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Free income tax help 1. Free income tax help   Gain or Loss Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesGain or Loss From Sales and Exchanges Abandonments Foreclosures and RepossessionsAmount realized on a nonrecourse debt. Free income tax help Amount realized on a recourse debt. Free income tax help Involuntary ConversionsCondemnations Nontaxable ExchangesLike-Kind Exchanges Other Nontaxable Exchanges Transfers to Spouse Rollover of Gain From Publicly Traded Securities Gains on Sales of Qualified Small Business Stock Exclusion of Gain From Sale of DC Zone Assets Topics - This chapter discusses: Sales and exchanges Abandonments Foreclosures and repossessions Involuntary conversions Nontaxable exchanges Transfers to spouse Rollovers and exclusions for certain capital gains Useful Items - You may want to see: Publication 523 Selling Your Home 537 Installment Sales 547 Casualties, Disasters, and Thefts 550 Investment Income and Expenses 551 Basis of Assets 908 Bankruptcy Tax Guide 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 1040 U. Free income tax help S. Free income tax help Individual Income Tax Return 1040X Amended U. Free income tax help S. Free income tax help Individual Income Tax Return 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets Although the discussions in this chapter may at times refer mainly to individuals, many of the rules discussed also apply to taxpayers other than individuals. Free income tax help However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. Free income tax help See chapter 5 for information about getting publications and forms. Free income tax help Sales and Exchanges A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Free income tax help An exchange is a transfer of property for other property or services. Free income tax help The following discussions describe the kinds of transactions that are treated as sales or exchanges and explain how to figure gain or loss. Free income tax help Sale or lease. Free income tax help    Some agreements that seem to be leases may really be conditional sales contracts. Free income tax help The intention of the parties to the agreement can help you distinguish between a sale and a lease. Free income tax help   There is no test or group of tests to prove what the parties intended when they made the agreement. Free income tax help You should consider each agreement based on its own facts and circumstances. Free income tax help For more information, see chapter 3 in Publication 535, Business Expenses. Free income tax help Cancellation of a lease. Free income tax help    Payments received by a tenant for the cancellation of a lease are treated as an amount realized from the sale of property. Free income tax help Payments received by a landlord (lessor) for the cancellation of a lease are essentially a substitute for rental payments and are taxed as ordinary income in the year in which they are received. Free income tax help Copyright. Free income tax help    Payments you receive for granting the exclusive use of (or right to exploit) a copyright throughout its life in a particular medium are treated as received from the sale of property. Free income tax help It does not matter if the payments are a fixed amount or a percentage of receipts from the sale, performance, exhibition, or publication of the copyrighted work, or an amount based on the number of copies sold, performances given, or exhibitions made. Free income tax help Nor does it matter if the payments are made over the same period as that covering the grantee's use of the copyrighted work. Free income tax help   If the copyright was used in your trade or business and you held it longer than a year, the gain or loss may be a section 1231 gain or loss. Free income tax help For more information, see Section 1231 Gains and Losses in chapter 3. Free income tax help Easement. Free income tax help   The amount received for granting an easement is subtracted from the basis of the property. Free income tax help If only a specific part of the entire tract of property is affected by the easement, only the basis of that part is reduced by the amount received. Free income tax help If it is impossible or impractical to separate the basis of the part of the property on which the easement is granted, the basis of the whole property is reduced by the amount received. Free income tax help   Any amount received that is more than the basis to be reduced is a taxable gain. Free income tax help The transaction is reported as a sale of property. Free income tax help   If you transfer a perpetual easement for consideration and do not keep any beneficial interest in the part of the property affected by the easement, the transaction will be treated as a sale of property. Free income tax help However, if you make a qualified conservation contribution of a restriction or easement granted in perpetuity, it is treated as a charitable contribution and not a sale or exchange, even though you keep a beneficial interest in the property affected by the easement. Free income tax help   If you grant an easement on your property (for example, a right-of-way over it) under condemnation or threat of condemnation, you are considered to have made a forced sale, even though you keep the legal title. Free income tax help Although you figure gain or loss on the easement in the same way as a sale of property, the gain or loss is treated as a gain or loss from a condemnation. Free income tax help See Gain or Loss From Condemnations, later. Free income tax help Property transferred to satisfy debt. Free income tax help   A transfer of property to satisfy a debt is an exchange. Free income tax help Note's maturity date extended. Free income tax help   The extension of a note's maturity date is not treated as an exchange of an outstanding note for a new and different note. Free income tax help Also, it is not considered a closed and completed transaction that would result in a gain or loss. Free income tax help However, an extension will be treated as a taxable exchange of the outstanding note for a new and materially different note if the changes in the terms of the note are significant. Free income tax help Each case must be determined by its own facts. Free income tax help For more information, see Regulations section 1. Free income tax help 1001-3. Free income tax help Transfer on death. Free income tax help   The transfer of property of a decedent to an executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or exchange or other disposition. Free income tax help No taxable gain or deductible loss results from the transfer. Free income tax help Bankruptcy. Free income tax help   Generally, a transfer (other than by sale or exchange) of property from a debtor to a bankruptcy estate is not treated as a disposition. Free income tax help Consequently, the transfer generally does not result in gain or loss. Free income tax help For more information, see Publication 908, Bankruptcy Tax Guide. Free income tax help Gain or Loss From Sales and Exchanges You usually realize gain or loss when property is sold or exchanged. Free income tax help A gain is the amount you realize from a sale or exchange of property that is more than its adjusted basis. Free income tax help A loss is the adjusted basis of the property that is more than the amount you realize. Free income tax help   Table 1-1. Free income tax help How To Figure Whether You Have a Gain or Loss IF your. Free income tax help . Free income tax help . Free income tax help THEN you have a. Free income tax help . Free income tax help . Free income tax help Adjusted basis is more than the amount realized, Loss. Free income tax help Amount realized is more than the adjusted basis, Gain. Free income tax help Basis. Free income tax help   You must know the basis of your property to determine whether you have a gain or loss from its sale or other disposition. Free income tax help The basis of property you buy is usually its cost. Free income tax help However, if you acquired the property by gift, inheritance, or in some way other than buying it, you must use a basis other than its cost. Free income tax help See Basis Other Than Cost in Publication 551, Basis of Assets. Free income tax help Special rules apply to property acquired from a decedent who died in 2010 and the executor made the election to file Form 8939, Allocation of Increase in Basis for Property Received From a Decedent. Free income tax help See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. Free income tax help Adjusted basis. Free income tax help   The adjusted basis of property is your original cost or other basis plus (increased by) certain additions and minus (decreased by) certain deductions. Free income tax help Increases include costs of any improvements having a useful life of more than 1 year. Free income tax help Decreases include depreciation and casualty losses. Free income tax help For more details and additional examples, see Adjusted Basis in Publication 551. Free income tax help Amount realized. Free income tax help   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (defined below) of all property or services you receive. Free income tax help The amount you realize also includes any of your liabilities that were assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. Free income tax help Fair market value. Free income tax help   Fair market value (FMV) is the price at which the property would change hands between a buyer and a seller when both have reasonable knowledge of all the necessary facts and neither is being forced to buy or sell. Free income tax help If parties with adverse interests place a value on property in an arm's-length transaction, that is strong evidence of FMV. Free income tax help If there is a stated price for services, this price is treated as the FMV unless there is evidence to the contrary. Free income tax help Example. Free income tax help You used a building in your business that cost you $70,000. Free income tax help You made certain permanent improvements at a cost of $20,000 and deducted depreciation totaling $10,000. Free income tax help You sold the building for $100,000 plus property having an FMV of $20,000. Free income tax help The buyer assumed your real estate taxes of $3,000 and a mortgage of $17,000 on the building. Free income tax help The selling expenses were $4,000. Free income tax help Your gain on the sale is figured as follows. Free income tax help Amount realized:     Cash $100,000   FMV of property received 20,000   Real estate taxes assumed by buyer 3,000   Mortgage assumed by  buyer 17,000   Total 140,000   Minus: Selling expenses 4,000 $136,000 Adjusted basis:     Cost of building $70,000   Improvements 20,000   Total $90,000   Minus: Depreciation 10,000   Adjusted basis   $80,000 Gain on sale $56,000 Amount recognized. Free income tax help   Your gain or loss realized from a sale or exchange of property is usually a recognized gain or loss for tax purposes. Free income tax help Recognized gains must be included in gross income. Free income tax help Recognized losses are deductible from gross income. Free income tax help However, your gain or loss realized from certain exchanges of property is not recognized for tax purposes. Free income tax help See Nontaxable Exchanges, later. Free income tax help Also, a loss from the sale or other disposition of property held for personal use is not deductible, except in the case of a casualty or theft. Free income tax help Interest in property. Free income tax help   The amount you realize from the disposition of a life interest in property, an interest in property for a set number of years, or an income interest in a trust is a recognized gain under certain circumstances. Free income tax help If you received the interest as a gift, inheritance, or in a transfer from a spouse or former spouse incident to a divorce, the amount realized is a recognized gain. Free income tax help Your basis in the property is disregarded. Free income tax help This rule does not apply if all interests in the property are disposed of at the same time. Free income tax help Example 1. Free income tax help Your father dies and leaves his farm to you for life with a remainder interest to your younger brother. Free income tax help You decide to sell your life interest in the farm. Free income tax help The entire amount you receive is a recognized gain. Free income tax help Your basis in the farm is disregarded. Free income tax help Example 2. Free income tax help The facts are the same as in Example 1, except that your brother joins you in selling the farm. Free income tax help The entire interest in the property is sold, so your basis in the farm is not disregarded. Free income tax help Your gain or loss is the difference between your share of the sales price and your adjusted basis in the farm. Free income tax help Canceling a sale of real property. Free income tax help   If you sell real property under a sales contract that allows the buyer to return the property for a full refund and the buyer does so, you may not have to recognize gain or loss on the sale. Free income tax help If the buyer returns the property in the year of sale, no gain or loss is recognized. Free income tax help This cancellation of the sale in the same year it occurred places both you and the buyer in the same positions you were in before the sale. Free income tax help If the buyer returns the property in a later tax year, you must recognize gain (or loss, if allowed) in the year of the sale. Free income tax help When the property is returned in a later year, you acquire a new basis in the property. Free income tax help That basis is equal to the amount you pay to the buyer. Free income tax help Bargain Sale If you sell or exchange property for less than fair market value with the intent of making a gift, the transaction is partly a sale or exchange and partly a gift. Free income tax help You have a gain if the amount realized is more than your adjusted basis in the property. Free income tax help However, you do not have a loss if the amount realized is less than the adjusted basis of the property. Free income tax help Bargain sales to charity. Free income tax help   A bargain sale of property to a charitable organization is partly a sale or exchange and partly a charitable contribution. Free income tax help If a charitable deduction for the contribution is allowable, you must allocate your adjusted basis in the property between the part sold and the part contributed based on the fair market value of each. Free income tax help The adjusted basis of the part sold is figured as follows. Free income tax help Adjusted basis of entire property × Amount realized (fair market value of part sold)   Fair market value of entire property   Based on this allocation rule, you will have a gain even if the amount realized is not more than your adjusted basis in the property. Free income tax help This allocation rule does not apply if a charitable contribution deduction is not allowable. Free income tax help   See Publication 526, Charitable Contributions, for information on figuring your charitable contribution. Free income tax help Example. Free income tax help You sold property with a fair market value of $10,000 to a charitable organization for $2,000 and are allowed a deduction for your contribution. Free income tax help Your adjusted basis in the property is $4,000. Free income tax help Your gain on the sale is $1,200, figured as follows. Free income tax help Sales price $2,000 Minus: Adjusted basis of part sold ($4,000 × ($2,000 ÷ $10,000)) 800 Gain on the sale $1,200 Property Used Partly for Business or Rental Generally, if you sell or exchange property you used partly for business or rental purposes and partly for personal purposes, you must figure the gain or loss on the sale or exchange as though you had sold two separate pieces of property. Free income tax help You must subtract depreciation you took or could have taken from the basis of the business or rental part. Free income tax help However, see the special rule below for a home used partly for business or rental. Free income tax help You must allocate the selling price, selling expenses, and the basis of the property between the business or rental part and the personal part. Free income tax help Gain or loss on the business or rental part of the property may be a capital gain or loss or an ordinary gain or loss, as discussed in chapter 3 under Section 1231 Gains and Losses. Free income tax help Any gain on the personal part of the property is a capital gain. Free income tax help You cannot deduct a loss on the personal part. Free income tax help Home used partly for business or rental. Free income tax help    If you use property partly as a home and partly for business or to produce rental income, the computation and treatment of any gain on the sale depends partly on whether the business or rental part of the property is part of your home or separate from it. Free income tax help See Property Used Partly for Business or Rental, in Publication 523. Free income tax help Property Changed to Business or Rental Use You cannot deduct a loss on the sale of property you purchased or constructed for use as your home and used as your home until the time of sale. Free income tax help You can deduct a loss on the sale of property you acquired for use as your home but changed to business or rental property and used as business or rental property at the time of sale. Free income tax help However, if the adjusted basis of the property at the time of the change was more than its fair market value, the loss you can deduct is limited. Free income tax help Figure the loss you can deduct as follows. Free income tax help Use the lesser of the property's adjusted basis or fair market value at the time of the change. Free income tax help Add to (1) the cost of any improvements and other increases to basis since the change. Free income tax help Subtract from (2) depreciation and any other decreases to basis since the change. Free income tax help Subtract the amount you realized on the sale from the result in (3). Free income tax help If the amount you realized is more than the result in (3), treat this result as zero. Free income tax help The result in (4) is the loss you can deduct. Free income tax help Example. Free income tax help You changed your main home to rental property 5 years ago. Free income tax help At the time of the change, the adjusted basis of your home was $75,000 and the fair market value was $70,000. Free income tax help This year, you sold the property for $55,000. Free income tax help You made no improvements to the property but you have depreciation expense of $12,620 over the 5 prior years. Free income tax help Although your loss on the sale is $7,380 [($75,000 − $12,620) − $55,000], the amount you can deduct as a loss is limited to $2,380, figured as follows. Free income tax help Lesser of adjusted basis or fair market value at time of the change $70,000 Plus: Cost of any improvements and any other additions to basis after the change -0-   70,000 Minus: Depreciation and any other decreases to basis after the change 12,620   57,380 Minus: Amount you realized from the sale 55,000 Deductible loss $2,380 Gain. Free income tax help   If you have a gain on the sale, you generally must recognize the full amount of the gain. Free income tax help You figure the gain by subtracting your adjusted basis from your amount realized, as described earlier. Free income tax help   You may be able to exclude all or part of the gain if you owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. Free income tax help However, you may not be able to exclude the part of the gain allocated to any period of nonqualified use. Free income tax help   For more information, see Business Use or Rental of Home in Publication 523. Free income tax help In addition, special rules apply if the home sold was acquired in a like-kind exchange. Free income tax help See Special Situations in Publication 523. Free income tax help Also see Like-Kind Exchanges, later. Free income tax help Abandonments The abandonment of property is a disposition of property. Free income tax help You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership but without passing it on to anyone else. Free income tax help Generally, abandonment is not treated as a sale or exchange of the property. Free income tax help If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Free income tax help If your adjusted basis is more than the amount you realize (if any), then you have a loss. Free income tax help Loss from abandonment of business or investment property is deductible as a loss. Free income tax help A loss from an abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Free income tax help This rule also applies to leasehold improvements the lessor made for the lessee that were abandoned. Free income tax help If the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed later under Foreclosure and Repossessions. Free income tax help The abandonment loss is deducted in the tax year in which the loss is sustained. Free income tax help If the abandoned property is secured by debt, special rules apply. Free income tax help The tax consequences of abandonment of property that is secured by debt depend on whether you are personally liable for the debt (recourse debt) or you are not personally liable for the debt (nonrecourse debt). Free income tax help For more information, including examples, see chapter 3 of Publication 4681. Free income tax help You cannot deduct any loss from abandonment of your home or other property held for personal use only. Free income tax help Cancellation of debt. Free income tax help   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you may realize ordinary income equal to the canceled debt. Free income tax help This income is separate from any loss realized from abandonment of the property. Free income tax help   You must report this income on your tax return unless one of the following applies. Free income tax help The cancellation is intended as a gift. Free income tax help The debt is qualified farm debt. Free income tax help The debt is qualified real property business debt. Free income tax help You are insolvent or bankrupt. Free income tax help The debt is qualified principal residence indebtedness. Free income tax help File Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the income exclusion. Free income tax help For more information, including other exceptions and exclusion, see Publication 4681. Free income tax help Forms 1099-A and 1099-C. Free income tax help   If you abandon property that secures a loan and the lender knows the property has been abandoned, the lender should send you Form 1099-A showing information you need to figure your loss from the abandonment. Free income tax help However, if your debt is canceled and the lender must file Form 1099-C, the lender may include the information about the abandonment on that form instead of on Form 1099-A, and send you Form 1099-C only. Free income tax help The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Free income tax help For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Free income tax help Foreclosures and Repossessions If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. Free income tax help The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Free income tax help This is true even if you voluntarily return the property to the lender. Free income tax help You also may realize ordinary income from cancellation of debt if the loan balance is more than the fair market value of the property. Free income tax help Buyer's (borrower's) gain or loss. Free income tax help   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. Free income tax help The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Free income tax help See Gain or Loss From Sales and Exchanges, earlier. Free income tax help You can use Table 1-2 to figure your gain or loss from a foreclosure or repossession. Free income tax help Amount realized on a nonrecourse debt. Free income tax help   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full debt canceled by the transfer. Free income tax help The full canceled debt is included even if the fair market value of the property is less than the canceled debt. Free income tax help Example 1. Free income tax help Chris bought a new car for $15,000. Free income tax help He paid $2,000 down and borrowed the remaining $13,000 from the dealer's credit company. Free income tax help Chris is not personally liable for the loan (nonrecourse debt), but pledges the new car as security. Free income tax help The credit company repossessed the car because he stopped making loan payments. Free income tax help The balance due after taking into account the payments Chris made was $10,000. Free income tax help The fair