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File 2005 Taxes

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File 2005 Taxes

File 2005 taxes 7. File 2005 taxes   Coverdell Education Savings Account (ESA) Table of Contents Introduction What Is a Coverdell ESAQualified Education Expenses ContributionsContribution Limits Additional Tax on Excess Contributions Rollovers and Other TransfersRollovers Changing the Designated Beneficiary Transfer Because of Divorce DistributionsTax-Free Distributions Taxable Distributions When Assets Must Be Distributed Introduction If your modified adjusted gross income (MAGI) is less than $110,000 ($220,000 if filing a joint return), you may be able to establish a Coverdell ESA to finance the qualified education expenses of a designated beneficiary. File 2005 taxes For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return. File 2005 taxes There is no limit on the number of separate Coverdell ESAs that can be established for a designated beneficiary. File 2005 taxes However, total contributions for the beneficiary in any year cannot be more than $2,000, no matter how many accounts have been established. File 2005 taxes See Contributions , later. File 2005 taxes This benefit applies not only to higher education expenses, but also to elementary and secondary education expenses. File 2005 taxes What is the tax benefit of the Coverdell ESA. File 2005 taxes   Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed. File 2005 taxes   If, for a year, distributions from an account are not more than a designated beneficiary's qualified education expenses at an eligible educational institution, the beneficiary will not owe tax on the distributions. File 2005 taxes See Tax-Free Distributions , later. File 2005 taxes    Table 7-1 summarizes the main features of the Coverdell ESA. File 2005 taxes Table 7-1. File 2005 taxes Coverdell ESA at a Glance Do not rely on this table alone. File 2005 taxes It provides only general highlights. File 2005 taxes See the text for definitions of terms in bold type and for more complete explanations. File 2005 taxes Question Answer What is a Coverdell ESA? A savings account that is set up to pay the qualified education expenses of a designated beneficiary. File 2005 taxes Where can it be established? It can be opened in the United States at any bank or other IRS-approved entity that offers Coverdell ESAs. File 2005 taxes Who can have a Coverdell ESA? Any beneficiary who is under age 18 or is a special needs beneficiary. File 2005 taxes Who can contribute to a Coverdell ESA? Generally, any individual (including the beneficiary) whose modified adjusted gross income for the year is less than $110,000 ($220,000 in the case of a joint return). File 2005 taxes Are distributions tax free? Yes, if the distributions are not more than the beneficiary's adjusted qualified education expenses for the year. File 2005 taxes What Is a Coverdell ESA A Coverdell ESA is a trust or custodial account created or organized in the United States only for the purpose of paying the qualified education expenses of the Designated beneficiary (defined later) of the account. File 2005 taxes When the account is established, the designated beneficiary must be under age 18 or a special needs beneficiary. File 2005 taxes To be treated as a Coverdell ESA, the account must be designated as a Coverdell ESA when it is created. File 2005 taxes The document creating and governing the account must be in writing and must satisfy the following requirements. File 2005 taxes The trustee or custodian must be a bank or an entity approved by the IRS. File 2005 taxes The document must provide that the trustee or custodian can only accept a contribution that meets all of the following conditions. File 2005 taxes The contribution is in cash. File 2005 taxes The contribution is made before the beneficiary reaches age 18, unless the beneficiary is a special needs beneficiary. File 2005 taxes The contribution would not result in total contributions for the year (not including rollover contributions) being more than $2,000. File 2005 taxes Money in the account cannot be invested in life insurance contracts. File 2005 taxes Money in the account cannot be combined with other property except in a common trust fund or common investment fund. File 2005 taxes The balance in the account generally must be distributed within 30 days after the earlier of the following events. File 2005 taxes The beneficiary reaches age 30, unless the beneficiary is a special needs beneficiary. File 2005 taxes The beneficiary's death. File 2005 taxes Qualified Education Expenses Generally, these are expenses required for the enrollment or attendance of the designated beneficiary at an eligible educational institution. File 2005 taxes For purposes of Coverdell ESAs, the expenses can be either qualified higher education expenses or qualified elementary and secondary education expenses. File 2005 taxes Designated beneficiary. File 2005 taxes   This is the individual named in the document creating the trust or custodial account to receive the benefit of the funds in the account. File 2005 taxes Contributions to a qualified tuition program (QTP). File 2005 taxes   A contribution to a QTP is a qualified education expense if the contribution is on behalf of the designated beneficiary of the Coverdell ESA. File 2005 taxes In the case of a change in beneficiary, this is a qualified expense only if the new beneficiary is a family member of that designated beneficiary. File 2005 taxes See chapter 8, Qualified Tuition Program . File 2005 taxes Eligible Educational Institution For purposes of Coverdell ESAs, an eligible educational institution can be either an eligible postsecondary school or an eligible elementary or secondary school. File 2005 taxes Eligible postsecondary school. File 2005 taxes   This is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. File 2005 taxes S. File 2005 taxes Department of Education. File 2005 taxes It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. File 2005 taxes The educational institution should be able to tell you if it is an eligible educational institution. File 2005 taxes   Certain educational institutions located outside the United States also participate in the U. File 2005 taxes S. File 2005 taxes Department of Education's Federal Student Aid (FSA) programs. File 2005 taxes Eligible elementary or secondary school. File 2005 taxes   This is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. File 2005 taxes Qualified Higher Education Expenses These are expenses related to enrollment or attendance at an eligible postsecondary school. File 2005 taxes As shown in the following list, to be qualified, some of the expenses must be required by the school and some must be incurred by students who are enrolled at least half-time. File 2005 taxes The following expenses must be required for enrollment or attendance of a designated beneficiary at an eligible postsecondary school. File 2005 taxes Tuition and fees. File 2005 taxes Books, supplies, and equipment. File 2005 taxes Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible postsecondary school. File 2005 taxes Expenses for room and board must be incurred by students who are enrolled at least half-time (defined below). File 2005 taxes The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts. File 2005 taxes The allowance for room and board, as determined by the school, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. File 2005 taxes The actual amount charged if the student is residing in housing owned or operated by the school. File 2005 taxes Half-time student. File 2005 taxes   A student is enrolled “at least half-time” if he or she is enrolled for at least half the full-time academic work load for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. File 2005 taxes Qualified Elementary and Secondary Education Expenses These are expenses related to enrollment or attendance at an eligible elementary or secondary school. File 2005 taxes As shown in the following list, to be qualified, some of the expenses must be required or provided by the school. File 2005 taxes There are special rules for computer-related expenses. File 2005 taxes The following expenses must be incurred by a designated beneficiary in connection with enrollment or attendance at an eligible elementary or secondary school. File 2005 taxes Tuition and fees. File 2005 taxes Books, supplies, and equipment. File 2005 taxes Academic tutoring. File 2005 taxes Special needs services for a special needs beneficiary. File 2005 taxes The following expenses must be required or provided by an eligible elementary or secondary school in connection with attendance or enrollment at the school. File 2005 taxes Room and board. File 2005 taxes Uniforms. File 2005 taxes Transportation. File 2005 taxes Supplementary items and services (including extended day programs). File 2005 taxes The purchase of computer technology, equipment, or Internet access and related services is a qualified elementary and secondary education expense if it is to be used by the beneficiary and the beneficiary's family during any of the years the beneficiary is in elementary or secondary school. File 2005 taxes (This does not include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature. File 2005 taxes ) Contributions Any individual (including the designated beneficiary) can contribute to a Coverdell ESA if the individual's MAGI (defined later under Contribution Limits ) for the year is less than $110,000. File 2005 taxes For individuals filing joint returns, that amount is $220,000. File 2005 taxes Organizations, such as corporations and trusts, can also contribute to Coverdell ESAs. File 2005 taxes There is no requirement that an organization's income be below a certain level. File 2005 taxes Contributions must meet all of the following requirements. File 2005 taxes They must be in cash. File 2005 taxes They cannot be made after the beneficiary reaches age 18, unless the beneficiary is a special needs beneficiary. File 2005 taxes They must be made by the due date of the contributor's tax return (not including extensions). File 2005 taxes Contributions can be made to one or several Coverdell ESAs for the same designated beneficiary provided that the total contributions are not more than the contribution limits (defined later) for a year. File 2005 taxes Contributions can be made, without penalty, to both a Coverdell ESA and a QTP in the same year for the same beneficiary. File 2005 taxes Table 7-2 summarizes many of the features of contributing to a Coverdell ESA. File 2005 taxes When contributions considered made. File 2005 taxes   Contributions made to a Coverdell ESA for the preceding tax year are considered to have been made on the last day of the preceding year. File 2005 taxes They must be made by the due date (not including extensions) for filing your return for the preceding year. File 2005 taxes   For example, if you make a contribution to a Coverdell ESA in February 2014, and you designate it as a contribution for 2013, you are considered to have made that contribution on December 31, 2013. File 2005 taxes Contribution Limits There are two yearly limits: One on the total amount that can be contributed for each designated beneficiary in any year, and One on the amount that any individual can contribute for any one designated beneficiary for a year. File 2005 taxes Limit for each designated beneficiary. File 2005 taxes   For 2013, the total of all contributions to all Coverdell ESAs set up for the benefit of any one designated beneficiary cannot be more than $2,000. File 2005 taxes This includes contributions (other than rollovers) to all the beneficiary's Coverdell ESAs from all sources. File 2005 taxes Rollovers are discussed under Rollovers and Other Transfers , later. File 2005 taxes Example. File 2005 taxes When Maria Luna was born in 2012, three separate Coverdell ESAs were set up for her, one by her parents, one by her grandfather, and one by her aunt. File 2005 taxes In 2013, the total of all contributions to Maria's three Coverdell ESAs cannot be more than $2,000. File 2005 taxes For example, if her grandfather contributed $2,000 to one of her Coverdell ESAs, no one else could contribute to any of her three accounts. File 2005 taxes Or, if her parents contributed $1,000 and her aunt $600, her grandfather or someone else could contribute no more than $400. File 2005 taxes These contributions could be put into any of Maria's Coverdell ESA accounts. File 2005 taxes Limit for each contributor. File 2005 taxes   Generally, you can contribute up to $2,000 for each designated beneficiary for 2013. File 2005 taxes This is the most you can contribute for the benefit of any one beneficiary for the year, regardless of the number of Coverdell ESAs set up for the beneficiary. File 2005 taxes Example. File 2005 taxes The facts are the same as in the previous example except that Maria Luna's older brother, Edgar, also has a Coverdell ESA. File 2005 taxes If their grandfather contributed $2,000 to Maria's Coverdell ESA in 2013, he could also contribute $2,000 to Edgar's Coverdell ESA. File 2005 taxes Reduced limit. File 2005 taxes   Your contribution limit may be reduced. File 2005 taxes If your MAGI (defined on this page) is between $95,000 and $110,000 (between $190,000 and $220,000 if filing a joint return), the $2,000 limit for each designated beneficiary is gradually reduced (see Figuring the limit , later). File 2005 taxes If your MAGI is $110,000 or more ($220,000 or more if filing a joint return), you cannot contribute to anyone's Coverdell ESA. File 2005 taxes Table 7-2. File 2005 taxes Coverdell ESA Contributions at a Glance Do not rely on this table alone. File 2005 taxes It provides only general highlights. File 2005 taxes See the text for more complete explanations. File 2005 taxes Question Answer Are contributions deductible? No. File 2005 taxes What is the annual contribution limit per designated beneficiary? $2,000 for each designated beneficiary. File 2005 taxes What if more than one Coverdell ESA has been opened for the same designated beneficiary? The annual contribution limit is $2,000 for each beneficiary, no matter how many Coverdell ESAs are set up for that beneficiary. File 2005 taxes What if more than one individual makes contributions for the same designated beneficiary? The annual contribution limit is $2,000 per beneficiary, no matter how many individuals contribute. File 2005 taxes Can contributions other than cash be made to a Coverdell ESA? No. File 2005 taxes When must contributions stop? No contributions can be made to a beneficiary's Coverdell ESA after he or she reaches age 18, unless the beneficiary is a special needs beneficiary. File 2005 taxes Modified adjusted gross income (MAGI). File 2005 taxes   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. File 2005 taxes MAGI when using Form 1040A. File 2005 taxes   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. File 2005 taxes MAGI when using Form 1040. File 2005 taxes   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. File 2005 taxes MAGI when using Form 1040NR. File 2005 taxes   If you file Form 1040NR, your MAGI is the AGI on line 36 of that form. File 2005 taxes MAGI when using Form 1040NR-EZ. File 2005 taxes   If you file Form 1040NR-EZ, your MAGI is the AGI on line 10 of that form. File 2005 taxes   If you have any of these adjustments, you can use Worksheet 7-1. File 2005 taxes MAGI for a Coverdell ESA , later, to figure your MAGI for Form 1040. File 2005 taxes Worksheet 7-1. File 2005 taxes MAGI for a Coverdell ESA 1. File 2005 taxes Enter your adjusted gross income  (Form 1040, line 38)   1. File 2005 taxes   2. File 2005 taxes Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. File 2005 taxes       3. File 2005 taxes Enter your foreign housing deduction (Form 2555, line 50)   3. File 2005 taxes         4. File 2005 taxes Enter the amount of income from Puerto Rico you are excluding   4. File 2005 taxes       5. File 2005 taxes Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. File 2005 taxes       6. File 2005 taxes Add lines 2, 3, 4, and 5   6. File 2005 taxes   7. File 2005 taxes Add lines 1 and 6. File 2005 taxes This is your  modified adjusted gross income   7. File 2005 taxes   Figuring the limit. File 2005 taxes    To figure the limit on the amount you can contribute for each designated beneficiary, multiply $2,000 by a fraction. File 2005 taxes The numerator (top number) is your MAGI minus $95,000 ($190,000 if filing a joint return). File 2005 taxes The denominator (bottom number) is $15,000 ($30,000 if filing a joint return). File 2005 taxes Subtract the result from $2,000. File 2005 taxes This is the amount you can contribute for each beneficiary. File 2005 taxes You can use Worksheet 7-2. File 2005 taxes Coverdell ESA Contribution Limit to figure the limit on contributions. File 2005 taxes    Worksheet 7-2. File 2005 taxes Coverdell ESA Contribution Limit 1. File 2005 taxes Maximum contribution   1. File 2005 taxes $2,000 2. File 2005 taxes Enter your modified adjusted gross income (MAGI) for purposes of figuring the contribution limit to a Coverdell ESA (see definition or Worksheet 7-1, earlier)   2. File 2005 taxes   3. File 2005 taxes Enter $190,000 if married filing jointly; $95,000 for all other filers   3. File 2005 taxes   4. File 2005 taxes Subtract line 3 from line 2. File 2005 taxes If zero or less, enter -0- on line 4, skip lines 5 through 7, and enter $2,000 on line 8   4. File 2005 taxes   5. File 2005 taxes Enter $30,000 if married filing jointly; $15,000 for all other filers   5. File 2005 taxes     Note. File 2005 taxes If the amount on line 4 is greater than or equal to the amount on line 5, stop here. File 2005 taxes You are not allowed to contribute to a Coverdell ESA for 2013. File 2005 taxes       6. File 2005 taxes Divide line 4 by line 5 and enter the result as a decimal (rounded to at least 3 places)   6. File 2005 taxes . File 2005 taxes 7. File 2005 taxes Multiply line 1 by line 6   7. File 2005 taxes   8. File 2005 taxes Subtract line 7 from line 1   8. File 2005 taxes   Note: The total Coverdell ESA contributions from all sources for the designated beneficiary