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File taxes online free 2012 5. File taxes online free 2012   Credits Table of Contents Credit for the Elderly or the DisabledCan You Take the Credit? Figuring the Credit Child and Dependent Care Credit Earned Income Credit (EIC)Do You Qualify for the Earned Income Credit (EIC)? Figuring the EIC This chapter briefly discusses the credit for the elderly or disabled, the child and dependent care credit, and the earned income credit. File taxes online free 2012 You may be able to reduce your federal income tax by claiming one or more of these credits. File taxes online free 2012 Credit for the Elderly or the Disabled This section explains who qualifies for the credit for the elderly or the disabled and how to figure this credit. File taxes online free 2012 For more information, see Publication 524, Credit for the Elderly or the Disabled. File taxes online free 2012 You can take the credit only if you file Form 1040 or Form 1040A. File taxes online free 2012 You cannot take the credit if you file Form 1040EZ or Form 1040NR. File taxes online free 2012 Can You Take the Credit? You can take the credit for the elderly or the disabled if you meet both of the following requirements. File taxes online free 2012 You are a qualified individual. File taxes online free 2012 Your income is not more than certain limits. File taxes online free 2012  You can use Figure 5-A and Figure 5-B as guides to see if you are eligible for the credit. File taxes online free 2012   Qualified Individual You are a qualified individual for this credit if you are a U. File taxes online free 2012 S. File taxes online free 2012 citizen or resident alien, and either of the following applies. File taxes online free 2012 You were age 65 or older at the end of 2013. File taxes online free 2012 You were under age 65 at the end of 2013 and all three of the following statements are true. File taxes online free 2012 You retired on permanent and total disability (explained later). File taxes online free 2012 You received taxable disability income for 2013. File taxes online free 2012 On January 1, 2013, you had not reached mandatory retirement age (defined later under Disability income ). File taxes online free 2012 Age 65. File taxes online free 2012 You are considered to be age 65 on the day before your 65th birthday. File taxes online free 2012 Therefore, you are considered to be age 65 at the end of 2013 if you were born before January 2, 1949. File taxes online free 2012 Figure 5-A. File taxes online free 2012 Are You a Qualified Individual? This image is too large to be displayed in the current screen. File taxes online free 2012 Please click the link to view the image. File taxes online free 2012 Figure 5-A, Are you a qualified individual? U. File taxes online free 2012 S. File taxes online free 2012 citizen or resident alien. File taxes online free 2012   You must be a U. File taxes online free 2012 S. File taxes online free 2012 citizen or resident alien (or be treated as a resident alien) to take the credit. File taxes online free 2012 Generally, you cannot take the credit if you were a nonresident alien at any time during the tax year. File taxes online free 2012 Exceptions. File taxes online free 2012   You may be able to take the credit if you are a nonresident alien who is married to a U. File taxes online free 2012 S. File taxes online free 2012 citizen or resident alien at the end of the tax year and you and your spouse choose to treat you as a U. File taxes online free 2012 S. File taxes online free 2012 resident alien. File taxes online free 2012 If you make that choice, both you and your spouse are taxed on your worldwide income. File taxes online free 2012   If you were a nonresident alien at the beginning of the year and a resident alien at the end of the year, and you were married to a U. File taxes online free 2012 S. File taxes online free 2012 citizen or resident alien at the end of the year, you may be able to choose to be treated as a U. File taxes online free 2012 S. File taxes online free 2012 resident alien for the entire year. File taxes online free 2012 In that case, you may be allowed to take the credit. File taxes online free 2012   For information on these choices, see chapter 1 of Publication 519, U. File taxes online free 2012 S. File taxes online free 2012 Tax Guide for Aliens. File taxes online free 2012 Married persons. File taxes online free 2012   Generally, if you are married at the end of the tax year, you and your spouse must file a joint return to take the credit. File taxes online free 2012 However, if you and your spouse did not live in the same household at any time during the tax year, you can file either a joint return or separate returns and still take the credit. File taxes online free 2012 Head of household. File taxes online free 2012   You can file as head of household and qualify to take the credit even if your spouse lived with you during the first 6 months of the year if you meet certain tests. File taxes online free 2012 See Publication 524 and Publication 501. File taxes online free 2012 Under age 65. File taxes online free 2012   If you are under age 65 at the end of 2013, you can qualify for the credit only if you are retired on permanent and total disability and have taxable disability income (discussed later under Disability income ). File taxes online free 2012 You are considered to be under age 65 at the end of 2013 if you were born after January 1, 1949. File taxes online free 2012 You are retired on permanent and total disability if: You were permanently and totally disabled when you retired, and You retired on disability before the end of the tax year. File taxes online free 2012   Even if you do not retire formally, you may be considered retired