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Irse File

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Irse File

Irse file Publication 587 - Main Content Table of Contents Qualifying for a DeductionExclusive Use Regular Use Trade or Business Use Principal Place of Business Place To Meet Patients, Clients, or Customers Separate Structure Figuring the DeductionUsing Actual Expenses Using the Simplified Method Daycare Facility Standard meal and snack rates. Irse file Sale or Exchange of Your HomeGain on Sale Depreciation Basis Adjustment Reporting the Sale More Information Business Furniture and EquipmentListed Property Property Bought for Business Use Personal Property Converted to Business Use Recordkeeping Where To DeductSelf-Employed Persons Employees Partners How To Get Tax HelpLow Income Taxpayer Clinics Worksheet To Figure the Deduction for Business Use of Your HomeInstructions for the Worksheet Worksheets To Figure the Deduction for Business Use of Your Home (Simplified Method) Instructions for the Simplified Method Worksheet Instructions for the Daycare Facility Worksheet Instructions for the Area Adjustment Worksheet Qualifying for a Deduction Generally, you cannot deduct items related to your home, such as mortgage interest, real estate taxes, utilities, maintenance, rent, depreciation, or property insurance, as business expenses. Irse file However, you may be able to deduct expenses related to the business use of part of your home if you meet specific requirements. Irse file Even then, the deductible amount of these types of expenses may be limited. Irse file Use this section and Figure A, later, to decide if you can deduct expenses for the business use of your home. Irse file To qualify to deduct expenses for business use of your home, you must use part of your home: Exclusively and regularly as your principal place of business (defined later), Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, In the case of a separate structure which is not attached to your home, in connection with your trade or business, On a regular basis for certain storage use (see Storage of inventory or product samples , later), For rental use (see Publication 527), or As a daycare facility (see Daycare Facility , later). Irse file Additional tests for employee use. Irse file   If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. Irse file You must meet the tests discussed earlier plus: Your business use must be for the convenience of your employer, and You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer. Irse file If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home. Irse file Exclusive Use To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Irse file The area used for business can be a room or other separately identifiable space. Irse file The space does not need to be marked off by a permanent partition. Irse file You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Irse file Example. Irse file You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. Irse file Your family also uses the den for recreation. Irse file The den is not used exclusively in your trade or business, so you cannot claim a deduction for the business use of the den. Irse file Exceptions to Exclusive Use You do not have to meet the exclusive use test if either of the following applies. Irse file You use part of your home for the storage of inventory or product samples (discussed next). Irse file You use part of your home as a daycare facility, discussed later under Daycare Facility . Irse file Note. Irse file With the exception of these two uses, any portion of the home used for business purposes must meet the exclusive use test. Irse file Storage of inventory or product samples. Irse file    If you use part of your home for storage of inventory or product samples, you can deduct expenses for the business use of your home without meeting the exclusive use test. Irse file However, you must meet all the following tests. Irse file You sell products at wholesale or retail as your trade or business. Irse file You keep the inventory or product samples in your home for use in your trade or business. Irse file Your home is the only fixed location of your trade or business. Irse file You use the storage space on a regular basis. Irse file The space you use is a separately identifiable space suitable for storage. Irse file Example. Irse file Your home is the only fixed location of your business of selling mechanics' tools at retail. Irse file You regularly use half of your basement for storage of inventory and product samples. Irse file You sometimes use the area for personal purposes. Irse file The expenses for the storage space are deductible even though you do not use this part of your basement exclusively for business. Irse file Regular Use To qualify under the regular use test, you must use a specific area of your home for business on a regular basis. Irse file Incidental or occasional business use is not regular use. Irse file You must consider all facts and circumstances in determining whether your use is on a regular basis. Irse file Trade or Business Use To qualify under the trade-or-business-use test, you must use part of your home in connection with a trade or business. Irse file If you use your home for a profit-seeking activity that is not a trade or business, you cannot take a deduction for its business use. Irse file Example. Irse file You use part of your home exclusively and regularly to read financial periodicals and reports, clip bond coupons, and carry out similar activities related to your own investments. Irse file You do not make investments as a broker or dealer. Irse file So, your activities are not part of a trade or business and you cannot take a deduction for the business use of your home. Irse file Principal Place of Business You can have more than one business location, including your home, for a single trade or business. Irse file To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that trade or business. Irse file To determine whether your home is your principal place of business, you must consider: The relative importance of the activities performed at each place where you conduct business, and The amount of time spent at each place where you conduct business. Irse file Your home office will qualify as your principal place of business if you meet the following requirements. Irse file You use it exclusively and regularly for administrative or management activities of your trade or business. Irse file You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Irse file If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Irse file However, see the later discussions under Place To Meet Patients, Clients, or Customers and Separate Structure for other ways to qualify to deduct home office expenses. Irse file Administrative or management activities. Irse file   There are many activities that are administrative or managerial in nature. Irse file The following are a few examples. Irse file Billing customers, clients, or patients. Irse file Keeping books and records. Irse file Ordering supplies. Irse file Setting up appointments. Irse file Forwarding orders or writing reports. Irse file Administrative or management activities performed at other locations. Irse file   The following activities performed by you or others will not disqualify your home office from being your principal place of business. Irse file You have others conduct your administrative or management activities at locations other than your home. Irse file (For example, another company does your billing from its place of business. Irse file ) You conduct administrative or management activities at places that are not fixed locations of your business, such as in a car or a hotel room. Irse file You occasionally conduct minimal administrative or management activities at a fixed location outside your home. Irse file You conduct substantial nonadministrative or nonmanagement business activities at a fixed location outside your home. Irse file (For example, you meet with or provide services to customers, clients, or patients at a fixed location of the business outside your home. Irse file ) You have suitable space to conduct administrative or management activities outside your home, but choose to use your home office for those activities instead. Irse file Please click here for the text description of the image. Irse file Can you deduct business use of the home expenses? Example 1. Irse file John is a self-employed plumber. Irse file Most of John's time is spent at customers' homes and offices installing and repairing plumbing. Irse file He has a small office in his home that he uses exclusively and regularly for the administrative or management activities of his business, such as phoning customers, ordering supplies, and keeping his books. Irse file John writes up estimates and records of work completed at his customers' premises. Irse file He does not conduct any substantial administrative or management activities at any fixed location other than his home office. Irse file John does not do his own billing. Irse file He uses a local bookkeeping service to bill his customers. Irse file John's home office qualifies as his principal place of business for deducting expenses for its use. Irse file He uses the home office for the administrative or managerial activities of his plumbing business and he has no other fixed location where he conducts these administrative or managerial activities. Irse file His choice to have his billing done by another company does not disqualify his home office from being his principal place of business. Irse file He meets all the qualifications, including principal place of business, so he can deduct expenses (subject to certain limitations, explained later) for the business use of his home. Irse file Example 2. Irse file Pamela is a self-employed sales representative for several different product lines. Irse file She has an office in her home that she uses exclusively and regularly to set up appointments and write up orders and other reports for the companies whose products she sells. Irse file She occasionally writes up orders and sets up appointments from her hotel room when she is away on business overnight. Irse file Pamela's business is selling products to customers at various locations throughout her territory. Irse file To make these sales, she regularly visits customers to explain the available products and take orders. Irse file Pamela's home office qualifies as her principal place of business for deducting expenses for its use. Irse file She conducts administrative or management activities there and she has no other fixed location where she conducts substantial administrative or management activities. Irse file The fact that she conducts some administrative or management activities in her hotel room (not a fixed location) does not disqualify her home office from being her principal place of business. Irse file She meets all the qualifications, including principal place of business, so she can deduct expenses (subject to certain limitations, explained later) for the business use of her home. Irse file Example 3. Irse file Paul is a self-employed anesthesiologist. Irse file He spends the majority of his time administering anesthesia and postoperative care in three local hospitals. Irse file One of the hospitals provides him with a small shared office where he could conduct administrative or management activities. Irse file Paul very rarely uses the office the hospital provides. Irse file He uses a room in his home that he has converted to an office. Irse file He uses this room exclusively and regularly to conduct all the following activities. Irse file Contacting patients, surgeons, and hospitals regarding scheduling. Irse file Preparing for treatments and presentations. Irse file Maintaining billing records and patient logs. Irse file Satisfying continuing medical education requirements. Irse file Reading medical journals and books. Irse file Paul's home office qualifies as his principal place of business for deducting expenses for its use. Irse file He conducts administrative or management activities for his business as an anesthesiologist there and he has no other fixed location where he conducts substantial administrative or management activities for this business. Irse file His choice to use his home office instead of the one provided by the hospital does not disqualify his home office from being his principal place of business. Irse file His performance of substantial nonadministrative or nonmanagement activities at fixed locations outside his home also does not disqualify his home office from being his principal place of business. Irse file He meets all the qualifications, including principal place of business, so he can deduct expenses (subject to certain limitations, explained later) for the business use of his home. Irse file Example 4. Irse file Kathleen is employed as a teacher. Irse file She is required to teach and meet with students at the school and to grade papers and tests. Irse file The school provides her with a small office where she can work on her lesson plans, grade papers and tests, and meet with parents and students. Irse file The school does not require her to work at home. Irse file Kathleen prefers to use the office she has set up in her home and does not use the one provided by the school. Irse file She uses this home office exclusively and regularly for the administrative duties of her teaching job. Irse file Kathleen must meet the convenience-of-the-employer test, even if her home qualifies as her principal place of business for deducting expenses for its use. Irse file Her employer provides her with an office and does not require her to work at home, so she does not meet the convenience-of-the-employer test and cannot claim a deduction for the business use of her home. Irse file More Than One Trade or Business The same home office can be the principal place of business for two or more separate business activities. Irse file Whether your home office is the principal place of business for more than one business activity must be determined separately for each of your trade or business activities. Irse file You must use the home office exclusively and regularly for one or more of the following purposes. Irse file As the principal place of business for one or more of your trades or businesses. Irse file As a place to meet or deal with patients, clients, or customers in the normal course of one or more of your trades or businesses. Irse file If your home office is a separate structure, in connection with one or more of your trades or businesses. Irse file You can use your home office for more than one business activity, but you cannot use it for any nonbusiness (i. Irse file e. Irse file , personal) activities. Irse file If you are an employee, any use of the home office in connection with your employment must be for the convenience of your employer. Irse file See Rental to employer , later, if you rent part of your home to your employer. Irse file Example. Irse file Tracy White is employed as a teacher. Irse file Her principal place of work is the school, which provides her office space to do her school work. Irse file She also has a mail order jewelry business. Irse file All her work in the jewelry business is done in her home office and the office is used exclusively for that business. Irse file If she meets all the other tests, she can deduct expenses for the business use of her home for the jewelry business. Irse file If Tracy also uses the office for work related to her teaching, she must meet the exclusive use test for both businesses to qualify for the deduction. Irse file As an employee, Tracy must also meet the convenience-of-the-employer test to qualify for the deduction. Irse file She does not meet this test for her work as a teacher, so she cannot claim a deduction for the business use of her home for either activity. Irse file Place To Meet Patients, Clients, or Customers If you meet or deal with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business if you meet both the following tests. Irse file You physically meet with patients, clients, or customers on your premises. Irse file Their use of your home is substantial and integral to the conduct of your business. Irse file Doctors, dentists, attorneys, and other professionals who maintain offices in their homes generally will meet this requirement. Irse file Using your home for occasional meetings and telephone calls will not qualify you to deduct expenses for the business use of your home. Irse file The part of your home you use exclusively and regularly to meet patients, clients, or customers does not have to be your principal place of business. Irse file Example. Irse file June Quill, a self-employed attorney, works 3 days a week in her city office. Irse file She works 2 days a week in her home office used only for business. Irse file She regularly meets clients there. Irse file Her home office qualifies for a business deduction because she meets clients there in the normal course of her business. Irse file Separate Structure You can deduct expenses for a separate free-standing structure, such as a studio, workshop, garage, or barn, if you use it exclusively and regularly for your business. Irse file The structure does not have to be your principal place of business or a place where you meet patients, clients, or customers. Irse file Example. Irse file John Berry operates a floral shop in town. Irse file He grows the plants for his shop in a greenhouse behind his home. Irse file He uses the greenhouse exclusively and regularly in his business, so he can deduct the expenses for its use, subject to certain limitations, explained later. Irse file Figuring the Deduction After you determine that you meet the tests under Qualifying for a Deduction , you can begin to figure how much you can deduct. Irse file When figuring the amount you can deduct for the business use of your home, you will use either your actual expenses or a simplified method. Irse file Electing to use the simplified method. Irse file   The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Irse file You choose whether or not to figure your deduction using the simplified method each taxable year. Irse file See Using the Simplified Method , later. Irse file Rental to employer. Irse file   If you rent part of your home to your employer and you use the rented part in performing services for your employer as an employee, your deduction for the business use of your home is limited. Irse file You can deduct mortgage interest, qualified mortgage insurance premiums, real estate taxes, and personal casualty losses for the rented part, subject to any limitations. Irse file However, you cannot deduct otherwise allowable trade or business expenses, business casualty losses, or depreciation related to the use of your home (or use the simplified method as an alternative to deducting these actual expenses) in performing services for your employer. Irse file Using Actual Expenses If you do not or cannot elect to use the simplified method for a home, you will figure your deduction for that home using your actual expenses. Irse file You will also need to figure the percentage of your home used for business and the limit on the deduction. Irse file If you are an employee or a partner, or you use your home in your farming business and you file Schedule F (Form 1040), you can use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication, to help you figure your deduction. Irse file If you use your home in a trade or business and you file Schedule C (Form 1040), you will use Form 8829 to figure your deduction. Irse file Part-year use. Irse file   You cannot deduct expenses for the business use of your home incurred during any part of the year you did not use your home for business purposes. Irse file For example, if you begin using part of your home for business on July 1, and you meet all the tests from that date until the end of the year, consider only your expenses for the last half of the year in figuring your allowable deduction. Irse file Expenses related to tax-exempt income. Irse file   Generally, you cannot deduct expenses that are related to tax-exempt allowances. Irse file However, if you receive a tax-exempt parsonage allowance or a tax-exempt military allowance, your expenses for mortgage interest and real estate taxes are deductible under the normal rules. Irse file No deduction is allowed for other expenses related to the tax-exempt allowance. Irse file   If your housing is provided free of charge and the value of the housing is tax exempt, you cannot deduct the rental value of any portion of the housing. Irse file Actual Expenses You must divide the expenses of operating your home between personal and business use. Irse file The part of a home operating expense you can use to figure your deduction depends on both of the following. Irse file Whether the expense is direct, indirect, or unrelated. Irse file The percentage of your home used for business. Irse file Table 1, next, describes the types of expenses you may have and the extent to which they are deductible. Irse file Table 1. Irse file Types of Expenses  Expense  Description  Deductibility Direct Expenses only for  the business part  of your home. Irse file Deductible in full. Irse file *   Examples:  Painting or repairs  only in the area  used for business. Irse file Exception: May be only partially  deductible in a daycare facility. Irse file See Daycare Facility , later. Irse file Indirect Expenses for  keeping up and running your  entire home. Irse file Deductible based on the percentage of your home used for business. Irse file *   Examples:  Insurance, utilities, and  general repairs. Irse file   Unrelated Expenses only for  the parts of your  home not used  for business. Irse file Not deductible. Irse file   Examples:  Lawn care or painting  a room not used  for business. Irse file   *Subject to the deduction limit, discussed later. Irse file Form 8829 and the Worksheet To Figure the Deduction for Business Use of Your Home have separate columns for direct and indirect expenses. Irse file Certain expenses are deductible whether or not you use your home for business. Irse file If you qualify to deduct business use of the home expenses, use the business percentage of these expenses to figure your total business use of the home deduction. Irse file These expenses include the following. Irse file Real estate taxes. Irse file Qualified mortgage insurance premiums. Irse file Deductible mortgage interest. Irse file Casualty losses. Irse file Other expenses are deductible only if you use your home for business. Irse file You can use the business percentage of these expenses to figure your total business use of the home deduction. Irse file These expenses generally include (but are not limited to) the following. Irse file Depreciation (covered under