during the tax year may not exceed $2,000. File 2005 taxes Example. File 2005 taxes Paul, who is single, had a MAGI of $96,500 for 2013. File 2005 taxes Paul can contribute up to $1,800 in 2013 for each beneficiary, as shown in the illustrated Worksheet 7-2, Coverdell ESA Contribution Limit–Illustrated. File 2005 taxes Worksheet 7-2. File 2005 taxes Coverdell ESA Contribution Limit—Illustrated 1. File 2005 taxes Maximum contribution   1. File 2005 taxes $2,000 2. File 2005 taxes Enter your modified adjusted gross  income (MAGI) for purposes of figuring the contribution limit to a Coverdell ESA (see definition or Worksheet 7-1, earlier)   2. File 2005 taxes 96,500 3. File 2005 taxes Enter $190,000 if married filing jointly; $95,000 for all other filers   3. File 2005 taxes 95,000 4. File 2005 taxes Subtract line 3 from line 2. File 2005 taxes If zero or less, enter -0- on line 4, skip lines 5 through 7, and enter $2,000 on line 8   4. File 2005 taxes 1,500 5. File 2005 taxes Enter $30,000 if married filing jointly; $15,000 for all other filers   5. File 2005 taxes 15,000   Note. File 2005 taxes If the amount on line 4 is greater than or equal to the amount on line 5,  stop here. File 2005 taxes You are not allowed to  contribute to a Coverdell ESA for 2013. File 2005 taxes       6. File 2005 taxes Divide line 4 by line 5 and enter the result as a decimal (rounded to at least 3 places)   6. File 2005 taxes . File 2005 taxes 100 7. File 2005 taxes Multiply line 1 by line 6   7. File 2005 taxes 200 8. File 2005 taxes Subtract line 7 from line 1   8. File 2005 taxes 1,800 Note: The total Coverdell ESA contributions from all sources for the designated beneficiary during the tax year may not exceed $2,000. File 2005 taxes Additional Tax on Excess Contributions The beneficiary must pay a 6% excise tax each year on excess contributions that are in a Coverdell ESA at the end of the year. File 2005 taxes Excess contributions are the total of the following two amounts. File 2005 taxes Contributions to any designated beneficiary's Coverdell ESA for the year that are more than $2,000 (or, if less, the total of each contributor's limit for the year, as discussed earlier). File 2005 taxes Excess contributions for the preceding year, reduced by the total of the following two amounts: Distributions (other than those rolled over as discussed later) during the year, and The contribution limit for the current year minus the amount contributed for the current year. File 2005 taxes Exceptions. File 2005 taxes   The excise tax does not apply if excess contributions made during 2013 (and any earnings on them) are distributed before the first day of the sixth month of the following tax year (June 1, 2014, for a calendar year taxpayer). File 2005 taxes   However, you must include the distributed earnings in gross income for the year in which the excess contribution was made. File 2005 taxes You should receive Form 1099-Q, Payments From Qualified Education Programs, from each institution from which excess contributions were distributed. File 2005 taxes Box 2 of that form will show the amount of earnings on your excess contributions. File 2005 taxes Code “2” or “3” entered in the blank box below boxes 5 and 6 indicate the year in which the earnings are taxable. File 2005 taxes See Instructions for Recipient on the back of copy B of your Form 1099-Q. File 2005 taxes Enter the amount of earnings on line 21 of Form 1040 (or Form 1040NR) for the applicable tax year. File 2005 taxes For more information, see Taxable Distributions , later. File 2005 taxes   The excise tax does not apply to any rollover contribution. File 2005 taxes Note. File 2005 taxes Contributions made in one year for the preceding tax year are considered to have been made on the last day of the preceding year. File 2005 taxes Example. File 2005 taxes In 2012, Greta's parents and grandparents contributed a total of $2,300 to Greta's Coverdell ESA— an excess contribution of $300. File 2005 taxes Because Greta did not withdraw the excess before June 1, 2013, she had to pay an additional tax of $18 (6% × $300) when she filed her 2012 tax return. File 2005 taxes In 2013, excess contributions of $500 were made to Greta's account, however, she withdrew $250 from that account to use for qualified education expenses. File 2005 taxes Using the steps shown earlier under Additional Tax on Excess Contributions , Greta figures the excess contribution in her account at the end of 2013 as follows. File 2005 taxes (1)   $500 excess contributions made in 2013     + (2)   $300 excess contributions in ESA at end of 2012     − (2a)   $250 distribution during 2013         $550 excess at end of 2013   × 6%=$33           If Greta limits 2014 contributions to $1,450 ($2,000 maximum allowed − $550 excess contributions from 2013), she will not owe any additional tax in 2014 for excess contributions. File 2005 taxes Figuring and reporting the additional tax. File 2005 taxes   You figure this excise tax in Part V of Form 5329. File 2005 taxes Report the additional tax on Form 1040, line 58 (or Form 1040NR, line 56). File 2005 taxes Rollovers and Other Transfers Assets can be rolled over from one Coverdell ESA to another or the designated beneficiary can be changed. File 2005 taxes The beneficiary's interest can be transferred to a spouse or former spouse because of divorce. File 2005 taxes Rollovers Any amount distributed from a Coverdell ESA is not taxable if it is rolled over to another Coverdell ESA for the benefit of the same beneficiary or a member of the beneficiary's family (including the beneficiary's spouse) who is under age 30. File 2005 taxes This age limitation does not apply if the new beneficiary is a special needs beneficiary. File 2005 taxes An amount is rolled over if it is paid to another Coverdell ESA within 60 days after the date of the distribution. File 2005 taxes Do not report qualifying rollovers (those that meet the above criteria) anywhere on Form 1040 or 1040NR. File 2005 taxes These are not taxable distributions. File 2005 taxes Members of the beneficiary's family. File 2005 taxes   For these purposes, the beneficiary's family includes the beneficiary's spouse and the following other relatives of the beneficiary. File 2005 taxes Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them. File 2005 taxes Brother, sister, stepbrother, or stepsister. File 2005 taxes Father or mother or ancestor of either. File 2005 taxes Stepfather or stepmother. File 2005 taxes Son or daughter of a brother or sister. File 2005 taxes Brother or sister of father or mother. File 2005 taxes Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. File 2005 taxes The spouse of any individual listed above. File 2005 taxes First cousin. File 2005 taxes Example. File 2005 taxes When Aaron graduated from college last year he had $5,000 left in his Coverdell ESA. File 2005 taxes He wanted to give this money to his younger sister, who was still in high school. File 2005 taxes In order to avoid paying tax on the distribution of the amount remaining in his account, Aaron contributed the same amount to his sister's Coverdell ESA within 60 days of the distribution. File 2005 taxes Only one rollover per Coverdell ESA is allowed during the 12-month period ending on the date of the payment or distribution. File 2005 taxes This rule does not apply to the rollover of a military death gratuity or payment from Servicemembers' Group Life Insurance (SGLI). File 2005 taxes Military death gratuity. File 2005 taxes   If you received a military death gratuity or a payment from Servicemembers' Group Life Insurance (SGLI), you may roll over all or part of the amount received to one or more Coverdell ESAs for the benefit of members of the beneficiary's family (see Members of the beneficiary's family , earlier). File 2005 taxes Such payments are made to an eligible survivor upon the death of a member of the armed forces. File 2005 taxes The contribution to a Coverdell ESA from survivor benefits received cannot be made later than 1 year after the date on which you receive the gratuity or SGLI payment. File 2005 taxes   This rollover contribution is not subject to (but is in addition to) the contribution limits discussed earlier under Contribution Limits . File 2005 taxes The amount you roll over cannot exceed the total survivor benefits you received, reduced by contributions from these benefits to a Roth IRA or other Coverdell ESAs. File 2005 taxes   The amount contributed from the survivor benefits is treated as part of your basis (cost) in the Coverdell ESA, and will not be taxed when distributed. File 2005 taxes See Distributions , later. File 2005 taxes The limit of one rollover per Coverdell ESA during a 12-month period does not apply to a military death gratuity or SGLI payment. File 2005 taxes Changing the Designated Beneficiary The designated beneficiary can be changed. File 2005 taxes See Members of the beneficiary's family , earlier. File 2005 taxes There are no tax consequences if, at the time of the change, the new beneficiary is under age 30 or is a special needs beneficiary. File 2005 taxes Example. File 2005 taxes Assume the same situation for Aaron as in the last example (see Rollovers , earlier). File 2005 taxes Instead of closing his Coverdell ESA and paying the distribution into his sister's Coverdell ESA, Aaron could have instructed the trustee of his account to simply change the name of the beneficiary on his account to that of his sister. File 2005 taxes Transfer Because of Divorce If a spouse or former spouse receives a Coverdell ESA under a divorce or separation instrument, it is not a taxable transfer. File 2005 taxes After the transfer, the spouse or former spouse treats the Coverdell ESA as his or her own. File 2005 taxes Example. File 2005 taxes In their divorce settlement, Peg received her ex-husband's Coverdell ESA. File 2005 taxes In this process, the account was transferred into her name. File 2005 taxes Peg now treats the funds in this Coverdell ESA as if she were the original owner. File 2005 taxes Distributions The designated beneficiary of a Coverdell ESA can take a distribution at any time. File 2005 taxes Whether the distributions are tax free depends, in part, on whether the distributions are equal to or less than the amount of Adjusted qualified education expenses (defined later) that the beneficiary has in the same tax year. File 2005 taxes See Table 7-3, Coverdell ESA Distributions at a Glance, for highlights. File 2005 taxes Table 7-3. File 2005 taxes Coverdell ESA Distributions at a Glance Do not rely on this table alone. File 2005 taxes It provides only general highlights. File 2005 taxes See the text for definitions of terms in bold type and for more complete explanations. File 2005 taxes Question Answer Is a distribution from a Coverdell ESA to pay for a designated beneficiary's qualified education expenses tax free? Generally, yes, to the extent the amount of the distribution is not more than the designated beneficiary's adjusted qualified education expenses. File 2005 taxes After the designated beneficiary completes his or her education at an eligible educational institution, can amounts remaining in the Coverdell ESA be distributed? Yes. File 2005 taxes Amounts must be distributed when the designated beneficiary reaches age 30, unless he or she is a special needs beneficiary. File 2005 taxes Also, certain transfers to members of the beneficiary's family are permitted. File 2005 taxes Does the designated beneficiary need to be enrolled for a minimum number of courses to take a tax-free distribution? No. File 2005 taxes Adjusted qualified education expenses. File 2005 taxes   To determine if total distributions for the year are more than the amount of qualified education expenses, reduce total qualified education expenses by any tax-free educational assistance. File 2005 taxes Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. File 2005 taxes The amount you get by subtracting tax-free educational assistance from your total qualified education expenses is your adjusted qualified education expenses. File 2005 taxes Tax-Free Distributions Generally, distributions are tax free if they are not more than the beneficiary's adjusted qualified education expenses for the year. File 2005 taxes Do not report tax-free distributions (including qualifying rollovers) on your tax return. File 2005 taxes Taxable Distributions A portion of the distributions is generally taxable to the beneficiary if the total distributions are more than the beneficiary's adjusted qualified education expenses for the year. File 2005 taxes Excess distribution. File 2005 taxes   This is the part of the total distribution that is more than the beneficiary's adjusted qualified education expenses for the year. File 2005 taxes Earnings and basis. File 2005 taxes   You will receive a Form 1099-Q for each of the Coverdell ESAs from which money was distributed in 2013. File 2005 taxes The amount of your gross distribution will be shown in box 1. File 2005 taxes For 2013, instead of dividing the gross distribution between your earnings (box 2) and your basis (already-taxed amount) (box 3), the payer or trustee may report the fair market value (account balance) of the Coverdell ESA as of December 31, 2013. File 2005 taxes This will be shown in the blank box below boxes 5 and 6. File 2005 taxes   The amount contributed from survivor benefits (see Military death gratuity , earlier) is treated as part of your basis and will not be taxed when distributed. File 2005 taxes Figuring the Taxable Portion of a Distribution The taxable portion is the amount of the excess distribution that represents earnings that have accumulated tax free in the account. File 2005 taxes Figure the taxable portion for 2013 as shown in the following steps. File 2005 taxes Multiply the total amount distributed by a fraction. File 2005 taxes The numerator is the basis (contributions not previously distributed) at the end of 2012 plus total contributions for 2013 and the denominator is the value (balance) of the account at the end of 2013 plus the amount distributed during 2013. File 2005 taxes Subtract the amount figured in (1) from the total amount distributed during 2013. File 2005 taxes The result is the amount of earnings included in the distribution(s). File 2005 taxes Multiply the amount of earnings figured in (2) by a fraction. File 2005 taxes The numerator is the adjusted qualified education expenses paid during 2013 and the denominator is the total amount distributed during 2013. File 2005 taxes Subtract the amount figured in (3) from the amount figured in (2). File 2005 taxes The result is the amount the beneficiary must include in income. File 2005 taxes The taxable amount must be reported on Form 1040 or Form 1040NR, line 21. File 2005 taxes Example. File 2005 taxes You received an $850 distribution from your Coverdell ESA, to which $1,500 had been contributed before 2013. File 2005 taxes There were no contributions in 2013. File 2005 taxes This is your first distribution from the account, so your basis in the account on December 31, 2012, was $1,500. File 2005 taxes The value (balance) of your account on December 31, 2013, was $950. File 2005 taxes You had $700 of adjusted qualified education expenses (AQEE) for the year. File 2005 taxes Using the steps in Figuring the Taxable Portion of a Distribution , earlier, figure the taxable portion of your distribution as follows. File 2005 taxes   1. File 2005 taxes $850 (distribution) × $1,500 basis + $0 contributions  $950 value + $850 distribution       =$708 (basis portion of distribution)     2. File 2005 taxes $850 (distribution)−$708 (basis portion of distribution)     =$142 (earnings included in distribution)   3. File 2005 taxes $142 (earnings) × $700 AQEE  $850 distribution           =$117 (tax-free earnings)     4. File 2005 taxes $142 (earnings)−$117 (tax-free earnings)=$25 (taxable earnings)                 You must include $25 in income as distributed earnings not used for qualified education expenses. File 2005 taxes Report this amount on Form 1040, line 21, listing the type and amount of income on the dotted line. File 2005 taxes Worksheet 7-3, Coverdell ESA–Taxable Distributions and Basis , at the end of this chapter, can help you figure your adjusted qualified education expenses, how much of your distribution must be included in income, and the remaining basis in your Coverdell ESA(s). File 2005 taxes Coordination With American Opportunity and Lifetime Learning Credits The American opportunity or lifetime learning credit can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits. File 2005 taxes This means the beneficiary must reduce qualified higher education expenses by tax-free educational assistance, and then further reduce them by any expenses taken into account in determining an American opportunity or lifetime learning credit. File 2005 taxes Example. File 2005 taxes Derek Green had $5,800 of qualified higher education expenses for 2013, his first year in college. File 2005 taxes He paid his college expenses from the following sources. File 2005 taxes     Partial tuition scholarship (tax free) $1,500     Coverdell ESA distribution 1,000     Gift from parents 2,100     Earnings from part-time job 1,200           Of his $5,800 of qualified higher education expenses, $4,000 was tuition and related expenses that also qualified for an American opportunity credit. File 2005 taxes Derek's parents claimed a $2,500 American opportunity credit (based on $4,000 expenses) on their tax return. File 2005 taxes Before Derek can determine the taxable portion of his Coverdell ESA distribution, he must reduce his total qualified higher education expenses. File 2005 taxes     Total qualified higher education expenses $5,800     Minus: Tax-free educational assistance −1,500     Minus: Expenses taken into account in  figuring American opportunity credit − 4,000     Equals: Adjusted qualified higher education  expenses (AQHEE) $ 300           Since the adjusted qualified higher education expenses ($300) are less than the Coverdell ESA distribution ($1,000), part of the distribution will be taxable. File 2005 taxes The balance in Derek's account was $1,800 on December 31, 2013. File 2005 taxes Prior to 