on disability when you have stopped working because of your disability. File taxes online free 2012 If you retired on disability before 1977 and were not permanently and totally disabled at the time, you can qualify for the credit if you were permanently and totally disabled on January 1, 1976, or January 1, 1977. File taxes online free 2012 Permanent and total disability. File taxes online free 2012   You are permanently and totally disabled if you cannot engage in any substantial gainful activity because of your physical or mental condition. File taxes online free 2012 A physician must certify that the condition has lasted or can be expected to last continuously for 12 months or more, or that the condition can be expected to result in death. File taxes online free 2012 See Physician's statement , later. File taxes online free 2012 Substantial gainful activity. File taxes online free 2012   Substantial gainful activity is the performance of significant duties over a reasonable period of time while working for pay or profit, or in work generally done for pay or profit. File taxes online free 2012   Full-time work (or part-time work done at the employer's convenience) in a competitive work situation for at least the minimum wage conclusively shows that you are able to engage in substantial gainful activity. File taxes online free 2012   Substantial gainful activity is not work you do to take care of yourself or your home. File taxes online free 2012 It is not unpaid work on hobbies, institutional therapy or training, school attendance, clubs, social programs, and similar activities. File taxes online free 2012 However, doing this kind of work may show that you are able to engage in substantial gainful activity. File taxes online free 2012    Figure 5-B. File taxes online free 2012 Income Limits IF your filing status is. File taxes online free 2012 . File taxes online free 2012 . File taxes online free 2012 THEN even if you qualify (see Figure 5-A), you CANNOT take the credit if: Your adjusted gross income (AGI)* is equal to or more than. File taxes online free 2012 . File taxes online free 2012 . File taxes online free 2012 OR the total of your nontaxable social security and other nontaxable pension(s), annuities, or disability income is equal to or more than. File taxes online free 2012 . File taxes online free 2012 . File taxes online free 2012 single, head of household, or qualifying widow(er) with dependent child $17,500 $5,000 married filing jointly and only one spouse qualifies in Figure 5-A $20,000 $5,000 married filing jointly and both spouses qualify in Figure 5-A $25,000 $7,500 married filing separately and you lived apart from your spouse for all of 2013 $12,500 $3,750 *AGI is the amount on Form 1040A, line 22, or Form 1040, line 38      The fact that you have not worked for some time is not, of itself, conclusive evidence that you cannot engage in substantial gainful activity. File taxes online free 2012 Physician's statement. File taxes online free 2012   If you are under age 65, you must have your physician complete a statement certifying that you were permanently and totally disabled on the date you retired. File taxes online free 2012   You do not have to file this statement with your tax return, but you must keep it for your records. File taxes online free 2012 The Instructions for Schedule R (Form 1040A or 1040) include a statement your physician can complete and that you can keep for your records. File taxes online free 2012 Veterans. File taxes online free 2012   If the Department of Veterans Affairs (VA) certifies that you are permanently and totally disabled, you can substitute VA Form 21-0172, Certification of Permanent and Total Disability, for the physician's statement you are required to keep. File taxes online free 2012 VA Form 21-0172 must be signed by a person authorized by the VA to do so. File taxes online free 2012 You can get this form from your local VA regional office. File taxes online free 2012 Physician's statement obtained in earlier year. File taxes online free 2012   If you got a physician's statement in an earlier year and, due to your continued disabled condition, you were unable to engage in any substantial gainful activity during 2013, you may not need to get another physician's statement for 2013. File taxes online free 2012 For a detailed explanation of the conditions you must meet, see the instructions for Schedule R (Form 1040A or 1040), Part II. File taxes online free 2012 If you meet the required conditions, you must check the box on Schedule R (Form 1040A or 1040), Part II, line 2. File taxes online free 2012   If you checked Schedule R (Form 1040A or 1040), Part I, box 4, 5, or 6, print in the space above the box in Part II, line 2, the first name(s) of the spouse(s) for whom the box is checked. File taxes online free 2012 Disability income. File taxes online free 2012   If you are under age 65, you must also have taxable disability income to qualify for the credit. File taxes online free 2012   Disability income must meet the following two requirements. File taxes online free 2012 It must be paid under your employer's accident or health plan or pension plan. File taxes online free 2012 It must be included in your income as wages (or payments in lieu of wages) for the time you are absent from work because of permanent and total disability. File taxes online free 2012 Payments that are not disability income. File taxes online free 2012   Any payment you receive from a plan that does not provide for disability retirement is not disability income. File taxes online free 2012 Any lump-sum payment for accrued annual leave that you receive when you retire on disability is a salary payment and is not disability income. File taxes online free 2012   For purposes of the