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How Can I File My 2012 Taxes

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How Can I File My 2012 Taxes

How can i file my 2012 taxes 26. How can i file my 2012 taxes   Car Expenses and Other Employee Business Expenses Table of Contents What's New Introduction Useful Items - You may want to see: Travel ExpensesTraveling Away From Home Tax Home Temporary Assignment or Job What Travel Expenses Are Deductible? Travel in the United States Travel Outside the United States Conventions Entertainment Expenses50% Limit What Entertainment Expenses Are Deductible? What Entertainment Expenses Are Not Deductible? Gift Expenses Transportation ExpensesArmed Forces reservists. How can i file my 2012 taxes Parking fees. How can i file my 2012 taxes Advertising display on car. How can i file my 2012 taxes Car pools. How can i file my 2012 taxes Hauling tools or instruments. How can i file my 2012 taxes Union members' trips from a union hall. How can i file my 2012 taxes Car Expenses RecordkeepingHow To Prove Expenses How Long To Keep Records and Receipts How To ReportGifts. How can i file my 2012 taxes Statutory employees. How can i file my 2012 taxes Reimbursements Completing Forms 2106 and 2106-EZ Special Rules What's New Standard mileage rate. How can i file my 2012 taxes  For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. How can i file my 2012 taxes Car expenses and use of the standard mileage rate are explained under Transportation Expenses , later. How can i file my 2012 taxes Depreciation limits on cars, trucks, and vans. How can i file my 2012 taxes  For 2013, the first-year limit on the total section 179 deduction, special depreciation allowance, and depreciation deduction for cars remains at $11,160 ($3,160 if you elect not to claim the special depreciation allowance). How can i file my 2012 taxes For trucks and vans the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). How can i file my 2012 taxes For more information, see Depreciation limits in Publication 463. How can i file my 2012 taxes Introduction You may be able to deduct the ordinary and necessary business-related expenses you have for: Travel, Entertainment, Gifts, or Transportation. How can i file my 2012 taxes An ordinary expense is one that is common and accepted in your trade or business. How can i file my 2012 taxes A necessary expense is one that is helpful and appropriate for your business. How can i file my 2012 taxes An expense does not have to be required to be considered necessary. How can i file my 2012 taxes This chapter explains the following. How can i file my 2012 taxes What expenses are deductible. How can i file my 2012 taxes How to report your expenses on your return. How can i file my 2012 taxes What records you need to prove your expenses. How can i file my 2012 taxes How to treat any expense reimbursements you may receive. How can i file my 2012 taxes Who does not need to use this chapter. How can i file my 2012 taxes   If you are an employee, you will not need to read this chapter if all of the following are true. How can i file my 2012 taxes You fully accounted to your employer for your work-related expenses. How can i file my 2012 taxes You received full reimbursement for your expenses. How can i file my 2012 taxes Your employer required you to return any excess reimbursement and you did so. How can i file my 2012 taxes There is no amount shown with a code “L” in box 12 of your Form W-2, Wage and Tax Statement. How can i file my 2012 taxes If you meet all of these conditions, there is no need to show the expenses or the reimbursements on your return. How can i file my 2012 taxes See Reimbursements , later, if you would like more information on reimbursements and accounting to your employer. How can i file my 2012 taxes    If you meet these conditions and your employer included reimbursements on your Form W-2 in error, ask your employer for a corrected Form W-2. How can i file my 2012 taxes Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule C (Form 1040) Profit or Loss From Business Schedule C-EZ (Form 1040) Net Profit From Business Schedule F (Form 1040) Profit or Loss From Farming Form 2106 Employee Business Expenses Form 2106-EZ Unreimbursed Employee Business Expenses Travel Expenses If you temporarily travel away from your tax home, you can use this section to determine if you have deductible travel expenses. How can i file my 2012 taxes This section discusses: Traveling away from home, Tax home, Temporary assignment or job, and What travel expenses are deductible. How can i file my 2012 taxes It also discusses the standard meal allowance, rules for travel inside and outside the United States, and deductible convention expenses. How can i file my 2012 taxes Travel expenses defined. How can i file my 2012 taxes   For tax purposes, travel expenses are the ordinary and necessary expenses (defined earlier) of traveling away from home for your business, profession, or job. How can i file my 2012 taxes   You will find examples of deductible travel expenses in Table 26-1 . How can i file my 2012 taxes Traveling Away From Home You are traveling away from home if: Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work, and You need to sleep or rest to meet the demands of your work while away from home. How can i file my 2012 taxes This rest requirement is not satisfied by merely napping in your car. How can i file my 2012 taxes You do not have to be away from your tax home for a whole day or from dusk to dawn as long as your relief from duty is long enough to get necessary sleep or rest. How can i file my 2012 taxes Example 1. How can i file my 2012 taxes You are a railroad conductor. How can i file my 2012 taxes You leave your home terminal on a regularly scheduled round-trip run between two cities and return home 16 hours later. How can i file my 2012 taxes During the run, you have 6 hours off at your turnaround point where you eat two meals and rent a hotel room to get necessary sleep before starting the return trip. How can i file my 2012 taxes You are considered to be away from home. How can i file my 2012 taxes Example 2. How can i file my 2012 taxes You are a truck driver. How can i file my 2012 taxes You leave your terminal and return to it later the same day. How can i file my 2012 taxes You get an hour off at your turnaround point to eat. How can i file my 2012 taxes Because you are not off to get necessary sleep and the brief time off is not an adequate rest period, you are not traveling away from home. How can i file my 2012 taxes Members of the Armed Forces. How can i file my 2012 taxes   If you are a member of the U. How can i file my 2012 taxes S. How can i file my 2012 taxes Armed Forces on a permanent duty assignment overseas, you are not traveling away from home. How can i file my 2012 taxes You cannot deduct your expenses for meals and lodging. How can i file my 2012 taxes You cannot deduct these expenses even if you have to maintain a home in the United States for your family members who are not allowed to accompany you overseas. How can i file my 2012 taxes If you are transferred from one permanent duty station to another, you may have deductible moving expenses, which are explained in Publication 521, Moving Expenses. How can i file my 2012 taxes    A naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities has a tax home aboard ship for travel expense purposes. How can i file my 2012 taxes Tax Home To determine whether you are traveling away from home, you must first determine the location of your tax home. How can i file my 2012 taxes Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. How can i file my 2012 taxes It includes the entire city or general area in which your business or work is located. How can i file my 2012 taxes If you have more than one regular place of business, your tax home is your main place of business. How can i file my 2012 taxes See Main place of business or work , later. How can i file my 2012 taxes If you do not have a regular or a main place of business because of the nature of your work, then your tax home may be the place where you regularly live. How can i file my 2012 taxes See No main place of business or work , later. How can i file my 2012 taxes If you do not have a regular or a main place of business or post of duty and there is no place where you regularly live, you are considered an itinerant (a transient) and your tax home is wherever you work. How can i file my 2012 taxes As an itinerant, you cannot claim a travel expense deduction because you are never considered to be traveling away from home. How can i file my 2012 taxes Main place of business or work. How can i file my 2012 taxes   If you have more than one place of business or work, consider the following when determining which one is your main place of business or work. How can i file my 2012 taxes The total time you ordinarily spend in each place. How can i file my 2012 taxes The level of your business activity in each place. How can i file my 2012 taxes Whether your income from each place is significant or insignificant. How can i file my 2012 taxes Example. How can i file my 2012 taxes You live in Cincinnati where you have a seasonal job for 8 months each year and earn $40,000. How can i file my 2012 taxes You work the other 4 months in Miami, also at a seasonal job, and earn $15,000. How can i file my 2012 taxes Cincinnati is your main place of work because you spend most of your time there and earn most of your income there. How can i file my 2012 taxes No main place of business or work. How can i file my 2012 taxes   You may have a tax home even if you do not have a regular or main place of business or work. How can i file my 2012 taxes Your tax home may be the home where you regularly live. How can i file my 2012 taxes Factors used to determine tax home. How can i file my 2012 taxes   If you do not have a regular or main place of business or work, use the following three factors to determine where your tax home is. How can i file my 2012 taxes You perform part of your business in the area of your main home and use that home for lodging while doing business in the area. How can i file my 2012 taxes You have living expenses at your main home that you duplicate because your business requires you to be away from that home. How can i file my 2012 taxes You have not abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging. How can i file my 2012 taxes   If you satisfy all three factors, your tax home is the home where you regularly live. How can i file my 2012 taxes If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. How can i file my 2012 taxes If you satisfy only one factor, you are an itinerant; your tax home is wherever you work and you cannot deduct travel expenses. How can i file my 2012 taxes Example. How can i file my 2012 taxes You are single and live in Boston in an apartment you rent. How can i file my 2012 taxes You have worked for your employer in Boston for a number of years. How can i file my 2012 taxes Your employer enrolls you in a 12-month executive training program. How can i file my 2012 taxes You do not expect to return to work in Boston after you complete your training. How can i file my 2012 taxes During your training, you do not do any work in Boston. How can i file my 2012 taxes Instead, you receive classroom and on-the-job training throughout the United States. How can i file my 2012 taxes You keep your apartment in Boston and return to it frequently. How can i file my 2012 taxes You use your apartment to conduct your personal business. How can i file my 2012 taxes You also keep up your community contacts in Boston. How can i file my 2012 taxes When you complete your training, you are transferred to Los Angeles. How can i file my 2012 taxes You do not satisfy factor (1) because you did not work in Boston. How can i file my 2012 taxes You satisfy factor (2) because you had duplicate living expenses. How can i file my 2012 taxes You also satisfy factor (3) because you did not abandon your apartment in Boston as your main home, you kept your community contacts, and you frequently returned to live in your apartment. How can i file my 2012 taxes Therefore, you have a tax home in Boston. How can i file my 2012 taxes Tax home different from family home. How can i file my 2012 taxes   If you (and your family) do not live at your tax home (defined earlier), you cannot deduct the cost of traveling between your tax home and your family home. How can i file my 2012 taxes You also cannot deduct the cost of meals and lodging while at your tax home. How can i file my 2012 taxes See Example 1 . How can i file my 2012 taxes   If you are working temporarily in the same city where you and your family live, you may be considered as traveling away from home. How can i file my 2012 taxes See Example 2 . How can i file my 2012 taxes Example 1. How can i file my 2012 taxes You are a truck driver and you and your family live in Tucson. How can i file my 2012 taxes You are employed by a trucking firm that has its terminal in Phoenix. How can i file my 2012 taxes At the end of your long runs, you return to your home terminal in Phoenix and spend one night there before returning home. How can i file my 2012 taxes You cannot deduct any expenses you have for meals and lodging in Phoenix or the cost of traveling from Phoenix to Tucson. How can i file my 2012 taxes This is because Phoenix is your tax home. How can i file my 2012 taxes Example 2. How can i file my 2012 taxes Your family home is in Pittsburgh, where you work 12 weeks a year. How can i file my 2012 taxes The rest of the year you work for the same employer in Baltimore. How can i file my 2012 taxes In Baltimore, you eat in restaurants and sleep in a rooming house. How can i file my 2012 taxes Your salary is the same whether you are in Pittsburgh or Baltimore. How can i file my 2012 taxes Because you spend most of your working time and earn most of your salary in Baltimore, that city is your tax home. How can i file my 2012 taxes You cannot deduct any expenses you have for meals and lodging there. How can i file my 2012 taxes However, when you return to work in Pittsburgh, you are away from your tax home even though you stay at your family home. How can i file my 2012 taxes You can deduct the cost of your round trip between Baltimore and Pittsburgh. How can i file my 2012 taxes You can also deduct your part of your family's living expenses for meals and lodging while you are living and working in Pittsburgh. How can i file my 2012 taxes Temporary Assignment or Job You may regularly work at your tax home and also work at another location. How can i file my 2012 taxes It may not be practical to return to your tax home from this other location at the end of each work day. How can i file my 2012 taxes Temporary assignment vs. How can i file my 2012 taxes indefinite assignment. How can i file my 2012 taxes   If your assignment or job away from your main place of work is temporary, your tax home does not change. How can i file my 2012 taxes You are considered to be away from home for the whole period you are away from your main place of work. How can i file my 2012 taxes You can deduct your travel expenses if they otherwise qualify for deduction. How can i file my 2012 taxes Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less. How can i file my 2012 taxes   However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home and you cannot deduct your travel expenses while there. How can i file my 2012 taxes An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than 1 year, whether or not it actually lasts for more than 1 year. How can i file my 2012 taxes   If your assignment is indefinite, you must include in your income any amounts you receive from your employer for living expenses, even if they are called travel allowances and you account to your employer for them. How can i file my 2012 taxes You may be able to deduct the cost of relocating to your new tax home as a moving expense. How can i file my 2012 taxes See Publication 521 for more information. How can i file my 2012 taxes Exception for federal crime investigations or prosecutions. How can i file my 2012 taxes   If you are a federal employee participating in a federal crime investigation or prosecution, you are not subject to the 1-year rule. How can i file my 2012 taxes This means you may be able to deduct travel expenses even if you are away from your tax home for more than 1 year, provided you meet the other requirements for deductibility. How can i file my 2012 taxes   For you to qualify, the Attorney General (or his or her designee) must certify that you are traveling: For the federal government, In a temporary duty status, and To investigate or prosecute, or provide support services for the investigation or prosecution of a federal crime. How can i file my 2012 taxes Determining temporary or indefinite. How can i file my 2012 taxes   You must determine whether your assignment is temporary or indefinite when you start work. How can i file my 2012 taxes If you expect an assignment or job to last for 1 year or less, it is temporary unless there are facts and circumstances that indicate otherwise. How can i file my 2012 taxes An assignment or job that is initially temporary may become indefinite due to changed circumstances. How can i file my 2012 taxes A series of assignments