2013, $2,100 had been contributed to this account. File 2005 taxes Contributions for 2013 totaled $400. File 2005 taxes Using the four steps outlined earlier, Derek figures the taxable portion of his distribution as shown below. File 2005 taxes   1. File 2005 taxes $1,000 (distribution) × $2,100 basis + $400 contributions  $1,800 value + $1,000 distribution           =$893 (basis portion of distribution)     2. File 2005 taxes $1,000 (distribution)−$893 (basis portion of distribution)     = $107 (earnings included in distribution)   3. File 2005 taxes $107 (earnings) × $300 AQHEE  $1,000 distribution       =$32 (tax-free earnings)     4. File 2005 taxes $107 (earnings)−$32 (tax-free earnings)=$75 (taxable earnings)                 Derek must include $75 in income (Form 1040, line 21). File 2005 taxes This is the amount of distributed earnings not used for adjusted qualified higher education expenses. File 2005 taxes Coordination With Qualified Tuition Program (QTP) Distributions If a designated beneficiary receives distributions from both a Coverdell ESA and a QTP in the same year, and the total distribution is more than the beneficiary's adjusted qualified higher education expenses, those expenses must be allocated between the distribution from the Coverdell ESA and the distribution from the QTP before figuring how much of each distribution is taxable. File 2005 taxes The following two examples illustrate possible allocations. File 2005 taxes Example 1. File 2005 taxes In 2013, Beatrice graduated from high school and began her first semester of college. File 2005 taxes That year, she had $1,000 of qualified elementary and secondary education expenses (QESEE) for high school and $3,000 of qualified higher education expenses (QHEE) for college. File 2005 taxes To pay these expenses, Beatrice withdrew $800 from her Coverdell ESA and $4,200 from her QTP. File 2005 taxes No one claimed Beatrice as a dependent, nor was she eligible for an education credit. File 2005 taxes She did not receive any tax-free educational assistance in 2013. File 2005 taxes Beatrice must allocate her total qualified education expenses between the two distributions. File 2005 taxes Beatrice knows that tax-free treatment will be available if she applies her $800 Coverdell ESA distribution toward her $1,000 of qualified education expenses for high school. File 2005 taxes The qualified expenses are greater than the distribution, making the $800 Coverdell ESA distribution tax free. File 2005 taxes Next, Beatrice matches her $4,200 QTP distribution to her $3,000 of QHEE, and finds she has an excess QTP distribution of $1,200 ($4,200 QTP − $3,000 QHEE). File 2005 taxes She cannot use the extra $200 of high school expenses (from (1) above) against the QTP distribution because those expenses do not qualify a QTP for tax-free treatment. File 2005 taxes Finally, Beatrice figures the taxable and tax-free portions of her QTP distribution based on her $3,000 of QHEE. File 2005 taxes (See Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program for more information. File 2005 taxes ) Example 2. File 2005 taxes Assume the same facts as in Example 1 , except that Beatrice withdrew $1,800 from her Coverdell ESA and $3,200 from her QTP. File 2005 taxes In this case, she allocates her qualified education expenses as follows. File 2005 taxes Using the same reasoning as in Example 1, Beatrice matches $1,000 of her Coverdell ESA distribution to her $1,000 of QESEE—she has $800 of her distribution remaining. File 2005 taxes Because higher education expenses can also qualify a Coverdell ESA distribution for tax-free treatment, Beatrice allocates her $3,000 of QHEE between the remaining $800 Coverdell ESA and the $3,200 QTP distributions ($4,000 total). File 2005 taxes   $3,000 QHEE × $800 ESA distribution  $4,000 total distribution = $600 QHEE (ESA)     $3,000 QHEE × $3,200 QTP distribution  $4,000 total distribution = $2,400 QHEE (QTP)   Beatrice then figures the taxable part of her: Coverdell ESA distribution based on qualified education expenses of $1,600 ($1,000 QESEE + $600 QHEE). File 2005 taxes See Figuring the Taxable Portion of a Distribution , earlier, in this chapter. File 2005 taxes   QTP distribution based on her $2,400 of QHEE (see Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program). File 2005 taxes The above examples show two types of allocation between distributions from a Coverdell ESA and a QTP. File 2005 taxes However, you do not have to allocate your expenses in the same way. File 2005 taxes You can use any reasonable method. File 2005 taxes Losses on Coverdell ESA Investments If you have a loss on your investment in a Coverdell ESA, you may be able to deduct the loss on your income tax return. File 2005 taxes You can deduct the loss only when all amounts from that account have been distributed and the total distributions are less than your unrecovered basis. File 2005 taxes Your basis is the total amount of contributions to that Coverdell ESA. File 2005 taxes You claim the loss as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23 (Schedule A (Form 1040NR), line 9), subject to the 2%-of-adjusted-gross-income limit. File 2005 taxes If you have distributions from more than one Coverdell ESA account during a year, you must combine the information (amount of distribution, basis, etc. File 2005 taxes ) from all such accounts in order to determine your taxable earnings for the year. File 2005 taxes By doing this, the loss from one ESA account reduces the distributed earnings (if any) from any other ESA account. File 2005 taxes For examples of the calculation, see Losses on QTP Investments in chapter 8, Qualified Tuition Program. File 2005 taxes Additional Tax on Taxable Distributions Generally, if you receive a taxable distribution, you also must pay a 10% additional tax on the amount included in income. File 2005 taxes Exceptions. File 2005 taxes   The 10% additional tax does not apply to distributions: Paid to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary. File 2005 taxes Made because the designated beneficiary is disabled. File 2005 taxes A person is considered to be disabled if he or she shows proof that he or she cannot do any substantial gainful activity because of his or her physical or mental condition. File 2005 taxes A physician must determine that his or her condition can be expected to result in death or to be of long-continued and indefinite duration. File 2005 taxes Included in income because the designated beneficiary received: A tax-free scholarship or fellowship (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), or Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. File 2005 taxes Made on account of the attendance of the designated beneficiary at a U. File 2005 taxes S. File 2005 taxes military academy (such as the USMA at West Point). File 2005 taxes This exception applies only to the extent that the amount of the distribution does not exceed the costs of advanced education (as defined in section 2005(d)(3) of title 10 of the U. File 2005 taxes S. File 2005 taxes Code) attributable to such attendance. File 2005 taxes Included in income only because the qualified education expenses were taken into account in determining the American opportunity or lifetime learning credit (see Coordination With American Opportunity and Lifetime Learning Credits , earlier). File 2005 taxes Made before June 1, 2014, of an excess 2013 contribution (and any earnings on it). File 2005 taxes The distributed earnings must be included in gross income for the year in which the excess contribution was made. File 2005 taxes Exception (3) applies only to the extent the distribution is not more than the scholarship, allowance, or payment. File 2005 taxes Figuring the additional tax. File 2005 taxes    Use Part II of Form 5329, to figure any additional tax. File 2005 taxes Report the amount on Form 1040, line 58, or Form 1040NR, line 56. File 2005 taxes When Assets Must Be Distributed Any assets remaining in a Coverdell ESA must be distributed when either one of the following two events occurs. File 2005 taxes The designated beneficiary reaches age 30. File 2005 taxes In this case, the remaining assets must be distributed within 30 days after the beneficiary reaches age 30. File 2005 taxes However, this rule does not apply if the beneficiary is a special needs beneficiary. File 2005 taxes The designated beneficiary dies before reaching age 30. File 2005 taxes In this case, the remaining assets must generally be distributed within 30 days after the date of death. File 2005 taxes Exception for Transfer to Surviving Spouse or Family Member If a Coverdell ESA is transferred to a surviving spouse or other family member as the result of the death of the designated beneficiary, the Coverdell ESA retains its status. File 2005 taxes (“Family member” was defined earlier under Rollovers . File 2005 taxes ) This means the spouse or other family member can treat the Coverdell ESA as his or her own and does not need to withdraw the assets until he or she reaches age 30. File 2005 taxes This age limitation does not apply if the new beneficiary is a special needs beneficiary. File 2005 taxes There are no tax consequences as a result of the transfer. File 2005 taxes How To Figure the Taxable Earnings When a total distribution is made because the designated beneficiary either reached age 30 or died, the earnings that accumulated tax free in the account must be included in taxable income. File 2005 taxes You determine these earnings as shown in the following two steps. File 2005 taxes Multiply the amount distributed by a fraction. File 2005 taxes The numerator is the basis (contributions not previously distributed) at the end of 2012 plus total contributions for 2013 and the denominator is the balance in the account at the end of 2013 plus the amount distributed during 2013. File 2005 taxes Subtract the amount figured in (1) from the total amount distributed during 2013. File 2005 taxes The result is the amount of earnings included in the distribution. File 2005 taxes For an example, see steps (1) and (2) of the Example under Figuring the Taxable Portion of a Distribution, earlier. File 2005 taxes The beneficiary or other person receiving the distribution must report this amount on Form 1040, line 21, or Form 1040NR, line 21, listing the type and amount of income on the dotted line. File 2005 taxes Worksheet 7-3 Instructions. File 2005 taxes Coverdell ESA—Taxable Distributions and Basis Line G. File 2005 taxes Enter the total distributions received from all Coverdell ESAs during 2013. File 2005 taxes Do not include amounts rolled over to another ESA within 60 days (only one rollover is allowed during any 12-month period). File 2005 taxes Also, do not include excess contributions that were distributed with the related earnings (or less any loss) before the first day of the sixth month of the tax year following the year for which the contributions were made. File 2005 taxes Line 2. File 2005 taxes Your basis (amount already taxed) in this Coverdell ESA as of December 31, 2012, is the total of:   •All contributions to this Coverdell ESA before 2013 •Minus the tax-free portion of any distributions from this Coverdell ESA before 2013. File 2005 taxes   If your last distribution from this Coverdell ESA was before 2013, you must start with the basis in your account as of the end of the last year in which you took a distribution. File 2005 taxes For years before 2002, you can find that amount on the last line of the worksheet in the Instructions for Form 8606, Nondeductible IRAs, that you completed for that year. File 2005 taxes For years after 2001, you can find that amount by using the ending basis from the worksheet in Publication 970 for that year. File 2005 taxes You can determine your basis in this Coverdell ESA as of December 31, 2012, by adding to the basis as of the end of that year any contributions made to that account after the year of the distribution and before 2013. File 2005 taxes Line 4. File 2005 taxes Enter the total distributions received from this Coverdell ESA in 2013. File 2005 taxes Do not include amounts rolled over to another Coverdell ESA within 60 days (only one rollover is allowed during any 12-month period). File 2005 taxes   Also, do not include excess contributions that were distributed with the related earnings (or less any loss) before the first day of the sixth month of the tax year following the year of the contributions. File 2005 taxes Line 7. File 2005 taxes Enter the total value of this Coverdell ESA as of December 31, 2013, plus any outstanding rollovers contributed to the account after 2012, but before the end of the 60-day rollover period. File 2005 taxes A statement should be sent to you by January 31, 2014, for this Coverdell ESA showing the value on December 31, 2013. File 2005 taxes   A rollover is a tax-free withdrawal from one Coverdell ESA that is contributed to another Coverdell ESA. File 2005 taxes An outstanding rollover is any amount withdrawn within 60 days before the end of 2013 (November 2 through December 31) that was rolled over after December 31, 2013, but within the 60-day rollover period. File 2005 taxes Worksheet 7-3. File 2005 taxes Coverdell ESA—Taxable Distributions and Basis How to complete this worksheet. File 2005 taxes • • • Complete Part I, lines A through H, on only one worksheet. File 2005 taxes  Complete a separate Part II, lines 1 through 15, for each of your Coverdell ESAs. File 2005 taxes  Complete Part III, the Summary (line 16), on only one worksheet. File 2005 taxes Part I. File 2005 taxes Qualified Education Expenses (Complete for total expenses)       A. File 2005 taxes Enter your total qualified education expenses for 2013   A. File 2005 taxes   B. File 2005 taxes Enter those qualified education expenses paid for with tax-free educational assistance (for example, tax-free scholarships, veterans' educational benefits, Pell grants, employer-provided educational assistance)   B. File 2005 taxes         C. File 2005 taxes Enter those qualified higher education expenses deducted on Schedule C or C-EZ (Form 1040). File 2005 taxes Schedule F (Form 1040), or as a miscellaneous itemized deduction on Schedule A (Form 1040 or 1040NR)   C. File 2005 taxes         D. File 2005 taxes Enter those qualified higher education expenses on which  an American opportunity or lifetime learning credit was based   D. File 2005 taxes         E. File 2005 taxes Add lines B, C, and D   D. File 2005 taxes   F. File 2005 taxes Subtract line E from line A. File 2005 taxes This is your adjusted qualified education expense for 2013   E. File 2005 taxes   G. File 2005 taxes Enter your total distributions from all Coverdell ESAs during 2013. File 2005 taxes Do not include rollovers  or the return of excess contributions (see instructions)   F. File 2005 taxes   H. File 2005 taxes Divide line F by line G. File 2005 taxes Enter the result as a decimal (rounded to at least 3 places). File 2005 taxes If the  result is 1. File 2005 taxes 000 or more, enter 1. File 2005 taxes 000   G. File 2005 taxes . File 2005 taxes Part II. File 2005 taxes Taxable Distributions and Basis (Complete separately for each account) 1. File 2005 taxes Enter the amount contributed to this Coverdell ESA for 2013, including contributions made for 2013 from January 1, 2014, through April 15, 2014. File 2005 taxes Do not include rollovers or the return of excess contributions   1. File 2005 taxes   2. File 2005 taxes Enter your basis in this Coverdell ESA as of December 31, 2012 (see instructions)   2. File 2005 taxes   3. File 2005 taxes Add lines 1 and 2   3. File 2005 taxes   4. File 2005 taxes Enter the total distributions from this Coverdell ESA during 2013. File 2005 taxes Do not include rollovers  or the return of excess contributions (see instructions)   4. File 2005 taxes   5. File 2005 taxes Multiply line 4 by line H. File 2005 taxes This is the amount of adjusted qualified  education expense attributable to this Coverdell ESA   5. File 2005 taxes         6. File 2005 taxes Subtract line 5 from line 4   6. File 2005 taxes         7. File 2005 taxes Enter the total value of this Coverdell ESA as of December 31, 2013,  plus any outstanding rollovers (see instructions)   7. File 2005 taxes         8. File 2005 taxes Add lines 4 and 7   8. File 2005 taxes         9. File 2005 taxes Divide line 3 by line 8. File 2005 taxes Enter the result as a decimal (rounded to  at least 3 places). File 2005 taxes If the result is 1. File 2005 taxes 000 or more, enter 1. File 2005 taxes 000   9. File 2005 taxes . File 2005 taxes       10. File 2005 taxes Multiply line 4 by line 9. File 2005 taxes This is the amount of basis allocated to your  distributions, and is tax free   10. File 2005 taxes     Note. File 2005 taxes If line 6 is zero, skip lines 11 through 13, enter -0- on line 14, and go to line 15. File 2005 taxes       11. File 2005 taxes Subtract line 10 from line 4   11. File 2005 taxes   12. File 2005 taxes Divide line 5 by line 4. File 2005 taxes Enter the result as a decimal (rounded to  at least 3 places). File 2005 taxes If the result is 1. File 2005 taxes 000 or more, enter 1. File 2005 taxes 000   12. File 2005 taxes . File 2005 taxes       13. File 2005 taxes Multiply line 11 by line 12. File 2005 taxes This is the amount of qualified education  expenses allocated to your distributions, and is tax free   13. File 2005 taxes   14. File 2005 taxes Subtract line 13 from line 11. File 2005 taxes This is the portion of the distributions from this  Coverdell ESA in 2013 that you must include in income   14. File 2005 taxes   15. File 2005 taxes Subtract line 10 from line 3. File 2005 taxes This is your basis in this Coverdell ESA as of December 31, 2013   15. File 2005 taxes   Part III. File 2005 taxes Summary (Complete only once)       16. File 2005 taxes Taxable amount. File 2005 taxes Add together all amounts on line 14 for all your Coverdell ESAs. File 2005 taxes Enter here  and include on Form 1040, line 21, or Form 1040NR, line 21, listing the type and amount of income on the dotted line   16. File 2005 taxes   Prev  Up  Next   Home   More Online Publications
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Understanding Your CP145 Notice

