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State Income Tax Tables

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State Income Tax Tables

State income tax tables 13. State income tax tables   Basis of Property Table of Contents Introduction Useful Items - You may want to see: Cost BasisReal Property Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostProperty Received for Services Taxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed From Personal to Business or Rental Use Stocks and Bonds Introduction This chapter discusses how to figure your basis in property. State income tax tables It is divided into the following sections. State income tax tables Cost basis. State income tax tables Adjusted basis. State income tax tables Basis other than cost. State income tax tables Your basis is the amount of your investment in property for tax purposes. State income tax tables Use the basis to figure gain or loss on the sale, exchange, or other disposition of property. State income tax tables Also use it to figure deductions for depreciation, amortization, depletion, and casualty losses. State income tax tables If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. State income tax tables Only the basis allocated to the business or investment use of the property can be depreciated. State income tax tables Your original basis in property is adjusted (increased or decreased) by certain events. State income tax tables For example, if you make improvements to the property, increase your basis. State income tax tables If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis. State income tax tables Keep accurate records of all items that affect the basis of your property. State income tax tables For more information on keeping records, see chapter 1. State income tax tables Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 535 Business Expenses 537 Installment Sales 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 551 Basis of Assets 946 How To Depreciate Property Cost Basis The basis of property you buy is usually its cost. State income tax tables The cost is the amount you pay in cash, debt obligations, other property, or services. State income tax tables Your cost also includes amounts you pay for the following items: Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if you assume liability for the seller). State income tax tables In addition, the basis of real estate and business assets may include other items. State income tax tables Loans with low or no interest. State income tax tables    If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price minus any amount considered to be unstated interest. State income tax tables You generally have unstated interest if your interest rate is less than the applicable federal rate. State income tax tables   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. State income tax tables Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. State income tax tables If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. State income tax tables Lump sum purchase. State income tax tables   If you buy buildings and the land on which they stand for a lump sum, allocate the cost basis among the land and the buildings. State income tax tables Allocate the cost basis according to the respective fair market values (FMVs) of the land and buildings at the time of purchase. State income tax tables Figure the basis of each asset by multiplying the lump sum by a fraction. State income tax tables The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. State income tax tables    If you are not certain of the FMVs of the land and buildings, you can allocate the basis according to their assessed values for real estate tax purposes. State income tax tables Fair market value (FMV). State income tax tables   FMV is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the necessary facts. State income tax tables Sales of similar property on or about the same date may be helpful in figuring the FMV of the property. State income tax tables Assumption of mortgage. State income tax tables   If you buy property and assume (or buy the property subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. State income tax tables Settlement costs. State income tax tables   Your basis includes the settlement fees and closing costs you paid for buying the property. State income tax tables (A fee for buying property is a cost that must be paid even if you buy the property for cash. State income tax tables ) Do not include fees and costs for getting a loan on the property in your basis. State income tax tables   The following are some of the settlement fees or closing costs you can include in the basis of your property. State income tax tables Abstract fees (abstract of title fees). State income tax tables Charges for installing utility services. State income tax tables Legal fees (including fees for the title search and preparation of the sales contract and deed). State income tax tables Recording fees. State income tax tables Survey fees. State income tax tables Transfer taxes. State income tax tables Owner's title insurance. State income tax tables Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. State income tax tables   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. State income tax tables   The following are some of the settlement fees and closing costs you cannot include in the basis of property. State income tax tables Casualty insurance premiums. State income tax tables Rent for occupancy of the property before closing. State income tax tables Charges for utilities or other services related to occupancy of the property before closing. State income tax tables Charges connected with getting a loan, such as points (discount points, loan origination fees), mortgage insurance premiums, loan assumption fees, cost of a credit report, and fees for an appraisal required by a lender. State income tax tables Fees for refinancing a mortgage. State income tax tables Real estate taxes. State income tax tables   If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. State income tax tables You cannot deduct them as an expense. State income tax tables    If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. State income tax tables Do not include that amount in the basis of