Depreciating Your Home , later). Irse file Insurance. Irse file Rent paid for the use of property you do not own but use in your trade or business. Irse file Repairs. Irse file Security system. Irse file Utilities and services. Irse file Real estate taxes. Irse file   To figure the business part of your real estate taxes, multiply the real estate taxes paid by the percentage of your home used for business. Irse file   For more information on the deduction for real estate taxes, see Publication 530, Tax Information for Homeowners. Irse file Deductible mortgage interest. Irse file   To figure the business part of your deductible mortgage interest, multiply this interest by the percentage of your home used for business. Irse file You can include interest on a second mortgage in this computation. Irse file If your total mortgage debt is more than $1,000,000 or your home equity debt is more than $100,000, your deduction may be limited. Irse file For more information on what interest is deductible, see Publication 936, Home Mortgage Interest Deduction. Irse file Qualified mortgage insurance premiums. Irse file   To figure the business part of your qualified mortgage insurance premiums, multiply the premiums by the percentage of your home used for business. Irse file You can include premiums for insurance on a second mortgage in this computation. Irse file If your adjusted gross income is more than $100,000 ($50,000 if your filing status is married filing separately), your deduction may be limited. Irse file For more information, see Publication 936, and Line 13 in the Instructions for Schedule A (Form 1040). Irse file Casualty losses. Irse file    If you have a casualty loss on your home that you use for business, treat the casualty loss as a direct expense, an indirect expense, or an unrelated expense, depending on the property affected. Irse file A direct expense is the loss on the portion of the property you use only in your business. Irse file Use the entire loss to figure the business use of the home deduction. Irse file An indirect expense is the loss on property you use for both business and personal purposes. Irse file Use only the business portion to figure the deduction. Irse file An unrelated expense is the loss on property you do not use in your business. Irse file Do not use any of the loss to figure the deduction. Irse file Example. Irse file You meet the rules to take a deduction for an office in your home that is 10% of the total area of your house. Irse file A storm damages your roof. Irse file This is an indirect expense as the roof is part of the whole house and is considered to be used both for business and personal purposes. Irse file You would complete Form 4684, Casualties and Thefts, to report your loss. Irse file You complete both section A (Personal Use Property) and section B (Business and Income-Producing Property) as your home is used both for business and personal purposes. Irse file Since you use 90% of your home for personal purposes, use 90% of the cost or adjusted basis of your home, insurance or other reimbursement, and fair market value, both before and after the storm, to figure the amounts to enter on lines 2, 3, 5, and 6 of Form 4684. Irse file Since you use 10% of your home for business purposes, use 10% of the cost or adjusted basis of your home, insurance or other reimbursement, and fair market value, both before and after the storm, to figure the amounts to enter on lines 20, 21, 23, and 24 of Form 4684. Irse file Forms and worksheets to use. Irse file   If you are filing Schedule C (Form 1040), get Form 8829 and follow the instructions for casualty losses. Irse file If you are an employee or a partner, or you file Schedule F (Form 1040), use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication. Irse file You will also need to get Form 4684. Irse file More information. Irse file   For more information on casualty losses, see Publication 547, Casualties, Disasters, and Thefts. Irse file Insurance. Irse file   You can deduct the cost of insurance that covers the business part of your home. Irse file However, if your insurance premium gives you coverage for a period that extends past the end of your tax year, you can deduct only the business percentage of the part of the premium that gives you coverage for your tax year. Irse file You can deduct the business percentage of the part that applies to the following year in that year. Irse file Rent. Irse file   If you rent the home you occupy and meet the requirements for business use of the home, you can deduct part of the rent you pay. Irse file To figure your deduction, multiply your rent payments by the percentage of your home used for business. Irse file   If you own your home, you cannot deduct the fair rental value of your home. Irse file However, see Depreciating Your Home , later. Irse file Repairs. Irse file   The cost of repairs that relate to your business, including labor (other than your own labor), is a deductible expense. Irse file For example, a furnace repair benefits the entire home. Irse file If you use 10% of your home for business, you can deduct 10% of the cost of the furnace repair. Irse file   Repairs keep your home in good working order over its useful life. Irse file Examples of common repairs are patching walls and floors, painting, wallpapering, repairing roofs and gutters, and mending leaks. Irse file However, repairs are sometimes treated as a permanent improvement and are not deductible. Irse file See Permanent improvements , later, under Depreciating Your Home. Irse file Security system. Irse file   If you install a security system that protects all the doors and windows in your home, you can deduct the business part of the expenses you incur to maintain and monitor the system. Irse file You also can take a depreciation deduction for the part of the cost of the security system relating to the business use of your home. Irse file Utilities and services. Irse file   Expenses for utilities and services, such as electricity, gas, trash removal, and cleaning services, are primarily personal expenses. Irse file However, if you use part of your home for business, you can deduct the business part of these expenses. Irse file Generally, the business percentage for utilities is the same as the percentage of your home used for business. Irse file Telephone. Irse file   The basic local telephone service charge, including taxes, for the first telephone line into your home (i. Irse file e. Irse file , landline) is a nondeductible personal expense. Irse file However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses. Irse file Do not include these expenses as a cost of using your home for business. Irse file Deduct these charges separately on the appropriate form or schedule. Irse file For example, if you file Schedule C (Form 1040), deduct these expenses on line 25, Utilities (instead of line 30, Expenses for business use of your home). Irse file Depreciating Your Home If you own your home and qualify to deduct expenses for its business use, you can claim a deduction for depreciation. Irse file Depreciation is an allowance for the wear and tear on the part of your home used for business. Irse file You cannot depreciate the cost or value of the land. Irse file You recover its cost when you sell or otherwise dispose of the property. Irse file Before you figure your depreciation deduction, you need to know the following information. Irse file The month and year you started using your home for business. Irse file The adjusted basis and fair market value of your home (excluding land) at the time you began using it for business. Irse file The cost of any improvements before and after you began using the property for business. Irse file The percentage of your home used for business. Irse file See Business Percentage , later. Irse file Adjusted basis defined. Irse file   The adjusted basis of your home is generally its cost, plus the cost of any permanent improvements you made to it, minus any casualty losses or depreciation deducted in earlier tax years. Irse file For a discussion of adjusted basis, see Publication 551. Irse file Permanent improvements. Irse file   A permanent improvement increases the value of property, adds to its life, or gives it a new or different use. Irse file Examples of improvements are replacing electric wiring or plumbing, adding a new roof or addition, paneling, or remodeling. Irse file    You must carefully distinguish between repairs and improvements. Irse file See Repairs , earlier, under Actual Expenses. Irse file You also must keep accurate records of these expenses. Irse file These records will help you decide whether an expense is a deductible or a capital (added to the basis) expense. Irse file However, if you make repairs as part of an extensive remodeling or restoration of your home, the entire job is an improvement. Irse file Example. Irse file You buy an older home and fix up two rooms as a beauty salon. Irse file You patch the plaster on the ceilings and walls, paint, repair the floor, install an outside door, and install new wiring, plumbing, and other equipment. Irse file Normally, the patching, painting, and floor work are repairs and the other expenses are permanent improvements. Irse file However, because the work gives your property a new use, the entire remodeling job is a permanent improvement and its cost is added to the basis of the property. Irse file You cannot deduct any portion of it as a repair expense. Irse file Adjusting for depreciation deducted in earlier years. Irse file   Decrease the basis of your property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you properly selected. Irse file If you deducted less depreciation than you could have under the method you selected, decrease the basis by the amount you could have deducted under that method. Irse file If you did not deduct any depreciation, decrease the basis by the amount you could have deducted. Irse file   If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted, plus the part of the excess depreciation you deducted that actually decreased your tax liability for any year. Irse file   If you deducted the incorrect amount of depreciation, see Publication 946. Irse file Fair market value defined. Irse file   The fair market value of your home is the price at which the property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Irse file Sales of similar property, on or about the date you begin using your home for business, may be helpful in determining the property's fair market value. Irse file Figuring the depreciation deduction for the current year. Irse file   If you began using your home for business before 2013, continue to use the same depreciation method you used in past tax years. Irse file   If you began using your home for business for the first time in 2013, depreciate the business part as nonresidential real property under the modified accelerated cost recovery system (MACRS). Irse file Under MACRS, nonresidential real property is depreciated using the straight line method over 39 years. Irse file For more information on MACRS and other methods of depreciation, see Publication 946. Irse file   To figure the depreciation deduction, you must first figure the part of the cost of your home that can be depreciated (depreciable basis). Irse file The depreciable basis is figured by multiplying the percentage of your home used for business by the smaller of the following. Irse file The adjusted basis of your home (excluding land) on the date you began using your home for business. Irse file The fair market value of your home (excluding land) on the date you began using your home for business. Irse file Depreciation table. Irse file   If 2013 was the first year you used your home for business, you can figure your 2013 depreciation for the business part of your home by using the appropriate percentage from the following table. Irse file Table 2. Irse file MACRS Percentage Table for 39-Year Nonresidential Real Property Month First Used for Business Percentage To Use 1 2. Irse file 461% 2 2. Irse file 247% 3 2. Irse file 033% 4 1. Irse file 819% 5 1. Irse file 605% 6 1. Irse file 391% 7 1. Irse file 177% 8 0. Irse file 963% 9 0. Irse file 749% 10 0. Irse file 535% 11 0. Irse file 321% 12 0. Irse file 107%   Multiply the depreciable basis of the business part of your home by the percentage from the table for the first month you use your home for business. Irse file See Publication 946 for the percentages for the remaining tax years of the recovery period. Irse file Example. Irse file In May, George Miller began to use one room in his home exclusively and regularly to meet clients. Irse file This room is 8% of the square footage of his home. Irse file He bought the home in 2003 for $125,000. Irse file He determined from his property tax records that his adjusted basis in the house (exclusive of land) is $115,000. Irse file In May, the house had a fair market value of $165,000. Irse file He multiplies his adjusted basis of $115,000 (which is less than the fair market value) by 8%. Irse file The result is $9,200, his depreciable basis for the business part of the house. Irse file George files his return based on the calendar year. Irse file May is the 5th month of his tax year. Irse file He multiplies his depreciable basis of $9,200 by 1. Irse file 605% (. Irse file 01605), the percentage from the table for the 5th month. Irse file His depreciation deduction is $147. Irse file 66. Irse file Depreciating permanent improvements. Irse file   Add the costs of permanent improvements made before you began using your home for business to the basis of your property. Irse file Depreciate these costs as part of the cost of your home as explained earlier. Irse file The costs of improvements made after you begin using your home for business (that affect the business part of your home, such as a new roof) are depreciated separately. Irse file Multiply the cost of the improvement by the business-use percentage and depreciate the result over the recovery period that would apply to your home if you began using it for business at the same time as the improvement. Irse file For improvements made this year, the recovery period is 39 years. Irse file For the percentage to use for the first year, see Table 2, earlier. Irse file For more information on recovery periods, see Publication 946. Irse file Business Percentage To find the business percentage, compare the size of the part of your home that you use for business to your whole house. Irse file Use the resulting percentage to figure the business part of the expenses for operating your entire home. Irse file You can use any reasonable method to determine the business percentage. Irse file The following are two commonly used methods for figuring the percentage. Irse file Divide the area (length multiplied by the width) used for business by the total area of your home. Irse file If the rooms in your home are all about the same size, you can divide the number of rooms used for business by the total number of rooms in your home. Irse file Example 1. Irse file Your office is 240 square feet (12 feet × 20 feet). Irse file Your home is 1,200 square feet. Irse file Your office is 20% (240 ÷ 1,200) of the total area of your home. Irse file Your business percentage is 20%. Irse file Example 2. Irse file You use one room in your home for business. Irse file Your home has 10 rooms, all about equal size. Irse file Your office is 10% (1 ÷ 10) of the total area of your home. Irse file Your business percentage is 10%. Irse file Use lines 1-7 of Form 8829, or lines 1-3 on the Worksheet To Figure the Deduction for Business Use of Your Home (near the end of this publication) to figure your business percentage. Irse file Deduction Limit If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home. Irse file If your gross income from the business use of your home is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. Irse file Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation of your home (with depreciation of your home taken last), that are allocable to the business, is limited to the gross income from the business use of your home minus the sum of the following. Irse file The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). Irse file These expenses are discussed in detail under Actual Expenses , earlier. Irse file The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself. Irse file If you are self-employed, do not include in (2) above your deduction for one-half of your self-employment tax. Irse file Carryover of unallowed expenses. Irse file   If your deductions are greater than the current year's limit, you can carry over the excess to the next year in which you use actual expenses. Irse file They are subject to the deduction limit for that year, whether or not you live in the same home during that year. Irse file Figuring the deduction limit and carryover. Irse file   If you are an employee or a partner, or you file Schedule F (Form 1040), use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication. Irse file If you file Schedule C (Form 1040), figure your deduction limit and carryover on Form 8829. Irse file Example. Irse file You meet the requirements for deducting expenses for the business use of your home. Irse file You use 20% of your home for business. Irse file In 2013, your business expenses and the expenses for the business use of your home are deducted from your gross income in the following order. Irse file    Gross income from business $6,000 Minus:   Deductible mortgage interest and real estate taxes (20%) 3,000 Business expenses not related to the use of your home (100%) (business phone, supplies, and depreciation on equipment) 2,000 Deduction limit $1,000 Minus other expenses allocable to business use of home:   Maintenance, insurance, and utilities (20%) 800 Depreciation allowed (20% = $1,600 allowable, but subject to balance of deduction limit) 200 Other expenses up to the deduction limit $1,000 Depreciation carryover to 2014 ($1,600 − $200) (subject to deduction limit in 2014) $1,400   You can deduct all of the business part of your deductible mortgage interest and real estate taxes ($3,000). Irse file You also can deduct all of your business expenses not related to the use of your home ($2,000). Irse file Additionally, you can deduct all of the business part of your expenses for maintenance, insurance, and utilities, because the total ($800) is less than the $1,000 deduction limit. Irse file Your deduction for depreciation for the business use of your home is limited to $200 ($1,000 minus $800) because of the deduction limit. Irse file You can carry over the $1,400 balance and add it to your depreciation for 2014, subject to your deduction limit in 2014. Irse file More than one place of business. Irse file   If part of the gross income from your trade or business is from the business use of part of your home and part is from a place other than your home, you must determine the part of your gross income from the business use of your home before you figure the deduction limit. Irse file In making this determination, consider the time you spend at each location, the business investment in each location, and any other relevant facts and circumstances. Irse file If your home office qualifies as your principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. Irse file For more information on transportation costs, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Irse file Using the Simplified Method The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Irse file In most cases, you will figure your deduction by multiplying $5, the prescribed rate, by the area of your home used for a qualified business use. Irse file The area you use to figure your deduction is limited to 300 square feet. Irse file See Simplified Amount , later, for information about figuring the amount of the deduction. Irse file For more information about the simplified method, see Revenue Procedure 2013-13, 2013-06 I. Irse file R. Irse file B. Irse file 478, available at www. Irse file irs. Irse file gov/irb/2013-06_IRB/ar09. Irse file html. Irse file Actual expenses and depreciation of your home. Irse file   If you elect to use the simplified method, you cannot deduct any actual expenses for the business except for business expenses that are not related to the use of the home. Irse file You also cannot deduct any depreciation (including any additional first-year depreciation) or section 179 expense for the portion of the home that is used for a qualified business use. Irse file The depreciation deduction allowable for that portion of the home is deemed to be zero for a year you use the simplified method. Irse file If you figure your deduction for business use of the home using actual expenses in a subsequent year, you will have to use the appropriate optional depreciation table for MACRS to figure your depreciation. Irse file More information. Irse file   For more information about claiming depreciation in a subsequent year, see Revenue Procedure 2013-13, 2013-06 I. Irse file R. Irse file B. Irse file 478, available at www. Irse file irs. Irse file gov/irb/2013-06_IRB/ar09. Irse file html. Irse file See Publication 946 for the optional depreciation tables Although you cannot deduct any depreciation or section 179 expense for the portion of your home used for a qualified business use, you may still claim depreciation or the section 179 expense deduction on other assets used in the business (for example, furniture and equipment). Irse file Expenses deductible without regard to business use. Irse file   When using the simplified method, treat as personal expenses those business expenses related to the use of the home that are deductible without regard to whether there is a qualified business use of the home. Irse file These expenses include mortgage interest, real estate taxes, and casualty losses, subject to any limitations. Irse file See Where To Deduct , later. Irse file If you also rent part of your home, you must still allocate these expenses between rental use and personal use (for this purpose, personal use includes business use reported using the simplified method). Irse file No deduction of carryover of actual expenses. Irse file   If you used actual expenses to figure your deduction for business use of the home in a prior year and your deduction was limited, you cannot deduct the disallowed amount carried over from the prior year during a year you figure your deduction using the simplified method. Irse file Instead, you will continue to carry over the disallowed amount to the next year that you use actual expenses to figure your deduction. Irse file Electing the Simplified Method You choose whether or not to figure your deduction using the simplified method each taxable year. Irse file Make the election for a home by using the simplified method to figure the deduction for the qualified business use of that home on a