market value of the car when repossessed was $9,000. Free income tax help The amount Chris realized on the repossession is $10,000. Free income tax help That is the outstanding amount of the debt canceled by the repossession, even though the car's fair market value is less than $10,000. Free income tax help Chris figures his gain or loss on the repossession by comparing the amount realized ($10,000) with his adjusted basis ($15,000). Free income tax help He has a $5,000 nondeductible loss. Free income tax help Example 2. Free income tax help Abena paid $200,000 for her home. Free income tax help She paid $15,000 down and borrowed the remaining $185,000 from a bank. Free income tax help Abena is not personally liable for the loan (nonrecourse debt), but pledges the house as security. Free income tax help The bank foreclosed on the loan because Abena stopped making payments. Free income tax help When the bank foreclosed on the loan, the balance due was $180,000, the fair market value of the house was $170,000, and Abena's adjusted basis was $175,000 due to a casualty loss she had deducted. Free income tax help The amount Abena realized on the foreclosure is $180,000, the balance due and debt canceled by the foreclosure. Free income tax help She figures her gain or loss by comparing the amount realized ($180,000) with her adjusted basis ($175,000). Free income tax help She has a $5,000 realized gain. Free income tax help Amount realized on a recourse debt. Free income tax help   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. Free income tax help You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. Free income tax help The amount realized does not include the canceled debt that is your income from cancellation of debt. Free income tax help See Cancellation of debt, below. Free income tax help Seller's (lender's) gain or loss on repossession. Free income tax help   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. Free income tax help For more information, see Repossession in Publication 537. Free income tax help    Table 1-2. Free income tax help Worksheet for Foreclosures and Repossessions Part 1. Free income tax help Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Free income tax help Complete this part only  if you were personally liable for the debt. Free income tax help Otherwise,  go to Part 2. Free income tax help   1. Free income tax help Enter the amount of outstanding debt immediately before the transfer of   property reduced by any amount for which you remain personally liable after   the transfer of property   2. Free income tax help Enter the fair market value of the transferred property   3. Free income tax help Ordinary income from cancellation of debt upon foreclosure or    repossession. Free income tax help * Subtract line 2 from line 1. Free income tax help   If less than zero, enter zero   Part 2. Free income tax help Figure your gain or loss from foreclosure or repossession. Free income tax help   4. Free income tax help If you completed Part 1, enter the smaller of line 1 or line 2. Free income tax help   If you did not complete Part 1, enter the outstanding debt immediately before   the transfer of property   5. Free income tax help Enter any proceeds you received from the foreclosure sale   6. Free income tax help Add lines 4 and 5   7. Free income tax help Enter the adjusted basis of the transferred property   8. Free income tax help Gain or loss from foreclosure or repossession. Free income tax help Subtract line 7  from line 6   * The income may not be taxable. Free income tax help See Cancellation of debt. Free income tax help Cancellation of debt. Free income tax help   If property that is repossessed or foreclosed on secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the fair market value of the property. Free income tax help This income is separate from any gain or loss realized from the foreclosure or repossession. Free income tax help Report the income from cancellation of a debt related to a business or rental activity as business or rental income. Free income tax help    You can use Table 1-2 to figure your income from cancellation of debt. Free income tax help   You must report this income on your tax return unless one of the following applies. Free income tax help The cancellation is intended as a gift. Free income tax help The debt is qualified farm debt. Free income tax help The debt is qualified real property business debt. Free income tax help You are insolvent or bankrupt. Free income tax help The debt is qualified principal residence indebtedness. Free income tax help File Form 982 to report the income exclusion. Free income tax help Example 1. Free income tax help Assume the same facts as in Example 1 under Amount realized on a nonrecourse debt, earlier, except Chris is personally liable for the car loan (recourse debt). Free income tax help In this case, the amount he realizes is $9,000. Free income tax help This is the lesser of the canceled debt ($10,000) or the car's fair market value ($9,000). Free income tax help Chris figures his gain or loss on the repossession by comparing the amount realized ($9,000) with his adjusted basis ($15,000). Free income tax help He has a $6,000 nondeductible loss. Free income tax help He also is treated as receiving ordinary income from cancellation of debt. Free income tax help That income is $1,000 ($10,000 − $9,000). Free income tax help This is the part of the canceled debt not included in the amount realized. Free income tax help Example 2. Free income tax help Assume the same facts as in Example 2 under Amount realized on a nonrecourse debt, earlier, except Abena is personally liable for the loan (recourse debt). Free income tax help In this case, the amount she realizes is $170,000. Free income tax help This is the lesser of the canceled debt ($180,000) or the fair market value of the house ($170,000). Free income tax help Abena figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($175,000). Free income tax help She has a $5,000 nondeductible loss. Free income tax help She also is treated as receiving ordinary income from cancellation of debt. Free income tax help (The debt is not exempt from tax as discussed under Cancellation of debt, above. Free income tax help ) That income is $10,000 ($180,000 − $170,000). Free income tax help This is the part of the canceled debt not included in the amount realized. Free income tax help Forms 1099-A and 1099-C. Free income tax help   A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A showing the information you need to figure your gain or loss. Free income tax help However, if the lender also cancels part of your debt and must file Form 1099-C, the lender may include the information about the foreclosure or repossession on that form instead of on Form 1099-A and send you Form 1099-C only. Free income tax help The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Free income tax help For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. Free income tax help Involuntary Conversions An involuntary conversion occurs when your property is destroyed, stolen, condemned, or disposed of under the threat of condemnation and you receive other property or money in payment, such as insurance or a condemnation award. Free income tax help Involuntary conversions are also called involuntary exchanges. Free income tax help Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes unless the property is your main home. Free income tax help You report the gain or deduct the loss on your tax return for the year you realize it. Free income tax help You cannot deduct a loss from an involuntary conversion of property you held for personal use unless the loss resulted from a casualty or theft. Free income tax help However, depending on the type of property you receive, you may not have to report a gain on an involuntary conversion. Free income tax help Generally, you do not report the gain if you receive property that is similar or related in service or use to the converted property. Free income tax help Your basis for the new property is the same as your basis for the converted property. Free income tax help This means that the gain is deferred until a taxable sale or exchange occurs. Free income tax help If you receive money or property that is not similar or related in service or use to the involuntarily converted property and you buy qualifying replacement property within a certain period of time, you can elect to postpone reporting the gain on the property purchased. Free income tax help This publication explains the treatment of a gain or loss from a condemnation or disposition under the threat of condemnation. Free income tax help If you have a gain or loss from the destruction or theft of property, see Publication 547. Free income tax help Condemnations A condemnation is the process by which private property is legally taken for public use without the owner's consent. Free income tax help The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take it. Free income tax help The owner receives a condemnation award (money or property) in exchange for the property taken. Free income tax help A condemnation is like a forced sale, the owner being the seller and the condemning authority being the buyer. Free income tax help Example. Free income tax help A local government authorized to acquire land for public parks informed you that it wished to acquire your property. Free income tax help After the local government took action to condemn your property, you went to court to keep it. Free income tax help But, the court decided in favor of the local government, which took your property and paid you an amount fixed by the court. Free income tax help This is a condemnation of private property for public use. Free income tax help Threat of condemnation. Free income tax help   A threat of condemnation exists if a representative of a government body or a public official authorized to acquire property for public use informs you that the government body or official has decided to acquire your property. Free income tax help You must have reasonable grounds to believe that, if you do not sell voluntarily, your property will be condemned. Free income tax help   The sale of your property to someone other than the condemning authority will also qualify as an involuntary conversion, provided you have reasonable grounds to believe that your property will be condemned. Free income tax help If the buyer of this property knows at the time of purchase that it will be condemned and sells it to the condemning authority, this sale also qualifies as an involuntary conversion. Free income tax help Reports of condemnation. Free income tax help   A threat of condemnation exists if you learn of a decision to acquire your property for public use through a report in a newspaper or other news medium, and this report is confirmed by a representative of the government body or public official involved. Free income tax help You must have reasonable grounds to believe that they will take necessary steps to condemn your property if you do not sell voluntarily. Free income tax help If you relied on oral statements made by a government representative or public official, the Internal Revenue Service (IRS) may ask you to get written confirmation of the statements. Free income tax help Example. Free income tax help Your property lies along public utility lines. Free income tax help The utility company has the authority to condemn your property. Free income tax help The company informs you that it intends to acquire your property by negotiation or condemnation. Free income tax help A threat of condemnation exists when you receive the notice. Free income tax help Related property voluntarily sold. Free income tax help   A voluntary sale of your property may be treated as a forced sale that qualifies as an involuntary conversion if the property had a substantial economic relationship to property of yours that was condemned. Free income tax help A substantial economic relationship exists if together the properties were one economic unit. Free income tax help You also must show that the condemned property could not reasonably or adequately be replaced. Free income tax help You can elect to postpone reporting the gain by buying replacement property. Free income tax help See Postponement of Gain, later. Free income tax help Gain or Loss From Condemnations If your property was condemned or disposed of under the threat of condemnation, figure your gain or loss by comparing the adjusted basis of your condemned property with your net condemnation award. Free income tax help If your net condemnation award is more than the adjusted basis of the condemned property, you have a gain. Free income tax help You can postpone reporting gain from a condemnation if you buy replacement property. Free income tax help If only part of your property is condemned, you can treat the cost of restoring the remaining part to its former usefulness as the cost of replacement property. Free income tax help See Postponement of Gain, later. Free income tax help If your net condemnation award is less than your adjusted basis, you have a loss. Free income tax help If your loss is from property you held for personal use, you cannot deduct it. Free income tax help You must report any deductible loss in the tax year it happened. Free income tax help You can use Part 2 of Table 1-3 to figure your gain or loss from a condemnation award. Free income tax help Main home condemned. Free income tax help   If you have a gain because your main home is condemned, you generally can exclude the gain from your income as if you had sold or exchanged your home. Free income tax help You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). Free income tax help For information on this exclusion, see Publication 523. Free income tax help If your gain is more than you can exclude but you buy replacement property, you may be able to postpone reporting the rest of the gain. Free income tax help See Postponement of Gain, later. Free income tax help Table 1-3. Free income tax help Worksheet for Condemnations Part 1. Free income tax help Gain from severance damages. Free income tax help  If you did not receive severance damages, skip Part 1 and go to Part 2. Free income tax help   1. Free income tax help Enter gross severance damages received   2. Free income tax help Enter your expenses in getting severance damages   3. Free income tax help Subtract line 2 from line 1. Free income tax help If less than zero, enter -0-   4. Free income tax help Enter any special assessment on remaining property taken out of your award   5. Free income tax help Net severance damages. Free income tax help Subtract line 4 from line 3. Free income tax help If less than zero, enter -0-   6. Free income tax help Enter the adjusted basis of the remaining property   7. Free income tax help Gain from severance damages. Free income tax help Subtract line 6 from line 5. Free income tax help If less than zero, enter -0-   8. Free income tax help Refigured adjusted basis of the remaining property. Free income tax help Subtract line 5 from line 6. Free income tax help If less than zero, enter -0-   Part 2. Free income tax help Gain or loss from condemnation award. Free income tax help   9. Free income tax help Enter the gross condemnation award received   10. Free income tax help Enter your expenses in getting the condemnation award   11. Free income tax help If you completed Part 1, and line 4 is more than line 3, subtract line 3 from line 4. Free income tax help If you did not complete Part 1, but a special assessment was taken out of your award, enter that amount. Free income tax help Otherwise, enter -0-   12. Free income tax help Add lines 10 and 11   13. Free income tax help Net condemnation award. Free income tax help Subtract line 12 from line 9   14. Free income tax help Enter the adjusted basis of the condemned property   15. Free income tax help Gain from condemnation award. Free income tax help If line 14 is more than line 13, enter -0-. Free income tax help Otherwise, subtract line 14 from  line 13 and skip line 16   16. Free income tax help Loss from condemnation award. Free income tax help Subtract line 13 from line 14     (Note: You cannot deduct the amount on line 16 if the condemned property was held for personal use. Free income tax help )   Part 3. Free income tax help Postponed gain from condemnation. Free income tax help  (Complete only if line 7 or line 15 is more than zero and you bought qualifying replacement property or made expenditures to restore the usefulness of your remaining property. Free income tax help )   17. Free income tax help If you completed Part 1, and line 7 is more than zero, enter the amount from line 5. Free income tax help Otherwise, enter -0-   18. Free income tax help If line 15 is more than zero, enter the amount from line 13. Free income tax help Otherwise, enter -0-   19. Free income tax help Add lines 17 and 18. Free income tax help If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   20. Free income tax help Enter the total cost of replacement property and any expenses to restore the usefulness of your remaining property   21. Free income tax help Subtract line 20 from line 19. Free income tax help If less than zero, enter -0-   22. Free income tax help If you completed Part 1, add lines 7 and 15. Free income tax help Otherwise, enter the amount from line 15. Free income tax help If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   23. Free income tax help Recognized gain. Free income tax help Enter the smaller of line 21 or line 22. Free income tax help   24. Free income tax help Postponed gain. Free income tax help Subtract line 23 from line 22. Free income tax help If less than zero, enter -0-   Condemnation award. Free income tax help   A condemnation award is the money you are paid or the value of other property you receive for your condemned property. Free income tax help The award is also the amount you are paid for the sale of your property under threat of condemnation. Free income tax help Payment of your debts. Free income tax help   Amounts taken out of the award to pay your debts are considered paid to you. Free income tax help Amounts the government pays directly to the holder of a mortgage or lien against your property are part of your award, even if the debt attaches to the property and is not your personal liability. Free income tax help Example. Free income tax help The state condemned your property for public use. Free income tax help The award was set at $200,000. Free income tax help The state paid you only $148,000 because it paid $50,000 to your mortgage holder and $2,000 accrued real estate taxes. Free income tax help You are considered to have received the entire $200,000 as a condemnation award. Free income tax help Interest on award. Free income tax help   If the condemning authority pays you interest for its delay in paying your award, it is not part of the condemnation award. Free income tax help You must report the interest separately as ordinary income. Free income tax help Payments to relocate. Free income tax help   Payments you receive to relocate and replace housing because you have been displaced from your home, business, or farm as a result of federal or federally assisted programs are not part of the condemnation award. Free income tax help Do not include them in your income. Free income tax help Replacement housing payments used to buy new property are included in the property's basis as part of your cost. Free income tax help Net condemnation award. Free income tax help   A net condemnation award is the total award you received, or are considered to have received, for the condemned property minus your expenses of obtaining the award. Free income tax help If only a part of your property was condemned, you also must reduce the award by any special assessment levied against the part of the property you retain. Free income tax help This is discussed later under Special assessment taken out of award. Free income tax help Severance damages. Free income tax help    Severance damages are not part of the award paid for the property condemned. Free income tax help They are paid to you if part of your property is condemned and the value of the part you keep is decreased because of the condemnation. Free income tax help   For example, you may receive severance damages if your property is subject to flooding because you sell flowage easement rights (the condemned property) under threat of condemnation. Free income tax help Severance damages also may be given to you if, because part of your property is condemned for a highway, you must replace fences, dig new wells or ditches, or plant trees to restore your remaining property to the same usefulness it had before the condemnation. Free income tax help   The contracting parties should agree on the specific amount of severance damages in writing. Free income tax help If this is not done, all proceeds from the condemning authority are considered awarded for your condemned property. Free income tax help   You cannot make a completely new allocation of the total award after the transaction is completed. Free income tax help However, you can show how much of the award both parties intended for severance damages. Free income tax help The severance damages part of the award is determined from all the facts and circumstances. Free income tax help Example. Free income tax help You sold part of your property to the state under threat of condemnation. Free income tax help The contract you and the condemning authority signed showed only the total purchase price. Free income tax help It did not specify a fixed sum for severance damages. Free income tax help However, at settlement, the condemning authority gave you closing papers showing clearly the part of the purchase price that was for severance damages. Free income tax help You may treat this part as severance damages. Free income tax help Treatment of severance damages. Free income tax help   Your net severance damages are treated as the amount realized from an involuntary conversion of the remaining part of your property. Free income tax help Use them to reduce the basis of the remaining property. Free income tax help If the amount of severance damages is based on damage to a specific part of the property you kept, reduce the basis of only that part by the net severance damages. Free income tax help   If your net severance damages are more than the basis of your retained property, you have a gain. Free income tax help You may be able to postpone reporting the gain. Free income tax help See Postponement of Gain, later. Free income tax help    You can use Part 1 of Table 1-3 to figure any gain from severance damages and to refigure the adjusted basis of the remaining part of your property. Free income tax help Net severance damages. Free income tax help   To figure your net severance damages, you first must reduce your severance damages by your expenses in obtaining the damages. Free income tax help You then reduce them by any special assessment (described later) levied against the remaining part of the property and retained out of the award by the condemning authority. Free income tax help The balance is your net severance damages. Free income tax help Expenses of obtaining a condemnation award and severance damages. Free income tax help   Subtract the expenses of obtaining a condemnation award, such as legal, engineering, and appraisal fees, from the total award. Free income tax help Also, subtract the expenses of obtaining severance damages, which may include similar expenses, from the severance damages paid to you. Free income tax help If you cannot determine which part of your expenses is for each part of the condemnation proceeds, you must make a proportionate allocation. Free income tax help Example. Free income tax help You receive a condemnation award and severance damages. Free income tax help One-fourth of the total was designated as severance damages in your agreement with the condemning authority. Free income tax help You had legal expenses for the entire condemnation proceeding. Free income tax help You cannot determine how much of your legal expenses is for each part of the condemnation proceeds. Free income tax help You must allocate one-fourth of your legal expenses to the severance damages and the other three-fourths to the condemnation award. Free income tax help Special assessment retained out of award. Free income tax help   When only part of your property is condemned, a special assessment levied against the remaining property may be retained by the governing body out of your condemnation award. Free income tax help An assessment may be levied if the remaining part of your property benefited by the improvement resulting from the condemnation. Free income tax help Examples of improvements that may cause a special assessment are widening a street and installing a