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H And R Block Tax Estimator

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H And R Block Tax Estimator

H and r block tax estimator Publication 530 - Main Content Table of Contents What You Can and Cannot DeductHardest Hit Fund and Emergency Homeowners' Loan Programs Real Estate Taxes Sales Taxes Home Mortgage Interest Mortgage Insurance Premiums Mortgage Interest CreditFiguring the Credit BasisFiguring Your Basis Adjusted Basis Keeping Records How To Get Tax HelpLow Income Taxpayer Clinics What You Can and Cannot Deduct To deduct expenses of owning a home, you must file Form 1040, U. H and r block tax estimator S. H and r block tax estimator Individual Income Tax Return, and itemize your deductions on Schedule A (Form 1040). H and r block tax estimator If you itemize, you cannot take the standard deduction. H and r block tax estimator This section explains what expenses you can deduct as a homeowner. H and r block tax estimator It also points out expenses that you cannot deduct. H and r block tax estimator There are four primary discussions: real estate taxes, sales taxes, home mortgage interest, and mortgage insurance premiums. H and r block tax estimator Generally, your real estate taxes, home mortgage interest, and mortgage insurance premiums are included in your house payment. H and r block tax estimator Your house payment. H and r block tax estimator   If you took out a mortgage (loan) to finance the purchase of your home, you probably have to make monthly house payments. H and r block tax estimator Your house payment may include several costs of owning a home. H and r block tax estimator The only costs you can deduct are real estate taxes actually paid to the taxing authority, interest that qualifies as home mortgage interest, and mortgage insurance premiums. H and r block tax estimator These are discussed in more detail later. H and r block tax estimator   Some nondeductible expenses that may be included in your house payment include: Fire or homeowner's insurance premiums, and The amount applied to reduce the principal of the mortgage. H and r block tax estimator Minister's or military housing allowance. H and r block tax estimator   If you are a minister or a member of the uniformed services and receive a housing allowance that is not taxable, you still can deduct your real estate taxes and your home mortgage interest. H and r block tax estimator You do not have to reduce your deductions by your nontaxable allowance. H and r block tax estimator For more information see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers, and Publication 3, Armed Forces' Tax Guide. H and r block tax estimator Nondeductible payments. H and r block tax estimator   You cannot deduct any of the following items. H and r block tax estimator Insurance (other than mortgage insurance premiums), including fire and comprehensive coverage, and title insurance. H and r block tax estimator Wages you pay for domestic help. H and r block tax estimator Depreciation. H and r block tax estimator The cost of utilities, such as gas, electricity, or water. H and r block tax estimator Most settlement costs. H and r block tax estimator See Settlement or closing costs under Cost as Basis, later, for more information. H and r block tax estimator Forfeited deposits, down payments, or earnest money. H and r block tax estimator Hardest Hit Fund and Emergency Homeowners' Loan Programs You can use a special method to compute your deduction for mortgage interest and real estate taxes on your main home if you meet the following two conditions. H and r block tax estimator You received assistance under: A State Housing Finance Agency (State HFA) Hardest Hit Fund program in which program payments could be used to pay mortgage interest, or An Emergency Homeowners' Loan Program administered by the Department of Housing and Urban Development (HUD) or a state. H and r block tax estimator You meet the rules to deduct all of the mortgage interest on your loan and all of the real estate taxes on your main home. H and r block tax estimator If you meet these tests, then you can deduct all of the payments you actually made during the year to your mortgage servicer, the State HFA, or HUD on the home mortgage (including the amount shown on box 3 of Form 1098-MA, Mortgage Assistance Payments), but not more than the sum of the amounts shown on Form 1098, Mortgage Interest Statement, in box 1 (mortgage interest received), box 4 (mortgage insurance premiums) and box 5 (real property taxes). H and r block tax estimator However, you are not required to use this special method to compute your deduction for mortgage interest and real estate taxes on your main home. H and r block tax estimator Real Estate Taxes Most state and local governments charge an annual tax on the value of real property. H and r block tax estimator This is called a real estate tax. H and r block tax estimator You can deduct the tax if it is assessed uniformly at a like rate on all real property throughout the community. H and r block tax estimator The proceeds must be for general community or governmental purposes and not be a payment for a special privilege granted or service rendered to you. H and r block tax estimator Deductible Real Estate Taxes You can deduct real estate taxes imposed on you. H and r block tax estimator You must have paid them either at settlement or closing, or to a taxing authority (either directly or through an escrow account) during the year. H and r block tax estimator If you own a cooperative apartment, see Special Rules for Cooperatives , later. H and r block tax estimator Where to deduct real estate taxes. H and r block tax estimator   Enter the amount of your deductible real estate taxes on Schedule A (Form 1040), line 6. H and r block tax estimator Real estate taxes paid at settlement or closing. H and r block tax estimator   Real estate taxes are generally divided so that you and the seller each pay taxes for the part of the property tax year you owned the home. H and r block tax estimator Your share of these taxes is fully deductible if you itemize your deductions. H and r block tax estimator Division of real estate taxes. H and r block tax estimator   For federal income tax purposes, the seller is treated as paying the property taxes up to, but not including, the date of sale. H and r block tax estimator You (the buyer) are treated as paying the taxes beginning with the date of sale. H and r block tax estimator This applies regardless of the lien dates under local law. H and r block tax estimator Generally, this information is included on the settlement statement you get at closing. H and r block tax estimator   You and the seller each are considered to have paid your own share of the taxes, even if one or the other paid the entire amount. H and r block tax estimator You each can deduct your own share, if you itemize deductions, for the year the property is sold. H and r block tax estimator Example. H and r block tax estimator You bought your home on September 1. H and r block tax estimator The property tax year (the period to which the tax relates) in your area is the calendar year. H and r block tax estimator The tax for the year was $730 and was due and paid by the seller on August 15. H and r block tax estimator You owned your new home during the property tax year for 122 days (September 1 to December 31, including your date of purchase). H and r block tax estimator You figure your deduction for real estate taxes on your home as follows. H and r block tax estimator 1. H and r block tax estimator Enter the total real estate taxes for the real property tax year $730 2. H and r block tax estimator Enter the number of days in the property tax year that you owned the property 122 3. H and r block tax estimator Divide line 2 by 365 . H and r block tax estimator 3342 4. H and r block tax estimator Multiply line 1 by line 3. H and r block tax estimator This is your deduction. H and r block tax estimator Enter it on Schedule A (Form 1040), line 6 $244   You can deduct $244 on your return for the year if you itemize your deductions. H and r block tax estimator You are considered to have paid this amount and can deduct it on your return even if, under the contract, you did not have to reimburse the seller. H and r block tax estimator Delinquent taxes. H and r block tax estimator   Delinquent taxes are unpaid taxes that were imposed on the seller for an earlier tax year. H and r block tax estimator If you agree to pay delinquent taxes when you buy your home, you cannot deduct them. H and r block tax estimator You treat them as part of the cost of your home. H and r block tax estimator See Real estate taxes , later, under Basis. H and r block tax estimator Escrow accounts. H and r block tax estimator   Many monthly house payments include an amount placed in escrow (put in the care of a third party) for real estate taxes. H and r block tax estimator You may not be able to deduct the total you pay into the escrow account. H and r block tax estimator You can deduct only the real estate taxes that the lender actually paid from escrow to the taxing authority. H and r block tax estimator Your real estate tax bill will show this amount. H and r block tax estimator Refund or rebate of real estate taxes. H and r block tax estimator   If you receive a refund or rebate of real estate taxes this year for amounts you paid this year, you must reduce your real estate tax deduction by the amount refunded to you. H and r block tax estimator If the refund or rebate was for real estate taxes paid for a prior year, you may have to include some or all of the refund in your income. H and r block tax estimator For more information, see Recoveries in Publication 525, Taxable and Nontaxable Income. H and r block tax estimator Items You Cannot Deduct as Real Estate Taxes The following items are not deductible as real estate taxes. H and r block tax estimator Charges for services. H and r block tax estimator   An itemized charge for services to specific property or people is not a tax, even if the charge is paid to the taxing authority. H and r block tax estimator You cannot deduct the charge as a real estate tax if it is: A unit fee for the delivery of a service (such as a $5 fee charged for every 1,000 gallons of water you use), A periodic charge for a residential service (such as a $20 per month or $240 annual fee charged for trash collection), or A flat fee charged for a single service provided by your local government (such as a $30 charge for mowing your lawn because it had grown higher than permitted under a local ordinance). H and r block tax estimator    You must look at your real estate tax bill to decide if any nondeductible itemized charges, such as those listed above, are included in the bill. H and r block tax estimator If your taxing authority (or lender) does not furnish you a copy of your real estate tax bill, ask for it. H and r block tax estimator Contact the taxing authority if you need additional information about a specific charge on your real estate tax bill. H and r block tax estimator Assessments for local benefits. H and r block tax estimator   You cannot deduct amounts you pay for local benefits that tend to increase the value of your property. H and r block tax estimator Local benefits include the construction of streets, sidewalks, or water and sewer systems. H and r block tax estimator You must add these amounts to the basis of your property. H and r block tax estimator   You can, however, deduct assessments (or taxes) for local benefits if they are for maintenance, repair, or interest charges related to those benefits. H and r block tax estimator An example is a charge to repair an existing sidewalk and any interest included in that charge. H and r block tax estimator   If only a part of the assessment is for maintenance, repair, or interest charges, you must be able to show the amount of that part to claim the deduction. H and r block tax estimator If you cannot show what part of the assessment is for maintenance, repair, or interest charges, you cannot deduct any of it. H and r block tax estimator   An assessment for a local benefit may be listed as an item in your real estate tax bill. H and r block tax estimator If so, use the rules in this section to find how much of it, if any, you can deduct. H and r block tax estimator Transfer taxes (or stamp taxes). H and r block tax estimator   You cannot deduct transfer taxes and similar taxes and charges on the sale of a personal home. H and r block tax estimator If you are the buyer and you pay them, include them in the cost basis of the property. H and r block tax estimator If you are the seller and you pay them, they are expenses of the sale and reduce the amount realized on the sale. H and r block tax estimator Homeowners association assessments. H and r block tax estimator   You cannot deduct these assessments because the homeowners association, rather than a state or local government, imposes them. H and r block tax estimator Special Rules for Cooperatives If you own a cooperative apartment, some special rules apply to you, though you generally receive the same tax treatment as other homeowners. H and r block tax estimator As an owner of a cooperative apartment, you own shares of stock in a corporation that owns or leases housing facilities. H and r block tax estimator You can deduct your share of the corporation's deductible real estate taxes if the cooperative housing corporation meets the following conditions: The corporation has only one class of stock outstanding, Each stockholder, solely because of ownership of the stock, can live in a house, apartment, or house trailer owned or leased by the corporation, No stockholder can receive any distribution out of capital, except on a partial or complete liquidation of the corporation, and At least one of the following: At least 80% of the corporation's gross income for the tax year was paid by the tenant-stockholders. H and r block tax estimator For this purpose, gross income means all income received during the entire tax year, including any received before the corporation changed to cooperative ownership. H and r block tax estimator At least 80% of the total square footage of the corporation's property must be available for use by the tenant-stockholders during the entire tax year. H and r block tax estimator At least 90% of the expenditures paid or incurred by the corporation were used for the acquisition, construction, management, maintenance, or care of the property for the benefit of the tenant-shareholders during the entire tax year. H