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Form 1040ez 2012

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Form 1040ez 2012

Form 1040ez 2012 3. Form 1040ez 2012   Ordinary or Capital Gain or Loss for Business Property Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Section 1231 Gains and LossesNonrecaptured section 1231 losses. Form 1040ez 2012 Depreciation RecaptureSection 1245 Property Section 1250 Property Installment Sales Gifts Transfers at Death Like-Kind Exchanges and Involuntary Conversions Multiple Properties Introduction When you dispose of business property, your taxable gain or loss is usually a section 1231 gain or loss. Form 1040ez 2012 Its treatment as ordinary or capital is determined under rules for section 1231 transactions. Form 1040ez 2012 When you dispose of depreciable property (section 1245 property or section 1250 property) at a gain, you may have to recognize all or part of the gain as ordinary income under the depreciation recapture rules. Form 1040ez 2012 Any remaining gain is a section 1231 gain. Form 1040ez 2012 Topics - This chapter discusses: Section 1231 gains and losses Depreciation recapture Useful Items - You may want to see: Publication 534 Depreciating Property Placed in Service Before 1987 537 Installment Sales 547 Casualties, Disasters and Thefts 551 Basis of Assets 946 How To Depreciate Property Form (and Instructions) 4797 Sales of Business Property See chapter 5 for information about getting publications and forms. Form 1040ez 2012 Section 1231 Gains and Losses Section 1231 gains and losses are the taxable gains and losses from section 1231 transactions (discussed below). Form 1040ez 2012 Their treatment as ordinary or capital depends on whether you have a net gain or a net loss from all your section 1231 transactions. Form 1040ez 2012 If you have a gain from a section 1231 transaction, first determine whether any of the gain is ordinary income under the depreciation recapture rules (explained later). Form 1040ez 2012 Do not take that gain into account as section 1231 gain. Form 1040ez 2012 Section 1231 transactions. Form 1040ez 2012   The following transactions result in gain or loss subject to section 1231 treatment. Form 1040ez 2012 Sales or exchanges of real property or depreciable personal property. Form 1040ez 2012 This property must be used in a trade or business and held longer than 1 year. Form 1040ez 2012 Generally, property held for the production of rents or royalties is considered to be used in a trade or business. Form 1040ez 2012 Depreciable personal property includes amortizable section 197 intangibles (described in chapter 2 under Other Dispositions). Form 1040ez 2012 Sales or exchanges of leaseholds. Form 1040ez 2012 The leasehold must be used in a trade or business and held longer than 1 year. Form 1040ez 2012 Sales or exchanges of cattle and horses. Form 1040ez 2012 The cattle and horses must be held for draft, breeding, dairy, or sporting purposes and held for 2 years or longer. Form 1040ez 2012 Sales or exchanges of other livestock. Form 1040ez 2012 This livestock does not include poultry. Form 1040ez 2012 It must be held for draft, breeding, dairy, or sporting purposes and held for 1 year or longer. Form 1040ez 2012 Sales or exchanges of unharvested crops. Form 1040ez 2012 The crop and land must be sold, exchanged, or involuntarily converted at the same time and to the same person and the land must be held longer than 1 year. Form 1040ez 2012 You cannot keep any right or option to directly or indirectly reacquire the land (other than a right customarily incident to a mortgage or other security transaction). Form 1040ez 2012 Growing crops sold with a lease on the land, though sold to the same person in the same transaction, are not included. Form 1040ez 2012 Cutting of timber or disposal of timber, coal, or iron ore. Form 1040ez 2012 The cutting or disposal must be treated as a sale, as described in chapter 2 under Timber and Coal and Iron Ore. Form 1040ez 2012 Condemnations. Form 1040ez 2012 The condemned property must have been held longer than 1 year. Form 1040ez 2012 It must be business property or a capital asset held in connection with a trade or business or a transaction entered into for profit, such as investment property. Form 1040ez 2012 It cannot be property held for personal use. Form 1040ez 2012 Casualties and thefts. Form 1040ez 2012 The casualty or theft must have affected business property, property held for the production of rents and royalties, or investment property (such as notes and bonds). Form 1040ez 2012 You must have held the property longer than 1 year. Form 1040ez 2012 However, if your casualty or theft losses are more than your casualty or theft gains, neither the gains nor the losses are taken into account in the section 1231 computation. Form 1040ez 2012 For more information on casualties and thefts, see Publication 547. Form 1040ez 2012 Property for sale to customers. Form 1040ez 2012   A sale, exchange, or involuntary conversion of property held mainly for sale to customers is not a section 1231 transaction. Form 1040ez 2012 If you will get back all, or nearly all, of your investment in the property by selling it rather than by using it up in your business, it is property held mainly for sale to customers. Form 1040ez 2012 Example. Form 1040ez 2012 You manufacture and sell steel cable, which you deliver on returnable reels that are depreciable property. Form 1040ez 2012 Customers make deposits on the reels, which you refund if the reels are returned within a year. Form 1040ez 2012 If they are not returned, you keep each deposit as the agreed-upon sales price. Form 1040ez 2012 Most reels are returned within the 1-year period. Form 1040ez 2012 You keep adequate records showing depreciation and other charges to the capitalized cost of the reels. Form 1040ez 2012 Under these conditions, the reels are not property held for sale to customers in the ordinary course of your business. Form 1040ez 2012 Any gain or loss resulting from their not being returned may be capital or ordinary, depending on your section 1231 transactions. Form 1040ez 2012 Copyrights. Form 1040ez 2012    The sale of a copyright, a literary, musical, or artistic composition, or similar property is not a section 1231 transaction if your personal efforts created the property, or if you acquired the property in a way that entitled you to the basis of the previous owner whose personal efforts created it (for example, if you receive the property as a gift). Form 1040ez 2012 The sale of such property results in ordinary income and generally is reported in Part II of Form 4797. Form 1040ez 2012 Treatment as ordinary or capital. Form 1040ez 2012   To determine the treatment of section 1231 gains and losses, combine all your section 1231 gains and losses for the year. Form 1040ez 2012 If you have a net section 1231 loss, it is ordinary loss. Form 1040ez 2012 If you have a net section 1231 gain, it is ordinary income up to the amount of your nonrecaptured section 1231 losses from previous years. Form 1040ez 2012 The rest, if any, is long-term capital gain. Form 1040ez 2012 Nonrecaptured section 1231 losses. Form 1040ez 2012   Your nonrecaptured section 1231 losses are your net section 1231 losses for the previous 5 years that have not been applied against a net section 1231 gain. Form 1040ez 2012 Therefore, if in any of your five preceding tax years you had section 1231 losses, a net gain for the current year from the sale of section 1231 assets is ordinary gain to the extent of your prior losses. Form 1040ez 2012 These losses are applied against your net section 1231 gain beginning with the earliest loss in the 5-year period. Form 1040ez 2012 Example. Form 1040ez 2012 In 2013, Ben has a $2,000 net section 1231 gain. Form 1040ez 2012 To figure how much he has to report as ordinary income and long-term capital gain, he must first determine his section 1231 gains and losses from the previous 5-year period. Form 1040ez 2012 From 2008 through 2012 he had the following section 1231 gains and losses. Form 1040ez 2012 Year Amount 2008 -0- 2009 -0- 2010 ($2,500) 2011 -0- 2012 $1,800 Ben uses this information to figure how to report his net section 1231 gain for 2013 as shown below. Form 1040ez 2012 1) Net section 1231 gain (2013) $2,000 2) Net section 1231 loss (2010) ($2,500)   3) Net section 1231 gain (2012) 1,800   4) Remaining net section 1231 loss from prior 5 years ($700)   5) Gain treated as  ordinary income $700 6) Gain treated as long-term  capital gain $1,300 Depreciation Recapture If you dispose of depreciable or amortizable property at a gain, you may have to treat all or part of the gain (even if otherwise nontaxable) as ordinary income. Form 1040ez 2012 To figure any gain that must be reported as ordinary income, you must keep permanent records of the facts necessary to figure the depreciation or amortization allowed or allowable on your property. Form 1040ez 2012 This includes the date and manner of acquisition, cost or other basis, depreciation or amortization, and all other adjustments that affect basis. Form 1040ez 2012 On property you acquired in a nontaxable exchange or as a gift, your records also must indicate the following information. Form 1040ez 2012 Whether the adjusted basis was figured using depreciation or amortization you claimed on other property. Form 1040ez 2012 Whether the adjusted basis was figured using depreciation or amortization another person claimed. Form 1040ez 2012 Corporate distributions. Form 1040ez 2012   For information on property distributed by corporations, see Distributions to Shareholders in Publication 542, Corporations. Form 1040ez 2012 General asset accounts. Form 1040ez 2012   Different rules apply to dispositions of property you depreciated using a general asset account. Form 1040ez 2012 For information on these rules, see Publication 946. Form 1040ez 2012 Section 1245 Property A gain on the disposition of section 1245 property is treated as ordinary income to the extent of depreciation allowed or allowable on the property. Form 1040ez 2012 See Gain Treated as Ordinary Income, later. Form 1040ez 2012 Any gain recognized that is more than the part that is ordinary income from depreciation is a section 1231 gain. Form 1040ez 2012 See Treatment as ordinary or capital under Section 1231 Gains and Losses, earlier. Form 1040ez 2012 Section 1245 property defined. Form 1040ez 2012   Section 1245 property includes any property that is or has been subject to an allowance for depreciation or amortization and that is any of the following types of property. Form 1040ez 2012 Personal property (either tangible or intangible). Form 1040ez 2012 Other tangible property (except buildings and their structural components) used as any of the following. Form 1040ez 2012 See Buildings and structural components below. Form 1040ez 2012 An integral part of manufacturing, production, or extraction, or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services. Form 1040ez 2012 A research facility in any of the activities in (a). Form 1040ez 2012 A facility in any of the activities in (a) for the bulk storage of fungible commodities (discussed on the next page). Form 1040ez 2012 That part of real property (not included in (2)) with an adjusted basis reduced by (but not limited to) the following. Form 1040ez 2012 Amortization of certified pollution control facilities. Form 1040ez 2012 The section 179 expense deduction. Form 1040ez 2012 Deduction for clean-fuel vehicles and certain refueling property. Form 1040ez 2012 Deduction for capital costs incurred in complying with Environmental Protection Agency sulfur regulations. Form 1040ez 2012 Deduction for certain qualified refinery property. Form 1040ez 2012 Deduction for qualified energy efficient commercial building property. Form 1040ez 2012 Amortization of railroad grading and tunnel bores, if in effect before the repeal by the Revenue Reconciliation Act of 1990. Form 1040ez 2012 (Repealed by Public Law 99-514, Tax Reform Act of 1986, section 242(a). Form 1040ez 2012 ) Certain expenditures for child care facilities if in effect before repeal by Public Law 101-58, Omnibus Budget Reconciliation Act of 1990, section 11801(a)(13) (except with regards to deductions made prior to November 5, 1990). Form 1040ez 2012 Expenditures to remove architectural and transportation barriers to the handicapped and elderly. Form 1040ez 2012 Deduction for qualified tertiary injectant expenses. Form 1040ez 2012 Certain reforestation expenditures. Form 1040ez 2012 Deduction for election to expense qualified advanced mine safety equipment property. Form 1040ez 2012 Single purpose agricultural (livestock) or horticultural structures. Form 1040ez 2012 Storage facilities (except buildings and their structural components) used in distributing petroleum or any primary product of petroleum. Form 1040ez 2012 Any railroad grading or tunnel bore. Form 1040ez 2012 Buildings and structural components. Form 1040ez 2012   Section 1245 property does not include buildings and structural components. Form 1040ez 2012 The term building includes a house, barn, warehouse, or garage. Form 1040ez 2012 The term structural component includes walls, floors, windows, doors, central air conditioning systems, light fixtures, etc. Form 1040ez 2012   Do not treat a structure that is essentially machinery or equipment as a building or structural component. Form 1040ez 2012 Also, do not treat a structure that houses property used as an integral part of an activity as a building or structural component if the structure's use is so closely related to the property's use that the structure can be expected to be replaced when the property it initially houses is replaced. Form 1040ez 2012   The fact that the structure is specially designed to withstand the stress and other demands of the property and cannot be used economically for other purposes indicates it is closely related to the use of the property it houses. Form 1040ez 2012 Structures such as oil and gas storage tanks, grain storage bins, silos, fractionating towers, blast furnaces, basic oxygen furnaces, coke ovens, brick kilns, and coal tipples are not treated as buildings, but as section 1245 property. Form 1040ez 2012 Facility for bulk storage of fungible commodities. Form 1040ez 2012   This term includes oil or gas storage tanks and grain storage bins. Form 1040ez 2012 Bulk storage means the storage of a commodity in a large mass before it is used. Form 1040ez 2012 For example, if a facility is used to store oranges that have been sorted and boxed, it is not used for bulk storage. Form 1040ez 2012 To be fungible, a commodity must be such that one part may be used in place of another. Form 1040ez 2012   Stored materials that vary in composition, size, and weight are not fungible. Form 1040ez 2012 Materials are not fungible if one part cannot be used in place of another part and the materials cannot be estimated and replaced by simple reference to weight, measure, and number. Form 1040ez 2012 For example, the storage of different grades and forms of aluminum scrap is not storage of fungible commodities. Form 1040ez 2012 Gain Treated as Ordinary Income The gain treated as ordinary income on the sale, exchange, or involuntary conversion of section 1245 property, including a sale and leaseback transaction, is the lesser of the following amounts. Form 1040ez 2012 The depreciation and amortization allowed or allowable on the property. Form 1040ez 2012 The gain realized on the disposition (the amount realized from the disposition minus the adjusted basis of the property). Form 1040ez 2012 A limit on this amount for gain on like-kind exchanges and involuntary conversions is explained later. Form 1040ez 2012 For any other disposition of section 1245 property, ordinary income is the lesser of (1) earlier or the amount by which its fair market value is more than its adjusted basis. Form 1040ez 2012 See Gifts and Transfers at Death, later. Form 1040ez 2012 Use Part III of Form 4797 to figure the ordinary income part of the gain. Form 1040ez 2012 Depreciation taken on other property or taken by other taxpayers. Form 1040ez 2012   Depreciation and amortization include the amounts you claimed on the section 1245 property as well as the following depreciation and amortization amounts. Form 1040ez 2012 Amounts you claimed on property you exchanged for, or converted to, your section 1245 property in a like-kind exchange or involuntary conversion. Form 1040ez 2012 Amounts a previous owner of the section 1245 property claimed if your basis is determined with reference to that person's adjusted basis (for example, the donor's depreciation deductions on property you received as a gift). Form 1040ez 2012 Depreciation and amortization. Form 1040ez 2012   Depreciation and amortization that must be recaptured as ordinary income include (but are not limited to) the following items. Form 1040ez 2012 Ordinary depreciation deductions. Form 1040ez 2012 Any special depreciation allowance you claimed. Form 1040ez 2012 Amortization deductions for all the following costs. Form 1040ez 2012 Acquiring a lease. Form 1040ez 2012 Lessee improvements. Form 1040ez 2012 Certified pollution control facilities. Form 1040ez 2012 Certain reforestation expenses. Form 1040ez 2012 Section 197 intangibles. Form 1040ez 2012 Childcare facility expenses made before 1982, if in effect before the repeal of IRC 188. Form 1040ez 2012 Franchises, trademarks, and trade names acquired before August 11, 1993. Form 1040ez 2012 The section 179 deduction. Form 1040ez 2012 Deductions for all the following costs. Form 1040ez 2012 Removing barriers to the disabled and the elderly. Form 1040ez 2012 Tertiary injectant expenses. Form 1040ez 2012 Depreciable clean-fuel vehicles and refueling property (minus the amount of any recaptured deduction). Form 1040ez 2012 Environmental cleanup costs. Form 1040ez 2012 Certain reforestation expenses. Form 1040ez 2012 Qualified disaster expenses. Form 1040ez 2012 Any basis reduction for the investment credit (minus any basis increase for credit recapture). Form 1040ez 2012 Any basis reduction for the qualified electric vehicle credit (minus any basis increase for credit recapture). Form 1040ez 2012 Example. Form 1040ez 2012 You file your returns on a calendar year basis. Form 1040ez 2012 In February 2011, you bought and placed in service for 100% use in your business a light-duty truck (5-year property) that cost $10,000. Form 1040ez 2012 You used the half-year convention and your MACRS deductions for the truck were $2,000 in 2011 and $3,200 in 2012. Form 1040ez 2012 You did not take the section 179 deduction. Form 1040ez 2012 You sold the truck in May 2013 for $7,000. Form 1040ez 2012 The MACRS deduction in 2013, the year of sale, is $960 (½ of $1,920). Form 1040ez 2012 Figure the gain treated as ordinary income as follows. Form 1040ez 2012 1) Amount realized $7,000 2) Cost (February 2011) $10,000   3) Depreciation allowed or allowable (MACRS deductions: $2,000 + $3,200 + $960) 6,160   4) Adjusted basis (subtract line 3 from line 2) $3,840 5) Gain realized (subtract line 4 from line 1) $3,160 6) Gain treated as ordinary income (lesser of line 3 or line 5) $3,160 Depreciation on other tangible property. Form 1040ez 2012   You must take into account depreciation during periods when the property was not used as an integral part of an activity or did not constitute a research or storage facility, as described earlier under Section 1245 property. Form 1040ez 2012   For example, if depreciation deductions taken on certain storage facilities amounted to $10,000, of which $6,000 is from the periods before their use in a prescribed business activity, you must use the entire $10,000 in determining ordinary income from depreciation. Form 1040ez 2012 Depreciation allowed or allowable. Form 1040ez 2012   The greater of the depreciation allowed or allowable is generally the amount to use in figuring the part of gain to report as ordinary income. Form 1040ez 2012 However, if in prior years, you have consistently taken proper deductions under one method, the amount allowed for your prior years will not be increased even though a greater amount would have been allowed under another proper method. Form 1040ez 2012 If you did not take any deduction at all for depreciation, your adjustments to basis for depreciation allowable are figured by using the straight line method. Form 1040ez 2012   This treatment applies only when figuring what part of gain is treated as ordinary income under the rules for section 1245 depreciation recapture. Form 1040ez 2012 Multiple asset accounts. Form 1040ez 2012   In figuring ordinary income from depreciation, you can treat any number of units of section 1245 property in a single depreciation account as one item if the total ordinary income from depreciation figured by using this method is not less than it would be if depreciation on each unit were figured separately. Form 1040ez 2012 Example. Form 1040ez 2012 In one transaction you sold 50 machines, 25 trucks, and certain other property that is not section 1245 property. Form 1040ez 2012 All of the depreciation was recorded in a single depreciation account. Form 1040ez 2012 After dividing the total received among the various assets sold, you figured that each unit of section 1245 property was sold at a gain. Form 1040ez 2012 You can figure the ordinary income from depreciation as if the 50 machines and 25 trucks were one item. Form 1040ez 2012 However, if five of the trucks had been sold at a loss, only the 50 machines and 20 of the trucks could be treated as one item in determining the ordinary income from depreciation. Form 1040ez 2012 Normal retirement. Form 1040ez 2012   The normal retirement of section 1245 property in multiple asset accounts does not require recognition of gain as ordinary income from depreciation if your method of accounting for asset retirements does not require recognition of that gain. Form 1040ez 2012 Section 1250 Property Gain on the disposition of section 1250 property is treated as ordinary income to the extent of additional depreciation allowed or allowable on the property. Form 1040ez 2012 To determine the additional depreciation on section 1250 property, see Additional Depreciation, below. Form 1040ez 2012 Section 1250 property defined. Form 1040ez 2012   This includes all real property that is subject to an allowance for depreciation and that is not and never has been section 1245 property. Form 1040ez 2012 It includes a leasehold of land or section 1250 property subject to an allowance for depreciation. Form 1040ez 2012 A fee simple interest in land is not included because it is not depreciable. Form 1040ez 2012   If your section 1250 property becomes section 1245 property because you change its use, you can never again treat it