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Free 2012 Tax Filing

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Free 2012 Tax Filing

Free 2012 tax filing Internal Revenue Bulletin:  2013-7  February 11, 2013  Rev. Free 2012 tax filing Proc. Free 2012 tax filing 2013-16 Table of Contents SECTION 1. Free 2012 tax filing PURPOSE SECTION 2. Free 2012 tax filing BACKGROUND—HAMP AND THE HAMP PRINCIPAL REDUCTION ALTERNATIVE SECTION 3. Free 2012 tax filing BACKGROUND—APPLICABLE PROVISIONS OF LAW SECTION 4. Free 2012 tax filing FEDERAL INCOME TAX TREATMENT SECTION 5. Free 2012 tax filing INFORMATION-REPORTING OBLIGATIONS SECTION 6. Free 2012 tax filing HAMP-PRA BORROWERS’ REPORTING OF DISCHARGES OF INDEBTEDNESS UNDER HAMP-PRA SECTION 7. Free 2012 tax filing PENALTY RELIEF FOR 2012 SECTION 8. Free 2012 tax filing SCOPE AND EFFECTIVE DATE SECTION 9. Free 2012 tax filing DRAFTING INFORMATION SECTION 1. Free 2012 tax filing PURPOSE This revenue procedure provides guidance to mortgage loan holders, loan servicers, and borrowers who are participating in the Department of the Treasury’s (Treasury) and Department of Housing and Urban Development’s (HUD) Home Affordable Modification Program® (HAMP®). Free 2012 tax filing Under HAMP, a borrower may be eligible for principal reduction of the outstanding balance of a qualifying mortgage pursuant to the program’s Principal Reduction AlternativeSM (PRA). Free 2012 tax filing In appropriate cases, HAMP has been offering the PRA as part of a HAMP loan modification since the last quarter of 2010. Free 2012 tax filing Current plans call for HAMP to continue accepting new borrowers through the end of 2013. Free 2012 tax filing The Internal Revenue Service (Service) is providing this guidance to address the tax consequences for borrowers (HAMP-PRA borrowers) who are participating in the PRA and the reporting obligations for participating mortgage loan holders and servicers. Free 2012 tax filing SECTION 2. Free 2012 tax filing BACKGROUND—HAMP AND THE HAMP PRINCIPAL REDUCTION ALTERNATIVE . Free 2012 tax filing 01 To help distressed borrowers lower their monthly mortgage payments, Treasury and HUD established HAMP for mortgage loans that are not owned or guaranteed by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). Free 2012 tax filing A description of the program can be found at www. Free 2012 tax filing makinghomeaffordable. Free 2012 tax filing gov. Free 2012 tax filing . Free 2012 tax filing 02 Under HAMP, a participating loan servicer, acting on behalf of the mortgage loan holder, must consider a sequence of modification steps for each eligible borrower’s mortgage loan until the borrower’s monthly payment is reduced to a monthly payment amount determined under the HAMP guidelines. Free 2012 tax filing These steps include a reduction in the mortgage loan’s interest rate, an extension of the mortgage loan’s term, and a reduction in the mortgage loan’s principal balance. Free 2012 tax filing . Free 2012 tax filing 03 In some cases, the unpaid principal balance of the modified mortgage loan is divided into (1) an amount that bears stated interest and that is used to calculate the borrower’s new monthly mortgage payment (the “Non-forbearance Portion”), and (2) a forbearance amount, which does not bear stated interest and on which periodic payments of stated principal are not required. Free 2012 tax filing The stated principal of the forbearance amount is due upon the earliest of the borrower’s transfer of the property, payoff of the balance on the Non-forbearance Portion of the mortgage loan, or maturity of the mortgage loan. Free 2012 tax filing However, as noted in section 2. Free 2012 tax filing 06 of this revenue procedure, a HAMP-PRA borrower sometimes may not have to pay all or a portion of the forbearance amount. Free 2012 tax filing (The forbearance amount associated with a HAMP-PRA principal reduction is called the “PRA Forbearance Amount. Free 2012 tax filing ”) . Free 2012 tax filing 04 If a mortgage loan is being considered for a HAMP modification and the amount owed on the mortgage loan is greater than 115 percent of the value of the property, then the servicer must consider whether principal reduction under PRA should be used as part of the HAMP modification. Free 2012 tax filing . Free 2012 tax filing 05 The first step toward a HAMP modification is a trial period plan, in which the borrower’s monthly mortgage payment is set at a monthly payment amount determined under the HAMP guidelines. Free 2012 tax filing The trial period plan effective date is the due date for the first of the reduced payments that are to be made under the trial period plan. Free 2012 tax filing (It is the first day of either the first or the second month after the servicer transmits the trial period notice to the borrower. Free 2012 tax filing ) In general, the trial period is three months, and, during this period, the borrower must satisfy certain conditions before the changes to the terms of the mortgage loan become permanent (the “Trial Period Conditions”). Free 2012 tax filing Specifically, depending on the borrower’s trial period payment history, the borrower’s compliance with HAMP and servicer guidelines, and his or her satisfaction of all other Trial Period Conditions, the borrower will be offered a permanent modification of the terms of the mortgage loan, including monthly mortgage payments that are lower than those under the old mortgage loan. Free 2012 tax filing Until the effective date of a permanent modification, the terms of the existing mortgage loan continue to apply. Free 2012 tax filing . Free 2012 tax filing 06 After the mortgage loan is permanently modified under HAMP, if the modified mortgage loan is in good standing on the first, second, or third annual anniversary of the trial period plan effective date (the “Three-year Period”), the servicer must reduce the unpaid principal balance of the mortgage loan on the respective anniversary date by one-third of the initial PRA Forbearance Amount. Free 2012 tax filing (The servicer allocates the entire reduction to the remaining PRA Forbearance Amount. Free 2012 tax filing ) In general, if a HAMP-PRA borrower’s mortgage loan is in good standing and if the HAMP-PRA borrower pays in full the Non-forbearance Portion of the mortgage loan prior to the reduction of the entire PRA Forbearance Amount, the servicer must reduce the remaining outstanding principal balance of the mortgage loan by the remaining PRA Forbearance Amount. Free 2012 tax filing . Free 2012 tax filing 07 In connection with every HAMP loan modification, the HAMP program administrator (acting on behalf of the federal government) provides incentives to the borrower, the servicer, and the investor (that is, the holder of the mortgage loan). Free 2012 tax filing If a HAMP loan modification includes a PRA principal reduction, the HAMP program administrator makes additional incentive payments to the investor. Free 2012 tax filing These additional incentives are called “PRA Investor Incentive Payments” and are generally spread over three years. Free 2012 tax filing The size of the PRA Investor Incentive Payments depends on the amount of principal reduced, the loan-to-value ratio at the time of the HAMP