and r block tax estimator Tenant-stockholders. H and r block tax estimator   A tenant-stockholder can be any entity (such as a corporation, trust, estate, partnership, or association) as well as an individual. H and r block tax estimator The tenant-stockholder does not have to live in any of the cooperative's dwelling units. H and r block tax estimator The units that the tenant-stockholder has the right to occupy can be rented to others. H and r block tax estimator Deductible taxes. H and r block tax estimator   You figure your share of real estate taxes in the following way. H and r block tax estimator Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. H and r block tax estimator Multiply the corporation's deductible real estate taxes by the number you figured in (1). H and r block tax estimator This is your share of the real estate taxes. H and r block tax estimator   Generally, the corporation will tell you your share of its real estate tax. H and r block tax estimator This is the amount you can deduct if it reasonably reflects the cost of real estate taxes for your dwelling unit. H and r block tax estimator Refund of real estate taxes. H and r block tax estimator   If the corporation receives a refund of real estate taxes it paid in an earlier year, it must reduce the amount of real estate taxes paid this year when it allocates the tax expense to you. H and r block tax estimator Your deduction for real estate taxes the corporation paid this year is reduced by your share of the refund the corporation received. H and r block tax estimator Sales Taxes Generally, you can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). H and r block tax estimator Deductible sales taxes may include sales taxes paid on your home (including mobile and prefabricated), or home building materials if the tax rate was the same as the general sales tax rate. H and r block tax estimator For information on figuring your deduction, see the Instructions for Schedule A (Form 1040). H and r block tax estimator If you elect to deduct the sales taxes paid on your home, or home building materials, you cannot include them as part of your cost basis in the home. H and r block tax estimator Home Mortgage Interest This section of the publication gives you basic information about home mortgage interest, including information on interest paid at settlement, points, and Form 1098, Mortgage Interest Statement. H and r block tax estimator Most home buyers take out a mortgage (loan) to buy their home. H and r block tax estimator They then make monthly payments to either the mortgage holder or someone collecting the payments for the mortgage holder. H and r block tax estimator Usually, you can deduct the entire part of your payment that is for mortgage interest, if you itemize your deductions on Schedule A (Form 1040). H and r block tax estimator However, your deduction may be limited if: Your total mortgage balance is more than $1 million ($500,000 if married filing separately), or You took out a mortgage for reasons other than to buy, build, or improve your home. H and r block tax estimator If either of these situations applies to you, see Publication 936 for more information. H and r block tax estimator Also see Publication 936 if you later refinance your mortgage or buy a second home. H and r block tax estimator Refund of home mortgage interest. H and r block tax estimator   If you receive a refund of home mortgage interest that you deducted in an earlier year and that reduced your tax, you generally must include the refund in income in the year you receive it. H and r block tax estimator For more information, see Recoveries in Publication 525. H and r block tax estimator The amount of the refund will usually be shown on the mortgage interest statement you receive from your mortgage lender. H and r block tax estimator See Mortgage Interest Statement , later. H and r block tax estimator Deductible Mortgage Interest To be deductible, the interest you pay must be on a loan secured by your main home or a second home. H and r block tax estimator The loan can be a first or second mortgage, a home improvement loan, or a home equity loan. H and r block tax estimator Prepaid interest. H and r block tax estimator   If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. H and r block tax estimator Generally, you can deduct in each year only the interest that qualifies as home mortgage interest for that year. H and r block tax estimator An exception (discussed later) applies to points. H and r block tax estimator Late payment charge on mortgage payment. H and r block tax estimator   You can deduct as home mortgage interest a late payment charge if it was not for a specific service in connection with your mortgage loan. H and r block tax estimator Mortgage prepayment penalty. H and r block tax estimator   If you pay off your home mortgage early, you may have to pay a penalty. H and r block tax estimator You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan. H and r block tax estimator Ground rent. H and r block tax estimator   In some states (such as Maryland), you may buy your home subject to a ground rent. H and r block tax estimator A ground rent is an obligation you assume to pay a fixed amount per year on the property. H and r block tax estimator Under this arrangement, you are leasing (rather than buying) the land on which your home is located. H and r block tax estimator Redeemable ground rents. H and r block tax estimator   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct the payments as mortgage interest. H and r block tax estimator The ground rent is a redeemable ground rent only if all of the following are true. H and r block tax estimator Your lease, including renewal periods, is for more than 15 years. H and r block tax estimator You can freely assign the lease. H and r block tax estimator You have a present or future right (under state or local law) to end the lease and buy the lessor's entire interest in the land by paying a specified amount. H and r block tax estimator The lessor's interest in the land is primarily a security interest to protect the rental payments to which he or she is entitled. H and r block tax estimator   Payments made to end the lease and buy the lessor's entire interest in the land are not redeemable ground rents. H and r block tax estimator You cannot deduct them. H and r block tax estimator Nonredeemable ground rents. H and r block tax estimator   Payments on a nonredeemable ground rent are not mortgage interest. H and r block tax estimator You can deduct them as rent only if they are a business expense or if they are for rental property. H and r block tax estimator Cooperative apartment. H and r block tax estimator   You can usually treat the interest on a loan you took out to buy stock in a cooperative housing corporation as home mortgage interest if you own a cooperative apartment, and the cooperative housing corporation meets the conditions described earlier under Special Rules for Cooperatives . H and r block tax estimator In addition, you can treat as home mortgage interest your share of the corporation's deductible mortgage interest. H and r block tax estimator Figure your share of mortgage interest the same way that is shown for figuring your share of real estate taxes in the Example under Division of real estate taxes, earlier. H and r block tax estimator For more information on cooperatives, see Special Rule for Tenant-Stockholders in Cooperative Housing Corporations in Publication 936. H and r block tax estimator Refund of cooperative's mortgage interest. H and r block tax estimator   You must reduce your mortgage interest deduction by your share of any cash portion of a patronage dividend that the cooperative receives. H and r block tax estimator The patronage dividend is a partial refund to the cooperative housing corporation of mortgage interest it paid in a prior year. H and r block tax estimator   If you receive a Form 1098 from the cooperative housing corporation, the form should show only the amount you can deduct. H and r block tax estimator Mortgage Interest Paid at Settlement One item that normally appears on a settlement or closing statement is home mortgage interest. H and r block tax estimator You can deduct the interest that you pay at settlement if you itemize your deductions on Schedule A (Form 1040). H and r block tax estimator This amount should be included in the mortgage interest statement provided by your lender. H and r block tax estimator See the discussion under Mortgage Interest Statement , later. H and r block tax estimator Also, if you pay interest in advance, see Prepaid interest , earlier, and Points , next. H and r block tax estimator Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. H and r block tax estimator Points also may be called loan origination fees, maximum loan charges, loan discount, or discount points. H and r block tax estimator A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. H and r block tax estimator See Points paid by the seller , later. H and r block tax estimator General rule. H and r block tax estimator   You cannot deduct the full amount of points in the year paid. H and r block tax estimator They are prepaid interest, so you generally must deduct them over the life (term) of the mortgage. H and r block tax estimator Exception. H and r block tax estimator   You can deduct the full amount of points in the year paid if you meet all the following tests. H and r block tax estimator Your loan is secured by your main home. H and r block tax estimator (Generally, your main home is the one you live in most of the time. H and r block tax estimator ) Paying points is an established business practice in the area where the loan was made. H and r block tax estimator The points paid were not more than the points generally charged in that area. H and r block tax estimator You use the cash method of accounting. H and r block tax estimator This means you report income in the year you receive it and deduct expenses in the year you pay them. H and r block tax estimator Most individuals use this method. H and r block tax estimator The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes. H and r block tax estimator The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. H and r block tax estimator The funds you provided are not required to have been applied to the points. H and r block tax estimator They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. H and r block tax estimator You cannot have borrowed these funds. H and r block tax estimator You use your loan to buy or build your main home. H and r block tax estimator The points were computed as a percentage of the principal amount of the mortgage. H and r block tax estimator The amount is clearly shown on the settlement statement (such as the Uniform Settlement Statement, Form HUD-1) as points charged for the mortgage. H and r block tax estimator The points may be shown as paid from either your funds or the seller's. H and r block tax estimator Note. H and r block tax estimator If you meet all of the tests listed above and you itemize your deductions in the year you get the loan, you can either deduct the full amount of points in the year paid or deduct them over the life of the loan, beginning in the year you get the loan. H and r block tax estimator If you do not itemize your deductions in the year you get the loan, you can spread the points over the life of the loan and deduct the appropriate amount in each future year, if any, when you do itemize your deductions. H and r block tax estimator Home improvement loan. H and r block tax estimator   You can also fully deduct in the year paid points paid on a loan to improve your main home, if you meet the first six tests listed earlier. H and r block tax estimator Refinanced loan. H and r block tax estimator   If you use part of the refinanced mortgage proceeds to improve your main home and you meet the first six tests listed earlier, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. H and r block tax estimator You can deduct the rest of the points over the life of the loan. H and r block tax estimator Points not fully deductible in year paid. H and r block tax estimator    If you do not qualify under the exception to deduct the full amount of points in the year paid (or choose not to do so), see Points in Publication 936 for the rules on when and how much you can deduct. H and r block tax estimator Figure A. H and r block tax estimator   You can use Figure A, next, as a quick guide to see whether your points are fully deductible in the year paid. H and r block tax estimator    Please click here for the text description of the image. H and r block tax estimator Figure A. H and r block tax estimator Are my points fully deductible this year? Amounts charged for services. H and r block tax estimator   Amounts charged by the lender for specific services connected to the loan are not interest. H and r block tax estimator Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. H and r block tax estimator You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. H and r block tax estimator For information about the tax treatment of these amounts and other settlement fees and closing costs, see Basis , later. H and r block tax estimator Points paid by the seller. H and r block tax estimator   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. H and r block tax estimator Treatment by seller. H and r block tax estimator   The seller cannot deduct these fees as interest. H and r block tax estimator However, they are a selling expense that reduces the seller's amount realized. H and r block tax estimator See Publication 523 for more information. H and r block tax estimator Treatment by buyer. H and r block tax estimator   The buyer treats seller-paid points as if he or she had paid them. H and r block tax estimator If all the tests listed earlier under Exception are met, the buyer can deduct the points in the year paid. H and r block tax estimator If any of those tests are not met, the buyer must deduct the points over the life of the loan. H and r block tax estimator   The buyer must also reduce the basis of the home by the amount of the seller-paid points. H and r block tax estimator For more information about the basis of your home, see Basis , later. H and r block tax estimator Funds provided are less than points. H and r block tax estimator   If you meet all the tests listed earlier under Exception except that the funds you provided were less than the points charged to you (test 6), you can deduct the points in the year paid up to the amount of funds you provided. H and