as section 1250 property. Form 1040ez 2012 Additional Depreciation If you hold section 1250 property longer than 1 year, the additional depreciation is the actual depreciation adjustments that are more than the depreciation figured using the straight line method. Form 1040ez 2012 For a list of items treated as depreciation adjustments, see Depreciation and amortization under Gain Treated as Ordinary Income, earlier. Form 1040ez 2012 For the treatment of unrecaptured section 1250 gain, see Capital Gains Tax Rate, later. Form 1040ez 2012 If you hold section 1250 property for 1 year or less, all the depreciation is additional depreciation. Form 1040ez 2012 You will not have additional depreciation if any of the following conditions apply to the property disposed of. Form 1040ez 2012 You figured depreciation for the property using the straight line method or any other method that does not result in depreciation that is more than the amount figured by the straight line method; you held the property longer than 1 year; and, if the property was qualified property, you made a timely election not to claim any special depreciation allowance. Form 1040ez 2012 In addition, if the property was in a renewal community, you must not have elected to claim a commercial revitalization deduction for property placed in service before January 1, 2010. Form 1040ez 2012 The property was residential low-income rental property you held for 162/3 years or longer. Form 1040ez 2012 For low-income rental housing on which the special 60-month depreciation for rehabilitation expenses was allowed, the 162/3 years start when the rehabilitated property is placed in service. Form 1040ez 2012 You chose the alternate ACRS method for the property, which was a type of 15-, 18-, or 19-year real property covered by the section 1250 rules. Form 1040ez 2012 The property was residential rental property or nonresidential real property placed in service after 1986 (or after July 31, 1986, if the choice to use MACRS was made); you held it longer than 1 year; and, if the property was qualified property, you made a timely election not to claim any special depreciation allowance. Form 1040ez 2012 These properties are depreciated using the straight line method. Form 1040ez 2012 In addition, if the property was in a renewal community, you must not have elected to claim a commercial revitalization deduction. Form 1040ez 2012 Depreciation taken by other taxpayers or on other property. Form 1040ez 2012   Additional depreciation includes all depreciation adjustments to the basis of section 1250 property whether allowed to you or another person (as carryover basis property). Form 1040ez 2012 Example. Form 1040ez 2012 Larry Johnson gives his son section 1250 property on which he took $2,000 in depreciation deductions, of which $500 is additional depreciation. Form 1040ez 2012 Immediately after the gift, the son's adjusted basis in the property is the same as his father's and reflects the $500 additional depreciation. Form 1040ez 2012 On January 1 of the next year, after taking depreciation deductions of $1,000 on the property, of which $200 is additional depreciation, the son sells the property. Form 1040ez 2012 At the time of sale, the additional depreciation is $700 ($500 allowed the father plus $200 allowed the son). Form 1040ez 2012 Depreciation allowed or allowable. Form 1040ez 2012   The greater of depreciation allowed or allowable (to any person who held the property if the depreciation was used in figuring its adjusted basis in your hands) generally is the amount to use in figuring the part of the gain to be reported as ordinary income. Form 1040ez 2012 If you can show that the deduction allowed for any tax year was less than the amount allowable, the lesser figure will be the depreciation adjustment for figuring additional depreciation. Form 1040ez 2012 Retired or demolished property. Form 1040ez 2012   The adjustments reflected in adjusted basis generally do not include deductions for depreciation on retired or demolished parts of section 1250 property unless these deductions are reflected in the basis of replacement property that is section 1250 property. Form 1040ez 2012 Example. Form 1040ez 2012 A wing of your building is totally destroyed by fire. Form 1040ez 2012 The depreciation adjustments figured in the adjusted basis of the building after the wing is destroyed do not include any deductions for depreciation on the destroyed wing unless it is replaced and the adjustments for depreciation on it are reflected in the basis of the replacement property. Form 1040ez 2012 Figuring straight line depreciation. Form 1040ez 2012   The useful life and salvage value you would have used to figure straight line depreciation are the same as those used under the depreciation method you actually used. Form 1040ez 2012 If you did not use a useful life under the depreciation method actually used (such as with the units-of-production method) or if you did not take salvage value into account (such as with the declining balance method), the useful life or salvage value for figuring what would have been the straight line depreciation is the useful life and salvage value you would have used under the straight line method. Form 1040ez 2012   Salvage value and useful life are not used for the ACRS method of depreciation. Form 1040ez 2012 Figure straight line depreciation for ACRS real property by using its 15-, 18-, or 19-year recovery period as the property's useful life. Form 1040ez 2012   The straight line method is applied without any basis reduction for the investment credit. Form 1040ez 2012 Property held by lessee. Form 1040ez 2012   If a lessee makes a leasehold improvement, the lease period for figuring what would have been the straight line depreciation adjustments includes all renewal periods. Form 1040ez 2012 This inclusion of the renewal periods cannot extend the lease period taken into account to a period that is longer than the remaining useful life of the improvement. Form 1040ez 2012 The same rule applies to the cost of acquiring a lease. Form 1040ez 2012   The term renewal period means any period for which the lease may be renewed, extended, or continued under an option exercisable by the lessee. Form 1040ez 2012 However, the inclusion of renewal periods cannot extend the lease by more than two-thirds of the period that was the basis on which the actual depreciation adjustments were allowed. Form 1040ez 2012 Applicable Percentage The applicable percentage used to figure the ordinary income because of additional depreciation depends on whether the real property you disposed of is nonresidential real property, residential rental property, or low-income housing. Form 1040ez 2012 The percentages for these types of real property are as follows. Form 1040ez 2012 Nonresidential real property. Form 1040ez 2012   For real property that is not residential rental property, the applicable percentage for periods after 1969 is 100%. Form 1040ez 2012 For periods before 1970, the percentage is zero and no ordinary income because of additional depreciation before 1970 will result from its disposition. Form 1040ez 2012 Residential rental property. Form 1040ez 2012   For residential rental property (80% or more of the gross income is from dwelling units) other than low-income housing, the applicable percentage for periods after 1975 is 100%. Form 1040ez 2012 The percentage for periods before 1976 is zero. Form 1040ez 2012 Therefore, no ordinary income because of additional depreciation before 1976 will result from a disposition of residential rental property. Form 1040ez 2012 Low-income housing. Form 1040ez 2012    Low-income housing includes all the following types of residential rental property. Form 1040ez 2012 Federally assisted housing projects if the mortgage is insured under section 221(d)(3) or 236 of the National Housing Act or housing financed or assisted by direct loan or tax abatement under similar provisions of state or local laws. Form 1040ez 2012 Low-income rental housing for which a depreciation deduction for rehabilitation expenses was allowed. Form 1040ez 2012 Low-income rental housing held for occupancy by families or individuals eligible to receive subsidies under section 8 of the United States Housing Act of 1937, as amended, or under provisions of state or local laws that authorize similar subsidies for low-income families. Form 1040ez 2012 Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949. Form 1040ez 2012   The applicable percentage for low-income housing is 100% minus 1% for each full month the property was held over 100 full months. Form 1040ez 2012 If you have held low-income housing at least 16 years and 8 months, the percentage is zero and no ordinary income will result from its disposition. Form 1040ez 2012 Foreclosure. Form 1040ez 2012   If low-income housing is disposed of because of foreclosure or similar proceedings, the monthly applicable percentage reduction is figured as if you disposed of the property on the starting date of the proceedings. Form 1040ez 2012 Example. Form 1040ez 2012 On June 1, 2001, you acquired low-income housing property. Form 1040ez 2012 On April 3, 2012 (130 months after the property was acquired), foreclosure proceedings were started on the property and on December 3, 2013 (150 months after the property was acquired), the property was disposed of as a result of the foreclosure proceedings. Form 1040ez 2012 The property qualifies for a reduced applicable percentage because it was held more than 100 full months. Form 1040ez 2012 The applicable percentage reduction is 30% (130 months minus 100 months) rather than 50% (150 months minus 100 months) because it does not apply after April 3, 2012, the starting date of the foreclosure proceedings. Form 1040ez 2012 Therefore, 70% of the additional depreciation is treated as ordinary income. Form 1040ez 2012 Holding period. Form 1040ez 2012   The holding period used to figure the applicable percentage for low-income housing generally starts on the day after you acquired it. Form 1040ez 2012 For example, if you bought low-income housing on January 1, 1997, the holding period starts on January 2, 1997. Form 1040ez 2012 If you sold it on January 2, 2013, the holding period is exactly 192 full months. Form 1040ez 2012 The applicable percentage for additional depreciation is 8%, or 100% minus 1% for each full month the property was held over 100 full months. Form 1040ez 2012 Holding period for constructed, reconstructed, or erected property. Form 1040ez 2012   The holding period used to figure the applicable percentage for low-income housing you constructed, reconstructed, or erected starts on the first day of the month it is placed in service in a trade or business, in an activity for the production of income, or in a personal activity. Form 1040ez 2012 Property acquired by gift or received in a tax-free transfer. Form 1040ez 2012   For low-income housing you acquired by gift or in a tax-free transfer the basis of which is figured by reference to the basis in the hands of the transferor, the holding period for the applicable percentage includes the holding period of the transferor. Form 1040ez 2012   If the adjusted basis of the property in your hands just after acquiring it is more than its adjusted basis to the transferor just before transferring it, the holding period of the difference is figured as if it were a separate improvement. Form 1040ez 2012 See Low-Income Housing With Two or More Elements, next. Form 1040ez 2012 Low-Income Housing With Two or More Elements If you dispose of low-income housing property that has two or more separate elements, the applicable percentage used to figure ordinary income because of additional depreciation may be different for each element. Form 1040ez 2012 The gain to be reported as ordinary income is the sum of the ordinary income figured for each element. Form 1040ez 2012 The following are the types of separate elements. Form 1040ez 2012 A separate improvement (defined below). Form 1040ez 2012 The basic section 1250 property plus improvements not qualifying as separate improvements. Form 1040ez 2012 The units placed in service at different times before all the section 1250 property is finished. Form 1040ez 2012 For example, this happens when a taxpayer builds an apartment building of 100 units and places 30 units in service (available for renting) on January 4, 2011, 50 on July 18, 2011, and the remaining 20 on January 18, 2012. Form 1040ez 2012 As a result, the apartment house consists of three separate elements. Form 1040ez 2012 The 36-month test for separate improvements. Form 1040ez 2012   A separate improvement is any improvement (qualifying under The 1-year test, below) added to the capital account of the property, but only if the total of the improvements during the 36-month period ending on the last day of any tax year is more than the greatest of the following amounts. Form 1040ez 2012 Twenty-five percent of the adjusted basis of the property at the start of the first day of the 36-month period, or the first day of the holding period of the property, whichever is later. Form 1040ez 2012 Ten percent of the unadjusted basis (adjusted basis plus depreciation and amortization adjustments) of the property at the start of the period determined in (1). Form 1040ez 2012 $5,000. Form 1040ez 2012 The 1-year test. Form 1040ez 2012   An addition to the capital account for any tax year (including a short tax year) is treated as an improvement only if the sum of all additions for the year is more than the greater of $2,000 or 1% of the unadjusted basis of the property. Form 1040ez 2012 The unadjusted basis is figured as of the start of that tax year or the holding period of the property, whichever is later. Form 1040ez 2012 In applying the 36-month test, improvements in any one of the 3 years are omitted entirely if the total improvements in that year do not qualify under the 1-year test. Form 1040ez 2012 Example. Form 1040ez 2012 The unadjusted basis of a calendar year taxpayer's property was $300,000 on January 1 of this year. Form 1040ez 2012 During the year, the taxpayer made improvements A, B, and C, which cost $1,000, $600, and $700, respectively. Form 1040ez 2012 The sum of the improvements, $2,300, is less than 1% of the unadjusted basis ($3,000), so the improvements do not satisfy the 1-year test and are not treated as improvements for the 36-month test. Form 1040ez 2012 However, if improvement C had cost $1,500, the sum of these improvements would have been $3,100. Form 1040ez 2012 Then, it would be necessary to apply the 36-month test to figure if the improvements must be treated as separate improvements. Form 1040ez 2012 Addition to the capital account. Form 1040ez 2012   Any addition to the capital account made after the initial acquisition or completion of the property by you or any person who held the property during a period included in your holding period is to be considered when figuring the total amount of separate improvements. Form 1040ez 2012   The addition to the capital account of depreciable real property is the gross addition not reduced by amounts attributable to replaced property. Form 1040ez 2012 For example, if a roof with an adjusted basis of $20,000 is replaced by a new roof costing $50,000, the improvement is the gross addition to the account, $50,000, and not the net addition of $30,000. Form 1040ez 2012 The $20,000 adjusted basis of the old roof is no longer reflected in the basis of the property. Form 1040ez 2012 The status of an addition to the capital account is not affected by whether it is treated as a separate property for determining depreciation deductions. Form 1040ez 2012   Whether an expense is treated as an addition to the capital account may depend on the final disposition of the entire property. Form 1040ez 2012 If the expense item property and the basic property are sold in two separate transactions, the entire section 1250 property is treated as consisting of two distinct properties. Form 1040ez 2012 Unadjusted basis. Form 1040ez 2012   In figuring the unadjusted basis as of a certain date, include the actual cost of all previous additions to the capital account plus those that did not qualify as separate improvements. Form 1040ez 2012 However, the cost of components retired before that date is not included in the unadjusted basis. Form 1040ez 2012 Holding period. Form 1040ez 2012   Use the following guidelines for figuring the applicable percentage for property with two or more elements. Form 1040ez 2012 The holding period of a separate element placed in service before the entire section 1250 property is finished starts on the first day of the month that the separate element is placed in service. Form 1040ez 2012 The holding period for each separate improvement qualifying as a separate element starts on the day after the improvement is acquired or, for improvements constructed, reconstructed, or erected, the first day of the month that the improvement is placed in service. Form 1040ez 2012 The holding period for each improvement not qualifying as a separate element takes the holding period of the basic property. Form 1040ez 2012   If an improvement by itself does not meet the 1-year test (greater of $2,000 or 1% of the unadjusted basis), but it does qualify as a separate improvement that is a separate element (when grouped with other improvements made during the tax year), determine the start of its holding period as follows. Form 1040ez 2012 Use the first day of a calendar month that is closest to the middle of the tax year. Form 1040ez 2012 If there are two first days of a month that are equally close to the middle of the year, use the earlier date. Form 1040ez 2012 Figuring ordinary income attributable to each separate element. Form 1040ez 2012   Figure ordinary income attributable to each separate element as follows. Form 1040ez 2012   Step 1. Form 1040ez 2012 Divide the element's additional depreciation after 1975 by the sum of all the elements' additional depreciation after 1975 to determine the percentage used in Step 2. Form 1040ez 2012   Step 2. Form 1040ez 2012 Multiply the percentage figured in Step 1 by the lesser of the additional depreciation after 1975 for the entire property or the gain from disposition of the entire property (the difference between the fair market value or amount realized and the adjusted basis). Form 1040ez 2012   Step 3. Form 1040ez 2012 Multiply the result in Step 2 by the applicable percentage for the element. Form 1040ez 2012 Example. Form 1040ez 2012 You sold at a gain of $25,000 low-income housing property subject to the ordinary income rules of section 1250. Form 1040ez 2012 The property consisted of four elements (W, X, Y, and Z). Form 1040ez 2012 Step 1. Form 1040ez 2012 The additional depreciation for each element is: W-$12,000; X-None; Y-$6,000; and Z-$6,000. Form 1040ez 2012 The sum of the additional depreciation for all the elements is $24,000. Form 1040ez 2012 Step 2. Form 1040ez 2012 The depreciation deducted on element X was $4,000 less than it would have been under the straight line method. Form 1040ez 2012 Additional depreciation on the property as a whole is $20,000 ($24,000 − $4,000). Form 1040ez 2012 $20,000 is lower than the $25,000 gain on the sale, so $20,000 is used in Step 2. Form 1040ez 2012 Step 3. Form 1040ez 2012 The applicable percentages to be used in Step 3 for the elements are: W-68%; X-85%; Y-92%; and Z-100%. Form 1040ez 2012 From these facts, the sum of the ordinary income for each element is figured as follows. Form 1040ez 2012   Step 1 Step 2 Step 3 Ordinary Income W . Form 1040ez 2012 50 $10,000 68% $ 6,800 X -0- -0- 85% -0- Y . Form 1040ez 2012 25 5,000 92% 4,600 Z . Form 1040ez 2012 25 5,000 100% 5,000 Sum of ordinary income of separate elements $16,400 Gain Treated as Ordinary Income To find what part of the gain from the disposition of section 1250 property is treated as ordinary income, follow these steps. Form 1040ez 2012 In a sale, exchange, or involuntary conversion of the property, figure the amount realized that is more than the adjusted basis of the property. Form 1040ez 2012 In any other disposition of the property, figure the fair market value that is more than the adjusted basis. Form 1040ez 2012 Figure the additional depreciation for the periods after 1975. Form 1040ez 2012 Multiply the lesser of (1) or (2) by the applicable percentage, discussed earlier under Applicable Percentage. Form 1040ez 2012 Stop here if this is residential rental property or if (2) is equal to or more than (1). Form 1040ez 2012 This is the gain treated as ordinary income because of additional depreciation. Form 1040ez 2012 Subtract (2) from (1). Form 1040ez 2012 Figure the additional depreciation for periods after 1969 but before 1976. Form 1040ez 2012 Add the lesser of (4) or (5) to the result in (3). Form 1040ez 2012 This is the gain treated as ordinary income because of additional depreciation. Form 1040ez 2012 A limit on the amount treated as ordinary income for gain on like-kind exchanges and involuntary conversions is explained later. Form 1040ez 2012 Use Form 4797, Part III, to figure the ordinary income part of the gain. Form 1040ez 2012 Corporations. Form 1040ez 2012   Corporations, other than S corporations, must recognize an additional amount as ordinary income on the sale or other disposition of section 1250 property. Form 1040ez 2012 The additional amount treated as ordinary income is 20% of the excess of the amount that would have been ordinary income if the property were section 1245 property over the amount treated as ordinary income under section 1250. Form 1040ez 2012 Report this additional ordinary income on Form 4797, Part III, line 26 (f). Form 1040ez 2012 Installment Sales If you report the sale of property under the installment method, any depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale. Form 1040ez 2012 This applies even if no payments are received in that year. Form 1040ez 2012 If the gain is more than the depreciation recapture income, report the rest of the gain using the rules of the installment method. Form 1040ez 2012 For this purpose, include the recapture income in your installment sale basis to determine your gross profit on the installment sale. Form 1040ez 2012 If you dispose of more than one asset in a single transaction, you must figure the gain on each asset separately so that it may be properly reported. Form 1040ez 2012 To do this, allocate the selling price and the payments you receive in the year of sale to each asset. Form 1040ez 2012 Report any depreciation recapture income in the year of sale before using the installment method for any remaining gain. Form 1040ez 2012 For a detailed discussion of installment sales, see Publication 537. Form 1040ez 2012 Gifts If you make a gift of depreciable personal