timely filed, original federal income tax return. Irse file An election for a taxable year, once made, is irrevocable. Irse file A change from using the simplified method in one year to actual expenses in a succeeding taxable year, or vice-versa, is not a change in method of accounting and does not require the consent of the Commissioner. Irse file Shared use. Irse file   If you share your home with someone else who also uses the home in a business that qualifies for this deduction, each of you make your own election. Irse file More than one qualified business use. Irse file   If you conduct more than one business that qualifies for this deduction in your home, your election to use the simplified method applies to all your qualified business uses of that home. Irse file More than one home. Irse file   If you used more than one home during the year (for example, you moved during the year), you can elect to use the simplified method for only one of the homes. Irse file You must figure the deduction for any other home using actual expenses. Irse file Simplified Amount Your deduction for the qualified business use of a home is the sum of each amount you figure for a separate qualified business use of your home. Irse file To figure your deduction for the business use of a home using the simplified method, you will need to know the following information for each qualified business use of the home. Irse file The allowable area of your home used in conducting the business. Irse file If you did not conduct the business for the entire year in the home or the area changed during the year, you will need to know the allowable area you used and the number of days you conducted the business for each month. Irse file The gross income from the business use of your home. Irse file The amount of the business expenses that are not related to the use of your home. Irse file If the qualified business use is for a daycare facility that uses space in your home on a regular (but not exclusive) basis, you will also need to know the percentage of time that part of your home is used for daycare. Irse file To figure the amount you can deduct for qualified business use of your home using the simplified method, follow these 3 steps. Irse file Multiply the allowable area by $5 (or less than $5 if the qualified business use is for a daycare that uses space in your home on a regular, but not exclusive, basis). Irse file See Allowable area and Space used regularly for daycare , later. Irse file Subtract the expenses from the business that are not related to the use of the home from the gross income related to the business use of the home. Irse file If these expenses are greater than the gross income from the business use of the home, then you cannot take a deduction for this business use of the home. Irse file See Gross income limitation , later. Irse file Take the smaller of the amounts from (1) and (2). Irse file This is the amount you can deduct for this qualified business use of your home using the simplified method. Irse file If you are an employee or a partner, or you use your home in your farming business and file Schedule F (Form 1040), you can use the Simplified Method Worksheet, near the end of this publication, to help you figure your deduction. Irse file If you use your home in a trade or business and you file Schedule C (Form 1040), you will use the Simplified Method Worksheet in your Instructions for Schedule C to figure your deduction. Irse file Allowable area. Irse file   In most cases, the allowable area is the smaller of the actual area (in square feet) of your home used in conducting the business and 300 square feet. Irse file Your allowable area may be smaller if you conducted the business as a qualified joint venture with your spouse, the area used by the business was shared with another qualified business use, you used the home for the business for only part of the year, or the area used by the business changed during the year. Irse file You can use the Area Adjustment Worksheet (for simplified method), near the end of this publication, to help you figure your allowable area for a qualified business use. Irse file Area used by a qualified joint venture. Irse file   If the qualified business use of the home is also a qualified joint venture, you and your spouse will figure the deduction for the business use separately. Irse file Split the actual area used in conducting business between you and your spouse in the same manner you split your other tax attributes. Irse file Then, each spouse will figure the allowable area separately. Irse file For more information about qualified joint ventures, see Qualified Joint Venture in the Instructions for Schedule C. Irse file Shared use. Irse file   If you share your home with someone else who uses the home to conduct business that also qualifies for this deduction, you may not include the same square feet to figure your deduction as the other person. Irse file You must allocate the shared space between you and the other person in a reasonable manner. Irse file Example. Irse file Kristin and Lindsey are roommates. Irse file Kristin uses 300 square feet of their home for a qualified business use. Irse file Lindsey uses 200 square feet of their home for a separate qualified business use. Irse file The qualified business uses share 100 square feet. Irse file In addition to the portion that they do not share, Kristin and Lindsey can both claim 50 of the 100 square feet or divide the 100 square feet between them in any reasonable manner. Irse file If divided evenly, Kristin could claim 250 square feet using the simplified method and Lindsey could claim 150 square feet. Irse file More than one qualified business use. Irse file   If you conduct more than one business qualifying for the deduction, you are limited to a maximum of 300 square feet for all of the businesses. Irse file Allocate the actual square footage used (up to the maximum of 300 square feet) among your qualified business uses in a reasonable manner. Irse file However, do not allocate more square feet to a qualified business use than you actually use for that business. Irse file Rental use. Irse file   The simplified method does not apply to rental use. Irse file A rental use that qualifies for the deduction must be figured using actual expenses. Irse file If the rental use and a qualified business use share the same area, you will have to allocate the actual area used between the two uses. Irse file You cannot use the same area to figure a deduction for the qualified business use as you are using to figure the deduction for the rental use. Irse file Part-year use or area changes. Irse file   If your qualified business use was for a portion of the taxable year (for example, a seasonal business or a business that begins during the taxable year) or you changed the square footage of your qualified business use, your deduction is limited to the average monthly allowable square footage. Irse file You calculate the average monthly allowable square footage by adding the amount of allowable square feet you used in each month and dividing the sum by 12. Irse file When determining the average monthly allowable square footage, you cannot take more than 300 square feet into account for any one month. Irse file Additionally, if your qualified business use was less than 15 days in a month, you must use -0- for that month. Irse file Example 1. Irse file Andy files his federal income tax return on a calendar year basis. Irse file On July 20, he began using 420 square feet of his home for a qualified business use. Irse file He continued to use the 420 square feet until the end of the year. Irse file His average monthly allowable square footage is 125 square feet, which is figured using 300 square feet for each month August through December divided by the number of months in the taxable year ((0 + 0 + 0 + 0 + 0 + 0 + 0 + 300 + 300 + 300 + 300 + 300)/12). Irse file Example 2. Irse file Amy files her federal income tax return on a calendar year basis. Irse file On April 20, she began using 100 square feet of her home for a qualified business use. Irse file On August 5, she expanded the area of her qualified use to 330 square feet. Irse file Amy continued to use the 330 square feet until the end of the year. Irse file Her average monthly allowable square footage is 150 square feet, which is figured using 100 square feet for May through July and 300 square feet for August through December divided by the number of months in the taxable year ((0 + 0 + 0 + 0 + 100 + 100 +100 + 300 + 300 + 300 + 300 + 300)/12). Irse file Gross income limitation. Irse file   Your deduction for business use of the home is limited to an amount equal to the gross income derived from the qualified business use of the home reduced by the business deductions that are unrelated to the use of your home. Irse file If the business deductions that are unrelated to the use of your home are greater than the gross income derived from the qualified business use of your home, then you cannot take a deduction for this qualified business use of your home. Irse file Business expenses not related to use of the home. Irse file   These expenses relate to the business activity in the home, but not to the use of the home itself. Irse file You can still deduct business expenses that are unrelated to the use of the home. Irse file See Where To Deduct , later. Irse file Examples of business expenses that are unrelated to the use of the home are advertising, wages, supplies, dues, and depreciation for equipment. Irse file Space used regularly for daycare. Irse file   If you do not use the area of your home exclusively for daycare, you must reduce the prescribed rate (maximum $5 per square foot) before figuring your deduction. Irse file The reduced rate will equal the prescribed rate times a fraction. Irse file The numerator of the fraction is the number of hours that the space was used during the year for daycare and the denominator is the total number of hours during the year that the space was available for all uses. Irse file You can use the Daycare Facility Worksheet (for simplified method), near the end of this publication, to help you figure the reduced rate. Irse file    If you used at least 300 square feet for daycare regularly and exclusively during the year, then you do not need to reduce the prescribed rate or complete the Daycare Facility Worksheet. Irse file Daycare Facility If you use space in your home on a regular basis for providing daycare, you may be able to claim a deduction for that part of your home even if you use the same space for nonbusiness purposes. Irse file To qualify for this exception to the exclusive use rule, you must meet both of the following requirements. Irse file You must be in the trade or business of providing daycare for children, persons age 65 or older, or persons who are physically or mentally unable to care for themselves. Irse file You must have applied for, been granted, or be exempt from having, a license, certification, registration, or approval as a daycare center or as a family or group daycare home under state law. Irse file You do not meet this requirement if your application was rejected or your license or other authorization was revoked. Irse file Figuring the deduction. Irse file   If you elect to use the simplified method for your home, figure your deduction as described earlier in Using the Simplified Method under Figuring the Deduction. Irse file    If you are figuring your deduction using actual expenses and you regularly use part of your home for daycare, figure what part is used for daycare, as explained in Business Percentage , earlier, under Figuring the Deduction. Irse file If you also use that part exclusively for daycare, deduct all the allocable expenses, subject to the deduction limit, as explained earlier. Irse file   If the use of part of your home as a daycare facility is regular, but not exclusive, you must figure the percentage of time that part of your home is used for daycare. Irse file A room that is available for use throughout each business day and that you regularly use in your business is considered to be used for daycare throughout each business day. Irse file You do not have to keep records to show the specific hours the area was used for business. Irse file You can use the area occasionally for personal reasons. Irse file However, a room you use only occasionally for business does not qualify for the deduction. Irse file To find the percentage of time you actually use your home for business, compare the total time used for business to the total time that part of your home can be used for all purposes. Irse file You can compare the hours of business use in a week with the number of hours in a week (168). Irse file Or you can compare the hours of business use for the year with the number of hours in the year (8,760 in 2013). Irse file If you started or stopped using your home for daycare in 2013, you must prorate the number of hours based on the number of days the home was available for daycare. Irse file Example 1. Irse file Mary Lake used her basement to operate a daycare business for children. Irse file She figures the business percentage of the basement as follows. Irse file Square footage of the basement Square footage of her home = 1,600 3,200 = 50%           She used the basement for daycare an average of 12 hours a day, 5 days a week, for 50 weeks a year. Irse file During the other 12 hours a day, the family could use the basement. Irse file She figures the percentage of time the basement was used for daycare as follows. Irse file Number of hours used for daycare (12 x 5 x 50) Total number of hours in the year (24 x 365) = 3,000 8,760 = 34. Irse file 25%           Mary can deduct 34. Irse file 25% of any direct expenses for the basement. Irse file However, because her indirect expenses are for the entire house, she can deduct only 17. Irse file 13% of the indirect expenses. Irse file She figures the percentage for her indirect expenses as follows. Irse file Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 34. Irse file 25% Percentage for indirect expenses 17. Irse file 13% Mary completes Form 8829, Part I, figuring the percentage of her home used for business, including the percentage of time the basement was used. Irse file In Part II, Mary figures her deductible expenses. Irse file She uses the following information to complete Part II. Irse file Gross income from her daycare business $50,000 Expenses not related to the business use of the home $25,000 Tentative profit $25,000 Rent $8,400 Utilities $850 Painting the basement $500 Mary enters her tentative profit, $25,000, on line 8. Irse file (This figure is the same as the amount on line 29 of her Schedule C (Form 1040). Irse file ) The expenses she paid for rent and utilities relate to her entire home. Irse file Therefore, she enters the amount paid for rent on line 18, column (b), and the amount paid for utilities on line 20, column (b). Irse file She shows the total of these expenses on line 22, column (b). Irse file For line 23, she multiplies the amount on line 22, column (b) by the percentage on line 7 and enters the result, $1,585. Irse file Mary paid $500 to have the basement painted. Irse file The painting is a direct expense. Irse file However, because she did not use the basement exclusively for daycare, she must multiply $500 by the percentage of time the basement was used for daycare (34. Irse file 25% – line 6). Irse file She enters $171 (34. Irse file 25% × $500) on line 19, column (a). Irse file She adds line 22, column (a), and line 23 and enters $1,756 ($171 + $1,585) on line 25. Irse file This is less than her deduction limit (line 15), so she can deduct the entire amount. Irse file She follows the instructions to complete the rest of Part II and enters $1,756 on lines 33 and 35. Irse file She then carries the $1,756 to line 30 of her Schedule C (Form 1040). Irse file Example 2. Irse file Assume the same facts as in Example 1 except that Mary also has another room that was available each business day for children to take naps in. Irse file Although she did not keep a record of the number of hours the room was actually used for naps, it was used for part of each business day. Irse file Since the room was available for business use during regular operating hours each business day and was used regularly in the business, it is considered used for daycare throughout each business day. Irse file The basement and room are 60% of the total area of her home. Irse file In figuring her expenses, 34. Irse file 25% of any direct expenses for the basement and room are deductible. Irse file In addition, 20. Irse file 55% (34. Irse file 25% × 60%) of her indirect expenses are deductible. Irse file Example 3. Irse file Assume the same facts as in Example 1 except that Mary stopped using her home for a daycare facility on June 24, 2013. Irse file She used the basement for daycare an average of 12 hours a day, 5 days a week, but for only 25 weeks of the year. Irse file During the other 12 hours a day, the family could still use the basement. Irse file She figures the percentage of time the basement was used for business as follows. Irse file Number of hours used for daycare (12 x 5 x 25) Total number of hours during period used (24 x 175) = 1,500 4,200 = 35. Irse file 71%           Mary can deduct 35. Irse file 71% of any direct expenses for the basement. Irse file However, because her indirect expenses are for the entire house, she can deduct only 17. Irse file 86% of the indirect expenses. Irse file She figures the percentage for her indirect expenses as follows. Irse file Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 35. Irse file 71% Percentage for indirect expenses 17. Irse file 86% Meals. Irse file   If you provide food for your daycare recipients, do not include the expense as a cost of using your home for business. Irse file Claim it as a separate deduction on your Schedule C (Form 1040). Irse file You can never deduct the cost of food consumed by you or your family. Irse file You can deduct as a business expense 100% of the actual cost of food consumed by your daycare recipients (see Standard meal and snack rates , later, for an optional method for eligible children) and generally only 50% of the cost of food consumed by your employees. Irse file However, you can deduct 100% of the cost of food consumed by your employees if its value can be excluded from their wages as a de minimis fringe benefit. Irse file For more information on meals that meet these requirements, see Meals in chapter 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits. Irse file   If you deduct the actual cost of food for your daycare business, keep a separate record (with receipts) of your family's food costs. Irse file   Reimbursements you receive from a sponsor under the Child and Adult Care Food Program of the Department of Agriculture are taxable only to the extent they exceed your expenses for food for eligible children. Irse file If your reimbursements are more than your expenses for food, show the difference as income in Part I of Schedule C (Form 1040). Irse file If your food expenses are greater than the reimbursements, show the difference as an expense in Part V of Schedule C (Form 1040). Irse file Do not include payments or expenses for your own children if they are eligible for the program. Irse file Follow this procedure even if you receive a Form 1099-MISC, Miscellaneous Income, reporting a payment from the sponsor. Irse file Standard meal and snack rates. Irse file   If you qualify as a family daycare provider, you can use the standard meal and snack rates, instead of actual costs, to compute the deductible cost of meals and snacks provided to eligible children. Irse file For these purposes: A family daycare provider is a person engaged in the business of providing family daycare. Irse file Family daycare is childcare provided to eligible children in the home of the family daycare provider. Irse file The care must be non-medical, not involve a transfer of legal custody, and generally last less than 24 hours each day. Irse file Eligible children are minor children receiving family daycare in the home of the family daycare provider. Irse file Eligible children do not include children who are full-time or part-time residents in the home where the childcare is provided or children whose parents or guardians are residents of the same home. Irse file Eligible children do not include children who receive daycare services for personal reasons of the provider. Irse file For example, if a provider provides daycare services for a relative as a favor to that relative, that child is not an eligible child. Irse file   You can compute the deductible cost of each meal and snack you actually purchased and served to an eligible child during the time period you provided family daycare using the standard meal and snack rates shown in Table 3, later. Irse file You can use the standard meal and snack rates for a maximum of one breakfast, one lunch, one dinner, and three snacks per eligible child per day. Irse file If you receive reimbursement for a particular meal or snack, you can deduct only the portion of the applicable standard meal or snack rate that is more than the amount of the reimbursement. Irse file   You can use either the standard meal and snack rates or actual costs to calculate the deductible cost of food provided to eligible children in the family daycare for any particular tax year. Irse file If you choose to use the standard meal and snack rates for a particular tax year, you must use the rates for all your deductible food costs for eligible children during that tax year. Irse file However, if you use the standard meal and snack rates in any tax year, you can use actual costs to compute the deductible cost of food in any other tax year. Irse file   If you use the standard meal and snack rates, you must maintain records to substantiate the computation of the total amount deducted for the cost of food provided to eligible children. Irse file The records kept should include the name of each child, dates and hours of attendance in the daycare, and the type and quantity of meals and snacks served. Irse file This information can be recorded in a log similar to the one shown in Exhibit A, near the end of this publication. Irse file   The standard meal and snack rates include beverages, but do not include non-food supplies used for food preparation, service, or storage, such as containers, paper products, or utensils. Irse file These expenses can be claimed as a separate deduction on your Schedule C (Form 1040). Irse file     Table 3. Irse file Standard Meal and Snack Rates1 Location of Family Daycare Provider Breakfast Lunch Dinner Snack States other than Alaska an
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Answers to Frequently Asked Questions for Registered Domestic Partners and Individuals in Civil Unions