sewer. Free income tax help   To figure your net condemnation award, you must reduce the amount of the award by the assessment retained out of the award. Free income tax help Example. Free income tax help To widen the street in front of your home, the city condemned a 25-foot deep strip of your land. Free income tax help You were awarded $5,000 for this and spent $300 to get the award. Free income tax help Before paying the award, the city levied a special assessment of $700 for the street improvement against your remaining property. Free income tax help The city then paid you only $4,300. Free income tax help Your net award is $4,000 ($5,000 total award minus $300 expenses in obtaining the award and $700 for the special assessment retained). Free income tax help If the $700 special assessment was not retained out of the award and you were paid $5,000, your net award would be $4,700 ($5,000 − $300). Free income tax help The net award would not change, even if you later paid the assessment from the amount you received. Free income tax help Severance damages received. Free income tax help   If severance damages are included in the condemnation proceeds, the special assessment retained out of the severance damages is first used to reduce the severance damages. Free income tax help Any balance of the special assessment is used to reduce the condemnation award. Free income tax help Example. Free income tax help You were awarded $4,000 for the condemnation of your property and $1,000 for severance damages. Free income tax help You spent $300 to obtain the severance damages. Free income tax help A special assessment of $800 was retained out of the award. Free income tax help The $1,000 severance damages are reduced to zero by first subtracting the $300 expenses and then $700 of the special assessment. Free income tax help Your $4,000 condemnation award is reduced by the $100 balance of the special assessment, leaving a $3,900 net condemnation award. Free income tax help Part business or rental. Free income tax help   If you used part of your condemned property as your home and part as business or rental property, treat each part as a separate property. Free income tax help Figure your gain or loss separately because gain or loss on each part may be treated differently. Free income tax help   Some examples of this type of property are a building in which you live and operate a grocery, and a building in which you live on the first floor and rent out the second floor. Free income tax help Example. Free income tax help You sold your building for $24,000 under threat of condemnation to a public utility company that had the authority to condemn. Free income tax help You rented half the building and lived in the other half. Free income tax help You paid $25,000 for the building and spent an additional $1,000 for a new roof. Free income tax help You claimed allowable depreciation of $4,600 on the rental half. Free income tax help You spent $200 in legal expenses to obtain the condemnation award. Free income tax help Figure your gain or loss as follows. Free income tax help     Resi- dential Part Busi- ness Part 1) Condemnation award received $12,000 $12,000 2) Minus: Legal expenses, $200 100 100 3) Net condemnation award $11,900 $11,900 4) Adjusted basis:       ½ of original cost, $25,000 $12,500 $12,500   Plus: ½ of cost of roof, $1,000 500 500   Total $13,000 $13,000 5) Minus: Depreciation   4,600 6) Adjusted basis, business part   $8,400 7) (Loss) on residential property ($1,100)   8) Gain on business property $3,500 The loss on the residential part of the property is not deductible. Free income tax help Postponement of Gain Do not report the gain on condemned property if you receive only property that is similar or related in service or use to the condemned property. Free income tax help Your basis for the new property is the same as your basis for the old. Free income tax help Money or unlike property received. Free income tax help   You ordinarily must report the gain if you receive money or unlike property. Free income tax help You can elect to postpone reporting the gain if you buy property that is similar or related in service or use to the condemned property within the replacement period, discussed later. Free income tax help You also can elect to postpone reporting the gain if you buy a controlling interest (at least 80%) in a corporation owning property that is similar or related in service or use to the condemned property. Free income tax help See Controlling interest in a corporation, later. Free income tax help   To postpone reporting all the gain, you must buy replacement property costing at least as much as the amount realized for the condemned property. Free income tax help If the cost of the replacement property is less than the amount realized, you must report the gain up to the unspent part of the amount realized. Free income tax help   The basis of the replacement property is its cost, reduced by the postponed gain. Free income tax help Also, if your replacement property is stock in a corporation that owns property similar or related in service or use, the corporation generally will reduce its basis in its assets by the amount by which you reduce your basis in the stock. Free income tax help See Controlling interest in a corporation, later. Free income tax help You can use Part 3 of Table 1-3 to figure the gain you must report and your postponed gain. Free income tax help Postponing gain on severance damages. Free income tax help   If you received severance damages for part of your property because another part was condemned and you buy replacement property, you can elect to postpone reporting gain. Free income tax help See Treatment of severance damages, earlier. Free income tax help You can postpone reporting all your gain if the replacement property costs at least as much as your net severance damages plus your net condemnation award (if resulting in gain). Free income tax help   You also can make this election if you spend the severance damages, together with other money you received for the condemned property (if resulting in gain), to acquire nearby property that will allow you to continue your business. Free income tax help If suitable nearby property is not available and you are forced to sell the remaining property and relocate in order to continue your business, see Postponing gain on the sale of related property, next. Free income tax help   If you restore the remaining property to its former usefulness, you can treat the cost of restoring it as the cost of replacement property. Free income tax help Postponing gain on the sale of related property. Free income tax help   If you sell property that is related to the condemned property and then buy replacement property, you can elect to postpone reporting gain on the sale. Free income tax help You must meet the requirements explained earlier under Related property voluntarily sold. Free income tax help You can postpone reporting all your gain if the replacement property costs at least as much as the amount realized from the sale plus your net condemnation award (if resulting in gain) plus your net severance damages, if any (if resulting in gain). Free income tax help Buying replacement property from a related person. Free income tax help   Certain taxpayers cannot postpone reporting gain from a condemnation if they buy the replacement property from a related person. Free income tax help For information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2. Free income tax help   This rule applies to the following taxpayers. Free income tax help C corporations. Free income tax help Partnerships in which more than 50% of the capital or profits interest is owned by  C corporations. Free income tax help All others (including individuals, partnerships (other than those in (2)), and S corporations) if the total realized gain for the tax year on all involuntarily converted properties on which there is realized gain of more than $100,000. Free income tax help   For taxpayers described in (3) above, gains cannot be offset with any losses when determining whether the total gain is more than $100,000. Free income tax help If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. Free income tax help If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. Free income tax help Exception. Free income tax help   This rule does not apply if the related person acquired the property from an unrelated person within the replacement period. Free income tax help Advance payment. Free income tax help   If you pay a contractor in advance to build your replacement property, you have not bought replacement property unless it is finished before the end of the replacement period (discussed later). Free income tax help Replacement property. Free income tax help   To postpone reporting gain, you must buy replacement property for the specific purpose of replacing your condemned property. Free income tax help You do not have to use the actual funds from the condemnation award to acquire the replacement property. Free income tax help Property you acquire by gift or inheritance does not qualify as replacement property. Free income tax help Similar or related in service or use. Free income tax help   Your replacement property must be similar or related in service or use to the property it replaces. Free income tax help   If the condemned property is real property you held for productive use in your trade or business or for investment (other than property held mainly for sale), like-kind property to be held either for productive use in trade or business or for investment will be treated as property similar or related in service or use. Free income tax help For a discussion of like-kind property, see Like-Kind Property under Like-Kind Exchanges, later. Free income tax help Owner-user. Free income tax help   If you are an owner-user, similar or related in service or use means that replacement property must function in the same way as the property it replaces. Free income tax help Example. Free income tax help Your home was condemned and you invested the proceeds from the condemnation in a grocery store. Free income tax help Your replacement property is not similar or related in service or use to the condemned property. Free income tax help To be similar or related in service or use, your replacement property must also be used by you as your home. Free income tax help Owner-investor. Free income tax help   If you are an owner-investor, similar or related in service or use means that any replacement property must have the same relationship of services or uses to you as the property it replaces. Free income tax help You decide this by determining all the following information. Free income tax help Whether the properties are of similar service to you. Free income tax help The nature of the business risks connected with the properties. Free income tax help What the properties demand of you in the way of management, service, and relations to your tenants. Free income tax help Example. Free income tax help You owned land and a building you rented to a manufacturing company. Free income tax help The building was condemned. Free income tax help During the replacement period, you had a new building built on other land you already owned. Free income tax help You rented out the new building for use as a wholesale grocery warehouse. Free income tax help The replacement property is also rental property, so the two properties are considered similar or related in service or use if there is a similarity in all the following areas. Free income tax help Your management activities. Free income tax help The amount and kind of services you provide to your tenants. Free income tax help The nature of your business risks connected with the properties. Free income tax help Leasehold replaced with fee simple property. Free income tax help   Fee simple property you will use in your trade or business or for investment can qualify as replacement property that is similar or related in service or use to a condemned leasehold if you use it in the same business and for the identical purpose as the condemned leasehold. Free income tax help   A fee simple property interest generally is a property interest that entitles the owner to the entire property with unconditional power to dispose of it during his or her lifetime. Free income tax help A leasehold is property held under a lease, usually for a term of years. Free income tax help Outdoor advertising display replaced with real property. Free income tax help   You can elect to treat an outdoor advertising display as real property. Free income tax help If you make this election and you replace the display with real property in which you hold a different kind of interest, your replacement property can qualify as like-kind property. Free income tax help For example, real property bought to replace a destroyed billboard and leased property on which the billboard was located qualify as property of a like-kind. Free income tax help   You can make this election only if you did not claim a section 179 deduction for the display. Free income tax help You cannot cancel this election unless you get the consent of the IRS. Free income tax help   An outdoor advertising display is a sign or device rigidly assembled and permanently attached to the ground, a building, or any other permanent structure used to display a commercial or other advertisement to the public. Free income tax help Substituting replacement property. Free income tax help   Once you designate certain property as replacement property on your tax return, you cannot substitute other qualified property. Free income tax help But, if your previously designated replacement property does not qualify, you can substitute qualified property if you acquire it within the replacement period. Free income tax help Controlling interest in a corporation. Free income tax help   You can replace property by acquiring a controlling interest in a corporation that owns property similar or related in service or use to your condemned property. Free income tax help You have controlling interest if you own stock having at least 80% of the combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation. Free income tax help Basis adjustment to corporation's property. Free income tax help   The basis of property held by the corporation at the time you acquired control must be reduced by your postponed gain, if any. Free income tax help You are not required to reduce the adjusted basis of the corporation's properties below your adjusted basis in the corporation's stock (determined after reduction by your postponed gain). Free income tax help   Allocate this reduction to the following classes of property in the order shown below. Free income tax help Property that is similar or related in service or use to the condemned property. Free income tax help Depreciable property not reduced in (1). Free income tax help All other property. Free income tax help If two or more properties fall in the same class, allocate the reduction to each property in proportion to the adjusted basis of all the properties in that class. Free income tax help The reduced basis of any single property cannot be less than zero. Free income tax help Main home replaced. Free income tax help   If your gain from a condemnation of your main home is more than you can exclude from your income (see Main home condemned under Gain or Loss From Condemnations, earlier), you can postpone reporting the rest of the gain by buying replacement property that is similar or related in service or use. Free income tax help The replacement property must cost at least as much as the amount realized from the condemnation minus the excluded gain. Free income tax help   You must reduce the basis of your replacement property by the postponed gain. Free income tax help Also, if you postpone reporting any part of your gain under these rules, you are treated as having owned and used the replacement property as your main home for the period you owned and used the condemned property as your main home. Free income tax help Example. Free income tax help City authorities condemned your home that you had used as a personal residence for 5 years prior to the condemnation. Free income tax help The city paid you a condemnation award of $400,000. Free income tax help Your adjusted basis in the property was $80,000. Free income tax help You realize a gain of $320,000 ($400,000 − $80,000). Free income tax help You purchased a new home for $100,000. Free income tax help You can exclude $250,000 of the realized gain from your gross income. Free income tax help The amount realized is then treated as being $150,000 ($400,000 − $250,000) and the gain realized is $70,000 ($150,000 amount realized − $80,000 adjusted basis). Free income tax help You must recognize $50,000 of the gain ($150,000 amount realized − $100,000 cost of new home). Free income tax help The remaining $20,000 of realized gain is postponed. Free income tax help Your basis in the new home is $80,000 ($100,000 cost − $20,000 gain postponed). Free income tax help Replacement period. Free income tax help   To postpone reporting your gain from a condemnation, you must buy replacement property within a certain period of time. Free income tax help This is the replacement period. Free income tax help   The replacement period for a condemnation begins on the earlier of the following dates. Free income tax help The date on which you disposed of the condemned property. Free income tax help The date on which the threat of condemnation began. Free income tax help   The replacement period generally ends 2 years after the end of the first tax year in which any part of the gain on the condemnation is realized. Free income tax help However, see the exceptions below. Free income tax help Three-year replacement period for certain property. Free income tax help   If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the end of the first tax year in which any part of the gain on the condemnation is realized. Free income tax help However, this 3-year replacement period cannot be used if you replace the condemned property by acquiring control of a corporation owning property that is similar or related in service or use. Free income tax help Five-year replacement period for certain property. Free income tax help   The replacement period ends 5 years after the end of the first tax year in which any part of the gain is realized on the compulsory or involuntary conversion of the following qualified property. Free income tax help Property in any Midwestern disaster area compulsorily or involuntarily converted on or after the applicable disaster date as a result of severe storms, tornadoes, or flooding, but only if substantially all of the use of the replacement property is in a Midwestern disaster area. Free income tax help Property in the Kansas disaster area compulsorily or involuntarily converted after May 3, 2007, but only if substantially all of the use of the replacement property is in the Kansas disaster area. Free income tax help Property in the Hurricane Katrina disaster area compulsorily or involuntarily converted after August 24, 2005, as a result of Hurricane Katrina, but only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. Free income tax help Extended replacement period for taxpayers affected by other federally declared disasters. Free income tax help    If you are affected by a federally declared disaster, the IRS may grant disaster relief by extending the periods to perform certain tax-related acts for 2013, including the replacement period, by up to one year. Free income tax help For more information visit www. Free income tax help irs. Free income tax help gov/uac/Tax-Relief-in-Disaster-Situations. Free income tax help Weather-related sales of livestock in an area eligible for federal assistance. Free income tax help   Generally, if the sale or exchange of livestock is due to drought, flood, or other weather-related conditions in an area eligible for federal assistance, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the sale or exchange. Free income tax help    If the weather-related conditions continue for longer than 3 years, the replacement period may be extended on a regional basis until the end of your first drought-free year for the applicable region. Free income tax help See Notice 2006-82. Free income tax help You can find Notice 2006-82 on page 529 of Internal Revenue Bulletin 2006-39 at www. Free income tax help irs. Free income tax help gov/irb/2006-39_IRB/ar13. Free income tax help html. Free income tax help    Each year, the IRS publishes a list of counties, districts, cities, or parishes for which exceptional, extreme, or severe drought was reported during the preceding 12 months. Free income tax help If you qualified for a 4-year replacement period for livestock sold or exchanged on account of drought and your replacement period is scheduled to expire at the end of 2013 (or at the end of the tax year that includes August 31, 2013), see Notice 2013-62. Free income tax help You can find Notice 2013-62 on page 466 of Internal Revenue Bulletin 2013-45 at www. Free income tax help irs. Free income tax help gov/irb/2013-45_IRB/ar04. Free income tax help html. Free income tax help The replacement period will be extended under Notice 2006-82 if the applicable region is on the list included in Notice 2013-62. Free income tax help Determining when gain is realized. Free income tax help   If you are a cash basis taxpayer, you realize gain when you receive payments that are more than your basis in the property. Free income tax help If the condemning authority makes deposits with the court, you realize gain when you withdraw (or have the right to withdraw) amounts that are more than your basis. Free income tax help   This applies even if the amounts received are only partial or advance payments and the full award has not yet been determined. Free income tax help A replacement will be too late if you wait for a final determination that does not take place in the applicable replacement period after you first realize gain. Free income tax help   For accrual basis taxpayers, gain (if any) accrues in the earlier year when either of the following occurs. Free income tax help All events have occurred that fix the right to the condemnation award and the amount can be determined with reasonable accuracy. Free income tax help All or part of the award is actually or constructively received. Free income tax help For example, if you have an absolute right to a part of a condemnation award when it is deposited with the court, the amount deposited accrues in the year the deposit is made even though the full amount of the award is still contested. Free income tax help Replacement property bought before the condemnation. Free income tax help   If you buy your replacement property after there is a threat of condemnation but before the actual condemnation and you still hold the replacement property at the time of the condemnation, you have bought your replacement property within the replacement period. Free income tax help Property you acquire before there is a threat of condemnation does not qualify as replacement property acquired within the replacement period. Free income tax help Example. Free income tax help On April 3, 2012, city authorities notified you that your property would be condemned. Free income tax help On June 5, 2012, you acquired property to replace the property to be condemned. Free income tax help You still had the new property when the city took possession of your old property on September 4, 2013. Free income tax help You have made a replacement within the replacement period. Free income tax help Extension. Free income tax help   You can request an extension of the replacement period from the IRS director for your area. Free income tax help You should apply before the end of the replacement period. Free income tax help Your request should explain in detail why you need an extension. Free income tax help The IRS will consider a request filed within a reasonable time after the replacement period if you can show reasonable cause for the delay. Free income tax help An extension of the replacement period will be granted if you can show reasonable cause for not making the replacement within the regular period. Free income tax help   Ordinarily, requests for extensions are granted near the end of the replacement period or the extended replacement period. Free income tax help Extensions are usually limited to a period of 1 year or less. Free income tax help The high market value or scarcity of replacement property is not a sufficient reason for granting an extension. Free income tax help If your replacement property is being built and you clearly show that the replacement or restoration cannot be made within the replacement peri
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About Tax Exempt Bonds