property or real property, you do not have to report income on the transaction. Form 1040ez 2012 However, if the person who receives it (donee) sells or otherwise disposes of the property in a disposition subject to recapture, the donee must take into account the depreciation you deducted in figuring the gain to be reported as ordinary income. Form 1040ez 2012 For low-income housing, the donee must take into account the donor's holding period to figure the applicable percentage. Form 1040ez 2012 See Applicable Percentage and its discussion Holding period under Section 1250 Property, earlier. Form 1040ez 2012 Part gift and part sale or exchange. Form 1040ez 2012   If you transfer depreciable personal property or real property for less than its fair market value in a transaction considered to be partly a gift and partly a sale or exchange and you have a gain because the amount realized is more than your adjusted basis, you must report ordinary income (up to the amount of gain) to recapture depreciation. Form 1040ez 2012 If the depreciation (additional depreciation, if section 1250 property) is more than the gain, the balance is carried over to the transferee to be taken into account on any later disposition of the property. Form 1040ez 2012 However, see Bargain sale to charity, later. Form 1040ez 2012 Example. Form 1040ez 2012 You transferred depreciable personal property to your son for $20,000. Form 1040ez 2012 When transferred, the property had an adjusted basis to you of $10,000 and a fair market value of $40,000. Form 1040ez 2012 You took depreciation of $30,000. Form 1040ez 2012 You are considered to have made a gift of $20,000, the difference between the $40,000 fair market value and the $20,000 sale price to your son. Form 1040ez 2012 You have a taxable gain on the transfer of $10,000 ($20,000 sale price minus $10,000 adjusted basis) that must be reported as ordinary income from depreciation. Form 1040ez 2012 You report $10,000 of your $30,000 depreciation as ordinary income on the transfer of the property, so the remaining $20,000 depreciation is carried over to your son for him to take into account on any later disposition of the property. Form 1040ez 2012 Gift to charitable organization. Form 1040ez 2012   If you give property to a charitable organization, you figure your deduction for your charitable contribution by reducing the fair market value of the property by the ordinary income and short-term capital gain that would have resulted had you sold the property at its fair market value at the time of the contribution. Form 1040ez 2012 Thus, your deduction for depreciable real or personal property given to a charitable organization does not include the potential ordinary gain from depreciation. Form 1040ez 2012   You also may have to reduce the fair market value of the contributed property by the long-term capital gain (including any section 1231 gain) that would have resulted had the property been sold. Form 1040ez 2012 For more information, see Giving Property That Has Increased in Value in Publication 526. Form 1040ez 2012 Bargain sale to charity. Form 1040ez 2012   If you transfer section 1245 or section 1250 property to a charitable organization for less than its fair market value and a deduction for the contribution part of the transfer is allowable, your ordinary income from depreciation is figured under different rules. Form 1040ez 2012 First, figure the ordinary income as if you had sold the property at its fair market value. Form 1040ez 2012 Then, allocate that amount between the sale and the contribution parts of the transfer in the same proportion that you allocated your adjusted basis in the property to figure your gain. Form 1040ez 2012 See Bargain Sale under Gain or Loss From Sales and Exchanges in chapter 1. Form 1040ez 2012 Report as ordinary income the lesser of the ordinary income allocated to the sale or your gain from the sale. Form 1040ez 2012 Example. Form 1040ez 2012 You sold section 1245 property in a bargain sale to a charitable organization and are allowed a deduction for your contribution. Form 1040ez 2012 Your gain on the sale was $1,200, figured by allocating 20% of your adjusted basis in the property to the part sold. Form 1040ez 2012 If you had sold the property at its fair market value, your ordinary income would have been $5,000. Form 1040ez 2012 Your ordinary income is $1,000 ($5,000 × 20%) and your section 1231 gain is $200 ($1,200 – $1,000). Form 1040ez 2012 Transfers at Death When a taxpayer dies, no gain is reported on depreciable personal property or real property transferred to his or her estate or beneficiary. Form 1040ez 2012 For information on the tax liability of a decedent, see Publication 559, Survivors, Executors, and Administrators. Form 1040ez 2012 However, if the decedent disposed of the property while alive and, because of his or her method of accounting or for any other reason, the gain from the disposition is reportable by the estate or beneficiary, it must be reported in the same way the decedent would have had to report it if he or she were still alive. Form 1040ez 2012 Ordinary income due to depreciation must be reported on a transfer from an executor, administrator, or trustee to an heir, beneficiary, or other individual if the transfer is a sale or exchange on which gain is realized. Form 1040ez 2012 Example 1. Form 1040ez 2012 Janet Smith owned depreciable property that, upon her death, was inherited by her son. Form 1040ez 2012 No ordinary income from depreciation is reportable on the transfer, even though the value used for estate tax purposes is more than the adjusted basis of the property to Janet when she died. Form 1040ez 2012 However, if she sold the property before her death and realized a gain and if, because of her method of accounting, the proceeds from the sale are income in respect of a decedent reportable by her son, he must report ordinary income from depreciation. Form 1040ez 2012 Example 2. Form 1040ez 2012 The trustee of a trust created by a will transfers depreciable property to a beneficiary in satisfaction of a specific bequest of $10,000. Form 1040ez 2012 If the property had a value of $9,000 at the date used for estate tax valuation purposes, the $1,000 increase in value to the date of distribution is a gain realized by the trust. Form 1040ez 2012 Ordinary income from depreciation must be reported by the trust on the transfer. Form 1040ez 2012 Like-Kind Exchanges and Involuntary Conversions A like-kind exchange of your depreciable property or an involuntary conversion of the property into similar or related property will not result in your having to report ordinary income from depreciation unless money or property other than like-kind, similar, or related property is also received in the transaction. Form 1040ez 2012 For information on like-kind exchanges and involuntary conversions, see chapter 1. Form 1040ez 2012 Depreciable personal property. Form 1040ez 2012   If you have a gain from either a like-kind exchange or an involuntary conversion of your depreciable personal property, the amount to be reported as ordinary income from depreciation is the amount figured under the rules explained earlier (see Section 1245 Property), limited to the sum of the following amounts. Form 1040ez 2012 The gain that must be included in income under the rules for like-kind exchanges or involuntary conversions. Form 1040ez 2012 The fair market value of the like-kind, similar, or related property other than depreciable personal property acquired in the transaction. Form 1040ez 2012 Example 1. Form 1040ez 2012 You bought a new machine for $4,300 cash plus your old machine for which you were allowed a $1,360 trade-in. Form 1040ez 2012 The old machine cost you $5,000 two years ago. Form 1040ez 2012 You took depreciation deductions of $3,950. Form 1040ez 2012 Even though you deducted depreciation of $3,950, the $310 gain ($1,360 trade-in allowance minus $1,050 adjusted basis) is not reported because it is postponed under the rules for like-kind exchanges and you received only depreciable personal property in the exchange. Form 1040ez 2012 Example 2. Form 1040ez 2012 You bought office machinery for $1,500 two years ago and deducted $780 depreciation. Form 1040ez 2012 This year a fire destroyed the machinery and you received $1,200 from your fire insurance, realizing a gain of $480 ($1,200 − $720 adjusted basis). Form 1040ez 2012 You choose to postpone reporting gain, but replacement machinery cost you only $1,000. Form 1040ez 2012 Your taxable gain under the rules for involuntary conversions is limited to the remaining $200 insurance payment. Form 1040ez 2012 All your replacement property is depreciable personal property, so your ordinary income from depreciation is limited to $200. Form 1040ez 2012 Example 3. Form 1040ez 2012 A fire destroyed office machinery you bought for $116,000. Form 1040ez 2012 The depreciation deductions were $91,640 and the machinery had an adjusted basis of $24,360. Form 1040ez 2012 You received a $117,000 insurance payment, realizing a gain of $92,640. Form 1040ez 2012 You immediately spent $105,000 of the insurance payment for replacement machinery and $9,000 for stock that qualifies as replacement property and you choose to postpone reporting the gain. Form 1040ez 2012 $114,000 of the $117,000 insurance payment was used to buy replacement property, so the gain that must be included in income under the rules for involuntary conversions is the part not spent, or $3,000. Form 1040ez 2012 The part of the insurance payment ($9,000) used to buy the nondepreciable property (the stock) also must be included in figuring the gain from depreciation. Form 1040ez 2012 The amount you must report as ordinary income on the transaction is $12,000, figured as follows. Form 1040ez 2012 1) Gain realized on the transaction ($92,640) limited to depreciation ($91,640) $91,640 2) Gain includible in income (amount not spent) 3,000     Plus: fair market value of property other than depreciable personal property (the stock) 9,000 12,000 Amount reportable as ordinary income (lesser of (1) or (2)) $12,000   If, instead of buying $9,000 in stock, you bought $9,000 worth of depreciable personal property similar or related in use to the destroyed property, you would only report $3,000 as ordinary income. Form 1040ez 2012 Depreciable real property. Form 1040ez 2012   If you have a gain from either a like-kind exchange or involuntary conversion of your depreciable real property, ordinary income from additional depreciation is figured under the rules explained earlier (see Section 1250 Property), limited to the greater of the following amounts. Form 1040ez 2012 The gain that must be reported under the rules for like-kind exchanges or involuntary conversions plus the fair market value of stock bought as replacement property in acquiring control of a corporation. Form 1040ez 2012 The gain you would have had to report as ordinary income from additional depreciation had the transaction been a cash sale minus the cost (or fair market value in an exchange) of the depreciable real property acquired. Form 1040ez 2012   The ordinary income not reported for the year of the disposition is carried over to the depreciable real property acquired in the like-kind exchange or involuntary conversion as additional depreciation from the property disposed of. Form 1040ez 2012 Further, to figure the applicable percentage of additional depreciation to be treated as ordinary income, the holding period starts over for the new property. Form 1040ez 2012 Example. Form 1040ez 2012 The state paid you $116,000 when it condemned your depreciable real property for public use. Form 1040ez 2012 You bought other real property similar in use to the property condemned for $110,000 ($15,000 for depreciable real property and $95,000 for land). Form 1040ez 2012 You also bought stock for $5,000 to get control of a corporation owning property similar in use to the property condemned. Form 1040ez 2012 You choose to postpone reporting the gain. Form 1040ez 2012 If the transaction had been a sale for cash only, under the rules described earlier, $20,000 would have been reportable as ordinary income because of additional depreciation. Form 1040ez 2012 The ordinary income to be reported is $6,000, which is the greater of the following amounts. Form 1040ez 2012 The gain that must be reported under the rules for involuntary conversions, $1,000 ($116,000 − $115,000) plus the fair market value of stock bought as qualified replacement property, $5,000, for a total of $6,000. Form 1040ez 2012 The gain you would have had to report as ordinary income from additional depreciation ($20,000) had this transaction been a cash sale minus the cost of the depreciable real property bought ($15,000), or $5,000. Form 1040ez 2012   The ordinary income not reported, $14,000 ($20,000 − $6,000), is carried over to the depreciable real property you bought as additional depreciation. Form 1040ez 2012 Basis of property acquired. Form 1040ez 2012   If the ordinary income you have to report because of additional depreciation is limited, the total basis of the property you acquired is its fair market value (its cost, if bought to replace property involuntarily converted into money) minus the gain postponed. Form 1040ez 2012   If you acquired more than one item of property, allocate the total basis among the properties in proportion to their fair market value (their cost, in an involuntary conversion into money). Form 1040ez 2012 However, if you acquired both depreciable real property and other property, allocate the total basis as follows. Form 1040ez 2012 Subtract the ordinary income because of additional depreciation that you do not have to report from the fair market value (or cost) of the depreciable real property acquired. Form 1040ez 2012 Add the fair market value (or cost) of the other property acquired to the result in (1). Form 1040ez 2012 Divide the result in (1) by the result in (2). Form 1040ez 2012 Multiply the total basis by the result in (3). Form 1040ez 2012 This is the basis of the depreciable real property acquired. Form 1040ez 2012 If you acquired more than one item of depreciable real property, allocate this basis amount among the properties in proportion to their fair market value (or cost). Form 1040ez 2012 Subtract the result in (4) from the total basis. Form 1040ez 2012 This is the basis of the other property acquired. Form 1040ez 2012 If you acquired more than one item of other property, allocate this basis amount among the properties in proportion to their fair market value (or cost). Form 1040ez 2012 Example 1. Form 1040ez 2012 In 1988, low-income housing property that you acquired and placed in service in 1983 was destroyed by fire and you received a $90,000 insurance payment. Form 1040ez 2012 The property's adjusted basis was $38,400, with additional depreciation of $14,932. Form 1040ez 2012 On December 1, 1988, you used the insurance payment to acquire and place in service replacement low-income housing property. Form 1040ez 2012 Your realized gain from the involuntary conversion was $51,600 ($90,000 − $38,400). Form 1040ez 2012 You chose to postpone reporting the gain under the involuntary conversion rules. Form 1040ez 2012 Under the rules for depreciation recapture on real property, the ordinary gain was $14,932, but you did not have to report any of it because of the limit for involuntary conversions. Form 1040ez 2012 The basis of the replacement low-income housing property was its $90,000 cost minus the $51,600 gain you postponed, or $38,400. Form 1040ez 2012 The $14,932 ordinary gain you did not report is treated as additional depreciation on the replacement property. Form 1040ez 2012 If you sold the property in 2013, your holding period for figuring the applicable percentage of additional depreciation to report as ordinary income will have begun December 2, 1988, the day after you acquired the property. Form 1040ez 2012 Example 2. Form 1040ez 2012 John Adams received a $90,000 fire insurance payment for depreciable real property (office building) with an adjusted basis of $30,000. Form 1040ez 2012 He uses the whole payment to buy property similar in use, spending $42,000 for depreciable real property and $48,000 for land. Form 1040ez 2012 He chooses to postpone reporting the $60,000 gain realized on the involuntary conversion. Form 1040ez 2012 Of this gain, $10,000 is ordinary income from additional depreciation but is not reported because of the limit for involuntary conversions of depreciable real property. Form 1040ez 2012 The basis of the property bought is $30,000 ($90,000 − $60,000), allocated as follows. Form 1040ez 2012 The $42,000 cost of depreciable real property minus $10,000 ordinary income not reported is $32,000. Form 1040ez 2012 The $48,000 cost of other property (land) plus the $32,000 figured in (1) is $80,000. Form 1040ez 2012 The $32,000 figured in (1) divided by the $80,000 figured in (2) is 0. Form 1040ez 2012 4. Form 1040ez 2012 The basis of the depreciable real property is $12,000. Form 1040ez 2012 This is the $30,000 total basis multiplied by the 0. Form 1040ez 2012 4 figured in (3). Form 1040ez 2012 The basis of the other property (land) is $18,000. Form 1040ez 2012 This is the $30,000 total basis minus the $12,000 figured in (4). Form 1040ez 2012 The ordinary income that is not reported ($10,000) is carried over as additional depreciation to the depreciable real property that was bought and may be taxed as ordinary income on a later disposition. Form 1040ez 2012 Multiple Properties If you dispose of depreciable property and other property in one transaction and realize a gain, you must allocate the amount realized between the two types of property in proportion to their respective fair market values to figure the part of your gain to be reported as ordinary income from depreciation. Form 1040ez 2012 Different rules may apply to the allocation of the amount realized on the sale of a business that includes a group of assets. Form 1040ez 2012 See chapter 2. Form 1040ez 2012 In general, if a buyer and seller have adverse interests as to the allocation of the amount realized between the depreciable property and other property, any arm's length agreement between them will establish the allocation. Form 1040ez 2012 In the absence of an agreement, the allocation should be made by taking into account the appropriate facts and circumstances. Form 1040ez 2012 These include, but are not limited to, a comparison between the depreciable property and all the other property being disposed of in the transaction. Form 1040ez 2012 The comparison should take into account all the following facts and circumstances. Form 1040ez 2012 The original cost and reproduction cost of construction, erection, or production. Form 1040ez 2012 The remaining economic useful life. Form 1040ez 2012 The state of obsolescence. Form 1040ez 2012 The anticipated expenditures required to maintain, renovate, or modernize the properties. Form 1040ez 2012 Like-kind exchanges and involuntary conversions. Form 1040ez 2012   If you dispose of and acquire depreciable personal property and other property (other than depreciable real property) in a like-kind exchange or involuntary conversion, the amount realized is allocated in the following way. Form 1040ez 2012 The amount allocated to the depreciable personal property disposed of is treated as consisting of, first, the fair market value of the depreciable personal property acquired and, second (to the extent of any remaining balance), the fair market value of the other property acquired. Form 1040ez 2012 The amount allocated to the other property disposed of is treated as consisting of the fair market value of all property acquired that has not already been taken into account. Form 1040ez 2012   If you dispose of and acquire depreciable real property and other property in a like-kind exchange or involuntary conversion, the amount realized is allocated in the following way. Form 1040ez 2012 The amount allocated to each of the three types of property (depreciable real property, depreciable personal property, or other property) disposed of is treated as consisting of, first, the fair market value of that type of property acquired and, second (to the extent of any remaining balance), any excess fair market value of the other types of property acquired. Form 1040ez 2012 If the excess fair market value is more than the remaining balance of the amount realized and is from both of the other two types of property, you can apply the unallocated amount in any manner you choose. Form 1040ez 2012 Example. Form 1040ez 2012 A fire destroyed your property with a total fair market value of $50,000. Form 1040ez 2012 It consisted of machinery worth $30,000 and nondepreciable property worth $20,000. Form 1040ez 2012 You received an insurance payment of $40,000 and immediately used it with $10,000 of your own funds (for a total of $50,000) to buy machinery with a fair market value of $15,000 and nondepreciable property with a fair market value of $35,000. Form 1040ez 2012 The adjusted basis of the destroyed machinery was $5,000 and your depreciation on it was $35,000. Form 1040ez 2012 You choose to postpone reporting your gain from the involuntary conversion. Form 1040ez 2012 You must report $9,000 as ordinary income from depreciation arising from this transaction, figured as follows. Form 1040ez 2012 The $40,000 insurance payment must be allocated between the machinery and the other property destroyed in proportion to the fair market value of each. Form 1040ez 2012 The amount allocated to the machinery is 30,000/50,000 × $40,000, or $24,000. Form 1040ez 2012 The amount allocated to the other property is 20,000/50,000 × $40,000, or $16,000. Form 1040ez 2012 Your gain on the involuntary conversion of the machinery is $24,000 minus $5,000 adjusted basis, or $19,000. Form 1040ez 2012 The $24,000 allocated to the machinery disposed of is treated as consisting of the $15,000 fair market value of the replacement machinery bought and $9,000 of the fair market value of other property bought in the transaction. Form 1040ez 2012 All $16,000 allocated to the other property disposed of is treated as consisting of the fair market value of the other property that was bought. Form 1040ez 2012 Your potential ordinary income from depreciation is $19,000, the gain on the machinery, because it is less than the $35,000 depreciation. Form 1040ez 2012 However, the amount you must report as ordinary income is limited to the $9,000 included in the amount realized for the machinery that represents the fair market value of property other than the depreciable property you bought. Form 1040ez 2012 Prev  Up  Next   Home   More Online Publications
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ARRA and HIRE Act Bond Guidance