r block tax estimator In addition, you can deduct any points paid by the seller. H and r block tax estimator Example 1. H and r block tax estimator When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). H and r block tax estimator You meet all the tests for deducting points in the year paid (see Exception , earlier), except the only funds you provided were a $750 down payment. H and r block tax estimator Of the $1,000 you were charged for points, you can deduct $750 in the year paid. H and r block tax estimator You spread the remaining $250 over the life of the mortgage. H and r block tax estimator Example 2. H and r block tax estimator The facts are the same as in Example 1 , except that the person who sold you your home also paid one point ($1,000) to help you get your mortgage. H and r block tax estimator In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). H and r block tax estimator You spread the remaining $250 over the life of the mortgage. H and r block tax estimator You must reduce the basis of your home by the $1,000 paid by the seller. H and r block tax estimator Excess points. H and r block tax estimator   If you meet all the tests under Exception , earlier, except that the points paid were more than are generally charged in your area (test 3), you can deduct in the year paid only the points that are generally charged. H and r block tax estimator You must spread any additional points over the life of the mortgage. H and r block tax estimator Mortgage ending early. H and r block tax estimator   If you spread your deduction for points over the life of the mortgage, you can deduct any remaining balance in the year the mortgage ends. H and r block tax estimator A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. H and r block tax estimator Example. H and r block tax estimator Dan paid $3,000 in points in 2006 that he had to spread out over the 15-year life of the mortgage. H and r block tax estimator He had deducted $1,400 of these points through 2012. H and r block tax estimator Dan prepaid his mortgage in full in 2013. H and r block tax estimator He can deduct the remaining $1,600 of points in 2013. H and r block tax estimator Exception. H and r block tax estimator   If you refinance the mortgage with the same lender, you cannot deduct any remaining points for the year. H and r block tax estimator Instead, deduct them over the term of the new loan. H and r block tax estimator Form 1098. H and r block tax estimator   The mortgage interest statement you receive should show not only the total interest paid during the year, but also your deductible points paid during the year. H and r block tax estimator See Mortgage Interest Statement , later. H and r block tax estimator Where To Deduct Home Mortgage Interest Enter on Schedule A (Form 1040), line 10, the home mortgage interest and points reported to you on Form 1098 (discussed next). H and r block tax estimator If you did not receive a Form 1098, enter your deductible interest on line 11, and any deductible points on line 12. H and r block tax estimator See Table 1 below for a summary of where to deduct home mortgage interest and real estate taxes. H and r block tax estimator If you paid home mortgage interest to the person from whom you bought your home, show that person's name, address, and social security number (SSN) or employer identification number (EIN) on the dotted lines next to line 11. H and r block tax estimator The seller must give you this number and you must give the seller your SSN. H and r block tax estimator Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. H and r block tax estimator Failure to meet either of these requirements may result in a $50 penalty for each failure. H and r block tax estimator Table 1. H and r block tax estimator Where To Deduct Interest and Taxes Paid on Your Home See the text for information on what expenses are eligible. H and r block tax estimator IF you are eligible to deduct . H and r block tax estimator . H and r block tax estimator . H and r block tax estimator THEN report the amount  on Schedule A (Form 1040) . H and r block tax estimator . H and r block tax estimator . H and r block tax estimator real estate taxes line 6. H and r block tax estimator home mortgage interest and points reported on Form 1098 line 10. H and r block tax estimator home mortgage interest not reported on  Form 1098 line 11. H and r block tax estimator points not reported on Form 1098 line 12. H and r block tax estimator qualified mortgage insurance premiums line 13. H and r block tax estimator Mortgage Interest Statement If you paid $600 or more of mortgage interest (including certain points and mortgage insurance premiums) during the year on any one mortgage to a mortgage holder in the course of that holder's trade or business, you should receive a Form 1098 or similar statement from the mortgage holder. H and r block tax estimator The statement will show the total interest paid on your mortgage during the year. H and r block tax estimator If you bought a main home during the year, it also will show the deductible points you paid and any points you can deduct that were paid by the person who sold you your home. H and r block tax estimator See Points , earlier. H and r block tax estimator The interest you paid at settlement should be included on the statement. H and r block tax estimator If it is not, add the interest from the settlement sheet that qualifies as home mortgage interest to the total shown on Form 1098 or similar statement. H and r block tax estimator Put the total on Schedule A (Form 1040), line 10, and attach a statement to your return explaining the difference. H and r block tax estimator Write “See attached” to the right of line 10. H and r block tax estimator A mortgage holder can be a financial institution, a governmental unit, or a cooperative housing corporation. H and r block tax estimator If a statement comes from a cooperative housing corporation, it generally will show your share of interest. H and r block tax estimator Your mortgage interest statement for 2013 should be provided or sent to you by January 31, 2014. H and r block tax estimator If it is mailed, you should allow adequate time to receive it before contacting the mortgage holder. H and r block tax estimator A copy of this form will be sent to the IRS also. H and r block tax estimator Example. H and r block tax estimator You bought a new home on May 3. H and r block tax estimator You paid no points on the purchase. H and r block tax estimator During the year, you made mortgage payments which included $4,480 deductible interest on your new home. H and r block tax estimator The settlement sheet for the purchase of the home included interest of $620 for 29 days in May. H and r block tax estimator The mortgage statement you receive from the lender includes total interest of $5,100 ($4,480 + $620). H and r block tax estimator You can deduct the $5,100 if you itemize your deductions. H and r block tax estimator Refund of overpaid interest. H and r block tax estimator   If you receive a refund of mortgage interest you overpaid in a prior year, you generally will receive a Form 1098 showing the refund in box 3. H and r block tax estimator Generally, you must include the refund in income in the year you receive it. H and r block tax estimator See Refund of home mortgage interest , earlier, under Home Mortgage Interest. H and r block tax estimator More than one borrower. H and r block tax estimator   If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return explaining this. H and r block tax estimator Show how much of the interest each of you paid, and give the name and address of the person who received the form. H and r block tax estimator Deduct your share of the interest on Schedule A (Form 1040), line 11, and write “See attached” to the right of that line. H and r block tax estimator Mortgage Insurance Premiums You may be able to take an itemized deduction on Schedule A (Form 1040), line 13, for premiums you pay or accrue during 2013 for qualified mortgage insurance in connection with home acquisition debt on your qualified home. H and r block tax estimator Mortgage insurance premiums you paid or accrued on any mortgage insurance contract issued before January 1, 2007, are not deductible as an itemized deduction. H and r block tax estimator Qualified Mortgage Insurance Qualified mortgage insurance is mortgage insurance provided by the Veterans Administration, the Federal Housing Administration, or the Rural Housing Administration, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). H and r block tax estimator Prepaid mortgage insurance premiums. H and r block tax estimator   If you paid premiums that are allocable to periods after 2013, you must allocate them over the shorter of: The stated term of the mortgage, or 84 months, beginning with the month the insurance was obtained. H and r block tax estimator The premiums are treated as paid in the year to which they were allocated. H and r block tax estimator If the mortgage is satisfied before its term, no deduction is allowed for the unamortized balance. H and r block tax estimator See Publication 936 for details. H and r block tax estimator Exception for certain mortgage insurance. H and r block tax estimator   The allocation rules, explained above, do not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or Rural Housing Service. H and r block tax estimator Home Acquisition Debt Home acquisition debt is a mortgage you took out after October 13, 1987, to buy, build, or substantially improve a qualified home. H and r block tax estimator It also must be secured by that home. H and r block tax estimator If the amount of your mortgage is more than the cost of the home plus the cost of any substantial improvements, only the debt that is not more than the cost of the home plus improvements qualifies as home acquisition debt. H and r block tax estimator Home acquisition debt limit. H and r block tax estimator   The total amount you can treat as home acquisition debt at any time on your home cannot be more than $1 million ($500,000 if married filing separately). H and r block tax estimator Discharges of qualified principal residence indebtedness. H and r block tax estimator   You can exclude from gross income any discharges of qualified principal residence indebtedness made after 2006 and before 2014. H and r block tax estimator You must reduce the basis of your principal residence (but not below zero) by the amount you exclude. H and r block tax estimator Principal residence. H and r block tax estimator   Your principal residence is the home where you ordinarily live most of the time. H and r block tax estimator You can have only one principal residence at any one time. H and r block tax estimator Qualified principal residence indebtedness. H and r block tax estimator   This is a mortgage that you took out to buy, build, or substantially improve your principal residence and that is secured by that residence. H and r block tax estimator If the amount of your original mortgage is more than the cost of your principal residence plus the cost of substantial improvements, qualified principal residence indebtedness cannot be more than the cost of your principal residence plus improvements. H and r block tax estimator   Any debt secured by your principal residence that you use to refinance qualified principal residence indebtedness is qualified principal residence indebtedness up to the amount of your old mortgage principal just before the refinancing. H and r block tax estimator Additional debt incurred to substantially improve your principal residence is also qualified principal residence indebtedness. H and r block tax estimator Amount you can exclude. H and r block tax estimator   You can only exclude debt discharged after 2006 and before 2014. H and r block tax estimator The most you can exclude is $2 million ($1 million if married filing separately). H and r block tax estimator You cannot exclude any amount that was discharged because of services performed for the lender or on account of any other factor not directly related either to a decline in the value of your residence or to your financial condition. H and r block tax estimator Ordering rule. H and r block tax estimator   If only a part of a loan is qualified principal residence indebtedness, you can exclude only the amount of the discharge that is more than the amount of the loan (immediately before the discharge) that is not qualified principal residence indebtedness. H and r block tax estimator Qualified Home This means your main home or your second home. H and r block tax estimator A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. H and r block tax estimator Main home. H and r block tax estimator   You can have only one main home at any one time. H and r block tax estimator This is the home where you ordinarily live most of the time. H and r block tax estimator Second home and other special situations. H and r block tax estimator   If you have a second home, use part of your home for other than residential living (such as a home office), rent out part of your home, or are having your home constructed, see Qualified Home in Publication 936. H and r block tax estimator Limit on Deduction If your adjusted gross income (AGI) on Form 1040, line 38, is more than $100,000 ($50,000 if your filing status is married filing separately), the amount of your mortgage insurance premiums that are deductible is reduced and may be eliminated. H and r block tax estimator See Line 13 in the instructions for Schedule A (Form 1040) and complete the Mortgage Insurance Premiums Deduction Worksheet to figure the amount you can deduct. H and r block tax estimator If your AGI is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. H and r block tax estimator Form 1098. H and r block tax estimator   The amount of mortgage insurance premiums you paid during 2013 should be reported in box 4. H and r block tax estimator See Form 1098, Mortgage Interest Statement in Publication 936. H and r block tax estimator Mortgage Interest Credit The mortgage interest credit is intended to help lower-income individuals afford home ownership. H and r block tax estimator If you qualify, you can claim the credit on Form 8396 each year for part of the home mortgage interest you pay. H and r block tax estimator Who qualifies. H and r block tax estimator   You may be eligible for the credit if you were issued a qualified Mortgage Credit Certificate (MCC) from your state or local government. H and r block tax estimator Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home. H and r block tax