your property. State income tax tables If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. State income tax tables Points. State income tax tables   If you pay points to get a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. State income tax tables Generally, you deduct the points over the term of the loan. State income tax tables For more information on how to deduct points, see chapter 23. State income tax tables Points on home mortgage. State income tax tables   Special rules may apply to points you and the seller pay when you get a mortgage to buy your main home. State income tax tables If certain requirements are met, you can deduct the points in full for the year in which they are paid. State income tax tables Reduce the basis of your home by any seller-paid points. State income tax tables Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments (increases and decreases) to the cost basis or basis other than cost (discussed later) of the property. State income tax tables The result is the adjusted basis. State income tax tables Increases to Basis Increase the basis of any property by all items properly added to a capital account. State income tax tables Examples of items that increase basis are shown in Table 13-1. State income tax tables These include the items discussed below. State income tax tables Improvements. State income tax tables   Add to your basis in property the cost of improvements having a useful life of more than 1 year, that increase the value of the property, lengthen its life, or adapt it to a different use. State income tax tables For example, improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, or paving your driveway. State income tax tables Assessments for local improvements. State income tax tables   Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. State income tax tables Do not deduct them as taxes. State income tax tables However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements. State income tax tables Example. State income tax tables Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected property owners for the cost of the conversion. State income tax tables Add the assessment to your property's basis. State income tax tables In this example, the assessment is a depreciable asset. State income tax tables Decreases to Basis Decrease the basis of any property by all items that represent a return of capital for the period during which you held the property. State income tax tables Examples of items that decrease basis are shown in Table 13-1. State income tax tables These include the items discussed below. State income tax tables Table 13-1. State income tax tables Examples of Adjustments to Basis Increases to Basis Decreases to Basis • Capital improvements: • Exclusion from income of   Putting an addition on your home subsidies for energy conservation   Replacing an entire roof measures   Paving your driveway     Installing central air conditioning • Casualty or theft loss deductions   Rewiring your home and insurance reimbursements       • Assessments for local improvements:     Water connections     Extending utility service lines to the property • Postponed gain from the sale of a home   Sidewalks • Alternative motor vehicle credit  (Form 8910)   Roads       • Alternative fuel vehicle refueling     property credit (Form 8911)           • Residential energy credits (Form 5695)       • Casualty losses: • Depreciation and section 179 deduction   Restoring damaged property     • Nontaxable corporate distributions • Legal fees:     Cost of defending and perfecting a title • Certain canceled debt excluded from   Fees for getting a reduction of an assessment income     • Zoning costs • Easements           • Adoption tax benefits Casualty and theft losses. State income tax tables   If you have a casualty or theft loss, decrease the basis in your property by any insurance proceeds or other reimbursement and by any deductible loss not covered by insurance. State income tax tables    You must increase your basis in the property by the amount you spend on repairs that restore the property to its pre-casualty condition. State income tax tables   For more information on casualty and theft losses, see chapter 25. State income tax tables Depreciation and section 179 deduction. State income tax tables   Decrease the basis of your qualifying business property by any section 179 deduction you take and the depreciation you deducted, or could have deducted (including any special depreciation allowance), on your tax returns under the method of depreciation you selected. State income tax tables   For more information about depreciation and the section 179 deduction, see Publication 946 and the Instructions for Form 4562. State income tax tables Example. State income tax tables You owned a duplex used as rental property that cost you $40,000, of which $35,000 was allocated to the building and $5,000 to the land. State income tax tables You added an improvement to the duplex that cost $10,000. State income tax tables In February last year, the duplex was damaged by fire. State income tax tables Up to that time, you had been allowed depreciation of $23,000. State income tax tables You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. State income tax tables You deducted a casualty loss of $1,000 on your income tax return for last year. State income tax tables You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. State income tax tables You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. State income tax tables Figure the adjusted basis of the duplex as follows: Original cost of duplex $35,000 Addition to duplex 10,000 Total cost of duplex $45,000 Minus: Depreciation 23,000 Adjusted basis before casualty $22,000 Minus: Insurance proceeds $19,700     Deducted casualty loss 1,000     Salvage proceeds 1,300 22,000 Adjusted basis after casualty $-0- Add: Cost of restoring duplex 19,000 Adjusted basis after restoration $19,000 Note. State income tax tables Your basis in the land is its original cost of $5,000. State income tax tables Easements. State income tax tables   The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. State income tax tables It reduces the basis of the affected part of the property. State income tax tables If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. State