credit for the elderly or the disabled, disability income does not include amounts you receive after you reach mandatory retirement age. File taxes online free 2012 Mandatory retirement age is the age set by your employer at which you would have had to retire had you not become disabled. File taxes online free 2012 Figuring the Credit You can figure the credit yourself, or the IRS will figure it for you. File taxes online free 2012 Figuring the credit yourself. File taxes online free 2012   If you figure the credit yourself, fill out the front of Schedule R (Form 1040A or 1040). File taxes online free 2012 Next, fill out Schedule R (Form 1040A or 1040), Part III. File taxes online free 2012 Credit figured for you. File taxes online free 2012   If you can take the credit and you want the IRS to figure the credit for you, see Publication 524 or the Instructions for Schedule R (Form 1040A or 1040). File taxes online free 2012 If you want the IRS to figure your tax, see chapter 30 of Publication 17, Your Federal Income Tax. File taxes online free 2012 Child and Dependent Care Credit You may be able to claim this credit if you pay someone to care for your dependent who is under age 13 or for your spouse or dependent who is not able to care for himself or herself. File taxes online free 2012 The credit can be up to 35% of your expenses. File taxes online free 2012 To qualify, you must pay these expenses so you can work or look for work. File taxes online free 2012 If you claim this credit, you must include on your return the name and taxpayer identification number (generally the social security number) of each qualifying person for whom care is provided. File taxes online free 2012 If the correct information is not shown, the credit may be reduced or disallowed. File taxes online free 2012 You also must show on your return the name, address, and the taxpayer identification number of the person(s) or organization(s) that provided the care. File taxes online free 2012 For more information, see Publication 503, Child and Dependent Care Expenses. File taxes online free 2012 Earned Income Credit (EIC) The earned income credit (EIC) is a refundable tax credit for certain people who work and have earned income under $51,567. File taxes online free 2012 The EIC is available to persons with or without a qualifying child. File taxes online free 2012 Credit has no effect on certain welfare benefits. File taxes online free 2012   Any refund you receive because of the EIC cannot be counted as income when determining whether you or anyone else is eligible for benefits or assistance, or how much you or anyone else can receive, under any federal program or under any state or local program financed in whole or in part with federal funds. File taxes online free 2012 These programs include the following. File taxes online free 2012 Medicaid and supplemental security income (SSI). File taxes online free 2012 Supplemental Nutrition Assistance Program (food stamps). File taxes online free 2012 Low-income housing. File taxes online free 2012 Temporary Assistance for Needy Families (TANF). File taxes online free 2012  In addition, when determining eligibility, the refund cannot be counted as a resource for at least 12 months after you receive it. File taxes online free 2012 Check with your local benefit coordinator to find out if your refund will affect your benefits. File taxes online free 2012 Do You Qualify for the Earned Income Credit (EIC)? Use Table 5-1 as an initial guide to the rules you must meet in order to qualify for the EIC. File taxes online free 2012 The specific rules you must meet depend on whether you have a qualifying child. File taxes online free 2012 If you have a qualifying child, the rules in Parts A, B, and D apply to you. File taxes online free 2012 If you do not have a qualifying child, the rules in Parts A, C, and D apply to you. File taxes online free 2012  If, after reading all the rules in each part that applies to you, you think you may qualify for the credit, see Publication 596, Earned Income Credit, for more details about the EIC. File taxes online free 2012 You can also find information about the EIC in the instructions for Form 1040 (line 64a), Form 1040A (line 38a), or Form 1040EZ (line 8a). File taxes online free 2012 The sections that follow provide additional information for some of the rules. File taxes online free 2012 Adjusted gross income (AGI). File taxes online free 2012   Under Rule 1, you cannot claim the EIC unless your AGI is less than the applicable limit shown in Part A of Table 5-1. File taxes online free 2012 Your AGI is the amount on line 37 (Form 1040), line 21 (Form 1040A), or line 4 (Form 1040EZ). File taxes online free 2012 Table 5-1. File taxes online free 2012 Earned Income Credit (EIC) in a Nutshell First, you must meet all the rules in this column. File taxes online free 2012 Second, you must meet all the rules in one of these columns, whichever applies. File taxes online free 2012 Third, you must meet the rule in this column. File taxes online free 2012 Part A. File taxes online free 2012  Rules for Everyone Part B. File taxes online free 2012  Rules If You Have a Qualifying Child Part C. File taxes online free 2012  Rules If You Do Not Have a Qualifying Child Part D. File taxes online free 2012  Figuring and Claiming the EIC 1. File taxes online free 2012 Your adjusted gross income (AGI) must be less than: •$46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, •$43,038 ($48,378 for married filing jointly) if you have two qualifying children, •$37,870 ($43,210 for married filing jointly) if you have one qualifying child, or  •$14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. File taxes online free 2012 2. File taxes online free 2012 You must have a valid social security number. File