We were unable to credit the full amount you requested to the succeeding tax period.


What you need to do

  • Read and review your notice carefully. It will explain why we were unable to apply the amount you requested to the following year’s taxes. It may also suggest additional steps for you to take, depending on your situation.
  • Compare our changes to the information on your tax return.
  • You don't need to do anything if you agree with the notice.
  • Correct the copy of your tax return that you kept for your records.
  • If you disagree with the notice, contact us at the toll-free number on the top right corner of your notice (within 60 days of the notice date).
  • Adjust this year’s tax payments to avoid any possible underpayment.

You may want to


Answers to Common Questions

Q. What should I do if I disagree with the changes you made?

A. If you disagree, contact us at the toll-free number listed on the top right corner of your notice.

Q. What do I say when I call the IRS?

A. Mention that you received a CP 145 notice and you need to review your account with a customer service representative. Be sure to have a copy of your notice and your tax return before you call.

Q. What should I do if I find you misapplied a payment or haven't credited a payment that I made?

A. Contact us with your information at the toll-free number listed on your notice. Please have your documentation (such as cancelled checks, amended return, etc.) ready when you call. Our representative will discuss the issue with you and give you further instructions.

Q. What if I need to make another correction to my account?

A. You'll need to file an amended return.

Q. What if I have tried to get answers and after contacting IRS several times have not been successful?

A. Call Taxpayer Advocate at 1-877-777-4778 or for TTY/TDD 1-800-829-4059.


Tips for the next tax period

Make sure that you claim the proper amount of credit on your next tax return. You may need to adjust your estimated tax payments or your federal tax deposits.

Page Last Reviewed or Updated: 10-Feb-2014

Printable samples of this notice (PDF)

 

 