to the same location, all for short periods but that together cover a long period, may be considered an indefinite assignment. How can i file my 2012 taxes Going home on days off. How can i file my 2012 taxes   If you go back to your tax home from a temporary assignment on your days off, you are not considered away from home while you are in your hometown. How can i file my 2012 taxes You cannot deduct the cost of your meals and lodging there. How can i file my 2012 taxes However, you can deduct your travel expenses, including meals and lodging, while traveling between your temporary place of work and your tax home. How can i file my 2012 taxes You can claim these expenses up to the amount it would have cost you to stay at your temporary place of work. How can i file my 2012 taxes   If you keep your hotel room during your visit home, you can deduct the cost of your hotel room. How can i file my 2012 taxes In addition, you can deduct your expenses of returning home up to the amount you would have spent for meals had you stayed at your temporary place of work. How can i file my 2012 taxes Probationary work period. How can i file my 2012 taxes   If you take a job that requires you to move, with the understanding that you will keep the job if your work is satisfactory during a probationary period, the job is indefinite. How can i file my 2012 taxes You cannot deduct any of your expenses for meals and lodging during the probationary period. How can i file my 2012 taxes What Travel Expenses Are Deductible? Once you have determined that you are traveling away from your tax home, you can determine what travel expenses are deductible. How can i file my 2012 taxes You can deduct ordinary and necessary expenses you have when you travel away from home on business. How can i file my 2012 taxes The type of expense you can deduct depends on the facts and your circumstances. How can i file my 2012 taxes Table 26-1 summarizes travel expenses you may be able to deduct. How can i file my 2012 taxes You may have other deductible travel expenses that are not covered there, depending on the facts and your circumstances. How can i file my 2012 taxes When you travel away from home on business, you should keep records of all the expenses you have and any advances you receive from your employer. How can i file my 2012 taxes You can use a log, diary, notebook, or any other written record to keep track of your expenses. How can i file my 2012 taxes The types of expenses you need to record, along with supporting documentation, are described in Table 26-2 , later. How can i file my 2012 taxes Separating costs. How can i file my 2012 taxes   If you have one expense that includes the costs of meals, entertainment, and other services (such as lodging or transportation), you must allocate that expense between the cost of meals and entertainment and the cost of other services. How can i file my 2012 taxes You must have a reasonable basis for making this allocation. How can i file my 2012 taxes For example, you must allocate your expenses if a hotel includes one or more meals in its room charge. How can i file my 2012 taxes Travel expenses for another individual. How can i file my 2012 taxes   If a spouse, dependent, or other individual goes with you (or your employee) on a business trip or to a business convention, you generally cannot deduct his or her travel expenses. How can i file my 2012 taxes Employee. How can i file my 2012 taxes   You can deduct the travel expenses of someone who goes with you if that person: Is your employee, Has a bona fide business purpose for the travel, and Would otherwise be allowed to deduct the travel expenses. How can i file my 2012 taxes Business associate. How can i file my 2012 taxes   If a business associate travels with you and meets the conditions in (2) and (3) above, you can deduct the travel expenses you have for that person. How can i file my 2012 taxes A business associate is someone with whom you could reasonably expect to engage or deal in the active conduct of your business. How can i file my 2012 taxes A business associate can be a current or prospective (likely to become) customer, client, supplier, employee, agent, partner, or professional advisor. How can i file my 2012 taxes Bona fide business purpose. How can i file my 2012 taxes   A bona fide business purpose exists if you can prove a real business purpose for the individual's presence. How can i file my 2012 taxes Incidental services, such as typing notes or assisting in entertaining customers, are not enough to make the expenses deductible. How can i file my 2012 taxes Example. How can i file my 2012 taxes Jerry drives to Chicago on business and takes his wife, Linda, with him. How can i file my 2012 taxes Linda is not Jerry's employee. How can i file my 2012 taxes Linda occasionally types notes, performs similar services, and accompanies Jerry to luncheons and dinners. How can i file my 2012 taxes The performance of these services does not establish that her presence on the trip is necessary to the conduct of Jerry's business. How can i file my 2012 taxes Her expenses are not deductible. How can i file my 2012 taxes Jerry pays $199 a day for a double room. How can i file my 2012 taxes A single room costs $149 a day. How can i file my 2012 taxes He can deduct the total cost of driving his car to and from Chicago, but only $149 a day for his hotel room. How can i file my 2012 taxes If he uses public transportation, he can deduct only his fare. How can i file my 2012 taxes Table 26-1. How can i file my 2012 taxes Travel Expenses You Can Deduct This chart summarizes expenses you can deduct when you travel away from home for business purposes. How can i file my 2012 taxes IF you have expenses for. How can i file my 2012 taxes . How can i file my 2012 taxes . How can i file my 2012 taxes THEN you can deduct the cost of. How can i file my 2012 taxes . How can i file my 2012 taxes . How can i file my 2012 taxes transportation travel by airplane, train, bus, or car between your home and your business destination. How can i file my 2012 taxes If you were provided with a ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. How can i file my 2012 taxes If you travel by ship, see Luxury Water Travel and Cruise ships (under Conventions) in Publication 463 for additional rules and limits. How can i file my 2012 taxes taxi, commuter bus, and airport limousine fares for these and other types of transportation that take you between: The airport or station and your hotel, and The hotel and the work location of your customers or clients, your business meeting place, or your temporary work location. How can i file my 2012 taxes baggage and shipping sending baggage and sample or display material between your regular and temporary work locations. How can i file my 2012 taxes car operating and maintaining your car when traveling away from home on business. How can i file my 2012 taxes You can deduct actual expenses or the standard mileage rate as well as business-related tolls and parking. How can i file my 2012 taxes If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. How can i file my 2012 taxes lodging and meals your lodging and meals if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. How can i file my 2012 taxes Meals include amounts spent for food, beverages, taxes, and related tips. How can i file my 2012 taxes See Meals and Incidental Expenses for additional rules and limits. How can i file my 2012 taxes cleaning dry cleaning and laundry. How can i file my 2012 taxes telephone business calls while on your business trip. How can i file my 2012 taxes This includes business communication by fax machine or other communication devices. How can i file my 2012 taxes tips tips you pay for any expenses in this chart. How can i file my 2012 taxes other other similar ordinary and necessary expenses related to your business travel. How can i file my 2012 taxes These expenses might include transportation to or from a business meal, public stenographer's fees, computer rental fees, and operating and maintaining a house trailer. How can i file my 2012 taxes Meals and Incidental Expenses You can deduct the cost of meals in either of the following situations. How can i file my 2012 taxes It is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business. How can i file my 2012 taxes The meal is business-related entertainment. How can i file my 2012 taxes Business-related entertainment is discussed under Entertainment Expenses , later. How can i file my 2012 taxes The following discussion deals only with meals (and incidental expenses) that are not business-related entertainment. How can i file my 2012 taxes Lavish or extravagant. How can i file my 2012 taxes   You cannot deduct expenses for meals that are lavish or extravagant. How can i file my 2012 taxes An expense is not considered lavish or extravagant if it is reasonable based on the facts and circumstances. How can i file my 2012 taxes Expenses will not be disallowed merely because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. How can i file my 2012 taxes 50% limit on meals. How can i file my 2012 taxes   You can figure your meal expenses using either of the following methods. How can i file my 2012 taxes Actual cost. How can i file my 2012 taxes The standard meal allowance. How can i file my 2012 taxes Both of these methods are explained below. How can i file my 2012 taxes But, regardless of the method you use, you generally can deduct only 50% of the unreimbursed cost of your meals. How can i file my 2012 taxes   If you are reimbursed for the cost of your meals, how you apply the 50% limit depends on whether your employer's reimbursement plan was accountable or nonaccountable. How can i file my 2012 taxes If you are not reimbursed, the 50% limit applies whether the unreimbursed meal expense is for business travel or business entertainment. How can i file my 2012 taxes The 50% limit is explained later under Entertainment Expenses . How can i file my 2012 taxes Accountable and nonaccountable plans are discussed later under Reimbursements . How can i file my 2012 taxes Actual cost. How can i file my 2012 taxes   You can use the actual cost of your meals to figure the amount of your expense before reimbursement and application of the 50% deduction limit. How can i file my 2012 taxes If you use this method, you must keep records of your actual cost. How can i file my 2012 taxes Standard meal allowance. How can i file my 2012 taxes   Generally, you can use the “standard meal allowance” method as an alternative to the actual cost method. How can i file my 2012 taxes It allows you to use a set amount for your daily meals and incidental expenses (M&IE), instead of keeping records of your actual costs. How can i file my 2012 taxes The set amount varies depending on where and when you travel. How can i file my 2012 taxes In this chapter, “standard meal allowance” refers to the federal rate for M&IE, discussed later under Amount of standard meal allowance . How can i file my 2012 taxes If you use the standard meal allowance, you still must keep records to prove the time, place, and business purpose of your travel. How can i file my 2012 taxes See Recordkeeping , later. How can i file my 2012 taxes Incidental expenses. How can i file my 2012 taxes   The term “incidental expenses” means fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. How can i file my 2012 taxes Incidental expenses do not include expenses for laundry, cleaning and pressing of clothing, lodging taxes, costs of telegrams or telephone calls, transportation between places of lodging or business and places where meals are taken, or the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings. How can i file my 2012 taxes Incidental expenses only method. How can i file my 2012 taxes   You can use an optional method (instead of actual cost) for deducting incidental expenses only. How can i file my 2012 taxes The amount of the deduction is $5 a day. How can i file my 2012 taxes You can use this method only if you did not pay or incur any meal expenses. How can i file my 2012 taxes You cannot use this method on any day that you use the standard meal allowance. How can i file my 2012 taxes    Federal employees should refer to the Federal Travel Regulations at  www. How can i file my 2012 taxes gsa. How can i file my 2012 taxes gov. How can i file my 2012 taxes Find “What GSA Offers” and click on “Regulations: FMR, FTR, & FAR” for Federal Travel Regulation (FTR) for changes affecting claims for reimbursement. How can i file my 2012 taxes 50% limit may apply. How can i file my 2012 taxes   If you use the standard meal allowance method for meal expenses and you are not reimbursed or you are reimbursed under a nonaccountable plan, you can generally deduct only 50% of the standard meal allowance. How can i file my 2012 taxes If you are reimbursed under an accountable plan and you are deducting amounts that are more than your reimbursements, you can deduct only 50% of the excess amount. How can i file my 2012 taxes The 50% limit is explained later under Entertainment Expenses . How can i file my 2012 taxes Accountable and nonaccountable plans are discussed later under Reimbursements . How can i file my 2012 taxes There is no optional standard lodging amount similar to the standard meal allowance. How can i file my 2012 taxes Your allowable lodging expense deduction is your actual cost. How can i file my 2012 taxes Who can use the standard meal allowance. How can i file my 2012 taxes   You can use the standard meal allowance whether you are an employee or self-employed, and whether or not you are reimbursed for your traveling expenses. How can i file my 2012 taxes   Use of the standard meal allowance for other travel. How can i file my 2012 taxes    You can use the standard meal allowance to figure your meal expenses when you travel in connection with investment and other income-producing property. How can i file my 2012 taxes You can also use it to figure your meal expenses when you travel for qualifying educational purposes. How can i file my 2012 taxes You cannot use the standard meal allowance to figure the cost of your meals when you travel for medical or charitable purposes. How can i file my 2012 taxes Amount of standard meal allowance. How can i file my 2012 taxes   The standard meal allowance is the federal M&IE rate. How can i file my 2012 taxes For travel in 2013, the daily rate for most small localities in the United States is $46. How can i file my 2012 taxes   Most major cities and many other localities in the United States are designated as high-cost areas, qualifying for higher standard meal allowances. How can i file my 2012 taxes You can find this information (organized by state) on the Internet at www. How can i file my 2012 taxes gsa. How can i file my 2012 taxes gov. How can i file my 2012 taxes Click on “Per Diem Rates,” then select “2013” for the period January 1, 2013 – September 30, 2013, and select “2014” for the period October 1, 2013 – December 31, 2013. How can i file my 2012 taxes However, you can apply the rates in effect before October 1, 2013, for expenses of all travel within the United States for 2013 instead of the updated rates. How can i file my 2012 taxes You must consistently use either the rates for the first 9 months for all of 2013 or the updated rates for the period of October 1, 2013, through December 31, 2013. How can i file my 2012 taxes   If you travel to more than one location in one day, use the rate in effect for the area where you stop for sleep or rest. How can i file my 2012 taxes If you work in the transportation industry, however, see Special rate for transportation workers , later. How can i file my 2012 taxes Standard meal allowance for areas outside the continental United States. How can i file my 2012 taxes    The standard meal allowance rates above do not apply to travel in Alaska, Hawaii, or any other location outside the continental United States. How can i file my 2012 taxes The Department of Defense establishes per diem rates for Alaska, Hawaii, Puerto Rico, American Samoa, Guam, Midway, the Northern Mariana Islands, the U. How can i file my 2012 taxes S. How can i file my 2012 taxes Virgin Islands, Wake Island, and other non-foreign areas outside the continental United States. How can i file my 2012 taxes The Department of State establishes per diem rates for all other foreign areas. How can i file my 2012 taxes    You can access per diem rates for non-foreign areas outside the continental United States at: www. How can i file my 2012 taxes defensetravel. How can i file my 2012 taxes dod. How can i file my 2012 taxes mil/site/perdiemCalc. How can i file my 2012 taxes cfm. How can i file my 2012 taxes You can access all other foreign per diem rates at www. How can i file my 2012 taxes state. How can i file my 2012 taxes gov/travel/. How can i file my 2012 taxes Click on “Travel Per Diem Allowances for Foreign Areas” under “Foreign Per Diem Rates,” to obtain the latest foreign per diem rates. How can i file my 2012 taxes Special rate for transportation workers. How can i file my 2012 taxes   You can use a special standard meal allowance if you work in the transportation industry. How can i file my 2012 taxes You are in the transportation industry if your work: Directly involves moving people or goods by airplane, barge, bus, ship, train, or