Tax Exempt Bonds (TEB) is a division of the Governmental Entities (GE) division of the Tax Exempt and Governmental Entities Division (TE/GE) of the Internal Revenue Service. 

The mission of TEB is to administer Federal tax laws applicable to tax-advantaged bonds and to provide our customers with top quality service by applying tax laws with integrity and fairness.

Our Compliance Program Management (CPM) and Field Operation (FO) programs focus on providing participants in the tax-advantaged bond industry with quality service and assistance to members of the tax-advantaged bond community in understanding their tax responsibilities.  TEB develops tailored education programs focused on tax-advantaged bond industry segments; monitors non-compliance trends to design pro-active education and outreach products; and designs and implements compliance programs and projects that foster voluntary resolution of infractions of the tax rules related to tax-advantaged bonds.

Rebecca L. Harrigal, Director

Under the direction of Rebecca L. Harrigal, TEB works closely with the Office of Associate Chief Counsel (TE/GE), other offices within the Internal Revenue Service, other regulatory agencies, state and local government officials, and others in the tax-advantaged bond community to encourage and achieve the highest degree of voluntary compliance with Federal tax laws. 

Steven A. Chamberlin,  CPM Manager

The Compliance and Program Management Program (formerly, Outreach, Planning, and Review), under the direction of Steven A. Chamberlin, is primarily responsible for the development and coordination of the Tax Exempt Bond Voluntary Compliance/Closing Agreement Program (TEB VCAP) as well as the development of ongoing outreach programs designed to effectively identify, provide guidance to, and address the needs of the various customer groups that comprise the tax-advantaged bond community. The CPM program also develops project initiatives; updates the Internal Revenue Manual (IRM) and Revenue Procedures; prepares taxpayer and employee education and training materials; handles general information requests and referrals; coordinates with the Office of Associate Chief Counsel to provide legal guidance; and performs program planning and evaluation functions.

Allyson Belsome, FO Manager

The Field Operations Program, under the direction of Allyson Belsome,  is primarily responsible for identifying and correcting noncompliance with Federal tax laws applicable to tax-advantaged bonds.  The FO office conducts examinations, with fairness and the highest level of integrity, at the issuer level.   The goal of the program is to pro-actively assist issuers in their tax-advantaged bond compliance with the Federal tax laws. FO personnel throughout the country are active not only in conducting examinations but also in assisting with the delivery of outreach programs to the tax-advantaged bond community.  FO concentrates its efforts on the many emerging issues and focus areas in the tax-advantaged bond community.

