capitalization of Interest. Efile state tax free Statement. Efile state tax free   If you paid $600 or more of mortgage interest (including certain points) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement. Efile state tax free You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. Efile state tax free A governmental unit is a person for purposes of furnishing the statement. Efile state tax free   If you receive a refund of interest you overpaid in an earlier year, this amount will be reported in box 3 of Form 1098. Efile state tax free You cannot deduct this amount. Efile state tax free For information on how to report this refund, see Refunds of interest, later in this chapter. Efile state tax free Expenses paid to obtain a mortgage. Efile state tax free   Certain expenses you pay to obtain a mortgage cannot be deducted as interest. Efile state tax free These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses. Efile state tax free If the property mortgaged is business or income-producing property, you can amortize the costs over the life of the mortgage. Efile state tax free Prepayment penalty. Efile state tax free   If you pay off your mortgage early and pay the lender a penalty for doing this, you can deduct the penalty as interest. Efile state tax free Interest on employment tax deficiency. Efile state tax free   Interest charged on employment taxes assessed on your business is deductible. Efile state tax free Original issue discount (OID). Efile state tax free   OID is a form of interest. Efile state tax free A loan (mortgage or other debt) generally has OID when its proceeds are less than its principal amount. Efile state tax free The OID is the difference between the stated redemption price at maturity and the issue price of the loan. Efile state tax free   A loan's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on it other than qualified stated interest. Efile state tax free Qualified stated interest is stated interest that is unconditionally payable in cash or property (other than another loan of the issuer) at least annually over the term of the loan at a single fixed rate. Efile state tax free You generally deduct OID over the term of the loan. Efile state tax free Figure the amount to deduct each year using the constant-yield method, unless the OID on the loan is de minimis. Efile state tax free De minimis OID. Efile state tax free   The OID is de minimis if it is less than one-fourth of 1% (. Efile state tax free 0025) of the stated redemption price of the loan at maturity multiplied by the number of full years from the date of original issue to maturity (the term of the loan). Efile state tax free   If the OID is de minimis, you can choose one of the following ways to figure the amount you can deduct each year. Efile state tax free On a constant-yield basis over the term of the loan. Efile state tax free On a straight-line basis over the term of the loan. Efile state tax free In proportion to stated interest payments. Efile state tax free In its entirety at maturity of the loan. Efile state tax free You make this choice by deducting the OID in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued. Efile state tax free Example. Efile state tax free On January 1, 2013, you took out a $100,000 discounted loan and received $98,500 in proceeds. Efile state tax free The loan will mature on January 1, 2023 (a 10-year term), and the $100,000 principal is payable on that date. Efile state tax free Interest of $10,000 is payable on January 1 of each year, beginning January 1, 2014. Efile state tax free The $1,500 OID on the loan is de minimis because it is less than $2,500 ($100,000 × . Efile state tax free 0025 × 10). Efile state tax free You choose to deduct the OID on a straight-line basis over the term of the loan. Efile state tax free Beginning in 2013, you can deduct $150 each year for 10 years. Efile state tax free Constant-yield method. Efile state tax free   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. Efile state tax free You figure your deduction for the first year using the following steps. Efile state tax free Determine the issue price of the loan. Efile state tax free Generally, this equals the proceeds of the loan. Efile state tax free If you paid points on the loan (as discussed later), the issue price generally is the difference between the proceeds and the points. Efile state tax free Multiply the result in (1) by the yield to maturity. Efile state tax free Subtract any qualified stated interest payments from the result in (2). Efile state tax free This is the OID you can deduct in the first year. Efile state tax free   To figure your deduction in any subsequent year, follow the above steps, except determine the adjusted issue price in step (1). Efile state tax free To get the adjusted issue price, add to the issue price any OID previously deducted. Efile state tax free Then follow steps (2) and (3) above. Efile state tax free   The yield to maturity is generally shown in the literature you receive from your lender. Efile state tax free If you do not have this information, consult your lender or tax advisor. Efile state tax free In general, the yield to maturity is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the principal amount of the loan. Efile state tax free Example. Efile state tax free The facts are the same as in the previous example, except that you deduct the OID on a constant yield basis over the term of the loan. Efile state tax free The yield to maturity on your loan is 10. Efile state tax free 2467%, compounded annually. Efile state tax free For 2013, you can deduct $93 [($98,500 × . Efile state tax free 102467) − $10,000]. Efile state tax free For 2014, you can deduct $103 [($98,593 × . Efile state tax free 