truck, and Regularly requires you to travel away from home and, during any single trip, usually involves travel to areas eligible for different standard meal allowance rates. How can i file my 2012 taxes If this applies to you, you can claim a standard daily meal allowance of $59 ($65 for travel outside the continental United States). How can i file my 2012 taxes   Using the special rate for transportation workers eliminates the need for you to determine the standard meal allowance for every area where you stop for sleep or rest. How can i file my 2012 taxes If you choose to use the special rate for any trip, you must use the special rate (and not use the regular standard meal allowance rates) for all trips you take that year. How can i file my 2012 taxes Travel for days you depart and return. How can i file my 2012 taxes   For both the day you depart for and the day you return from a business trip, you must prorate the standard meal allowance (figure a reduced amount for each day). How can i file my 2012 taxes You can do so by one of two methods. How can i file my 2012 taxes Method 1: You can claim 3/4 of the standard meal allowance. How can i file my 2012 taxes Method 2: You can prorate using any method that you consistently apply and that is in accordance with reasonable business practice. How can i file my 2012 taxes Example. How can i file my 2012 taxes Jen is employed in New Orleans as a convention planner. How can i file my 2012 taxes In March, her employer sent her on a 3-day trip to Washington, DC, to attend a planning seminar. How can i file my 2012 taxes She left her home in New Orleans at 10 a. How can i file my 2012 taxes m. How can i file my 2012 taxes on Wednesday and arrived in Washington, DC, at 5:30 p. How can i file my 2012 taxes m. How can i file my 2012 taxes After spending two nights there, she flew back to New Orleans on Friday and arrived back home at 8:00 p. How can i file my 2012 taxes m. How can i file my 2012 taxes Jen's employer gave her a flat amount to cover her expenses and included it with her wages. How can i file my 2012 taxes Under Method 1, Jen can claim 2½ days of the standard meal allowance for Washington, DC: 3/4 of the daily rate for Wednesday and Friday (the days she departed and returned), and the full daily rate for Thursday. How can i file my 2012 taxes Under Method 2, Jen could also use any method that she applies consistently and that is in accordance with reasonable business practice. How can i file my 2012 taxes For example, she could claim 3 days of the standard meal allowance even though a federal employee would have to use Method 1 and be limited to only 2½ days. How can i file my 2012 taxes Travel in the United States The following discussion applies to travel in the United States. How can i file my 2012 taxes For this purpose, the United States includes only the 50 states and the District of Columbia. How can i file my 2012 taxes The treatment of your travel expenses depends on how much of your trip was business related and on how much of your trip occurred within the United States. How can i file my 2012 taxes See Part of Trip Outside the United States , later. How can i file my 2012 taxes Trip Primarily for Business You can deduct all your travel expenses if your trip was entirely business related. How can i file my 2012 taxes If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct your business-related travel expenses. How can i file my 2012 taxes These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination. How can i file my 2012 taxes Example. How can i file my 2012 taxes You work in Atlanta and take a business trip to New Orleans in May. How can i file my 2012 taxes On your way home, you stop in Mobile to visit your parents. How can i file my 2012 taxes You spend $1,996 for the 9 days you are away from home for travel, meals, lodging, and other travel expenses. How can i file my 2012 taxes If you had not stopped in Mobile, you would have been gone only 6 days, and your total cost would have been $1,696. How can i file my 2012 taxes You can deduct $1,696 for your trip, including the cost of round-trip transportation to and from New Orleans. How can i file my 2012 taxes The deduction for your meals is subject to the 50% limit on meals mentioned earlier. How can i file my 2012 taxes Trip Primarily for Personal Reasons If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. How can i file my 2012 taxes However, you can deduct any expenses you have while at your destination that are directly related to your business. How can i file my 2012 taxes A trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. How can i file my 2012 taxes The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip. How can i file my 2012 taxes Part of Trip Outside the United States If part of your trip is outside the United States, use the rules described later under Travel Outside the United States for that part of the trip. How can i file my 2012 taxes For the part of your trip that is inside the United States, use the rules for travel in the United States. How can i file my 2012 taxes Travel outside the United States does not include travel from one point in the United States to another point in the United States. How can i file my 2012 taxes The following discussion can help you determine whether your trip was entirely within the United States. How can i file my 2012 taxes Public transportation. How can i file my 2012 taxes   If you travel by public transportation, any place in the United States where that vehicle makes a scheduled stop is a point in the United States. How can i file my 2012 taxes Once the vehicle leaves the last scheduled stop in the United States on its way to a point outside the United States, you apply the rules under Travel Outside the United States . How can i file my 2012 taxes Example. How can i file my 2012 taxes You fly from New York to Puerto Rico with a scheduled stop in Miami. How can i file my 2012 taxes You return to New York nonstop. How can i file my 2012 taxes The flight from New York to Miami is in the United States, so only the flight from Miami to Puerto Rico is outside the United States. How can i file my 2012 taxes Because there are no scheduled stops between Puerto Rico and New York, all of the return trip is outside the United States. How can i file my 2012 taxes Private car. How can i file my 2012 taxes   Travel by private car in the United States is travel between points in the United States, even when you are on your way to a destination outside the United States. How can i file my 2012 taxes Example. How can i file my 2012 taxes You travel by car from Denver to Mexico City and return. How can i file my 2012 taxes Your travel from Denver to the border and from the border back to Denver is travel in the United States, and the rules in this section apply. How can i file my 2012 taxes The rules under Travel Outside the United States apply to your trip from the border to Mexico City and back to the border. How can i file my 2012 taxes Travel Outside the United States If any part of your business travel is outside the United States, some of your deductions for the cost of getting to and from your destination may be limited. How can i file my 2012 taxes For this purpose, the United States includes only the 50 states and the District of Columbia. How can i file my 2012 taxes How much of your travel expenses you can deduct depends in part upon how much of your trip outside the United States was business related. How can i file my 2012 taxes See chapter 1 of Publication 463 for information on luxury water travel. How can i file my 2012 taxes Travel Entirely for Business or Considered Entirely for Business You can deduct all your travel expenses of getting to and from your business destination if your trip is entirely for business or considered entirely for business. How can i file my 2012 taxes Travel entirely for business. How can i file my 2012 taxes   If you travel outside the United States and you spend the entire time on business activities, you can deduct all of your travel expenses. How can i file my 2012 taxes Travel considered entirely for business. How can i file my 2012 taxes   Even if you did not spend your entire time on business activities, your trip is considered entirely for business if you meet at least one of the following four exceptions. How can i file my 2012 taxes Exception 1 - No substantial control. How can i file my 2012 taxes   Your trip is considered entirely for business if you did not have substantial control over arranging the trip. How can i file my 2012 taxes The fact that you control the timing of your trip does not, by itself, mean that you have substantial control over arranging your trip. How can i file my 2012 taxes   You do not have substantial control over your trip if you: Are an employee who was reimbursed or paid a travel expense allowance, Are not related to your employer, and Are not a managing executive. How can i file my 2012 taxes    “Related to your employer” is defined later in this chapter under Per Diem and Car Allowances . How can i file my 2012 taxes   A “managing executive” is an employee who has the authority and responsibility, without being subject to the veto of another, to decide on the need for the business travel. How can i file my 2012 taxes    A self-employed person generally has substantial control over arranging business trips. How can i file my 2012 taxes Exception 2 - Outside United States no more than a week. How can i file my 2012 taxes   Your trip is considered entirely for business if you were outside the United States for a week or less, combining business and nonbusiness activities. How can i file my 2012 taxes One week means 7 consecutive days. How can i file my 2012 taxes In counting the days, do not count the day you leave the United States, but do count the day you return to the United States. How can i file my 2012 taxes Exception 3 - Less than 25% of time on personal activities. How can i file my 2012 taxes   Your trip is considered entirely for business if: You were outside the United States for more than a week, and You spent less than 25% of the total time you were outside the United States on nonbusiness activities. How can i file my 2012 taxes For this purpose, count both the day your trip began and the day it ended. How can i file my 2012 taxes Exception 4 - Vacation not a major consideration. How can i file my 2012 taxes   Your trip is considered entirely for business if you can establish that a personal vacation was not a major consideration, even if you have substantial control over arranging the trip. How can i file my 2012 taxes Travel Primarily for Business If you travel outside the United States primarily for business but spend some of your time on nonbusiness activities, you generally cannot deduct all of your travel expenses. How can i file my 2012 taxes You can only deduct the business portion of your cost of getting to and from your destination. How can i file my 2012 taxes You must allocate the costs between your business and nonbusiness activities to determine your deductible amount. How can i file my 2012 taxes These travel allocation rules are discussed in chapter 1 of Publication 463. How can i file my 2012 taxes You do not have to allocate your travel expense deduction if you meet one of the four exceptions listed earlier under Travel considered entirely for business. How can i file my 2012 taxes In those cases, you can deduct the total cost of getting to and from your destination. How can i file my 2012 taxes Travel Primarily for Personal Reasons If you travel outside the United States primarily for vacation or for investment purposes, the entire cost of the trip is a nondeductible personal expense. How can i file my 2012 taxes If you spend some time attending brief professional seminars or a continuing education program, you can deduct your registration fees and other expenses you have that are directly related to your business. How can i file my 2012 taxes Conventions You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. How can i file my 2012 taxes You cannot deduct the travel expenses for your family. How can i file my 2012 taxes If the convention is for investment, political, social, or other purposes unrelated to your trade or business, you cannot deduct the expenses. How can i file my 2012 taxes Your appointment or election as a delegate does not, in itself, determine whether you can deduct travel expenses. How can i file my 2012 taxes You can deduct your travel expenses only if your attendance is connected to your own trade or business. How can i file my 2012 taxes Convention agenda. How can i file my 2012 taxes   The convention agenda or program generally shows the purpose of the convention. How can i file my 2012 taxes You can show your attendance at the convention benefits your trade or business by comparing the agenda with the official duties and responsibilities of your position. How can i file my 2012 taxes The agenda does not have to deal specifically with your official duties and responsibilities; it will be enough if the agenda is so related to your position that it shows your attendance was for business purposes. How can i file my 2012 taxes Conventions held outside the North American area. How can i file my 2012 taxes    See chapter 1 of Publication 463 for information on conventions held outside the North American area. How can i file my 2012 taxes Entertainment Expenses You may be able to deduct business-related entertainment expenses you have for entertaining a client, customer, or employee. How can i file my 2012 taxes You can deduct entertainment expenses only if they are both ordinary and necessary (defined earlier in the Introduction ) and meet one of the following tests. How can i file my 2012 taxes Directly-related test. How can i file my 2012 taxes Associated test. How can i file my 2012 taxes Both of these tests are explained in chapter 2 of Publication 463. How can i file my 2012 taxes The amount you can deduct for entertainment expenses may be limited. How can i file my 2012 taxes Generally, you can deduct only 50% of your unreimbursed entertainment expenses. How can i file my 2012 taxes This limit is discussed next. How can i file my 2012 taxes 50% Limit In general, you can deduct only 50% of your business-related meal and entertainment expenses. How can i file my 2012 taxes (If you are subject to the Department of Transportation's “hours of service” limits, you can deduct 80% of your business-related meal and entertainment expenses. How can i file my 2012 taxes See Individuals subject to “hours of service” limits , later. How can i file my 2012 taxes ) The 50% limit applies to employees or their employers, and to self-employed persons (including independent contractors) or their clients, depending on whether the expenses are reimbursed. How can i file my 2012 taxes Figure 26-A summarizes the general rules explained in this section. How can i file my 2012 taxes The 50% limit applies to business meals or entertainment expenses you have while: Traveling away from home (whether eating alone or with others) on business, Entertaining customers at your place of business, a restaurant, or other location, or Attending a business convention or reception, business meeting, or business luncheon at a club. How can i file my 2012 taxes Included expenses. How can i file my 2012 taxes   Expenses subject to the 50% limit include: Taxes and tips relating to a business meal or entertainment activity, Cover charges for admission to a nightclub, Rent paid for a room in which you hold a dinner or cocktail party, and Amounts paid for parking at a sports arena. How can i file my 2012 taxes However, the cost of transportation to and from a business meal or a business-related entertainment activity is not subject to the 50% limit. How can i file my 2012 taxes Application of 50% limit. How can i file my 2012 taxes   The 50% limit on meal and entertainment expenses applies if the expense is otherwise deductible and is not covered by one of the exceptions discussed later in this section. How can i file my 2012 taxes   The 50% limit also applies to certain meal and entertainment expenses that are not business related. How can i file my 2012 taxes It applies to meal and entertainment expenses incurred for the production of income, including rental or royalty income. How can i file my 2012 taxes It also applies to the cost of meals included in deductible educational expenses. How can i file my 2012 taxes When to apply the 50% limit. How can i file my 2012 taxes   You apply the 50% limit after determining the amount that would otherwise qualify for a deduction. How can i file my 2012 taxes You first have to determine the amount of meal and entertainment expenses that would be deductible under the other rules discussed in this chapter. How can i file my 2012 taxes Example 1. How can i file my 2012 taxes You spend $200 for a business-related meal. How can i file my 2012 taxes If $110 of that amount is not allowable because it is lavish and extravagant, the remaining $90 is subject to the 50% limit. How can i file my 2012 taxes Your deduction cannot be more than $45 (. How can i file my 2012 taxes 50 × $90). How can i file my 2012 taxes Example 2. How can i file my 2012 taxes You purchase two tickets to a concert and give them to a client. How can i file my 2012 taxes You purchased the tickets