taxes online free 2012  3. File taxes online free 2012 Your filing status cannot be “Married filing separately. File taxes online free 2012 ” 4. File taxes online free 2012 You must be a U. File taxes online free 2012 S. File taxes online free 2012 citizen or resident alien all year. File taxes online free 2012  5. File taxes online free 2012 You cannot file Form 2555 or Form 2555-EZ (relating to foreign earned income). File taxes online free 2012  6. File taxes online free 2012 Your investment income must be $3,300 or less. File taxes online free 2012  7. File taxes online free 2012 You must have earned income. File taxes online free 2012 8. File taxes online free 2012 Your child must meet the relationship, age, residency, and joint return tests. File taxes online free 2012  9. File taxes online free 2012 Your qualifying child cannot be used by more than one person to claim the EIC. File taxes online free 2012  10. File taxes online free 2012 You generally cannot be a qualifying child of another person. File taxes online free 2012 11. File taxes online free 2012 You must be at least age 25 but under age 65. File taxes online free 2012  12. File taxes online free 2012 You cannot be the dependent of another person. File taxes online free 2012  13. File taxes online free 2012 You generally cannot be a qualifying child of another person. File taxes online free 2012  14. File taxes online free 2012 You must have lived in the United States more than half of the year. File taxes online free 2012 15. File taxes online free 2012 Your earned income must be less than: •$46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, •$43,038 ($48,378 for married filing jointly) if you have two qualifying children, •$37,870 ($43,210 for married filing jointly) if you have one qualifying child, or •$14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. File taxes online free 2012 Social security number. File taxes online free 2012   Under Rule 2, you (and your spouse if you are married filing jointly) must have a valid social security number (SSN) issued by the Social Security Administration (SSA). File taxes online free 2012 Any qualifying child listed on Schedule EIC also must have a valid SSN. File taxes online free 2012 (See Qualifying child , later, if you have a qualifying child. File taxes online free 2012 )   If your social security card (or your spouse's if you are married filing jointly) says “Not valid for employment” and your SSN was issued so that you (or your spouse) could get a federally funded benefit, you cannot get the EIC. File taxes online free 2012 An example of a federally funded benefit is Medicaid. File taxes online free 2012 Investment income. File taxes online free 2012   Under Rule 6, you cannot claim the EIC unless your investment income is $3,300 or less. File taxes online free 2012 If your investment income is more than $3,300, you cannot claim the credit. File taxes online free 2012 For most people, investment income is the total of the following amounts. File taxes online free 2012 Taxable interest (line 8a of Form 1040 or 1040A). File taxes online free 2012 Tax-exempt interest (line 8b of Form 1040 or 1040A). File taxes online free 2012 Dividend income (line 9a of Form 1040 or 1040A). File taxes online free 2012 Capital gain net income (line 13 of Form 1040, if more than zero, or line 10 of Form 1040A). File taxes online free 2012  If you file Form 1040EZ, your investment income is the total of the amount of line 2 and the amount of any tax-exempt interest you wrote to the right of the words “Form 1040EZ” on line 2. File taxes online free 2012   For more information about investment income, see Publication 596, Earned Income Credit. File taxes online free 2012 Earned income. File taxes online free 2012   Under Rule 7, you must have earned income to claim the EIC. File taxes online free 2012 Under Rule 15, you cannot claim the EIC unless your earned income is less than the applicable limit shown in Table 5-1, Part D. File taxes online free 2012 Earned income includes all of the following types of income. File taxes online free 2012 Wages, salaries, tips, and other taxable employee pay. File taxes online free 2012 Employee pay is earned income only if it is taxable. File taxes online free 2012 Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. File taxes online free 2012 But there is an exception for nontaxable combat pay, which you can choose to include in earned income. File taxes online free 2012 Net earnings from self-employment. File taxes online free 2012 Gross income received as a statutory employee. File taxes online free 2012 Gross income defined. File taxes online free 2012   Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). File taxes online free 2012 Do not include any social security benefits unless (a) you are married filing a separate tax return and you lived with your spouse at any time in 2013, or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). File taxes online free 2012 If (a) or (b) applies, see the instructions for Form 1040, lines 20a and 20b to figure the taxable part of social security benefits you must include in gross income. File taxes online free 2012 Self-employed persons. File taxes online free 2012   If you are self-employed and your net earnings are $400 or more, be sure to correctly fill out Schedule SE (Form 1040), Self-Employment Tax, and pay the proper amount of self-employment tax. File taxes online free 2012 If you do not, you may not get all the credit to which you are entitled. File taxes online free 2012 Disability benefits. File taxes online free 2012   If you retired on disability, taxable benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. File taxes online free 2012 Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. File taxes