Voluntary Compliance Agreement Program

To promote voluntary compliance with the provisions of the Internal Revenue Code relating to tax-advantaged bonds, TEB expanded its voluntary closing agreement program (TEB VCAP). In expanding TEB VCAP, the IRS seeks to encourage issuers, conduit borrowers and other parties to bond transactions to exercise due diligence and to attempt to correct any issuance and post-issuance infractions of the applicable sections of the Internal Revenue Code and regulations. This expansion reflects the IRS's continuing policy of taxing bondholders only as a last resort and it's desire to resolve tax-advantaged bond infractions with other parties to the bond transactions.

Voluntary closing agreement requests from anonymous parties as well as requests on behalf of multiple issuers and issues are encouraged if a sufficient description of the appropriate facts and circumstances leading to the infraction are provided to the Service.

We welcome your interest in the CPM function and participation in the TEB VCAP program. We also welcome your suggestions about how we can improve the program and encourage up-front voluntary compliance. If you have any questions about the TEB VCAP or wish to discuss or submit a closing agreement request, please contact Steven A. Chamberlin, Manager, Compliance and Program Management by phone at (636) 255-1290 or FAX your inquiry to (636) 255-1447. You may also mail closing agreement requests to CPM at the following address:

Internal Revenue Service
SE:T:GE:TEB:CPM
TEB Room 128
1122 Town & Country Commons
Chesterfield, MO 63017-8293

 

Outreach

It is TEB's highest priority to communicate effectively with the diverse membership of the tax-advantaged bond community. TEB looks forward to working in partnership with state and local government officials, regulatory agencies, national governmental, industry, and professional associations, as well as your state and local affiliates and members. Please let us know if you have any requests for technical assistance or if you would like a speaker or panelist for your meeting, workshop, seminar or conference. We would also welcome the opportunity to assign a staff person to coordinate with your task forces or subcommittees or provide information for your newsletters or similar publications. Please feel free to link any of our materials to your websites as well. We welcome your suggestions concerning the type of materials you would like to see on this website in the future and the type of newsletters or publications that would be useful to you.

We welcome your suggestions concerning how we can better serve our customers.