through a ticket agent. How can i file my 2012 taxes You paid $200 for the two tickets, which had a face value of $80 each ($160 total). How can i file my 2012 taxes Your deduction cannot be more than $80 (. How can i file my 2012 taxes 50 × $160). How can i file my 2012 taxes Exceptions to the 50% Limit Generally, business-related meal and entertainment expenses are subject to the 50% limit. How can i file my 2012 taxes Figure 26-A can help you determine if the 50% limit applies to you. How can i file my 2012 taxes Your meal or entertainment expense is not subject to the 50% limit if the expense meets one of the following exceptions. How can i file my 2012 taxes Employee's reimbursed expenses. How can i file my 2012 taxes   If you are an employee, you are not subject to the 50% limit on expenses for which your employer reimburses you under an accountable plan. How can i file my 2012 taxes Accountable plans are discussed later under Reimbursements . How can i file my 2012 taxes Individuals subject to “hours of service” limits. How can i file my 2012 taxes   You can deduct a higher percentage of your meal expenses while traveling away from your tax home if the meals take place during or incident to any period subject to the Department of Transportation's “hours of service” limits. How can i file my 2012 taxes The percentage is 80%. How can i file my 2012 taxes   Individuals subject to the Department of Transportation's “hours of service” limits include the following persons. How can i file my 2012 taxes Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations. How can i file my 2012 taxes Interstate truck operators and bus drivers who are under Department of Transportation regulations. How can i file my 2012 taxes Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations. How can i file my 2012 taxes Certain merchant mariners who are under Coast Guard regulations. How can i file my 2012 taxes Other exceptions. How can i file my 2012 taxes   There are also exceptions for the self-employed, advertising expenses, selling meals or entertainment, and charitable sports events. How can i file my 2012 taxes These are discussed in Publication 463. How can i file my 2012 taxes Figure 26-A. How can i file my 2012 taxes Does the 50% Limit Apply to Your Expenses? There are exceptions to these rules. How can i file my 2012 taxes See Exceptions to the 50% Limit . How can i file my 2012 taxes Please click here for the text description of the image. How can i file my 2012 taxes Entertainment expenses: 50% limit What Entertainment Expenses Are Deductible? This section explains different types of entertainment expenses you may be able to deduct. How can i file my 2012 taxes Entertainment. How can i file my 2012 taxes    Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. How can i file my 2012 taxes Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; or on hunting, fishing, vacation, and similar trips. How can i file my 2012 taxes A meal as a form of entertainment. How can i file my 2012 taxes   Entertainment includes the cost of a meal you provide to a customer or client, whether the meal is a part of other entertainment or by itself. How can i file my 2012 taxes A meal expense includes the cost of food, beverages, taxes, and tips for the meal. How can i file my 2012 taxes To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided. How can i file my 2012 taxes You cannot claim the cost of your meal both as an entertainment expense and as a travel expense. How can i file my 2012 taxes Separating costs. How can i file my 2012 taxes   If you have one expense that includes the costs of entertainment and other services (such as lodging or transportation), you must allocate that expense between the cost of entertainment and the cost of other services. How can i file my 2012 taxes You must have a reasonable basis for making this allocation. How can i file my 2012 taxes For example, you must allocate your expenses if a hotel includes entertainment in its lounge on the same bill with your room charge. How can i file my 2012 taxes Taking turns paying for meals or entertainment. How can i file my 2012 taxes   If a group of business acquaintances take turns picking up each others' meal or entertainment checks without regard to whether any business purposes are served, no member of the group can deduct any part of the expense. How can i file my 2012 taxes Lavish or extravagant expenses. How can i file my 2012 taxes   You cannot deduct expenses for entertainment that are lavish or extravagant. How can i file my 2012 taxes An expense is not considered lavish or extravagant if it is reasonable considering the facts and circumstances. How can i file my 2012 taxes Expenses will not be disallowed just because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. How can i file my 2012 taxes Trade association meetings. How can i file my 2012 taxes    You can deduct entertainment expenses that are directly related to, and necessary for, attending business meetings or conventions of certain exempt organizations if the expenses of your attendance are related to your active trade or business. How can i file my 2012 taxes These organizations include business leagues, chambers of commerce, real estate boards, trade associations, and professional associations. How can i file my 2012 taxes Entertainment tickets. How can i file my 2012 taxes   Generally, you cannot deduct more than the face value of an entertainment ticket, even if you paid a higher price. How can i file my 2012 taxes For example, you cannot deduct service fees you pay to ticket agencies or brokers or any amount over the face value of the tickets you pay to scalpers. How can i file my 2012 taxes What Entertainment Expenses Are Not Deductible? This section explains different types of entertainment expenses you generally may not be able to deduct. How can i file my 2012 taxes Club dues and membership fees. How can i file my 2012 taxes   You cannot deduct dues (including initiation fees) for membership in any club organized for: Business, Pleasure, Recreation, or Other social purpose. How can i file my 2012 taxes This rule applies to any membership organization if one of its principal purposes is either: To conduct entertainment activities for members or their guests, or To provide members or their guests with access to entertainment facilities. How can i file my 2012 taxes   The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. How can i file my 2012 taxes You cannot deduct dues paid to: Country clubs, Golf and athletic clubs, Airline clubs, Hotel clubs, and Clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. How can i file my 2012 taxes Entertainment facilities. How can i file my 2012 taxes   Generally, you cannot deduct any expense for the use of an entertainment facility. How can i file my 2012 taxes This includes expenses for depreciation and operating costs such as rent, utilities, maintenance, and protection. How can i file my 2012 taxes   An entertainment facility is any property you own, rent, or use for entertainment. How can i file my 2012 taxes Examples include a yacht, hunting lodge, fishing camp, swimming pool, tennis court, bowling alley, car, airplane, apartment, hotel suite, or home in a vacation resort. How can i file my 2012 taxes Out-of-pocket expenses. How can i file my 2012 taxes   You can deduct out-of-pocket expenses, such as for food and beverages, catering, gas, and fishing bait, that you provided during entertainment at a facility. How can i file my 2012 taxes These are not expenses for the use of an entertainment facility. How can i file my 2012 taxes However, these expenses are subject to the directly-related and associated tests and to the 50% Limit discussed earlier. How can i file my 2012 taxes Additional information. How can i file my 2012 taxes   For more information on entertainment expenses, including discussions of the directly-related and associated tests, see chapter 2 of Publication 463. How can i file my 2012 taxes Gift Expenses If you give gifts in the course of your trade or business, you can deduct all or part of the cost. How can i file my 2012 taxes This section explains the limits and rules for deducting the costs of gifts. How can i file my 2012 taxes $25 limit. How can i file my 2012 taxes   You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year. How can i file my 2012 taxes A gift to a company that is intended for the eventual personal use or benefit of a particular person or a limited class of people will be considered an indirect gift to that particular person or to the individuals within that class of people who receive the gift. How can i file my 2012 taxes   If you give a gift to a member of a customer's family, the gift is generally considered to be an indirect gift to the customer. How can i file my 2012 taxes This rule does not apply if you have a bona fide, independent business connection with that family member and the gift is not intended for the customer's eventual use or benefit. How can i file my 2012 taxes   If you and your spouse both give gifts, both of you are treated as one taxpayer. How can i file my 2012 taxes It does not matter whether you have separate businesses, are separately employed, or whether each of you has an independent connection with the recipient. How can i file my 2012 taxes If a partnership gives gifts, the partnership and the partners are treated as one taxpayer. How can i file my 2012 taxes Incidental costs. How can i file my 2012 taxes   Incidental costs, such as engraving on jewelry, or packaging, insuring, and mailing, are generally not included in determining the cost of a gift for purposes of the $25 limit. How can i file my 2012 taxes   A cost is incidental only if it does not add substantial value to the gift. How can i file my 2012 taxes For example, the cost of customary gift wrapping is an incidental cost. How can i file my 2012 taxes However, the purchase of an ornamental basket for packaging fruit is not an incidental cost if the value of the basket is substantial compared to the value of the fruit. How can i file my 2012 taxes Exceptions. How can i file my 2012 taxes   The following items are not considered gifts for purposes of the $25 limit. How can i file my 2012 taxes An item that costs $4 or less and: Has your name clearly and permanently imprinted on the gift, and Is one of a number of identical items you widely distribute. How can i file my 2012 taxes Examples include pens, desk sets, and plastic bags and cases. How can i file my 2012 taxes Signs, display racks, or other promotional material to be used on the business premises of the recipient. How can i file my 2012 taxes Gift or entertainment. How can i file my 2012 taxes   Any item that might be considered either a gift or entertainment generally will be considered entertainment. How can i file my 2012 taxes However, if you give a customer packaged food or beverages you intend the customer to use at a later date, treat it as a gift. How can i file my 2012 taxes    If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. How can i file my 2012 taxes You can treat the cost of the tickets as either a gift expense or an entertainment expense, whichever is to your advantage. How can i file my 2012 taxes    If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. How can i file my 2012 taxes You cannot choose, in this case, to treat the cost of the tickets as a gift expense. How can i file my 2012 taxes Transportation Expenses This section discusses expenses you can deduct for business transportation when you are not traveling away from home as defined earlier under Travel Expenses . How can i file my 2012 taxes These expenses include the cost of transportation by air, rail, bus, taxi, etc. How can i file my 2012 taxes , and the cost of driving and maintaining your car. How can i file my 2012 taxes Transportation expenses include the ordinary and necessary costs of all of the following. How can i file my 2012 taxes Getting from one workplace to another in the course of your business or profession when you are traveling within the area of your tax home. How can i file my 2012 taxes (Tax home is defined earlier under Travel Expenses . How can i file my 2012 taxes ) Visiting clients or customers. How can i file my 2012 taxes Going to a business meeting away from your regular workplace. How can i file my 2012 taxes Getting from your home to a temporary workplace when you have one or more regular places of work. How can i file my 2012 taxes These temporary workplaces can be either within the area of your tax home or outside that area. How can i file my 2012 taxes Transportation expenses do not include expenses you have while traveling away from home overnight. How can i file my 2012 taxes Those expenses are travel expenses, discussed earlier. How can i file my 2012 taxes However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. How can i file my 2012 taxes See Car Expenses , later. How can i file my 2012 taxes Illustration of transportation expenses. How can i file my 2012 taxes    Figure 26-B illustrates the rules for when you can deduct transportation expenses when you have a regular or main job away from your home. How can i file my 2012 taxes You may want to refer to it when deciding whether you can deduct your transportation expenses. How can i file my 2012 taxes Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. How can i file my 2012 taxes However, there are many exceptions for deducting transportation expenses, like whether your work location is temporary (inside or outside the metropolitan area), traveling for same trade or business, or if you have a home office. How can i file my 2012 taxes Temporary work location. How can i file my 2012 taxes   If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location, regardless of distance. How can i file my 2012 taxes   If your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary unless there are facts and circumstances that would indicate otherwise. How can i file my 2012 taxes   If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. How can i file my 2012 taxes   If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. How can i file my 2012 taxes It will not be treated as temporary after the date you determine it will last more than 1 year. How can i file my 2012 taxes   If the temporary work location is beyond the general area of your regular place of work and you stay overnight, you are traveling away from home. How can i file my 2012 taxes You may have deductible travel expenses as discussed earlier in this chapter. How can i file my 2012 taxes No regular place of work. How can i file my 2012 taxes   If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area. How can i file my 2012 taxes   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. How can i file my 2012 taxes   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. How can i file my 2012 taxes These are nondeductible commuting expenses. How can i file my 2012 taxes Two places of work. How can i file my 2012 taxes   If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. How can i file my 2012 taxes However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second. How can i file my 2012 taxes   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. How can i file my 2012 taxes You cannot deduct them. How can i file my 2012 taxes Armed Forces reservists. How can i file my 2012 taxes   A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. How can i file my 2012 taxes You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work , earlier. How can i file my 2012 taxes   You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. How can i file my 2012 taxes In this case, your transportation generally is a nondeductible commuting expense. How can i file my 2012 taxes However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work. How can i file my 2012 taxes   If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. How can i file my 2012 taxes   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. How can i file my 2012 taxes These expenses are discussed earlier under Travel Expenses . How can i file my 2012 taxes   If you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you may be able to deduct some of your reserve-related travel costs as an adjustment to income rather than as an itemized deduction. How can i file my 2012 taxes See Armed Forces reservists traveling more than 100 miles from home under Special Rules, later. How can i file my 2012 taxes Commuting expenses. How can i file my 2012 taxes   You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. How can i file my 2012 taxes These costs are personal commuting expenses. How can i file my 2012 taxes You cannot deduct commuting expenses no matter how far your home is from your regular place of work. How can i file my 2012 taxes You cannot deduct commuting expenses even if you work during the commuting trip. How can i file my 2012 taxes Example. How can i file my 2012 taxes You sometimes use your cell phone to make business calls while commuting to and from work. How can i file my 2012 taxes Sometimes business associates ride with you to and from work, and you have a business discussion in the car. How can i file my 2012 taxes These activities do not change the trip from personal to business. How can i file my 2012 taxes You cannot deduct your commuting expenses. How can i file my 