income tax tables   If the gain is on a capital asset, see chapter 16 for information about how to report it. State income tax tables If the gain is on property used in a trade or business, see Publication 544 for information about how to report it. State income tax tables Exclusion of subsidies for energy conservation measures. State income tax tables   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. State income tax tables Reduce the basis of the property for which you received the subsidy by the excluded amount. State income tax tables For more information about this subsidy, see chapter 12. State income tax tables Postponed gain from sale of home. State income tax tables    If you postponed gain from the sale of your main home under rules in effect before May 7, 1997, you must reduce the basis of the home you acquired as a replacement by the amount of the postponed gain. State income tax tables For more information on the rules for the sale of a home, see chapter 15. State income tax tables Basis Other Than Cost There are many times when you cannot use cost as basis. State income tax tables In these cases, the fair market value or the adjusted basis of the property can be used. State income tax tables Fair market value (FMV) and adjusted basis were discussed earlier. State income tax tables Property Received for Services If you receive property for your services, include the FMV of the property in income. State income tax tables The amount you include in income becomes your basis. State income tax tables If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. State income tax tables Restricted property. State income tax tables   If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested. State income tax tables However, this rule does not apply if you make an election to include in income the FMV of the property at the time it is transferred to you, less any amount you paid for it. State income tax tables Property is substantially vested when it is transferable or when it is not subject to a substantial risk of forfeiture (you do not have a good chance of losing it). State income tax tables For more information, see Restricted Property in Publication 525. State income tax tables Bargain purchases. State income tax tables   A bargain purchase is a purchase of an item for less than its FMV. State income tax tables If, as compensation for services, you buy goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. State income tax tables Your basis in the property is its FMV (your purchase price plus the amount you include in income). State income tax tables   If the difference between your purchase price and the FMV is a qualified employee discount, do not include the difference in income. State income tax tables However, your basis in the property is still its FMV. State income tax tables See Employee Discounts in Publication 15-B. State income tax tables Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. State income tax tables A taxable gain or deductible loss also is known as a recognized gain or loss. State income tax tables If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. State income tax tables Involuntary Conversions If you receive replacement property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property using the basis of the converted property. State income tax tables Similar or related property. State income tax tables   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the same as the converted property's basis on the date of the conversion, with the following adjustments. State income tax tables Decrease the basis by the following. State income tax tables Any loss you recognize on the involuntary conversion. State income tax tables Any money you receive that you do not spend on similar property. State income tax tables Increase the basis by the following. State income tax tables Any gain you recognize on the involuntary conversion. State income tax tables Any cost of acquiring the replacement property. State income tax tables Money or property not similar or related. State income tax tables    If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the conversion. State income tax tables Example. State income tax tables The state condemned your property. State income tax tables The adjusted basis of the property was $26,000 and the state paid you $31,000 for it. State income tax tables You realized a gain of $5,000 ($31,000 − $26,000). State income tax tables You bought replacement property similar in use to the converted property for $29,000. State income tax tables You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. State income tax tables Your unrecognized gain is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. State income tax tables The basis of the replacement property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of replacement property $26,000 Allocating the basis. State income tax tables   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. State income tax tables Basis for depreciation. State income tax tables   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. State income tax tables For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. State income tax tables Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. State income tax tables If you receive property in a nontaxable exchange, its basis is generally the same as the basis of the property you transferred. State income tax tables See Nontaxable Trades in chapter 14. State income tax tables Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. State income tax tables To qualify as a like-kind exchange, the property traded and the property received must be both of the following. State income tax tables Qualifying property. State income tax tables Like-kind property. State income tax tables The basis of the property you receive is generally the same as the adjusted basis of the property you gave up. State income tax tables If you trade property in a like-kind exchange and also pay money, the basis of the property received is the adjusted basis of the property you gave up increased by the money you paid. State income tax tables Qualifying property. State income tax tables   In a like-kind exchange, you must hold for investment or for productive use in your trade