modification, and the loan’s payment history before the modification. Free 2012 tax filing The PRA Investor Incentive Payments range from 18 to 63 percent of the principal amounts reduced. Free 2012 tax filing For purposes of this revenue procedure, the excess of the initial PRA Forbearance Amount of a mortgage loan over the aggregate PRA Investor Incentive Payments scheduled to be paid with respect to that loan is called the “PRA Adjusted Forbearance Amount. Free 2012 tax filing ” . Free 2012 tax filing 08 A PRA Investor Incentive Payment is earned by the investor on each date on which the servicer reduces the unpaid principal balance of the mortgage loan by a portion of the PRA Forbearance Amount (generally, on the first three annual anniversaries of the trial period plan effective date). Free 2012 tax filing . Free 2012 tax filing 09 If a HAMP-PRA borrower’s early payment in full of the Non-forbearance Portion of the mortgage loan accelerates the reduction of the remaining PRA Forbearance Amount (described above in section 2. Free 2012 tax filing 06 of this revenue procedure), the remaining PRA Investor Incentive Payments from the HAMP program administrator are also accelerated. Free 2012 tax filing . Free 2012 tax filing 10 If, prior to completion of the Three-year Period, a mortgage loan ceases to be in good standing because of the HAMP-PRA borrower’s payment history, then the remaining PRA Forbearance Amount is not further reduced and is due when the HAMP-PRA borrower transfers the property, the HAMP-PRA borrower refinances, or otherwise pays off the Non-forbearance Portion of the mortgage loan, or the mortgage loan matures. Free 2012 tax filing SECTION 3. Free 2012 tax filing BACKGROUND—APPLICABLE PROVISIONS OF LAW . Free 2012 tax filing 01 Under § 61 of the Internal Revenue Code, except as otherwise provided in subtitle A, gross income means all income from whatever source derived, including income from discharge of indebtedness. Free 2012 tax filing See § 61(a)(12). Free 2012 tax filing . Free 2012 tax filing 02 Under § 1. Free 2012 tax filing 1001-3 of the Income Tax Regulations, if a debt instrument undergoes a significant modification, then the modification results in an exchange of the original debt instrument for the modified debt instrument. Free 2012 tax filing In general, an agreement to change a term of a debt instrument is a modification at the time the borrower and holder enter into the agreement, even if the change in term is not immediately effective. Free 2012 tax filing However, if the change is conditioned on reasonable closing conditions, a modification occurs on the closing date of the agreement. Free 2012 tax filing See § 1. Free 2012 tax filing 1001-3(c)(6). Free 2012 tax filing . Free 2012 tax filing 03 Under § 108(e)(10), in the case of a debt-for-debt exchange (including a deemed exchange under § 1. Free 2012 tax filing 1001-3), the borrower is treated as having satisfied the original debt instrument with an amount of money equal to the issue price of the new debt instrument. Free 2012 tax filing If the amount of debt satisfied in this manner exceeds that issue price, the borrower realizes discharge of indebtedness income on the exchange. Free 2012 tax filing See also § 1. Free 2012 tax filing 61-12(c). Free 2012 tax filing . Free 2012 tax filing 04 The issue price of a non-publicly traded debt instrument issued for non-publicly traded property generally reflects the amount of principal that the borrower is required to pay to the holder of the instrument. Free 2012 tax filing If a borrower has the ability to avoid paying certain amounts (including principal) without violating the terms of the instrument, the payment schedule for the instrument is generally determined based on an assumption that the borrower will avoid any requirement to make those payments. Free 2012 tax filing See, e. Free 2012 tax filing g. Free 2012 tax filing , §§ 1. Free 2012 tax filing 1272-1(c)(5) and 1. Free 2012 tax filing 1274-2(d). Free 2012 tax filing . Free 2012 tax filing 05 Under § 108(a), gross income does not include any amount that but for § 108(a) would be includible in gross income by reason of the discharge (in whole or in part) of a taxpayer’s indebtedness if (1) the indebtedness discharged is qualified principal residence indebtedness that is discharged before January 1, 2014, or (2) the discharge occurs when the taxpayer is insolvent. Free 2012 tax filing Section 108(a)(1)(E) and 108(a)(1)(B). Free 2012 tax filing (Although § 108 contains other exclusions as well, this revenue procedure focuses on these two exclusions because they are the most likely to apply to the greatest number of HAMP-PRA borrowers. Free 2012 tax filing ) . Free 2012 tax filing 06 Under §§ 108(h) and 163(h)(3)(B), qualified principal residence indebtedness is any indebtedness that is incurred by a borrower to buy, build, or substantially improve the borrower’s principal residence and is secured by that residence. Free 2012 tax filing . Free 2012 tax filing 07 Qualified principal residence indebtedness also includes a loan secured by the borrower’s principal residence that refinances qualified principal residence indebtedness, but only to the extent of the amount of the refinanced indebtedness. Free 2012 tax filing See §§ 108(h) and 163(h)(3)(B)(i). Free 2012 tax filing . Free 2012 tax filing 08 The maximum amount of discharged indebtedness that a borrower may exclude from gross income under the qualified principal residence indebtedness exclusion is $2,000,000 ($1,000,000 for a married individual filing a separate return). Free 2012 tax filing Under § 108(h)(4), if only part of the discharged indebtedness is qualified principal residence indebtedness, then the exclusion applies only to the amount of the discharged indebtedness that exceeds the amount of the loan (determined immediately before the discharge) that is not qualified principal residence indebtedness. Free 2012 tax filing . Free 2012 tax filing 09 Under § 108(a)(3), the insolvency exclusion applies to the lesser of the amount of the debt discharged or the amount by which the taxpayer is insolvent immediately before the discharge. Free 2012 tax filing . Free 2012 tax filing 10 Section 108(d)(3) provides that, for purposes of the insolvency exclusion, a taxpayer is insolvent to the extent that the taxpayer’s total liabilities exceed the fair market value of all of the taxpayer’s assets immediately before the discharge of indebtedness. Free 2012 tax filing Under § 108(a)(2)(C), the qualified principal residence indebtedness exclusion takes precedence over the insolvency exclusion when both exclusions apply to discharged indebtedness, unless the taxpayer elects to apply the insolvency exclusion. Free 2012 tax filing . Free 2012 tax filing 11 If an amount is excluded from gross income as a discharge of qualified principal residence indebtedness, the taxpayer must reduce the basis of the taxpayer’s principal residence. Free 2012 tax filing See § 108(h)(1). Free 2012 tax filing If a discharged amount is excluded from gross income because the taxpayer was insolvent when the discharge occurred, the taxpayer must reduce certain tax attributes (possibly including basis). Free 2012 tax filing See § 108(b). Free 