Page Last Reviewed or Updated: 22-Nov-2013

The Free Income Tax Help

Free income tax help Publication 501 - Main Content Table of Contents Who Must FileSelf-employed persons. Free income tax help Filing Requirements for Most Taxpayers Dependents Other Situations Who Should File Filing StatusMarital Status Single Married Filing Jointly Married Filing Separately Head of Household Qualifying Widow(er) With Dependent Child ExemptionsForm 1040EZ filers. Free income tax help Form 1040A filers. Free income tax help Form 1040 filers. Free income tax help More information. Free income tax help Personal Exemptions Exemptions for Dependents Qualifying Child Qualifying Relative Phaseout of Exemptions Social Security Numbers for DependentsBorn and died in 2013. Free income tax help Taxpayer identification numbers for aliens. Free income tax help Taxpayer identification numbers for adoptees. Free income tax help Standard DeductionStandard Deduction Amount Standard Deduction for Dependents Who Should Itemize How To Get Tax HelpLow Income Taxpayer Clinics Who Must File If you are a U. Free income tax help S. Free income tax help citizen or resident alien, whether you must file a federal income tax return depends on your gross income, your filing status, your age, and whether you are a dependent. Free income tax help For details, see Table 1 and Table 2. Free income tax help You also must file if one of the situations described in Table 3 applies. Free income tax help The filing requirements apply even if you owe no tax. Free income tax help Table 1. Free income tax help 2013 Filing Requirements Chart for Most Taxpayers IF your filing status is. Free income tax help . Free income tax help . Free income tax help AND at the end of 2013 you were. Free income tax help . Free income tax help . Free income tax help * THEN file a return if your gross income was at least. Free income tax help . Free income tax help . Free income tax help ** single under 65  $10,000 65 or older $11,500 head of household under 65 $12,850 65 or older $14,350 married, filing jointly*** under 65 (both spouses) $20,000 65 or older (one spouse) $21,200 65 or older (both spouses) $22,400 married, filing separately any age  $3,900 qualifying widow(er) with dependent child under 65 $16,100 65 or older $17,300 * If you were born before January 2, 1949, you are considered to be 65 or older at the end of 2013. Free income tax help ** Gross income means all income you receive in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). Free income tax help Do not include any social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time during 2013 or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). Free income tax help If (a) or (b) applies, see the Form 1040 instructions to figure the taxable part of social security benefits you must include in gross income. Free income tax help Gross income includes gains, but not losses, reported on Form 8949 or Schedule D. Free income tax help Gross income from a business means, for example, the amount on Schedule C, line 7, or Schedule F, line 9. Free income tax help But in figuring gross income, do not reduce your income by any losses, including any loss on Schedule C, line 7, or Schedule F, line 9. Free income tax help *** If you did not live with your spouse at the end of 2013 (or on the date your spouse died) and your gross income was at least $3,900, you must file a return regardless of your age. Free income tax help You may have to pay a penalty if you are required to file a return but fail to do so. Free income tax help If you willfully fail to file a return, you may be subject to criminal prosecution. Free income tax help For information on what form to use — Form 1040EZ, Form 1040A, or Form 1040 — see the instructions for your tax return. Free income tax help Gross income. Free income tax help    Gross income is all income you receive in the form of money, goods, property, and services that is not exempt from tax. Free income tax help If you are married and live with your spouse in a community property state, half of any income defined by state law as community income may be considered yours. Free income tax help For a list of community property states, see Community property states under Married Filing Separately, later. Free income tax help Self-employed persons. Free income tax help    If you are self-employed in a business that provides services (where products are not a factor), your gross income from that business is the gross receipts. Free income tax help If you are self-employed in a business involving manufacturing, merchandising, or mining, your gross income from that business is the total sales minus the cost of goods sold. Free income tax help In either case, you must add any income from investments and from incidental or outside operations or sources. Free income tax help    You must file Form 1040 if you owe any self-employment tax. Free income tax help Filing status. Free income tax help    Your filing status generally depends on whether you are single or married. Free income tax help Whether you are single or married is determined at the end of your tax year, which is December 31 for most taxpayers. Free income tax help Filing status is discussed in detail later in this publication. Free income tax help Age. Free income tax help    Age is a factor in determining if you must file a return only if you are 65 or older at the end of your tax year. Free income tax help For 2013, you are 65 or older if you were born before January 2, 1949. Free income tax help Filing Requirements for Most Taxpayers You must file a return if your gross income for the year was at least the amount shown on the appropriate line in Table 1. Free income tax help Dependents should see Table 2 instead. Free income tax help Deceased Persons You must file an income tax return for a decedent (a person who died) if both of the following are true. Free income tax help You are the surviving spouse, executor, administrator, or legal representative. Free income tax help The decedent met the filing requirements described in this publication at the time of his or her death. Free income tax help For more information, see Final Income Tax Return for Decedent — Form 1040 in Publication 559. Free income tax help Table 2. Free income tax help 2013 Filing Requirements for Dependents See Exemptions for Dependents to find out if you are a dependent. Free income tax help If your parent (or someone else) can claim you as a dependent, use this table to see if you must file a return. Free income tax help  In this table, unearned income includes taxable interest, ordinary dividends, and capital gain distributions. Free income tax help It also includes unemployment compensation, taxable social security benefits, pensions, annuities, and distributions of unearned income from a trust. Free income tax help Earned income includes salaries, wages, tips, professional fees, and taxable scholarship and fellowship grants. Free income tax help Gross income is the total of your unearned and earned income. Free income tax help If your gross income was $3,900 or more, you usually cannot be claimed as a dependent unless you are a qualifying child. Free income tax help For details, see Exemptions for Dependents. Free income tax help Single dependents—Were you either age 65 or older or blind? □ No. Free income tax help You must file a return if any of the following apply. Free income tax help Your unearned income was more than $1,000. Free income tax help Your earned income was more than $6,100. Free income tax help Your gross income was more than the larger of— $1,000, or Your earned income (up to $5,750) plus $350. Free income tax help     □ Yes. Free income tax help You must file a return if any of the following apply. Free income tax help Your unearned income was more than $2,500 ($4,000 if 65 or older and blind). Free income tax help Your earned income was more than $7,600 ($9,100 if 65 or older and blind). Free income tax help Your gross income was more than the larger of—  $2,500 ($4,000 if 65 or older and blind), or Your earned income (up to $5,750) plus $1,850 ($3,350 if 65 or older and blind). Free income tax help     Married dependents—Were you either age 65 or older or blind? □ No. Free income tax help You must file a return if any of the following apply. Free income tax help Your gross income was at least $5 and your spouse files a separate return and itemizes deductions. Free income tax help Your unearned income was more than $1,000. Free income tax help Your earned income was more than $6,100. Free income tax help Your gross income was more than the larger of— $1,000, or Your earned income (up to $5,750 plus $350. Free income tax help     □ Yes. Free income tax help You must file a return if any of the following apply. Free income tax help Your gross income was at least $5 and your spouse files a separate return and itemizes deductions. Free income tax help Your unearned income was more than $2,200 ($3,400 if 65 or older and blind). Free income tax help Your earned income was more than $7,300 ($8,500 if 65 or older and blind). Free income tax help Your gross income was more than the larger of— $2,200 ($3,400 if 65 or older and blind), or Your earned income (up to $5,750) plus $1,550 ($2,750 if 65 or older and blind). Free income tax help     U. Free income tax help S. Free income tax help Citizens or Resident Aliens Living Abroad To determine whether you must file a return, include in your gross income any income you earned or received abroad, including any income you can exclude under the foreign earned income exclusion. Free income tax help For more information on special tax rules that may apply to you, see Publication 54, Tax Guide for U. Free income tax help S. Free income tax help Citizens and Resident Aliens Abroad. Free income tax help Residents of Puerto Rico If you are a U. Free income tax help S. Free income tax help citizen and also a bona fide resident of Puerto Rico, you generally must file a U. Free income tax help S. Free income tax help income tax return for any year in which you meet the income requirements. Free income tax help This is in addition to any legal requirement you may have to file an income tax return with Puerto Rico. Free income tax help If you are a bona fide resident of Puerto Rico for the whole year, your U. Free income tax help S. Free income tax help gross income does not include income from sources within Puerto Rico. Free income tax help It does, however, include any income you received for your services as an employee of the United States or any U. Free income tax help S. Free income tax help agency. Free income tax help If you receive income from Puerto Rican sources that is not subject to U. Free income tax help S. Free income tax help tax, you must reduce your standard deduction, which reduces the amount of income you can have before you must file a U. Free income tax help S. Free income tax help income tax return. Free income tax help For more information, see Publication 570, Tax Guide for Individuals With Income From U. Free income tax help S. Free income tax help Possessions. Free income tax help Individuals With Income From U. Free income tax help S. Free income tax help Possessions If you had income from Guam, the Commonwealth of the Northern Mariana Islands, American Samoa, or the U. Free income tax help S. Free income tax help Virgin Islands, special rules may apply when determining whether you must file a U. Free income tax help S. Free income tax help federal income tax return. Free income tax help In addition, you may have to file a return with the individual possession government. Free income tax help See Publication 570 for more information. Free income tax help Dependents A person who is a dependent may still have to file a return. Free income tax help It depends on his or her earned income, unearned income, and gross income. Free income tax help For details, see Table 2. Free income tax help A dependent must also file if one of the situations described in Table 3 applies. Free income tax help Responsibility of parent. Free income tax help    If a dependent child must file an income tax return but cannot file due to age or any other reason, a parent, guardian, or other legally responsible person must file it for the child. Free income tax help If the child cannot sign the return, the parent or guardian must sign the child's name followed by the words “By (your signature), parent for minor child. Free income tax help ” Earned income. Free income tax help    Earned income includes salaries, wages, professional fees, and other amounts received as pay for work you actually perform. Free income tax help Earned income (only for purposes of filing requirements and the standard deduction) also includes any part of a scholarship that you must include in your gross income. Free income tax help See chapter 1 of Publication 970, Tax Benefits for Education, for more information on taxable and nontaxable scholarships. Free income tax help Child's earnings. Free income tax help    Amounts a child earns by performing services are included in his or her gross income and not the gross income of the parent. Free income tax help This is true even if under local law the child's parent has the right to the earnings and may actually have received them. Free income tax help But if the child does not pay the tax due on this income, the parent is liable for the tax. Free income tax help Unearned income. Free income tax help    Unearned income includes income such as interest, dividends, and capital gains. Free income tax help Trust distributions of interest, dividends, capital gains, and survivor annuities are also considered unearned income. Free income tax help Election to report child's unearned income on parent's return. Free income tax help    You may be able to include your child's interest and dividend income on your tax return. Free income tax help If you do this, your child will not have to file a return. Free income tax help To make this election, all of the following conditions must be met. Free income tax help Your child was under age 19 (or under age 24 if a student) at the end of 2013. Free income tax help (A child born on January 1, 1995, is considered to be age 19 at the end of 2013; you cannot make the election for this child unless the child was a student. Free income tax help Similarly, a child born on January 1, 1990, is considered to be age 24 at the end of 2013; you cannot make the election for this child. Free income tax help ) Your child had gross income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends). Free income tax help The interest and dividend income was less than $10,000. Free income tax help Your child is required to file a return for 2013 unless you make this election. Free income tax help Your child does not file a joint return for 2013. Free income tax help No estimated tax payment was made for 2013 and no 2012 overpayment was applied to 2013 under your child's name and social security number. Free income tax help No federal income tax was withheld from your child's income under the backup withholding rules. Free income tax help You are the parent whose return must be used when making the election to report your child's unearned income. Free income tax help   For more information, see Form 8814 and Parent's Election To Report Child's Interest and Dividends in Publication 929. Free income tax help Other Situations You may have to file a tax return even if your gross income is less than the amount shown in Table 1 or Table 2 for your filing status. Free income tax help See Table 3 for those other situations when you must file. Free income tax help Table 3. Free income tax help Other Situations When You Must File a 2013 Return If any of the four conditions listed below applied to you for 2013, you must file a return. Free income tax help 1. Free income tax help You owe any special taxes, including any of the following. Free income tax help   a. Free income tax help Alternative minimum tax. Free income tax help (See Form 6251. Free income tax help )   b. Free income tax help Additional tax on a qualified plan, including an individual retirement arrangement (IRA), or other tax-favored account. Free income tax help (See Publication 590, Individual Retirement Arrangements (IRAs), and Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Free income tax help ) But if you are filing a return only because you owe this tax, you can file Form 5329 by itself. Free income tax help   c. Free income tax help Social security or Medicare tax on tips you did not report to your employer (see Publication 531, Reporting Tip Income) or on wages you received from an employer who did not withhold these taxes (see Form 8919). Free income tax help   d. Free income tax help Write-in taxes, including uncollected social security, Medicare, or railroad retirement tax on tips you reported to your employer or on group-term life insurance and additional tax on health savings accounts. Free income tax help (See Publication 531, Publication 969, and the Form 1040 instructions for line 60. Free income tax help )   e. Free income tax help Household employment taxes. Free income tax help But if you are filing a return only because you owe these taxes, you can file Schedule H (Form 1040) by itself. Free income tax help   f. Free income tax help Recapture taxes. Free income tax help (See the Form 1040 instructions for lines 44, 59b, and 60. Free income tax help ) 2. Free income tax help You (or your spouse if filing jointly) received Archer MSA, Medicare Advantage MSA, or health savings account distributions. Free income tax help 3. Free income tax help You had net earnings from self-employment of at least $400. Free income tax help (See Schedule SE (Form 1040) and its instructions. Free income tax help ) 4. Free income tax help You had wages of $108. Free income tax help 28 or more from a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes. Free income tax help (See Schedule SE (Form 1040) and its instructions. Free income tax help ) Who Should File Even if you do not have to file, you should file a tax return if you can get money back. Free income tax help For example, you should file if one of the following applies. Free income tax help You had income tax withheld from your pay. Free income tax help You made estimated tax payments for the year or had any of your overpayment for last year applied to this year's estimated tax. Free income tax help You qualify for the earned income credit. Free income tax help See Publication 596, Earned Income Credit (EIC), for more information. Free income tax help You qualify for the additional child tax credit. Free income tax help See the instructions for the tax form you file (Form 1040 or 1040A) for more information. Free income tax help You qualify for the refundable American opportunity education credit. Free income tax help See Form 8863, Education Credits. Free income tax help You qualify for the health coverage tax credit. Free income tax help For information about this credit, see Form 8885, Health Coverage Tax Credit. Free income tax help You qualify for the credit for federal tax on fuels. Free income tax help See Form 4136, Credit for Federal Tax Paid on Fuels. Free income tax help Form 1099-B received. Free income tax help    Even if you are not required to file a return, you should consider filing if all of the following apply. Free income tax help You received a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions (or substitute statement). Free income tax help The amount in box 2a of Form 1099-B (or substitute statement), when added to your other gross income, means you have to file a tax return because of the filing requirement in Table 1 or Table 2 that applies to you. Free income tax help Box 3 of Form 1099-B (or substitute statement) is blank. Free income tax help In this case, filing a return may keep you from getting a notice from the IRS. Free income tax help Filing Status You must determine your filing status before you can determine whether you must file a tax return, your standard deduction (discussed later), and your tax. Free income tax help You also use your filing status to determine whether you are eligible to claim certain other deductions and credits. Free income tax help There are five filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow(er) With Dependent Child. Free income tax help If more than one filing status applies to you, choose the one that will give you the lowest tax. Free income tax help Marital Status In general, your filing status depends on whether you are considered unmarried or married. Free income tax help Unmarried persons. Free income tax help    You are considered unmarried for the whole year if, on the last day of your tax year, you are unmarried or legally separated from your spouse under a divorce or separate maintenance decree. Free income tax help   State law governs whether you are married or legally separated under a divorce or separate maintenance decree. Free income tax help Divorced persons. Free income tax help    If you are divorced under a final decree by the last day of the year, you are considered unmarried for the whole year. Free income tax help Divorce and remarriage. Free income tax help    If you obtain a divorce for the sole purpose of filing tax returns as unmarried individuals, and at the time of divorce you intend to and do, in fact, remarry each other in the next tax year, you and your spouse must file as married individuals in both years. Free income tax help Annulled marriages. Free income tax help    If you obtain a court decree of annulment, which holds that no valid marriage ever existed, you are considered unmarried even if you filed joint returns for earlier years. Free income tax help You must file amended returns (Form 1040X) claiming single or head of household status for all tax years that are affected by the annulment and not closed by the statute of limitations for filing a tax return. Free income tax help Generally, for a credit or refund, you must file Form 1040X within 3 years (including extensions) after the date you filed your original return or within 2 years after the date you paid the tax, whichever is later. Free income tax help If you filed your original tax return early (for example, March 1), your return is considered filed on the due date (generally April 15). Free income tax help However, if you had an extension to file (for example, until October 15) but you filed earlier and we received it on July 1, your return is considered filed on July 1. Free income tax help Head of household or qualifying widow(er) with dependent child. Free income tax help    If you are considered unmarried, you may be able to file as a head of household or as a qualifying widow(er) with a dependent child. Free income tax help See Head of Household and Qualifying Widow(er) With Dependent Child to see if you qualify. Free income tax help Married persons. Free income tax help    If you are considered married, you and your spouse can file a joint return or separate returns. Free income tax help Considered married. Free income tax help    You are considered married for the whole year if, on the last day of your tax year, you and your spouse meet any one of the following tests. Free income tax help You are married and living together. Free income tax help You are living together in a common law marriage recognized in the state where you now live or in the state where the common law marriage began. Free income tax help You are married and living apart but not legally separated under a decree of divorce or separate maintenance. Free income tax help You are separated under an interlocutory (not final) decree of divorce. Free income tax help Same-sex marriage. Free income tax help    For federal tax purposes, individuals of the same sex are married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. Free income tax help The term "spouse" includes an individual married to a person of the same sex if the couple is lawfully married under state (or foreign) law. Free income tax help However, individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that is not called a marriage under state (or foreign) law are not married for federal tax purposes. Free income tax help   The word “state” as used here includes the District of Columbia, Puerto Rico, and U. Free income tax help S. Free income tax help territories and possessions. Free income tax help It means any domestic jurisdiction that has the legal authority to sanction marriages. Free income tax help The term “foreign country” means any foreign jurisdiction that has the legal authority to sanction marriages. Free income tax help   If individuals of the same sex are married, they generally must use the married filing jointly or married filing separately filing status. Free income tax help However, if they did not live together during the last 6 months of the year, one or both of them may be able to use the head of household filing status, as explained later. Free income tax help   For more details, see Answers to Frequently