estimator The MCC will show the certificate credit rate you will use to figure your credit. H and r block tax estimator It also will show the certified indebtedness amount. H and r block tax estimator Only the interest on that amount qualifies for the credit. H and r block tax estimator See Figuring the Credit , later. H and r block tax estimator You must contact the appropriate government agency about getting an MCC before you get a mortgage and buy your home. H and r block tax estimator Contact your state or local housing finance agency for information about the availability of MCCs in your area. H and r block tax estimator How to claim the credit. H and r block tax estimator   To claim the credit, complete Form 8396 and attach it to your Form 1040 or Form 1040NR, U. H and r block tax estimator S. H and r block tax estimator Nonresident Alien Income Tax Return. H and r block tax estimator Include the credit in your total for Form 1040, line 53, or Form 1040NR, line 50; be sure to check box c and write “Form 8396” on that line. H and r block tax estimator Reducing your home mortgage interest deduction. H and r block tax estimator   If you itemize your deductions on Schedule A (Form 1040), you must reduce your home mortgage interest deduction by the amount of the mortgage interest credit shown on Form 8396, line 3. H and r block tax estimator You must do this even if part of that amount is to be carried forward to 2014. H and r block tax estimator Selling your home. H and r block tax estimator   If you purchase a home after 1990 using an MCC, and you sell that home within 9 years, you may have to recapture (repay) all or part of the benefit you received from the MCC program. H and r block tax estimator For additional information, see Recapturing (Paying Back) a Federal Mortgage Subsidy, in Publication 523. H and r block tax estimator Figuring the Credit Figure your credit on Form 8396. H and r block tax estimator Mortgage not more than certified indebtedness. H and r block tax estimator   If your mortgage loan amount is equal to (or smaller than) the certified indebtedness amount shown on your MCC, enter on Form 8396, line 1, all the interest you paid on your mortgage during the year. H and r block tax estimator Mortgage more than certified indebtedness. H and r block tax estimator   If your mortgage loan amount is larger than the certified indebtedness amount shown on your MCC, you can figure the credit on only part of the interest you paid. H and r block tax estimator To find the amount to enter on line 1, multiply the total interest you paid during the year on your mortgage by the following fraction. H and r block tax estimator Certified indebtedness amount on your MCC Original amount of your mortgage   The fraction will not change as long as you are entitled to take the mortgage interest credit. H and r block tax estimator Example. H and r block tax estimator Emily bought a home this year. H and r block tax estimator Her mortgage loan is $125,000. H and r block tax estimator The certified indebtedness amount on her MCC is $100,000. H and r block tax estimator She paid $7,500 interest this year. H and r block tax estimator Emily figures the interest to enter on Form 8396, line 1, as follows:   $100,000 = 80% (. H and r block tax estimator 80)       $125,000       $7,500 x . H and r block tax estimator 80 = $6,000   Emily enters $6,000 on Form 8396, line 1. H and r block tax estimator In each later year, she will figure her credit using only 80% of the interest she pays for that year. H and r block tax estimator Limits Two limits may apply to your credit. H and r block tax estimator A limit based on the credit rate, and A limit based on your tax. H and r block tax estimator Limit based on credit rate. H and r block tax estimator   If the certificate credit rate is higher than 20%, the credit you are allowed cannot be more than $2,000. H and r block tax estimator Limit based on tax. H and r block tax estimator   After applying the limit based on the credit rate, your credit generally cannot be more than your tax liability. H and r block tax estimator See the Credit Limit Worksheet in the Form 8396 instructions to calculate the limit based on tax. H and r block tax estimator Dividing the Credit If two or more persons (other than a married couple filing a joint return) hold an interest in the home to which the MCC relates, the credit must be divided based on the interest held by each person. H and r block tax estimator Example. H and r block tax estimator John and his brother, George, were issued an MCC. H and r block tax estimator They used it to get a mortgage on their main home. H and r block tax estimator John has a 60% ownership interest in the home, and George has a 40% ownership interest in the home. H and r block tax estimator John paid $5,400 mortgage interest this year and George paid $3,600. H and r block tax estimator The MCC shows a credit rate of 25% and a certified indebtedness amount of $130,000. H and r block tax estimator The loan amount (mortgage) on their home is $120,000. H and r block tax estimator The credit is limited to $2,000 because the credit rate is more than 20%. H and r block tax estimator John figures the credit by multiplying the mortgage interest he paid this year ($5,400) by the certificate credit rate (25%) for a total of $1,350. H and r block tax estimator His credit is limited to $1,200 ($2,000 × 60%). H and r block tax estimator George figures the credit by multiplying the mortgage interest he paid this year ($3,600) by the certificate credit rate (25%) for a total of $900. H and r block tax estimator His credit is limited to $800 ($2,000 × 40%). H and r block tax estimator Carryforward If your allowable credit is reduced because of the limit based on your tax, you can carry forward the unused portion of the credit to the next 3 years or until used, whichever comes first. H and r block tax estimator Example. H and r block tax estimator You receive a mortgage credit certificate from State X. H and r block tax estimator This year, your regular tax liability is $1,100, you owe no alternative minimum tax, and your mortgage interest credit is $1,700. H and r block tax estimator You claim no other credits. H and r block tax estimator Your unused mortgage interest credit for this year is $600 ($1,700 − $1,100). H and r block tax estimator You can carry forward this amount to the next 3 years or until used, whichever comes first. H and r block tax estimator Credit rate more than 20%. H and r block tax estimator   If you are subject to the $2,000 limit because your certificate credit rate is more than 20%, you cannot carry forward any amount more than $2,000 (or your share of the $2,000 if you must divide the credit). H and r block tax estimator Example. H and r block tax estimator In the earlier example under Dividing the Credit , John and George used the entire $2,000 credit. H and r block tax estimator The excess   John $1,350 − $1,200 = $150     George $900 − $800 = $100   $150 for John ($1,350 − $1,200) and $100 for George ($900 − $800) cannot be carried forward to future years, despite the respective tax liabilities for John and George. H and r block tax estimator Refinancing If you refinance your original mortgage loan on which you had been given an MCC, you must get a new MCC to be able to claim the credit on the new loan. H and r block tax estimator The amount of credit you can claim on the new loan may change. H and r block tax estimator Table 2 below summarizes how to figure your credit if you refinance your original mortgage loan. H and r block tax estimator Table 2. H and r block tax estimator Effect of Refinancing on Your Credit IF you get a new (reissued) MCC and the amount of your new mortgage is . H and r block tax estimator . H and r block tax estimator . H and r block tax estimator THEN the interest you claim on Form 8396, line 1, is* . H and r block tax estimator . H and r block tax estimator . H and r block tax estimator smaller than or equal to the certified indebtedness amount on the new MCC all the interest paid during the year on your new mortgage. H and r block tax estimator larger than the certified indebtedness amount on the new MCC interest paid during the year on your new mortgage multiplied by the following fraction. H and r block tax estimator         certified indebtedness  amount on your new MCC       original amount of your  mortgage   *The credit using the new MCC cannot be more than the credit using the old MCC. H and r block tax estimator  See New MCC cannot increase your credit above. H and r block tax estimator An issuer may reissue an MCC after you refinance your mortgage. H and r block tax estimator If you did not get a new MCC, you may want to contact the state or local housing finance agency that issued your original MCC for information about whether you can get a reissued MCC. H and r block tax estimator Year of refinancing. H and r block tax estimator   In the year of refinancing, add the applicable amount of interest paid on the old mortgage and the applicable amount of interest paid on the new mortgage, and enter the total on Form 8396, line 1. H and r block tax estimator   If your new MCC has a credit rate different from the rate on the old MCC, you must attach a statement to Form 8396. H and r block tax estimator The statement must show the calculation for lines 1, 2, and 3 for the part of the year when the old MCC was in effect. H and r block tax estimator It must show a separate calculation for the part of the year when the new MCC was in effect. H and r block tax estimator Combine the amounts from both calculations for line 3, enter the total on line 3 of the form, and write “See attached” on the dotted line next to line 2. H and r block tax estimator New MCC cannot increase your credit. H and r block tax estimator   The credit that you claim with your new MCC cannot be more than the credit that you could have claimed with your old MCC. H and r block tax estimator   In most cases, the agency that issues your new MCC will make sure that it does not increase your credit. H and r block tax estimator However, if either your old loan or your new loan has a variable (adjustable) interest rate, you will need to check this yourself. H and r block tax estimator In that case, you will need to know the amount of the credit you could have claimed using the old MCC. H and r block tax estimator   There are two methods for figuring the credit you could have claimed. H and r block tax estimator Under one method, you figure the actual credit that would have been allowed. H and r block tax estimator This means you use the credit rate on the old MCC and the interest you would have paid on the old loan. H and r block tax estimator   If your old loan was a variable rate mortgage, you can use another method to determine the credit that you could have claimed. H and r block tax estimator Under this method, you figure the credit using a payment schedule of a hypothetical self-amortizing mortgage with level payments projected to the final maturity date of the old mortgage. H and r block tax estimator The interest rate of the hypothetical mortgage is the annual percentage rate (APR) of the new mortgage for purposes of the Federal Truth in Lending Act. H and r block tax estimator The principal of the hypothetical mortgage is the remaining outstanding balance of the certified mortgage indebtedness shown on the old MCC. H and r block tax estimator    You must choose one method and use it consistently beginning with the first tax year for which you claim the credit based on the new MCC. H and r block tax estimator    As part of your tax records, you should keep your old MCC and the schedule of payments for your old mortgage. H and r block tax estimator Basis Basis is your starting point for figuring a gain or loss if you later sell your home, or for figuring depreciation if you later use part of your home for business purposes or for rent. H and r block tax estimator While you own your home, you may add certain items to your basis. H and r block tax estimator You may subtract certain other items from your basis. H and r block tax estimator These items are called adjustments to basis and are explained later under Adjusted Basis . H and r block tax estimator It is important that you understand these terms when you first acquire your home because you must keep track of your basis and adjusted basis during the period you own your home. H and r block tax estimator You also must keep records of the events that affect basis or adjusted basis. H and r block tax estimator See Keeping Records , below. H and r block tax estimator Figuring Your Basis How you figure your basis depends on how you acquire your home. H and r block tax estimator If you buy or build your home, your cost is your basis. H and r block tax estimator If you receive your home as a gift, your basis is usually the same as the adjusted basis of the person who gave you the property. H and r block tax estimator If you inherit your home from a decedent, different rules apply depending on the date of the decedent's death. H and r block tax estimator Each of these topics is discussed later. H and r block tax estimator Property transferred from a spouse. H and r block tax estimator   If your home is transferred to you from your spouse, or from your former spouse as a result of a divorce, your basis is the same as your spouse's (or former spouse's) adjusted basis just before the transfer. H and r block tax estimator Publication 504, Divorced or Separated Individuals, fully discusses transfers between spouses. H and r block tax estimator Cost as Basis The cost of your home, whether you purchased it or constructed it, is the amount you paid for it, including any debt you assumed. H and r block tax estimator The cost of your home includes most settlement or closing costs you paid when you bought the home. H and r block tax estimator If you built your home, your cost includes most closing costs paid when you bought the land or settled on your mortgage. H and r block tax estimator See Settlement or closing costs , later. H and r block tax estimator If you elect to deduct the sales taxes on the purchase or construction of your home as an itemized deduction on Schedule A (Form 1040), you cannot include the sales taxes as part of your cost basis in the home. H and r block tax estimator Purchase. H and r block tax estimator   The basis of a home you bought is the amount you paid for it. H and r block tax estimator This usually includes your down payment and any debt you assumed. H and r block tax estimator The basis of a cooperative apartment is the