The following questions and answers provide information to individuals of the same sex and opposite sex who are in registered domestic partnerships, civil unions or other similar formal relationships that are not marriages under state law. These individuals are not considered as married or spouses for federal tax purposes. For convenience, these individuals are referred to as “registered domestic partners” in these questions and answers. Questions and answers 9 through 27 concern registered domestic partners who reside in community property states and who are subject to their state’s community property laws. These questions and answers have been updated since the Supreme Court issued its decision in United States v. Windsor. As a result of the Court’s decision, the Service has ruled that same-sex couples who are married under state law are married for federal tax purposes. See Revenue Ruling 2013-17 in 2013‑38 IRB 201.

Q1. Can registered domestic partners file federal tax returns using a married filing jointly or married filing separately status?

A1. No. Registered domestic partners may not file a federal return using a married filing separately or jointly filing status. Registered domestic partners are not married under state law. Therefore, these taxpayers are not married for federal tax purposes.

Q2. Can a taxpayer use the head-of-household filing status if the taxpayer’s only dependent is his or her registered domestic partner?

A2. No. A taxpayer cannot file as head of household if the taxpayer’s only dependent is his or her registered domestic partner. A taxpayer’s registered domestic partner is not one of the specified related individuals in section 152(c) or (d) that qualifies the taxpayer to file as head of household, even if the registered domestic partner is the taxpayer’s dependent.

Q3. If registered domestic partners have a child, which parent may claim the child as a dependent?

A3. If a child is a qualifying child under section 152(c) of both parents who are registered domestic partners, either parent, but not both, may claim a dependency deduction for the qualifying child. If both parents claim a dependency deduction for the child on their income tax returns, the IRS will treat the child as the qualifying child of the parent with whom the child resides for the longer period of time during the taxable year. If the child resides with each parent for the same amount of time during the taxable year, the IRS will treat the child as the qualifying child of the parent with the higher adjusted gross income.

Q4. Can a registered domestic partner itemize deductions if his or her partner claims a standard deduction? 

A4. Yes. A registered domestic partner may itemize or claim the standard deduction regardless of whether his or her partner itemizes or claims the standard deduction. Although the law prohibits a taxpayer from itemizing deductions if the taxpayer’s spouse claims the standard deduction (section 63(c)(6)(A)), this provision does not apply to registered domestic partners, because registered domestic partners are not spouses for federal tax purposes.

Q5. If registered domestic partners adopt a child together, can one or both of the registered domestic partners qualify for the adoption credit?

A5. Yes. Each registered domestic partner may qualify to claim the adoption credit for the amount of the qualified adoption expenses paid for the adoption. The partners may not both claim a credit for the same qualified adoption expenses, and the sum of the credit taken by each registered domestic partner may not exceed the total amount paid. The adoption credit is limited to $12,970 per child in 2013. Thus, if both registered domestic partners paid qualified adoption expenses to adopt the same child, and the total of those expenses exceeds $12,970, the maximum credit available for the adoption is $12,970. The registered domestic partners may allocate this maximum between them in any way they agree, and the amount of credit claimed by one registered domestic partner can exceed the adoption expenses paid by that person, as long as the total credit claimed by both registered domestic partners does not exceed the total amount paid by them. The same rules generally apply in the case of a special needs adoption. 

Q6. If a taxpayer adopts the child of his or her registered domestic partner as a second parent or co-parent, may the taxpayer (“adopting parent”) claim the adoption credit for the qualifying adoption expenses he or she pays to adopt the child?

A6. Yes. The adopting parent may be eligible to claim an adoption credit. A taxpayer may not claim an adoption credit for the expenses of adopting the child of the taxpayer’s spouse (section 23) .  However, this limitation does not apply to adoptions by registered domestic partners because registered domestic partners are not spouses for federal tax purposes.

Q7. Do provisions of the federal tax law such as section 66 (treatment of community income) and section 469(i)(5) ($25,000 offset for passive activity losses for rental real estate activities) that apply to married taxpayers apply to registered domestic partners?

A7. No. Like other provisions of the federal tax law that apply only to married taxpayers, section 66 and section 469(i)(5) do not apply to registered domestic partners because registered domestic partners are not married for federal tax purposes.

Q8. Is a registered domestic partner the stepparent of his or her partner’s child?

A8. If a registered domestic partner is the stepparent of his or her partner’s child under state law, the registered domestic partner is the stepparent of the child for federal income tax purposes.


Publication 555, Community Property, provides general information for taxpayers, including registered domestic partners, who reside in community property states. The following questions and answers provide additional information to registered domestic partners (including same-sex and opposite-sex registered domestic partners) who reside in community property states and are subject to community property laws.

Q9. How do registered domestic partners determine their gross income?

A9. Registered domestic partners must each report half the combined community income earned by the partners.  In addition to half of the community income, a partner who has income that is not community income must report that separate income. 

Q10.  Can a registered domestic partner qualify to file his or her tax return using head-of-household filing status?

A10. Generally, to qualify as a head-of-household, a taxpayer must provide more than half the cost of maintaining his or her household during the taxable year, and that household must be the principal place of abode of the taxpayer’s dependent for more than half of the taxable year (section 2(b)). If registered domestic partners pay all of the costs of maintaining the household from community funds, each partner is considered to have incurred half the cost and neither can qualify as head of household. Even if one of the partners pays more than half by contributing separate funds, that partner cannot file as head of household if the only dependent is his or her registered domestic partner. A taxpayer’s registered domestic partner is not one of the specified related individuals in section 152(c) or (d) that qualifies the taxpayer to file as head of household, even if the partner is the taxpayer’s dependent.    

Q11. Can a registered domestic partner be a dependent of his or her partner for purposes of the dependency deduction under section 151?

A11. A registered domestic partner can be a dependent of his or her partner if the requirements of sections 151 and 152 are met. However, it is unlikely that registered domestic partners will satisfy the gross income requirement of section 152(d)(1)(B) and the support requirement of section 152(d)(1)(C). To satisfy the gross income requirement, the gross income of the individual claimed as a dependent must be less than the exemption amount ($3,900 for 2013). Because registered domestic partners each report half the combined community income earned by both partners, it is unlikely that a registered domestic partner will have gross income that is less than the exemption amount.   

To satisfy the support requirement, more than half of an individual’s support for the year must be provided by the person seeking the dependency deduction. If a registered domestic partner’s (Partner A’s) support comes entirely from community funds, that partner is considered to have provided half of his or her own support and cannot be claimed as a dependent by another. However, if the other registered domestic partner (Partner B) pays more than half of the support of Partner A by contributing separate funds, Partner A may be a dependent of Partner B for purposes of section 151, provided the other requirements of sections 151 and 152 are satisfied. 

Q12. Can a registered domestic partner be a dependent of his or her partner for purposes of the exclusion in section 105(b) for reimbursements of expenses for medical care?

A12. A registered domestic partner (Partner A) may be a dependent of his or her partner (Partner B) for purposes of the exclusion in section 105(b) only if the support requirement (discussed in Question 11, above) is satisfied. Unlike the requirements for section 152(d) (dependency deduction for a qualifying relative), section 105(b) does not require that Partner A's gross income be less than the exemption amount in order for Partner A to qualify as a dependent.                   

Q13. How should registered domestic partners report wages, other income items, and deductions on their federal income tax returns?

A13. Registered domestic partners should report wages, other income items, and deductions according to the instructions to Form 1040, U.S. Individual Income Tax Return, and related schedules, and Form 8958, Allocation of Tax Amounts Between Certain Individuals in Community Property States. Form 8958 is used to determine the allocation of tax amounts between registered domestic partners. Each partner must complete and attach Form 8958 to his or her Form 1040.

Q14. Should registered domestic partners report social security benefits as community income for federal tax purposes? 

A14. Generally, state law determines whether an item of income constitutes community income. Accordingly, if Social Security benefits are community income under state law, then they are also community income for federal income tax purposes. If Social Security benefits are not community income under state law, then they are not community income for federal income tax purposes. 

Q15. How should registered domestic partners report community income from a business on Schedule C, Profit or Loss From Business?

A15. Half of the income, deductions, and net earnings of a business operated by a registered domestic partner must be reported by each registered domestic partner on a Schedule C (or Schedule C-EZ). In addition, each registered domestic partner owes self-employment tax on half of the net earnings of the business. The self-employment tax rule under section 1402(a)(5) that overrides community income treatment and attributes the income, deductions, and net earnings to the spouse who carries on the trade or business does not apply to registered domestic partners.