102467) − $10,000]. Efile state tax free Loan or mortgage ends. Efile state tax free   If your loan or mortgage ends, you may be able to deduct any remaining OID in the tax year in which the loan or mortgage ends. Efile state tax free A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. Efile state tax free If you refinance with the original lender, you generally cannot deduct the remaining OID in the year in which the refinancing occurs, but you may be able to deduct it over the term of the new mortgage or loan. Efile state tax free See Interest paid with funds borrowed from original lender under Interest You Cannot Deduct, later. Efile state tax free Points. Efile state tax free   The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a loan or a mortgage. Efile state tax free These charges are also called loan origination fees, maximum loan charges, discount points, or premium charges. Efile state tax free If any of these charges (points) are solely for the use of money, they are interest. Efile state tax free   Because points are prepaid interest, you generally cannot deduct the full amount in the year paid. Efile state tax free However, you can choose to fully deduct points in the year paid if you meet certain tests. Efile state tax free For exceptions to the general rule, see Publication 936. Efile state tax free The points reduce the issue price of the loan and result in original issue discount (OID), deductible as explained in the preceding discussion. Efile state tax free Partial payments on a nontax debt. Efile state tax free   If you make partial payments on a debt (other than a debt owed the IRS), the payments are applied, in general, first to interest and any remainder to principal. Efile state tax free You can deduct only the interest. Efile state tax free This rule does not apply when it can be inferred that the borrower and lender understood that a different allocation of the payments would be made. Efile state tax free Installment purchase. Efile state tax free   If you make an installment purchase of business property, the contract between you and the seller generally provides for the payment of interest. Efile state tax free If no interest or a low rate of interest is charged under the contract, a portion of the stated principal amount payable under the contract may be recharacterized as interest (unstated interest). Efile state tax free The amount recharacterized as interest reduces your basis in the property and increases your interest expense. Efile state tax free For more information on installment sales and unstated interest, see Publication 537. Efile state tax free Interest You Cannot Deduct Certain interest payments cannot be deducted. Efile state tax free In addition, certain other expenses that may seem to be interest but are not, cannot be deducted as interest. Efile state tax free You cannot currently deduct interest that must be capitalized, and you generally cannot deduct personal interest. Efile state tax free Interest paid with funds borrowed from original lender. Efile state tax free   If you use the cash method of accounting, you cannot deduct interest you pay with funds borrowed from the original lender through a second loan, an advance, or any other arrangement similar to a loan. Efile state tax free You can deduct the interest expense once you start making payments on the new loan. Efile state tax free   When you make a payment on the new loan, you first apply the payment to interest and then to the principal. Efile state tax free All amounts you apply to the interest on the first loan are deductible, along with any interest you pay on the second loan, subject to any limits that apply. Efile state tax free Capitalized interest. Efile state tax free   You cannot currently deduct interest you are required to capitalize under the uniform capitalization rules. Efile state tax free See Capitalization of Interest, later. Efile state tax free In addition, if you buy property and pay interest owed by the seller (for example, by assuming the debt and any interest accrued on the property), you cannot deduct the interest. Efile state tax free Add this interest to the basis of the property. Efile state tax free Commitment fees or standby charges. Efile state tax free   Fees you incur to have business funds available on a standby basis, but not for the actual use of the funds, are not deductible as interest payments. Efile state tax free You may be able to deduct them as business expenses. Efile state tax free   If the funds are for inventory or certain property used in your business, the fees are indirect costs and you generally must capitalize them under the uniform capitalization rules. Efile state tax free See Capitalization of Interest, later. Efile state tax free Interest on income tax. Efile state tax free   Interest charged on income tax assessed on your individual income tax return is not a business deduction even though the tax due is related to income from your trade or business. Efile state tax free Treat this interest as a business deduction only in figuring a net operating loss deduction. Efile state tax free Penalties. Efile state tax free   Penalties on underpaid deficiencies and underpaid estimated tax are not interest. Efile state tax free You cannot deduct them. Efile state tax free Generally, you cannot deduct any fines or penalties. Efile state tax free Interest on loans with respect to life insurance policies. Efile state tax free   You generally cannot deduct interest on a debt incurred with respect to any life insurance, annuity, or endowment contract that covers any individual unless that individual is a key person. Efile state tax free   If the policy or contract covers a key person, you can deduct the interest on up to $50,000 of debt for that person. Efile state tax free However, the deduction for any month cannot be more than the interest figured using Moody's Composite Yield on Seasoned Corporate Bonds (formerly known as Moody's Corporate Bond Yield Average-Monthly Average Corporates) (Moody's rate) for that month. Efile state tax free Who is a key person?   