amount you paid for your shares in the corporation that owns or controls the property. H and r block tax estimator This amount includes any purchase commissions or other costs of acquiring the shares. H and r block tax estimator Construction. H and r block tax estimator   If you contracted to have your home built on land that you own, your basis in the home is your basis in the land plus the amount you paid to have the home built. H and r block tax estimator This includes the cost of labor and materials, the amount you paid the contractor, any architect's fees, building permit charges, utility meter and connection charges, and legal fees that are directly connected with building your home. H and r block tax estimator If you built all or part of your home yourself, your basis is the total amount it cost you to build it. H and r block tax estimator You cannot include in basis the value of your own labor or any other labor for which you did not pay. H and r block tax estimator Real estate taxes. H and r block tax estimator   Real estate taxes are usually divided so that you and the seller each pay taxes for the part of the property tax year that each owned the home. H and r block tax estimator See the earlier discussion of Real estate taxes paid at settlement or closing , under Real Estate Taxes, earlier, to figure the real estate taxes you paid or are considered to have paid. H and r block tax estimator   If you pay any part of the seller's share of the real estate taxes (the taxes up to the date of sale), and the seller did not reimburse you, add those taxes to your basis in the home. H and r block tax estimator You cannot deduct them as taxes paid. H and r block tax estimator   If the seller paid any of your share of the real estate taxes (the taxes beginning with the date of sale), you can still deduct those taxes. H and r block tax estimator Do not include those taxes in your basis. H and r block tax estimator If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. H and r block tax estimator Example 1. H and r block tax estimator You bought your home on September 1. H and r block tax estimator The property tax year in your area is the calendar year, and the tax is due on August 15. H and r block tax estimator The real estate taxes on the home you bought were $1,275 for the year and had been paid by the seller on August 15. H and r block tax estimator You did not reimburse the seller for your share of the real estate taxes from September 1 through December 31. H and r block tax estimator You must reduce the basis of your home by the $426 [(122 ÷ 365) × $1,275] the seller paid for you. H and r block tax estimator You can deduct your $426 share of real estate taxes on your return for the year you purchased your home. H and r block tax estimator Example 2. H and r block tax estimator You bought your home on May 3, 2013. H and r block tax estimator The property tax year in your area is the calendar year. H and r block tax estimator The taxes for the previous year are assessed on January 2 and are due on May 31 and November 30. H and r block tax estimator Under state law, the taxes become a lien on May 31. H and r block tax estimator You agreed to pay all taxes due after the date of sale. H and r block tax estimator The taxes due in 2013 for 2012 were $1,375. H and r block tax estimator The taxes due in 2014 for 2013 will be $1,425. H and r block tax estimator You cannot deduct any of the taxes paid in 2013 because they relate to the 2012 property tax year and you did not own the home until 2013. H and r block tax estimator Instead, you add the $1,375 to the cost (basis) of your home. H and r block tax estimator You owned the home in 2013 for 243 days (May 3 to December 31), so you can take a tax deduction on your 2014 return of $949 [(243 ÷ 365) × $1,425] paid in 2014 for 2013. H and r block tax estimator You add the remaining $476 ($1,425 − $949) of taxes paid in 2014 to the cost (basis) of your home. H and r block tax estimator Settlement or closing costs. H and r block tax estimator   If you bought your home, you probably paid settlement or closing costs in addition to the contract price. H and r block tax estimator These costs are divided between you and the seller according to the sales contract, local custom, or understanding of the parties. H and r block tax estimator If you built your home, you probably paid these costs when you bought the land or settled on your mortgage. H and r block tax estimator   The only settlement or closing costs you can deduct are home mortgage interest and certain real estate taxes. H and r block tax estimator You deduct them in the year you buy your home if you itemize your deductions. H and r block tax estimator You can add certain other settlement or closing costs to the basis of your home. H and r block tax estimator Items added to basis. H and r block tax estimator   You can include in your basis the settlement fees and closing costs you paid for buying your home. H and r block tax estimator A fee is for buying the home if you would have had to pay it even if you paid cash for the home. H and r block tax estimator   The following are some of the settlement fees and closing costs that you can include in the original basis of your home. H and r block tax estimator Abstract fees (abstract of title fees). H and r block tax estimator Charges for installing utility services. H and r block tax estimator Legal fees (including fees for the title search and preparation of the sales contract and deed). H and r block tax estimator Recording fees. H and r block tax estimator Surveys. H and r block tax estimator Transfer or stamp taxes. H and r block tax estimator Owner's title insurance. H and r block tax estimator Any amount the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, cost for improvements or repairs, and sales commissions. H and r block tax estimator   If the seller actually paid for any item for which you are liable and for which you can take a deduction (such as your share of the real estate taxes for the year of sale), you must reduce your basis by that amount unless you are charged for it in the settlement. H and r block tax estimator Items not added to basis and not deductible. H and r block tax estimator   Here are some settlement and closing costs that you cannot deduct or add to your basis. H and r block tax estimator Fire insurance premiums. H and r block tax estimator Charges for using utilities or other services related to occupancy of the home before closing. H and r block tax estimator Rent for occupying the home before closing. H and r block tax estimator Charges connected with getting or refinancing a mortgage loan, such as: Loan assumption fees, Cost of a credit report, and Fee for an appraisal required by a lender. H and r block tax estimator Points paid by seller. H and r block tax estimator   If you bought your home after April 3, 1994, you must reduce your basis by any points paid for your mortgage by the person who sold you your home. H and r block tax estimator   If you bought your home after 1990 but before April 4, 1994, you must reduce your basis by seller-paid points only if you deducted them. H and r block tax estimator See Points , earlier, for the rules on deducting points. H and r block tax estimator Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined later) to the donor just before it was given to you, its fair market value (FMV) at the time it was given to you, and any gift tax paid on it. H and r block tax estimator Fair market value. H and r block tax estimator   Fair market value (FMV) is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and who both have a reasonable knowledge of all the necessary facts. H and r block tax estimator Donor's adjusted basis is more than FMV. H and r block tax estimator   If someone gave you your home and the donor's adjusted basis, when it was given to you, was more than the FMV, your basis at the time of receipt is the same as the donor's adjusted basis. H and r block tax estimator Disposition basis. H and r block tax estimator   If the donor's adjusted basis at the time of the gift is more than the FMV, your basis (plus or minus any required adjustments, see Adjusted Basis , later) when you dispose of the property will depend on whether you have a gain or a loss. H and r block tax estimator Your basis for figuring a gain is the same as the donor's adjusted basis. H and r block tax estimator Your basis for figuring a loss is the FMV when you received the gift. H and r block tax estimator If you use the donor's adjusted basis to figure a gain and it results in a loss, then you must use the FMV (at the time of the gift) to refigure the loss. H and r block tax estimator However, if using the FMV results in a gain, then you neither have a gain nor a loss. H and r block tax estimator Example 1. H and r block tax estimator Andrew received a house as a gift from Ishmael (the donor). H and r block tax estimator At the time of the gift, the home had an FMV of $80,000. H and r block tax estimator Ishmael's adjusted basis was $100,000. H and r block tax estimator After he received the house, no events occurred to increase or decrease the basis. H and r block tax estimator If Andrew sells the house for $120,000, he will have a $20,000 gain because he must use the donor's adjusted basis ($100,000) at the time of the gift as his basis to figure the gain. H and r block tax estimator Example 2. H and r block tax estimator Same facts as Example 1 , except this time Andrew sells the house for $70,000. H and r block tax estimator He will have a loss of $10,000 because he must use the FMV ($80,000) at the time of the gift as his basis to figure the loss. H and r block tax estimator Example 3. H and r block tax estimator Same facts as Example 1 , except this time Andrew sells the house for $90,000. H and r block tax estimator Initially, he figures the gain using Ishmael's adjusted basis ($100,000), which results in a loss of $10,000. H and r block tax estimator Since it is a loss, Andrew must now recalculate the loss using the FMV ($80,000), which results in a gain of $10,000. H and r block tax estimator So in this situation, Andrew will neither have a gain nor a loss. H and r block tax estimator Donor's adjusted basis equal to or less than the FMV. H and r block tax estimator   If someone gave you your home after 1976 and the donor's adjusted basis, when it was given to you, was equal to or less than the FMV, your basis at the time of receipt is the same as the donor's adjusted basis, plus the part of any federal gift tax paid that is due to the net increase in value of the home. H and r block tax estimator Part of federal gift tax due to net increase in value. H and r block tax estimator   Figure the part of the federal gift tax paid that is due to the net increase in value of the home by multiplying the total federal gift tax paid by a fraction. H and r block tax estimator The numerator (top part) of the fraction is the net increase in the value of the home, and the denominator (bottom part) is the value of the home for gift tax purposes after reduction for any annual exclusion and marital or charitable deduction that applies to the gift. H and r block tax estimator The net increase in the value of the home is its FMV minus the adjusted basis of the donor. H and r block tax estimator Publication 551 gives more information, including examples, on figuring your basis when you receive property as a gift. H and r block tax estimator Inheritance Your basis in a home you inherited is generally the fair market value of the home on the date of the decedent's death or on the alternative valuation date if the personal representative for the estate chooses to use alternative valuation. H and r block tax estimator If an estate tax return was filed, your basis is generally the value of the home listed on the estate tax return. H and r block tax estimator If an estate tax return was not filed, your basis is the appraised value of the home at the decedent's date of death for state inheritance or transmission taxes. H and r block tax estimator Publication 551 and Publication 559, Survivors, Executors, and Administrators, have more information on the basis of inherited property. H and r block tax estimator If you inherited your home from someone who died in 2010, and the executor of the decedent's estate made the election to file Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, refer to the information provided by the executor or see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. H and r block tax estimator Adjusted Basis While you own your home, various events may take place that can change the original basis of your home. H and r block tax estimator These events can increase or decrease your original basis. H and r block tax estimator The result is called adjusted basis. H and r block tax estimator See Table 3, on this page, for a list of some of the items that can adjust your basis. H and r block tax estimator Table 3. H and r block tax estimator Adjusted Basis This table lists examples of some items that generally will increase or decrease your basis in your home. H and r block tax estimator It is not intended to be all-inclusive. H and r block tax estimator Increases to Basis Decreases to Basis Improvements: Putting an addition on your home Replacing an entire roof Paving your driveway Installing central air conditioning Rewiring your home Assessments for local improvements (see Assessments for local benefits , under What You Can and Cannot Deduct, earlier) Amounts spent to restore damaged property Insurance or other reimbursement for casualty losses Deductible casualty loss not covered by insurance Payments received for easement or right-of-way granted Depreciation allowed or allowable if home is used for business or rental purposes Value of subsidy for energy conservation measure excluded from income Improvements. H and r block tax estimator   An improvement materially adds to the value of your home, considerably prolongs its useful life, or adapts it to new uses. H and r block tax estimator You must add the cost of any improvements to the basis of your home. H and r block tax estimator You cannot deduct these costs. H and r block tax estimator   Improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, and paving your driveway. H and r block tax estimator Amount added to basis. H and r block tax estimator   The amount you add to your basis for improvements is your actual cost. H and r block tax estimator This includes all costs for material and labor, except your own labor, and all expenses related to the improvement. H and r block tax