or business both the property you give up and the property you receive. State income tax tables Like-kind property. State income tax tables   There must be an exchange of like-kind property. State income tax tables Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. State income tax tables The exchange of real estate for real estate and personal property for similar personal property are exchanges of like-kind property. State income tax tables Example. State income tax tables You trade in an old truck used in your business with an adjusted basis of $1,700 for a new one costing $6,800. State income tax tables The dealer allows you $2,000 on the old truck, and you pay $4,800. State income tax tables This is a like-kind exchange. State income tax tables The basis of the new truck is $6,500 (the adjusted basis of the old one, $1,700, plus the amount you paid, $4,800). State income tax tables If you sell your old truck to a third party for $2,000 instead of trading it in and then buy a new one from the dealer, you have a taxable gain of $300 on the sale (the $2,000 sale price minus the $1,700 adjusted basis). State income tax tables The basis of the new truck is the price you pay the dealer. State income tax tables Partially nontaxable exchanges. State income tax tables   A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. State income tax tables The basis of the property you receive is the same as the adjusted basis of the property you gave up, with the following adjustments. State income tax tables Decrease the basis by the following amounts. State income tax tables Any money you receive. State income tax tables Any loss you recognize on the exchange. State income tax tables Increase the basis by the following amounts. State income tax tables Any additional costs you incur. State income tax tables Any gain you recognize on the exchange. State income tax tables If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. State income tax tables Allocation of basis. State income tax tables   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. State income tax tables The rest is the basis of the like-kind property. State income tax tables More information. State income tax tables   See Like-Kind Exchanges in chapter 1 of Publication 544 for more information. State income tax tables Basis for depreciation. State income tax tables   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind exchange. State income tax tables For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. State income tax tables Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. State income tax tables The same rule applies to a transfer by your former spouse that is incident to divorce. State income tax tables However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. State income tax tables If the property transferred to you is a series E, series EE, or series I U. State income tax tables S. State income tax tables savings bond, the transferor must include in income the interest accrued to the date of transfer. State income tax tables Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. State income tax tables For more information on these bonds, see chapter 7. State income tax tables At the time of the transfer, the transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. State income tax tables For more information about the transfer of property from a spouse, see chapter 14. State income tax tables Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. State income tax tables FMV less than donor's adjusted basis. State income tax tables   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. State income tax tables Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. State income tax tables Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. State income tax tables See Adjusted Basis , earlier. State income tax tables Example. State income tax tables You received an acre of land as a gift. State income tax tables At the time of the gift, the land had an FMV of $8,000. State income tax tables The donor's adjusted basis was $10,000. State income tax tables After you received the property, no events occurred to increase or decrease your basis. State income tax tables If you later sell the property for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis at the time of the gift ($10,000) as your basis to figure gain. State income tax tables If you sell the property for $7,000, you will have a $1,000 loss because you must use the FMV at the time of the gift ($8,000) as your basis to figure loss. State income tax tables If the sales price is between $8,000 and $10,000, you have neither gain nor loss. State income tax tables Business property. State income tax tables   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. State income tax tables FMV equal to or greater than donor's adjusted basis. State income tax tables   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. State income tax tables Increase your basis by all or part of any gift tax paid, depending on the date of the gift, explained later. State income tax tables   Also, for figuring gain or loss from a sale or other disposition or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. State income tax tables See Adjusted Basis , earlier. State income tax tables   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. State income tax tables Figure the increase by multiplying the gift tax paid by a fraction. State income tax tables The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. State income tax tables   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. State income tax tables The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. State income tax tables Example. State income tax tables In 2013, you received a gift of property from your mother that had an FMV of $50,000. State income tax tables Her adjusted basis was $20,000. State income tax tables The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). State income tax tables She paid a gift tax of $7,320 on the property. State income tax tables Your basis is $26,076, figured as follows: Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000     Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . State income tax tables 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. State income tax