2012 tax filing For further discussion of income from the discharge of indebtedness, the qualified principal residence indebtedness exclusion, the insolvency exclusion, and other exclusions from gross income that may apply, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). Free 2012 tax filing . Free 2012 tax filing 12 Taxpayers who exclude any discharged amounts from gross income report both the exclusion and the resulting reduction in basis or other tax attributes on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). Free 2012 tax filing See Form 982 instructions and Publication 4681. Free 2012 tax filing This form is to be filed with the tax return for the taxable year in which the amount is discharged but is excluded from gross income. Free 2012 tax filing . Free 2012 tax filing 13 Governmental payments made to or on behalf of individuals or other persons are included within the broad definition of gross income under § 61 unless an exception applies. Free 2012 tax filing See Notice 2003-18, 2003-1 C. Free 2012 tax filing B. Free 2012 tax filing 699, and Rev. Free 2012 tax filing Rul. Free 2012 tax filing 79-356, 1979-2 C. Free 2012 tax filing B. Free 2012 tax filing 28. Free 2012 tax filing However, if disbursements are made by a governmental unit to individuals in the interest of the general welfare (that is, are generally based on individual or family need) and the disbursements do not represent compensation for services, then the amounts disbursed are excluded from the income of the recipient (general welfare exclusion). Free 2012 tax filing See Rev. Free 2012 tax filing Rul. Free 2012 tax filing 2005-46, 2005-2 C. Free 2012 tax filing B. Free 2012 tax filing 120, and Rev. Free 2012 tax filing Rul. Free 2012 tax filing 75-246, 1975-1 C. Free 2012 tax filing B. Free 2012 tax filing 24. Free 2012 tax filing . Free 2012 tax filing 14 Under § 451 and § 1. Free 2012 tax filing 451-1(a), a taxpayer that uses the cash receipts and disbursements method of accounting includes income in gross income when the taxpayer actually or constructively receives the income. Free 2012 tax filing . Free 2012 tax filing 15 Section 6041 requires every person engaged in a trade or business (including the United States and its agencies) to (1) file an information return (Form 1099-MISC, Miscellaneous Income, is used for this purpose) for each calendar year in which the person makes, in the course of its trade or business, payments to another person of fixed or determinable income aggregating $600 or more, and (2) furnish a copy of the information return to that other person. Free 2012 tax filing See § 6041(a) and (d) and § 1. Free 2012 tax filing 6041-1(a)(1) and (b). Free 2012 tax filing . Free 2012 tax filing 16 Section 6050P requires applicable entities (including the United States and its agencies, financial entities, and any organization a significant trade or business of which is the lending of money) to (1) file an information return (Form 1099-C, Cancellation of Debt, is used for this purpose) for each calendar year in which it discharges indebtedness of another person of $600 or more, and (2) furnish a copy of the information return to that other person. Free 2012 tax filing See § 6050P(a)-(c) and §§ 1. Free 2012 tax filing 6050P-1(a) and 1. Free 2012 tax filing 6050P-2(a) and (d). Free 2012 tax filing . Free 2012 tax filing 17 Section 6721 imposes penalties with respect to information returns required to be filed with the Service. Free 2012 tax filing These penalties apply in the case of a failure to timely file an information return, a failure to include all required information on the return, or the inclusion of incorrect information on the return. Free 2012 tax filing Section 6724(d)(1) includes Forms 1099-MISC and 1099-C in the term “information return. Free 2012 tax filing ” . Free 2012 tax filing 18 Section 6722 imposes penalties with respect to payee statements required to be furnished to payees. Free 2012 tax filing These penalties apply in the case of a failure to timely furnish a payee statement, a failure to include all required information on the statement, or the inclusion of incorrect information on the payee statement. Free 2012 tax filing Section 6724(d)(2) includes in the term “payee statement” copies of Forms 1099-MISC and 1099-C that are required to be furnished to taxpayers. Free 2012 tax filing SECTION 4. Free 2012 tax filing FEDERAL INCOME TAX TREATMENT . Free 2012 tax filing 01 Because a HAMP modification with a PRA principal reduction is a significant modification, it results in a deemed debt-for-debt exchange in which the HAMP-PRA borrower satisfies the old mortgage loan by issuing a new one. Free 2012 tax filing See § 1. Free 2012 tax filing 1001-3. Free 2012 tax filing At the time of the modification, therefore, under § 108 and this revenue procedure, the HAMP-PRA borrower realizes discharge of indebtedness income equal to any excess of the adjusted issue price of the old mortgage loan (which was satisfied in the deemed exchange) over the issue price of the new (post-modification) mortgage loan. Free 2012 tax filing See also § 61(a)(12) and § 1. Free 2012 tax filing 61-12(c). Free 2012 tax filing . Free 2012 tax filing 02 A HAMP-PRA borrower has the ability to avoid payment of the PRA Adjusted Forbearance Amount. Free 2012 tax filing Because the HAMP-PRA borrower has this ability, that amount should not be taken into account in determining the issue price of the new mortgage loan. Free 2012 tax filing Because the issue price of the new mortgage loan does not include the PRA Adjusted Forbearance Amount, the PRA Adjusted Forbearance Amount contributes to the excess of the adjusted issue price of the old mortgage loan (which was satisfied in the deemed exchange) over the issue price of the new mortgage loan. Free 2012 tax filing . Free 2012 tax filing 03 On the other hand, the investor has not given up its right to receive the remainder of the PRA Forbearance Amount, because the HAMP program administrator is expected to make those payments on the HAMP-PRA borrower’s behalf by making the PRA Investor Incentive Payments. Free 2012 tax filing Because the remainder of the PRA Forbearance Amount is payable in this manner, that remainder is included in the issue price of the new mortgage loan. Free 2012 tax filing . Free 2012 tax filing 04 The Trial Period Conditions are reasonable closing conditions that must be satisfied before the changes to the terms of the mortgage loan become permanent. Free 2012 tax filing Therefore, for purposes of § 1. Free 2012 tax filing 1001-3, the date of the modification is the date of the permanent modification. Free 2012 tax filing . Free 2012 tax filing 05 Unless an exclusion applies, the HAMP-PRA borrower includes in gross income the discharge of indebtedness income described in section 4. Free 2012 tax filing 01 of this revenue procedure for the taxable year in which the permanent modification occurs. Free 2012 tax filing Under certain conditions, however, section 6 of this revenue procedure permits a borrower to report the discharge of indebtedness under HAMP-PRA over the Three-year Period. Free 2012 tax filing The qualified principal residence indebtedness exclusion under § 108(a)(1)(E) and the