A key person is an officer or 20% owner. Efile state tax free However, the number of individuals you can treat as key persons is limited to the greater of the following. Efile state tax free Five individuals. Efile state tax free The lesser of 5% of the total officers and employees of the company or 20 individuals. Efile state tax free Exceptions for pre-June 1997 contracts. Efile state tax free   You can generally deduct the interest if the contract was issued before June 9, 1997, and the covered individual is someone other than an employee, officer, or someone financially interested in your business. Efile state tax free If the contract was purchased before June 21, 1986, you can generally deduct the interest no matter who is covered by the contract. Efile state tax free Interest allocated to unborrowed policy cash value. Efile state tax free   Corporations and partnerships generally cannot deduct any interest expense allocable to unborrowed cash values of life insurance, annuity, or endowment contracts. Efile state tax free This rule applies to contracts issued after June 8, 1997, that cover someone other than an officer, director, employee, or 20% owner. Efile state tax free For more information, see section 264(f) of the Internal Revenue Code. Efile state tax free Capitalization of Interest Under the uniform capitalization rules, you generally must capitalize interest on debt equal to your expenditures to produce real property or certain tangible personal property. Efile state tax free The property must be produced by you for use in your trade or business or for sale to customers. Efile state tax free You cannot capitalize interest related to property that you acquire in any other manner. Efile state tax free Interest you paid or incurred during the production period must be capitalized if the property produced is designated property. Efile state tax free Designated property is any of the following. Efile state tax free Real property. Efile state tax free Tangible personal property with a class life of 20 years or more. Efile state tax free Tangible personal property with an estimated production period of more than 2 years. Efile state tax free Tangible personal property with an estimated production period of more than 1 year if the estimated cost of production is more than $1 million. Efile state tax free Property you produce. Efile state tax free   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow it. Efile state tax free Treat property produced for you under a contract as produced by you up to the amount you pay or incur for the property. Efile state tax free Carrying charges. Efile state tax free   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. Efile state tax free You can choose to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. Efile state tax free For more information, see chapter 7. Efile state tax free Capitalized interest. Efile state tax free   Treat capitalized interest as a cost of the property produced. Efile state tax free You recover your interest when you sell or use the property. Efile state tax free If the property is inventory, recover capitalized interest through cost of goods sold. Efile state tax free If the property is used in your trade or business, recover capitalized interest through an adjustment to basis, depreciation, amortization, or other method. Efile state tax free Partnerships and S corporations. Efile state tax free   The interest capitalization rules are applied first at the partnership or S corporation level. Efile state tax free The rules are then applied at the partners' or shareholders' level to the extent the partnership or S corporation has insufficient debt to support the production or construction costs. Efile state tax free   If you are a partner or a shareholder, you may have to capitalize interest you incur during the tax year for the production costs of the partnership or S corporation. Efile state tax free You may also have to capitalize interest incurred by the partnership or S corporation for your own production costs. Efile state tax free To properly capitalize interest under these rules, you must be given the required information in an attachment to the Schedule K-1 you receive from the partnership or S corporation. Efile state tax free Additional information. Efile state tax free   The procedures for applying the uniform capitalization rules are beyond the scope of this publication. Efile state tax free For more information, see sections 1. Efile state tax free 263A-8 through 1. Efile state tax free 263A-15 of the regulations and Notice 88-99. Efile state tax free Notice 88-99 is in Cumulative Bulletin 1988-2. Efile state tax free When To Deduct Interest If the uniform capitalization rules, discussed under Capitalization of Interest, earlier, do not apply to you, deduct interest as follows. Efile state tax free Cash method. Efile state tax free   Under the cash method, you can generally deduct only the interest you actually paid during the tax year. Efile state tax free You cannot deduct a promissory note you gave as payment because it is a promise to pay and not an actual payment. Efile state tax free Prepaid interest. Efile state tax free   You generally cannot deduct any interest paid before the year it is due. Efile state tax free Interest paid in advance can be deducted only in the tax year in which it is due. Efile state tax free Discounted loan. Efile state tax free   If interest or a discount is