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The File 2005 Taxes

File 2005 taxes Publication 559 - Main Content Table of Contents Personal RepresentativeDuties Fees Received by Personal Representatives Final Income Tax Return for Decedent—Form 1040Name, Address, and Signature When and Where To File Filing Requirements Income To Include Exemptions and Deductions Credits, Other Taxes, and Payments Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Filing Reminders Other Tax InformationTax Benefits for Survivors Income in Respect of a Decedent Deductions in Respect of a Decedent Estate Tax Deduction Gifts, Insurance, and Inheritances Other Items of Income Income Tax Return of an Estate— Form 1041Filing Requirements Income To Include Exemption and Deductions Credits, Tax, and Payments Name, Address, and Signature When and Where To File Distributions to BeneficiariesIncome That Must Be Distributed Currently Other Amounts Distributed Discharge of a Legal Obligation Character of Distributions How and When To Report Bequest Termination of Estate Estate and Gift TaxesApplicable Credit Amount Gift Tax Estate Tax Generation-Skipping Transfer Tax Comprehensive ExampleFinal Return for Decedent—Form 1040 Income Tax Return of an Estate—Form 1041 How To Get Tax HelpLow Income Taxpayer Clinics Personal Representative A personal representative of an estate is an executor, administrator, or anyone who is in charge of the decedent's property. File 2005 taxes Generally, an executor (or executrix) is named in a decedent's will to administer the estate and distribute properties as the decedent has directed. File 2005 taxes An administrator (or administratrix) is usually appointed by the court if no will exists, if no executor was named in the will, or if the named executor cannot or will not serve. File 2005 taxes In general, an executor and an administrator perform the same duties and have the same responsibilities. File 2005 taxes For estate tax purposes, if there is no executor or administrator appointed, qualified, and acting within the United States, the term “executor” includes anyone in actual or constructive possession of any property of the decedent. File 2005 taxes It includes, among others, the decedent's agents and representatives; safe-deposit companies, warehouse companies, and other custodians of property in this country; brokers holding securities of the decedent as collateral; and the debtors of the decedent who are in this country. File 2005 taxes Duties The primary duties of a personal representative are to collect all the decedent's assets, pay his or her creditors, and distribute the remaining assets to the heirs or other beneficiaries. File 2005 taxes The personal representative also must perform the following duties. File 2005 taxes Apply for an employer identification number (EIN) for the estate. File 2005 taxes File all tax returns, including income, estate and gift tax returns, when due. File 2005 taxes Pay the tax determined up to the date of discharge from duties. File 2005 taxes Other duties of the personal representative in federal tax matters are discussed in other sections of this publication. File 2005 taxes If any beneficiary is a nonresident alien, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for information on the personal representative's duties as a withholding agent. File 2005 taxes Penalty. File 2005 taxes   There is a penalty for failure to file a tax return when due unless the failure is due to reasonable cause. File 2005 taxes Reliance on an agent (attorney, accountant, etc. File 2005 taxes ) is not reasonable cause for late filing. File 2005 taxes It is the personal representative's duty to file the returns for the decedent and the estate when due. File 2005 taxes Identification number. File 2005 taxes   The first action you should take if you are the personal representative for the decedent is to apply for an EIN for the estate. File 2005 taxes You should apply for this number as soon as possible because you need to enter it on returns, statements, and other documents you file concerning the estate. File 2005 taxes You also must give the number to payers of interest and dividends and other payers who must file a return concerning the estate. File 2005 taxes   You can get an EIN by applying online at www. File 2005 taxes irs. File 2005 taxes gov (click on "Apply for an EIN Online" under the Tools heading). File 2005 taxes Generally, if you apply online, you will receive your EIN immediately upon completing the application. File 2005 taxes You can also apply using Form SS-4, Application for Employer Identification Number. File 2005 taxes Generally, if you apply by mail, it takes about 4 weeks to get your EIN. File 2005 taxes See the form instructions for other ways to apply. File 2005 taxes   Payers of interest and dividends report amounts on Forms 1099 using the identification number of the person to whom the account is payable. File 2005 taxes After a decedent's death, Forms 1099 must reflect the identification number of the estate or beneficiary to whom the amounts are payable. File 2005 taxes As the personal representative handling the estate, you must furnish this identification number to the payer. File 2005 taxes For example, if interest is payable to the estate, the estate's EIN must be provided to the payer and used to report the interest on Form 1099-INT, Interest Income. File 2005 taxes If the interest is payable to a surviving joint owner, the survivor's identification number, such as an SSN or ITIN, must be provided to the payer and used to report the interest. File 2005 taxes   If the estate or a survivor may receive interest or dividends after you inform the payer of the decedent's death, the payer should give you (or the survivor) a Form W-9, Request for Taxpayer Identification Number and Certification (or a similar substitute form). File 2005 taxes Complete this form to inform the payer of the estate's (or if completed by the survivor, the survivor's) identification number and return it to the payer. File 2005 taxes    Do not use the deceased individual's identifying number to file an individual income tax return after the decedent's final tax return. File 2005 taxes Also do not use it to make estimated tax payments for a tax year after the year of death. File 2005 taxes Penalty. File 2005 taxes   If you do not include the EIN or the taxpayer identification number of another person where it is required on a return, statement, or other document, you are liable for a penalty for each failure, unless you can show reasonable cause. File 2005 taxes You also are liable for a penalty if you do not give the taxpayer identification number of another person when required on a return, statement, or other document. File 2005 taxes Notice of fiduciary relationship. File 2005 taxes   The term fiduciary means any person acting for another person. File 2005 taxes It applies to persons who have positions of trust on behalf of others. File 2005 taxes A personal representative for a decedent's estate is a fiduciary. File 2005 taxes Form 56. File 2005 taxes   If you are appointed to act in a fiduciary capacity for another, you must file a written notice with the IRS stating this. File 2005 taxes Form 56, Notice Concerning Fiduciary Relationship, is used for this purpose. File 2005 taxes See the Instructions for Form 56 for filing requirements and other information. File 2005 taxes   File Form 56 as soon as all the necessary information (including the EIN) is available. File 2005 taxes It notifies the IRS that you, as the fiduciary, are assuming the powers, rights, duties, and privileges of the decedent. File 2005 taxes The notice remains in effect until you notify the IRS (by filing another Form 56) that your fiduciary relationship with the estate has terminated. File 2005 taxes Termination of fiduciary relationship. File 2005 taxes   Form 56 should also be filed to notify the IRS if your fiduciary relationship is terminated or when a successor fiduciary is appointed if the estate has not been terminated. File 2005 taxes See Form 56 and its instructions for more information. File 2005 taxes   At the time of termination of the fiduciary relationship, you may want to file Form 4810, Request for Prompt Assessment Under Internal Revenue Code Section 6501(d), and Form 5495, Request for Discharge From Personal Liability Under Internal Revenue Code Section 2204 or 6905, to wind up your duties as fiduciary. File 2005 taxes See below for a discussion of these forms. File 2005 taxes Request for prompt assessment (charge) of tax. File 2005 taxes   The IRS ordinarily has 3 years from the date an income tax return is filed, or its due date, whichever is later, to charge any additional tax due. File 2005 taxes However, as a personal representative, you may request a prompt assessment of tax after the return has been filed. File 2005 taxes This reduces the time for making the assessment to 18 months from the date the written request for prompt assessment was received. File 2005 taxes This request can be made for any tax return (except the estate tax return) of the decedent or the decedent's estate. File 2005 taxes This may permit a quicker settlement of the tax liability of the estate and an earlier final distribution of the assets to the beneficiaries. File 2005 taxes Form 4810. File 2005 taxes   Form 4810 can be used for making this request. File 2005 taxes It must be filed separately from any other document. File 2005 taxes   As the personal representative for the decedent's estate, you are responsible for any additional taxes that may be due. File 2005 taxes You can request prompt assessment of any of the decedent's taxes (other than federal estate taxes) for any years for which the statutory period for assessment is open. File 2005 taxes This applies even though the returns were filed before the decedent's death. File 2005 taxes Failure to report income. File 2005 taxes   If you or the decedent failed to report substantial amounts of gross income (more than 25% of the gross income reported on the return) or filed a false or fraudulent return, your request for prompt assessment will not shorten the period during which the IRS may assess the additional tax. File 2005 taxes However, such a request may relieve you of personal liability for the tax if you did not have knowledge of the unpaid tax. File 2005 taxes Request for discharge from personal liability for tax. File 2005 taxes   An executor can make a request for discharge from personal liability for a decedent's income, gift, and estate taxes. File 2005 taxes The request must be made after the returns for those taxes are filed. File 2005 taxes To make the request, file Form 5495. File 2005 taxes For this purpose, an executor is an executor or administrator that is appointed, qualified, and acting within the United States. File 2005 taxes   Within 9 months after receipt of the request, the IRS will notify the executor of the amount of taxes due. File 2005 taxes If this amount is paid, the executor will be discharged from personal liability for any future deficiencies. File 2005 taxes If the IRS has not notified the executor, he or she will be discharged from personal liability at the end of the 9-month period. File 2005 taxes    Even if the executor is discharged from personal liability, the IRS will still be able to assess tax deficiencies against the executor to the extent he or she still has any of the decedent's property. File 2005 taxes Insolvent estate. File 2005 taxes   Generally, if a decedent's estate is insufficient to pay all the decedent's debts, the debts due to the United States must be paid first. File 2005 taxes Both the decedent's federal income tax liabilities at the time of death and the estate's income tax liability are debts due to the United States. File 2005 taxes The personal representative of an insolvent estate is personally responsible for any tax liability of the decedent or of the estate if he or she had notice of such tax obligations or failed to exercise due care in determining if such obligations existed before distribution of the estate's assets and before being discharged from duties. File 2005 taxes The extent of such personal responsibility is the amount of any other payments made before paying the debts due to the United States, except where such other debt paid has priority over the debts due to the United States. File 2005 taxes Income tax liabilities need not be formally assessed for the personal representative to be liable if he or she was aware or should have been aware of their existence. File 2005 taxes Fees Received by Personal Representatives All personal representatives must include fees paid to them from an estate in their gross income. File 2005 taxes If you are not in the trade or business of being an executor (for instance, you are the executor of a friend's or relative's estate), report these fees on your Form 1040, line 21. File 2005 taxes If you are in the trade or business of being an executor, report fees received from the estate as self-employment income on Schedule C or Schedule C-EZ of your Form 1040. File 2005 taxes If the estate operates a trade or business and you, as executor, actively participate in the trade or business while fulfilling your duties, any fees you receive related to the operation of the trade or business must be reported as self-employment income on Schedule C (or Schedule C-EZ) of your Form 1040. File 2005 taxes Final Income Tax Return for Decedent—Form 1040 The personal representative (defined earlier) must file the final income tax return (Form 1040) of the decedent for the year of death and any returns not filed for preceding years. File 2005 taxes A surviving spouse, under certain circumstances, may have to file the returns for the decedent. File 2005 taxes See Joint Return, later. File 2005 taxes Return for preceding year. File 2005 taxes   If an individual died after the close of the tax year, but before the return for that year was filed, the return for the year just closed will not be the final return. File 2005 taxes The return for that year will be a regular return and the personal representative must file it. File 2005 taxes Example. File 2005 taxes Samantha Smith died on March 21, 2013, before filing her 2012 tax return. File 2005 taxes Her personal representative must file her 2012 return by April 15, 2013. File 2005 taxes Her final tax return covering the period from January 1, 2013, to March 20, 2013, is due April 15, 2014. File 2005 taxes Name, Address, and Signature Write the word “DECEASED,” the decedent's name, and the date of death across the top of the tax return. File 2005 taxes If filing a joint return, write the name and address of the decedent and the surviving spouse in the name and address fields. File 2005 taxes If a joint return is not being filed, write the decedent's name in the name field and the personal representative's name and address in the address field. File 2005 taxes Third party designee. File 2005 taxes   You can check the “Yes” box in the Third Party Designee area on page 2 of the return to authorize the IRS to discuss the return with a friend, family member, or any other person you choose. File 2005 taxes This allows the IRS to call the person you identified as the designee to answer any questions that may arise during the processing of the return. File 2005 taxes It also allows the designee to perform certain actions. File 2005 taxes See the Instructions for Form 1040 for details. File 2005 taxes Signature. File 2005 taxes   If a personal representative has been appointed, that person must sign the return. File 2005 taxes If it is a joint return, the surviving spouse must also sign it. File 2005 taxes If no personal representative has been appointed, the surviving spouse (on a joint return) signs the return and writes in the signature area “Filing as surviving spouse. File 2005 taxes ” If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. File 2005 taxes ” Paid preparer. File 2005 taxes   If you pay someone to prepare, assist in preparing, or review the tax return, that person must sign the return and fill in the other blanks in the Paid Preparer Use Only area of the return. File 2005 taxes See the Form 1040 instructions for details. File 2005 taxes When and Where To File The final income tax return is due at the same time the decedent's return would have been due had death not occurred. File 2005 taxes A final return for a decedent who was a calendar year taxpayer is generally due on April 15 following the year of death, regardless of when during that year death occurred. File 2005 taxes However, when the due date falls on a Saturday, Sunday, or legal holiday, the return is filed timely if filed by the next business day. File 2005 taxes The tax return must be prepared for the year of death regardless of when during the year death occurred. File 2005 taxes Generally, you must file the final income tax return of the decedent with the Internal Revenue Service Center for the place where you live. File 2005 taxes A tax return for a decedent can be electronically filed. File 2005 taxes A personal representative may also obtain an income tax filing extension on behalf of a decedent. File 2005 taxes Filing Requirements The gross income, age, and filing status of a decedent generally determine whether a return must be filed. File 2005 taxes Gross income is all income received by an individual from any source in the form of money, goods, property, and services that is not tax-exempt. File 2005 taxes It includes gross receipts from self-employment, but if the business involves manufacturing, merchandising, or mining, subtract any cost of goods sold. File 2005 taxes In general, filing status depends on whether the decedent was considered single or married at the time of death. File 2005 taxes See the income tax return instructions or Publication 501, Exemptions, Standard Deduction, and Filing Information. File 2005 taxes Refund A return must be filed to obtain a refund if tax was withheld from salaries, wages, pensions, or annuities, or if estimated tax was paid, even if a return is not otherwise required to