insolvency exclusion under § 108(a)(1)(B) are two exclusions that may apply to the discharge. Free 2012 tax filing . Free 2012 tax filing 06 The PRA Investor Incentive Payment is treated as a payment on the mortgage loan by the HAMP program administrator on behalf of the HAMP-PRA borrower. Free 2012 tax filing . Free 2012 tax filing 07 To the extent that the HAMP-PRA borrower uses the property as the HAMP-PRA borrower’s principal residence or the property is occupied by the HAMP-PRA borrower’s legal dependent, parent, or grandparent without rent being charged or collected, the HAMP-PRA borrower excludes from his or her gross income under the general welfare exclusion the PRA Investor Incentive Payments that the HAMP program administrator makes to the investor in the mortgage loan. Free 2012 tax filing This is consistent with Rev. Free 2012 tax filing Rul. Free 2012 tax filing 2009-19, 2009-28 I. Free 2012 tax filing R. Free 2012 tax filing B. Free 2012 tax filing 111, which addressed the treatment of Pay-for-Performance Success Payments. Free 2012 tax filing . Free 2012 tax filing 08 To the extent that the HAMP-PRA borrower uses the property as a rental property or holds the property vacant and available for rent, the HAMP-PRA borrower includes PRA Investor Incentive Payments in gross income. Free 2012 tax filing If the HAMP-PRA borrower uses the cash receipts and disbursements method of accounting, then the HAMP-PRA borrower includes a PRA Investor Incentive Payment in gross income in the taxable year in which it is applied as a payment on the HAMP-PRA borrower’s mortgage loan. Free 2012 tax filing . Free 2012 tax filing 09 As described in section 2. Free 2012 tax filing 09 of this revenue procedure, if a HAMP-PRA borrower pays in full the Non-forbearance Portion of the mortgage loan while the loan is in good standing and prior to completion of the Three-year Period, that payment accelerates both the reduction in the remaining PRA Forbearance Amount and the PRA Investor Incentive Payments from the HAMP program administrator. Free 2012 tax filing To the extent that the HAMP-PRA borrower is described in section 4. Free 2012 tax filing 07 of this revenue procedure, the HAMP-PRA borrower excludes from his or her gross income under the general welfare exclusion the accelerated PRA Investor Incentive Payments. Free 2012 tax filing To the extent that the HAMP-PRA borrower is described in section 4. Free 2012 tax filing 08 of this revenue procedure, the HAMP-PRA borrower includes in income in the year of the acceleration the remaining amount of the PRA Investor Incentive Payment. Free 2012 tax filing SECTION 5. Free 2012 tax filing INFORMATION-REPORTING OBLIGATIONS . Free 2012 tax filing 01 Under § 6050P, the investor is required to file a Form 1099-C with respect to a borrower who realizes discharge of indebtedness of $600 or more. Free 2012 tax filing A copy of this form is required to be furnished to the borrower. Free 2012 tax filing . Free 2012 tax filing 02 As stated in sections 4. Free 2012 tax filing 01 and 4. Free 2012 tax filing 04 of this revenue procedure, the HAMP-PRA discharge of indebtedness is realized at the time of the permanent modification of the mortgage loan. Free 2012 tax filing . Free 2012 tax filing 03 An investor is an applicable entity that is required under § 1. Free 2012 tax filing 6050P-1 and this revenue procedure to issue a Form 1099-C for discharge of indebtedness. Free 2012 tax filing Under § 1. Free 2012 tax filing 6050P-1(b)(2)(F), the permanent modification of a mortgage loan is an identifiable event. Free 2012 tax filing Identifiable events determine when Forms 1099-C have to be issued. Free 2012 tax filing Thus, the Form 1099-C is issued for the calendar year in which the permanent mortgage loan modification occurs. Free 2012 tax filing This rule under § 1. Free 2012 tax filing 6050P-1(b)(2)(F) applies even if, under section 6 of this revenue procedure, the HAMP-PRA borrower chooses to treat the HAMP-PRA discharge as being realized at the times when the unpaid principal balance of the new mortgage loan is reduced. Free 2012 tax filing . Free 2012 tax filing 04 The investor (or the loan servicer acting on behalf of the investor) reports the full amount of the discharge on the Form 1099-C regardless of whether some or all of the amount is excludible from income under the qualified principal residence indebtedness exclusion, the insolvency exclusion, or any other exclusion that may apply. Free 2012 tax filing That discharged amount will generally be the PRA Adjusted Forbearance Amount (which does not include the amounts expected to be satisfied by PRA Investor Incentive Payments). Free 2012 tax filing . Free 2012 tax filing 05 To the extent that PRA Investor Incentive Payments are made on behalf of a HAMP-PRA borrower who is described in section 4. Free 2012 tax filing 07 of this revenue procedure, the PRA Investor Incentive Payments are excluded from the gross income of the HAMP-PRA borrower, and thus they are not fixed or determinable income to the HAMP-PRA borrower. Free 2012 tax filing Under § 6041, these payments are not subject to information reporting. Free 2012 tax filing See Notice 2011-14, 2011-11 I. Free 2012 tax filing R. Free 2012 tax filing B. Free 2012 tax filing 544, 546. Free 2012 tax filing . Free 2012 tax filing 06 To the extent that PRA Investor Incentive Payments are made on behalf of a HAMP-PRA borrower who is described in section 4. Free 2012 tax filing 08 of this revenue procedure, the PRA Investor Incentive Payments are includible in gross income as fixed or determinable income in the taxable year required by the HAMP-PRA borrower’s method of accounting. Free 2012 tax filing The payment is subject to the information reporting requirements of § 6041, as described in section 3. Free 2012 tax filing 15 of this revenue procedure. Free 2012 tax filing Accordingly, the HAMP program administrator is required to issue a Form 1099-MISC reporting the PRA Investor Incentive Payment. Free 2012 tax filing SECTION 6. Free 2012 tax filing HAMP-PRA BORROWERS’ REPORTING OF DISCHARGES OF INDEBTEDNESS UNDER HAMP-PRA . Free 2012 tax filing 01 In general. Free 2012 tax filing The HAMP-PRA program began in the last quarter of 2010, and since that time there has been uncertainty about whether the amount of the discharge of indebtedness should be reported in the year of the permanent modification or over the Three-year Period (when the unpaid principal balance on the new mortgage loan is reduced). Free 2012 tax filing As a result, some HAMP-PRA borrowers have been reporting the discharge of indebtedness under HAMP-PRA over the Three-year Period. Free 2012 tax filing Given the temporary nature of the program and the issuance of this guidance after participation in the program has begun, in the interests of equitable and sound tax administration, HAMP-PRA borrowers may report discharges of indebtedness under HAMP-PRA under the rules in this section 6. Free 2012 tax filing A HAMP-PRA borrower may choose to report discharges of indebtedness under HAMP-PRA pursuant to the rules in this section 6 only if the borrower applies the same borrower option under section 6. Free 2012 tax filing 02 of this revenue procedure consistently