IRS Invites Public to Comment on TEDB Allocation Process and Also Announces a 3-Month Extension to Issue Unexpired TEDB Allocations
The IRS seeks public comment on the reallocation of available amounts of volume cap for Tribal Economic Development Bonds in order to facilitate issuance by Indian tribal governments. Additionally, Indian tribal governments with unexpired volume cap allocations may request a three-month optional extension.

The American Recovery and Reinvestment Act of 2009: Information Center
Update on the new economic stimulus legislation.

IRS Releases Guidance on ARRA Bond Provisions
The latest guidance, forms and information on bond provisions enacted by the American Recovery & Reinvestment Act of 2009.

IRS Announces Tribal Economic Development Bonds Allocations
The IRS has announced the allocation, in two tranches, of $2 billion of volume cap to tribal governments under the new TEDBs program.

IRS Releases Guidance on HIRE Bond Provisions
The Service announced that Notice 2010-35 has been released. The Notice provides guidance for the new Federal refundable tax credit subsidy option (direct pay subsidy option) allowed by the enactment of the Hiring Incentives to Restore Employment Act (HIRE Act) on March 18, 2010. The Notice is also intended to quickly enable issuers to begin issuing these bonds for qualified purposes.

The Service Announces the Release of New and Revised Tax Exempt Bond Forms
The IRS announced that new Form 8038-TC and revised Forms 8038-CP, 8038, and 8038-G have been issued.

Application of the Treasury Offset Program to Payments to Issuers of Direct Pay Bonds
Information on the application of the Treasury Offset Program (TOPS) as it relates to subsidy payments made to issuers of direct pay bonds.

Tax Exempt Bonds Compliance Check Questionnaire on Direct Pay Bonds (February 2010)
The Tax Exempt Bonds office of the Tax Exempt and Government Entities division of the IRS conducted a compliance check questionnaire to evaluate the issuance and record retention policies, procedures and practices of issuers of direct pay build America bonds.

TIGTA Audit Report Finds BABs Payment Processing is Timely and Accurate
TIGTA finds initial build America bond subsidy payments were processed accurately and timely.

TIGTA Finds that Compliance Check Questionnaires by TEB were Appropriate
The compliance check questionnaires issued by the TEB office were appropriate for identifying indications of a high risk of potential noncompliance for BABs and were not examinations.