estimator For example, if you had your lot surveyed to put up a fence, the cost of the survey is a part of the cost of the fence. H and r block tax estimator   You also must add to your basis state and local assessments for improvements such as streets and sidewalks if they increase the value of the property. H and r block tax estimator These assessments are discussed earlier under Real Estate Taxes . H and r block tax estimator Improvements no longer part of home. H and r block tax estimator    Your home's adjusted basis does not include the cost of any improvements that are replaced and are no longer part of the home. H and r block tax estimator Example. H and r block tax estimator You put wall-to-wall carpeting in your home 15 years ago. H and r block tax estimator Later, you replaced that carpeting with new wall-to-wall carpeting. H and r block tax estimator The cost of the old carpeting you replaced is no longer part of your home's adjusted basis. H and r block tax estimator Repairs versus improvements. H and r block tax estimator   A repair keeps your home in an ordinary, efficient operating condition. H and r block tax estimator It does not add to the value of your home or prolong its life. H and r block tax estimator Repairs include repainting your home inside or outside, fixing your gutters or floors, fixing leaks or plastering, and replacing broken window panes. H and r block tax estimator You cannot deduct repair costs and generally cannot add them to the basis of your home. H and r block tax estimator   However, repairs that are done as part of an extensive remodeling or restoration of your home are considered improvements. H and r block tax estimator You add them to the basis of your home. H and r block tax estimator Records to keep. H and r block tax estimator   You can use Table 4 (at the end of the publication) as a guide to help you keep track of improvements to your home. H and r block tax estimator Also see Keeping Records , below. H and r block tax estimator Energy conservation subsidy. H and r block tax estimator   If a public utility gives you (directly or indirectly) a subsidy for the purchase or installation of an energy conservation measure for your home, do not include the value of that subsidy in your income. H and r block tax estimator You must reduce the basis of your home by that value. H and r block tax estimator   An energy conservation measure is an installation or modification primarily designed to reduce consumption of electricity or natural gas or to improve the management of energy demand. H and r block tax estimator Keeping Records Keeping full and accurate records is vital to properly report your income and expenses, to support your deductions and credits, and to know the basis or adjusted basis of your home. H and r block tax estimator These records include your purchase contract and settlement papers if you bought the property, or other objective evidence if you acquired it by gift, inheritance, or similar means. H and r block tax estimator You should keep any receipts, canceled checks, and similar evidence for improvements or other additions to the basis. H and r block tax estimator In addition, you should keep track of any decreases to the basis such as those listed in Table 3, earlier. H and r block tax estimator How to keep records. H and r block tax estimator   How you keep records is up to you, but they must be clear and accurate and must be available to the IRS. H and r block tax estimator How long to keep records. H and r block tax estimator   You must keep your records for as long as they are important for meeting any provision of the federal tax law. H and r block tax estimator   Keep records that support an item of income, a deduction, or a credit appearing on a return until the period of limitations for the return runs out. H and r block tax estimator (A period of limitations is the period of time after which no legal action can be brought. H and r block tax estimator ) For assessment of tax you owe, this is generally 3 years from the date you filed the return. H and r block tax estimator For filing a claim for credit or refund, this is generally 3 years from the date you filed the original return, or 2 years from the date you paid the tax, whichever is later. H and r block tax estimator Returns filed before the due date are treated as filed on the due date. H and r block tax estimator   You may need to keep records relating to the basis of property (discussed earlier) for longer than the period of limitations. H and r block tax estimator Keep those records as long as they are important in figuring the basis of the original or replacement property. H and r block tax estimator Generally, this means for as long as you own the property and, after you dispose of it, for the period of limitations that applies to you. H and r block tax estimator Table 4. H and r block tax estimator Record of Home Improvements Keep this for your records. H and r block tax estimator Also, keep receipts or other proof of improvements. H and r block tax estimator Remove from this record any improvements that are no longer part of your main home. H and r block tax estimator For example, if you put wall-to-wall carpeting in your home and later replace it with new wall-to-wall carpeting, remove the cost of the first carpeting. H and r block tax estimator (a) Type of Improvement (b) Date (c) Amount   (a) Type of Improvement (b) Date (c) Amount Additions:       Heating & Air  Conditioning:     Bedroom       Heating system     Bathroom       Central air conditioning     Deck       Furnace     Garage       Duct work     Porch       Central humidifier     Patio       Filtration system     Storage shed       Other     Fireplace       Electrical:     Other           Lawn & Grounds:       Lighting fixtures           Wiring upgrades     Landscaping       Other     Driveway       Plumbing:     Walkway           Fences       Water heater     Retaining wall       Soft water system     Sprinkler system       Filtration system     Swimming pool       Other     Exterior lighting       Insulation:     Other           Communications:       Attic           Walls     Satellite dish       Floors     Intercom       Pipes and duct work     Security system       Other     Other             Miscellaneous:       Interior  Improvements:     Storm windows and doors       Built-in appliances     Roof       Kitchen modernization     Central vacuum       Bathroom modernization     Other       Flooring             Wall-to-wall carpeting             Other     How To
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Market Segment Understandings (MSU)

The IRS, in a continuing effort to increase tax compliance and at the same time reduce taxpayer burden, has expanded its MSU Program into other industries. The newest additions are new voluntary compliance agreements for all industries where tipping is customary.

These voluntary compliance agreements are designed to enhance tax compliance among tipped employees through taxpayer education instead of through traditional enforcement actions, such as tip examinations.

Tip agreements available are:

EmTRAC - Employer-designed Tip Reporting Alternative Commitment (PDF). Taxpayers in the Food and beverage industry designing their own tip compliance program in conjunction with the IRS.

Page Last Reviewed or Updated: 27-Dec-2013

The H And R Block Tax Estimator

H and r block tax estimator 7. H and r block tax estimator   Filing Information Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: What, When, and Where To FileResident Aliens Nonresident Aliens Amended Returns and Claims for Refund Other Forms You May Have To File PenaltiesCivil Penalties Criminal Penalties Introduction This chapter provides the basic filing information that you may need. H and r block tax estimator Topics - This chapter discusses: Forms aliens must file, When and where to file, Penalties, and Amended returns and claims for refund. H and r block tax estimator Useful Items - You may want to see: Forms (and Instructions) 1040 U. H and r block tax estimator S. H and r block tax estimator Individual Income Tax Return 1040A U. H and r block tax estimator S. H and r block tax estimator Individual Income Tax Return 1040EZ Income Tax Return for Single and Joint Filers With No Dependents 1040NR U. H and r block tax estimator S. H and r block tax estimator Nonresident Alien Income Tax Return 1040NR-EZ U. H and r block tax estimator S. H and r block tax estimator Income Tax Return for Certain Nonresident Aliens With No Dependents See chapter 12 for information about getting these forms. H and r block tax estimator What, When, and Where To File What return you must file as well as when and where you file that return, depends on your status at the end of the tax year as a resident or a nonresident alien. H and r block tax estimator Resident Aliens Resident aliens should file Form 1040EZ, 1040A, or 1040 at the address shown in the instructions for that form. H and r block tax estimator The due date for filing the return and paying any tax due is April 15 of the year following the year for which you are filing a return (but see the Tip, later). H and r block tax estimator Under U. H and r block tax estimator S. H and r block tax estimator immigration law, a lawful permanent resident who is required to file a tax return as a resident and fails to do so may be regarded as having abandoned status and may lose permanent resident status. H and r block tax estimator Extensions of time to file. H and r block tax estimator   You are allowed an automatic extension to June 15 to file if your main place of business and the home you live in are outside the United States and Puerto Rico on April 15. H and r block tax estimator You can get an extension of time to October 15 to file your return if you get an extension by April 15 (June 15 if you qualify for the June 15 extension). H and r block tax estimator Use Form 4868 to get the extension to October 15. H and r block tax estimator In addition to this 6-month extension, taxpayers who are out of the country (as defined in the Form 4868 instructions) can request a discretionary 2-month additional extension of time to file their returns (to December 15 for calendar year taxpayers). H and r block tax estimator To request this extension, you must send the IRS a letter explaining the reasons why you need the additional 2 months. H and r block tax estimator Send the letter by the extended due date (October 15 for calendar year taxpayers) to the following address:  Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0215   You will not receive any notification from the IRS unless your request is denied for being untimely. H and r block tax estimator   The discretionary 2-month additional extension is not available to taxpayers who have an approved extension of time to file on Form 2350 (for U. H and r block tax estimator S. H and r block tax estimator citizens and resident aliens abroad who expect to qualify for special tax treatment). H and r block tax estimator    If the due date for filing falls on a Saturday, Sunday, or legal holiday, the due date is the next day which is not a Saturday, Sunday, or legal holiday. H and r block tax estimator You may be able to file your return electronically. H and r block tax estimator See IRS e-file in your form instructions. H and r block tax estimator Nonresident Aliens Nonresident aliens who are required to file an income tax return should use Form 1040NR or, if qualified, Form 1040NR-EZ. H and r block tax estimator If you are any of the following, you must file a return. H and r block tax estimator A nonresident alien individual engaged or considered to be engaged in a trade or business in the United States during 2013. H and r block tax estimator (But see Exceptions , later. H and r block tax estimator ) You must file even if: Your income did not come from a trade or business conducted in the United States, You have no income from U. H and r block tax estimator S. H and r block tax estimator sources, or Your income is exempt from income tax. H and r block tax estimator A nonresident alien individual not engaged in a trade or business in the United States with U. H and r block tax estimator S. H and r block tax estimator income on which the tax liability was not satisfied by the withholding of tax at the source. H and r block tax estimator A representative or agent responsible for filing the return of an individual described in (1) or (2). H and r block tax estimator A fiduciary for a nonresident alien estate or trust. H and r block tax estimator You must also file if you want to: Claim a refund of overwithheld or overpaid tax, or Claim the benefit of any deductions or credits. H and r block tax estimator For example, if you have no U. H and r block tax estimator S. H and r block tax estimator business activities but have income from real property that you choose to treat as effectively connected income (discussed in chapter 4), you must timely file a true and accurate return to take any allowable deductions against that income. H and r block tax estimator For information on what is timely, see When to file for deductions and credits under When To File, later. H and r block tax estimator Exceptions. H and r block tax estimator   You do not need to file Form 1040NR or Form 1040NR-EZ if you meet either of the following conditions. H and r block tax estimator Your only U. H and r block tax estimator S. H and r block tax estimator trade or business was the performance of personal services, and Your wages were less than $3,900, and You have no other need to file a return to claim a refund of overwithheld taxes, to satisfy additional withholding at source, or to claim income exempt or partly exempt by treaty. H and r block tax estimator You were a nonresident alien student, teacher, or trainee who was temporarily present in the United States under an “F,” “J,” “M,” or “Q” visa and you have no income that is subject to tax, such as wages, tips, scholarship and fellowship grants, dividends, etc. H and r block tax estimator Even if you have left the United States and filed a Form 1040-C, U. H and r block tax estimator S. H and r block tax estimator Departing Alien Income Tax Return, on departure, you still must file an annual U. H and r block tax estimator S. H and r block tax estimator income tax return. H and r block tax estimator If you are married and both you and your spouse are required to file, you must each file a separate return. H and r block tax estimator Form 1040NR-EZ You can use Form 1040NR-EZ if all of the following conditions are met. H and r block tax estimator You