to the taxable year of the permanent modification and to all subsequent taxable years. Free 2012 tax filing Thus, a HAMP-PRA borrower may not choose a borrower option under section 6. Free 2012 tax filing 02 of this revenue procedure if a statute of limitations has expired for any of the taxable years that are necessary for consistent application of that option. Free 2012 tax filing . Free 2012 tax filing 02 HAMP-PRA borrower options. Free 2012 tax filing A HAMP-PRA borrower may treat the HAMP-PRA discharge as being realized in either of the following ways— (1) One hundred percent of the PRA Adjusted Forbearance Amount at the time of the permanent modification; or (2) One third of the PRA Adjusted Forbearance Amount on each of the first three annual anniversaries of the trial period plan effective date (described in section 2. Free 2012 tax filing 06 of this revenue procedure), when, as required by the terms of the new mortgage loan, the servicer reduces the unpaid principal balance of the new mortgage loan. Free 2012 tax filing If some or all of the reduction in the unpaid principal balance is accelerated (as described in section 2. Free 2012 tax filing 06 of this revenue procedure) because the HAMP-PRA borrower prepays the Non-forbearance Portion of the mortgage loan, then the HAMP-PRA discharge represented by the amount of the reduction that was accelerated is treated as being realized at the time of the accelerated reduction. Free 2012 tax filing . Free 2012 tax filing 03 HAMP-PRA borrowers who choose to realize the HAMP-PRA discharge at the time of the permanent modification. Free 2012 tax filing (1) If a HAMP-PRA borrower chooses to treat the HAMP-PRA discharge as being realized at the time of the permanent modification, then for the taxable year in which the permanent modification occurs, the HAMP-PRA borrower reports on Form 982 the amount, if any, of the discharge that is excluded from gross income and includes in gross income any remaining discharge. Free 2012 tax filing (2) If a HAMP-PRA borrower’s mortgage loan was permanently modified under HAMP in 2010 or 2011, and if the borrower was reporting the discharge of indebtedness using the method described in section 6. Free 2012 tax filing 02(2) of this revenue procedure, then the borrower may change to reporting the discharge of indebtedness using the method described in section 6. Free 2012 tax filing 02(1) of this revenue procedure by filing a 2012 Form 982 with the borrower’s timely filed (with extensions) 2012 income tax return. Free 2012 tax filing This section 6. Free 2012 tax filing 03(2) applies only if the change to reporting the discharge using the method described in section 6. Free 2012 tax filing 02(1) of this revenue procedure does not change the borrower’s federal income tax liability (including any change in federal income tax liability due to a change in basis or tax attributes (under § 108(h)(1) or § 108(b))) for any taxable year prior to the borrower’s 2012 taxable year. Free 2012 tax filing To make this change, the borrower must— (i) Compute the amount of discharge of indebtedness that would be included in income under § 61(a)(12) or excluded from gross income under § 108, basing the computation of the discharge on the facts as of the year of the permanent modification; and (ii) Report on a 2012 Form 982 the reduction in basis or tax attributes (under § 108(h)(1) or § 108(b)) due to the permanent modification that the borrower would have reported on the Form 982 for the taxable year of the permanent modification, minus any reductions due to the permanent modification that the borrower actually reported on Forms 982 for taxable years prior to 2012. Free 2012 tax filing (3) Example. Free 2012 tax filing The following example illustrates the application of section 6. Free 2012 tax filing 03(2) of this revenue procedure. Free 2012 tax filing In 2010, B’s basis in B’s principal residence was $330,000. Free 2012 tax filing In 2010, B’s mortgage loan on the principal residence is permanently modified under HAMP-PRA. Free 2012 tax filing B realized $30,000 of cancellation of indebtedness from the permanent modification, all of which qualifies for the exclusion from income for qualified principal residence indebtedness under § 108(a)(1)(E). Free 2012 tax filing The trial period plan effective date also fell in 2010. Free 2012 tax filing B’s federal income tax return for 2010 was consistent with B’s reporting this discharge of indebtedness using the method described in section 6. Free 2012 tax filing 02(2) of this revenue procedure. Free 2012 tax filing That is, B’s 2010 return did not include income from discharge of indebtedness under HAMP-PRA, nor did the return contain a Form 982 reporting exclusion of any such discharge of indebtedness. Free 2012 tax filing The next year, B reported on line 10(b) of the 2011 Form 982 that B filed with B’s 2011 federal income tax return a $10,000 reduction in basis in the principal residence. Free 2012 tax filing For 2012, B chooses to change to reporting the discharge of indebtedness using the method described in section 6. Free 2012 tax filing 02(1) of this revenue procedure. Free 2012 tax filing Thus, B files a 2012 Form 982 with B’s timely filed (including extensions) 2012 federal income tax return, and on line 10(b) of that form, B reports a $20,000 basis reduction in the principal residence ($30,000 basis reduction that B would have excluded from income in 2010 using the method described in section 6. Free 2012 tax filing 02(1) of this revenue procedure, minus the $10,000 basis reduction that B reported on B’s 2011 Form 982). Free 2012 tax filing (4) If a HAMP-PRA borrower reports the entire HAMP-PRA discharge using the method described in section 6. Free 2012 tax filing 02(1) of this revenue procedure, and if that HAMP-PRA borrower’s mortgage loan ceases to be in good standing during the Three-year Period as described in section 2. Free 2012 tax filing 10 of this revenue procedure, then some or all of the anticipated reductions in the PRA Adjusted Forbearance Amount will not take place. Free 2012 tax filing Because the amount of these anticipated reductions was not included in determining the issue price of the new mortgage loan that, pursuant to § 1. Free 2012 tax filing 1001-3, the HAMP-PRA borrower is deemed to issue in satisfaction of the old mortgage loan, the issue price of the new mortgage loan was understated. Free 2012 tax filing Under these circumstances, the discharge of indebtedness income determined as of the date of the permanent modification will have been overstated. Free 2012 tax filing (5) The Service will not challenge a HAMP-PRA borrower who is described in section 6. Free 2012 tax filing 03(4) of this revenue procedure and who takes the following corrective measures: (i) If a HAMP-PRA borrower included any of the discharge of indebtedness in gross income, the HAMP-PRA borrower may file an amended return that does not include the amount of the discharge of indebtedness that was previously reported as gross income but that, because of the HAMP-PRA borrower’s failure to keep the new mortgage loan in good standing, was not ultimately discharged. Free 2012 tax filing The amended return should be for the taxable year in