Q16.  Are registered domestic partners each entitled to half of the credits for income tax withholding from the combined wages of the registered domestic partners?

A16. Yes. Because each registered domestic partner is taxed on half the combined community income earned by the partners, each is entitled to a credit for half of the income tax withheld on the combined wages.

Q17.  Are registered domestic partners each entitled to take credit for half of the total estimated tax payments paid by the partners?

A17. No. Unlike withholding credits, which are allowed to the person who is taxed on the income from which the tax is withheld, a registered domestic partner can take credit only for the estimated tax payments that he or she made.       

Q18. Are community property laws taken into account in determining earned income for purposes of the dependent care credit, the refundable portion of the child tax credit, the earned income credit, and the making work pay credit?   

A18. No. The federal tax laws governing these credits specifically provide that earned income is computed without regard to community property laws in determining the earned income amounts described in section 21(d) (dependent care credit), section 24(d) (the refundable portion of the child tax credit), section 32(a) (earned income credit), and section 36A(d) (making work pay credit).

Q19. Are community property laws taken into account in determining adjusted gross income (or modified adjusted gross income) for purposes of the dependent care credit, the child tax credit, the earned income credit, and the making work pay credit?

A19. Yes. Community property laws must be taken into account in determining the adjusted gross income (or modified adjusted gross income) amounts in section 21(a) (dependent care credit), section 24(b) (child tax credit), section 32(a) (earned income credit), and section 36A(b) (making work pay credit).

Q20. Are amounts a registered domestic partner receives for education expenses that cannot be excluded from the partner’s gross income (includible education benefits) considered to be community income? 

A20. Generally, state law determines whether an item of income constitutes community income. Accordingly, whether includible education benefits are community income for federal income tax purposes depends on whether they are community income under state law. If the includible education benefits are community income under state law, then they are community income for federal income tax purposes. If not community income under state law, they are not community income for federal income tax purposes. 

Q21. If only one registered domestic partner is a teacher and pays qualified out-of-pocket educator expenses from community funds, do the registered domestic partners split the educator expense deduction?

A21. No. Section 62(a)(2)(D) allows only eligible educators to take a deduction for qualified out-of-pocket educator expenses. If only one registered domestic partner is an eligible educator (the eligible partner), then only the eligible partner may claim a section 62(a)(2)(D) deduction. If the eligible partner uses community funds to pay educator expenses, the eligible partner may determine the deduction as if he or she made the entire expenditure. In that case, the eligible partner has received a gift from his or her partner equal to one-half of the expenditure.  

Q22. If a registered domestic partner incurs indebtedness for his or her qualified education expenses or the expenses of a dependent and pays interest on the indebtedness out of community funds, do the registered domestic partners split the interest deduction?

A22. No. To be a qualified education loan, the indebtedness must be incurred by a taxpayer to pay the qualified education expenses of the taxpayer, the taxpayer’s spouse, or a dependent of the taxpayer (section 221(d)(1)). Thus, only the partner who incurs debt to pay his or her own education expenses or the expenses of a dependent may deduct interest on a qualified education loan (the student partner). If the student partner uses community funds to pay the interest on the qualified education loan, the student partner may determine the deduction as if he or she made the entire expenditure. In that case, the student partner has received a gift from his or her partner equal to one-half of the expenditure. 

Q23.  If registered domestic partners pay the qualified educational expenses of one of the partners or a dependent of one of the partners with community funds, do the registered domestic partners split the section 25A credits (education credits)?

A23. No. Only the partner who pays his or her own education expenses or the expenses of his or her dependent is eligible for an education credit (the student partner). If the student partner uses community funds to pay the education expenses, the student partner may determine the credit as if he or she made the entire expenditure. In that case, the student partner has received a gift from his or her partner equal to one-half of the expenditure. Similarly, if the student partner is allowed a deduction under section 222 (deduction for qualified tuition and related expenses), and uses community funds to pay the education expenses, the student partner may determine the qualified tuition expense deduction as if he or she made the entire expenditure. In that case, the student partner has received a gift from his or her partner equal to one-half of the expenditure.     

Q24. Are community property laws taken into account in determining compensation for purposes of the IRA deduction?

A24. No. The federal tax laws governing the IRA deduction (section 219(f)(2)) specifically provide that the maximum IRA deduction (under section 219(b)) is computed separately for each individual, and that these IRA deduction rules are applied without regard to any community property laws. Thus, each individual determines whether he or she is eligible for an IRA deduction by computing his or her individual compensation (determined without application of community property laws). 

Q25. If a registered domestic partner is self-employed and pays health insurance premiums for both partners out of community property funds, are both partners allowed a deduction under section 162(l) (deduction for self-employed health insurance)?

A25. If one of the registered domestic partners is a self-employed individual treated as an employee within the meaning of section 401(c)(1)(the employee partner) and the other partner is not (the non-employee partner), the employee partner may be allowed a deduction under section 162(l) for the cost of the employee partner’s health insurance paid out of community funds. If the non-employee partner is also covered by the health insurance, the portion of the cost attributable to the non-employee partner’s coverage is not deductible by either the employee partner or the non-employee partner under section 162(l).  

Q26. If a registered domestic partner has a dependent and incurs employment-related expenses that are paid out of community funds, how does the registered domestic partner calculate the dependent care credit?  How about the child tax credit?

A26. If a registered domestic partner has a qualifying individual as defined in section 21(b)(1) and incurs employment-related expenses as defined in section 21(b)(2) for the care of the qualifying individual that are paid with community funds, the partner (employee partner) may determine the dependent care credit as if he or she made the entire expenditure. In that case, the employee partner has received a gift from his or her partner equal to one-half of the expenditure. In computing the dependent care credit, the following rules apply:

  • The employee partner must reduce the employment-related expenses by any amounts he or she excludes from income under section 129 (exclusion for employees for dependent care assistance furnished pursuant to a program described in section 129(d));
  • The earned income limitation described in section 21(d) is determined without regard to community property laws; and
  • The adjusted gross income of the employee partner is determined by taking into account community property laws.

A child tax credit is allowed for each qualifying child of a taxpayer for whom the taxpayer is allowed a personal exemption deduction. Thus, if a registered domestic partner has one or more dependents who is a qualifying child, the registered domestic partner may be allowed a child tax credit for each qualifying child. In determining the amount of the allowable credit, the modified adjusted gross income of the registered domestic partner with the qualifying child is determined by taking into account community property laws. Community property laws are ignored, however, in determining the refundable portion of the child tax credit.

Q27. Does Rev. Proc. 2002-69, 2002-2 C.B. 831, apply to registered domestic partners?

A27. No. Rev. Proc. 2002-69 allows spouses to classify certain entities solely owned by the spouses as community property, as either a disregarded entity or a partnership for federal tax purposes. Rev. Proc. 2002-69 applies only to spouses. Because registered domestic partners are not spouses for federal tax purposes, Rev. Proc. 2002-69 does not apply to registered domestic partners.