Asked Questions For Individuals of the Same Sex Who Are Married Under State Law on IRS. Free income tax help gov. Free income tax help Spouse died during the year. Free income tax help    If your spouse died during the year, you are considered married for the whole year for filing status purposes. Free income tax help   If you did not remarry before the end of the tax year, you can file a joint return for yourself and your deceased spouse. Free income tax help For the next 2 years, you may be entitled to the special benefits described later under Qualifying Widow(er) With Dependent Child . Free income tax help   If you remarried before the end of the tax year, you can file a joint return with your new spouse. Free income tax help Your deceased spouse's filing status is married filing separately for that year. Free income tax help Married persons living apart. Free income tax help    If you live apart from your spouse and meet certain tests, you may be able to file as head of household even if you are not divorced or legally separated. Free income tax help If you qualify to file as head of household instead of as married filing separately, your standard deduction will be higher. Free income tax help Also, your tax may be lower, and you may be able to claim the earned income credit. Free income tax help See Head of Household , later. Free income tax help Single Your filing status is single if you are considered unmarried and you do not qualify for another filing status. Free income tax help To determine your marital status, see Marital Status , earlier. Free income tax help Widow(er). Free income tax help    Your filing status may be single if you were widowed before January 1, 2013, and did not remarry before the end of 2013. Free income tax help You may, however, be able to use another filing status that will give you a lower tax. Free income tax help See Head of Household and Qualifying Widow(er) With Dependent Child , later, to see if you qualify. Free income tax help How to file. Free income tax help    You can file Form 1040. Free income tax help If you have taxable income of less than $100,000, you may be able to file Form 1040A. Free income tax help If, in addition, you have no dependents, are under 65 and not blind, and meet other requirements, you can file Form 1040EZ. Free income tax help If you file Form 1040A or Form 1040, show your filing status as single by checking the box on line 1. Free income tax help Use the Single column of the Tax Table, or Section A of the Tax Computation Worksheet, to figure your tax. Free income tax help Married Filing Jointly You can choose married filing jointly as your filing status if you are considered married and both you and your spouse agree to file a joint return. Free income tax help On a joint return, you and your spouse report your combined income and deduct your combined allowable expenses. Free income tax help You can file a joint return even if one of you had no income or deductions. Free income tax help If you and your spouse decide to file a joint return, your tax may be lower than your combined tax for the other filing statuses. Free income tax help Also, your standard deduction (if you do not itemize deductions) may be higher, and you may qualify for tax benefits that do not apply to other filing statuses. Free income tax help If you and your spouse each have income, you may want to figure your tax both on a joint return and on separate returns (using the filing status of married filing separately). Free income tax help You can choose the method that gives the two of you the lower combined tax. Free income tax help How to file. Free income tax help    If you file as married filing jointly, you can use Form 1040. Free income tax help If you and your spouse have taxable income of less than $100,000, you may be able to file Form 1040A. Free income tax help If, in addition, you and your spouse have no dependents, are both under 65 and not blind, and meet other requirements, you can file Form 1040EZ. Free income tax help If you file Form 1040 or Form 1040A, show this filing status by checking the box on line 2. Free income tax help Use the Married filing jointly column of the Tax Table, or Section B of the Tax Computation Worksheet, to figure your tax. Free income tax help Spouse died. Free income tax help    If your spouse died during the year, you are considered married for the whole year and can choose married filing jointly as your filing status. Free income tax help See Spouse died during the year , under Married persons, earlier. Free income tax help   If your spouse died in 2014 before filing a 2013 return, you can choose married filing jointly as your filing status on your 2013 return. Free income tax help Divorced persons. Free income tax help    If you are divorced under a final decree by the last day of the year, you are considered unmarried for the whole year and you cannot choose married filing jointly as your filing status. Free income tax help Filing a Joint Return Both you and your spouse must include all of your income, exemptions, and deductions on your joint return. Free income tax help Accounting period. Free income tax help    Both of you must use the same accounting period, but you can use different accounting methods. Free income tax help Joint responsibility. Free income tax help    Both of you may be held responsible, jointly and individually, for the tax and any interest or penalty due on your joint return. Free income tax help This means that if one spouse does not pay the tax due, the other may have to. Free income tax help Or, if one spouse does not report the correct tax, both spouses may be responsible for any additional taxes assessed by the IRS. Free income tax help One spouse may be held responsible for all the tax due even if all the income was earned by the other spouse. Free income tax help   You may want to file separately if: You believe your spouse is not reporting all of his or her income, or You do not want to be responsible for any taxes due if your spouse does not have enough tax withheld or does not pay enough estimated tax. Free income tax help Divorced taxpayer. Free income tax help    You may be held jointly and individually responsible for any tax, interest, and penalties due on a joint return filed before your divorce. Free income tax help This responsibility may apply even if your divorce decree states that your former spouse will be responsible for any amounts due on previously filed joint returns. Free income tax help Relief from joint responsibility. Free income tax help    In some cases, one spouse may be relieved of joint responsibility for tax, interest, and penalties on a joint return for items of the other spouse that were incorrectly reported on the joint return. Free income tax help You can ask for relief no matter how small the liability. Free income tax help   There are three types of relief available. Free income tax help Innocent spouse relief. Free income tax help Separation of liability (available only to joint filers who are divorced, widowed, legally separated, or who have not lived together for the 12 months ending on the date the election for this relief is filed). Free income tax help Equitable relief. Free income tax help    You must file Form 8857, Request for Innocent Spouse Relief, to request relief from joint responsibility. Free income tax help Publication 971, Innocent Spouse Relief, explains the kinds of relief and who may qualify for them. Free income tax help Signing a joint return. Free income tax help    For a return to be considered a joint return, both spouses generally must sign the return. Free income tax help Spouse died before signing. Free income tax help    If your spouse died before signing the return, the executor or administrator must sign the return for your spouse. Free income tax help If neither you nor anyone else has been appointed as executor or administrator, you can sign the return for your spouse and enter “Filing as surviving spouse” in the area where you sign the return. Free income tax help Spouse away from home. Free income tax help    If your spouse is away from home, you should prepare the return, sign it, and send it to your spouse to sign so it can be filed on time. Free income tax help Injury or disease prevents signing. Free income tax help    If your spouse cannot sign because of injury or disease and tells you to sign for him or her, you can sign your spouse's name in the proper space on the return followed by the words “By (your name), Husband (or Wife). Free income tax help ” Be sure to also sign in the space provided for your signature. Free income tax help Attach a dated statement, signed by you, to the return. Free income tax help The statement should include the form number of the return you are filing, the tax year, and the reason your spouse cannot sign, and should state that your spouse has agreed to your signing for him or her. Free income tax help Signing as guardian of spouse. Free income tax help    If you are the guardian of your spouse who is mentally incompetent, you can sign the return for your spouse as guardian. Free income tax help Spouse in combat zone. Free income tax help    You can sign a joint return for your spouse if your spouse cannot sign because he or she is serving in a combat zone (such as the Persian Gulf area, Serbia, Montenegro, Albania, or Afghanistan), even if you do not have a power of attorney or other statement. Free income tax help Attach a signed statement to your return explaining that your spouse is serving in a combat zone. Free income tax help For more information on special tax rules for persons who are serving in a combat zone, or who are in missing status as a result of serving in a combat zone, see Publication 3, Armed Forces' Tax Guide. Free income tax help Other reasons spouse cannot sign. Free income tax help    If your spouse cannot sign the joint return for any other reason, you can sign for your spouse only if you are given a valid power of attorney (a legal document giving you permission to act for your spouse). Free income tax help Attach the power of attorney (or a copy of it) to your tax return. Free income tax help You can use Form 2848. Free income tax help Nonresident alien or dual-status alien. Free income tax help    Generally, a married couple cannot file a joint return if either one is a nonresident alien at any time during the tax year. Free income tax help However, if one spouse was a nonresident alien or dual-status alien who was married to a U. Free income tax help S. Free income tax help citizen or resident alien at the end of the year, the spouses can choose to file a joint return. Free income tax help If you do file a joint return, you and your spouse are both treated as U. Free income tax help S. Free income tax help residents for the entire tax year. Free income tax help See chapter 1 of Publication 519. Free income tax help Married Filing Separately You can choose married filing separately as your filing status if you are married. Free income tax help This filing status may benefit you if you want to be responsible only for your own tax or if it results in less tax than filing a joint return. Free income tax help If you and your spouse do not agree to file a joint return, you must use this filing status unless you qualify for head of household status, discussed later. Free income tax help You may be able to choose head of household filing status if you are considered unmarried because you live apart from your spouse and meet certain tests (explained later, under Head of Household ). Free income tax help This can apply to you even if you are not divorced or legally separated. Free income tax help If you qualify to file as head of household, instead of as married filing separately, your tax may be lower, you may be able to claim the earned income credit and certain other credits, and your standard deduction will be higher. Free income tax help The head of household filing status allows you to choose the standard deduction even if your spouse chooses to itemize deductions. Free income tax help See Head of Household , later, for more information. Free income tax help You will generally pay more combined tax on separate returns than you would on a joint return for the reasons listed under Special Rules, later. Free income tax help However, unless you are required to file separately, you should figure your tax both ways (on a joint return and on separate returns). Free income tax help This way you can make sure you are using the filing status that results in the lowest combined tax. Free income tax help When figuring the combined tax of a married couple, you may want to consider state taxes as well as federal taxes. Free income tax help How to file. Free income tax help    If you file a separate return, you generally report only your own income, exemptions, credits, and deductions. Free income tax help 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 person. Free income tax help   You can file Form 1040. Free income tax help If your taxable income is less than $100,000, you may be able to file Form 1040A. Free income tax help Select this filing status by checking the box on line 3 of either form. Free income tax help Enter your spouse's full name and SSN or ITIN in the spaces provided. Free income tax help If your spouse does not have and is not required to have an SSN or ITIN, enter “NRA” in the space for your spouse's SSN. Free income tax help Use the Married filing separately column of the Tax Table or Section C of the Tax Computation Worksheet to figure your tax. Free income tax help Special Rules If you choose married filing separately as your filing status, the following special rules apply. Free income tax help Because of these special rules, you usually pay more tax on a separate return than if you use another filing status you qualify for. Free income tax help Your tax rate generally is higher than on a joint return. Free income tax help Your exemption amount for figuring the alternative minimum tax is half that allowed on a joint return. Free income tax help You cannot take the credit for child and dependent care expenses in most cases, and the amount you can exclude from income under an employer's dependent care assistance program is limited to $2,500 (instead of $5,000 on a joint return). Free income tax help If you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. Free income tax help See Joint Return Test in Publication 503, Child and Dependent Care Expenses, for more information. Free income tax help You cannot take the earned income credit. Free income tax help You cannot take the exclusion or credit for adoption expenses in most cases. Free income tax help You cannot take the education credits (the American opportunity credit and lifetime learning credit), the deduction for student loan interest, or the tuition and fees deduction. Free income tax help You cannot exclude any interest income from qualified U. Free income tax help S. Free income tax help savings bonds you used for higher education expenses. Free income tax help If you lived with your spouse at any time during the tax year: You cannot claim the credit for the elderly or the disabled, and You must include in income a greater percentage (up to 85%) of any social security or equivalent railroad retirement benefits you received. Free income tax help The following credits and deductions are reduced at income levels half those for a joint return: The child tax credit, The retirement savings contributions credit, The deduction for personal exemptions, and Itemized deductions. Free income tax help Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return). Free income tax help If your spouse itemizes deductions, you cannot claim the standard deduction. Free income tax help If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return. Free income tax help Adjusted gross income (AGI) limits. Free income tax help    If your AGI on a separate return is lower than it would have been on a joint return, you may be able to deduct a larger amount for certain deductions that are limited by AGI, such as medical expenses. Free income tax help Individual retirement arrangements (IRAs). Free income tax help    You may not be able to deduct all or part of your contributions to a traditional IRA if you or your spouse were covered by an employee retirement plan at work during the year. Free income tax help Your deduction is reduced or eliminated if your income is more than a certain amount. Free income tax help This amount is much lower for married individuals who file separately and lived together at any time during the year. Free income tax help For more information, see How Much Can You Deduct? in chapter 1 of Publication 590. Free income tax help Rental activity losses. Free income tax help    If you actively participated in a passive rental real estate activity that produced a loss, you generally can deduct the loss from your nonpassive income up to $25,000. Free income tax help This is called a special allowance. Free income tax help However, married persons filing separate returns who lived together at any time during the year cannot claim this special allowance. Free income tax help Married persons filing separate returns who lived apart at all times during the year are each allowed a $12,500 maximum special allowance for losses from passive real estate activities. Free income tax help See Rental Activities in Publication 925, Passive Activity and At-Risk Rules. Free income tax help Community property states. Free income tax help    If you live in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin and file separately, your income may be considered separate income or community income for income tax purposes. Free income tax help See Publication 555, Community Property. Free income tax help Joint Return After Separate Returns You can change your filing status from a separate return to a joint return by filing an amended return using Form 1040X. Free income tax help You generally can change to a joint return any time within 3 years from the due date of the separate return or returns. Free income tax help This does not include any extensions. Free income tax help A separate return includes a return filed by you or your spouse claiming married filing separately, single, or head of household filing status. Free income tax help Separate Returns After Joint Return Once you file a joint return, you cannot choose to file separate returns for that year after the due date of the return. Free income tax help Exception. Free income tax help    A personal representative for a decedent can change from a joint return elected by the surviving spouse to a separate return for the decedent. Free income tax help The personal representative has 1 year from the due date (including extensions) of the return to make the change. Free income tax help See Publication 559 for more information on filing income tax returns for a decedent. Free income tax help Head of Household You may be able to file as head of household if you meet all the following requirements. Free income tax help You are unmarried or considered unmarried on the last day of the year. Free income tax help See Marital Status , earlier, and Considered Unmarried , later. Free income tax help You paid more than half the cost of keeping up a home for the year. Free income tax help A qualifying person lived with you in the home for more than half the year (except for temporary absences, such as school). Free income tax help However, if the qualifying person is your dependent parent, he or she does not have to live with you. Free income tax help See Special rule for parent , later, under Qualifying Person. Free income tax help If you qualify to file as head of household, your tax rate usually will be lower than the rates for single or married filing separately. Free income tax help You will also receive a higher standard deduction than if you file as single or married filing separately. Free income tax help How to file. Free income tax help    If you file as head of household, you can use Form 1040. Free income tax help If you have taxable income of less than $100,000 and meet certain other conditions, you may be able to file Form 1040A. Free income tax help Indicate your choice of this filing status by checking the box on line 4 of either form. Free income tax help Use the Head of a household column of the Tax Table or Section D of the Tax Computation Worksheet to figure your tax. Free income tax help Considered Unmarried To qualify for head of household status, you must be either unmarried or considered unmarried on the last day of the year. Free income tax help You are considered unmarried on the last day of the tax year if you meet all the following tests. Free income tax help You file a separate return (defined earlier under Joint Return After Separate Returns ). Free income tax help You paid more than half the cost of keeping up your home for the tax year. Free income tax help Your spouse did not live in your home during the last 6 months of the tax year. Free income tax help Your spouse is considered to live in your home even if he or she is temporarily absent due to special circumstances. Free income tax help See Temporary absences , later. Free income tax help Your home was the main home of your child, stepchild, or foster child for more than half the year. Free income tax help (See Home of qualifying person , later, for rules applying to a child's birth, death, or temporary absence during the year. Free income tax help ) You must be able to claim an exemption for the child. Free income tax help However, you meet this test if you cannot claim the exemption only because the noncustodial parent can claim the child using the rules described later in Children of divorced or separated parents (or parents who live apart) under Qualifying Child or in Support Test for Children of Divorced or Separated Parents (or Parents Who Live Apart) under Qualifying Relative. Free income tax help The general rules for claiming an exemption for a dependent are explained later under Exemptions for Dependents . Free income tax help If you were considered married for part of the year and lived in a community property state (listed earlier under Married Filing Separately), special rules may apply in determining your income and expenses. Free income tax help See Publication 555 for more information. Free income tax help Nonresident alien spouse. Free income tax help    You are considered unmarried for head of household purposes if your spouse was a nonresident alien at any time during the year and you do not choose to treat your nonresident spouse as a resident alien. Free income tax help However, your spouse is not a qualifying person for head of household purposes. Free income tax help You must have another qualifying person and meet the other tests to be eligible to file as a head of household. Free income tax help Choice to treat spouse as resident. Free income tax help    You are considered married if you choose to treat your spouse as a resident alien. Free income tax help See chapter 1 of Publication 519. Free income tax help Keeping Up a Home To qualify for head of household status, you must pay more than half of the cost of keeping up a home for the year. Free income tax help You can determine whether you paid more than half of the cost of keeping up a home by using Worksheet 1. Free income tax help Worksheet 1. Free income tax help Cost of Keeping Up a Home         Amount You  Paid Total  Cost Property taxes $ $ Mortgage interest expense     Rent     Utility charges     Repairs/maintenance     Property insurance     Food consumed on the premises     Other household expenses     Totals $ $       Minus total amount you paid   ()       Amount others paid   $       If the total amount you paid is more than the amount others paid, you meet the requirement of paying more than half the cost of keeping up the home. Free income tax help Costs you include. Free income tax help    Include in the cost of keeping up a home expenses such as rent, mortgage interest, real estate taxes, insurance on the home, repairs, utilities, and food eaten in the home. Free income tax help   If you used payments you received under Temporary Assistance for Needy Families (TANF) or other public assistance programs to pay part of the cost of keeping up your home, you cannot count them as money you paid. Free income tax help However, you must include them in the total cost of keeping up your home to figure if you paid over half the cost. Free income tax help Costs you do not include. Free income tax help    Do not include the cost of clothing, education, medical treatment, vacations, life insurance, or transportation. Free income tax help Also, do not include the rental value of a home you own or the value of your services or those of a member of your household. Free income tax help Qualifying Person See Table 4 to see who is a qualifying person. Free income tax help Any person not described in Table 4 is not a qualifying person. Free income tax help Example 1—child. Free income