2012 taxes Parking fees. How can i file my 2012 taxes   Fees you pay to park your car at your place of business are nondeductible commuting expenses. How can i file my 2012 taxes You can, however, deduct business-related parking fees when visiting a customer or client. How can i file my 2012 taxes Advertising display on car. How can i file my 2012 taxes   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. How can i file my 2012 taxes If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. How can i file my 2012 taxes Car pools. How can i file my 2012 taxes   You cannot deduct the cost of using your car in a nonprofit car pool. How can i file my 2012 taxes Do not include payments you receive from the passengers in your income. How can i file my 2012 taxes These payments are considered reimbursements of your expenses. How can i file my 2012 taxes However, if you operate a car pool for a profit, you must include payments from passengers in your income. How can i file my 2012 taxes You can then deduct your car expenses (using the rules in this chapter). How can i file my 2012 taxes Hauling tools or instruments. How can i file my 2012 taxes   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. How can i file my 2012 taxes However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car). How can i file my 2012 taxes Union members' trips from a union hall. How can i file my 2012 taxes   If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. How can i file my 2012 taxes Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. How can i file my 2012 taxes Office in the home. How can i file my 2012 taxes   If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. How can i file my 2012 taxes (See chapter 28 for information on determining if your home office qualifies as a principal place of business. How can i file my 2012 taxes ) Figure 26-B. How can i file my 2012 taxes When Are Transportation Expenses Deductible? Most employees and self-employed persons can use this chart. How can i file my 2012 taxes (Do not use this chart if your home is your principal place of business. How can i file my 2012 taxes See Office in the home . How can i file my 2012 taxes ) Please click here for the text description of the image. How can i file my 2012 taxes Figure 26-B. How can i file my 2012 taxes Local Transportation Examples of deductible transportation. How can i file my 2012 taxes   The following examples show when you can deduct transportation expenses based on the location of your work and your home. How can i file my 2012 taxes Example 1. How can i file my 2012 taxes You regularly work in an office in the city where you live. How can i file my 2012 taxes Your employer sends you to a 1-week training session at a different office in the same city. How can i file my 2012 taxes You travel directly from your home to the training location and return each day. How can i file my 2012 taxes You can deduct the cost of your daily round-trip transportation between your home and the training location. How can i file my 2012 taxes Example 2. How can i file my 2012 taxes Your principal place of business is in your home. How can i file my 2012 taxes You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. How can i file my 2012 taxes Example 3. How can i file my 2012 taxes You have no regular office, and you do not have an office in your home. How can i file my 2012 taxes In this case, the location of your first business contact inside the metropolitan area is considered your office. How can i file my 2012 taxes Transportation expenses between your home and this first contact are nondeductible commuting expenses. How can i file my 2012 taxes Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. How can i file my 2012 taxes While you cannot deduct the costs of these first and last trips, you can deduct the costs of going from one client or customer to another. How can i file my 2012 taxes With no regular or home office, the costs of travel between two or more business contacts in a metropolitan area are deductible while the costs of travel between the home to (and from) business contacts are not deductible. How can i file my 2012 taxes Car Expenses If you use your car for business purposes, you may be able to deduct car expenses. How can i file my 2012 taxes You generally can use one of the two following methods to figure your deductible expenses. How can i file my 2012 taxes Standard mileage rate. How can i file my 2012 taxes Actual car expenses. How can i file my 2012 taxes If you use actual car expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. How can i file my 2012 taxes See Leasing a car under Actual Car Expenses, later. How can i file my 2012 taxes In this chapter, “car” includes a van, pickup, or panel truck. How can i file my 2012 taxes Rural mail carriers. How can i file my 2012 taxes   If you are a rural mail carrier, you may be able to treat the amount of qualified reimbursement you received as the amount of your allowable expense. How can i file my 2012 taxes Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the amount of reimbursement in your income. How can i file my 2012 taxes   If your vehicle expenses are more than the amount of your reimbursement, you can deduct the unreimbursed expenses as an itemized deduction on Schedule A (Form 1040). How can i file my 2012 taxes You must complete Form 2106 and attach it to your Form 1040. How can i file my 2012 taxes   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. How can i file my 2012 taxes It is given as an equipment maintenance allowance (EMA) to employees of the U. How can i file my 2012 taxes S. How can i file my 2012 taxes Postal Service. How can i file my 2012 taxes It is at the rate contained in the 1991 collective bargaining agreement. How can i file my 2012 taxes Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. How can i file my 2012 taxes See your employer for information on your reimbursement. How can i file my 2012 taxes If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. How can i file my 2012 taxes Standard Mileage Rate You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. How can i file my 2012 taxes For 2013, the standard mileage rate for business use is 56½ cents per mile. How can i file my 2012 taxes If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year, but see Parking fees and tolls, later. How can i file my 2012 taxes You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. How can i file my 2012 taxes See Reimbursements under How To Report, later. How can i file my 2012 taxes Choosing the standard mileage rate. How can i file my 2012 taxes   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. How can i file my 2012 taxes Then in later years, you can choose to use either the standard mileage rate or actual expenses. How can i file my 2012 taxes   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. How can i file my 2012 taxes   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. How can i file my 2012 taxes You cannot revoke the choice. How can i file my 2012 taxes However, in a later year, you can switch from the standard mileage rate to the actual expenses method. How can i file my 2012 taxes If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation. How can i file my 2012 taxes Example. How can i file my 2012 taxes Larry is an employee who occasionally uses his own car for business purposes. How can i file my 2012 taxes He purchased the car in 2011, but he did not claim any unreimburse
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Help for Victims of Ponzi Investment Schemes

 

The IRS provides two items of guidance to help taxpayers who are victims of losses from Ponzi-type investment schemes.

  • Revenue Ruling 2009-9 provides guidance on determining the amount and timing of losses from these schemes, which is difficult and dependent on the prospect of recovering the lost money (which may not become known for several years).

  • Revenue Procedure 2009-20 simplifies compliance for taxpayers by providing a safe-harbor means of determining the year in which the loss is deemed to occur and a simplified means of computing the amount of the loss.  

For an overview of this guidance, see IRS Commissioner Doug Shulman's March 17, 2009, testimony before the Senate Finance Committee on tax issues related to Ponzi schemes.

Questions and Answers

  • FAQs Related to Ponzi Scenarios for Clawback Treatment

  • Do you have questions on what to do if you've invested in a Ponzi scheme? If so, these questions and answers may help.

  • Do you have questions on what to do if you took a tax loss due to a Ponzi scheme investment but later recovered some of your investment? If so, these questions and answers on the tax treatment of distributions received from a trustee/receiver may help. A trustee or receiver may use this information to respond to questions from investors and may include a copy of these questions and answers with any distributions sent to investors.
Page Last Reviewed or Updated: 14-Mar-2014

The How Can I File My 2012 Taxes

How can i file my 2012 taxes 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. How can i file my 2012 taxes S. How can i file my 2012 taxes Individual Income Tax Return, and itemize your deductions on Schedule A (Form 1040). How can i file my 2012 taxes If you itemize, you cannot take the standard deduction. How can i file my 2012 taxes This section explains what expenses you can deduct as a homeowner. How can i file my 2012 taxes It also points out expenses that you cannot deduct. How can i file my 2012 taxes There are four primary discussions: real estate taxes, sales taxes, home mortgage interest, and mortgage insurance premiums. How can i file my 2012 taxes Generally, your real estate taxes, home mortgage interest, and mortgage insurance premiums are included in your house payment. How can i file my 2012 taxes Your house payment. How can i file my 2012 taxes   If you took out a mortgage (loan) to finance the purchase of your home, you probably have to make monthly house payments. How can i file my 2012 taxes Your house payment may include several costs of owning a home. How can i file my 2012 taxes 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. How can i file my 2012 taxes These are discussed in more detail later. How can i file my 2012 taxes   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. How can i file my 2012 taxes Minister's or military housing allowance. How can i file my 2012 taxes   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. How can i file my 2012 taxes You do not have to reduce your deductions by your nontaxable allowance. How can i file my 2012 taxes 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. How can i file my 2012 taxes Nondeductible payments. How can i file my 2012 taxes   You cannot deduct any of the following items. How can i file my 2012 taxes Insurance (other than mortgage insurance premiums), including fire and comprehensive coverage, and title insurance. How can i file my 2012 taxes Wages you pay for domestic help. How can i file my 2012 taxes Depreciation. How can i file my 2012 taxes The cost of utilities, such as gas, electricity, or water. How can i file my 2012 taxes Most settlement costs. How can i file my 2012 taxes See Settlement or closing costs under Cost as Basis, later, for more information. How can i file my 2012 taxes Forfeited deposits, down payments, or earnest money. How can i file my 2012 taxes 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. How can i file my 2012 taxes 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. How can i file my 2012 taxes 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. How can i file my 2012 taxes 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). How can i file my 2012 taxes 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. How can i file my 2012 taxes Real Estate Taxes Most state and local governments charge an annual tax on the value of real property. How can i file my 2012 taxes This is called a real estate tax. How can i file my 2012 taxes You can deduct the tax if it is assessed uniformly at a like rate on all real property throughout the community. How can i file my 2012 taxes 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. How can i file my 2012 taxes Deductible Real Estate Taxes You can deduct real estate taxes imposed on you. How can i file my 2012 taxes 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. How can i file my 2012 taxes If you own a cooperative apartment, see Special Rules for Cooperatives , later. How can i file my 2012 taxes Where to deduct real estate taxes. How can i file my 2012 taxes   Enter the amount of your deductible real estate taxes on Schedule A (Form 1040), line 6. How can i file my 2012 taxes Real estate taxes paid at settlement or closing. How can i file my 2012 taxes   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. How can i file my 2012 taxes Your share of these taxes is fully deductible if you itemize your deductions. How can i file my 2012 taxes Division of real estate taxes. How can i file my 2012 taxes   For federal income tax purposes, the seller is treated as paying the property taxes up to, but not including, the date of sale. How can i file my 2012 taxes You (the buyer) are treated as paying the taxes beginning with the date of sale. How can i file my 2012 taxes This applies regardless of the lien dates under local law. How can i file my 2012 taxes Generally, this information is included on the settlement statement you get at closing. How can i file my 2012 taxes   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. How can i file my 2012 taxes You each can deduct your own share, if you itemize deductions, for the year the property is sold. How can i file my 2012 taxes Example. How can i file my 2012 taxes You bought your home on September 1. How can i file my 2012 taxes The property tax year (the period to which the tax relates) in your area is the calendar year. How can i file my 2012 taxes The tax for the year was $730 and was due and paid by the seller on August 15. How can i file my 2012 taxes You owned your new home during the property tax year for 122 days (September 1 to December 31, including your date of purchase). How can i file my 2012 taxes You figure your deduction for real estate taxes on your home as follows. How can i file my 2012 taxes 1. How can i file my 2012 taxes Enter the total real estate taxes for the real property tax year $730 2. How can i file my 2012 taxes Enter the number of days in the property tax year that you owned the property 122 3. How can i file my 2012 taxes Divide line 2 by 365 . How can i file my 2012 taxes 3342 4. How can i file my 2012 taxes Multiply line 1 by line 3. How can i file my 2012 taxes This is your deduction. How can i file my 2012 taxes 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. How can i file my 2012 taxes 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. How can i file my 2012 taxes Delinquent taxes. How can i file my 2012 taxes   Delinquent taxes are unpaid taxes that were imposed on the seller for an earlier tax year. How can i file my 2012 taxes If you agree to pay delinquent taxes when you buy your home, you cannot deduct them. How can i file my 2012 taxes You treat them as part of the cost of your home. How can i file my 2012 taxes See Real estate taxes , later, under Basis. How can i file my 2012 taxes Escrow accounts. How can i file my 2012 taxes   Many monthly house payments include an amount placed in escrow (put in the care of a third party) for real estate taxes. How can i file my 2012 taxes You may not be able to deduct the total you pay into the escrow account. How can i file my 2012 taxes You can deduct only the real estate taxes that the lender actually paid from escrow to the taxing authority. How can i file my 2012 taxes Your real estate tax bill will show this amount. How can i file my 2012 taxes Refund or rebate of real estate taxes. How can i file my 2012 taxes   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. How can i file my 2012 taxes 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. How can i file my 2012 taxes For more information, see Recoveries in Publication 525, Taxable and Nontaxable Income. How can i file my 2012 taxes Items You Cannot Deduct as Real Estate Taxes The following items are not deductible as real estate taxes. How can i file my 2012 taxes Charges for services. How can i file my 2012 taxes   An itemized charge for services to specific property or people is not a tax, even if the charge is paid to the taxing authority. How can i file my 2012 taxes 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). How can i file my 2012 taxes    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. How can i file my 2012 taxes If your taxing authority (or lender) does not furnish you a copy of your real estate tax bill, ask for it. How can i file my 2012 taxes Contact the taxing authority if you need additional information about a specific charge on your real estate tax bill. How can i file my 2012 taxes Assessments for local benefits. How can i file my 2012 taxes   You cannot deduct amounts you pay for local benefits that tend to increase the value of your property. How can i file my 2012 taxes Local benefits include the construction of streets, sidewalks, or water and sewer systems. How can i file my 2012 taxes