Related Item: Forms and Publications

Page Last Reviewed or Updated: 19-Sep-2013

The Irse File

Irse file Publication 559 - Main Content Table of Contents Personal RepresentativeDuties Fees Received by Personal Representatives Final Income Tax Return for Decedent—Form 1040Name, Address, and Signature When and Where To File Filing Requirements Income To Include Exemptions and Deductions Credits, Other Taxes, and Payments Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Filing Reminders Other Tax InformationTax Benefits for Survivors Income in Respect of a Decedent Deductions in Respect of a Decedent Estate Tax Deduction Gifts, Insurance, and Inheritances Other Items of Income Income Tax Return of an Estate— Form 1041Filing Requirements Income To Include Exemption and Deductions Credits, Tax, and Payments Name, Address, and Signature When and Where To File Distributions to BeneficiariesIncome That Must Be Distributed Currently Other Amounts Distributed Discharge of a Legal Obligation Character of Distributions How and When To Report Bequest Termination of Estate Estate and Gift TaxesApplicable Credit Amount Gift Tax Estate Tax Generation-Skipping Transfer Tax Comprehensive ExampleFinal Return for Decedent—Form 1040 Income Tax Return of an Estate—Form 1041 How To Get Tax HelpLow Income Taxpayer Clinics Personal Representative A personal representative of an estate is an executor, administrator, or anyone who is in charge of the decedent's property. Irse file Generally, an executor (or executrix) is named in a decedent's will to administer the estate and distribute properties as the decedent has directed. Irse file An administrator (or administratrix) is usually appointed by the court if no will exists, if no executor was named in the will, or if the named executor cannot or will not serve. Irse file In general, an executor and an administrator perform the same duties and have the same responsibilities. Irse file For estate tax purposes, if there is no executor or administrator appointed, qualified, and acting within the United States, the term “executor” includes anyone in actual or constructive possession of any property of the decedent. Irse file It includes, among others, the decedent's agents and representatives; safe-deposit companies, warehouse companies, and other custodians of property in this country; brokers holding securities of the decedent as collateral; and the debtors of the decedent who are in this country. Irse file Duties The primary duties of a personal representative are to collect all the decedent's assets, pay his or her creditors, and distribute the remaining assets to the heirs or other beneficiaries. Irse file The personal representative also must perform the following duties. Irse file Apply for an employer identification number (EIN) for the estate. Irse file File all tax returns, including income, estate and gift tax returns, when due. Irse file Pay the tax determined up to the date of discharge from duties. Irse file Other duties of the personal representative in federal tax matters are discussed in other sections of this publication. Irse file If any beneficiary is a nonresident alien, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for information on the personal representative's duties as a withholding agent. Irse file Penalty. Irse file   There is a penalty for failure to file a tax return when due unless the failure is due to reasonable cause. Irse file Reliance on an agent (attorney, accountant, etc. Irse file ) is not reasonable cause for late filing. Irse file It is the personal representative's duty to file the returns for the decedent and the estate when due. Irse file Identification number. Irse file   The first action you should take if you are the personal representative for the decedent is to apply for an EIN for the estate. Irse file You should apply for this number as soon as possible because you need to enter it on returns, statements, and other documents you file concerning the estate. Irse file You also must give the number to payers of interest and dividends and other payers who must file a return concerning the estate. Irse file   You can get an EIN by applying online at www. Irse file irs. Irse file gov (click on "Apply for an EIN Online" under the Tools heading). Irse file Generally, if you apply online, you will receive your EIN immediately upon completing the application. Irse file You can also apply using Form SS-4, Application for Employer Identification Number. Irse file Generally, if you apply by mail, it takes about 4 weeks to get your EIN. Irse file See the form instructions for other ways to apply. Irse file   Payers of interest and dividends report amounts on Forms 1099 using the identification number of the person to whom the account is payable. Irse file After a decedent's death, Forms 1099 must reflect the identification number of the estate or beneficiary to whom the amounts are payable. Irse file As the personal representative handling the estate, you must furnish this identification number to the payer. Irse file For example, if interest is payable to the estate, the estate's EIN must be provided to the payer and used to report the interest on Form 1099-INT, Interest Income. Irse file If the interest is payable to a surviving joint owner, the survivor's identification number, such as an SSN or ITIN, must be provided to the payer and used to report the interest. Irse file   If the estate or a survivor may receive interest or dividends after you inform the payer of the decedent's death, the payer should give you (or the survivor) a Form W-9, Request for Taxpayer Identification Number and Certification (or a similar substitute form). Irse file Complete this form to inform the payer of the estate's (or if completed by the survivor, the survivor's) identification number and return it to the payer. Irse file    Do not use the deceased individual's identifying number to file an individual income tax return after the decedent's final tax return. Irse file Also do not use it to make estimated tax payments for a tax year after the year of death. Irse file Penalty. Irse file   If you do not include the EIN or the taxpayer identification number of another person where it is required on a return, statement, or other document, you are liable for a penalty for each failure, unless you can show reasonable cause. Irse file You also are liable for a penalty if you do not give the taxpayer identification number of another person when required on a return, statement, or other document. Irse file Notice of fiduciary relationship. Irse file   The term fiduciary means any person acting for another person. Irse file It applies to persons who have positions of trust on behalf of others. Irse file A personal representative for a decedent's estate is a fiduciary. Irse file Form 56. Irse file   If you are appointed to act in a fiduciary capacity for another, you must file a written notice with the IRS stating this. Irse file Form 56, Notice Concerning Fiduciary Relationship, is used for this purpose. Irse file See the Instructions for Form 56 for filing requirements and other information. Irse file   File Form 56 as soon as all the necessary information (including the EIN) is available. Irse file It notifies the IRS that you, as the fiduciary, are assuming the powers, rights, duties, and privileges of the decedent. Irse file The notice remains in effect until you notify the IRS (by filing another Form 56) that your fiduciary relationship with the estate has terminated. Irse file Termination of fiduciary relationship. Irse file   Form 56 should also be filed to notify the IRS if your fiduciary relationship is terminated or when a successor fiduciary is appointed if the estate has not been terminated. Irse file See Form 56 and its instructions for more information. Irse file   At the time of termination of the fiduciary relationship, you may want to file Form 4810, Request for Prompt Assessment Under Internal Revenue Code Section 6501(d), and Form 5495, Request for Discharge From Personal Liability Under Internal Revenue Code Section 2204 or 6905, to wind up your duties as fiduciary. Irse file See below for a discussion of these forms. Irse file Request for prompt assessment (charge) of tax. Irse file   The IRS ordinarily has 3 years from the date an income tax return is filed, or its due date, whichever is later, to charge any additional tax due. Irse file However, as a personal representative, you may request a prompt assessment of tax after the return has been filed. Irse file This reduces the time for making the assessment to 18 months from the date the written request for prompt assessment was received. Irse file This request can be made for any tax return (except the estate tax return) of the decedent or the decedent's estate. Irse file This may permit a quicker settlement of the tax liability of the estate and an earlier final distribution of the assets to the beneficiaries. Irse file Form 4810. Irse file   Form 4810 can be used for making this request. Irse file It must be filed separately from any other document. Irse file   As the personal representative for the decedent's estate, you are responsible for any additional taxes that may be due. Irse file You can request prompt assessment of any of the decedent's taxes (other than federal estate taxes) for any years for which the statutory period for assessment is open. Irse file This applies even though the returns were filed before the decedent's death. Irse file Failure to report income. Irse file   If you or the decedent failed to report substantial amounts of gross income (more than 25% of the gross income reported on the return) or filed a false or fraudulent return, your request for prompt assessment will not shorten the period during which the IRS may assess the additional tax. Irse file However, such a request may relieve you of personal liability for the tax if you did not have knowledge of the unpaid tax. Irse file Request for discharge from personal liability for tax. Irse file   An executor can make a request for discharge from personal liability for a decedent's income, gift, and estate taxes. Irse file The request must be made after the returns for those taxes are filed. Irse file To make the request, file Form 5495. Irse file For this purpose, an executor is an executor or administrator that is appointed, qualified, and acting within the United States. Irse file   Within 9 months after receipt of the request, the IRS will notify the executor of the amount of taxes due. Irse file If this amount is paid, the executor will be discharged from personal liability for any future deficiencies. Irse file If the IRS has not notified the executor, he or she will be discharged from personal liability at the end of the 9-month period. Irse file    Even if the executor is discharged from personal liability, the IRS will still be able to assess tax deficiencies against the executor to the extent he or she still has any of the decedent's property. Irse file Insolvent estate. Irse file   Generally, if a decedent's estate is insufficient to pay all the decedent's debts, the debts due to the United States must be paid first. Irse file Both the decedent's federal income tax liabilities at the time of death and the estate's income tax liability are debts due to the United States. Irse file The personal representative of an insolvent estate is personally responsible for any tax liability of the decedent or of the estate if he or she had notice of such tax obligations or failed to exercise due care in determining if such obligations existed before distribution of the estate's assets and before being discharged from duties. Irse file The extent of such personal responsibility is the amount of any other payments made before paying the debts due to the United States, except where such other debt paid has priority over the debts due to the United States. Irse file Income tax liabilities need not be formally assessed for the personal representative to be liable if he or she was aware or should have been aware of their existence. Irse file Fees Received by Personal Representatives All personal representatives must include fees paid to them from an estate in their gross income. Irse file If you are not in the trade or business of being an executor (for instance, you are the executor of a friend's or relative's estate), report these fees on your Form 1040, line 21. Irse file If you are in the trade or business of being an executor, report fees received from the estate as self-employment income on Schedule C or Schedule C-EZ of your Form 1040. Irse file If the estate operates a trade or business and you, as executor, actively participate in the trade or business while fulfilling your duties, any fees you receive related to the operation of the trade or business must be reported as self-employment income on Schedule C (or Schedule C-EZ) of your Form 1040. Irse file Final Income Tax Return for Decedent—Form 1040 The personal representative (defined earlier) must file the final income tax return (Form 1040) of the decedent for the year of death and any returns not filed for preceding years. Irse file A surviving spouse, under certain circumstances, may have to file the returns for the decedent. Irse file See Joint Return, later. Irse file Return for preceding year. Irse file   If an individual died after the close of the tax year, but before the return for that year was filed, the return for the year just closed will not be the final return. Irse file The return for that year will be a regular return and the personal representative must file it. Irse file Example. Irse file Samantha Smith died on March 21, 2013, before filing her 2012 tax return. Irse file Her personal representative must file her 2012 return by April 15, 2013. Irse file Her final tax return covering the period from January 1, 2013, to March 20, 2013, is due April 15, 2014. Irse file Name, Address, and Signature Write the word “DECEASED,” the decedent's name, and the date of death across the top of the tax return. Irse file If filing a joint return, write the name and address of the decedent and the surviving spouse in the name and address fields. Irse file If a joint return is not being filed, write the decedent's name in the name field and the personal representative's name and address in the address field. Irse file Third party designee. Irse file   You can check the “Yes” box in the Third Party Designee area on page 2 of the return to authorize the IRS to discuss the return with a friend, family member, or any other person you choose. Irse file This allows the IRS to call the person you identified as the designee to answer any questions that may arise during the processing of the return. Irse file It also allows the designee to perform certain actions. Irse file See the Instructions for Form 1040 for details. Irse file Signature. Irse file   If a personal representative has been appointed, that person must sign the return. Irse file If it is a joint return, the surviving spouse must also sign it. Irse file If no personal representative has been appointed, the surviving spouse (on a joint return) signs the return and writes in the signature area “Filing as surviving spouse. Irse file ” If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. Irse file ” Paid preparer. Irse file   If you pay someone to prepare, assist in preparing, or review the tax return, that person must sign the return and fill in the other blanks in the Paid Preparer Use Only area of the return. Irse file See the Form 1040 instructions for details. Irse file When and Where To File The final income tax return is due at the same time the decedent's return would have been due had death not occurred. Irse file A final return for a decedent who was a calendar year taxpayer is generally due on April 15 following the year of death, regardless of when during that year death occurred. Irse file However, when the due date falls on a Saturday, Sunday, or legal holiday, the return is filed timely if filed by the next business day. Irse file The tax return must be prepared for the year of death regardless of when during the year death occurred. Irse file Generally, you must file the final income tax return of the decedent with the Internal Revenue Service Center for the place where you live. Irse file A tax return for a decedent can be electronically filed. Irse file A personal representative may also obtain an income tax filing extension on behalf of a decedent. Irse file Filing Requirements The gross income, age, and filing status of a decedent generally determine whether a return must be filed. Irse file Gross income is all income received by an individual from any source in the form of money, goods, property, and services that is not tax-exempt. Irse file It includes gross receipts from self-employment, but if the business involves manufacturing, merchandising, or mining, subtract any cost of goods sold. Irse file In general, filing status depends on whether the decedent was considered single or married at the time of death. Irse file See the income tax return instructions or Publication 501, Exemptions, Standard Deduction, and Filing Information. Irse file Refund A return must be filed to obtain a refund if tax was withheld from salaries, wages, pensions, or annuities, or if estimated tax was paid, even if a return is not otherwise required to be filed. Irse file Also, the decedent may be entitled to other credits that result in a refund. Irse file These advance payments of tax and credits are discussed later under Credits, Other Taxes, and Payments. Irse file Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer. Irse file   Form 1310 does not have to be filed if you are claiming a refund and you are: A surviving spouse filing an original or amended joint return with the decedent, or A court-appointed or certified personal representative filing the decedent’s original return and a copy of the court certificate showing your appointment is attached to the return. Irse file   If the personal representative is filing a claim for refund on Form 1040X, Amended U. Irse file S. Irse file Individual Income Tax Return, or Form 843, Claim for Refund and Request for Abatement, and the court certificate has already been filed with the IRS, attach Form 1310 and write “Certificate Previously Filed” at the bottom of the form. Irse file Example. Irse file Edward Green died before filing his tax return. Irse file You were appointed the personal representative for Edward's estate, and you file his Form 1040 showing a refund due. Irse file You do not need Form 1310 to claim the refund if you attach a copy of the court certificate showing you were appointed the personal representative. Irse file    If you are a surviving spouse and you receive a tax refund check in both your name and your deceased spouse's name, you can have the check reissued in your name alone. Irse file Return the joint-name check marked “VOID” to your local IRS office or the service center where you mailed your return, along with a written request for reissuance of the refund check. Irse file A new check will be issued in your name and mailed to you. Irse file Death certificate. Irse file   When filing the decedent's final income tax return, do not attach the death certificate or other proof of death to the final return. Irse file Instead, keep it for your records and provide it if requested. Irse file Nonresident Alien If the decedent was a nonresident alien who would have had to file Form 1040NR, U. Irse file S. Irse file Nonresident Alien Income Tax Return, you must file that form for the decedent's final tax year. Irse file See the Instructions for Form 1040NR for the filing requirements, due date, and where to file. Irse file Joint Return Generally, the personal representative and the surviving spouse can file a joint return for the decedent and the surviving spouse. Irse file However, the surviving spouse alone can file the joint return if no personal representative has been appointed before the due date for filing the final joint return for the year of death. Irse file This also applies to the return for the preceding year if the decedent died after the close of the preceding tax year and before filing the return for that year. Irse file The income of the decedent that was includible on his or her return for the year up to the date of death (see Income To Include, later) and the income of the surviving spouse for the entire year must be included in the final joint return. Irse file A final joint return with the decedent cannot be filed if the surviving spouse remarried before the end of the year of the decedent's death. Irse file The filing status of the decedent in this instance is married filing a separate return. Irse file For information about tax benefits to which a surviving spouse may be entitled, see Tax Benefits for Survivors, later, under Other Tax Information. Irse file Personal representative may revoke joint return election. Irse file   A court-appointed personal representative may revoke an election to file a joint return previously made by the surviving spouse alone. Irse file This is done by filing a separate return for the decedent within one year from the due date of the return (including any extensions). Irse file The joint return made by the surviving spouse will then be regarded as the separate return of that spouse by excluding the decedent's items and refiguring the tax liability. Irse file Relief from joint liability. Irse file   In some cases, one spouse may be relieved of joint liability for tax, interest, and penalties on a joint return for items of the other spouse that were incorrectly reported on the joint return. Irse file If the decedent qualified for this relief while alive, the personal representative can pursue an existing request, or file a request, for relief from joint liability. Irse file For information on requesting this relief, see Publication 971, Innocent Spouse Relief. Irse file Income To Include The decedent's income includible on the final return is generally determined as if the person were still alive except that the taxable period is usually shorter because it ends on the date of death. Irse file The method of accounting regularly used by the decedent before death also determines the income includible on the final return. Irse file This section explains how some types of income are reported on the final return. Irse file For more information about accounting methods, see Publication 538, Accounting Periods and Methods. Irse file Cash Method If the decedent accounted for income under the cash method, only those items actually or constructively received before death are included on the final return. Irse file Constructive receipt of income. Irse file   Interest from coupons on the decedent's bonds is constructively received by the decedent if the coupons matured in the decedent's final tax year, but had not been cashed. Irse file Include the interest income on the final return. Irse file   Generally, a dividend is considered constructively received