Page Last Reviewed or Updated: 26-Mar-2014

The Form 1040ez 2012

Form 1040ez 2012 3. Form 1040ez 2012   Personal Exemptions and Dependents Table of Contents What's New Introduction Useful Items - You may want to see: ExemptionsPersonal Exemptions Exemptions for Dependents Qualifying Child Qualifying Relative Phaseout of Exemptions Social Security Numbers for DependentsBorn and died in 2013. Form 1040ez 2012 Taxpayer identification numbers for aliens. Form 1040ez 2012 Taxpayer identification numbers for adoptees. Form 1040ez 2012 What's New Exemption amount. Form 1040ez 2012  The amount you can deduct for each exemption has increased. Form 1040ez 2012 It was $3,800 for 2012. Form 1040ez 2012 It is $3,900 for 2013. Form 1040ez 2012 Exemption phaseout. Form 1040ez 2012  You lose at least part of the benefit of your exemptions if your adjusted gross income is more than a certain amount. Form 1040ez 2012 For 2013, this amount is $150,000 for a married individual filing a separate return; $250,000 for a single individual; $275,000 for a head of household; and $300,000 for married individuals filing jointly or a qualifying widow(er). Form 1040ez 2012 See Phaseout of Exemptions , later. Form 1040ez 2012 Introduction This chapter discusses the following topics. Form 1040ez 2012 Personal exemptions — You generally can take one for yourself and, if you are married, one for your spouse. Form 1040ez 2012 Exemptions for dependents — You generally can take an exemption for each of your dependents. Form 1040ez 2012 A dependent is your qualifying child or qualifying relative. Form 1040ez 2012 If you are entitled to claim an exemption for a dependent, that dependent cannot claim a personal exemption on his or her own tax return. Form 1040ez 2012 Phaseout of exemptions — Your deduction is reduced if your adjusted gross income is more than a certain amount. Form 1040ez 2012 Social security number (SSN) requirement for dependents — You must list the SSN of any dependent for whom you claim an exemption. Form 1040ez 2012 Deduction. Form 1040ez 2012   Exemptions reduce your taxable income. Form 1040ez 2012 You can deduct $3,900 for each exemption you claim in 2013. Form 1040ez 2012 But you may lose at least part of the dollar amount of your exemptions if your adjusted gross income is more than a certain amount. Form 1040ez 2012 See Phaseout of Exemptions , later. Form 1040ez 2012 How to claim exemptions. Form 1040ez 2012    How you claim an exemption on your tax return depends on which form you file. Form 1040ez 2012    If you file Form 1040EZ, the exemption amount is combined with the standard deduction amount and entered on line 5. Form 1040ez 2012    If you file Form 1040A, complete lines 6a through 6d. Form 1040ez 2012 The total number of exemptions you can claim is the total in the box on line 6d. Form 1040ez 2012 Also complete line 26. Form 1040ez 2012   If you file Form 1040, complete lines 6a through 6d. Form 1040ez 2012 The total number of exemptions you can claim is the total in the box on line 6d. Form 1040ez 2012 Also complete line 42. Form 1040ez 2012 Useful Items - You may want to see: Publication 501 Exemptions, Standard Deduction, and Filing Information Form (and Instructions) 2120 Multiple Support Declaration 8332 Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent Exemptions There are two types of exemptions you may be able to take: Personal exemptions for yourself and your spouse, and Exemptions for dependents (dependency exemptions). Form 1040ez 2012 While each is worth the same amount ($3,900 for 2013), different rules apply to each type. Form 1040ez 2012 Personal Exemptions You are generally allowed one exemption for yourself. Form 1040ez 2012 If you are married, you may be allowed one exemption for your spouse. Form 1040ez 2012 These are called personal exemptions. Form 1040ez 2012 Your Own Exemption You can take one exemption for yourself unless you can be claimed as a dependent by another taxpayer. Form 1040ez 2012 If another taxpayer is entitled to claim you as a dependent, you cannot take an exemption for yourself even if the other taxpayer does not actually claim you as a dependent. Form 1040ez 2012 Your Spouse's Exemption Your spouse is never considered your dependent. Form 1040ez 2012 Joint return. Form 1040ez 2012   On a joint return you can claim one exemption for yourself and one for your spouse. Form 1040ez 2012 Separate return. Form 1040ez 2012   If you file a separate return, you can claim an exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another taxpayer. Form 1040ez 2012 This is true even if the other taxpayer does not actually claim your spouse as a dependent. Form 1040ez 2012 You can claim an exemption for your spouse even if he or she is a nonresident alien; in that case, your spouse must have no gross income for U. Form 1040ez 2012 S. Form 1040ez 2012 tax purposes, must not be filing a return, and must not be the dependent of another taxpayer. Form 1040ez 2012 Death of spouse. Form 1040ez 2012   If your spouse died during the year and you file a joint return for yourself and your deceased spouse, you generally can claim your spouse's exemption under the rules just explained in Joint return . Form 1040ez 2012 If you file a separate return for the year, you may be able to claim your spouse's exemption under the rules just described in Separate return . Form 1040ez 2012   If you remarried during the year, you cannot take an exemption for your deceased spouse. Form 1040ez 2012   If you are a surviving spouse without gross income and you remarry in the year your spouse died, you can be claimed as an exemption on both the final separate return of your deceased spouse and the separate return of your new spouse for that year. Form 1040ez 2012 If you file a joint return with your new spouse, you can be claimed as an exemption only on that return. Form 1040ez 2012 Divorced or separated spouse. Form 1040ez 2012   If you obtained a final decree of divorce or separate maintenance during the year, you cannot take your former spouse's exemption. Form 1040ez 2012 This rule applies even if you provided all of your former spouse's support. Form 1040ez 2012 Exemptions for Dependents You are allowed one exemption for each person you can claim as a dependent. Form 1040ez 2012 You can claim an exemption for a dependent even if your dependent files a return. Form 1040ez 2012 The term “dependent” means: A qualifying child, or A qualifying relative. Form 1040ez 2012 The terms “ qualifying child ” and “ qualifying relative ” are defined later. Form 1040ez 2012 You can claim an exemption for a qualifying child or qualifying relative only if these three tests are met. Form 1040ez 2012 Dependent taxpayer test. Form 1040ez 2012 Joint return test. Form 1040ez 2012 Citizen or resident test. Form 1040ez 2012 These three tests are explained in detail later. Form 1040ez 2012 All the requirements for claiming an exemption for a dependent are summarized in Table 3-1. Form 1040ez 2012 Table 3-1. Form 1040ez 2012 Overview of the Rules for Claiming an Exemption for a Dependent Caution. Form 1040ez 2012 This table is only an overview of the rules. Form 1040ez 2012 For details, see the rest of this chapter. Form 1040ez 2012 You cannot claim any dependents if you (or your spouse, if filing jointly) could be claimed as a dependent by another taxpayer. Form 1040ez 2012   You cannot claim a married person who files a joint return as a dependent unless that joint return is filed only to claim a refund of withheld income tax or estimated tax paid. Form 1040ez 2012   You cannot claim a person as a dependent unless that person is a U. Form 1040ez 2012 S. Form 1040ez 2012 citizen, U. Form 1040ez 2012 S. Form 1040ez 2012 resident alien, U. Form 1040ez 2012 S. Form 1040ez 2012 national, or a resident of Canada or Mexico. Form 1040ez 2012 1  You cannot claim a person as a dependent unless that person is your qualifying child or qualifying relative. Form 1040ez 2012   Tests To Be a Qualifying Child   Tests To Be a Qualifying Relative The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. Form 1040ez 2012   The child must be (a) under age 19 at the end of the year and younger than you (or your spouse, if filing jointly), (b) under age 24 at the end of the year, a student, and younger than you (or your spouse, if filing jointly), or (c) any age if permanently and totally disabled. Form 1040ez 2012   The child must have lived with you for more than half of the year. Form 1040ez 2012 2  The child must not have provided more than half of his or her own support for the year. Form 1040ez 2012   The child is not filing a joint return for the year (unless that return is filed only to get a refund of income tax withheld or estimated tax paid). Form 1040ez 2012  If the child meets the rules to be a qualifying child of more than one person, only one person can actually treat the child as a qualifying child. Form 1040ez 2012 See the Special Rule for Qualifying Child of More Than One Person to find out which person is the person entitled to claim the child as a qualifying child. Form 1040ez 2012   The person cannot be your qualifying child or the qualifying child of any other taxpayer. Form 1040ez 2012   The person either (a) must be related to you in one of the ways listed under Relatives who do not have to live with you , or (b) must live with you all year as a member of your household2 (and your relationship must not violate local law). Form 1040ez 2012   The person's gross income for the year must be less than $3,900. Form 1040ez 2012 3  You must provide more than half of the person's total support for the year. Form 1040ez 2012 4  1There is an exception for certain adopted children. Form 1040ez 2012 2There are exceptions for temporary absences, children who were born or died during the year, children of divorced or separated parents (or parents who live apart), and kidnapped children. Form 1040ez 2012 3There is an exception if the person is disabled and has income from a sheltered workshop. Form 1040ez 2012 4There are exceptions for multiple support agreements, children of divorced or separated parents (or parents who live apart), and kidnapped children. Form 1040ez 2012 Dependent not allowed a personal exemption. Form 1040ez 2012 If you can claim an exemption for your dependent, the dependent cannot claim his or her own personal exemption on his or her own tax return. Form 1040ez 2012 This is true even if you do not claim the dependent's exemption on your return. Form 1040ez 2012 It is also true if the dependent's exemption on your return is reduced or eliminated under the phaseout rule described under Phaseout of Exemptions, later. Form 1040ez 2012 Housekeepers, maids, or servants. Form 1040ez 2012   If these people work for you, you cannot claim exemptions for them. Form 1040ez 2012 Child tax credit. Form 1040ez 2012   You may be entitled to a child tax credit for each qualifying child who was under age 17 at the end of the year if you claimed an exemption for that child. Form 1040ez 2012 For more information, see chapter 34. Form 1040ez 2012 Dependent Taxpayer Test If you can be claimed as a dependent by another person, you cannot claim anyone else as a dependent. Form 1040ez 2012 Even if you have a qualifying child or qualifying relative, you cannot claim that person as a dependent. Form 1040ez 2012 If you are filing a joint return and your spouse can be claimed as a dependent by someone else, you and your spouse cannot claim any dependents on your joint return. Form 1040ez 2012 Joint Return Test You generally cannot claim a married person as a dependent if he or she files a joint return. Form 1040ez 2012 Exception. Form 1040ez 2012   You can claim an exemption for a person who files a joint return if that person and his or her spouse file the joint return only to claim a refund of income tax withheld or estimated tax paid. Form 1040ez 2012 Example 1—child files joint return. Form 1040ez 2012 You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. Form 1040ez 2012 He earned $25,000 for the year. Form 1040ez 2012 The couple files a joint return. Form 1040ez 2012 You cannot take an exemption for your daughter. Form 1040ez 2012 Example 2—child files joint return only as claim for refund of withheld tax. Form 1040ez 2012 Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. Form 1040ez 2012 Neither is required to file a tax return. Form 1040ez 2012 They do not have a child. Form 1040ez 2012 Taxes were taken out of their pay so they filed a joint return only to get a refund of the withheld taxes. Form 1040ez 2012 The exception to the joint return test applies, so you are not disqualified from claiming an exemption for each of them just because they file a joint return. Form 1040ez 2012 You can claim exemptions for each of them if all the other tests to do so are met. Form 1040ez 2012 Example 3—child files joint return to claim American opportunity credit. Form 1040ez 2012 The facts are the same as in Example 2 except no taxes were taken out of your son's pay. Form 1040ez 2012 He and his wife are not required to file a tax return. Form 1040ez 2012 However, they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. Form 1040ez 2012 Because claiming the American opportunity credit is their reason for filing the return, they are not filing it only to get a refund of income tax withheld or estimated tax paid. Form 1040ez 2012 The exception to the joint return test does not apply, so you cannot claim an exemption for either of them. Form 1040ez 2012 Citizen or Resident Test You cannot claim a person as a dependent unless that person is a U. Form 1040ez 2012 S. Form 1040ez 2012 citizen, U. Form 1040ez 2012 S. Form 1040ez 2012 resident alien, U. Form 1040ez 2012 S. Form 1040ez 2012 national, or a resident of Canada or Mexico. Form 1040ez 2012 However, there is an exception for certain adopted children, as explained next. Form 1040ez 2012 Exception for adopted child. Form 1040ez 2012   If you are a U. Form 1040ez 2012 S. Form 1040ez 2012 citizen or U. Form 1040ez 2012 S. Form 1040ez 2012 national who has legally adopted a child who is not a U. Form 1040ez 2012 S. Form 1040ez 2012 citizen, U. Form 1040ez 2012 S. Form 1040ez 2012 resident alien, or U. Form 1040ez 2012 S. Form 1040ez 2012 national, this test is met if the child lived with you as a member of your household all year. Form 1040ez 2012 This exception also applies if the child was lawfully placed with you for legal adoption. Form 1040ez 2012 Child's place of residence. Form 1040ez 2012   Children usually are citizens or residents of the country of their parents. Form 1040ez 2012   If you were a U. Form 1040ez 2012 S. Form 1040ez 2012 citizen when your child was born, the child may be a U. Form 1040ez 2012 S. Form 1040ez 2012 citizen and meet this test even if the other parent was a nonresident alien and the child was born in a foreign country. Form 1040ez 2012 Foreign students' place of residence. Form 1040ez 2012   Foreign students brought to this country under a qualified international education exchange program and placed in American homes for a temporary period generally are not U. Form 1040ez 2012 S. Form 1040ez 2012 residents and do not meet this test. Form 1040ez 2012 You cannot claim an exemption for them. Form 1040ez 2012 However, if you provided a home for a foreign student, you may be able to take a charitable contribution deduction. Form 1040ez 2012 See Expenses Paid for Student Living With You in chapter 24. Form 1040ez 2012 U. Form 1040ez 2012 S. Form 1040ez 2012 national. Form 1040ez 2012   A U. Form 1040ez 2012 S. Form 1040ez 2012 national is an individual who, although not a U. Form 1040ez 2012 S. Form 1040ez 2012 citizen, owes his or her allegiance to the United States. Form 1040ez 2012 U. Form 1040ez 2012 S. Form 1040ez 2012 nationals include American Samoans and Northern Mariana Islanders who chose to become U. Form 1040ez 2012 S. Form 1040ez 2012 nationals instead of U. Form 1040ez 2012 S. Form 1040ez 2012 citizens. Form 1040ez 2012 Qualifying Child Five tests must be met for a child to be your qualifying child. Form 1040ez 2012 The five tests are: Relationship, Age, Residency, Support, and Joint return. Form 1040ez 2012 These tests are explained next. Form 1040ez 2012 If a child meets the five tests to be the qualifying child of more than one person, a special rule applies to determine which person can actually treat the child as a qualifying child. Form 1040ez 2012 See Special Rule for Qualifying Child of More Than One Person, later. Form 1040ez 2012 Relationship Test To meet this test, a child must be: Your son, daughter, stepchild, foster child, or a descendant (for example, your grandchild) of any of them, or Your brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant (for example, your niece or nephew) of any of them. Form 1040ez 2012 Adopted child. Form 1040ez 2012   An adopted child is always treated as your own child. Form 1040ez 2012 The term “adopted child” includes a child who was lawfully placed with you for legal adoption. Form 1040ez 2012 Foster child. Form 1040ez 2012   A foster child is an individual who is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. Form 1040ez 2012 Age Test To meet this test, a child must be: Under age 19 at the end of the year and younger than you (or your spouse, if filing jointly), A student under age 24 at the end of the year and younger than you (or your spouse, if filing jointly), or Permanently and totally disabled at any time during the year, regardless of age. Form 1040ez 2012 Example. Form 1040ez 2012 Your son turned 19 on December 10. Form 1040ez 2012 Unless he was permanently and totally disabled or a student, he does not meet the age test because, at the end of the year, he was not under age 19. Form 1040ez 2012 Child must be younger than you or spouse. Form 1040ez 2012   To be your qualifying child, a child who is not permanently and totally disabled must be younger than you. Form 1040ez 2012 However, if you are married filing jointly, the child must be younger than you or your spouse but does not have to be younger than both of you. Form 1040ez 2012 Example 1—child not younger than you or spouse. Form 1040ez 2012 Your 23-year-old brother, who is a student and unmarried, lives with you and your spouse. Form 1040ez 2012 He is not disabled. Form 1040ez 2012 Both you and your spouse are 21 years old, and you file a joint return. Form 1040ez 2012 Your brother is not your qualifying child because he is not younger than you or your spouse. Form 1040ez 2012 Example 2—child younger than your spouse but not younger than you. Form 1040ez 2012 The facts are the same as in Example 1 except your spouse