tables If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. State income tax tables However, your basis cannot exceed the FMV of the gift at the time it was given to you. State income tax tables Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. State income tax tables The FMV on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. State income tax tables The value under the special-use valuation method for real property used in farming or a closely held business if elected for estate tax purposes. State income tax tables The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. State income tax tables If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. State income tax tables For more information, see the instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. State income tax tables Property inherited from a decedent who died in 2010. State income tax tables   If you inherited property from a decedent who died in 2010, special rules may apply. State income tax tables For more information, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. State income tax tables Community property. State income tax tables   In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. State income tax tables When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. State income tax tables For this rule to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return. State income tax tables Example. State income tax tables You and your spouse owned community property that had a basis of $80,000. State income tax tables When your spouse died, half the FMV of the community interest was includible in your spouse's estate. State income tax tables The FMV of the community interest was $100,000. State income tax tables The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). State income tax tables The basis of the other half to your spouse's heirs is also $50,000. State income tax tables For more information about community property, see Publication 555, Community Property. State income tax tables Property Changed From Personal to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you can begin to depreciate the property at the time of the change. State income tax tables To do so, you must figure its basis for depreciation at the time of the change. State income tax tables An example of changing property held for personal use to business or rental use would be renting out your former personal residence. State income tax tables Basis for depreciation. State income tax tables   The basis for depreciation is the lesser of the following amounts. State income tax tables The FMV of the property on the date of the change. State income tax tables Your adjusted basis on the date of the change. State income tax tables Example. State income tax tables Several years ago, you paid $160,000 to have your house built on a lot that cost $25,000. State income tax tables You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. State income tax tables Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. State income tax tables Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). State income tax tables On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. State income tax tables The basis for figuring depreciation on the house is its FMV on the date of the change ($165,000) because it is less than your adjusted basis ($178,000). State income tax tables Sale of property. State income tax tables   If you later sell or dispose of property changed to business or rental use, the basis you use will depend on whether you are figuring gain or loss. State income tax tables Gain. State income tax tables   The basis for figuring a gain is your adjusted basis in the property when you sell the property. State income tax tables Example. State income tax tables Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. State income tax tables Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). State income tax tables Loss. State income tax tables   Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. State income tax tables Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . State income tax tables Example. State income tax tables Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. State income tax tables In this case, you would start with the FMV on the date of the change to rental use ($180,000), because it is less than the adjusted basis of $203,000 ($178,000 + $25,000 (land)) on that date. State income tax tables Reduce that amount ($180,000) by the depreciation deductions ($37,500). State income tax tables The basis for loss is $142,500 ($180,000 − $37,500). State income tax tables Stocks and Bonds The basis of stocks or bonds you buy generally is the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. State income tax tables If you get stocks or bonds other than by purchase, your basis is usually determined by the FMV or the previous owner's adjusted basis, as discussed earlier. State income tax tables You must adjust the basis of stocks for certain events that occur after purchase. State income tax tables For example, if you receive additional stock from nontaxable stock dividends or stock splits, reduce your basis for each share of stock by dividing the adjusted basis of the old stock by the number of shares of old and new stock. State income tax tables This rule applies only when the additional stock received is identical to the stock held. State income tax tables Also reduce your basis when you receive nontaxable distributions. State income tax tables They are a return of capital. State income tax tables Example. State income tax tables In 2011 you bought 100 shares of XYZ stock for $1,000 or $10 a share. State income tax tables In 2012 you bought 100 shares of XYZ stock for $1,600 or $16 a share. State income tax tables In 2013 XYZ declared a 2-for-1 stock split. State income tax tables You now have 200 shares of stock with a basis of $5 a share and 200 shares with a basis of $8 a share. State income tax tables Other basis. State income tax tables   There are other ways to figure the basis of stocks or bonds depending on how you acquired them. State income tax tables For detailed information, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. State income tax tables Identifying stocks or bonds sold. State income tax tables   