if it was available for use by the decedent without restriction. Irse file If the corporation customarily mailed its dividend checks, the dividend was includible when received. Irse file If the individual died between the time the dividend was declared and the time it was received in the mail, the decedent did not constructively receive it before death. Irse file Do not include the dividend in the final return. Irse file Accrual Method Generally, under an accrual method of accounting, income is reported when earned. Irse file If the decedent used an accrual method, only the income items normally accrued before death are included on the final return. Irse file Interest and Dividend Income (Forms 1099) Form(s) 1099 reporting interest and dividends earned by the decedent before death should be received and the amounts included on the decedent's final return. Irse file A separate Form 1099 should show the interest and dividends earned after the date of the decedent's death and paid to the estate or other recipient that must include those amounts on its return. Irse file You can request corrected Forms 1099 if these forms do not properly reflect the right recipient or amounts. Irse file For example, a Form 1099-INT, reporting interest payable to the decedent, may include income that should be reported on the final income tax return of the decedent, as well as income that the estate or other recipient should report, either as income earned after death or as income in respect of the decedent (discussed later). Irse file For income earned after death, you should ask the payer for a Form 1099 that properly identifies the recipient (by name and identification number) and the proper amount. Irse file If that is not possible, or if the form includes an amount that represents income in respect of the decedent, report the interest as shown next under How to report. Irse file See U. Irse file S. Irse file savings bonds acquired from decedent under Income in Respect of a Decedent, later, for information on savings bond interest that may have to be reported on the final return. Irse file How to report. Irse file   If you are preparing the decedent's final return and you have received a Form 1099-INT for the decedent that includes amounts belonging to the decedent and to another recipient (the decedent's estate or another beneficiary), report the total interest shown on Form 1099-INT on Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. Irse file Next, enter a subtotal of the interest shown on Forms 1099, and the interest reportable from other sources for which you did not receive Forms 1099. Irse file Then, show any interest (including any interest you receive as a nominee) belonging to another recipient separately and subtract it from the subtotal. Irse file Identify the amount of this adjustment as “Nominee Distribution” or other appropriate designation. Irse file   Report dividend income for which you received a Form 1099-DIV, Dividends and Distributions, on the appropriate schedule using the same procedure. Irse file    Note. Irse file If the decedent received amounts as a nominee, you must give the actual owner a Form 1099, unless the owner is the decedent's spouse. Irse file See General Instructions for Certain Information Returns (Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G) for more information on filing Forms 1099. Irse file Partnership Income The death of a partner closes the partnership's tax year for that partner. Irse file Generally, it does not close the partnership's tax year for the remaining partners. Irse file The decedent's distributive share of partnership items must be figured as if the partnership's tax year ended on the date the partner died. Irse file To avoid an interim closing of the partnership books, the partners can agree to estimate the decedent's distributive share by prorating the amounts the partner would have included for the entire partnership tax year. Irse file On the decedent's final return, include the decedent's distributive share of partnership items for the following periods. Irse file The partnership's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). Irse file The period, if any, from the end of the partnership's tax year in (1) to the decedent's date of death. Irse file Example. Irse file Mary Smith was a partner in XYZ partnership and reported her income on a tax year ending December 31. Irse file The partnership uses a tax year ending June 30. Irse file Mary died August 31, 2013, and her estate established its tax year through August 31. Irse file The distributive share of partnership items based on the decedent's partnership interest is reported as follows. Irse file Final Return for the Decedent—January 1 through August 31, 2013, includes XYZ partnership items from (a) the partnership tax year ending June 30, 2013, and (b) the partnership tax year beginning July 1, 2013, and ending August 31, 2013 (the date of death). Irse file Income Tax Return of the Estate—September 1, 2013, through August 31, 2014, includes XYZ partnership items for the period September 1, 2013, through June 30, 2014. Irse file S Corporation Income If the decedent was a shareholder in an S corporation, include on the final return the decedent's share of the S corporation's items of income, loss, deduction, and credit for the following periods. Irse file The corporation's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). Irse file The period, if any, from the end of the corporation's tax year in (1) to the decedent's date of death. Irse file Self-Employment Income Include self-employment income actually or constructively received or accrued, depending on the decedent's accounting method. Irse file For self-employment tax purposes only, the decedent's self-employment income will include the decedent's distributive share of a partnership's income or loss through the end of the month in which death occurred. Irse file For this purpose, the partnership's income or loss is considered to be earned ratably over the partnership's tax year. Irse file Community Income If the decedent was married and domiciled in a community property state, half of the income received and half of the expenses paid during the decedent's tax year by either the decedent or spouse may be considered to be the income and expenses of the other. Irse file For more information, see Publication 555, Community Property. Irse file HSA, Archer MSA, or Medicare Advantage MSA The treatment of an HSA (health savings account), an Archer MSA (medical savings account), or a Medicare Advantage MSA at the death of the account holder, depends on who acquires the interest in the account. Irse file If the decedent's estate acquires the interest, the fair market value (FMV) of the assets in the account on the date of death is included in income on the decedent's final return. Irse file The estate tax deduction, discussed later, does not apply to this amount. Irse file If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. Irse file For other information on HSAs, Archer MSAs, or Medicare Advantage MSAs, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Irse file Coverdell Education Savings Account (ESA) Generally, the balance in a Coverdell ESA must be distributed within 30 days after the individual for whom the account was established reaches age 30, or dies, whichever is earlier. Irse file The treatment of the Coverdell ESA at the death of an individual under age 30 depends on who acquires the interest in the account. Irse file If the decedent's estate acquires the interest, the earnings on the account must be included on the final income tax return of the decedent. Irse file The estate tax deduction, discussed later, does not apply to this amount. Irse file If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. Irse file The age 30 limitation does not apply if the individual for whom the account was established or the beneficiary that acquires the account is an individual with special needs. Irse file This includes an individual who, because of a physical, mental, or emotional condition (including a learning disability), requires additional time to complete his or her education. Irse file For more information on Coverdell ESAs, see Publication 970, Tax Benefits for Education. Irse file Accelerated Death Benefits Accelerated death benefits are amounts received under a life insurance contract before the death of the insured individual. Irse file These benefits also include amounts received on the sale or assignment of the contract to a viatical settlement provider. Irse file Generally, if the decedent received accelerated death benefits on the life of a terminally or chronically ill individual, whether on his or her own life or on the life of another person, those benefits are not included in the decedent's income. Irse file For more information, see the discussion under Gifts, Insurance, and Inheritances under Other Tax Information, later. Irse file Exemptions and Deductions Generally, the rules for exemptions and deductions allowed to an individual also apply to the decedent's final income tax return. Irse file Show on the final return deductible items the decedent paid (or accrued, if the decedent reported deductions on an accrual method) before death. Irse file This section contains a detailed discussion of medical expenses because the tax treatment of the decedent's medical expenses can be different. Irse file See Medical Expenses, later. Irse file Exemptions You can claim the decedent's personal exemption on the final income tax return. Irse file If the decedent was another person's dependent (for example, a parent's), you cannot claim the personal exemption on the decedent's final return. Irse file Standard Deduction If you do not itemize deductions on the final return, the full amount of the appropriate standard deduction is allowed regardless of the date of death. Irse file For information on the appropriate standard deduction, see the Form 1040 income tax return instructions or Publication 501. Irse file Medical Expenses Medical expenses paid before death by the decedent are deductible, subject to limits, on the final income tax return if deductions are itemized. Irse file This includes expenses for the decedent, as well as for the decedent's spouse and dependents. Irse file Beginning in 2013, medical expenses exceeding 10% of adjusted gross income (AGI) may be deducted, unless the decedent or their spouse is age 65 or older. Irse file In that case medical expenses exceeding 7. Irse file 5% of AGI may be deducted. Irse file Qualified medical expenses are not deductible if paid with a tax-free distribution from an HSA or an Archer MSA. Irse file Election for decedent's expenses. Irse file   Medical expenses not paid before death are liabilities of the estate and are shown on the federal estate tax return (Form 706). Irse file However, if medical expenses for the decedent are paid out of the estate during the 1-year period beginning with the day after death, you can elect to treat all or part of the expenses as paid by the decedent at the time they were incurred. Irse file   If you make the election, you can claim all or part of the expenses on the decedent's income tax return (if deductions are itemized) rather than on the federal estate tax return (Form 706). Irse file You can deduct expenses incurred in the year of death on the final income tax return. Irse file You should file an amended return (Form 1040X) for medical expenses incurred in an earlier year, unless the statutory period for filing a claim for that year has expired. Irse file   The amount you can deduct on the income tax return is the amount above 10% of adjusted gross income (or 7. Irse file 5% of adjusted gross income if the decedent or the decedent's spouse was born before January 2, 1949). Irse file Amounts not deductible because of this percentage cannot be claimed on the federal estate tax return. Irse file Making the election. Irse file   You make the election by attaching a statement, in duplicate, to the decedent's income tax return or amended return. Irse file The statement must state that you have not claimed the amount as an estate tax deduction, and that the estate waives the right to claim the amount as a deduction. Irse file This election applies only to expenses incurred for the decedent, not to expenses incurred to provide medical care for dependents. Irse file Example. Irse file Richard Brown used the cash method of accounting and filed his income tax return on a calendar year basis. Irse file Richard died on June 1, 2013, at the age of 78, after incurring $800 in medical expenses. Irse file Of that amount, $500 was incurred in 2012 and $300 was incurred in 2013. Irse file Richard itemized his deductions when he filed his 2012 income tax return. Irse file The personal representative of the estate paid the entire $800 liability in August 2013. Irse file The personal representative may file an amended return (Form 1040X) for 2012 claiming the $500 medical expense as a deduction, subject to the 7. Irse file 5% limit. Irse file The $300 of expenses incurred in 2013 can be deducted on the final income tax return if deductions are itemized, subject to the 7. Irse file 5% limit. Irse file The personal representative must file a statement in duplicate with each return stating that these amounts have not been claimed on the federal estate tax return (Form 706), and waiving the right to claim such a deduction on Form 706 in the future. Irse file Medical expenses not paid by estate. Irse file   If you paid medical expenses for your deceased spouse or dependent, claim the expenses on your tax return for the year in which you paid them, whether they are paid before or after the decedent's death. Irse file If the decedent was a child of divorced or separated parents, the medical expenses can usually be claimed by both the custodial and noncustodial parent to the extent paid by that parent during the year. Irse file Insurance reimbursements. Irse file   Insurance reimbursements of previously deducted medical expenses due a decedent at the time of death and later received by the decedent's estate are includible in the income tax return of the estate (Form 1041) for the year the reimbursements are received. Irse file The reimbursements are also includible in the decedent's gross estate. Irse file No deduction for funeral expenses can be taken on the final Form 1040 of a decedent. Irse file These expenses may be deductible for estate tax purposes on Form 706. Irse file Deduction for Losses A decedent's net operating loss deduction from a prior year and any capital losses (including capital loss carryovers) can be deducted only on the decedent's final income tax return. Irse file A net operating loss on the decedent's final income tax return can be carried back to prior years. Irse file (See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Irse file ) You cannot deduct any unused net operating loss or capital loss on the estate's income tax return. Irse file At-risk loss limits. Irse file   Special at-risk rules apply to most activities that are engaged in as a trade or business or for the production of income. Irse file   These rules limit the deductible loss to the amount which the individual was considered at-risk in the activity. Irse file An individual generally will be considered at-risk to the extent of the money and the adjusted basis of property that he or she contributed to the activity and certain amounts the individual borrowed for use in the activity. Irse file An individual will be considered at-risk for amounts borrowed only if he or she was personally liable for the repayment or if the amounts borrowed were secured by property other than that used in the activity. Irse file The individual is not considered at-risk for borrowed amounts if the lender has an interest in the activity or if the lender is related to a person who has an interest in the activity. Irse file For more information, see Publication 925, Passive Activity and At-Risk Rules. Irse file Passive activity rules. Irse file   A passive activity is any trade or business activity in which the taxpayer does not materially participate. Irse file To determine material participation, see Publication 925. Irse file Rental activities are passive activities regardless of the taxpayer's participation, unless the taxpayer meets certain eligibility requirements. Irse file   Individuals, estates, and trusts can offset passive activity losses only against passive activity income. Irse file Passive activity losses or credits not allowed in one tax year can be carried forward to the next year. Irse file   If a passive activity interest is transferred because a taxpayer dies, the accumulated unused passive activity losses are allowed as a deduction against the decedent's income in the year of death. Irse file Losses are allowed only to the extent they are greater than the excess of the transferee's (recipient of the interest transferred) basis in the property over the decedent's adjusted basis in the property immediately before death. Irse file The part of the accumulated losses equal to the excess is not allowed as a deduction for any tax year. Irse file   Use Form 8582, Passive Activity Loss Limitations, to summarize losses and income from passive activities and to figure the amounts allowed. Irse file For more information, see Publication 925. Irse file Credits, Other Taxes, and Payments Discussed below are some of the tax credits, types of taxes that may be owed, income tax withheld, and estimated tax payments reported on the final return of a decedent. Irse file Credits On the final income tax return, you can claim any tax credits that applied to the decedent before death. Irse file Some of these credits are discussed next. Irse file Earned income credit. Irse file   If the decedent was an eligible individual, you can claim the earned income credit on the decedent's final return even though the return covers less than 12 months. Irse file If the allowable credit is more than the tax liability for the year, the excess is refunded. Irse file   For more information, see Publication 596, Earned Income Credit (EIC). Irse file Credit for the elderly or the disabled. Irse file   This credit is allowable on a decedent's final income tax return if the decedent met both of the following requirements in the year of death. Irse file The decedent: Was a “qualified individual,” and Had income (adjusted gross income (AGI) and nontaxable social security and pensions) less than certain limits. Irse file   For details on qualifying for or figuring the credit, see Publication 524, Credit for the Elderly or the Disabled. Irse file Child tax credit. Irse file   If the decedent had a qualifying child, you may be able to claim the child tax credit on the decedent's final return even though the return covers less than 12 months. Irse file You may be able to claim the additional child tax credit and get a refund if the credit is more than the decedent's liability. Irse file For more information, see the Instructions for Form 1040. Irse file Adoption credit. Irse file   Depending upon when the adoption was finalized, this credit may be taken on a decedent's final income tax return if the decedent: Adopted an eligible child and paid qualified adoption expenses, or Has a carryforward of an adoption credit from a prior year. Irse file   Also, if the decedent is survived by a spouse who meets the filing status of qualifying widow(er), unused adoption credit may be carried forward and used following the death of the decedent. Irse file See Form 8839, Qualified Adoption Expenses, and its instructions for more details. Irse file General business tax credit. Irse file   The general business credit available to a taxpayer is limited. Irse file Any credit arising in a tax year beginning before 1998 that has not been used up can be carried forward for up to 15 years. Irse file Any unused credit arising in a tax year beginning after 1997 has a 1-year carryback and a 20-year carryforward period. Irse file   After the carryforward period, a deduction may be allowed for any unused business credit. Irse file If the taxpayer dies before the end of the carryforward period, the deduction generally is allowed in the year of death. Irse file   For more information on the general business credit, see Publication 334, Tax Guide for Small Business. Irse file Other Taxes Taxes other than income tax that may be owed on the final return of a decedent include self-employment tax and alternative minimum tax, which are reported on Form 1040. Irse file Self-employment tax. Irse file   Self-employment tax may be owed on the final return if either of the following applied to the decedent in the year of death: Net earnings from self-employment (excluding income described in (2)) were $400 or more; or Wages from services performed as a church employee were $108. Irse file 28 or more. Irse file Alternative minimum tax (AMT). Irse file   The tax laws give special treatment to certain types of income and allow special deductions and credits for certain types of expenses. Irse file The alternative minimum tax (AMT) was enacted so taxpayers who benefit from these laws still pay at least a minimum amount of tax. Irse file In general, the AMT is the excess of the tentative minimum tax over the regular tax shown on the return. Irse file Form 6251. Irse file    Use Form 6251, Alternative Minimum Tax—Individuals, to determine if this tax applies to the decedent. Irse file See the form instructions for information on when you must attach Form 6251 to Form 1040. Irse file Form 8801. Irse file   If the decedent paid AMT in a previous year or had a credit carryforward, the decedent may be eligible for a minimum tax credit. Irse file See Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts. Irse file Payments of Tax The income tax withheld from the decedent's salary, wages, pensions, or annuities, and the amount paid as estimated tax are credits (advance payments of tax) that must be claimed on the final return. Irse file Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Income tax liability may be forgiven for a decedent who dies due to service in a combat zone, due to military or terrorist actions, as a result of a terrorist attack, or while serving in the line of duty as an astronaut. Irse file Combat Zone If a member of the Armed Forces of the United States dies while in active service in a combat zone or from wounds, disease, or injury incurred in a combat zone, the decedent's income tax liability is abated (forgiven) for the entire year in which death occurred and for any prior tax year ending on or after the first day the person served in a combat zone in active service. Irse file For this purpose, a qualified hazardous duty area is treated as a combat zone. Irse file If the tax (including interest, additions to the tax, and additional amounts) for these years has been assessed, the assessment will be forgiven. Irse file If the tax has been collected (regardless of the date of collection), that tax will be