be filed. File 2005 taxes Also, the decedent may be entitled to other credits that result in a refund. File 2005 taxes These advance payments of tax and credits are discussed later under Credits, Other Taxes, and Payments. File 2005 taxes Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer. File 2005 taxes   Form 1310 does not have to be filed if you are claiming a refund and you are: A surviving spouse filing an original or amended joint return with the decedent, or A court-appointed or certified personal representative filing the decedent’s original return and a copy of the court certificate showing your appointment is attached to the return. File 2005 taxes   If the personal representative is filing a claim for refund on Form 1040X, Amended U. File 2005 taxes S. File 2005 taxes Individual Income Tax Return, or Form 843, Claim for Refund and Request for Abatement, and the court certificate has already been filed with the IRS, attach Form 1310 and write “Certificate Previously Filed” at the bottom of the form. File 2005 taxes Example. File 2005 taxes Edward Green died before filing his tax return. File 2005 taxes You were appointed the personal representative for Edward's estate, and you file his Form 1040 showing a refund due. File 2005 taxes You do not need Form 1310 to claim the refund if you attach a copy of the court certificate showing you were appointed the personal representative. File 2005 taxes    If you are a surviving spouse and you receive a tax refund check in both your name and your deceased spouse's name, you can have the check reissued in your name alone. File 2005 taxes Return the joint-name check marked “VOID” to your local IRS office or the service center where you mailed your return, along with a written request for reissuance of the refund check. File 2005 taxes A new check will be issued in your name and mailed to you. File 2005 taxes Death certificate. File 2005 taxes   When filing the decedent's final income tax return, do not attach the death certificate or other proof of death to the final return. File 2005 taxes Instead, keep it for your records and provide it if requested. File 2005 taxes Nonresident Alien If the decedent was a nonresident alien who would have had to file Form 1040NR, U. File 2005 taxes S. File 2005 taxes Nonresident Alien Income Tax Return, you must file that form for the decedent's final tax year. File 2005 taxes See the Instructions for Form 1040NR for the filing requirements, due date, and where to file. File 2005 taxes Joint Return Generally, the personal representative and the surviving spouse can file a joint return for the decedent and the surviving spouse. File 2005 taxes However, the surviving spouse alone can file the joint return if no personal representative has been appointed before the due date for filing the final joint return for the year of death. File 2005 taxes This also applies to the return for the preceding year if the decedent died after the close of the preceding tax year and before filing the return for that year. File 2005 taxes The income of the decedent that was includible on his or her return for the year up to the date of death (see Income To Include, later) and the income of the surviving spouse for the entire year must be included in the final joint return. File 2005 taxes A final joint return with the decedent cannot be filed if the surviving spouse remarried before the end of the year of the decedent's death. File 2005 taxes The filing status of the decedent in this instance is married filing a separate return. File 2005 taxes For information about tax benefits to which a surviving spouse may be entitled, see Tax Benefits for Survivors, later, under Other Tax Information. File 2005 taxes Personal representative may revoke joint return election. File 2005 taxes   A court-appointed personal representative may revoke an election to file a joint return previously made by the surviving spouse alone. File 2005 taxes This is done by filing a separate return for the decedent within one year from the due date of the return (including any extensions). File 2005 taxes The joint return made by the surviving spouse will then be regarded as the separate return of that spouse by excluding the decedent's items and refiguring the tax liability. File 2005 taxes Relief from joint liability. File 2005 taxes   In some cases, one spouse may be relieved of joint liability for tax, interest, and penalties on a joint return for items of the other spouse that were incorrectly reported on the joint return. File 2005 taxes If the decedent qualified for this relief while alive, the personal representative can pursue an existing request, or file a request, for relief from joint liability. File 2005 taxes For information on requesting this relief, see Publication 971, Innocent Spouse Relief. File 2005 taxes Income To Include The decedent's income includible on the final return is generally determined as if the person were still alive except that the taxable period is usually shorter because it ends on the date of death. File 2005 taxes The method of accounting regularly used by the decedent before death also determines the income includible on the final return. File 2005 taxes This section explains how some types of income are reported on the final return. File 2005 taxes For more information about accounting methods, see Publication 538, Accounting Periods and Methods. File 2005 taxes Cash Method If the decedent accounted for income under the cash method, only those items actually or constructively received before death are included on the final return. File 2005 taxes Constructive receipt of income. File 2005 taxes   Interest from coupons on the decedent's bonds is constructively received by the decedent if the coupons matured in the decedent's final tax year, but had not been cashed. File 2005 taxes Include the interest income on the final return. File 2005 taxes   Generally, a dividend is considered constructively received if it was available for use by the decedent without restriction. File 2005 taxes If the corporation customarily mailed its dividend checks, the dividend was includible when received. File 2005 taxes If the individual died between the time the dividend was declared and the time it was received in the mail, the decedent did not constructively receive it before death. File 2005 taxes Do not include the dividend in the final return. File 2005 taxes Accrual Method Generally, under an accrual method of accounting, income is reported when earned. File 2005 taxes If the decedent used an accrual method, only the income items normally accrued before death are included on the final return. File 2005 taxes Interest and Dividend Income (Forms 1099) Form(s) 1099 reporting interest and dividends earned by the decedent before death should be received and the amounts included on the decedent's final return. File 2005 taxes A separate Form 1099 should show the interest and dividends earned after the date of the decedent's death and paid to the estate or other recipient that must include those amounts on its return. File 2005 taxes You can request corrected Forms 1099 if these forms do not properly reflect the right recipient or amounts. File 2005 taxes For example, a Form 1099-INT, reporting interest payable to the decedent, may include income that should be reported on the final income tax return of the decedent, as well as income that the estate or other recipient should report, either as income earned after death or as income in respect of the decedent (discussed later). File 2005 taxes For income earned after death, you should ask the payer for a Form 1099 that properly identifies the recipient (by name and identification number) and the proper amount. File 2005 taxes If that is not possible, or if the form includes an amount that represents income in respect of the decedent, report the interest as shown next under How to report. File 2005 taxes See U. File 2005 taxes S. File 2005 taxes savings bonds acquired from decedent under Income in Respect of a Decedent, later, for information on savings bond interest that may have to be reported on the final return. File 2005 taxes How to report. File 2005 taxes   If you are preparing the decedent's final return and you have received a Form 1099-INT for the decedent that includes amounts belonging to the decedent and to another recipient (the decedent's estate or another beneficiary), report the total interest shown on Form 1099-INT on Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. File 2005 taxes Next, enter a subtotal of the interest shown on Forms 1099, and the interest reportable from other sources for which you did not receive Forms 1099. File 2005 taxes Then, show any interest (including any interest you receive as a nominee) belonging to another recipient separately and subtract it from the subtotal. File 2005 taxes Identify the amount of this adjustment as “Nominee Distribution” or other appropriate designation. File 2005 taxes   Report dividend income for which you received a Form 1099-DIV, Dividends and Distributions, on the appropriate schedule using the same procedure. File 2005 taxes    Note. File 2005 taxes If the decedent received amounts as a nominee, you must give the actual owner a Form 1099, unless the owner is the decedent's spouse. File 2005 taxes See General Instructions for Certain Information Returns (Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G) for more information on filing Forms 1099. File 2005 taxes Partnership Income The death of a partner closes the partnership's tax year for that partner. File 2005 taxes Generally, it does not close the partnership's tax year for the remaining partners. File 2005 taxes The decedent's distributive share of partnership items must be figured as if the partnership's tax year ended on the date the partner died. File 2005 taxes To avoid an interim closing of the partnership books, the partners can agree to estimate the decedent's distributive share by prorating the amounts the partner would have included for the entire partnership tax year. File 2005 taxes On the decedent's final return, include the decedent's distributive share of partnership items for the following periods. File 2005 taxes The partnership's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). File 2005 taxes The period, if any, from the end of the partnership's tax year in (1) to the decedent's date of death. File 2005 taxes Example. File 2005 taxes Mary Smith was a partner in XYZ partnership and reported her income on a tax year ending December 31. File 2005 taxes The partnership uses a tax year ending June 30. File 2005 taxes Mary died August 31, 2013, and her estate established its tax year through August 31. File 2005 taxes The distributive share of partnership items based on the decedent's partnership interest is reported as follows. File 2005 taxes Final Return for the Decedent—January 1 through August 31, 2013, includes XYZ partnership items from (a) the partnership tax year ending June 30, 2013, and (b) the partnership tax year beginning July 1, 2013, and ending August 31, 2013 (the date of death). File 2005 taxes Income Tax Return of the Estate—September 1, 2013, through August 31, 2014, includes XYZ partnership items for the period September 1, 2013, through June 30, 2014. File 2005 taxes S Corporation Income If the decedent was a shareholder in an S corporation, include on the final return the decedent's share of the S corporation's items of income, loss, deduction, and credit for the following periods. File 2005 taxes The corporation's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). File 2005 taxes The period, if any, from the end of the corporation's tax year in (1) to the decedent's date of death. File 2005 taxes Self-Employment Income Include self-employment income actually or constructively received or accrued, depending on the decedent's accounting method. File 2005 taxes For self-employment tax purposes only, the decedent's self-employment income will include the decedent's distributive share of a partnership's income or loss through the end of the month in which death occurred. File 2005 taxes For this purpose, the partnership's income or loss is considered to be earned ratably over the partnership's tax year. File 2005 taxes Community Income If the decedent was married and domiciled in a community property state, half of the income received and half of the expenses paid during the decedent's tax year by either the decedent or spouse may be considered to be the income and expenses of the other. File 2005 taxes For more information, see Publication 555, Community Property. File 2005 taxes HSA, Archer MSA, or Medicare Advantage MSA The treatment of an HSA (health savings account), an Archer MSA (medical savings account), or a Medicare Advantage MSA at the death of the account holder, depends on who acquires the interest in the account. File 2005 taxes If the decedent's estate acquires the interest, the fair market value (FMV) of the assets in the account on the date of death is included in income on the decedent's final return. File 2005 taxes The estate tax deduction, discussed later, does not apply to this amount. File 2005 taxes If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. File 2005 taxes For other information on HSAs, Archer MSAs, or Medicare Advantage MSAs, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. File 2005 taxes Coverdell Education Savings Account (ESA) Generally, the balance in a Coverdell ESA must be distributed within 30 days after the individual for whom the account was established reaches age 30, or dies, whichever is earlier. File 2005 taxes The treatment of the Coverdell ESA at the death of an individual under age 30 depends on who acquires the interest in the account. File 2005 taxes If the decedent's estate acquires the interest, the earnings on the account must be included on the final income tax return of the decedent. File 2005 taxes The estate tax deduction, discussed later, does not apply to this amount. File 2005 taxes If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. File 2005 taxes The age 30 limitation does not apply if the individual for whom the account was established or the beneficiary that acquires the account is an individual with special needs. File 2005 taxes This includes an individual who, because of a physical, mental, or emotional condition (including a learning disability), requires additional time to complete his or her education. File 2005 taxes For more information on Coverdell ESAs, see Publication 970, Tax Benefits for Education. File 2005 taxes Accelerated Death Benefits Accelerated death benefits are amounts received under a life insurance contract before the death of the insured individual. File 2005 taxes These benefits also include amounts received on the sale or assignment of the contract to a viatical settlement provider. File 2005 taxes Generally, if the decedent received accelerated death benefits on the life of a terminally or chronically ill individual, whether on his or her own life or on the life of another person, those benefits are not included in the decedent's income. File 2005 taxes For more information, see the discussion under Gifts, Insurance, and Inheritances under Other Tax Information, later. File 2005 taxes Exemptions and Deductions Generally, the rules for exemptions and deductions allowed to an individual also apply to the decedent's final income tax return. File 2005 taxes Show on the final return deductible items the decedent paid (or accrued, if the decedent reported deductions on an accrual method) before death. File 2005 taxes This section contains a detailed discussion of medical expenses because the tax treatment of the decedent's medical expenses can be different. File 2005 taxes See Medical Expenses, later. File 2005 taxes Exemptions You can claim the decedent's personal exemption on the final income tax return. File 2005 taxes If the decedent was another person's dependent (for example, a parent's), you cannot claim the personal exemption on the decedent's final return. File 2005 taxes Standard Deduction If you do not itemize deductions on the final return, the full amount of the appropriate standard deduction is allowed regardless of the date of death. File 2005 taxes For information on the appropriate standard deduction, see the Form 1040 income tax return instructions or Publication 501. File 2005 taxes Medical Expenses Medical expenses paid before death by the decedent are deductible, subject to limits, on the final income tax return if deductions are itemized. File 2005 taxes This includes expenses for the decedent, as well as for the decedent's spouse and dependents. File 2005 taxes Beginning in 2013, medical expenses exceeding 10% of adjusted gross income (AGI) may be deducted, unless the decedent or their spouse is age 65 or older. File 2005 taxes In that case medical expenses exceeding 7. File 2005 taxes 5% of AGI may be deducted. File 2005 taxes Qualified medical expenses are not deductible if paid with a tax-free distribution from an HSA or an Archer MSA. File 2005 taxes Election for decedent's expenses. File 2005 taxes   Medical expenses not paid before death are liabilities of the estate and are shown on the federal estate tax return (Form 706). File 2005 taxes However, if medical expenses for the decedent are paid out of the estate during the 1-year period beginning with the day after death, you can elect to treat all or part of the expenses as paid by the decedent at the time they were incurred. File 2005 taxes   If you make the election, you can claim all or part of the expenses on the decedent's income tax return (if deductions are itemized) rather than on the federal estate tax return (Form 706). File 2005 taxes You can deduct expenses incurred in the year of death on the final income tax return. File 2005 taxes You should file an amended return (Form 1040X) for medical expenses incurred in an earlier year, unless the statutory period for filing a claim for that year has expired. File 2005 taxes   The amount you can deduct on the income tax return is the amount above 10% of adjusted gross income (or 