You must add these amounts to the basis of your property. How can i file my 2012 taxes   You can, however, deduct assessments (or taxes) for local benefits if they are for maintenance, repair, or interest charges related to those benefits. How can i file my 2012 taxes An example is a charge to repair an existing sidewalk and any interest included in that charge. How can i file my 2012 taxes   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. How can i file my 2012 taxes If you cannot show what part of the assessment is for maintenance, repair, or interest charges, you cannot deduct any of it. How can i file my 2012 taxes   An assessment for a local benefit may be listed as an item in your real estate tax bill. How can i file my 2012 taxes If so, use the rules in this section to find how much of it, if any, you can deduct. How can i file my 2012 taxes Transfer taxes (or stamp taxes). How can i file my 2012 taxes   You cannot deduct transfer taxes and similar taxes and charges on the sale of a personal home. How can i file my 2012 taxes If you are the buyer and you pay them, include them in the cost basis of the property. How can i file my 2012 taxes If you are the seller and you pay them, they are expenses of the sale and reduce the amount realized on the sale. How can i file my 2012 taxes Homeowners association assessments. How can i file my 2012 taxes   You cannot deduct these assessments because the homeowners association, rather than a state or local government, imposes them. How can i file my 2012 taxes 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. How can i file my 2012 taxes As an owner of a cooperative apartment, you own shares of stock in a corporation that owns or leases housing facilities. How can i file my 2012 taxes 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. How can i file my 2012 taxes For this purpose, gross income means all income received during the entire tax year, including any received before the corporation changed to cooperative ownership. How can i file my 2012 taxes 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. How can i file my 2012 taxes 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. How can i file my 2012 taxes Tenant-stockholders. How can i file my 2012 taxes   A tenant-stockholder can be any entity (such as a corporation, trust, estate, partnership, or association) as well as an individual. How can i file my 2012 taxes The tenant-stockholder does not have to live in any of the cooperative's dwelling units. How can i file my 2012 taxes The units that the tenant-stockholder has the right to occupy can be rented to others. How can i file my 2012 taxes Deductible taxes. How can i file my 2012 taxes   You figure your share of real estate taxes in the following way. How can i file my 2012 taxes Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. How can i file my 2012 taxes Multiply the corporation's deductible real estate taxes by the number you figured in (1). How can i file my 2012 taxes This is your share of the real estate taxes. How can i file my 2012 taxes   Generally, the corporation will tell you your share of its real estate tax. How can i file my 2012 taxes This is the amount you can deduct if it reasonably reflects the cost of real estate taxes for your dwelling unit. How can i file my 2012 taxes Refund of real estate taxes. How can i file my 2012 taxes   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. How can i file my 2012 taxes Your deduction for real estate taxes the corporation paid this year is reduced by your share of the refund the corporation received. How can i file my 2012 taxes 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). How can i file my 2012 taxes 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. How can i file my 2012 taxes For information on figuring your deduction, see the Instructions for Schedule A (Form 1040). How can i file my 2012 taxes 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. How can i file my 2012 taxes 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. How can i file my 2012 taxes Most home buyers take out a mortgage (loan) to buy their home. How can i file my 2012 taxes They then make monthly payments to either the mortgage holder or someone collecting the payments for the mortgage holder. How can i file my 2012 taxes 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). How can i file my 2012 taxes 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. How can i file my 2012 taxes If either of these situations applies to you, see Publication 936 for more information. How can i file my 2012 taxes Also see Publication 936 if you later refinance your mortgage or buy a second home. How can i file my 2012 taxes Refund of home mortgage interest. How can i file my 2012 taxes   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. How can i file my 2012 taxes For more information, see Recoveries in Publication 525. How can i file my 2012 taxes The amount of the refund will usually be shown on the mortgage interest statement you receive from your mortgage lender. How can i file my 2012 taxes See Mortgage Interest Statement , later. How can i file my 2012 taxes Deductible Mortgage Interest To be deductible, the interest you pay must be on a loan secured by your main home or a second home. How can i file my 2012 taxes The loan can be a first or second mortgage, a home improvement loan, or a home equity loan. How can i file my 2012 taxes Prepaid interest. How can i file my 2012 taxes   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. How can i file my 2012 taxes Generally, you can deduct in each year only the interest that qualifies as home mortgage interest for that year. How can i file my 2012 taxes An exception (discussed later) applies to points. How can i file my 2012 taxes Late payment charge on mortgage payment. How can i file my 2012 taxes   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. How can i file my 2012 taxes Mortgage prepayment penalty. How can i file my 2012 taxes   If you pay off your home mortgage early, you may have to pay a penalty. How can i file my 2012 taxes 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. How can i file my 2012 taxes Ground rent. How can i file my 2012 taxes   In some states (such as Maryland), you may buy your home subject to a ground rent. How can i file my 2012 taxes A ground rent is an obligation you assume to pay a fixed amount per year on the property. How can i file my 2012 taxes Under this arrangement, you are leasing (rather than buying) the land on which your home is located. How can i file my 2012 taxes Redeemable ground rents. How can i file my 2012 taxes   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct the payments as mortgage interest. How can i file my 2012 taxes The ground rent is a redeemable ground rent only if all of the following are true. How can i file my 2012 taxes Your lease, including renewal periods, is for more than 15 years. How can i file my 2012 taxes You can freely assign the lease. How can i file my 2012 taxes 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. How can i file my 2012 taxes The lessor's interest in the land is primarily a security interest to protect the rental payments to which he or she is entitled. How can i file my 2012 taxes   Payments made to end the lease and buy the lessor's entire interest in the land are not redeemable ground rents. How can i file my 2012 taxes You cannot deduct them. How can i file my 2012 taxes Nonredeemable ground rents. How can i file my 2012 taxes   Payments on a nonredeemable ground rent are not mortgage interest. How can i file my 2012 taxes You can deduct them as rent only if they are a business expense or if they are for rental property. How can i file my 2012 taxes Cooperative apartment. How can i file my 2012 taxes   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 . How can i file my 2012 taxes In addition, you can treat as home mortgage interest your share of the corporation's deductible mortgage interest. How can i file my 2012 taxes 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. How can i file my 2012 taxes For more information on cooperatives, see Special Rule for Tenant-Stockholders in Cooperative Housing Corporations in Publication 936. How can i file my 2012 taxes Refund of cooperative's mortgage interest. How can i file my 2012 taxes   You must reduce your mortgage interest deduction by your share of any cash portion of a patronage dividend that the cooperative receives. How can i file my 2012 taxes The patronage dividend is a partial refund to the cooperative housing corporation of mortgage interest it paid in a prior year. How can i file my 2012 taxes   If you receive a Form 1098 from the cooperative housing corporation, the form should show only the amount you can deduct. How can i file my 2012 taxes Mortgage Interest Paid at Settlement One item that normally appears on a settlement or closing statement is home mortgage interest. How can i file my 2012 taxes You can deduct the interest that you pay at settlement if you itemize your deductions on Schedule A (Form 1040). How can i file my 2012 taxes This amount should be included in the mortgage interest statement provided by your lender. How can i file my 2012 taxes See the discussion under Mortgage Interest Statement , later. How can i file my 2012 taxes Also, if you pay interest in advance, see Prepaid interest , earlier, and Points , next. How can i file my 2012 taxes Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. How can i file my 2012 taxes Points also may be called loan origination fees, maximum loan charges, loan discount, or discount points. How can i file my 2012 taxes A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. How can i file my 2012 taxes See Points paid by the seller , later. How can i file my 2012 taxes General rule. How can i file my 2012 taxes   You cannot deduct the full amount of points in the year paid. How can i file my 2012 taxes They are prepaid interest, so you generally must deduct them over the life (term) of the mortgage. How can i file my 2012 taxes Exception. How can i file my 2012 taxes   You can deduct the full amount of points in the year paid if you meet all the following tests. How can i file my 2012 taxes Your loan is secured by your main home. How can i file my 2012 taxes (Generally, your main home is the one you live in most of the time. How can i file my 2012 taxes ) Paying points is an established business practice in the area where the loan was made. How can i file my 2012 taxes The points paid were not more than the points generally charged in that area. How can i file my 2012 taxes You use the cash method of accounting. How can i file my 2012 taxes This means you report income in the year you receive it and deduct expenses in the year you pay them. How can i file my 2012 taxes Most individuals use this method. How can i file my 2012 taxes 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. How can i file my 2012 taxes The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. How can i file my 2012 taxes The funds you provided are not required to have been applied to the points. How can i file my 2012 taxes They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. How can i file my 2012 taxes You cannot have borrowed these funds. How can i file my 2012 taxes You use your loan to buy or build your main home. How can i file my 2012 taxes The points were computed as a percentage of the principal amount of the mortgage. How can i file my 2012 taxes The amount is clearly shown on the settlement statement (such as the Uniform Settlement Statement, Form HUD-1) as points charged for the mortgage. How can i file my 2012 taxes The points may be shown as paid from either your funds or the seller's. How can i file my 2012 taxes Note. How can i file my 2012 taxes 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. How can i file my 2012 taxes 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. How can i file my 2012 taxes Home improvement loan. How can i file my 2012 taxes   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. How can i file my 2012 taxes Refinanced loan. How can i file my 2012 taxes   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. How can i file my 2012 taxes You can deduct the rest of the points over the life of the loan. How can i file my 2012 taxes Points not fully deductible in year paid. How can i file my 2012 taxes    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. How can i file my 2012 taxes Figure A. How can i file my 2012 taxes   You can use Figure A, next, as a quick guide to see whether your points are fully deductible in the year paid. How can i file my 2012 taxes    Please click here for the text description of the image. How can i file my 2012 taxes Figure A. How can i file my 2012 taxes Are my points fully deductible this year? Amounts charged for services. How can i file my 2012 taxes   Amounts charged by the lender for specific services connected to the loan are not interest. How can i file my 2012 taxes Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. How can i file my 2012 taxes You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. How can i file my 2012 taxes For information about the tax treatment of these amounts and other settlement fees and closing costs, see Basis , later. How can i file my 2012 taxes Points paid by the seller. How can i file my 2012 taxes   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. How can i file my 2012 taxes Treatment by seller. How can i file my 2012 taxes   The seller cannot deduct these fees as interest. How can i file my 2012 taxes However, they are a selling expense that reduces the seller's amount realized. How can i file my 2012 taxes See Publication 523 for more information. How can i file my 2012 taxes Treatment by buyer. How can i file my 2012 taxes   The buyer treats seller-paid points as if he or she had paid them. How can i file my 2012 taxes If all the tests listed earlier under Exception are met, the buyer can deduct the points in the year paid. How can i file my 2012 taxes If any of those tests are not met, the buyer must deduct the points over the life of the loan. How can i file my 2012 taxes   The buyer must also reduce the basis of the home by the amount of the seller-paid points. How can i file my 2012 taxes For more information about the basis of your home, see Basis , later. How can i file my 2012 taxes Funds provided are less than points. How can i file my 2012 taxes   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. How can i file my 2012 taxes In addition, you can deduct any points paid by the seller. How can i file my 2012 taxes Example 1. How can i file my 2012 taxes When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). How can i file my 2012 taxes 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. How can i file my 2012 taxes Of the $1,000 you were charged for points, you can deduct $750 in the year paid. How can i file my 2012 taxes You spread the remaining $250 over the life of the mortgage. How can i file my 2012 taxes Example 2. How can i file my 2012 taxes 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. How can i file my 2012 taxes In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). How can i file my 2012 taxes You spread the remaining $250 over the life of the mortgage. How can i file my 2012 taxes You must reduce the basis of your home by the $1,000 paid by the seller. How can i file my 2012 taxes Excess points. How can i file my 2012 taxes   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. How can i file my 2012 taxes You must spread any additional points over the life of the mortgage. How can i file my 2012 taxes Mortgage ending early. How can i file my 2012 taxes   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. How can i file my 2012 taxes A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. How can i file my 2012 taxes Example. How can i file my 2012 taxes Dan paid $3,000 in points in 2006 that he had to spread out over the 15-year life of the mortgage. How can i file my 2012 taxes He had deducted $1,400 of these points through 2012. How can i file my 2012 taxes Dan prepaid his mortgage in full in 2013. How can i file my 2012 taxes He can deduct the remaining $1,600 of points in 2013. How can i file my 2012 taxes Exception. How can i file my 2012 taxes   If you refinance the mortgage with the same lender, you cannot deduct any remaining points for the year. How can i file my 2012 taxes Instead, deduct them over the term of the new loan. How can i file my 2012 taxes Form 1098. How can i file my 2012 taxes   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. How can i file my 2012 taxes See Mortgage Interest Statement , later. How can i file my 2012 taxes 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). How can i file my 2012 taxes If you did not receive a Form 1098, enter your deductible interest on line 11, and any deductible points on line 12. How can i file my 2012 taxes See Table 1 below for a summary of where to deduct home mortgage interest and real estate taxes. How can i file my 2012 taxes 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. How can i file my 2012 taxes The seller must give you this number and you must give the seller your SSN. How can i file my 2012 taxes Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. How can i file my 