do not claim any dependents. H and r block tax estimator You cannot be claimed as a dependent on someone else's U. H and r block tax estimator S. H and r block tax estimator tax return. H and r block tax estimator If you were married, you do not claim an exemption for your spouse. H and r block tax estimator Your taxable income is less than $100,000. H and r block tax estimator The only itemized deduction you can claim is for state and local income taxes. H and r block tax estimator Note. H and r block tax estimator Residents of India who were students or business apprentices may be able to take the standard deduction instead of the itemized deduction for state and local income taxes. H and r block tax estimator See chapter 5. H and r block tax estimator Your only U. H and r block tax estimator S. H and r block tax estimator source income is from wages, salaries, tips, taxable refunds of state and local income taxes, scholarship or fellowship grants, and nontaxable interest or dividends. H and r block tax estimator (If you had taxable interest or dividend income, you cannot use this form. H and r block tax estimator ) You are not claiming any adjustments to income other than the student loan interest deduction or scholarship and fellowship grants excluded. H and r block tax estimator You are not claiming any tax credits. H and r block tax estimator This is not an “expatriation return. H and r block tax estimator ” See Expatriation Tax in chapter 4. H and r block tax estimator The only taxes you owe are: The income tax from the Tax Table. H and r block tax estimator The social security and Medicare tax from Form 4137 or Form 8919. H and r block tax estimator You are not claiming a credit for excess social security and tier 1 RRTA tax withheld. H and r block tax estimator You are not filing Form 8959, to figure the amount of Additional Medicare Tax you owe and/or the amount of Additional Medicare Tax withheld by your employer, if any. H and r block tax estimator If you do not meet all of the above conditions, you must file Form 1040NR. H and r block tax estimator When To File If you are an employee and you receive wages subject to U. H and r block tax estimator S. H and r block tax estimator income tax withholding, you will generally file by the 15th day of the 4th month after your tax year ends. H and r block tax estimator For the 2013 calendar year, file your return by April 15, 2014. H and r block tax estimator If you are not an employee who receives wages subject to U. H and r block tax estimator S. H and r block tax estimator income tax withholding, you must file by the 15th day of the 6th month after your tax year ends. H and r block tax estimator For the 2013 calendar year, file your return by June 16, 2014 (because June 15 is a Sunday. H and r block tax estimator ) Extensions of time to file. H and r block tax estimator   If you cannot file your return by the due date, file Form 4868 or use one of the electronic filing options explained in the Form 4868 instructions. H and r block tax estimator For the 2013 calendar year, this will extend the due date to October 15, 2014 (December 15, 2014, if the regular due date of your return is June 16, 2014). H and r block tax estimator You must file the extension by the regular due date of your return. H and r block tax estimator   In addition to the 6-month extension to October 15, taxpayers whose main place of business is outside the United States and Puerto Rico and who live outside those jurisdictions can request a discretionary 2-month extension of time to file their returns (to December 15 for calendar year taxpayers). H and r block tax estimator To request this extension, you must send the IRS a letter explaining the reasons why you need the additional 2 months. H and r block tax estimator Send the letter by the extended due date (October 15 for calendar year taxpayers) to the following address: Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0215   You will not receive any notification from the IRS unless your request is denied for being untimely. H and r block tax estimator When to file for deductions and credits. H and r block tax estimator   To get the benefit of any allowable deductions or credits, you must timely file a true and accurate return. H and r block tax estimator For this purpose, a return is timely if it is filed within 16 months of the due date just discussed. H and r block tax estimator However, if you did not file a 2012 tax return and 2013 is not the first year for which you are required to file one, your 2013 return is timely for this purpose if it is filed by the earlier of: The date that is 16 months after the due date for filing your 2013 return, or The date the IRS notifies you that your 2013 return has not been filed and that you cannot claim certain deductions and credits. H and r block tax estimator The allowance of the following credits is not affected by this time requirement. H and r block tax estimator Credit for withheld taxes. H and r block tax estimator Credit for excise tax on certain uses of gasoline and special fuels. H and r block tax estimator Credit for tax paid by a mutual fund (or other regulated investment company) or a real estate investment trust on undistributed long-term capital gains. H and r block tax estimator Protective return. H and r block tax estimator   If your activities in the United States were limited and you do not believe that you had any gross income effectively connected with a U. H and r block tax estimator S. H and r block tax estimator trade or business during the year, you can file a protective return (Form 1040NR) by the deadline explained above. H and r block tax estimator By filing a protective return, you protect your right to receive the benefit of deductions and credits in the event it is later determined that some or all of your income is effectively connected. H and r block tax estimator You are not required to report any effectively connected income or any deductions on the protective return, but you must give the reason the return is being filed. H and r block tax estimator   If you believe some of your activities resulted in effectively connected income, file your return reporting that income and related deductions by the regular due date. H and r block tax estimator To protect your right to claim deductions or credits resulting from other activities, attach a statement to that return explaining that you wish to protect your right to claim deductions and credits if it is later determined that the other activities produced effectively connected income. H and r block tax estimator   You can follow the same procedure if you believe you have no U. H and r block tax estimator S. H and r block tax estimator tax liability because of a U. H and r block tax estimator S. H and r block tax estimator tax treaty. H and r block tax estimator Be sure to also complete item L on page 5 of Form 1040NR. H and r block tax estimator Waiver of filing deadline. H and r block tax estimator   The IRS may waive the filing deadline if you establish that, based on the facts and circumstances, you acted reasonably and in good faith in failing to file a U. H and r block tax estimator S. H and r block tax estimator income tax return (including a protective return) and you cooperate with the IRS in determining your U. H and r block tax estimator S. H and r block tax estimator income tax liability for the tax year for which you did not file a return. H and r block tax estimator Where To File If you are not enclosing a payment, file Form 1040NR-EZ and Form 1040NR at the following address. H and r block tax estimator  Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0215 If enclosing a payment, mail your return to:  Internal Revenue Service  P. H and r block tax estimator O. H and r block tax estimator Box 1303 Charlotte, NC 28201-1303 Aliens from the U. H and r block tax estimator S. H and r block tax estimator Virgin Islands. H and r block tax estimator    If you are a bona fide resident of the U. H and r block tax estimator S. H and r block tax estimator Virgin Islands during your entire tax year and work temporarily in the United States, you must pay your income taxes to the U. H and r block tax estimator S. H and r block tax estimator Virgin Islands and file your income tax returns at the following address. H and r block tax estimator Virgin Islands Bureau of Internal Revenue 6115 Estate Smith Bay Suite 225 St. H and r block tax estimator Thomas, VI 00802   Report all income from U. H and r block tax estimator S. H and r block tax estimator sources, as well as income from other sources, on your return. H and r block tax estimator For information on filing U. H and r block tax estimator S. H and r block tax estimator Virgin Islands returns, contact the U. H and r block tax estimator S. H and r block tax estimator Virgin Islands Bureau of Internal Revenue. H and r block tax estimator   Chapter 8 discusses withholding from U. H and r block tax estimator S. H and r block tax estimator wages of U. H and r block tax estimator S. H and r block tax estimator Virgin Islanders. H and r block tax estimator Aliens from Guam or the Commonwealth of the Northern Mariana Islands. H and r block tax estimator   If you are a bona fide resident of Guam or the Commonwealth of the Northern Mariana Islands (CNMI) during your entire tax year, you must file your return with, and pay any tax due to, Guam or the CNMI. H and r block tax estimator Report all income, including income from U. H and r block tax estimator S. H and r block tax estimator sources, on your return. H and r block tax estimator It is not necessary to file a separate U. H and r block tax estimator S. H and r block tax estimator income tax return. H and r block tax estimator    Bona fide residents of Guam should file their Guam returns at the following address. H and r block tax estimator   Department of Revenue and Taxation Government of Guam P. H and r block tax estimator O. H and r block tax estimator Box 23607 GMF, GU 96921    Bona fide residents of the CNMI should file their CNMI income tax returns at the following address. H and r block tax estimator   Department of Finance Division of Revenue and Taxation Commonwealth of the Northern Mariana Islands P. H and r block tax estimator O. H and r block tax estimator Box 5234 CHRB Saipan, MP 96950   If you are not a bona fide resident of Guam or the CNMI, see Pub. H and r block tax estimator 570, Tax Guide for Individuals With Income From U. H and r block tax estimator S. H and r block tax estimator Possessions, for information on where to file your return. H and r block tax estimator Amended Returns and Claims for Refund If you find changes in your income, deductions, or credits after you mail your return, file Form 1040X, Amended U. H and r block tax estimator S. H and r block tax estimator Individual Income Tax Return. H and r block tax estimator Also use Form 1040X if you should have filed Form 1040, 1040A, or 1040EZ instead of Form 1040NR or 1040NR-EZ, or vice versa. H and r block tax estimator If you amend Form 1040NR or Form 1040NR-EZ or file the correct return, attach the corrected return (Form 1040, Form 1040NR, etc. H and r block tax estimator ) to Form 1040X. H and r block tax estimator Print “Amended” across the top. H and r block tax estimator Ordinarily, an amended return claiming a refund must be filed within 3 years from the date your return was filed or within 2 years from the time the tax was paid, whichever is later. H and r block tax estimator A return filed before the final due date is considered to have been filed on the due date. H and r block tax estimator Other Forms You May Have To File You may be required to file information returns to report certain foreign income or assets, or monetary transactions. H and r block tax estimator FinCen Form 105 FinCEN Form 105 (formerly Customs Form 4790), Report of International Transportation of Currency or Monetary Instruments, must be filed by each person who physically transports, mails, or ships, or causes to be physically transported, mailed, or shipped, currency or other monetary instruments in a total amount of more than $10,000 at one time from the United States to any place outside the United States, or into the United States from any place outside the United States. H and r block tax estimator The filing requirement also applies to each person who receives in the United States currency or monetary instruments totaling more than $10,000 at one time from any place outside of the United States. H and r block tax estimator The term “monetary instruments” means the following: Coin and currency of the United States or of any other country, Travelers' checks in any form, Investment securities or stock in bearer form or otherwise in such form that title to them passes upon delivery, Negotiable instruments (including checks, promissory notes, and money orders) in bearer form, endorsed without restriction, made out to a fictitious payee, or otherwise in such form that title to them passes upon delivery, and Checks, promissory notes, and money orders which are signed but on which the name of the payee has been omitted. H and r block tax estimator However, the term does not include: Checks or money orders made payable to the order of a named person which have not been endorsed or which contain restrictive endorsements, Warehouse receipts, or Bills of lading. H and r block tax estimator A transfer of funds through normal banking procedures (wire transfer) that does not involve the physical transportation of currency or monetary instruments is not required to be reported on FinCEN Form 105. H and r block tax estimator Filing requirements. H and r block tax estimator   FinCEN Form 105 filing requirements follow. H and r block tax estimator Recipients. H and r block tax estimator   Each person who receives currency or other monetary instruments in the United States must file FinCEN Form 105 within 15 days after receipt, with the Customs officer in charge at any port of entry or departure, or by mail at the following address. H and r block tax estimator Commissioner of Customs  Attention: Currency Transportation Reports Washington, DC 20229 Shippers or mailers. H and r block tax estimator   If the currency or other monetary instrument does not accompany the person entering or departing the United States, FinCEN Form 105 can be filed by mail at the above address on or before the date of entry, departure, mailing, or shipping. H and r block tax estimator Travelers. H and r block tax estimator   Travelers must file FinCEN Form 105 with the Customs officer in charge at any Customs port of entry