online free 2012 Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income. File taxes online free 2012   Payments you received from a disability insurance policy that you paid the premiums for are not earned income. File taxes online free 2012 It does not matter whether you have reached minimum retirement age. File taxes online free 2012 If this policy is through your employer, the amount may be shown in box 12 of your Form W-2 with code J. File taxes online free 2012 Income that is not earned income. File taxes online free 2012   Examples of items that are not earned income under Rule 7 include interest and dividends, pensions and annuities, social security and railroad retirement benefits (including disability benefits — except for payments covered under Disability benefits earlier), alimony and child support, welfare benefits, workers' compensation benefits, unemployment compensation (insurance), nontaxable foster care payments, and veterans' benefits, including VA rehabilitation payments. File taxes online free 2012 Do not include any of these items in your earned income. File taxes online free 2012 Workfare payments. File taxes online free 2012   Nontaxable workfare payments are not earned income for the EIC. File taxes online free 2012 These are cash payments certain people receive from a state or local agency that administers public assistance programs funded under the federal Temporary Assistance for Needy Families (TANF) program in return for certain work activities such as (1) work experience activities (including remodeling or repairing public housing) if sufficient private sector employment is not available, or (2) community service program activities. File taxes online free 2012 Qualifying child. File taxes online free 2012   Under Rule 8, your child is a qualifying child if your child meets four tests. File taxes online free 2012 The four tests are: Relationship, Age, Residency, and Joint return. File taxes online free 2012   The four tests are illustrated in Figure 5-C. File taxes online free 2012 See Publication 596 for more information about each test. File taxes online free 2012 Figure 5-C. File taxes online free 2012 Tests for Qualifying Child A qualifying child for the EIC is a child who is your. File taxes online free 2012 . File taxes online free 2012 . File taxes online free 2012 Son, daughter, stepchild, foster child,  or a descendant of any of them (for example, your grandchild) OR Brother, sister, half brother, half sister, stepbrother,  stepsister, or a descendant of any of them (for example, your  niece or nephew) was . File taxes online free 2012 . File taxes online free 2012 . File taxes online free 2012 Under age 19 at the end of 2013 and younger than you (or your spouse if filing jointly) OR Under age 24 at the end of 2013, a student, and younger than you (or your spouse if filing jointly) OR Permanently and totally disabled at any time during the year, regardless of age who. File taxes online free 2012 . File taxes online free 2012 . File taxes online free 2012 Is not filing a joint return for 2013  (or is filing a joint return for 2013 only as a claim for refund of income tax withheld or estimated tax paid) who. File taxes online free 2012 . File taxes online free 2012 . File taxes online free 2012 Lived with you in the United States for more than half of 2013. File taxes online free 2012  If the child did not live with you for the required time, see Publication 596 for more information. File taxes online free 2012 Figuring the EIC To figure the amount of your credit, you have two choices. File taxes online free 2012 Have the IRS figure the EIC for you. File taxes online free 2012 If you want to do this, see IRS Will Figure the EIC for You in Publication 596. File taxes online free 2012 Figure the EIC yourself. File taxes online free 2012 If you want to do this, see How To Figure the EIC Yourself in Publication 596. File taxes online free 2012 Prev  Up  Next   Home   More Online Publications
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Understanding Your CP81 Notice

We haven’t received your tax return for a specific tax year. The statute of limitations to claim a refund of your credit or payment for that tax year is about to expire.


What you need to do

  • If you’re required to file this tax return, file immediately. We’ll apply the credit amount shown on this notice to the tax you owe and refund any overpayment to you, if you don’t owe other taxes or obligations.
  • If you’ve already filed this return and it has been over 8 weeks, send us a newly signed copy of your tax return. Be sure to attach copies of all schedules and other documents you included with your previously filed original tax return.
  • If you want the credit transferred to another tax form, tax period or tax identification number, call us at 1-800-829-0115.
  • If you don’t file your tax return or contact us, you’ll lose this credit. The Internal Revenue Code sets strict time limits for refunding or transferring credits.

You may want to

  • Call 1-800-829-3676 (1-800-TAX-FORM) to order forms and publications or visit our website, www.irs.gov, to download them.

  • Answers to common questions

    How long do I have to file a tax return to claim a refund?
    Generally, you must file a tax return within 3 years from the due date of the return (including extensions) to receive a refund of any overpayment on your account. After this statute of limitations expires, we can’t refund any overpayments.

    Where do I send my return?
    Send it to the address listed on the notice.

    What should I do if I’ve just filed my tax return?
    You don’t have to do anything if you filed your tax return within the last 8 weeks.


    Tips for next year

    File all required returns by the appropriate due date.