tax help Your unmarried son lived with you all year and was 18 years old at the end of the year. Free income tax help He did not provide more than half of his own support and does not meet the tests to be a qualifying child of anyone else. Free income tax help As a result, he is your qualifying child (see Qualifying Child , later) and, because he is single, your qualifying person for head of household purposes. Free income tax help Example 2—child who is not qualifying person. Free income tax help The facts are the same as in Example 1 except your son was 25 years old at the end of the year and his gross income was $5,000. Free income tax help Because he does not meet the age test (explained later under Qualifying Child), your son is not your qualifying child. Free income tax help Because he does not meet the gross income test (explained later under Qualifying Relative), he is not your qualifying relative. Free income tax help As a result, he is not your qualifying person for head of household purposes. Free income tax help Example 3—girlfriend. Free income tax help Your girlfriend lived with you all year. Free income tax help Even though she may be your qualifying relative if the gross income and support tests (explained later) are met, she is not your qualifying person for head of household purposes because she is not related to you in one of the ways listed under Relatives who do not have to live with you . Free income tax help See Table 4. Free income tax help Example 4—girlfriend's child. Free income tax help The facts are the same as in Example 3 except your girlfriend's 10-year-old son also lived with you all year. Free income tax help He is not your qualifying child and, because he is your girlfriend's qualifying child, he is not your qualifying relative (see Not a Qualifying Child Test , later). Free income tax help As a result, he is not your qualifying person for head of household purposes. Free income tax help Home of qualifying person. Free income tax help    Generally, the qualifying person must live with you for more than half of the year. Free income tax help Special rule for parent. Free income tax help    If your qualifying person is your father or mother, you may be eligible to file as head of household even if your father or mother does not live with you. Free income tax help However, you must be able to claim an exemption for your father or mother. Free income tax help Also, you must pay more than half the cost of keeping up a home that was the main home for the entire year for your father or mother. Free income tax help   You are keeping up a main home for your father or mother if you pay more than half the cost of keeping your parent in a rest home or home for the elderly. Free income tax help Death or birth. Free income tax help    You may be eligible to file as head of household even if the qualifying person who qualifies you for this filing status is born or dies during the year. Free income tax help To qualify you for head of household filing status, the qualifying person (as defined in Table 4) must be one of the following. Free income tax help Your qualifying child or qualifying relative who lived with you for more than half the part of the year he or she was alive. Free income tax help Your parent for whom you paid, for the entire part of the year he or she was alive, more than half the cost of keeping up the home he or she lived in. Free income tax help Example. Free income tax help You are unmarried. Free income tax help Your mother, for whom you can claim an exemption, lived in an apartment by herself. Free income tax help She died on September 2. Free income tax help The cost of the upkeep of her apartment for the year until her death was $6,000. Free income tax help You paid $4,000 and your brother paid $2,000. Free income tax help Your brother made no other payments towards your mother's support. Free income tax help Your mother had no income. Free income tax help Because you paid more than half of the cost of keeping up your mother's apartment from January 1 until her death, and you can claim an exemption for her, you can file as a head of household. Free income tax help Temporary absences. Free income tax help    You and your qualifying person are considered to live together even if one or both of you are temporarily absent from your home due to special circumstances such as illness, education, business, vacation, or military service. Free income tax help It must be reasonable to assume the absent person will return to the home after the temporary absence. Free income tax help You must continue to keep up the home during the absence. Free income tax help Kidnapped child. Free income tax help    You may be eligible to file as head of household even if the child who is your qualifying person has been kidnapped. Free income tax help You can claim head of household filing status if all the following statements are true. Free income tax help The child is presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or the child's family. Free income tax help In the year of the kidnapping, the child lived with you for more than half the part of the year before the kidnapping. Free income tax help You would have qualified for head of household filing status if the child had not been kidnapped. Free income tax help   This treatment applies for all years until the earliest of: The year the child is returned, The year there is a determination that the child is dead, or The year the child would have reached age 18. Free income tax help Qualifying Widow(er) With Dependent Child If your spouse died in 2013, you can use married filing jointly as your filing status for 2013 if you otherwise qualify to use that status. Free income tax help The year of death is the last year for which you can file jointly with your deceased spouse. Free income tax help See Married Filing Jointly , earlier. Free income tax help You may be eligible to use qualifying widow(er) with dependent child as your filing status for 2 years following the year your spouse died. Free income tax help For example, if your spouse died in 2012 and you have not remarried, you may be able to use this filing status for 2013 and 2014. Free income tax help The rules for using this filing status are explained in detail here. Free income tax help This filing status entitles you to use joint return tax rates and the highest standard deduction amount (if you do not itemize deductions). Free income tax help It does not entitle you to file a joint return. Free income tax help How to file. Free income tax help    If you file as a qualifying widow(er) with dependent child, you can use Form 1040. Free income tax help If you also have taxable income of less than $100,000 and meet certain other conditions, you may be able to file Form 1040A. Free income tax help Check the box on line 5 of either form. Free income tax help Use the Married filing jointly column of the Tax Table or Section B of the Tax Computation Worksheet to figure your tax. Free income tax help Table 4. Free income tax help Who Is a Qualifying Person Qualifying You To File as Head of Household?1 See the text of this publication for the other requirements you must meet to claim head of household filing status. Free income tax help IF the person is your . Free income tax help . Free income tax help . Free income tax help   AND . Free income tax help . Free income tax help . Free income tax help   THEN that person is . Free income tax help . Free income tax help . Free income tax help qualifying child (such as a son, daughter, or grandchild who lived with you more than half the year and meets certain other tests)2   he or she is single   a qualifying person, whether or not you can claim an exemption for the person. Free income tax help   he or she is married and you can claim an exemption for him or her   a qualifying person. Free income tax help   he or she is married and you cannot claim an exemption for him or her   not a qualifying person. Free income tax help 3 qualifying relative4 who is your father or mother   you can claim an exemption for him or her5   a qualifying person. Free income tax help 6   you cannot claim an exemption for him or her   not a qualifying person. Free income tax help qualifying relative4 other than your father or mother (such as a grandparent, brother, or sister who meets certain tests). Free income tax help   he or she lived with you more than half the year, and he or she is related to you in one of the ways listed under Relatives who do not have to live with you , later, and you can claim an exemption for him or her5   a qualifying person. Free income tax help   he or she did not live with you more than half the year   not a qualifying person. Free income tax help   he or she is not related to you in one of the ways listed under Relatives who do not have to live with you , later, and is your qualifying relative only because he or she lived with you all year as a member of your household   not a qualifying person. Free income tax help   you cannot claim an exemption for him or her   not a qualifying person. Free income tax help 1 A person cannot qualify more than one taxpayer to use the head of household filing status for the year. Free income tax help 2 The term “qualifying child” is defined under Exemptions for Dependents, later. Free income tax help Note: If you are a noncustodial parent, the term “qualifying child” for head of household filing status does not include a child who is your qualifying child for exemption purposes only because of the rules described under Children of divorced or separated parents (or parents who live apart) under Qualifying Child, later. Free income tax help If you are the custodial parent and those rules apply, the child generally is your qualifying child for head of household filing status even though the child is not a qualifying child for whom you can claim an exemption. Free income tax help 3 This person is a qualifying person if the only reason you cannot claim the exemption is that you can be claimed as a dependent on someone else's return. Free income tax help 4 The term “qualifying relative” is defined under Exemptions for Dependents, later. Free income tax help 5 If you can claim an exemption for a person only because of a multiple support agreement, that person is not a qualifying person. Free income tax help See Multiple Support Agreement . Free income tax help 6 See Special rule for parent . Free income tax help Eligibility rules. Free income tax help    You are eligible to file your 2013 return as a qualifying widow(er) with dependent child if you meet all the following tests. Free income tax help You were entitled to file a joint return with your spouse for the year your spouse died. Free income tax help It does not matter whether you actually filed a joint return. Free income tax help Your spouse died in 2011 or 2012 and you did not remarry before the end of 2013. Free income tax help You have a child or stepchild for whom you can claim an exemption. Free income tax help This does not include a foster child. Free income tax help This child lived in your home all year, except for temporary absences. Free income tax help See Temporary absences , earlier, under Head of Household. Free income tax help There are also exceptions, described later, for a child who was born or died during the year and for a kidnapped child. Free income tax help You paid more than half the cost of keeping up a home for the year. Free income tax help See Keeping Up a Home , earlier, under Head of Household. Free income tax help Example. Free income tax help John's wife died in 2011. Free income tax help John has not remarried. Free income tax help He has continued during 2012 and 2013 to keep up a home for himself and his child, who lives with him and for whom he can claim an exemption. Free income tax help For 2011 he was entitled to file a joint return for himself and his deceased wife. Free income tax help For 2012 and 2013, he can file as a qualifying widower with a dependent child. Free income tax help After 2013, he can file as head of household if he qualifies. Free income tax help Death or birth. Free income tax help    You may be eligible to file as a qualifying widow(er) with dependent child if the child who qualifies you for this filing status is born or dies during the year. Free income tax help You must have provided more than half of the cost of keeping up a home that was the child's main home during the entire part of the year he or she was alive. Free income tax help Kidnapped child. Free income tax help    You may be eligible to file as a qualifying widow(er) with dependent child even if the child who qualifies you for this filing status has been kidnapped. Free income tax help You can claim qualifying widow(er) with dependent child filing status if all the following statements are true. Free income tax help The child is presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or the child's family. Free income tax help In the year of the kidnapping, the child lived with you for more than half the part of the year before the kidnapping. Free income tax help You would have qualified for qualifying widow(er) with dependent child filing status if the child had not been kidnapped. Free income tax help As mentioned earlier, this filing status is available for only 2 years following the year your spouse died. Free income tax help Exemptions Exemptions reduce your taxable income. Free income tax help You can deduct $3,900 for each exemption you claim in 2013. Free income tax help If you are entitled to two exemptions for 2013, you can deduct $7,800 ($3,900 × 2). Free income tax help But you may lose the benefit of part or all of your exemptions if your adjusted gross income is above a certain amount. Free income tax help See Phaseout of Exemptions , later. Free income tax help Types of exemptions. Free income tax help    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). Free income tax help While each is worth the same amount ($3,900 for 2013), different rules, discussed later, apply to each type. Free income tax help Dependent cannot claim a personal exemption. Free income tax help    If you are entitled to claim an exemption for a dependent (such as your child), that dependent cannot claim a personal exemption on his or her own tax return. Free income tax help How to claim exemptions. Free income tax help    How you claim an exemption on your tax return depends on which form you file. Free income tax help Form 1040EZ filers. Free income tax help    If you file Form 1040EZ, the exemption amount is combined with the standard deduction and entered on line 5. Free income tax help Form 1040A filers. Free income tax help    If you file Form 1040A, complete lines 6a through 6d. Free income tax help The total number of exemptions you can claim is the total in the box on line 6d. Free income tax help Also complete line 26. Free income tax help Form 1040 filers. Free income tax help    If you file Form 1040, complete lines 6a through 6d. Free income tax help The total number of exemptions you can claim is the total in the box on line 6d. Free income tax help Also complete line 42. Free income tax help If your adjusted gross income is more than $150,000, see Phaseout of Exemptions , later. Free income tax help U. Free income tax help S. Free income tax help citizen or resident alien. Free income tax help    If you are a U. Free income tax help S. Free income tax help citizen, U. Free income tax help S. Free income tax help resident alien, U. Free income tax help S. Free income tax help national (defined later) or a resident of Canada or Mexico, you may qualify for any of the exemptions discussed here. Free income tax help Nonresident aliens. Free income tax help    Generally, if you are a nonresident alien (other than a resident of Canada or Mexico, or certain residents of India or Korea), you can qualify for only one personal exemption for yourself. Free income tax help You cannot claim exemptions for a spouse or dependents. Free income tax help   These restrictions do not apply if you are a nonresident alien married to a U. Free income tax help S. Free income tax help citizen or resident alien and have chosen to be treated as a resident of the United States. Free income tax help More information. Free income tax help    For more information on exemptions if you are a nonresident alien, see chapter 5 in Publication 519. Free income tax help Dual-status taxpayers. Free income tax help    If you have been both a nonresident alien and a resident alien in the same tax year, you should see Publication 519 for information on determining your exemptions. Free income tax help Personal Exemptions You are generally allowed one exemption for yourself. Free income tax help If you are married, you may be allowed one exemption for your spouse. Free income tax help These are called personal exemptions. Free income tax help Your Own Exemption You can take one exemption for yourself unless you can be claimed as a dependent by another taxpayer. Free income tax help 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. Free income tax help Your Spouse's Exemption Your spouse is never considered your dependent. Free income tax help Joint return. Free income tax help    On a joint return, you can claim one exemption for yourself and one for your spouse. Free income tax help Separate return. Free income tax help    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. Free income tax help This is true even if the other taxpayer does not actually claim your spouse as a dependent. Free income tax help 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. Free income tax help S. Free income tax help tax purposes and satisfy the other conditions listed above. Free income tax help Head of household. Free income tax help    If you qualify for head of household filing status because you are considered unmarried, you can claim an exemption for your spouse if the conditions described in the preceding paragraph are satisfied. Free income tax help   To claim the exemption for your spouse, check the box on line 6b of Form 1040 or Form 1040A and enter the name of your spouse in the space to the right of the box. Free income tax help Enter the SSN or ITIN of your spouse in the space provided at the top of Form 1040 or Form 1040A. Free income tax help Death of spouse. Free income tax help    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 . Free income tax help 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 . Free income tax help   If you remarried during the year, you cannot take an exemption for your deceased spouse. Free income tax help   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. Free income tax help If you file a joint return with your new spouse, you can be claimed as an exemption only on that return. Free income tax help Divorced or separated spouse. Free income tax help    If you obtained a final decree of divorce or separate maintenance during the year, you cannot take your former spouse's exemption. Free income tax help This rule applies even if you provided all of your former spouse's support. Free income tax help Exemptions for Dependents You are allowed one exemption for each person you can claim as a dependent. Free income tax help You can claim an exemption for a dependent even if your dependent files a return. Free income tax help The term “dependent” means: A qualifying child, or A qualifying relative. Free income tax help The terms “ qualifying child ” and “ qualifying relative ” are defined later. Free income tax help You can claim an exemption for a qualifying child or qualifying relative only if these three tests are met. Free income tax help Dependent taxpayer test. Free income tax help Joint return test. Free income tax help Citizen or resident test. Free income tax help These three tests are explained in detail later. Free income tax help All the requirements for claiming an exemption for a dependent are summarized in Table 5. Free income tax help Table 5. Free income tax help Overview of the Rules for Claiming an Exemption for a Dependent This table is only an overview of the rules. Free income tax help For details, see the rest of this publication. Free income tax help You cannot claim any dependents if you, or your spouse if filing jointly, could be claimed as a dependent by another taxpayer. Free income tax help   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. Free income tax help   You cannot claim a person as a dependent unless that person is a U. Free income tax help S. Free income tax help citizen, U. Free income tax help S. Free income tax help resident alien, U. Free income tax help S. Free income tax help national, or a resident of Canada or Mexico. Free income tax help 1  You cannot claim a person as a dependent unless that person is your qualifying child or qualifying relative. Free income tax help   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. Free income tax help   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. Free income tax help   The child must have lived with you for more than half of the year. Free income tax help 2  The child must not have provided more than half of his or her own support for the year. Free income tax help   The child is not filing a joint return for the year (unless that joint return is filed only to claim a refund of withheld income tax or estimated tax paid). Free income tax help  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. Free income tax help See the Special Rule for Qualifying Child of More Than One Person described later to find out which person is the person entitled to claim the child as a qualifying child. Free income tax help The person cannot be your qualifying child or the qualifying child of any other taxpayer. Free income tax help   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). Free income tax help   The person's gross income for the year must be less than $3,900. Free income tax help 3  You must provide more than half of the person's total support for the year. Free income tax help 4  1 There is an exception for certain adopted children. Free income tax help 2 There 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. Free income tax help 3 There is an exception if the person is disabled and has income from a sheltered workshop. Free income tax help 4 There are exceptions for multiple support agreements, children of divorced or separated parents (or parents who live apart), and kidnapped children. Free income tax help Dependent not allowed a personal exemption. Free income tax help 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. Free income tax help This is true even if you do not claim the dependent's exemption on your return. Free income tax help 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. Free income tax help Housekeepers, maids, or servants. Free income tax help    If these people work for you, you cannot claim exemptions for them. Free income tax help Child tax credit. Free income tax help    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. Free income tax help For more information, see the instructions for the tax form you file (Form 1040 or 1040A). Free income tax help Dependent Taxpayer Test If you can be claimed as a dependent by another person, you cannot claim anyone else as a dependent. Free income tax help Even if you have a qualifying child or qualifying relative, you cannot claim that person as a dependent. Free income tax help 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. Free income tax help Joint Return Test You generally cannot claim a married person as a dependent if he or she files a joint return. Free income tax help Exception. Free income tax help    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. Free income tax help Example 1—child files joint return. Free income tax help You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. Free income tax help He earned $25,000 for the year. Free income tax help The couple files a joint return. Free income tax help You cannot take an exemption for your daughter. Free income tax help Example 2—child files joint return only as claim for refund of withheld tax. Free income tax help Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. Free income tax help Neither is required to file a tax return. Free income tax help They do not have a child. Free income tax help Taxes were taken out of their pay so they file a joint return only to get a refund of the withheld taxes. Free income tax help 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. Free income tax help You can claim exemptions for each of them if all the other tests to do so are met. Free income tax help Example 3—child files joint return to claim American opportunity credit. Free income tax help The facts are the same as in Example 2 except no taxes were taken out of your son's pay. Free income tax help He and his wife are not required to file a tax return. Free income tax help However, they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. Free income tax help 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