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stocks or bonds. State income tax tables If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. State income tax tables For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. State income tax tables Mutual fund shares. State income tax tables   If you sell mutual fund shares you acquired at various times and prices and left on deposit in an account kept by a custodian or agent, you can elect to use an average basis. State income tax tables For more information, see Publication 550. State income tax tables Bond premium. State income tax tables   If you buy a taxable bond at a premium and elect to amortize the premium, reduce the basis of the bond by the amortized premium you deduct each year. State income tax tables See Bond Premium Amortization in chapter 3 of Publication 550 for more information. State income tax tables Although you cannot deduct the premium on a tax-exempt bond, you must amortize the premium each year and reduce your basis in the bond by the amortized amount. State income tax tables Original issue discount (OID) on debt instruments. State income tax tables   You must increase your basis in an OID debt instrument by the OID you include in income for that instrument. State income tax tables See Original Issue Discount (OID) in chapter 7 and Publication 1212, Guide To Original Issue Discount (OID) Instruments. State income tax tables Tax-exempt obligations. State income tax tables    OID on tax-exempt obligations is generally not taxable. State income tax tables However, when you dispose of a tax-exempt obligation issued after September 3, 1982, and acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. State income tax tables The accrued OID is added to the basis of the obligation to determine your gain or loss. State income tax tables See chapter 4 of Publication 550. State income tax tables Prev  Up  Next   Home   More Online Publications
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The State Income Tax Tables

State income tax tables 1. State income tax tables   Scholarships, Fellowships, Grants, and Tuition Reductions Table of Contents Reminder Introduction Scholarships and FellowshipsTax-Free Scholarships and Fellowships Taxable Scholarships and Fellowships Reporting Scholarships and Fellowships Other Types of Educational AssistanceFulbright Grants Pell Grants and Other Title IV Need-Based Education Grants Payment to Service Academy Cadets Veterans' Benefits Qualified Tuition Reduction Reminder Individual retirement arrangements (IRAs). State income tax tables  You can set up and make contributions to an IRA if you receive taxable compensation. State income tax tables Under this rule, a taxable scholarship or fellowship is compensation only if it is shown in box 1 of your Form W-2, Wage and Tax Statement. State income tax tables For more information about IRAs, see Publication 590. State income tax tables Introduction This chapter discusses the income tax treatment of various types of educational assistance you may receive if you are studying, teaching, or researching in the United States. State income tax tables The educational assistance can be for a primary or secondary school, a college or university, or a vocational school. State income tax tables Included are discussions of: Scholarships, Fellowships, Need-based education grants, such as a Pell Grant, and Qualified tuition reductions. State income tax tables Many types of educational assistance are tax free if they meet the requirements discussed here. State income tax tables Special rules apply to U. State income tax tables S. State income tax tables citizens and resident aliens who have received scholarships or fellowships for studying, teaching, or researching abroad. State income tax tables For information about these rules, see Publication 54, Tax Guide for U. State income tax tables S. State income tax tables Citizens and Resident Aliens Abroad. State income tax tables Scholarships and Fellowships A scholarship is generally an amount paid or allowed to, or for the benefit of, a student (whether an undergraduate or a graduate) at an educational institution to aid in the pursuit of his or her studies. State income tax tables A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research. State income tax tables Amount of scholarship or fellowship. State income tax tables   The amount of a scholarship or fellowship includes the following: The value of contributed services and accommodations. State income tax tables This includes such services and accommodations as room (lodging), board (meals), laundry service, and similar services or accommodations that are received by an individual as a part of a scholarship or fellowship. State income tax tables The amount of tuition, matriculation, and other fees that are paid or remitted to the student to aid the student in pursuing study or research. State income tax tables Any amount received in the nature of a family allowance as a part of a scholarship or fellowship. State income tax tables Tax-Free Scholarships and Fellowships A scholarship or fellowship is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution. State income tax tables A scholarship or fellowship is tax free only to the extent: It does not exceed your expenses; It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship. State income tax tables (But for exceptions, see Payment for services,later. State income tax tables Use Worksheet 1–1 to figure the amount of a scholarship or fellowship you can exclude from gross income. State income tax tables Candidate for a degree. State income tax tables   You are a candidate for a degree if you: Attend a primary or secondary school or are pursuing a degree at a college or university, or Attend an educational institution that: Provides a program that is acceptable for full credit toward a bachelor's or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and Is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency. State income tax tables Eligible educational institution. State income tax tables   An eligible educational institution is one whose primary function is the presentation of formal instruction and that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. State income tax tables Qualified education expenses. State income