Page Last Reviewed or Updated: 07-Mar-2014

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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 Taxes Online Free 2012

File taxes online free 2012 4. File taxes online free 2012   Special Situations Table of Contents Condominiums CooperativesDepreciation Property Changed to Rental UseBasis of Property Changed to Rental Use Figuring the Depreciation Deduction Renting Part of Property Not Rented for ProfitPostponing decision. File taxes online free 2012 Example—Property Changed to Rental Use This chapter discusses some rental real estate activities that are subject to additional rules. File taxes online free 2012 Condominiums A condominium is most often a dwelling unit in a multi-unit building, but can also take other forms, such as a townhouse or garden apartment. File taxes online free 2012 If you own a condominium, you also own a share of the common elements, such as land, lobbies, elevators, and service areas. File taxes online free 2012 You and the other condominium owners may pay dues or assessments to a special corporation that is organized to take care of the common elements. File taxes online free 2012 Special rules apply if you rent your condominium to others. File taxes online free 2012 You can deduct as rental expenses all the expenses discussed in chapters 1 and 2. File taxes online free 2012 In addition, you can deduct any dues or assessments paid for maintenance of the common elements. File taxes online free 2012 You cannot deduct special assessments you pay to a condominium management corporation for improvements. File taxes online free 2012 However, you may be able to recover your share of the cost of any improvement by taking depreciation. File taxes online free 2012 Cooperatives If you live in a cooperative, you do not own your apartment. File taxes online free 2012 Instead, a corporation owns the apartments and you are a tenant-stockholder in the cooperative housing corporation. File taxes online free 2012 If you rent your apartment to others, you usually can deduct, as a rental expense, all the maintenance fees you pay to the cooperative housing corporation. File taxes online free 2012 In addition to the maintenance fees paid to the cooperative housing corporation, you can deduct your direct payments for repairs, upkeep, and other rental expenses, including interest paid on a loan used to buy your stock in the corporation. File taxes online free 2012 Depreciation You will be depreciating your stock in the corporation rather than the apartment itself. File taxes online free 2012 Figure your depreciation deduction as follows. File taxes online free 2012 Figure the depreciation for all the depreciable real property owned by the corporation. File taxes online free 2012 (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. File taxes online free 2012 ) If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. File taxes online free 2012 Multiply your cost per share by the total number of outstanding shares. File taxes online free 2012 Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. File taxes online free 2012 Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. File taxes online free 2012 Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. File taxes online free 2012 Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. File taxes online free 2012 Multiply the result of (2) by the percentage you figured in (3). File taxes online free 2012 This is your depreciation on the stock. File taxes online free 2012 Your depreciation deduction for the year cannot be more than the part of your adjusted basis (defined in chapter 2) in the stock of the corporation that is allocable to your rental property. File taxes online free 2012 Payments added to capital account. File taxes online free 2012   Payments earmarked for a capital asset or improvement, or otherwise charged to the corporation's capital account are added to the basis of your stock in the corporation. File taxes online free 2012 For example, you cannot deduct a payment used to pave a community parking lot, install a new roof, or pay the principal of the corporation's mortgage. File taxes online free 2012   Treat as a capital cost the amount you were assessed for capital items. File taxes online free 2012 This cannot be more than the amount by which your payments to the corporation exceeded your share of the corporation's mortgage interest and real estate taxes. File taxes online free 2012   Your share of interest and taxes is the amount the corporation elected to allocate to you, if it reasonably reflects those expenses for your apartment. File taxes online free 2012 Otherwise, figure your share in the following manner. File taxes online free 2012 Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. File taxes online free 2012 Multiply the corporation's deductible interest by the number you figured in (1). File taxes online free 2012 This is your share of the interest. File taxes online free 2012 Multiply the corporation's deductible taxes by the number you figured in (1). File taxes online free 2012 This is your share of the taxes. File taxes online free 2012 Property Changed to Rental Use If you change your home or other property (or a part of it) to rental use at any time other than the beginning of your tax year, you must divide yearly expenses, such as taxes and insurance, between rental use and personal use. File taxes online free 2012 You can deduct as rental expenses only the part of the expense that is for the part of the year the property was used or held for rental purposes. File taxes online free 2012 You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. File taxes online free 2012 However, you can include the home mortgage interest, qualified mortgage insurance premiums, and real estate tax expenses for the part of the year the property was held for personal use as an itemized deduction on Schedule A (Form 1040). File taxes online free 2012 Example. File taxes online free 2012 Your tax year is the calendar year. File taxes online free 2012 You moved from your home in May and started renting it out on June 1. File taxes online free 2012 You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. File taxes online free 2012 Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. File taxes online free 2012 When figuring depreciation, treat the property as placed in service on June 1. File taxes online free 2012 Basis of Property Changed to Rental Use When you change property you held for personal use to rental use (for example, you rent your former home), the basis for depreciation will be the lesser of fair market value or adjusted basis on the date of