subtracted from your loan proceeds, it is not a payment of interest and you cannot deduct it when you get the loan. Efile state tax free For more information, see Original issue discount (OID) under Interest You Can Deduct, earlier. Efile state tax free Refunds of interest. Efile state tax free   If you pay interest and then receive a refund in the same tax year of any part of the interest, reduce your interest deduction by the refund. Efile state tax free If you receive the refund in a later tax year, include the refund in your income to the extent the deduction for the interest reduced your tax. Efile state tax free Accrual method. Efile state tax free   Under an accrual method, you can deduct only interest that has accrued during the tax year. Efile state tax free Prepaid interest. Efile state tax free   See Prepaid interest, earlier. Efile state tax free Discounted loan. Efile state tax free   See Discounted loan, earlier. Efile state tax free Tax deficiency. Efile state tax free   If you contest a federal income tax deficiency, interest does not accrue until the tax year the final determination of liability is made. Efile state tax free If you do not contest the deficiency, then the interest accrues in the year the tax was asserted and agreed to by you. Efile state tax free   However, if you contest but pay the proposed tax deficiency and interest, and you do not designate the payment as a cash bond, then the interest is deductible in the year paid. Efile state tax free Related person. Efile state tax free   If you use an accrual method, you cannot deduct interest owed to a related person who uses the cash method until payment is made and the interest is includible in the gross income of that person. Efile state tax free The relationship is determined as of the end of the tax year for which the interest would otherwise be deductible. Efile state tax free See section 267 of the Internal Revenue Code for more information. Efile state tax free Below-Market Loans If you receive a below-market gift or demand loan and use the proceeds in your trade or business, you may be able to deduct the forgone interest. Efile state tax free See Treatment of gift and demand loans, later, in this discussion. Efile state tax free A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Efile state tax free A gift or demand loan that is a below-market loan generally is considered an arm's-length transaction in which you, the borrower, are considered as having received both the following. Efile state tax free A loan in exchange for a note that requires the payment of interest at the applicable federal rate. Efile state tax free An additional payment in an amount equal to the forgone interest. Efile state tax free The additional payment is treated as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. Efile state tax free Forgone interest. Efile state tax free   For any period, forgone interest is The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. Efile state tax free Applicable federal rates are published by the IRS each month in the Internal Revenue Bulletin. Efile state tax free Internal Revenue Bulletins are available on the IRS web site at www. Efile state tax free irs. Efile state tax free gov/irb. Efile state tax free You can also contact an IRS office to get these rates. Efile state tax free Loans subject to the rules. Efile state tax free   The rules for below-market loans apply to the following. Efile state tax free Gift loans (below-market loans where the forgone interest is in the nature of a gift). Efile state tax free Compensation-related loans (below-market loans between an employer and an employee or between an independent contractor and a person for whom the contractor provides services). Efile state tax free Corporation-shareholder loans. Efile state tax free Tax avoidance loans (below-market loans where the avoidance of federal tax is one of the main purposes of the interest arrangement). Efile state tax free Loans to qualified continuing care facilities under a continuing care contract (made after October 11, 1985). Efile state tax free   Except as noted in (5) above, these rules apply to demand loans (loans payable in full at any time upon the lender's demand) outstanding after June 6, 1984, and to term loans (loans that are not demand loans) made after that date. Efile state tax free Treatment of gift and demand loans. Efile state tax free   If you receive a below-market gift loan or demand loan, you are treated as receiving an additional payment (as a gift, dividend, etc. Efile state tax free ) equal to the forgone interest on the loan. Efile state tax free You are then treated as transferring this amount back to the lender as interest. Efile state tax free These transfers are considered to occur annually, generally on December 31. Efile state tax free If you use the loan proceeds in your trade or business, you can deduct the forgone interest each year as a business interest expense. Efile state tax free The lender must report it as interest income. Efile state tax free Limit on forgone interest for gift loans of $100,000 or less. Efile state tax free   For gift loans between individuals, forgone interest treated as transferred back to the lender is limited to the borrower's net investment income for the year. Efile state tax free This limit applies if the outstanding loans between the lender and borrower total $100,000 or less. Efile state tax free If the borrower's net investment income is $1,000 or less, it is treated as zero. Efile state tax free This limit does not apply to a loan if the avoidance of any federal tax is one of the main purposes of the interest arrangement. Efile state tax free Treatment of term loans. Efile state tax free   If you receive a below-market term loan other