is 25 years old. Form 1040ez 2012 Because your brother is younger than your spouse, and you and your spouse are filing a joint return, your brother is your qualifying child, even though he is not younger than you. Form 1040ez 2012 Student defined. Form 1040ez 2012   To qualify as a student, your child must be, during some part of each of any 5 calendar months of the year: A full-time student at a school that has a regular teaching staff, course of study, and a regularly enrolled student body at the school, or A student taking a full-time, on-farm training course given by a school described in (1), or by a state, county, or local government agency. Form 1040ez 2012 The 5 calendar months do not have to be consecutive. Form 1040ez 2012 Full-time student. Form 1040ez 2012   A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance. Form 1040ez 2012 School defined. Form 1040ez 2012   A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. Form 1040ez 2012 However, an on-the-job training course, correspondence school, or school offering courses only through the Internet does not count as a school. Form 1040ez 2012 Vocational high school students. Form 1040ez 2012   Students who work on “co-op” jobs in private industry as a part of a school's regular course of classroom and practical training are considered full-time students. Form 1040ez 2012 Permanently and totally disabled. Form 1040ez 2012   Your child is permanently and totally disabled if both of the following apply. Form 1040ez 2012 He or she cannot engage in any substantial gainful activity because of a physical or mental condition. Form 1040ez 2012 A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death. Form 1040ez 2012 Residency Test To meet this test, your child must have lived with you for more than half the year. Form 1040ez 2012 There are exceptions for temporary absences, children who were born or died during the year, kidnapped children, and children of divorced or separated parents. Form 1040ez 2012 Temporary absences. Form 1040ez 2012   Your child is considered to have lived with you during periods of time when one of you, or both, are temporarily absent due to special circumstances such as: Illness, Education, Business, Vacation, or Military service. Form 1040ez 2012 Your child is also considered to have lived with you during any required hospital stay following birth, as long as the child would have lived with you during that time but for the hospitalization. Form 1040ez 2012 Death or birth of child. Form 1040ez 2012   A child who was born or died during the year is treated as having lived with you more than half of the year if your home was the child's home more than half of the time he or she was alive during the year. Form 1040ez 2012 Child born alive. Form 1040ez 2012   You may be able to claim an exemption for a child born alive during the year, even if the child lived only for a moment. Form 1040ez 2012 State or local law must treat the child as having been born alive. Form 1040ez 2012 There must be proof of a live birth shown by an official document, such as a birth certificate. Form 1040ez 2012 The child must be your qualifying child or qualifying relative, and all the other tests to claim an exemption for a dependent must be met. Form 1040ez 2012 Stillborn child. Form 1040ez 2012   You cannot claim an exemption for a stillborn child. Form 1040ez 2012 Kidnapped child. Form 1040ez 2012   You may be able to treat your child as meeting the residency test even if the child has been kidnapped. Form 1040ez 2012 See Publication 501 for details. Form 1040ez 2012 Children of divorced or separated parents (or parents who live apart). Form 1040ez 2012   In most cases, because of the residency test, a child of divorced or separated parents is the qualifying child of the custodial parent. Form 1040ez 2012 However, the child will be treated as the qualifying child of the noncustodial parent if all four of the following statements are true. Form 1040ez 2012 The parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Lived apart at all times during the last 6 months of the year, whether or not they are or were married. Form 1040ez 2012 The child received over half of his or her support for the year from the parents. Form 1040ez 2012 The child is in the custody of one or both parents for more than half of the year. Form 1040ez 2012 Either of the following statements is true. Form 1040ez 2012 The custodial parent signs a written declaration, discussed later, that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches this written declaration to his or her return. Form 1040ez 2012 (If the decree or agreement went into effect after 1984 and before 2009, see Post-1984 and pre-2009 divorce decree or separation agreement , later. Form 1040ez 2012 If the decree or agreement went into effect after 2008, see Post-2008 divorce decree or separation agreement , later. Form 1040ez 2012 ) A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2013 states that the noncustodial parent can claim the child as a dependent, the decree or agreement was not changed after 1984 to say the noncustodial parent cannot claim the child as a dependent, and the noncustodial parent provides at least $600 for the child's support during the year. Form 1040ez 2012 Custodial parent and noncustodial parent. Form 1040ez 2012   The custodial parent is the parent with whom the child lived for the greater number of nights during the year. Form 1040ez 2012 The other parent is the noncustodial parent. Form 1040ez 2012   If the parents divorced or separated during the year and the child lived with both parents before the separation, the custodial parent is the one with whom the child lived for the greater number of nights during the rest of the year. Form 1040ez 2012   A child is treated as living with a parent for a night if the child sleeps: At that parent's home, whether or not the parent is present, or In the company of the parent, when the child does not sleep at a parent's home (for example, the parent and child are on vacation together). Form 1040ez 2012 Equal number of nights. Form 1040ez 2012   If the child lived with each parent for an equal number of nights during the year, the custodial parent is the parent with the higher adjusted gross income (AGI). Form 1040ez 2012 December 31. Form 1040ez 2012   The night of December 31 is treated as part of the year in which it begins. Form 1040ez 2012 For example, December 31, 2013, is treated as part of 2013. Form 1040ez 2012 Emancipated child. Form 1040ez 2012   If a child is emancipated under state law, the child is treated as not living with either parent. Form 1040ez 2012 See Examples 5 and 6. Form 1040ez 2012 Absences. Form 1040ez 2012   If a child was not with either parent on a particular night (because, for example, the child was staying at a friend's house), the child is treated as living with the parent with whom the child normally would have lived for that night, except for the absence. Form 1040ez 2012 But if it cannot be determined with which parent the child normally would have lived or if the child would not have lived with either parent that night, the child is treated as not living with either parent that night. Form 1040ez 2012 Parent works at night. Form 1040ez 2012   If, due to a parent's nighttime work schedule, a child lives for a greater number of days, but not nights, with the parent who works at night, that parent is treated as the custodial parent. Form 1040ez 2012 On a school day, the child is treated as living at the primary residence registered with the school. Form 1040ez 2012 Example 1—child lived with one parent for a greater number of nights. Form 1040ez 2012 You and your child’s other parent are divorced. Form 1040ez 2012 In 2013, your child lived with you 210 nights and with the other parent 155 nights. Form 1040ez 2012 You are the custodial parent. Form 1040ez 2012 Example 2—child is away at camp. Form 1040ez 2012 In 2013, your daughter lives with each parent for alternate weeks. Form 1040ez 2012 In the summer, she spends 6 weeks at summer camp. Form 1040ez 2012 During the time she is at camp, she is treated as living with you for 3 weeks and with her other parent, your ex-spouse, for 3 weeks because this is how long she would have lived with each parent if she had not attended summer camp. Form 1040ez 2012 Example 3—child lived same number of nights with each parent. Form 1040ez 2012 Your son lived with you 180 nights during the year and lived the same number of nights with his other parent, your ex-spouse. Form 1040ez 2012 Your AGI is $40,000. Form 1040ez 2012 Your ex-spouse's AGI is $25,000. Form 1040ez 2012 You are treated as your son's custodial parent because you have the higher AGI. Form 1040ez 2012 Example 4—child is at parent’s home but with other parent. Form 1040ez 2012 Your son normally lives with you during the week and with his other parent, your ex-spouse, every other weekend. Form 1040ez 2012 You become ill and are hospitalized. Form 1040ez 2012 The other parent lives in your home with your son for 10 consecutive days while you are in the hospital. Form 1040ez 2012 Your son is treated as living with you during this 10-day period because he was living in your home. Form 1040ez 2012 Example 5—child emancipated in May. Form 1040ez 2012 When your son turned age 18 in May 2013, he became emancipated under the law of the state where he lives. Form 1040ez 2012 As a result, he is not considered in the custody of his parents for more than half of the year. Form 1040ez 2012 The special rule for children of divorced or separated parents does not apply. Form 1040ez 2012 Example 6—child emancipated in August. Form 1040ez 2012 Your daughter lives with you from January 1, 2013, until May 31, 2013, and lives with her other parent, your ex-spouse, from June 1, 2013, through the end of the year. Form 1040ez 2012 She turns 18 and is emancipated under state law on August 1, 2013. Form 1040ez 2012 Because she is treated as not living with either parent beginning on August 1, she is treated as living with you the greater number of nights in 2013. Form 1040ez 2012 You are the custodial parent. Form 1040ez 2012 Written declaration. Form 1040ez 2012    The custodial parent may use either Form 8332 or a similar statement (containing the same information required by the form) to make the written declaration to release the exemption to the noncustodial parent. Form 1040ez 2012 The noncustodial parent must attach a copy of the form or statement to his or her tax return. Form 1040ez 2012   The exemption can be released for 1 year, for a number of specified years (for example, alternate years), or for all future years, as specified in the declaration. Form 1040ez 2012 Post-1984 and pre-2009 divorce decree or separation agreement. Form 1040ez 2012   If the divorce decree or separation agreement went into effect after 1984 and before 2009, the noncustodial parent may be able to attach certain pages from the decree or agreement instead of Form 8332. Form 1040ez 2012 The decree or agreement must state all three of the following. Form 1040ez 2012 The noncustodial parent can claim the child as a dependent without regard to any condition, such as payment of support. Form 1040ez 2012 The custodial parent will not claim the child as a dependent for the year. Form 1040ez 2012 The years for which the noncustodial parent, rather than the custodial parent, can claim the child as a dependent. Form 1040ez 2012   The noncustodial parent must attach all of the following pages of the decree or agreement to his or her tax return. Form 1040ez 2012 The cover page (write the other parent's social security number on this page). Form 1040ez 2012 The pages that include all of the information identified in items (1) through (3) above. Form 1040ez 2012 The signature page with the other parent's signature and the date of the agreement. Form 1040ez 2012 Post-2008 divorce decree or separation agreement. Form 1040ez 2012   The noncustodial parent cannot attach pages from the decree or agreement instead of Form 8332 if the decree or agreement went into effect after 2008. Form 1040ez 2012 The custodial parent must sign either Form 8332 or a similar statement whose only purpose is to release the custodial parent's claim to an exemption for a child, and the noncustodial parent must attach a copy to his or her return. Form 1040ez 2012 The form or statement must release the custodial parent's claim to the child without any conditions. Form 1040ez 2012 For example, the release must not depend on the noncustodial parent paying support. Form 1040ez 2012    The noncustodial parent must attach the required information even if it was filed with a return in an earlier year. Form 1040ez 2012 Revocation of release of claim to an exemption. Form 1040ez 2012   The custodial parent can revoke a release of claim to exemption that he or she previously released to the noncustodial parent on Form 8332 (or a similar statement). Form 1040ez 2012 For the revocation to be effective for 2013, the custodial parent must have given (or made reasonable efforts to give) written notice of the revocation to the noncustodial parent in 2012 or earlier. Form 1040ez 2012 The custodial parent can use Part III of Form 8332 for this purpose and must attach a copy of the revocation to his or her return for each tax year he or she claims the child as a dependent as a result of the revocation. Form 1040ez 2012 Remarried parent. Form 1040ez 2012   If you remarry, the support provided by your new spouse is treated as provided by you. Form 1040ez 2012 Parents who never married. Form 1040ez 2012   This special rule for divorced or separated parents also applies to parents who never married, and who lived apart at all times during the last 6 months of the year. Form 1040ez 2012 Support Test (To Be a Qualifying Child) To meet this test, the child cannot have provided more than half of his or her own support for the year. Form 1040ez 2012 This test is different from the support test to be a qualifying relative, which is described later. Form 1040ez 2012 However, to see what is or is not support, see Support Test (To Be a Qualifying Relative) , later. Form 1040ez 2012 If you are not sure whether a child provided more than half of his or her own support, you may find Worksheet 3-1 helpful. Form 1040ez 2012 Worksheet 3-1. Form 1040ez 2012 Worksheet for Determining Support Funds Belonging to the Person You Supported       1. Form 1040ez 2012 Enter the total funds belonging to the person you supported, including income received (taxable and nontaxable) and amounts borrowed during the year, plus the amount in savings and other accounts at the beginning of the year. Form 1040ez 2012 Do not include funds provided by the state; include those amounts on line 23 instead 1. Form 1040ez 2012     2. Form 1040ez 2012 Enter the amount on line 1 that was used for the person's support 2. Form 1040ez 2012     3. Form 1040ez 2012 Enter the amount on line 1 that was used for other purposes 3. Form 1040ez 2012     4. Form 1040ez 2012 Enter the total amount in the person's savings and other accounts at the end of the year 4. Form 1040ez 2012     5. Form 1040ez 2012 Add lines 2 through 4. Form 1040ez 2012 (This amount should equal line 1. Form 1040ez 2012 ) 5. Form 1040ez 2012     Expenses for Entire Household (where the person you supported lived)       6. Form 1040ez 2012 Lodging (complete line 6a or 6b):         a. Form 1040ez 2012 Enter the total rent paid 6a. Form 1040ez 2012       b. Form 1040ez 2012 Enter the fair rental value of the home. Form 1040ez 2012 If the person you supported owned the home,  also include this amount in line 21 6b. Form 1040ez 2012     7. Form 1040ez 2012 Enter the total food expenses 7. Form 1040ez 2012     8. Form 1040ez 2012 Enter the total amount of utilities (heat, light, water, etc. Form 1040ez 2012 not included in line 6a or 6b) 8. Form 1040ez 2012     9. Form 1040ez 2012 Enter the total amount of repairs (not included in line 6a or 6b) 9. Form 1040ez 2012     10. Form 1040ez 2012 Enter the total of other expenses. Form 1040ez 2012 Do not include expenses of maintaining the home, such as mortgage interest, real estate taxes, and insurance 10. Form 1040ez 2012     11. Form 1040ez 2012 Add lines 6a through 10. Form 1040ez 2012 These are the total household expenses 11. Form 1040ez 2012     12. Form 1040ez 2012 Enter total number of persons who lived in the household 12. Form 1040ez 2012     Expenses for the Person You Supported       13. Form 1040ez 2012 Divide line 11 by line 12. Form 1040ez 2012 This is the person's share of the household expenses 13. Form 1040ez 2012     14. Form 1040ez 2012 Enter the person's total clothing expenses 14. Form 1040ez 2012     15. Form 1040ez 2012 Enter the person's total education expenses 15. Form 1040ez 2012     16. Form 1040ez 2012 Enter the person's total medical and dental expenses not paid for or reimbursed by insurance 16. Form 1040ez 2012     17. Form 1040ez 2012 Enter the person's total travel and recreation expenses 17. Form 1040ez 2012     18. Form 1040ez 2012 Enter the total of the person's other expenses 18. Form 1040ez 2012     19. Form 1040ez 2012 Add lines 13 through 18. Form 1040ez 2012 This is the total cost of the person's support for the year 19. Form 1040ez 2012     Did the Person Provide More Than Half of His or Her Own Support?       20. Form 1040ez 2012 Multiply line 19 by 50% (. Form 1040ez 2012 50) 20. Form 1040ez 2012     21. Form 1040ez 2012 Enter the amount from line 2, plus the amount from line 6b if the person you supported owned  the home. Form 1040ez 2012 This is the amount the person provided for his or her own support 21. Form 1040ez 2012     22. Form 1040ez 2012 Is line 21 more than line 20?   No. Form 1040ez 2012 You meet the support test for this person to be your qualifying child. Form 1040ez 2012 If this person also meets the other tests to be a qualifying child, stop here; do not complete lines 23–26. Form 1040ez 2012 Otherwise, go to line 23 and fill out the rest of the worksheet to determine if this person is your qualifying relative. Form 1040ez 2012    Yes. Form 1040ez 2012 You do not meet the support test for this person to be either your qualifying child or your qualifying relative. Form 1040ez 2012 Stop here. Form 1040ez 2012        Did You Provide More Than Half?       23. Form 1040ez 2012 Enter the amount others provided for the person's support. Form 1040ez 2012 Include amounts provided by state, local, and other welfare societies or agencies. Form 1040ez 2012 Do not include any amounts included on line 1 23. Form 1040ez 2012     24. Form 1040ez 2012 Add lines 21 and 23 24. Form 1040ez 2012     25. Form 1040ez 2012 Subtract line 24 from line 19. Form 1040ez 2012 This is the amount you provided for the person's support 25. Form 1040ez 2012     26. Form 1040ez 2012 Is line 25 more than line 20?   