conversion. File taxes online free 2012 Fair market value. File taxes online free 2012   This is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. File taxes online free 2012 Sales of similar property, on or about the same date, may be helpful in figuring the fair market value of the property. File taxes online free 2012 Figuring the basis. File taxes online free 2012   The basis for depreciation is the lesser of: The fair market value of the property on the date you changed it to rental use, or Your adjusted basis on the date of the change—that is, your original cost or other basis of the property, plus the cost of permanent additions or improvements since you acquired it, minus deductions for any casualty or theft losses claimed on earlier years' income tax returns and other decreases to basis. File taxes online free 2012 For other increases and decreases to basis, see Adjusted Basis in chapter 2. File taxes online free 2012 Example. File taxes online free 2012 Several years ago you built your home for $140,000 on a lot that cost you $14,000. File taxes online free 2012 Before changing the property to rental use this year, you added $28,000 of permanent improvements to the house and claimed a $3,500 casualty loss deduction for damage to the house. File taxes online free 2012 Part of the improvements qualified for a $500 residential energy credit, which you claimed on your 2010 tax return. File taxes online free 2012 Because land is not depreciable, you can only include the cost of the house when figuring the basis for depreciation. File taxes online free 2012 The adjusted basis of the house at the time of the change in its use was $164,000 ($140,000 + $28,000 − $3,500 − $500). File taxes online free 2012 On the date of the change in use, your property had a fair market value of $168,000, of which $21,000 was for the land and $147,000 was for the house. File taxes online free 2012 The basis for depreciation on the house is the fair market value on the date of the change ($147,000), because it is less than your adjusted basis ($164,000). File taxes online free 2012 Cooperatives If you change your cooperative apartment to rental use, figure your allowable depreciation as explained earlier. File taxes online free 2012 (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. File taxes online free 2012 ) The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. File taxes online free 2012 The fair market value of the property on the date you change your apartment to rental use. File taxes online free 2012 This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. File taxes online free 2012 The corporation's adjusted basis in the property on that date. File taxes online free 2012 Do not subtract depreciation when figuring the corporation's adjusted basis. File taxes online free 2012 If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1) under Depreciation (under Cooperatives, near the beginning of this chapter). File taxes online free 2012 The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. File taxes online free 2012 Figuring the Depreciation Deduction To figure the deduction, use the depreciation system in effect when you convert your residence to rental use. File taxes online free 2012 Generally, that will be MACRS for any conversion after 1986. File taxes online free 2012 Treat the property as placed in service on the conversion date. File taxes online free 2012 Example. File taxes online free 2012 Your converted residence (see previous example under Figuring the basis) was available for rent on August 1. File taxes online free 2012 Using Table 2-2d (see chapter 2), the percentage for Year 1 beginning in August is 1. File taxes online free 2012 364% and the depreciation deduction for Year 1 is $2,005 ($147,000 × . File taxes online free 2012 01364). File taxes online free 2012 Renting Part of Property If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property. File taxes online free 2012 You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). File taxes online free 2012 You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity, or painting the outside of the house. File taxes online free 2012 There is no change in the types of expenses deductible for the personal-use part of your property. File taxes online free 2012 Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). File taxes online free 2012 You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. File taxes online free 2012 You do not have to divide the expenses that belong only to the rental part of your property. File taxes online free 2012 For example, if you paint a room that you rent, or if you pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense. File taxes online free 2012 If you install a second phone line strictly for your tenant's use, all of the cost of the second line is deductible as a rental expense. File taxes online free 2012 You can deduct depreciation on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. File taxes online free 2012 How to divide expenses. File taxes online free 2012   If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between rental use and personal use. File taxes online free 2012 You can use any reasonable method for dividing the expense. File taxes online free 2012 It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. File taxes online free 2012 The two most common methods for dividing an expense are (1) the number of rooms in your home, and (2) the square footage of your home. File taxes online free 2012 Example. File taxes online free 2012 You rent a room in your house. File taxes online free 2012 The room is 12 × 15 feet, or 180 square feet. File taxes online free 2012 Your entire house has 1,800 square feet of floor space. File taxes online free 2012 You can deduct as a rental expense 10% of any expense that must be divided between rental use and personal use. File taxes online free 2012 If your heating bill for the year for the entire house was $600, $60 ($600 × . File taxes online free 2012 10) is a rental expense. File taxes online free 2012 The balance, $540, is a personal expense that you cannot deduct. File taxes online free 2012 Duplex. File taxes online free 2012   A common situation is the duplex where you live in one unit and rent out the other. File taxes online free 2012 Certain expenses apply to the entire property, such as mortgage interest and real estate taxes, and must be split to determine rental and personal expenses. File taxes online free 2012 Example. File taxes online free 2012 You own a duplex and live in one half, renting the other half. File taxes online free 2012 Both units are approximately the same size. File taxes online free 2012 Last