which the income was included (that is, the year of the permanent modification), provided the applicable statute of limitations remains open for that taxable year. Free 2012 tax filing (ii) If the HAMP-PRA borrower did not include any of the discharge of indebtedness in gross income (that is, if the HAMP-PRA borrower excluded all of it), the HAMP-PRA borrower may file a new Form 982 that the Service will treat as superseding the earlier Form 982. Free 2012 tax filing The new Form 982 will reflect the revised reduction in basis or in tax attributes (under § 108(h)(1) or § 108(b)). Free 2012 tax filing The new Form 982 should be the Form 982 for the year of the permanent modification and should be filed with the return for the taxable year in which the HAMP-PRA borrower’s mortgage loan ceased to be in good standing. Free 2012 tax filing . Free 2012 tax filing 04 HAMP-PRA borrowers who choose to treat the HAMP-PRA discharge as being realized on the dates on which the unpaid principal balance of the mortgage loan is reduced. Free 2012 tax filing (1) If a HAMP-PRA borrower chooses to realize the HAMP-PRA discharge at the times that the unpaid principal balance on the new mortgage loan is reduced, instead of at the time of the permanent modification, then the HAMP-PRA borrower’s federal income tax returns for the taxable year that contains the permanent modification and for the subsequent taxable years must not treat any of the discharge as being realized at the time of the permanent modification and must treat the entire HAMP-PRA discharge as being realized in the amounts—and at the times—of the reductions in the unpaid principal balance. Free 2012 tax filing Except as described in the last sentence of this paragraph, therefore, the income tax return for the year of the permanent modification must include no gross income from—nor report on Form 982 an exclusion of—any amount of the HAMP-PRA discharge. Free 2012 tax filing Instead, the HAMP-PRA discharge is included in gross income (or is reported on Form 982 as excluded from gross income) in the subsequent years in which the unpaid principal balance is reduced. Free 2012 tax filing If the first such reduction occurs in the year of the permanent modification, however, then the amount of any such reduction is reflected as an inclusion or exclusion on the federal income tax return for that year. Free 2012 tax filing (2) A HAMP-PRA borrower who has been using the method described in section 6. Free 2012 tax filing 02(1) of this revenue procedure may change to the method described in section 6. Free 2012 tax filing 02(2) but must comply with the consistency and open-year requirements described in section 6. Free 2012 tax filing 01 of this revenue procedure. Free 2012 tax filing SECTION 7. Free 2012 tax filing PENALTY RELIEF FOR 2012 . Free 2012 tax filing 01 The Service will not assert penalties under § 6721 or § 6722 against an investor for failing to timely file and furnish a 2012 Form 1099-C as required by section 5. Free 2012 tax filing 03 through 5. Free 2012 tax filing 04 and section 8. Free 2012 tax filing 02 of this revenue procedure with respect to discharge of indebtedness resulting from HAMP-PRA permanent modifications that take place during calendar year 2012 if the following requirements are satisfied: (1) Not later than February 28, 2013, a statement is sent to the HAMP-PRA borrower containing the following: (a) The HAMP-PRA borrower’s name, address, and taxpayer identification number; and (b) The date and amount of the discharge of indebtedness (as described in sections 4. Free 2012 tax filing 01 through 4. Free 2012 tax filing 04 of this revenue procedure) that is required to be reported for 2012. Free 2012 tax filing (2) Not later than March 28, 2013, a statement is sent to the Service. Free 2012 tax filing It must be in the form of a single statement that separately lists for each HAMP-PRA borrower the information specified in section 7. Free 2012 tax filing 01(1) of this revenue procedure. Free 2012 tax filing The statement should be sent to the Service at the following address: Internal Revenue Service Center Stop 6728AUSC Austin, TX 73301 . Free 2012 tax filing 02 The Service will not assert penalties under § 6721 or § 6722 with respect to any Forms 1099-MISC for 2012 that sections 5. Free 2012 tax filing 06 and 8. Free 2012 tax filing 02 of this revenue procedure require to be filed with the Service and furnished to taxpayers. Free 2012 tax filing . Free 2012 tax filing 03 Section 8. Free 2012 tax filing 03 and 8. Free 2012 tax filing 04 of this revenue procedure, below, describes penalty relief regarding Forms 1099-C and 1099-MISC for 2010 and 2011. Free 2012 tax filing SECTION 8. Free 2012 tax filing SCOPE AND EFFECTIVE DATE . Free 2012 tax filing 01 This revenue procedure applies to all borrowers, investors, and servicers who participate, or have participated, in the HAMP-PRA, regardless of when the permanent modification occurs. Free 2012 tax filing . Free 2012 tax filing 02 Section 5 of this revenue procedure is effective for Forms 1099-C and 1099-MISC due or filed after January 24, 2013. Free 2012 tax filing . Free 2012 tax filing 03 Because of the effective date in section 8. Free 2012 tax filing 02 of this revenue procedure, an investor is not subject to penalties under § 6721 or § 6722 on the grounds that the investor failed to timely file and furnish a 2010 or 2011 Form 1099-C as described in section 5. Free 2012 tax filing 03 through 5. Free 2012 tax filing 04 of this revenue procedure (or on the grounds that the investor filed or furnished a 2010 or 2011 Form 1099-C that is inconsistent with section 5. Free 2012 tax filing 03 through 5. Free 2012 tax filing 04 of this revenue procedure), provided that the investor demonstrates a good faith attempt to comply with the requirements of § 6050P and that the failure was not due to willful neglect. Free 2012 tax filing . Free 2012 tax filing 04 Because of the effective date in section 8. Free 2012 tax filing 02 of this revenue procedure, the Service will not assert penalties under § 6721 or § 6722 on the grounds of a failure to timely file and furnish a 2010 or 2011 Form 1099-MISC, as described in section 5. Free 2012 tax filing 06 of this revenue procedure. Free 2012 tax filing SECTION 9. Free 2012 tax filing DRAFTING INFORMATION The principal authors of this revenue procedure are Ronald J. Free 2012 tax filing Goldstein of the Office of Chief Counsel (Procedure and Administration); Shareen S. Free 2012 tax filing Pflanz and Sheldon A. Free 2012 tax filing Iskow of the Office of Chief Counsel (Income Tax and Accounting); and Andrea M. Free 2012 tax filing Hoffenson of the Office of Chief Counsel (Financial Institutions and Products). Free 2012 tax filing For further information regarding this revenue procedure, contact Procedure and Administration branch 1 at (202) 622-4910, Income Tax and Accounting branch 4 at (202) 622-4920, or Financial Institutions and Products branch 1 at (202) 622-3920 (not toll-free calls). Free 2012 tax filing Prev  Up  Next   Home   More Internal Revenue Bulletins
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More Taxpayers Filing from Home Computers in 2014, Many Taxpayers Eligible to Use Free File