or departure, when entering or departing the United States. H and r block tax estimator Penalties. H and r block tax estimator   Civil and criminal penalties are provided for failing to file a report, filing a report containing material omissions or misstatements, or filing a false or fraudulent report. H and r block tax estimator Also, the entire amount of the currency or monetary instrument may be subject to seizure and forfeiture. H and r block tax estimator More information. H and r block tax estimator   More information regarding the filing of FinCEN Form 105 can be found in the instructions on the back of the form. H and r block tax estimator Form 8938 You may have to file Form 8938, Statement of Specified Foreign Financial Assets, to report the ownership of specified foreign financial asset(s) if you are one of the following individuals. H and r block tax estimator A resident alien of the United States for any part of the tax year. H and r block tax estimator A resident alien of the United States who elects to be treated as a resident of a foreign country under the provisions of a U. H and r block tax estimator S. H and r block tax estimator income tax treaty. H and r block tax estimator See Effect of Tax Treaties in chapter 1. H and r block tax estimator A nonresident alien who makes an election to be treated as a resident alien for purposes of filing a joint income tax return. H and r block tax estimator See chapter 1 for information about this election. H and r block tax estimator A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico. H and r block tax estimator See Publication 570, Tax Guide for Individuals With Income From U. H and r block tax estimator S. H and r block tax estimator Possessions, for a definition of bona fide resident. H and r block tax estimator You must file Form 8938 if the total value of those assets exceeds an applicable threshold (the “reporting threshold”). H and r block tax estimator The reporting threshold varies depending on whether you live in the United States, are married, or file a joint income tax return with your spouse. H and r block tax estimator Specified foreign financial assets include any financial account maintained by a foreign financial institution and, to the extent held for investment, any stock, securities, or any other interest in a foreign entity and any financial instrument or contract with an issuer or counterparty that is not a U. H and r block tax estimator S. H and r block tax estimator person. H and r block tax estimator You may have to pay penalties if you are required to file Form 8938 and fail to do so, or if you have an understatement of tax due to any transaction involving an undisclosed foreign financial asset. H and r block tax estimator More information about the filing of Form 8938 can be found in the separate instructions for Form 8938. H and r block tax estimator Penalties The law provides penalties for failure to file returns or pay taxes as required. H and r block tax estimator Civil Penalties If you do not file your return and pay your tax by the due date, you may have to pay a penalty. H and r block tax estimator You may also have to pay a penalty if you substantially understate your tax, file a frivolous tax submission, or fail to supply your taxpayer identification number. H and r block tax estimator If you provide fraudulent information on your return, you may have to pay a civil fraud penalty. H and r block tax estimator Filing late. H and r block tax estimator   If you do not file your return by the due date (including extensions), you may have to pay a failure-to-file penalty. H and r block tax estimator The penalty is based on the tax not paid by the due date (without regard to extensions). H and r block tax estimator The penalty is usually 5% for each month or part of a month that a return is late, but not more than 25%. H and r block tax estimator Fraud. H and r block tax estimator   If your failure to file is due to fraud, the penalty is 15% for each month or part of a month that your return is late, up to a maximum of 75%. H and r block tax estimator Return over 60 days late. H and r block tax estimator   If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax. H and r block tax estimator Exception. H and r block tax estimator   You will not have to pay the penalty if you show that you failed to file on time because of reasonable cause and not because of willful neglect. H and r block tax estimator Paying tax late. H and r block tax estimator   You will have to pay a failure-to-pay penalty of ½ of 1% (. H and r block tax estimator 50%) of your unpaid taxes for each month, or part of a month, after the due date that the tax is not paid. H and r block tax estimator This penalty does not apply during the automatic 6-month extension of time to file period, if you paid at least 90% of your actual tax liability on or before the due date of your return and pay the balance when you file the return. H and r block tax estimator   The monthly rate of the failure-to-pay penalty is half the usual rate (. H and r block tax estimator 25% instead of . H and r block tax estimator 50%) if an installment agreement is in effect for that month. H and r block tax estimator You must have filed your return by the due date (including extensions) to qualify for this reduced penalty. H and r block tax estimator   If a notice of intent to levy is issued, the rate will increase to 1% at the start of the first month beginning at least 10 days after the day that the notice is issued. H and r block tax estimator If a notice and demand for immediate payment is issued, the rate will increase to 1% at the start of the first month beginning after the day that the notice and demand is issued. H and r block tax estimator   This penalty cannot be more than 25% of your unpaid tax. H and r block tax estimator You will not have to pay the penalty if you can show that you had a good reason for not paying your tax on time. H and r block tax estimator Combined penalties. H and r block tax estimator   If both the failure-to-file penalty and the failure-to-pay penalty (discussed earlier) apply in any month, the 5% (or 15%) failure-to-file penalty is reduced by the failure-to-pay penalty. H and r block tax estimator However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax. H and r block tax estimator Accuracy-related penalty. H and r block tax estimator   You may have to pay an accuracy-related penalty if you underpay your tax because: You show negligence or disregard of rules or regulations, You substantially understate your income tax, You claim tax benefits for a transaction that lacks economic substance, or You fail to disclose a foreign financial asset. H and r block tax estimator The penalty is equal to 20% of the underpayment. H and r block tax estimator The penalty is 40% of any portion of the underpayment that is attributable to an undisclosed noneconomic substance transaction or an undisclosed foreign financial asset transaction. H and r block tax estimator The penalty will not be figured on any part of an underpayment on which the fraud penalty (discussed later) is charged. H and r block tax estimator Negligence or disregard. H and r block tax estimator   The term “negligence” includes a failure to make a reasonable attempt to comply with the tax law or to exercise ordinary and reasonable care in preparing a return. H and r block tax estimator Negligence also includes failure to keep adequate books and records. H and r block tax estimator You will not have to pay a negligence penalty if you have a reasonable basis for a position you took. H and r block tax estimator   The term “disregard” includes any careless, reckless, or intentional disregard. H and r block tax estimator Adequate disclosure. H and r block tax estimator   You can avoid the penalty for disregard of rules or regulations if you adequately disclose on your return a position that has at least a reasonable basis. H and r block tax estimator See Disclosure statement , later. H and r block tax estimator   This exception will not apply to an item that is attributable to a tax shelter. H and r block tax estimator In addition, it will not apply if you fail to keep adequate books and records, or substantiate items properly. H and r block tax estimator Substantial understatement of income tax. H and r block tax estimator   You understate your tax if the tax shown on your return is less than the correct tax. H and r block tax estimator The understatement is substantial if it is more than the larger of 10% of the correct tax or $5,000. H and r block tax estimator However, the amount of the understatement is reduced to the extent the understatement is due to: Substantial authority, or Adequate disclosure and a reasonable basis. H and r block tax estimator   If an item on your return is attributable to a tax shelter, there is no reduction for an adequate disclosure. H and r block tax estimator However, there is a reduction for a position with substantial authority, but only if you reasonably believed that your tax treatment was more likely than not the proper treatment. H and r block tax estimator Substantial authority. H and r block tax estimator   Whether there is or was substantial authority for the tax treatment of an item depends on the facts and circumstances. H and r block tax estimator Consideration will be given to court opinions, Treasury regulations, revenue rulings, revenue procedures, and notices and announcements issued by the IRS and published in the Internal Revenue Bulletin that involve the same or similar circumstances as yours. H and r block tax estimator Disclosure statement. H and r block tax estimator   To adequately disclose the relevant facts about your tax treatment of an item, use Form 8275, Disclosure Statement. H and r block tax estimator You must also have a reasonable basis for treating the item the way you did. H and r block tax estimator   In cases of substantial understatement only, items that meet the requirements of Revenue Procedure 2012-51, 2012-51 IRB 719 (or later update) are considered adequately disclosed on your return without filing Form 8275. H and r block tax estimator   Use Form 8275-R, Regulation Disclosure Statement, to disclose items or positions contrary to regulations. H and r block tax estimator Transaction lacking economic substance. H and r block tax estimator   For more information on economic substance, see section 7701(o). H and r block tax estimator Foreign financial asset. H and r block tax estimator   For more information on undisclosed foreign financial assets, see section 6662(j) or the Instructions for Form 8938. H and r block tax estimator Reasonable cause. H and r block tax estimator   You will not have to pay a penalty if you show a good reason (reasonable cause) for the way you treated an item. H and r block tax estimator You must also show that you acted in good faith. H and r block tax estimator This does not apply to a transaction that lacks economic substance. H and r block tax estimator Filing erroneous claim for refund or credit. H and r block tax estimator   You may have to pay a penalty if you file an erroneous claim for refund or credit. H and r block tax estimator The penalty is equal to 20% of the disallowed amount of the claim, unless you can show a reasonable basis for the way you treated an item. H and r block tax estimator However, any disallowed amount due to a transaction that lacks economic substance will not be treated as having a reasonable basis. H and r block tax estimator The penalty will not be figured on any part of the disallowed amount of the claim that relates to the earned income credit or on which the accuracy-related or fraud penalties are charged. H and r block tax estimator Frivolous tax submission. H and r block tax estimator   You may have to pay a penalty of $5,000 if you file a frivolous tax return or other frivolous submissions. H and r block tax estimator A frivolous tax return is one that does not include enough information to figure the correct tax or that contains information clearly showing that the tax you reported is substantially incorrect. H and r block tax estimator For more information on frivolous returns, frivolous submissions, and a list of positions that are identified as frivolous, see Notice 2010-33, 2010-17 IRB 609 available at www. H and r block tax estimator irs. H and r block tax estimator gov/irb/2010-17_irb/ar13. H and r block tax estimator html. H and r block tax estimator   You will have to pay the penalty if you filed this kind of return or submission based on a frivolous position or a desire to delay or interfere with the administration of federal tax laws. H and r block tax estimator This includes altering or striking out the preprinted language above the space provided for your signature. H and r block tax estimator   This penalty is added to any other penalty provided by law. H and r block tax estimator Fraud. H and r block tax estimator   If there is any underpayment of tax on your return due to fraud, a penalty of 75% of the underpayment due to fraud will be added to your tax. H and r block tax estimator Failure to supply taxpayer identification number. H and r block tax estimator   If you do not include your social security number (SSN) or individual taxpayer identification number (ITIN) or the SSN or ITIN of another person where required on a return, statement, or other document, you will be subject to a penalty of $50 for each failure. H and r block tax estimator You will also be subject to a penalty of $50 if you do not give your SSN or ITIN to another person when it is required on a return, statement, or other document. H and r block tax estimator   For example, if you have a bank account that earns interest, you must give your SSN or ITIN to the bank. H and r block tax estimator The number must be shown on the Form 1099-INT or other statement the bank sends you. H and r block tax estimator If you do not give the bank your SSN or ITIN, you will be subject to the $50 penalty. H and r block tax estimator (You also may be subject to “backup” withholding of income tax. H and r block tax estimator )   You will not have to pay the penalty if you are able to show that the failure was due to reasonable cause and not willful neglect. H and r block tax estimator Criminal Penalties You may be subject to criminal prosecution (brought to trial) for actions such as: Tax evasion, Willful failure to file a return, supply information, or pay any tax due, Fraud and false statements, or Preparing and filing a fraudulent return. H and r block tax estimator Prev  Up  Next   Home   More Online Publications