2012 taxes Failure to meet either of these requirements may result in a $50 penalty for each failure. How can i file my 2012 taxes Table 1. How can i file my 2012 taxes Where To Deduct Interest and Taxes Paid on Your Home See the text for information on what expenses are eligible. How can i file my 2012 taxes IF you are eligible to deduct . How can i file my 2012 taxes . How can i file my 2012 taxes . How can i file my 2012 taxes THEN report the amount  on Schedule A (Form 1040) . How can i file my 2012 taxes . How can i file my 2012 taxes . How can i file my 2012 taxes real estate taxes line 6. How can i file my 2012 taxes home mortgage interest and points reported on Form 1098 line 10. How can i file my 2012 taxes home mortgage interest not reported on  Form 1098 line 11. How can i file my 2012 taxes points not reported on Form 1098 line 12. How can i file my 2012 taxes qualified mortgage insurance premiums line 13. How can i file my 2012 taxes 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. How can i file my 2012 taxes The statement will show the total interest paid on your mortgage during the year. How can i file my 2012 taxes 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. How can i file my 2012 taxes See Points , earlier. How can i file my 2012 taxes The interest you paid at settlement should be included on the statement. How can i file my 2012 taxes 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. How can i file my 2012 taxes Put the total on Schedule A (Form 1040), line 10, and attach a statement to your return explaining the difference. How can i file my 2012 taxes Write “See attached” to the right of line 10. How can i file my 2012 taxes A mortgage holder can be a financial institution, a governmental unit, or a cooperative housing corporation. How can i file my 2012 taxes If a statement comes from a cooperative housing corporation, it generally will show your share of interest. How can i file my 2012 taxes Your mortgage interest statement for 2013 should be provided or sent to you by January 31, 2014. How can i file my 2012 taxes If it is mailed, you should allow adequate time to receive it before contacting the mortgage holder. How can i file my 2012 taxes A copy of this form will be sent to the IRS also. How can i file my 2012 taxes Example. How can i file my 2012 taxes You bought a new home on May 3. How can i file my 2012 taxes You paid no points on the purchase. How can i file my 2012 taxes During the year, you made mortgage payments which included $4,480 deductible interest on your new home. How can i file my 2012 taxes The settlement sheet for the purchase of the home included interest of $620 for 29 days in May. How can i file my 2012 taxes The mortgage statement you receive from the lender includes total interest of $5,100 ($4,480 + $620). How can i file my 2012 taxes You can deduct the $5,100 if you itemize your deductions. How can i file my 2012 taxes Refund of overpaid interest. How can i file my 2012 taxes   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. How can i file my 2012 taxes Generally, you must include the refund in income in the year you receive it. How can i file my 2012 taxes See Refund of home mortgage interest , earlier, under Home Mortgage Interest. How can i file my 2012 taxes More than one borrower. How can i file my 2012 taxes   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. How can i file my 2012 taxes Show how much of the interest each of you paid, and give the name and address of the person who received the form. How can i file my 2012 taxes Deduct your share of the interest on Schedule A (Form 1040), line 11, and write “See attached” to the right of that line. How can i file my 2012 taxes 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. How can i file my 2012 taxes Mortgage insurance premiums you paid or accrued on any mortgage insurance contract issued before January 1, 2007, are not deductible as an itemized deduction. How can i file my 2012 taxes 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). How can i file my 2012 taxes Prepaid mortgage insurance premiums. How can i file my 2012 taxes   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. How can i file my 2012 taxes The premiums are treated as paid in the year to which they were allocated. How can i file my 2012 taxes If the mortgage is satisfied before its term, no deduction is allowed for the unamortized balance. How can i file my 2012 taxes See Publication 936 for details. How can i file my 2012 taxes Exception for certain mortgage insurance. How can i file my 2012 taxes   The allocation rules, explained above, do not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or Rural Housing Service. How can i file my 2012 taxes 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. How can i file my 2012 taxes It also must be secured by that home. How can i file my 2012 taxes 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. How can i file my 2012 taxes Home acquisition debt limit. How can i file my 2012 taxes   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). How can i file my 2012 taxes Discharges of qualified principal residence indebtedness. How can i file my 2012 taxes   You can exclude from gross income any discharges of qualified principal residence indebtedness made after 2006 and before 2014. How can i file my 2012 taxes You must reduce the basis of your principal residence (but not below zero) by the amount you exclude. How can i file my 2012 taxes Principal residence. How can i file my 2012 taxes   Your principal residence is the home where you ordinarily live most of the time. How can i file my 2012 taxes You can have only one principal residence at any one time. How can i file my 2012 taxes Qualified principal residence indebtedness. How can i file my 2012 taxes   This is a mortgage that you took out to buy, build, or substantially improve your principal residence and that is secured by that residence. How can i file my 2012 taxes 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. How can i file my 2012 taxes   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. How can i file my 2012 taxes Additional debt incurred to substantially improve your principal residence is also qualified principal residence indebtedness. How can i file my 2012 taxes Amount you can exclude. How can i file my 2012 taxes   You can only exclude debt discharged after 2006 and before 2014. How can i file my 2012 taxes The most you can exclude is $2 million ($1 million if married filing separately). How can i file my 2012 taxes 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. How can i file my 2012 taxes Ordering rule. How can i file my 2012 taxes   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. How can i file my 2012 taxes Qualified Home This means your main home or your second home. How can i file my 2012 taxes A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. How can i file my 2012 taxes Main home. How can i file my 2012 taxes   You can have only one main home at any one time. How can i file my 2012 taxes This is the home where you ordinarily live most of the time. How can i file my 2012 taxes Second home and other special situations. How can i file my 2012 taxes   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. How can i file my 2012 taxes 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. How can i file my 2012 taxes 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. How can i file my 2012 taxes If your AGI is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. How can i file my 2012 taxes Form 1098. How can i file my 2012 taxes   The amount of mortgage insurance premiums you paid during 2013 should be reported in box 4. How can i file my 2012 taxes See Form 1098, Mortgage Interest Statement in Publication 936. How can i file my 2012 taxes Mortgage Interest Credit The mortgage interest credit is intended to help lower-income individuals afford home ownership. How can i file my 2012 taxes If you qualify, you can claim the credit on Form 8396 each year for part of the home mortgage interest you pay. How can i file my 2012 taxes Who qualifies. How can i file my 2012 taxes   You may be eligible for the credit if you were issued a qualified Mortgage Credit Certificate (MCC) from your state or local government. How can i file my 2012 taxes Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home. How can i file my 2012 taxes The MCC will show the certificate credit rate you will use to figure your credit. How can i file my 2012 taxes It also will show the certified indebtedness amount. How can i file my 2012 taxes Only the interest on that amount qualifies for the credit. How can i file my 2012 taxes See Figuring the Credit , later. How can i file my 2012 taxes You must contact the appropriate government agency about getting an MCC before you get a mortgage and buy your home. How can i file my 2012 taxes Contact your state or local housing finance agency for information about the availability of MCCs in your area. How can i file my 2012 taxes How to claim the credit. How can i file my 2012 taxes   To claim the credit, complete Form 8396 and attach it to your Form 1040 or Form 1040NR, U. How can i file my 2012 taxes S. How can i file my 2012 taxes Nonresident Alien Income Tax Return. How can i file my 2012 taxes 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. How can i file my 2012 taxes Reducing your home mortgage interest deduction. How can i file my 2012 taxes   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. How can i file my 2012 taxes You must do this even if part of that amount is to be carried forward to 2014. How can i file my 2012 taxes Selling your home. How can i file my 2012 taxes   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. How can i file my 2012 taxes For additional information, see Recapturing (Paying Back) a Federal Mortgage Subsidy, in Publication 523. How can i file my 2012 taxes Figuring the Credit Figure your credit on Form 8396. How can i file my 2012 taxes Mortgage not more than certified indebtedness. How can i file my 2012 taxes   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. How can i file my 2012 taxes Mortgage more than certified indebtedness. How can i file my 2012 taxes   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. How can i file my 2012 taxes 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. How can i file my 2012 taxes 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. How can i file my 2012 taxes Example. How can i file my 2012 taxes Emily bought a home this year. How can i file my 2012 taxes Her mortgage loan is $125,000. How can i file my 2012 taxes The certified indebtedness amount on her MCC is $100,000. How can i file my 2012 taxes She paid $7,500 interest this year. How can i file my 2012 taxes Emily figures the interest to enter on Form 8396, line 1, as follows:   $100,000 = 80% (. How can i file my 2012 taxes 80)       $125,000       $7,500 x . How can i file my 2012 taxes 80 = $6,000   Emily enters $6,000 on Form 8396, line 1. How can i file my 2012 taxes In each later year, she will figure her credit using only 80% of the interest she pays for that year. How can i file my 2012 taxes Limits Two limits may apply to your credit. How can i file my 2012 taxes A limit based on the credit rate, and A limit based on your tax. How can i file my 2012 taxes Limit based on credit rate. How can i file my 2012 taxes   If the certificate credit rate is higher than 20%, the credit you are allowed cannot be more than $2,000. How can i file my 2012 taxes Limit based on tax. How can i file my 2012 taxes   After applying the limit based on the credit rate, your credit generally cannot be more than your tax liability. How can i file my 2012 taxes See the Credit Limit Worksheet in the Form 8396 instructions to calculate the limit based on tax. How can i file my 2012 taxes 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. How can i file my 2012 taxes Example. How can i file my 2012 taxes John and his brother, George, were issued an MCC. How can i file my 2012 taxes They used it to get a mortgage on their main home. How can i file my 2012 taxes John has a 60% ownership interest in the home, and George has a 40% ownership interest in the home. How can i file my 2012 taxes John paid $5,400 mortgage interest this year and George paid $3,600. How can i file my 2012 taxes The MCC shows a credit rate of 25% and a certified indebtedness amount of $130,000. How can i file my 2012 taxes The loan amount (mortgage) on their home is $120,000. How can i file my 2012 taxes The credit is limited to $2,000 because the credit rate is more than 20%. How can i file my 2012 taxes 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. How can i file my 2012 taxes His credit is limited to $1,200 ($2,000 × 60%). How can i file my 2012 taxes 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. How can i file my 2012 taxes His credit is limited to $800 ($2,000 × 40%). How can i file my 2012 taxes 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. How can i file my 2012 taxes Example. How can i file my 2012 taxes You receive a mortgage credit certificate from State X. How can i file my 2012 taxes This year, your regular tax liability is $1,100, you owe no alternative minimum tax, and your mortgage interest credit is $1,700. How can i file my 2012 taxes You claim no other credits. How can i file my 2012 taxes Your unused mortgage interest credit for this year is $600 ($1,700 − $1,100). How can i file my 2012 taxes You can carry forward this amount to the next 3 years or until used, whichever comes first. How can i file my 2012 taxes Credit rate more than 20%. How can i file my 2012 taxes   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). How can i file my 2012 taxes Example. How can i file my 2012 taxes In the earlier example under Dividing the Credit , John and George used the entire $2,000 credit. How can i file my 2012 taxes 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. How can i file my 2012 taxes 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. How can i file my 2012 taxes The amount of credit you can claim on the new loan may change. How can i file my 2012 taxes Table 2 below summarizes how to figure your credit if you refinance your original mortgage loan. How can i file my 2012 taxes Table 2. How can i file my 2012 taxes Effect of Refinancing on Your Credit IF you get a new (reissued) MCC and the amount of your new mortgage is . How can i file my 2012 taxes . How can i file my 2012 taxes . How can i file my 2012 taxes THEN the interest you claim on Form 8396, line 1, is* . How can i file my 2012 taxes . How can i file my 2012 taxes . How can i file my 2012 taxes smaller than or equal to the certified indebtedness amount on the new MCC all the interest paid during the year on your new mortgage. How can i file my 2012 taxes larger than the certified indebtedness amount on the new MCC interest paid during the year on your new mortgage multiplied by the following fraction. How can i file my 2012 taxes         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. How can i file my 2012 taxes  See New MCC cannot increase your credit above. How can i file my 2012 taxes An issuer may reissue an MCC after you refinance your mortgage. How can i file my 2012 taxes 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. How can i file my 2012 taxes Year of refinancing. How can i file my 2012 taxes   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. How can i file my 2012 taxes   If your new MCC has a credit rate different from the rate on the old MCC, you must attach a statement to Form 8396. How can i file my 2012 taxes 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. How can i file my 2012 taxes It must show a separate calculation for the part of the year when the new MCC was in effect. How can i file my 2012 taxes 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. How can i file my 2012 taxes New MCC cannot increase your credit. How can i file my 2012 taxes   The credit that you claim with your new MCC cannot be more than the credit that you could have claimed with your old MCC. How can i file my 2012 taxes   In most cases, the agency that issues your new MCC will make sure that it does not increase your credit. How can i file my 2012 taxes However, if either your old loan or your new loan has a variable (adjustable) interest rate, you will need to check this yourself. How can i file my 2012 taxes In that case, you will need to know the amount of the credit you could have claimed using the old MCC. How can i file my 2012 taxes   There are two methods for figuring the credit you could have claimed. How can i file my 2012 taxes Under one method, you figure the actual credit that would have been allowed. How can i file my 2012 taxes This means you use the credit rate on the old MCC and the interest you would have paid on the old loan. How can i file my 2012 taxes   If your old loan was a variable rate mortgage, you can use another method to determine the credit that you could have claimed. How can i file my 2012 taxes 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. How can i file my 2012 taxes 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. How can i file my 2012 taxes The principal of the hypothetical mortgage is the remaining outstanding balance of the certified mortgage indebtedness