credited or refunded. Irse file Any of the decedent's income tax for tax years before those mentioned above that remains unpaid as of the actual (or presumptive) date of death will not be assessed. Irse file If any unpaid tax (including interest, additions to the tax, and additional amounts) has been assessed, this assessment will be forgiven. Irse file Also, if any tax was collected after the date of death, that amount will be credited or refunded. Irse file The date of death of a member of the Armed Forces reported as missing in action or as a prisoner of war is the date his or her name is removed from missing status for military pay purposes. Irse file This is true even if death actually occurred earlier. Irse file For other tax information for members of the Armed Forces, see Publication 3, Armed Forces' Tax Guide. Irse file Military or Terrorist Actions The decedent's income tax liability is forgiven if, at death, he or she was a military or civilian employee of the United States who died because of wounds or injury incurred: While a U. Irse file S. Irse file employee, and In a military or terrorist action. Irse file The forgiveness applies to the tax year in which death occurred and for any earlier tax year, beginning with the year before the year in which the wounds or injury occurred. Irse file Example. Irse file The income tax liability of a civilian employee of the United States who died in 2013 because of wounds incurred while a U. Irse file S. Irse file employee in a terrorist attack that occurred in 2008 will be forgiven for 2013 and for all prior tax years in the period 2007 through 2012. Irse file Refunds are allowed for the tax years for which the period for filing a claim for refund has not ended, as discussed later. Irse file Military or terrorist action defined. Irse file   A military or terrorist action means the following. Irse file Any terrorist activity that most of the evidence indicates was directed against the United States or any of its allies. Irse file Any military action involving the U. Irse file S. Irse file Armed Forces and resulting from violence or aggression against the United States or any of its allies, or the threat of such violence or aggression. Irse file   Terrorist activity includes criminal offenses intended to coerce, intimidate, or retaliate against the government or civilian population. Irse file Military action does not include training exercises. Irse file Any multinational force in which the United States is participating is treated as an ally of the United States. Irse file Determining if a terrorist activity or military action has occurred. Irse file   You may rely on published guidance from the IRS to determine if a particular event is considered a terrorist activity or military action. Irse file Specified Terrorist Victim The Victims of Terrorism Tax Relief Act of 2001 (the Act) provides tax relief for those injured or killed as a result of terrorist attacks, certain survivors of those killed as a result of terrorist attacks, and others who were affected by terrorist attacks. Irse file Under the Act, the federal income tax liability of those killed in the following attacks (specified terrorist victim) is forgiven for certain tax years. Irse file The April 19, 1995, terrorist attack on the Alfred P. Irse file Murrah Federal Building (Oklahoma City). Irse file The September 11, 2001, terrorist attacks. Irse file The terrorist attacks involving anthrax occurring after September 10, 2001, and before January 1, 2002. Irse file The Act also exempts from federal income tax the following types of income. Irse file Qualified disaster relief payments made after September 10, 2001, to cover personal, family, living, or funeral expenses incurred because of a terrorist attack. Irse file Certain disability payments received in tax years ending after September 10, 2001, for injuries sustained in a terrorist attack. Irse file Certain death benefits paid by an employer to the survivor of an employee because the employee died as a result of a terrorist attack. Irse file Payments from the September 11th Victim Compensation Fund 2001. Irse file The Act also reduces the estate tax of individuals who die as a result of a terrorist attack. Irse file See Publication 3920, Tax Relief for Victims of Terrorist Attacks, for more information. Irse file Astronauts Legislation extended the tax relief available under the Victims of Terrorism Tax Relief Act of 2001 (the Act) to astronauts who died in the line of duty after December 31, 2002. Irse file The decedent's income tax liability is forgiven for the tax year in which death occurs, and for the tax year prior to death. Irse file For information on death benefit payments and the reduction of federal estate taxes, see Publication 3920. Irse file However, the discussions in that publication under Death Benefits and Estate Tax Reduction should be modified for astronauts (for example, by using the date of death of the astronaut instead of September 11, 2001). Irse file For more information on the Act, see Publication 3920. Irse file Claim for Credit or Refund If any of these tax-forgiveness situations applies to a prior year tax, any tax paid for which the period for filing a claim has not ended will be credited or refunded. Irse file If any tax is still due, it will be canceled. Irse file The normal period for filing a claim for credit or refund is 3 years after the return was filed or 2 years after the tax was paid, whichever is later. Irse file If death occurred in a combat zone or from wounds, disease, or injury incurred in a combat zone, the period for filing the claim is extended by: The amount of time served in the combat zone (including any period in which the individual was in missing status), plus The period of continuous qualified hospitalization for injury from service in the combat zone, if any, plus The next 180 days. Irse file Qualified hospitalization means any hospitalization outside the United States and any hospitalization in the United States of not more than 5 years. Irse file This extended period for filing the claim also applies to a member of the Armed Forces who was deployed outside the United States in a designated contingency operation. Irse file Filing a claim. Irse file   Use the following procedures to file a claim. Irse file If a U. Irse file S. Irse file individual income tax return (Form 1040, 1040A, or 1040EZ) has not been filed, you should make a claim for refund of any withheld income tax or estimated tax payments by filing Form 1040. Irse file Form W-2, Wage and Tax Statement, must accompany all returns. Irse file If a U. Irse file S. Irse file individual income tax return has been filed, you should make a claim for refund by filing Form 1040X. Irse file You must file a separate Form 1040X for each year in question. Irse file   You must file these returns and claims at the following address for regular mail (U. Irse file S. Irse file Postal Service). Irse file    Internal Revenue Service 333 W. Irse file Pershing, P5–6503 Kansas City, MO 64108   Identify all returns and claims for refund by writing “Iraq—KIA,” “Enduring Freedom—KIA,” “Kosovo Operation—KIA,” “Desert Storm—KIA,” or “Former Yugoslavia—KIA” in bold letters on the top of page 1 of the return or claim. Irse file On the applicable return, write the same phrase on the line for total tax. Irse file If the individual was killed in a terrorist or military action, put “KITA” on the front of the return and on the line for total tax. Irse file   Include an attachment showing the computation of the decedent's tax liability and a computation of the amount to be forgiven. Irse file On joint returns, make an allocation of the tax as described below under Joint returns. Irse file If you cannot make a proper allocation, attach a statement of all income and deductions allocable to each spouse and the IRS will make the proper allocation. Irse file   You must attach Form 1310 to all returns and claims for refund. Irse file However, for exceptions to filing Form 1310, see Form 1310. Irse file Statement of Person Claiming Refund Due a Deceased Taxpayer, under Refund, earlier. Irse file   You must also attach proof of death that includes a statement that the individual was a U. Irse file S. Irse file employee on the date of injury and on the date of death and died as the result of a military or terrorist action. Irse file For military and civilian employees of the Department of Defense, attach DD Form 1300, Report of Casualty. Irse file For other U. Irse file S. Irse file civilian employees killed in the United States, attach a death certificate and a certification (letter) from the federal employer. Irse file For other U. Irse file S. Irse file civilian employees killed overseas, attach a certification from the Department of State. Irse file   If you do not have enough tax information to file a timely claim for refund, you can suspend the period for filing a claim by filing Form 1040X. Irse file Attach Form 1310, any required documentation currently available, and a statement that you will file an amended claim as soon as you have the required tax information. Irse file Joint returns. Irse file   If a joint return was filed, only the decedent's part of the income tax liability is eligible for forgiveness. Irse file Determine the decedent's tax liability as follows. Irse file Figure the income tax for which the decedent would have been liable if a separate return had been filed. Irse file Figure the income tax for which the spouse would have been liable if a separate return had been filed. Irse file Multiply the joint tax liability by a fraction. Irse file The numerator of the fraction is the amount in (1), above. Irse file The denominator of the fraction is the total of (1) and (2). Irse file   The resulting amount from (3) above is the decedent's tax liability eligible for forgiveness. Irse file Filing Reminders To minimize the time needed to process the decedent's final return and issue any refund, be sure to follow these procedures. Irse file Write “DECEASED,” the decedent's name, and the date of death across the top of the tax return. Irse file If a personal representative has been appointed, the personal representative must sign the return. Irse file If it is a joint return, the surviving spouse must also sign it. Irse file If you are the decedent's spouse filing a joint return with the decedent and no personal representative has been appointed, write “Filing as surviving spouse” in the area where you sign the return. Irse file If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. Irse file ” To claim a refund for the decedent, do the following. Irse file If you are the decedent's spouse filing a joint return with the decedent, file only the tax return to claim the refund. Irse file If you are the personal representative and the return is not a joint return filed with the decedent's surviving spouse, file the return and attach a copy of the certificate that shows your appointment by the court. Irse file (A power of attorney or a copy of the decedent's will is not acceptable evidence of your appointment as the personal representative. Irse file ) If you are filing an amended return, attach Form 1310 and a copy of the certificate of appointment (or, if you have already sent the certificate of appointment to IRS, write “Certificate Previously Filed” at the bottom of Form 1310). Irse file If you are not filing a joint return as the surviving spouse and a personal representative has not been appointed, file the return and attach Form 1310. Irse file Other Tax Information Discussed below is information about the effect of an individual's death on the income tax liability of the survivors (including widows and widowers), the beneficiaries, and the estate. Irse file Tax Benefits for Survivors Survivors can qualify for certain benefits when filing their own income tax returns. Irse file Joint return by surviving spouse. Irse file   A surviving spouse can file a joint return for the year of death and may qualify for special tax rates for the following 2 years, as explained under Qualifying widows and widowers, later. Irse file Decedent as your dependent. Irse file   If the decedent qualified as your dependent for a part of the year before death, you can claim the exemption for the dependent on your tax return, regardless of when death occurred during the year. Irse file   If the decedent was your qualifying child, you may be able to claim the child tax credit or the earned income credit. Irse file To determine if you qualify for the child tax credit, see the instructions for Form 1040, line 51; Form 1040A, line 33; or Form 1040NR, line 48. Irse file To determine if you qualify for the earned income credit, see the instructions for Form 1040, lines 64a and 64b or Form 1040A, lines 38a and 38b. Irse file Qualifying widows and widowers. Irse file   If your spouse died within the 2 tax years preceding the year for which your return is being filed, you may be eligible to claim the filing status of qualifying widow(er) with dependent child and qualify to use the married-filing-jointly tax rates. Irse file Requirements. Irse file   Generally, you qualify for this special benefit if you meet all of the following requirements. Irse file You were entitled to file a joint return with your spouse for the year of death—whether or not you actually filed jointly. Irse file You did not remarry before the end of the current tax year. Irse file You have a child, stepchild, or foster child who qualifies as your dependent for the tax year. Irse file You provide more than half the cost of maintaining your home, which is the principal residence of that child for the entire year except for temporary absences. Irse file Example. Irse file William Burns' wife died in 2010. Irse file William has not remarried and continued throughout 2011 and 2012 to maintain a home for himself and his dependent child. Irse file For 2010, he was entitled to file a joint return for himself and his deceased wife. Irse file For 2011 and 2012, he qualifies to file as a qualifying widower with dependent child. Irse file For later years, he may qualify to file as a head of household. Irse file Figuring your tax. Irse file   Check the box on line 5 (Form 1040 or 1040A) under Filing Status on your tax return. Irse file Use the Tax Rate Schedule or the column in the Tax Table for Married filing jointly, which gives you the split-income benefits. Irse file   The last year you can file jointly with, or claim an exemption for, your deceased spouse is the year of death. Irse file Joint return filing rules. Irse file   If you are the surviving spouse and a personal representative is handling the estate for the decedent, you should coordinate filing your return for the year of death with this personal representative. Irse file See Joint Return under Final Income Tax Return for Decedent—Form 1040, earlier. Irse file Income in Respect of a Decedent All income the decedent would have received had death not occurred that was not properly includible on the final return, discussed earlier, is income in respect of a decedent. Irse file If the decedent is a specified terrorist victim (see Specified Terrorist Victim, earlier), income received after the date of death and before the end of the decedent's tax year (determined without regard to death) is excluded from the recipient's gross income. Irse file This exclusion does not apply to certain income. Irse file For more information, see Publication 3920. Irse file How To Report Income in respect of a decedent must be included in the income of one of the following. Irse file The decedent's estate, if the estate receives it. Irse file The beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it. Irse file Any person to whom the estate properly distributes the right to receive it. Irse file If you have to include income in respect of a decedent in your gross income and an estate tax return (Form 706) was filed for the decedent, you may be able to claim a deduction for the estate tax paid on that income. Irse file See Estate Tax Deduction, later. Irse file Example 1. Irse file Frank Johnson owned and operated an apple orchard. Irse file He used the cash method of accounting. Irse file He sold and delivered 1,000 bushels of apples to a canning factory for $2,000, but did not receive payment before his death. Irse file The proceeds from the sale are income in respect of a decedent. Irse file When the estate was settled, payment had not been made and the estate transferred the right to the payment to his widow. Irse file When Frank's widow collects the $2,000, she must include that amount in her return. Irse file It is not reported on the final return of the decedent or on the return of the estate. Irse file Example 2. Irse file Assume the same facts as in Example 1, except that Frank used the accrual method of accounting. Irse file The amount accrued from the sale of the apples would be included on his final return. Irse file Neither the estate nor the widow would realize income in respect of a decedent when the money is later paid. Irse file Example 3. Irse file On February 1, George High, a cash method taxpayer, sold his tractor for $3,000, payable March 1 of the same year. Irse file His adjusted basis in the tractor was $2,000. Irse file George died on February 15, before receiving payment. Irse file The gain to be reported as income in respect of a decedent is the $1,000 difference between the decedent's basis in the property and the sale proceeds. Irse file In other words, the income in respect of a decedent is the gain the decedent would have realized had he lived. Irse file Example 4. Irse file Cathy O'Neil was entitled to a large salary payment at the date of her death. Irse file The amount was to be paid in five annual installments. Irse file The estate, after collecting two installments, distributed the right to the remaining installments to you, the beneficiary. Irse file The payments are income in respect of a decedent. Irse file None of the payments were includible on Cathy's final return. Irse file The estate must include in its income the two installments it received, and you must include in your income each of the three installments as you receive them. Irse file Example 5. Irse file You inherited the right to receive renewal commissions on life insurance sold by your father before his death. Irse file You inherited the right from your mother, who acquired it by bequest from your father. Irse file Your mother died before she received all the commissions she had the right to receive, so you received the rest. Irse file The commissions are income in respect of a decedent. Irse file None of these commissions were includible in your father's final return. Irse file The commissions received by your mother were included in her income. Irse file The commissions you received are not includible in your mother's income, even on her final return. Irse file You must include them in your income. Irse file Character of income. Irse file   The character of the income you receive in respect of a decedent remains the same as it would have been to the decedent if he or she were alive. Irse file If the income would have been a capital gain to the decedent, it will be a capital gain to you. Irse file Transfer of right to income. Irse file   If you transfer your right to income in respect of a decedent, you must include in your income the greater of: The amount you receive for the right, or The fair market value of the right you transfer. Irse file   If you make a gift of such a right, you must include in your income the fair market value of the right at the time of the gift. Irse file   If the right to income from an installment obligation is transferred, the amount you must include in income is reduced by the basis of the obligation. Irse file See Installment obligations, later. Irse file Transfer defined. Irse file   A transfer for this purpose includes a sale, exchange, or other disposition, the satisfaction of an installment obligation at other than face value, or the cancellation of an installment obligation. Irse file Installment obligations. Irse file   If the decedent sold property using the installment method and you are collecting payments on an installment obligation acquired from the decedent, use the same gross profit percentage the decedent used to figure the part of each payment that represents profit. Irse file Include in your income the same profit the decedent would have included had death not occurred. Irse file For more information, see Publication 537, Installment Sales. Irse file   If you dispose of an installment obligation acquired from a decedent (other than by transfer to the obligor), the rules explained in Publication 537 for figuring gain or loss on the disposition apply to you. Irse file Transfer to obligor. Irse file   A transfer of a right to income, discussed earlier, has occurred if the decedent (seller) sold property using the installment method and the installment obligation was transferred to the obligor (buyer or person legally obligated to pay the installments). Irse file A transfer also occurs if the obligation was canceled either at death or by the estate or person receiving the obligation from the decedent. Irse file An obligation that becomes unenforceable is treated as having been canceled. Irse file   If such a transfer occurs, the amount included in the income of the transferor (the estate or beneficiary) is the greater of the amount received or the fair market value of the installment obligation at the time of transfer, reduced by the basis of the obligation. Irse file The basis of the obligation is the decedent's basis, adjusted for all installment payments received after the decedent's death and before the transfer. Irse file   If the decedent and obligor were related persons, the fair market value of the obligation cannot be less than its face value. Irse file Specific Types of Income in Respect of a Decedent This section explains and provides examples of some specific types of income in respect of a decedent. Irse file Wages. Irse file   The entire amount of wages or other employee compensation earned by the decedent but unpaid at the time of death is income in respect of a decedent. Irse file The income is not reduced by any amounts withheld by the employer. Irse file If the income is $600 or more, the employer should report it in box 3 of Form 1099-MISC, Miscellaneous Income, and give the recipient a copy of the form or a similar statement. Irse file   Wages paid as income in respect of a decedent are not subject to federal income tax withholding. Irse file However, if paid during the calendar year of death, they are subject to withholding for social security and Medicare taxes. Irse file These taxes should be included on the decedent's Form W-2 along with the taxes withheld before death. Irse file These wages are not included in box 1 of Form W-2. Irse file   Wages paid as income in respect of a decedent after the year of death generally are not subject to withholding for any federal taxe