year, you paid a total of $10,000 mortgage interest and $2,000 real estate taxes for the entire property. File taxes online free 2012 You can deduct $5,000 mortgage interest and $1,000 real estate taxes on Schedule E (Form 1040), and if you itemize your deductions, you can deduct the other $5,000 mortgage interest and $1,000 real estate taxes on Schedule A (Form 1040). File taxes online free 2012 Not Rented for Profit If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. File taxes online free 2012 You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. File taxes online free 2012 Where to report. File taxes online free 2012   Report your not-for-profit rental income on Form 1040 or 1040NR, line 21. File taxes online free 2012 For example, if you are filing Form 1040, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. File taxes online free 2012   If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Schedule A (Form 1040), line 23, or Schedule A (Form 1040NR), line 9. File taxes online free 2012 You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. File taxes online free 2012 Presumption of profit. File taxes online free 2012   If your rental income is more than your rental expenses for at least 3 years out of a period of 5 consecutive years, you are presumed to be renting your property to make a profit. File taxes online free 2012 Postponing decision. File taxes online free 2012   If you are starting your rental activity and do not have 3 years showing a profit, you can elect to have the presumption made after you have the 5 years of experience required by the test. File taxes online free 2012 You may choose to postpone the decision of whether the rental is for profit by filing Form 5213. File taxes online free 2012 You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. File taxes online free 2012 More information. File taxes online free 2012   For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Publication 535. File taxes online free 2012 Example—Property Changed to Rental Use In January, Eileen Johnson bought a condominium apartment to live in. File taxes online free 2012 Instead of selling the house she had been living in, she decided to change it to rental property. File taxes online free 2012 Eileen selected a tenant and started renting the house on February 1. File taxes online free 2012 Eileen charges $750 a month for rent and collects it herself. File taxes online free 2012 Eileen also received a $750 security deposit from her tenant. File taxes online free 2012 Because she plans to return it to her tenant at the end of the lease, she does not include it in her income. File taxes online free 2012 Her rental expenses for the year are as follows. File taxes online free 2012   Mortgage interest $1,800     Fire insurance (1-year policy) 100     Miscellaneous repairs (after renting) 297     Real estate taxes imposed and paid 1,200   Eileen must divide the real estate taxes, mortgage interest, and fire insurance between the personal use of the property and the rental use of the property. File taxes online free 2012 She can deduct eleven-twelfths of these expenses as rental expenses. File taxes online free 2012 She can include the balance of the allowable taxes and mortgage interest on Schedule A (Form 1040) if she itemizes. File taxes online free 2012 She cannot deduct the balance of the fire insurance because it is a personal expense. File taxes online free 2012 Eileen bought this house in 1984 for $35,000. File taxes online free 2012 Her property tax was based on assessed values of $10,000 for the land and $25,000 for the house. File taxes online free 2012 Before changing it to rental property, Eileen added several improvements to the house. File taxes online free 2012 She figures her adjusted basis as follows:   Improvements Cost     House $25,000     Remodeled kitchen 4,200     Recreation room 5,800     New roof 1,600     Patio and deck 2,400     Adjusted basis $39,000   On February 1, when Eileen changed her house to rental property, the property had a fair market value of $152,000. File taxes online free 2012 Of this amount, $35,000 was for the land and $117,000 was for the house. File taxes online free 2012 Because Eileen's adjusted basis is less than the fair market value on the date of the change, Eileen uses $39,000 as her basis for depreciation. File taxes online free 2012 As specified for residential rental property, Eileen must use the straight line method of depreciation over the GDS or ADS recovery period. File taxes online free 2012 She chooses the GDS recovery period of 27. File taxes online free 2012 5 years. File taxes online free 2012 She uses Table 2-2d to find her depreciation percentage. File taxes online free 2012 Since she placed the property in service in February, the percentage is 3. File taxes online free 2012 182%. File taxes online free 2012 On April 1, Eileen bought a new dishwasher for the rental property at a cost of $425. File taxes online free 2012 The dishwasher is personal property used in a rental real estate activity, which has a 5-year recovery period. File taxes online free 2012 She uses Table 2-2a to find the percentage for Year 1 under “Half-year convention” (20%) to figure her depreciation deduction. File taxes online free 2012 On May 1, Eileen paid $4,000 to have a furnace installed in the house. File taxes online free 2012 The furnace is residential rental property. File taxes online free 2012 Because she placed the property in service in May, the percentage from Table 2-2d is 2. File taxes online free 2012 273%. File taxes online free 2012 Eileen figures her net rental income or loss for the house as follows: Total rental income received  ($750 × 11) $8,250 Minus: Expenses     Mortgage interest ($1,800 × 11/12) $1,650   Fire insurance ($100 × 11/12) 92   Miscellaneous repairs 297   Real estate taxes ($1,200 × 11/12) 1,100   Total expenses 3,139 Balance $5,111 Minus: Depreciation     House ($39,000 × . File taxes online free 2012 03182) $1,241   Dishwasher ($425 × . File taxes online free 2012 20) 85   Furnace ($4,000 × . File taxes online free 2012 02273) 91   Total depreciation 1,417 Net rental income for house   $3,694       Eileen uses Schedule E, Part I, to report her rental income and expenses. File taxes online free 2012 She enters her income, expenses, and depreciation for the house in the column for Property A. File taxes online free 2012 Since all property was placed in service this year, Eileen must use Form 4562 to figure the depreciation. File taxes online free 2012 See the Instructions for Form 4562 for more information on preparing the form. File taxes online free 2012 Prev  Up  Next   Home   More Online Publications