than a gift or demand loan, you are treated as receiving an additional cash payment (as a dividend, etc. Efile state tax free ) on the date the loan is made. Efile state tax free This payment is equal to the loan amount minus the present value, at the applicable federal rate, of all payments due under the loan. Efile state tax free The same amount is treated as original issue discount on the loan. Efile state tax free See Original issue discount (OID) under Interest You Can Deduct, earlier. Efile state tax free Exceptions for loans of $10,000 or less. Efile state tax free   The rules for below-market loans do not apply to any day on which the total outstanding loans between the borrower and lender is $10,000 or less. Efile state tax free This exception applies only to the following. Efile state tax free Gift loans between individuals if the loan is not directly used to buy or carry income-producing assets. Efile state tax free Compensation-related loans or corporation-shareholder loans if the avoidance of any federal tax is not a principal purpose of the interest arrangement. Efile state tax free This exception does not apply to a term loan described in (2) above that was previously subject to the below-market loan rules. Efile state tax free Those rules will continue to apply even if the outstanding balance is reduced to $10,000 or less. Efile state tax free Exceptions for loans without significant tax effect. Efile state tax free   The following loans are specifically exempted from the rules for below-market loans because their interest arrangements do not have a significant effect on the federal tax liability of the borrower or the lender. Efile state tax free Loans made available by lenders to the general public on the same terms and conditions that are consistent with the lender's customary business practices. Efile state tax free Loans subsidized by a federal, state, or municipal government that are made available under a program of general application to the public. Efile state tax free Certain employee-relocation loans. Efile state tax free Certain loans to or from a foreign person, unless the interest income would be effectively connected with the conduct of a U. Efile state tax free S. Efile state tax free trade or business and not exempt from U. Efile state tax free S. Efile state tax free tax under an income tax treaty. Efile state tax free Any other loan if the taxpayer can show that the interest arrangement has no significant effect on the federal tax liability of the lender or the borrower. Efile state tax free Whether an interest arrangement has a significant effect on the federal tax liability of the lender or the borrower will be determined by all the facts and circumstances. Efile state tax free Consider all the following factors. Efile state tax free Whether items of income and deduction generated by the loan offset each other. Efile state tax free The amount of the items. Efile state tax free The cost of complying with the below-market loan provisions if they were to apply. Efile state tax free Any reasons, other than taxes, for structuring the transaction as a below-market loan. Efile state tax free Exception for loans to qualified continuing care facilities. Efile state tax free   The below-market interest rules do not apply to a loan owed by a qualified continuing care facility under a continuing care contract if the lender or lender's spouse is age 62 or older by the end of the calendar year. Efile state tax free A qualified continuing care facility is one or more facilities (excluding nursing homes) meeting the requirements listed below. Efile state tax free Designed to provide services under continuing care contracts (defined below). Efile state tax free Includes an independent living unit, and either an assisted living or nursing facility, or both. Efile state tax free Substantially all of the independent living unit residents are covered by continuing care contracts. Efile state tax free A continuing care contract is a written contract between an individual and a qualified continuing care facility that includes all of the following conditions. Efile state tax free The individual or individual's spouse must be entitled to use the facility for the rest of their life or lives. Efile state tax free The individual or individual's spouse will be provided with housing, as appropriate for the health of the individual or individual's spouse in an: independent living unit (which has additional available facilities outside the unit for the provision of meals and other personal care), and assisted living or nursing facility available in the continuing care facility. Efile state tax free The individual or individual's spouse will be provided with assisted living or nursing care available in the continuing care facility, as required for the health of the individual or the individual's spouse. Efile state tax free For more information, see section 7872(h) of the Internal Revenue Code. Efile state tax free Sale or exchange of property. Efile state tax free   Different rules generally apply to a loan connected with the sale or exchange of property. Efile state tax free If the loan does not provide adequate stated interest, part of the principal payment may be considered interest. Efile state tax free However, there are exceptions that may require you to apply the below-market interest rate rules to these loans. Efile state tax free See Unstated Interest and Original Issue Discount (OID) in Publication 537. Efile state tax free More information. Efile state tax free   For more information on below-market loans, see section 7872 of the Internal Revenue Code and section 1. Efile state tax free 7872-5 of the regulations. Efile state tax free Prev  Up  Next   Home   More Online Publications