shown on the old MCC. How can i file my 2012 taxes    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. How can i file my 2012 taxes    As part of your tax records, you should keep your old MCC and the schedule of payments for your old mortgage. How can i file my 2012 taxes 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. How can i file my 2012 taxes While you own your home, you may add certain items to your basis. How can i file my 2012 taxes You may subtract certain other items from your basis. How can i file my 2012 taxes These items are called adjustments to basis and are explained later under Adjusted Basis . How can i file my 2012 taxes 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. How can i file my 2012 taxes You also must keep records of the events that affect basis or adjusted basis. How can i file my 2012 taxes See Keeping Records , below. How can i file my 2012 taxes Figuring Your Basis How you figure your basis depends on how you acquire your home. How can i file my 2012 taxes If you buy or build your home, your cost is your basis. How can i file my 2012 taxes 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. How can i file my 2012 taxes If you inherit your home from a decedent, different rules apply depending on the date of the decedent's death. How can i file my 2012 taxes Each of these topics is discussed later. How can i file my 2012 taxes Property transferred from a spouse. How can i file my 2012 taxes   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. How can i file my 2012 taxes Publication 504, Divorced or Separated Individuals, fully discusses transfers between spouses. How can i file my 2012 taxes 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. How can i file my 2012 taxes The cost of your home includes most settlement or closing costs you paid when you bought the home. How can i file my 2012 taxes If you built your home, your cost includes most closing costs paid when you bought the land or settled on your mortgage. How can i file my 2012 taxes See Settlement or closing costs , later. How can i file my 2012 taxes 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. How can i file my 2012 taxes Purchase. How can i file my 2012 taxes   The basis of a home you bought is the amount you paid for it. How can i file my 2012 taxes This usually includes your down payment and any debt you assumed. How can i file my 2012 taxes The basis of a cooperative apartment is the amount you paid for your shares in the corporation that owns or controls the property. How can i file my 2012 taxes This amount includes any purchase commissions or other costs of acquiring the shares. How can i file my 2012 taxes Construction. How can i file my 2012 taxes   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. How can i file my 2012 taxes 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. How can i file my 2012 taxes If you built all or part of your home yourself, your basis is the total amount it cost you to build it. How can i file my 2012 taxes You cannot include in basis the value of your own labor or any other labor for which you did not pay. How can i file my 2012 taxes Real estate taxes. How can i file my 2012 taxes   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. How can i file my 2012 taxes 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. How can i file my 2012 taxes   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. How can i file my 2012 taxes You cannot deduct them as taxes paid. How can i file my 2012 taxes   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. How can i file my 2012 taxes Do not include those taxes in your basis. How can i file my 2012 taxes If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. How can i file my 2012 taxes Example 1. How can i file my 2012 taxes You bought your home on September 1. How can i file my 2012 taxes The property tax year in your area is the calendar year, and the tax is due on August 15. How can i file my 2012 taxes 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. How can i file my 2012 taxes You did not reimburse the seller for your share of the real estate taxes from September 1 through December 31. How can i file my 2012 taxes You must reduce the basis of your home by the $426 [(122 ÷ 365) × $1,275] the seller paid for you. How can i file my 2012 taxes You can deduct your $426 share of real estate taxes on your return for the year you purchased your home. How can i file my 2012 taxes Example 2. How can i file my 2012 taxes You bought your home on May 3, 2013. How can i file my 2012 taxes The property tax year in your area is the calendar year. How can i file my 2012 taxes The taxes for the previous year are assessed on January 2 and are due on May 31 and November 30. How can i file my 2012 taxes Under state law, the taxes become a lien on May 31. How can i file my 2012 taxes You agreed to pay all taxes due after the date of sale. How can i file my 2012 taxes The taxes due in 2013 for 2012 were $1,375. How can i file my 2012 taxes The taxes due in 2014 for 2013 will be $1,425. How can i file my 2012 taxes 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. How can i file my 2012 taxes Instead, you add the $1,375 to the cost (basis) of your home. How can i file my 2012 taxes 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. How can i file my 2012 taxes You add the remaining $476 ($1,425 − $949) of taxes paid in 2014 to the cost (basis) of your home. How can i file my 2012 taxes Settlement or closing costs. How can i file my 2012 taxes   If you bought your home, you probably paid settlement or closing costs in addition to the contract price. How can i file my 2012 taxes These costs are divided between you and the seller according to the sales contract, local custom, or understanding of the parties. How can i file my 2012 taxes If you built your home, you probably paid these costs when you bought the land or settled on your mortgage. How can i file my 2012 taxes   The only settlement or closing costs you can deduct are home mortgage interest and certain real estate taxes. How can i file my 2012 taxes You deduct them in the year you buy your home if you itemize your deductions. How can i file my 2012 taxes You can add certain other settlement or closing costs to the basis of your home. How can i file my 2012 taxes Items added to basis. How can i file my 2012 taxes   You can include in your basis the settlement fees and closing costs you paid for buying your home. How can i file my 2012 taxes A fee is for buying the home if you would have had to pay it even if you paid cash for the home. How can i file my 2012 taxes   The following are some of the settlement fees and closing costs that you can include in the original basis of your home. How can i file my 2012 taxes Abstract fees (abstract of title fees). How can i file my 2012 taxes Charges for installing utility services. How can i file my 2012 taxes Legal fees (including fees for the title search and preparation of the sales contract and deed). How can i file my 2012 taxes Recording fees. How can i file my 2012 taxes Surveys. How can i file my 2012 taxes Transfer or stamp taxes. How can i file my 2012 taxes Owner's title insurance. How can i file my 2012 taxes 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. How can i file my 2012 taxes   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. How can i file my 2012 taxes Items not added to basis and not deductible. How can i file my 2012 taxes   Here are some settlement and closing costs that you cannot deduct or add to your basis. How can i file my 2012 taxes Fire insurance premiums. How can i file my 2012 taxes Charges for using utilities or other services related to occupancy of the home before closing. How can i file my 2012 taxes Rent for occupying the home before closing. How can i file my 2012 taxes 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. How can i file my 2012 taxes Points paid by seller. How can i file my 2012 taxes   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. How can i file my 2012 taxes   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. How can i file my 2012 taxes See Points , earlier, for the rules on deducting points. How can i file my 2012 taxes 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. How can i file my 2012 taxes Fair market value. How can i file my 2012 taxes   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. How can i file my 2012 taxes Donor's adjusted basis is more than FMV. How can i file my 2012 taxes   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. How can i file my 2012 taxes Disposition basis. How can i file my 2012 taxes   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. How can i file my 2012 taxes Your basis for figuring a gain is the same as the donor's adjusted basis. How can i file my 2012 taxes Your basis for figuring a loss is the FMV when you received the gift. How can i file my 2012 taxes 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. How can i file my 2012 taxes However, if using the FMV results in a gain, then you neither have a gain nor a loss. How can i file my 2012 taxes Example 1. How can i file my 2012 taxes Andrew received a house as a gift from Ishmael (the donor). How can i file my 2012 taxes At the time of the gift, the home had an FMV of $80,000. How can i file my 2012 taxes Ishmael's adjusted basis was $100,000. How can i file my 2012 taxes After he received the house, no events occurred to increase or decrease the basis. How can i file my 2012 taxes 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. How can i file my 2012 taxes Example 2. How can i file my 2012 taxes Same facts as Example 1 , except this time Andrew sells the house for $70,000. How can i file my 2012 taxes 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. How can i file my 2012 taxes Example 3. How can i file my 2012 taxes Same facts as Example 1 , except this time Andrew sells the house for $90,000. How can i file my 2012 taxes Initially, he figures the gain using Ishmael's adjusted basis ($100,000), which results in a loss of $10,000. How can i file my 2012 taxes Since it is a loss, Andrew must now recalculate the loss using the FMV ($80,000), which results in a gain of $10,000. How can i file my 2012 taxes So in this situation, Andrew will neither have a gain nor a loss. How can i file my 2012 taxes Donor's adjusted basis equal to or less than the FMV. How can i file my 2012 taxes   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. How can i file my 2012 taxes Part of federal gift tax due to net increase in value. How can i file my 2012 taxes   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. How can i file my 2012 taxes 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. How can i file my 2012 taxes The net increase in the value of the home is its FMV minus the adjusted basis of the donor. How can i file my 2012 taxes Publication 551 gives more information, including examples, on figuring your basis when you receive property as a gift. How can i file my 2012 taxes 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. How can i file my 2012 taxes If an estate tax return was filed, your basis is generally the value of the home listed on the estate tax return. How can i file my 2012 taxes 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. How can i file my 2012 taxes Publication 551 and Publication 559, Survivors, Executors, and Administrators, have more information on the basis of inherited property. How can i file my 2012 taxes 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. How can i file my 2012 taxes Adjusted Basis While you own your home, various events may take place that can change the original basis of your home. How can i file my 2012 taxes These events can increase or decrease your original basis. How can i file my 2012 taxes The result is called adjusted basis. How can i file my 2012 taxes See Table 3, on this page, for a list of some of the items that can adjust your basis. How can i file my 2012 taxes Table 3. How can i file my 2012 taxes Adjusted Basis This table lists examples of some items that generally will increase or decrease your basis in your home. How can i file my 2012 taxes It is not intended to be all-inclusive. How can i file my 2012 taxes 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. How can i file my 2012 taxes   An improvement materially adds to the value of your home, considerably prolongs its useful life, or adapts it to new uses. How can i file my 2012 taxes You must add the cost of any improvements to the basis of your home. How can i file my 2012 taxes You cannot deduct these costs. How can i file my 2012 taxes   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. How can i file my 2012 taxes Amount added to basis. How can i file my 2012 taxes   The amount you add to your basis for improvements is your actual cost. How can i file my 2012 taxes This includes all costs for material and labor, except your own labor, and all expenses related to the improvement. How can i file my 2012 taxes 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. How can i file my 2012 taxes   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. How can i file my 2012 taxes These assessments are discussed earlier under Real Estate Taxes . How can i file my 2012 taxes Improvements no longer part of home. How can i file my 2012 taxes    Your home's adjusted basis does not include the cost of any improvements that are replaced and are no longer part of the home. How can i file my 2012 taxes Example. How can i file my 2012 taxes You put wall-to-wall carpeting in your home 15 years ago. How can i file my 2012 taxes Later, you replaced that carpeting with new wall-to-wall carpeting. How can i file my 2012 taxes The cost of the old carpeting you replaced is no longer part of your home's adjusted basis. How can i file my 2012 taxes Repairs versus improvements. How can i file my 2012 taxes   A repair keeps your home in an ordinary, efficient operating condition. How can i file my 2012 taxes It does not add to the value of your home or prolong its life. How can i file my 2012 taxes Repairs include repainting your home inside or outside, fixing your gutters or floors, fixing leaks or plastering, and replacing broken window panes. How can i file my 2012 taxes You cannot deduct repair costs and generally cannot add them to the basis of your home. How can i file my 2012 taxes   However, repairs that are done as part of an extensive remodeling or restoration of your home are considered improvements. How can i file my 2012 taxes You add them to the basis of your home. How can i file my 2012 taxes Records to keep. How can i file my 2012 taxes   You can use Table 4 (at the end of the publication) as a guide to help you keep track of improvements to your home. How can i file my 2012 taxes Also see Keeping Records , below. How can i file my 2012 taxes Energy conservation subsidy. How can i file my 2012 taxes   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. How can i file my 2012 taxes You must reduce the basis of your home by that value. How can i file my 2012 taxes   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. How can i file my 2012 taxes 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. How can i file my 2012 taxes 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. How can i file my 2012 taxes You should keep any receipts, canceled checks, and similar evidence for improvements or other additions to the basis. How can i file my 2012 taxes In addition, you should keep track of any decreases to the basis such as those listed in Table 3, earlier. How can i file my 2012 taxes How to keep records. How can i file my 2012 taxes   How you keep records is up to you, but they must be clear and accurate and must be available to the IRS. How can i file my 2012 taxes How long to keep records. How can i file my 2012 taxes   You must keep your records for as long as they are important for meeting any provision of the federal tax law. How can i file my 2012 taxes   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. How can i file my 2012 taxes (A period of limitations is the period of time after which no legal action can be brought. How can i file my 2012 taxes ) For assessment of tax you owe, this is generally 3 years from the date you filed the return. How can i file my 2012 taxes 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. How can i file my 2012 taxes Returns filed before the due date are treated as filed on the due date. How can i file my 2012 taxes   You may need to keep records relating to the basis of property (discussed earlier) for longer than the period of limitations. How can i file my 2012 taxes Keep those records as long as they are important in figuring the basis of the original or replacement property. How can i file my 2012 taxes 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. How can i file my 2012 taxes Table 4. How can i file my 2012 taxes Record of Home Improvements Keep this for your records. How can i file my 2012 taxes Also, keep receipts or other proof of improvements. How can i file my 2012 taxes Remove from this record any improvements that are no longer part of your main home. How can i file my 2012 taxes 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. How can i file my 2012 taxes (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