Yes. Form 1040ez 2012 You meet the support test for this person to be your qualifying relative. Form 1040ez 2012    No. Form 1040ez 2012 You do not meet the support test for this person to be your qualifying relative. Form 1040ez 2012 You cannot claim an exemption for this person unless you can do so under a multiple support agreement, the support test for children of divorced or separated parents, or the special rule for kidnapped children. Form 1040ez 2012 See Multiple Support Agreement or Support Test for Children of Divorced or Separated Parents (or Parents Who Live Apart) , or Kidnapped child under Qualifying Relative. Form 1040ez 2012   Example. Form 1040ez 2012 You provided $4,000 toward your 16-year-old son's support for the year. Form 1040ez 2012 He has a part-time job and provided $6,000 to his own support. Form 1040ez 2012 He provided more than half of his own support for the year. Form 1040ez 2012 He is not your qualifying child. Form 1040ez 2012 Foster care payments and expenses. Form 1040ez 2012   Payments you receive for the support of a foster child from a child placement agency are considered support provided by the agency. Form 1040ez 2012 Similarly, payments you receive for the support of a foster child from a state or county are considered support provided by the state or county. Form 1040ez 2012   If you are not in the trade or business of providing foster care and your unreimbursed out-of-pocket expenses in caring for a foster child were mainly to benefit an organization qualified to receive deductible charitable contributions, the expenses are deductible as charitable contributions but are not considered support you provided. Form 1040ez 2012 For more information about the deduction for charitable contributions, see chapter 24. Form 1040ez 2012 If your unreimbursed expenses are not deductible as charitable contributions, they may qualify as support you provided. Form 1040ez 2012   If you are in the trade or business of providing foster care, your unreimbursed expenses are not considered support provided by you. Form 1040ez 2012 Example 1. Form 1040ez 2012 Lauren, a foster child, lived with Mr. Form 1040ez 2012 and Mrs. Form 1040ez 2012 Smith for the last 3 months of the year. Form 1040ez 2012 The Smiths cared for Lauren because they wanted to adopt her (although she had not been placed with them for adoption). Form 1040ez 2012 They did not care for her as a trade or business or to benefit the agency that placed her in their home. Form 1040ez 2012 The Smiths' unreimbursed expenses are not deductible as charitable contributions but are considered support they provided for Lauren. Form 1040ez 2012 Example 2. Form 1040ez 2012 You provided $3,000 toward your 10-year-old foster child's support for the year. Form 1040ez 2012 The state government provided $4,000, which is considered support provided by the state, not by the child. Form 1040ez 2012 See Support provided by the state (welfare, food stamps, housing, etc. Form 1040ez 2012 ) , later. Form 1040ez 2012 Your foster child did not provide more than half of her own support for the year. Form 1040ez 2012 Scholarships. Form 1040ez 2012   A scholarship received by a child who is a student is not taken into account in determining whether the child provided more than half of his or her own support. Form 1040ez 2012 Joint Return Test (To Be a Qualifying Child) To meet this test, the child cannot file a joint return for the year. Form 1040ez 2012 Exception. Form 1040ez 2012   An exception to the joint return test applies if your child and his or her spouse file a joint return only to claim a refund of income tax withheld or estimated tax paid. Form 1040ez 2012 Example 1—child files joint return. Form 1040ez 2012 You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. Form 1040ez 2012 He earned $25,000 for the year. Form 1040ez 2012 The couple files a joint return. Form 1040ez 2012 Because your daughter and her husband file a joint return, she is not your qualifying child. Form 1040ez 2012 Example 2—child files joint return only as a claim for refund of withheld tax. Form 1040ez 2012 Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. Form 1040ez 2012 Neither is required to file a tax return. Form 1040ez 2012 They do not have a child. Form 1040ez 2012 Taxes were taken out of their pay so they filed a joint return only to get a refund of the withheld taxes. Form 1040ez 2012 The exception to the joint return test applies, so your son may be your qualifying child if all the other tests are met. Form 1040ez 2012 Example 3—child files joint return to claim American opportunity credit. Form 1040ez 2012 The facts are the same as in Example 2 except no taxes were taken out of your son's pay. Form 1040ez 2012 He and his wife were not required to file a tax return. Form 1040ez 2012 However, they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. Form 1040ez 2012 Because claiming the American opportunity credit is their reason for filing the return, they are not filing it only to get a refund of income tax withheld or estimated tax paid. Form 1040ez 2012 The exception to the joint return test does not apply, so your son is not your qualifying child. Form 1040ez 2012 Special Rule for Qualifying Child of More Than One Person If your qualifying child is not a qualifying child of anyone else, this special rule does not apply to you and you do not need to read about it. Form 1040ez 2012 This is also true if your qualifying child is not a qualifying child of anyone else except your spouse with whom you file a joint return. Form 1040ez 2012 If a child is treated as the qualifying child of the noncustodial parent under the rules for children of divorced or separated parents (or parents who live apart) described earlier, see Applying this special rule to divorced or separated parents (or parents who live apart), later. Form 1040ez 2012 Sometimes, a child meets the relationship, age, residency, support, and joint return tests to be a qualifying child of more than one person. Form 1040ez 2012 Although the child is a qualifying child of each of these persons, only one person can actually treat the child as a qualifying child to take all of the following tax benefits (provided the person is eligible for each benefit). Form 1040ez 2012 The exemption for the child. Form 1040ez 2012 The child tax credit. Form 1040ez 2012 Head of household filing status. Form 1040ez 2012 The credit for child and dependent care expenses. Form 1040ez 2012 The exclusion from income for dependent care benefits. Form 1040ez 2012 The earned income credit. Form 1040ez 2012 The other person cannot take any of these benefits based on this qualifying child. Form 1040ez 2012 In other words, you and the other person cannot agree to divide these benefits between you. Form 1040ez 2012 The other person cannot take any of these tax benefits for a child unless he or she has a different qualifying child. Form 1040ez 2012 Tiebreaker rules. Form 1040ez 2012   To determine which person can treat the child as a qualifying child to claim these six tax benefits, the following tiebreaker rules apply. Form 1040ez 2012 If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. Form 1040ez 2012 If the parents file a joint return together and can claim the child as a qualifying child, the child is treated as the qualifying child of the parents. Form 1040ez 2012 If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. Form 1040ez 2012 If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year. Form 1040ez 2012 If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year. Form 1040ez 2012 If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. Form 1040ez 2012 If the child's parents file a joint return with each other, this rule can be applied by dividing the parents' combined AGI equally between the parents. Form 1040ez 2012 See Example 6 . Form 1040ez 2012   Subject to these tiebreaker rules, you and the other person may be able to choose which of you claims the child as a qualifying child. Form 1040ez 2012 Example 1—child lived with parent and grandparent. Form 1040ez 2012 You and your 3-year-old daughter Jane lived with your mother all year. Form 1040ez 2012 You are 25 years old, unmarried, and your AGI is $9,000. Form 1040ez 2012 Your mother's AGI is $15,000. Form 1040ez 2012 Jane's father did not live with you or your daughter. Form 1040ez 2012 You have not signed Form 8332 (or a similar statement) to release the child's exemption to the noncustodial parent. Form 1040ez 2012 Jane is a qualifying child of both you and your mother because she meets the relationship, age, residency, support, and joint return tests for both you and your mother. Form 1040ez 2012 However, only one of you can claim her. Form 1040ez 2012 Jane is not a qualifying child of anyone else, including her father. Form 1040ez 2012 You agree to let your mother claim Jane. Form 1040ez 2012 This means your mother can claim Jane as a qualifying child for all of the six tax benefits listed earlier, if she qualifies (and if you do not claim Jane as a qualifying child for any of those tax benefits). Form 1040ez 2012 Example 2—parent has higher AGI than grandparent. Form 1040ez 2012 The facts are the same as in Example 1 except your AGI is $18,000. Form 1040ez 2012 Because your mother's AGI is not higher than yours, she cannot claim Jane. Form 1040ez 2012 Only you can claim Jane. Form 1040ez 2012 Example 3—two persons claim same child. Form 1040ez 2012 The facts are the same as in Example 1 except that you and your mother both claim Jane as a qualifying child. Form 1040ez 2012 In this case, you, as the child's parent, will be the only one allowed to claim Jane as a qualifying child. Form 1040ez 2012 The IRS will disallow your mother's claim to the six tax benefits listed earlier unless she has another qualifying child. Form 1040ez 2012 Example 4—qualifying children split between two persons. Form 1040ez 2012 The facts are the same as in Example 1 except you also have two other young children who are qualifying children of both you and your mother. Form 1040ez 2012 Only one of you can claim each child. Form 1040ez 2012 However, if your mother's AGI is higher than yours, you can allow your mother to claim one or more of the children. Form 1040ez 2012 For example, if you claim one child, your mother can claim the other two. Form 1040ez 2012 Example 5—taxpayer who is a qualifying child. Form 1040ez 2012 The facts are the same as in Example 1 except you are only 18 years old and did not provide more than half of your own support for the year. Form 1040ez 2012 This means you are your mother's qualifying child. Form 1040ez 2012 If she can claim you as a dependent, then you cannot claim your daughter as a dependent because of the Dependent Taxpayer Test explained earlier. Form 1040ez 2012 Example 6—child lived with both parents and grandparent. Form 1040ez 2012 The facts are the same as in Example 1 except you are married to your daughter's father. Form 1040ez 2012 The two of you live together with your daughter and your mother, and have an AGI of $20,000 on a joint return. Form 1040ez 2012 If you and your husband do not claim your daughter as a qualifying child, your mother can claim her instead. Form 1040ez 2012 Even though the AGI on your joint return, $20,000, is more than your mother's AGI of $15,000, for this purpose each parent's AGI can be treated as $10,000, so your mother's $15,000 AGI is treated as higher than the highest AGI of any of the child's parents who can claim the child. Form 1040ez 2012 Example 7—separated parents. Form 1040ez 2012 You, your husband, and your 10-year-old son lived together until August 1, 2013, when your husband moved out of the household. Form 1040ez 2012 In August and September, your son lived with you. Form 1040ez 2012 For the rest of the year, your son lived with your husband, the boy's father. Form 1040ez 2012 Your son is a qualifying child of both you and your husband because your son lived with each of you for more than half the year and because he met the relationship, age, support, and joint return tests for both of you. Form 1040ez 2012 At the end of the year, you and your husband still were not divorced, legally separated, or separated under a written separation agreement, so the rule for children of divorced or separated parents (or parents who live apart) does not apply. Form 1040ez 2012 You and your husband will file separate returns. Form 1040ez 2012 Your husband agrees to let you treat your son as a qualifying child. Form 1040ez 2012 This means, if your husband does not claim your son as a qualifying child, you can claim your son as a qualifying child for the dependency exemption, child tax credit, and exclusion for dependent care benefits (if you qualify for each of those tax benefits). Form 1040ez 2012 However, you cannot claim head of household filing status because you and your husband did not live apart for the last 6 months of the year. Form 1040ez 2012 As a result, your filing status is married filing separately, so you cannot claim the earned income credit or the credit for child and dependent care expenses. Form 1040ez 2012 Example 8—separated parents claim same child. Form 1040ez 2012 The facts are the same as in Example 7 except that you and your husband both claim your son as a qualifying child. Form 1040ez 2012 In this case, only your husband will be allowed to treat your son as a qualifying child. Form 1040ez 2012 This is because, during 2013, the boy lived with him longer than with you. Form 1040ez 2012 If you claimed an exemption or the child tax credit for your son, the IRS will disallow your claim to both these tax benefits. Form 1040ez 2012 If you do not have another qualifying child or dependent, the IRS will also disallow your claim to the exclusion for dependent care benefits. Form 1040ez 2012 In addition, because you and your husband did not live apart for the last 6 months of the year, your husband cannot claim head of household filing status. Form 1040ez 2012 As a result, his filing status is married filing separately, so he cannot claim the earned income credit or the credit for child and dependent care expenses. Form 1040ez 2012 Example 9—unmarried parents. Form 1040ez 2012 You, your 5-year-old son, and your son's father lived together all year. Form 1040ez 2012 You and your son's father are not married. Form 1040ez 2012 Your son is a qualifying child of both you and his father because he meets the relationship, age, residency, support, and joint return tests for both you and his father. Form 1040ez 2012 Your AGI is $12,000 and your son's father's AGI is $14,000. Form 1040ez 2012 Your son's father agrees to let you claim the child as a qualifying child. Form 1040ez 2012 This means you can claim him as a qualifying child for the dependency exemption, child tax credit, head of household filing status, credit for child and dependent care expenses, exclusion for dependent care benefits, and the earned income credit, if you qualify for each of those tax benefits (and if your son's father does not, in fact, claim your son as a qualifying child for any of those tax benefits). Form 1040ez 2012 Example 10—unmarried parents claim same child. Form 1040ez 2012 The facts are the same as in Example 9 except that you and your son's father both claim your son as a qualifying child. Form 1040ez 2012 In this case, only your son's father will be allowed to treat your son as a qualifying child. Form 1040ez 2012 This is because his AGI, $14,000, is more than your AGI, $12,000. Form 1040ez 2012 If you claimed an exemption or the child tax credit for your son, the IRS will disallow your claim to both these tax benefits. Form 1040ez 2012 If you do not have another qualifying child or dependent, the IRS will also disallow your claim to the earned income credit, head of household filing status, the credit for child and dependent care expenses, and the exclusion for dependent care benefits. Form 1040ez 2012 Example 11—child did not live with a parent. Form 1040ez 2012 You and your 7-year-old niece, your sister's child, lived with your mother all year. Form 1040ez 2012 You are 25 years old, and your AGI is $9,300. Form 1040ez 2012 Your mother's AGI is $15,000. Form 1040ez 2012 Your niece's parents file jointly, have an AGI of less than $9,000, and do not live with you or their child. Form 1040ez 2012 Your niece is a qualifying child of both you and your mother because she meets the relationship, age, residency, support, and joint return tests for both you and your mother. Form 1040ez 2012 However, only your mother can treat her as a qualifying child. Form 1040ez 2012 This is because your mother's AGI, $15,000, is more than your AGI, $9,300. Form 1040ez 2012 Applying this special rule to divorced or separated parents (or parents who live apart). Form 1040ez 2012   If a child is treated as the qualifying child of the noncustodial parent under the rules described earlier for children of divorced or separated parents (or parents who live apart), only the noncustodial parent can claim an exemption and the child tax credit for the child. Form 1040ez 2012 However, the custodial parent, if eligible, or other eligible person can claim the child as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, and the earned income credit. Form 1040ez 2012 If the child is the qualifying child of more than one person for these benefits, then the tiebreaker rules just explained determine which person can treat the child as a qualifying child. Form 1040ez 2012 Example 1. Form 1040ez 2012 You and your 5-year-old son lived all year with your mother, who paid the entire cost of keeping up the home. Form 1040ez 2012 Your AGI is $10,000. Form 1040ez 2012 Your mother's AGI is $25,000. Form 1040ez 2012 Your son's father did not live with you or your son. Form 1040ez 2012 Under the rules explained earlier for children of divorced or separated parents (or parents who live apart), your son is treated as the qualifying child of his father, who can claim an exemption and the child tax credit for him. Form 1040ez 2012 Because of this, you cannot claim an exemption or the child tax credit for your son. Form 1040ez 2012 However, your son's father cannot claim your son as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the earned income credit. Form 1040ez 2012 You and your mother did not have any child care expenses or dependent care benefits, so neither of you can claim the credit for child and dependent care expenses or the