7. File 2005 taxes 5% of adjusted gross income if the decedent or the decedent's spouse was born before January 2, 1949). File 2005 taxes Amounts not deductible because of this percentage cannot be claimed on the federal estate tax return. File 2005 taxes Making the election. File 2005 taxes   You make the election by attaching a statement, in duplicate, to the decedent's income tax return or amended return. File 2005 taxes The statement must state that you have not claimed the amount as an estate tax deduction, and that the estate waives the right to claim the amount as a deduction. File 2005 taxes This election applies only to expenses incurred for the decedent, not to expenses incurred to provide medical care for dependents. File 2005 taxes Example. File 2005 taxes Richard Brown used the cash method of accounting and filed his income tax return on a calendar year basis. File 2005 taxes Richard died on June 1, 2013, at the age of 78, after incurring $800 in medical expenses. File 2005 taxes Of that amount, $500 was incurred in 2012 and $300 was incurred in 2013. File 2005 taxes Richard itemized his deductions when he filed his 2012 income tax return. File 2005 taxes The personal representative of the estate paid the entire $800 liability in August 2013. File 2005 taxes The personal representative may file an amended return (Form 1040X) for 2012 claiming the $500 medical expense as a deduction, subject to the 7. File 2005 taxes 5% limit. File 2005 taxes The $300 of expenses incurred in 2013 can be deducted on the final income tax return if deductions are itemized, subject to the 7. File 2005 taxes 5% limit. File 2005 taxes The personal representative must file a statement in duplicate with each return stating that these amounts have not been claimed on the federal estate tax return (Form 706), and waiving the right to claim such a deduction on Form 706 in the future. File 2005 taxes Medical expenses not paid by estate. File 2005 taxes   If you paid medical expenses for your deceased spouse or dependent, claim the expenses on your tax return for the year in which you paid them, whether they are paid before or after the decedent's death. File 2005 taxes If the decedent was a child of divorced or separated parents, the medical expenses can usually be claimed by both the custodial and noncustodial parent to the extent paid by that parent during the year. File 2005 taxes Insurance reimbursements. File 2005 taxes   Insurance reimbursements of previously deducted medical expenses due a decedent at the time of death and later received by the decedent's estate are includible in the income tax return of the estate (Form 1041) for the year the reimbursements are received. File 2005 taxes The reimbursements are also includible in the decedent's gross estate. File 2005 taxes No deduction for funeral expenses can be taken on the final Form 1040 of a decedent. File 2005 taxes These expenses may be deductible for estate tax purposes on Form 706. File 2005 taxes Deduction for Losses A decedent's net operating loss deduction from a prior year and any capital losses (including capital loss carryovers) can be deducted only on the decedent's final income tax return. File 2005 taxes A net operating loss on the decedent's final income tax return can be carried back to prior years. File 2005 taxes (See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. File 2005 taxes ) You cannot deduct any unused net operating loss or capital loss on the estate's income tax return. File 2005 taxes At-risk loss limits. File 2005 taxes   Special at-risk rules apply to most activities that are engaged in as a trade or business or for the production of income. File 2005 taxes   These rules limit the deductible loss to the amount which the individual was considered at-risk in the activity. File 2005 taxes An individual generally will be considered at-risk to the extent of the money and the adjusted basis of property that he or she contributed to the activity and certain amounts the individual borrowed for use in the activity. File 2005 taxes An individual will be considered at-risk for amounts borrowed only if he or she was personally liable for the repayment or if the amounts borrowed were secured by property other than that used in the activity. File 2005 taxes The individual is not considered at-risk for borrowed amounts if the lender has an interest in the activity or if the lender is related to a person who has an interest in the activity. File 2005 taxes For more information, see Publication 925, Passive Activity and At-Risk Rules. File 2005 taxes Passive activity rules. File 2005 taxes   A passive activity is any trade or business activity in which the taxpayer does not materially participate. File 2005 taxes To determine material participation, see Publication 925. File 2005 taxes Rental activities are passive activities regardless of the taxpayer's participation, unless the taxpayer meets certain eligibility requirements. File 2005 taxes   Individuals, estates, and trusts can offset passive activity losses only against passive activity income. File 2005 taxes Passive activity losses or credits not allowed in one tax year can be carried forward to the next year. File 2005 taxes   If a passive activity interest is transferred because a taxpayer dies, the accumulated unused passive activity losses are allowed as a deduction against the decedent's income in the year of death. File 2005 taxes Losses are allowed only to the extent they are greater than the excess of the transferee's (recipient of the interest transferred) basis in the property over the decedent's adjusted basis in the property immediately before death. File 2005 taxes The part of the accumulated losses equal to the excess is not allowed as a deduction for any tax year. File 2005 taxes   Use Form 8582, Passive Activity Loss Limitations, to summarize losses and income from passive activities and to figure the amounts allowed. File 2005 taxes For more information, see Publication 925. File 2005 taxes Credits, Other Taxes, and Payments Discussed below are some of the tax credits, types of taxes that may be owed, income tax withheld, and estimated tax payments reported on the final return of a decedent. File 2005 taxes Credits On the final income tax return, you can claim any tax credits that applied to the decedent before death. File 2005 taxes Some of these credits are discussed next. File 2005 taxes Earned income credit. File 2005 taxes   If the decedent was an eligible individual, you can claim the earned income credit on the decedent's final return even though the return covers less than 12 months. File 2005 taxes If the allowable credit is more than the tax liability for the year, the excess is refunded. File 2005 taxes   For more information, see Publication 596, Earned Income Credit (EIC). File 2005 taxes Credit for the elderly or the disabled. File 2005 taxes   This credit is allowable on a decedent's final income tax return if the decedent met both of the following requirements in the year of death. File 2005 taxes The decedent: Was a “qualified individual,” and Had income (adjusted gross income (AGI) and nontaxable social security and pensions) less than certain limits. File 2005 taxes   For details on qualifying for or figuring the credit, see Publication 524, Credit for the Elderly or the Disabled. File 2005 taxes Child tax credit. File 2005 taxes   If the decedent had a qualifying child, you may be able to claim the child tax credit on the decedent's final return even though the return covers less than 12 months. File 2005 taxes You may be able to claim the additional child tax credit and get a refund if the credit is more than the decedent's liability. File 2005 taxes For more information, see the Instructions for Form 1040. File 2005 taxes Adoption credit. File 2005 taxes   Depending upon when the adoption was finalized, this credit may be taken on a decedent's final income tax return if the decedent: Adopted an eligible child and paid qualified adoption expenses, or Has a carryforward of an adoption credit from a prior year. File 2005 taxes   Also, if the decedent is survived by a spouse who meets the filing status of qualifying widow(er), unused adoption credit may be carried forward and used following the death of the decedent. File 2005 taxes See Form 8839, Qualified Adoption Expenses, and its instructions for more details. File 2005 taxes General business tax credit. File 2005 taxes   The general business credit available to a taxpayer is limited. File 2005 taxes Any credit arising in a tax year beginning before 1998 that has not been used up can be carried forward for up to 15 years. File 2005 taxes Any unused credit arising in a tax year beginning after 1997 has a 1-year carryback and a 20-year carryforward period. File 2005 taxes   After the carryforward period, a deduction may be allowed for any unused business credit. File 2005 taxes If the taxpayer dies before the end of the carryforward period, the deduction generally is allowed in the year of death. File 2005 taxes   For more information on the general business credit, see Publication 334, Tax Guide for Small Business. File 2005 taxes Other Taxes Taxes other than income tax that may be owed on the final return of a decedent include self-employment tax and alternative minimum tax, which are reported on Form 1040. File 2005 taxes Self-employment tax. File 2005 taxes   Self-employment tax may be owed on the final return if either of the following applied to the decedent in the year of death: Net earnings from self-employment (excluding income described in (2)) were $400 or more; or Wages from services performed as a church employee were $108. File 2005 taxes 28 or more. File 2005 taxes Alternative minimum tax (AMT). File 2005 taxes   The tax laws give special treatment to certain types of income and allow special deductions and credits for certain types of expenses. File 2005 taxes The alternative minimum tax (AMT) was enacted so taxpayers who benefit from these laws still pay at least a minimum amount of tax. File 2005 taxes In general, the AMT is the excess of the tentative minimum tax over the regular tax shown on the return. File 2005 taxes Form 6251. File 2005 taxes    Use Form 6251, Alternative Minimum Tax—Individuals, to determine if this tax applies to the decedent. File 2005 taxes See the form instructions for information on when you must attach Form 6251 to Form 1040. File 2005 taxes Form 8801. File 2005 taxes   If the decedent paid AMT in a previous year or had a credit carryforward, the decedent may be eligible for a minimum tax credit. File 2005 taxes See Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts. File 2005 taxes Payments of Tax The income tax withheld from the decedent's salary, wages, pensions, or annuities, and the amount paid as estimated tax are credits (advance payments of tax) that must be claimed on the final return. File 2005 taxes Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Income tax liability may be forgiven for a decedent who dies due to service in a combat zone, due to military or terrorist actions, as a result of a terrorist attack, or while serving in the line of duty as an astronaut. File 2005 taxes Combat Zone If a member of the Armed Forces of the United States dies while in active service in a combat zone or from wounds, disease, or injury incurred in a combat zone, the decedent's income tax liability is abated (forgiven) for the entire year in which death occurred and for any prior tax year ending on or after the first day the person served in a combat zone in active service. File 2005 taxes For this purpose, a qualified hazardous duty area is treated as a combat zone. File 2005 taxes If the tax (including interest, additions to the tax, and additional amounts) for these years has been assessed, the assessment will be forgiven. File 2005 taxes If the tax has been collected (regardless of the date of collection), that tax will be credited or refunded. File 2005 taxes Any of the decedent's income tax for tax years before those mentioned above that remains unpaid as of the actual (or presumptive) date of death will not be assessed. File 2005 taxes If any unpaid tax (including interest, additions to the tax, and additional amounts) has been assessed, this assessment will be forgiven. File 2005 taxes Also, if any tax was collected after the date of death, that amount will be credited or refunded. File 2005 taxes The date of death of a member of the Armed Forces reported as missing in action or as a prisoner of war is the date his or her name is removed from missing status for military pay purposes. File 2005 taxes This is true even if death actually occurred earlier. File 2005 taxes For other tax information for members of the Armed Forces, see Publication 3, Armed Forces' Tax Guide. File 2005 taxes Military or Terrorist Actions The decedent's income tax liability is forgiven if, at death, he or she was a military or civilian employee of the United States who died because of wounds or injury incurred: While a U. File 2005 taxes S. File 2005 taxes employee, and In a military or terrorist action. File 2005 taxes The forgiveness applies to the tax year in which death occurred and for any earlier tax year, beginning with the year before the year in which the wounds or injury occurred. File 2005 taxes Example. File 2005 taxes The income tax liability of a civilian employee of the United States who died in 2013 because of wounds incurred while a U. File 2005 taxes S. File 2005 taxes employee in a terrorist attack that occurred in 2008 will be forgiven for 2013 and for all prior tax years in the period 2007 through 2012. File 2005 taxes Refunds are allowed for the tax years for which the period for filing a claim for refund has not ended, as discussed later. File 2005 taxes Military or terrorist action defined. File 2005 taxes   A military or terrorist action means the following. File 2005 taxes Any terrorist activity that most of the evidence indicates was directed against the United States or any of its allies. File 2005 taxes Any military action involving the U. File 2005 taxes S. File 2005 taxes Armed Forces and resulting from violence or aggression against the United States or any of its allies, or the threat of such violence or aggression. File 2005 taxes   Terrorist activity includes criminal offenses intended to coerce, intimidate, or retaliate against the government or civilian population. File 2005 taxes Military action does not include training exercises. File 2005 taxes Any multinational force in which the United States is participating is treated as an ally of the United States. File 2005 taxes Determining if a terrorist activity or military action has occurred. File 2005 taxes   You may rely on published guidance from the IRS to determine if a particular event is considered a terrorist activity or military action. File 2005 taxes Specified Terrorist Victim The Victims of Terrorism Tax Relief Act of 2001 (the Act) provides tax relief for those injured or killed as a result of terrorist attacks, certain survivors of those killed as a result of terrorist attacks, and others who were affected by terrorist attacks. File 2005 taxes Under the Act, the federal income tax liability of those killed in the following attacks (specified terrorist victim) is forgiven for certain tax years. File 2005 taxes The April 19, 1995, terrorist attack on the Alfred P. File 2005 taxes Murrah Federal Building (Oklahoma City). File 2005 taxes The September 11, 2001, terrorist attacks. File 2005 taxes The terrorist attacks involving anthrax occurring after September 10, 2001, and before January 1, 2002. File 2005 taxes The Act also exempts from federal income tax the following types of income. File 2005 taxes Qualified disaster relief payments made after September 10, 2001, to cover personal, family, living, or funeral expenses incurred because of a terrorist attack. File 2005 taxes Certain disability payments received in tax years ending after September 10, 2001, for injuries sustained in a terrorist attack. File 2005 taxes Certain death benefits paid by an employer to the survivor of an employee because the employee died as a result of a terrorist attack. File 2005 taxes Payments from the September 11th Victim Compensation Fund 2001. File 2005 taxes The Act also reduces the estate tax of individuals who die as a result of a terrorist attack. File 2005 taxes See Publication 3920, Tax Relief for Victims of Terrorist Attacks, for more information. File 2005 taxes Astronauts Legislation extended the tax relief available under the Victims of Terrorism Tax Relief Act of 2001 (the Act) to astronauts who died in the line of duty after December 31, 2002. File 2005 taxes The decedent's income tax liability is forgiven for the tax year in which death occurs, and for the tax year prior to death. File 2005 taxes For information on death benefit payments and the reduction of federal estate taxes, see Publication 3920. File 2005 taxes However, the discussions in that publication under Death Benefits and Estate Tax Reduction should be modified for astronauts (for example, by using the date of death of the astronaut instead of September 11, 2001). File 2005 taxes For more information on the Act, see Publication 3920. File 2005 taxes Claim for Credit or Refund If any of these tax-forgiveness situations applies to a prior year tax, any tax paid for which the period for filing a claim has not ended will be credited or refunded. File 2005 taxes If any tax is still due, it will be canceled. File 2005 taxes The normal period for filing a claim for credit or refund is 3 years after the return was filed or 2 years after the tax was paid, whichever is later. File 2005 taxes If death occurred in a combat zone or from wounds, disease, or injury incurred in a combat zone, the period for filing the claim is extended by: The amount of time served in the combat zone (including any period in which the individual was in missing status), plus The period of continuous qualified hospitalization for injury from service in the combat zone, if any, plus The next 180 days. File 2005 taxes Qualified