IR-2014-28, March 13, 2014

WASHINGTON — More than 27 million taxpayers have filed their tax returns from home computers so far this year, an increase of almost 6 percent compared to last year.

These 27 million taxpayers used a variety of software products to prepare and e-file their own returns. However, the IRS reminds people that they can prepare and e-file their federal tax returns online for free through Free File at IRS.gov. Free File has an option for almost everyone, either through brand-name software or online fillable forms.

The Free File program is a public-private partnership between the IRS and the Free File Alliance, LLC. The Alliance is a consortium of 14 leading tax software providers who make their products available exclusively at IRS.gov. All Free File members meet security requirements and use the latest in encryption technology to protect taxpayer information.

Seventy percent of taxpayers are eligible for easy-to-use Free File software because their income was $58,000 or less in 2013. People who made more than $58,000 and who are comfortable preparing their own returns can use Free File Fillable Forms, the electronic version of IRS paper forms.

Each Free File software provider sets its own criteria for eligibility, generally based on income, age, state residency or military service. However, taxpayers can quickly find a match by using the “help me find Free File software” tool. Or, taxpayers can review all providers and their offers. Some software providers also offer state tax software and display on their landing pages whether it is free or if there is a fee.   

Free File Fillable Forms is more basic, similar to completing a paper Form 1040. The program performs some math calculations and provides links to some IRS publications. It also can be filed electronically for free. However, it does not support any state tax returns.

The total number of individual income tax returns e-filed so far this year is 62.2 million. E-file includes both returns filed from home computers and returns e-filed by professional tax return preparers.  [The filing season statistics table follows.]

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2014 FILING SEASON STATISTICS

Cumulative statistics comparing 3/08/13 and 3/07/14

Individual Income Tax Returns:

2013

2014

% Change

Total Receipts

67,143,000

67,183,000

0.1

Total Processed

60,944,000

65,662,000

 7.7

 

 

 

 

E-filing Receipts:

 

 

 

TOTAL           

61,488,000

62,213,000

1.2

Tax Professionals

35,585,000

34,816,000

-2.2

Self-prepared

25,903,000

27,397,000

5.8

 

 

 

 

Web Usage:

 

 

 

Visits to IRS.gov

197,651,780

181,196,235

-8.3

 

 

 

 

Total Refunds:

 

 

 

Number

53,447,000

55,434,000

3.7

Amount

$154.696

Billion

$164.586

Billion

6.4

Average refund

$2,894

$2,969

2.6

 

 

 

 

Direct Deposit Refunds:

 

 

 

Number

47,177,000

47,976,000

1.7

Amount

$142.861

Billion

$146.305

Billion

2.4

Average refund

$3,028

$3,050

0.7

 