exclusion for dependent care benefits. Form 1040ez 2012 But the boy is a qualifying child of both you and your mother for head of household filing status and the earned income credit because he meets the relationship, age, residency, support, and joint return tests for both you and your mother. Form 1040ez 2012 (Note: The support test does not apply for the earned income credit. Form 1040ez 2012 ) However, you agree to let your mother claim your son. Form 1040ez 2012 This means she can claim him for head of household filing status and the earned income credit if she qualifies for each and if you do not claim him as a qualifying child for the earned income credit. Form 1040ez 2012 (You cannot claim head of household filing status because your mother paid the entire cost of keeping up the home. Form 1040ez 2012 ) Example 2. Form 1040ez 2012 The facts are the same as in Example 1 except your AGI is $25,000 and your mother's AGI is $21,000. Form 1040ez 2012 Your mother cannot claim your son as a qualifying child for any purpose because her AGI is not higher than yours. Form 1040ez 2012 Example 3. Form 1040ez 2012 The facts are the same as in Example 1 except you and your mother both claim your son as a qualifying child for the earned income credit. Form 1040ez 2012 Your mother also claims him as a qualifying child for head of household filing status. Form 1040ez 2012 You, as the child's parent, will be the only one allowed to claim your son as a qualifying child for the earned income credit. Form 1040ez 2012 The IRS will disallow your mother's claim to the earned income credit and head of household filing status unless she has another qualifying child. Form 1040ez 2012 Qualifying Relative Four tests must be met for a person to be your qualifying relative. Form 1040ez 2012 The four tests are: Not a qualifying child test, Member of household or relationship test, Gross income test, and Support test. Form 1040ez 2012 Age. Form 1040ez 2012   Unlike a qualifying child, a qualifying relative can be any age. Form 1040ez 2012 There is no age test for a qualifying relative. Form 1040ez 2012 Kidnapped child. Form 1040ez 2012   You may be able to treat a child as your qualifying relative even if the child has been kidnapped. Form 1040ez 2012 See Publication 501 for details. Form 1040ez 2012 Not a Qualifying Child Test A child is not your qualifying relative if the child is your qualifying child or the qualifying child of any other taxpayer. Form 1040ez 2012 Example 1. Form 1040ez 2012 Your 22-year-old daughter, who is a student, lives with you and meets all the tests to be your qualifying child. Form 1040ez 2012 She is not your qualifying relative. Form 1040ez 2012 Example 2. Form 1040ez 2012 Your 2-year-old son lives with your parents and meets all the tests to be their qualifying child. Form 1040ez 2012 He is not your qualifying relative. Form 1040ez 2012 Example 3. Form 1040ez 2012 Your son lives with you but is not your qualifying child because he is 30 years old and does not meet the age test. Form 1040ez 2012 He may be your qualifying relative if the gross income test and the support test are met. Form 1040ez 2012 Example 4. Form 1040ez 2012 Your 13-year-old grandson lived with his mother for 3 months, with his uncle for 4 months, and with you for 5 months during the year. Form 1040ez 2012 He is not your qualifying child because he does not meet the residency test. Form 1040ez 2012 He may be your qualifying relative if the gross income test and the support test are met. Form 1040ez 2012 Child of person not required to file a return. Form 1040ez 2012   A child is not the qualifying child of any other taxpayer and so may qualify as your qualifying relative if the child's parent (or other person for whom the child is defined as a qualifying child) is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. Form 1040ez 2012 Example 1—return not required. Form 1040ez 2012 You support an unrelated friend and her 3-year-old child, who lived with you all year in your home. Form 1040ez 2012 Your friend has no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. Form 1040ez 2012 Both your friend and her child are your qualifying relatives if the support test is met. Form 1040ez 2012 Example 2—return filed to claim refund. Form 1040ez 2012 The facts are the same as in Example 1 except your friend had wages of $1,500 during the year and had income tax withheld from her wages. Form 1040ez 2012 She files a return only to get a refund of the income tax withheld and does not claim the earned income credit or any other tax credits or deductions. Form 1040ez 2012 Both your friend and her child are your qualifying relatives if the support test is met. Form 1040ez 2012 Example 3—earned income credit claimed. Form 1040ez 2012 The facts are the same as in Example 2 except your friend had wages of $8,000 during the year and claimed the earned income credit on her return. Form 1040ez 2012 Your friend's child is the qualifying child of another taxpayer (your friend), so you cannot claim your friend's child as your qualifying relative. Form 1040ez 2012 Child in Canada or Mexico. Form 1040ez 2012   You may be able to claim your child as a dependent even if the child lives in Canada or Mexico. Form 1040ez 2012 If the child does not live with you, the child does not meet the residency test to be your qualifying child. Form 1040ez 2012 However, the child may still be your qualifying relative. Form 1040ez 2012 If the persons the child does live with are not U. Form 1040ez 2012 S. Form 1040ez 2012 citizens and have no U. Form 1040ez 2012 S. Form 1040ez 2012 gross income, those persons are not “taxpayers,” so the child is not the qualifying child of any other taxpayer. Form 1040ez 2012 If the child is not the qualifying child of any other taxpayer, the child is your qualifying relative as long as the gross income test and the support test are met. Form 1040ez 2012   You cannot claim as a dependent a child who lives in a foreign country other than Canada or Mexico, unless the child is a U. Form 1040ez 2012 S. Form 1040ez 2012 citizen, U. Form 1040ez 2012 S. Form 1040ez 2012 resident alien, or U. Form 1040ez 2012 S. Form 1040ez 2012 national. Form 1040ez 2012 There is an exception for certain adopted children who lived with you all year. Form 1040ez 2012 See Citizen or Resident Test , earlier. Form 1040ez 2012 Example. Form 1040ez 2012 You provide all the support of your children, ages 6, 8, and 12, who live in Mexico with your mother and have no income. Form 1040ez 2012 You are single and live in the United States. Form 1040ez 2012 Your mother is not a U. Form 1040ez 2012 S. Form 1040ez 2012 citizen and has no U. Form 1040ez 2012 S. Form 1040ez 2012 income, so she is not a “taxpayer. Form 1040ez 2012 ” Your children are not your qualifying children because they do not meet the residency test. Form 1040ez 2012 But since they are not the qualifying children of any other taxpayer, they are your qualifying relatives and you can claim them as dependents. Form 1040ez 2012 You may also be able to claim your mother as a dependent if the gross income and support tests are met. Form 1040ez 2012 Member of Household or Relationship Test To meet this test, a person must either: Live with you all year as a member of your household, or Be related to you in one of the ways listed under Relatives who do not have to live with you . Form 1040ez 2012 If at any time during the year the person was your spouse, that person cannot be your qualifying relative. Form 1040ez 2012 However, see Personal Exemptions , earlier. Form 1040ez 2012 Relatives who do not have to live with you. Form 1040ez 2012   A person related to you in any of the following ways does not have to live with you all year as a member of your household to meet this test. Form 1040ez 2012 Your child, stepchild, foster child, or a descendant of any of them (for example, your grandchild). Form 1040ez 2012 (A legally adopted child is considered your child. Form 1040ez 2012 ) Your brother, sister, half brother, half sister, stepbrother, or stepsister. Form 1040ez 2012 Your father, mother, grandparent, or other direct ancestor, but not foster parent. Form 1040ez 2012 Your stepfather or stepmother. Form 1040ez 2012 A son or daughter of your brother or sister. Form 1040ez 2012 A son or daughter of your half brother or half sister. Form 1040ez 2012 A brother or sister of your father or mother. Form 1040ez 2012 Your son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. Form 1040ez 2012 Any of these relationships that were established by marriage are not ended by death or divorce. Form 1040ez 2012 Example. Form 1040ez 2012 You and your wife began supporting your wife's father, a widower, in 2006. Form 1040ez 2012 Your wife died in 2012. Form 1040ez 2012 Despite your wife's death, your father-in-law continues to meet this test, even if he does not live with you. Form 1040ez 2012 You can claim him as a dependent if all other tests are met, including the gross income test and support test. Form 1040ez 2012 Foster child. Form 1040ez 2012   A foster child is an individual who is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. Form 1040ez 2012 Joint return. Form 1040ez 2012   If you file a joint return, the person can be related to either you or your spouse. Form 1040ez 2012 Also, the person does not need to be related to the spouse who provides support. Form 1040ez 2012   For example, your spouse's uncle who receives more than half of his support from you may be your qualifying relative, even though he does not live with you. Form 1040ez 2012 However, if you and your spouse file separate returns, your spouse's uncle can be your qualifying relative only if he lives with you all year as a member of your household. Form 1040ez 2012 Temporary absences. Form 1040ez 2012   A person is considered to live with you as a member of your household during periods of time when one of you, or both, are temporarily absent due to special circumstances such as: Illness, Education, Business, Vacation, or Military service. Form 1040ez 2012   If the person is placed in a nursing home for an indefinite period of time to receive constant medical care, the absence may be considered temporary. Form 1040ez 2012 Death or birth. Form 1040ez 2012   A person who died during the year, but lived with you as a member of your household until death, will meet this test. Form 1040ez 2012 The same is true for a child who was born during the year and lived with you as a member of your household for the rest of the year. Form 1040ez 2012 The test is also met if a child lived with you as a member of your household except for any required hospital stay following birth. Form 1040ez 2012   If your dependent died during the year and you otherwise qualify to claim an exemption for the dependent, you can still claim the exemption. Form 1040ez 2012 Example. Form 1040ez 2012 Your dependent mother died on January 15. Form 1040ez 2012 She met the tests to be your qualifying relative. Form 1040ez 2012 The other tests to claim an exemption for a dependent were also met. Form 1040ez 2012 You can claim an exemption for her on your return. Form 1040ez 2012 Local law violated. Form 1040ez 2012   A person does not meet this test if at any time during the year the relationship between you and that person violates local law. Form 1040ez 2012 Example. Form 1040ez 2012 Your girlfriend lived with you as a member of your household all year. Form 1040ez 2012 However, your relationship with her violated the laws of the state where you live, because she was married to someone else. Form 1040ez 2012 Therefore, she does not meet this test and you cannot claim her as a dependent. Form 1040ez 2012 Adopted child. Form 1040ez 2012   An adopted child is always treated as your own child. Form 1040ez 2012 The term “adopted child” includes a child who was lawfully placed with you for legal adoption. Form 1040ez 2012 Cousin. Form 1040ez 2012   Your cousin meets this test only if he or she lives with you all year as a member of your household. Form 1040ez 2012 A cousin is a descendant of a brother or sister of your father or mother. Form 1040ez 2012 Gross Income Test To meet this test, a person's gross income for the year must be less than $3,900. Form 1040ez 2012 Gross income defined. Form 1040ez 2012   Gross income is all income in the form of money, property, and services that is not exempt from tax. Form 1040ez 2012   In a manufacturing, merchandising, or mining business, gross income is the total net sales minus the cost of goods sold, plus any miscellaneous income from the business. Form 1040ez 2012   Gross receipts from rental property are gross income. Form 1040ez 2012 Do not deduct taxes, repairs, or other expenses, to determine the gross income from rental property. Form 1040ez 2012   Gross income includes a partner's share of the gross (not a share of the net) partnership income. Form 1040ez 2012    Gross income also includes all taxable unemployment compensation and certain scholarship and fellowship grants. Form 1040ez 2012 Scholarships received by degree candidates and used for tuition, fees, supplies, books, and equipment required for particular courses generally are not included in gross income. Form 1040ez 2012 For more information about scholarships, see chapter 12. Form 1040ez 2012   Tax-exempt income, such as certain social security benefits, is not included in gross income. Form 1040ez 2012 Disabled dependent working at sheltered workshop. Form 1040ez 2012   For purposes of the gross income test, the gross income of an individual who is permanently and totally disabled at any time during the year does not include income for services the individual performs at a sheltered workshop. Form 1040ez 2012 The availability of medical care at the workshop must be the main reason for the individual's presence there. Form 1040ez 2012 Also, the income must come solely from activities at the workshop that are incident to this medical care. Form 1040ez 2012   A “sheltered workshop” is a school that: Provides special instruction or training designed to alleviate the disability of the individual, and Is operated by certain tax-exempt organizations, or by a state, a U. Form 1040ez 2012 S. Form 1040ez 2012 possession, a political subdivision of a state or possession, the United States, or the District of Columbia. Form 1040ez 2012 “Permanently and totally disabled” has the same meaning here as under Qualifying Child, earlier. Form 1040ez 2012 Support Test (To Be a Qualifying Relative) To meet this test, you generally must provide more than half of a person's total support during the calendar year. Form 1040ez 2012 However, if two or more persons provide support, but no one person provides more than half of a person's total support, see Multiple Support Agreement , later. Form 1040ez 2012 How to determine if support test is met. Form 1040ez 2012   You figure whether you have provided more than half of a person's total support by comparing the amount you contributed to that person's support with the entire amount of support that person received from all sources. Form 1040ez 2012 This includes support the person provided from his or her own funds. Form 1040ez 2012   You may find Worksheet 3-1 helpful in figuring whether you provided more than half of a person's support. Form 1040ez 2012 Person's own funds not used for support. Form 1040ez 2012   A person's own funds are not support unless they are actually spent for support. Form 1040ez 2012 Example. Form 1040ez 2012 Your mother received $2,400 in social security benefits and $300 in interest. Form 1040ez 2012 She paid $2,000 for lodging and $400 for recreation. Form 1040ez 2012 She put $300 in a savings account. Form 1040ez 2012 Even though your mother received a total of $2,700 ($2,400 + $300), she spent only $2,400 ($2,000 + $400) for her own support. Form 1040ez 2012 If you spent more than $2,400 for her support and no other support was received, you have provided more than half of her support. Form 1040ez 2012 Child's wages used for own support. Form 1040ez 2012   You cannot include in your contribution to your child's support any support paid for by the child with the child's own wages, even if you paid the wages. Form 1040ez 2012 Year support is provided. Form 1040ez 2012   The year you provide the support is the year you pay for it, even if you do so with borrowed money that you repay in a later year. Form 1040ez 2012   If you use a fiscal year to report your income, you must provide more than half of the dependent's support for the calendar year in which your fiscal year begins. Form 1040ez 2012 Armed Forces dependency allotments. Form 1040ez 2012   The part of the allotment contributed by the government and the part taken out of your military pay are both considered provided by you in figuring whether you provide more than half of the support. Form 1040ez 2012 If your allotment is used to support persons other than those you name, you can take the exemptions for them if they otherwise qualify. Form 1040ez 2012 Example. Form 1040ez 2012 You are in the Armed Forces. Form 1040ez 2012 You authorize an allotment for your widowed mother that she uses to support herself and her sister. Form 1040ez 2012 If the allotment provides more than half of each person's support, you can take an exemption for each of them, if they otherwise qualify, even though you authorize the allotment only for your mother. Form 1040ez 2012 Tax-exempt military quarters allowances. Form 1040ez 2012   These allowances are treated the same way as dependency allotments in figuring support. Form 1040ez 2012 The allotment of pay and the tax-exempt basic allowance for quarters are both considered as provided by you for support. Form 1040ez 2012 Tax-exempt income. Form 1040ez 2012   In figuring a person's total support, include tax-exempt income, savings, and borrowed amounts used to support that person. Form 1040ez 2012 Tax-exempt income includes certain social security benefits, welfare benefits, nontaxable life insurance proceeds, Armed Forces family allotments, nontaxable pensions, and tax-exempt interest. Form 1040ez 2012 Example 1. Form 1040ez 2012 You provide $4,000 toward your mother's support during the year. Form 1040ez 2012 She has earned income of $600, nontaxable social security benefits of $4,800, and tax-exempt interest of $200. Form 1040ez 2012 She uses all these for her support. Form 1040ez 2012 You cannot claim an exemption for your mother because the $4,000 you provide is not more than half of her total support of $9,600 ($4,000 + $600 + $4,800 + $200). Form 1040ez 2012 Example 2. Form 1040ez 2012 Your niece takes out a student loan of $2,500 a