hospitalization means any hospitalization outside the United States and any hospitalization in the United States of not more than 5 years. File 2005 taxes This extended period for filing the claim also applies to a member of the Armed Forces who was deployed outside the United States in a designated contingency operation. File 2005 taxes Filing a claim. File 2005 taxes   Use the following procedures to file a claim. File 2005 taxes If a U. File 2005 taxes S. File 2005 taxes individual income tax return (Form 1040, 1040A, or 1040EZ) has not been filed, you should make a claim for refund of any withheld income tax or estimated tax payments by filing Form 1040. File 2005 taxes Form W-2, Wage and Tax Statement, must accompany all returns. File 2005 taxes If a U. File 2005 taxes S. File 2005 taxes individual income tax return has been filed, you should make a claim for refund by filing Form 1040X. File 2005 taxes You must file a separate Form 1040X for each year in question. File 2005 taxes   You must file these returns and claims at the following address for regular mail (U. File 2005 taxes S. File 2005 taxes Postal Service). File 2005 taxes    Internal Revenue Service 333 W. File 2005 taxes Pershing, P5–6503 Kansas City, MO 64108   Identify all returns and claims for refund by writing “Iraq—KIA,” “Enduring Freedom—KIA,” “Kosovo Operation—KIA,” “Desert Storm—KIA,” or “Former Yugoslavia—KIA” in bold letters on the top of page 1 of the return or claim. File 2005 taxes On the applicable return, write the same phrase on the line for total tax. File 2005 taxes If the individual was killed in a terrorist or military action, put “KITA” on the front of the return and on the line for total tax. File 2005 taxes   Include an attachment showing the computation of the decedent's tax liability and a computation of the amount to be forgiven. File 2005 taxes On joint returns, make an allocation of the tax as described below under Joint returns. File 2005 taxes If you cannot make a proper allocation, attach a statement of all income and deductions allocable to each spouse and the IRS will make the proper allocation. File 2005 taxes   You must attach Form 1310 to all returns and claims for refund. File 2005 taxes However, for exceptions to filing Form 1310, see Form 1310. File 2005 taxes Statement of Person Claiming Refund Due a Deceased Taxpayer, under Refund, earlier. File 2005 taxes   You must also attach proof of death that includes a statement that the individual was a U. File 2005 taxes S. File 2005 taxes employee on the date of injury and on the date of death and died as the result of a military or terrorist action. File 2005 taxes For military and civilian employees of the Department of Defense, attach DD Form 1300, Report of Casualty. File 2005 taxes For other U. File 2005 taxes S. File 2005 taxes civilian employees killed in the United States, attach a death certificate and a certification (letter) from the federal employer. File 2005 taxes For other U. File 2005 taxes S. File 2005 taxes civilian employees killed overseas, attach a certification from the Department of State. File 2005 taxes   If you do not have enough tax information to file a timely claim for refund, you can suspend the period for filing a claim by filing Form 1040X. File 2005 taxes Attach Form 1310, any required documentation currently available, and a statement that you will file an amended claim as soon as you have the required tax information. File 2005 taxes Joint returns. File 2005 taxes   If a joint return was filed, only the decedent's part of the income tax liability is eligible for forgiveness. File 2005 taxes Determine the decedent's tax liability as follows. File 2005 taxes Figure the income tax for which the decedent would have been liable if a separate return had been filed. File 2005 taxes Figure the income tax for which the spouse would have been liable if a separate return had been filed. File 2005 taxes Multiply the joint tax liability by a fraction. File 2005 taxes The numerator of the fraction is the amount in (1), above. File 2005 taxes The denominator of the fraction is the total of (1) and (2). File 2005 taxes   The resulting amount from (3) above is the decedent's tax liability eligible for forgiveness. File 2005 taxes Filing Reminders To minimize the time needed to process the decedent's final return and issue any refund, be sure to follow these procedures. File 2005 taxes Write “DECEASED,” the decedent's name, and the date of death across the top of the tax return. File 2005 taxes If a personal representative has been appointed, the personal representative must sign the return. File 2005 taxes If it is a joint return, the surviving spouse must also sign it. File 2005 taxes If you are the decedent's spouse filing a joint return with the decedent and no personal representative has been appointed, write “Filing as surviving spouse” in the area where you sign the return. File 2005 taxes If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. File 2005 taxes ” To claim a refund for the decedent, do the following. File 2005 taxes If you are the decedent's spouse filing a joint return with the decedent, file only the tax return to claim the refund. File 2005 taxes If you are the personal representative and the return is not a joint return filed with the decedent's surviving spouse, file the return and attach a copy of the certificate that shows your appointment by the court. File 2005 taxes (A power of attorney or a copy of the decedent's will is not acceptable evidence of your appointment as the personal representative. File 2005 taxes ) If you are filing an amended return, attach Form 1310 and a copy of the certificate of appointment (or, if you have already sent the certificate of appointment to IRS, write “Certificate Previously Filed” at the bottom of Form 1310). File 2005 taxes If you are not filing a joint return as the surviving spouse and a personal representative has not been appointed, file the return and attach Form 1310. File 2005 taxes Other Tax Information Discussed below is information about the effect of an individual's death on the income tax liability of the survivors (including widows and widowers), the beneficiaries, and the estate. File 2005 taxes Tax Benefits for Survivors Survivors can qualify for certain benefits when filing their own income tax returns. File 2005 taxes Joint return by surviving spouse. File 2005 taxes   A surviving spouse can file a joint return for the year of death and may qualify for special tax rates for the following 2 years, as explained under Qualifying widows and widowers, later. File 2005 taxes Decedent as your dependent. File 2005 taxes   If the decedent qualified as your dependent for a part of the year before death, you can claim the exemption for the dependent on your tax return, regardless of when death occurred during the year. File 2005 taxes   If the decedent was your qualifying child, you may be able to claim the child tax credit or the earned income credit. File 2005 taxes To determine if you qualify for the child tax credit, see the instructions for Form 1040, line 51; Form 1040A, line 33; or Form 1040NR, line 48. File 2005 taxes To determine if you qualify for the earned income credit, see the instructions for Form 1040, lines 64a and 64b or Form 1040A, lines 38a and 38b. File 2005 taxes Qualifying widows and widowers. File 2005 taxes   If your spouse died within the 2 tax years preceding the year for which your return is being filed, you may be eligible to claim the filing status of qualifying widow(er) with dependent child and qualify to use the married-filing-jointly tax rates. File 2005 taxes Requirements. File 2005 taxes   Generally, you qualify for this special benefit if you meet all of the following requirements. File 2005 taxes You were entitled to file a joint return with your spouse for the year of death—whether or not you actually filed jointly. File 2005 taxes You did not remarry before the end of the current tax year. File 2005 taxes You have a child, stepchild, or foster child who qualifies as your dependent for the tax year. File 2005 taxes You provide more than half the cost of maintaining your home, which is the principal residence of that child for the entire year except for temporary absences. File 2005 taxes Example. File 2005 taxes William Burns' wife died in 2010. File 2005 taxes William has not remarried and continued throughout 2011 and 2012 to maintain a home for himself and his dependent child. File 2005 taxes For 2010, he was entitled to file a joint return for himself and his deceased wife. File 2005 taxes For 2011 and 2012, he qualifies to file as a qualifying widower with dependent child. File 2005 taxes For later years, he may qualify to file as a head of household. File 2005 taxes Figuring your tax. File 2005 taxes   Check the box on line 5 (Form 1040 or 1040A) under Filing Status on your tax return. File 2005 taxes Use the Tax Rate Schedule or the column in the Tax Table for Married filing jointly, which gives you the split-income benefits. File 2005 taxes   The last year you can file jointly with, or claim an exemption for, your deceased spouse is the year of death. File 2005 taxes Joint return filing rules. File 2005 taxes   If you are the surviving spouse and a personal representative is handling the estate for the decedent, you should coordinate filing your return for the year of death with this personal representative. File 2005 taxes See Joint Return under Final Income Tax Return for Decedent—Form 1040, earlier. File 2005 taxes Income in Respect of a Decedent All income the decedent would have received had death not occurred that was not properly includible on the final return, discussed earlier, is income in respect of a decedent. File 2005 taxes If the decedent is a specified terrorist victim (see Specified Terrorist Victim, earlier), income received after the date of death and before the end of the decedent's tax year (determined without regard to death) is excluded from the recipient's gross income. File 2005 taxes This exclusion does not apply to certain income. File 2005 taxes For more information, see Publication 3920. File 2005 taxes How To Report Income in respect of a decedent must be included in the income of one of the following. File 2005 taxes The decedent's estate, if the estate receives it. File 2005 taxes The beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it. File 2005 taxes Any person to whom the estate properly distributes the right to receive it. File 2005 taxes If you have to include income in respect of a decedent in your gross income and an estate tax return (Form 706) was filed for the decedent, you may be able to claim a deduction for the estate tax paid on that income. File 2005 taxes See Estate Tax Deduction, later. File 2005 taxes Example 1. File 2005 taxes Frank Johnson owned and operated an apple orchard. File 2005 taxes He used the cash method of accounting. File 2005 taxes He sold and delivered 1,000 bushels of apples to a canning factory for $2,000, but did not receive payment before his death. File 2005 taxes The proceeds from the sale are income in respect of a decedent. File 2005 taxes When the estate was settled, payment had not been made and the estate transferred the right to the payment to his widow. File 2005 taxes When Frank's widow collects the $2,000, she must include that amount in her return. File 2005 taxes It is not reported on the final return of the decedent or on the return of the estate. File 2005 taxes Example 2. File 2005 taxes Assume the same facts as in Example 1, except that Frank used the accrual method of accounting. File 2005 taxes The amount accrued from the sale of the apples would be included on his final return. File 2005 taxes Neither the estate nor the widow would realize income in respect of a decedent when the money is later paid. File 2005 taxes Example 3. File 2005 taxes On February 1, George High, a cash method taxpayer, sold his tractor for $3,000, payable March 1 of the same year. File 2005 taxes His adjusted basis in the tractor was $2,000. File 2005 taxes George died on February 15, before receiving payment. File 2005 taxes The gain to be reported as income in respect of a decedent is the $1,000 difference between the decedent's basis in the property and the sale proceeds. File 2005 taxes In other words, the income in respect of a decedent is the gain the decedent would have realized had he lived. File 2005 taxes Example 4. File 2005 taxes Cathy O'Neil was entitled to a large salary payment at the date of her death. File 2005 taxes The amount was to be paid in five annual installments. File 2005 taxes The estate, after collecting two installments, distributed the right to the remaining installments to you, the beneficiary. File 2005 taxes The payments are income in respect of a decedent. File 2005 taxes None of the payments were includible on Cathy's final return. File 2005 taxes The estate must include in its income the two installments it received, and you must include in your income each of the three installments as you receive them. File 2005 taxes Example 5. File 2005 taxes You inherited the right to receive renewal commissions on life insurance sold by your father before his death. File 2005 taxes You inherited the right from your mother, who acquired it by bequest from your father. File 2005 taxes Your mother died before she received all the commissions she had the right to receive, so you received the rest. File 2005 taxes The commissions are income in respect of a decedent. File 2005 taxes None of these commissions were includible in your father's final return. File 2005 taxes The commissions received by your mother were included in her income. File 2005 taxes The commissions you received are not includible in your mother's income, even on her final return. File 2005 taxes You must include them in your income. File 2005 taxes Character of income. File 2005 taxes   The character of the income you receive in respect of a decedent remains the same as it would have been to the decedent if he or she were alive. File 2005 taxes If the income would have been a capital gain to the decedent, it will be a capital gain to you. File 2005 taxes Transfer of right to income. File 2005 taxes   If you transfer your right to income in respect of a decedent, you must include in your income the greater of: The amount you receive for the right, or The fair market value of the right you transfer. File 2005 taxes   If you make a gift of such a right, you must include in your income the fair market value of the right at the time of the gift. File 2005 taxes   If the right to income from an installment obligation is transferred, the amount you must include in income is reduced by the basis of the obligation. File 2005 taxes See Installment obligations, later. File 2005 taxes Transfer defined. File 2005 taxes   A transfer for this purpose includes a sale, exchange, or other disposition, the satisfaction of an installment obligation at other than face value, or the cancellation of an installment obligation. File 2005 taxes Installment obligations. File 2005 taxes   If the decedent sold property using the installment method and you are collecting payments on an installment obligation acquired from the decedent, use the same gross profit percentage the decedent used to figure the part of each payment that represents profit. File 2005 taxes Include in your income the same profit the decedent would have included had death not occurred. File 2005 taxes For more information, see Publication 537, Installment Sales. File 2005 taxes   If you dispose of an installment obligation acquired from a decedent (other than by transfer to the obligor), the rules explained in Publication 537 for figuring gain or loss on the disposition apply to you. File 2005 taxes Transfer to obligor. File 2005 taxes   A transfer of a right to income, discussed earlier, has occurred if the decedent (seller) sold property using the installment method and the installment obligation was transferred to the obligor (buyer or person legally obligated to pay the installments). File 2005 taxes A transfer also occurs if the obligation was canceled either at death or by the estate or person receiving the obligation from the decedent. File 2005 taxes An obligation that becomes unenforceable is treated as having been canceled. File 2005 taxes   If such a transfer occurs, the amount included in the income of the transferor (the estate or beneficiary) is the greater of the amount received or the fair market value of the installment obligation at the time of transfer, reduced by the basis of the obligation. File 2005 taxes The basis of the obligation is the decedent's basis, adjusted for all installment payments received after the decedent's death and before the transfer. File 2005 taxes   If the decedent and obligor were related persons, the fair market value of the obligation cannot be less than its face value. File 2005 taxes Specific Types of Income in Respect of a Decedent This section explains and provides examples of some specific types of income in respect of a decedent. File 2005 taxes Wages. File 2005 taxes   The entire amount of wages or other employee compensation earned by the decedent but unpaid at the time of death is income in respect of a decedent. File 2005 taxes The income is not reduced by any amounts withheld by the employer. File 2005 taxes If the income is $600 or more, the employer should report it in box 3 of Form 1099-MISC, Miscellaneous Income, and give the recipient a copy of the form or a similar statement. File 2005 taxes   Wages paid as income in respect of a decedent are not subject to federal income tax withholding. File 2005 taxes However, if paid during the calendar year of death, they are subject to withholding for social security and Medicare taxes. File 2005 taxes These taxes should be included on the decedent's Form W-2 along with the taxes withheld before death. File 2005 taxes These wages are not included in box 1 of Form W-2. File 2005 taxes   Wages paid as income in respect of a decedent after the year of death generally are not subject to withholding for any federal taxe