Page Last Reviewed or Updated: 13-Mar-2014

The Free 2012 Tax Filing

Free 2012 tax filing 10. Free 2012 tax filing   Education Savings Bond Program Table of Contents Introduction Who Can Cash In Bonds Tax FreeAdjusted qualified education expenses. Free 2012 tax filing Eligible educational institution. Free 2012 tax filing Dependent for whom you claim an exemption. Free 2012 tax filing MAGI when using Form 1040A. Free 2012 tax filing MAGI when using Form 1040. Free 2012 tax filing Figuring the Tax-Free AmountEffect of the Amount of Your Income on the Amount of Your Exclusion Claiming the Exclusion Introduction Generally, you must pay tax on the interest earned on U. Free 2012 tax filing S. Free 2012 tax filing savings bonds. Free 2012 tax filing If you do not include the interest in income in the years it is earned, you must include it in your income in the year in which you cash in the bonds. Free 2012 tax filing However, when you cash in certain savings bonds under an education savings bond program, you may be able to exclude the interest from income. Free 2012 tax filing Who Can Cash In Bonds Tax Free You may be able to cash in qualified U. Free 2012 tax filing S. Free 2012 tax filing savings bonds without having to include in your income some or all of the interest earned on the bonds if you meet the following conditions. Free 2012 tax filing You pay qualified education expenses for yourself, your spouse, or a dependent for whom you claim an exemption on your return. Free 2012 tax filing Your modified adjusted gross income (MAGI) is less than the amount specified for your filing status. Free 2012 tax filing Your filing status is not married filing separately. Free 2012 tax filing Qualified U. Free 2012 tax filing S. Free 2012 tax filing savings bonds. Free 2012 tax filing   A qualified U. Free 2012 tax filing S. Free 2012 tax filing savings bond is a series EE bond issued after 1989 or a series I bond. Free 2012 tax filing The bond must be issued either in your name (as the sole owner) or in the name of both you and your spouse (as co-owners). Free 2012 tax filing   The owner must be at least 24 years old before the bond's issue date. Free 2012 tax filing The issue date is printed on the front of the savings bond. Free 2012 tax filing    The issue date is not necessarily the date of purchase—it will be the first day of the month in which the bond is purchased (or posted, if bought electronically). Free 2012 tax filing Qualified education expenses. Free 2012 tax filing   These include the following items you pay for either yourself, your spouse, or a dependent for whom you claim an exemption. Free 2012 tax filing Tuition and fees required to enroll at or attend an eligible educational institution. Free 2012 tax filing Qualified education expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Free 2012 tax filing Contributions to a qualified tuition program (QTP) (see How Much Can You Contribute in chapter 8, Qualified Tuition Program). Free 2012 tax filing Contributions to a Coverdell education savings account (ESA) (see Contributions in chapter 7, Coverdell Education Savings Account). Free 2012 tax filing Adjusted qualified education expenses. Free 2012 tax filing   You must reduce your qualified education expenses by all of the following tax-free benefits. Free 2012 tax filing Tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions). Free 2012 tax filing Expenses used to figure the tax-free portion of distributions from a Coverdell ESA (see Qualified Education Expenses in chapter 7, Coverdell Education Savings Account). Free 2012 tax filing Expenses used to figure the tax-free portion of distributions from a QTP (see Qualified education expenses in chapter 8, Qualified Tuition Program). Free 2012 tax filing Any tax-free payments (other than gifts or inheritances) received as educational assistance, such as: Veterans' educational assistance benefits (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Qualified tuition reductions (see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), or Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ). Free 2012 tax filing Any expenses used in figuring the American opportunity and lifetime learning credits. Free 2012 tax filing See What Expenses Qualify in chapter 2, American Opportunity Credit, and What Expenses Qualify in chapter 3, Lifetime Learning Credit, for more information. Free 2012 tax filing Eligible educational institution. Free 2012 tax filing   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Free 2012 tax filing S. Free 2012 tax filing Department of Education. Free 2012 tax filing It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Free 2012 tax filing The educational institution should be able to tell you if it is an eligible educational institution. Free 2012 tax filing   Certain educational institutions located outside the United States also participate in the U. Free 2012 tax filing S. Free 2012 tax filing Department of Education's Federal Student Aid (FSA) programs. Free 2012 tax filing Dependent for whom you claim an exemption. Free 2012 tax filing   You claim an exemption for a person if you list his or her name and other required information on Form 1040 (or Form 1040A), line 6c. Free 2012 tax filing Modified adjusted gross income (MAGI). Free 2012 tax filing   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return without taking into account this interest exclusion. Free 2012 tax filing However, as discussed below, there may be other modifications. Free 2012 tax filing MAGI when using Form 1040A. Free 2012 tax filing   If you file Form 1040A, your MAGI is the AGI on line 22 of that form figured without taking into account any savings bond interest exclusion and modified by adding back any amount on line 18 (student loan interest deduction) and line 19 (tuition and fees deduction). Free 2012 tax filing MAGI when using Form 1040. Free 2012 tax filing   If you file Form 1040, your MAGI is the AGI on line 38 of that form figured without taking into account any savings bond interest exclusion and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, Exclusion of income by bona fide residents of Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for student loan interest, Deduction for tuition and fees, and Deduction for domestic production activities. Free 2012 tax filing    Use the worksheet in the instructions for line 9 of Form 8815 to figure your MAGI. Free 2012 tax filing If you claim any of the exclusion or deduction items (1)–(6) listed above, add the amount of the exclusion or deduction to the amount on line 5 of the worksheet. Free 2012 tax filing Do not add in the deduction for (7) student loan interest, and (8) tuition and fees, or (9) domestic production activities because line 4 of the worksheet already includes these amounts. Free 2012 tax filing Enter the total on Form 8815, line 9, as your modified adjusted gross income (MAGI). Free 2012 tax filing    Because the deduction for interest expenses attributable to royalties and other investments is limited to your net investment income, you cannot figure the deduction until you have figured this interest exclusion. Free 2012 tax filing Therefore, if you had interest expenses attributable to royalties and deductible on Schedule E (Form 1040), Supplemental Income and Loss, you must make a special computation of your deductible interest without regard to this exclusion to figure the net royalty income included in your MAGI. Free 2012 tax filing See Royalties included in MAGI under Education Savings Bond Program in Publication 550, chapter 1. Free 2012 tax filing Figuring the Tax-Free Amount If the total you receive when you cash in the bonds is not more than the adjusted qualified education expenses for the year, all of the interest on the bonds may be tax free. Free 2012 tax filing However, if the total you receive when you cash in the bonds is more than the adjusted expenses, only part of the interest may be tax free. Free 2012 tax filing To determine the tax-free amount, multiply the interest part of the proceeds by a fraction. Free 2012 tax filing The numerator (top part) of the fraction is the adjusted qualified education expenses (AQEE) you paid during the year. Free 2012 tax filing The denominator (bottom part) of the fraction is the total proceeds you received during the year. Free 2012 tax filing Example. Free 2012 tax filing In February 2013, Mark and Joan Washington, a married couple, cashed a qualified series EE U. Free 2012 tax filing S. Free 2012 tax filing savings bond. Free 2012 tax filing They received proceeds of $9,000, representing principal of $6,000 and interest of $3,000. Free 2012 tax filing In 2013, they paid $7,650 of their daughter's college tuition. Free 2012 tax filing They are not claiming an American opportunity or lifetime learning credit for those expenses, and their daughter does not have any tax-free educational assistance. Free 2012 tax filing Their MAGI for 2013 was $80,000. Free 2012 tax filing   $3,000 interest × $7,650 AQEE  $9,000 proceeds = $2,550 tax-free interest   They can exclude $2,550 of interest in 2013. Free 2012 tax filing They must pay tax on the remaining $450 ($3,000 − $2,550) interest. Free 2012 tax filing Effect of the Amount of Your Income on the Amount of Your Exclusion The amount of your interest exclusion is gradually reduced (phased out) based on your MAGI and filing status. Free 2012 tax filing Claiming the Exclusion Use Form 8815 to figure your education savings bond interest exclusion. Free 2012 tax filing Enter your exclusion on line 3 of Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. Free 2012 tax filing Attach Form 8815 to your tax return. Free 2012 tax filing Prev  Up  Next   Home   More Online Publications