tax tables   For purposes of tax-free scholarships and fellowships, these are expenses for: Tuition and fees required to enroll at or attend an eligible educational institution, and Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. State income tax tables These items must be required of all students in your course of instruction. State income tax tables Expenses that do not qualify. State income tax tables   Qualified education expenses do not include the cost of: Room and board, Travel, Research, Clerical help, or Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution. State income tax tables Payment for services. State income tax tables   Generally, you cannot exclude from your gross income the part of any scholarship or fellowship that represents payment for teaching, research, or other services required as a condition for receiving the scholarship. State income tax tables This applies even if all candidates for a degree must perform the services to receive the degree. State income tax tables (See exceptions next. State income tax tables ) Exceptions. State income tax tables   You do not have to treat as payment for services the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. State income tax tables Example 1. State income tax tables You received a scholarship of $2,500. State income tax tables The scholarship was not received under either of the exceptions mentioned above. State income tax tables As a condition for receiving the scholarship, you must serve as a part-time teaching assistant. State income tax tables Of the $2,500 scholarship, $1,000 represents payment for teaching. State income tax tables The provider of your scholarship gives you a Form W-2 showing $1,000 as income. State income tax tables Your qualified education expenses were at least $1,500. State income tax tables Assuming that all other conditions are met, $1,500 of your scholarship is tax free. State income tax tables The $1,000 you received for teaching is taxable. State income tax tables Example 2. State income tax tables You are a candidate for a degree at a medical school. State income tax tables You receive a scholarship (not under either of the exceptions mentioned above) for your medical education and training. State income tax tables The terms of your scholarship require you to perform future services. State income tax tables A substantial penalty applies if you do not comply. State income tax tables The entire amount of your grant is taxable as payment for services in the year it is received. State income tax tables Athletic Scholarships An athletic scholarship is tax free only if and to the extent it meets the requirements discussed later. State income tax tables Worksheet 1-1. State income tax tables    You can use Worksheet 1-1, Taxable Scholarship and Fellowship Income , later, to figure the tax-free and taxable parts of your athletic scholarship. State income tax tables    Worksheet 1-1. State income tax tables Taxable Scholarship and Fellowship Income 1. State income tax tables Enter the total amount of any scholarship or fellowship for 2013. State income tax tables See Amount of scholarship or fellowship, earlier. State income tax tables 1. State income tax tables       If you are a degree candidate at an eligible educational institution, go to line 2. State income tax tables If you are not a degree candidate at an eligible educational institution, stop here. State income tax tables The entire amount is taxable. State income tax tables For information on how to report this amount on your tax return, see Reporting Scholarships and Fellowships , earlier, in this chapter. State income tax tables       2. State income tax tables Enter the amount from line 1 that was for teaching, research, or any other services required as a condition for receiving the scholarship. State income tax tables (Do not include amounts received for these items under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program. State income tax tables ) 2. State income tax tables     3. State income tax tables Subtract line 2 from line 1 3. State income tax tables     4. State income tax tables Enter the amount from line 3 that your scholarship or fellowship required you to use for other than qualified education expenses 4. State income tax tables     5. State income tax tables Subtract line 4 from line 3 5. State income tax tables     6. State income tax tables Enter the amount of your qualified education expenses 6. State income tax tables     7. State income tax tables Enter the smaller of line 5 or line 6. State income tax tables This amount is the most you can exclude from your gross income (the tax-free part of the scholarship or fellowship) 7. State income tax tables     8. State income tax tables Subtract line 7 from line 5 8. State income tax tables     9. State income tax tables Taxable part. State income tax tables Add lines 2, 4, and 8. State income tax tables See Reporting Scholarships and Fellowships , earlier, for how to report this amount on your tax return 9. State income tax tables     Taxable Scholarships and Fellowships If and to the extent your scholarship or fellowship does not meet the requirements described earlier, it is taxable and must be included in gross income. State income tax tables You can use Worksheet 1–1, Taxable Scholarship and Fellowship Income, later, to figure the tax-free and taxable parts of your scholarship or fellowship. State income tax tables Reporting Scholarships and Fellowships Whether you must report your scholarship or fellowship depends on whether you must file a return and whether any part of your scholarship or fellowship is taxable. State income tax tables If your only income is a completely tax-free scholarship or fellowship, you do not have to file a tax return and no reporting is necessary. State income tax tables If all or part of your scholarship or fellowship is taxable and you are required to file a tax return, report the taxable amount as explained below. State income tax tables You must report the taxable amount whether or not you received a Form W-2. State income tax tables If you receive an incorrect Form W-2, ask the payer for a corrected one. State income tax tables For information on whether you must file a return, see Publication 501, Exemptions, Standard Deduction, and Filing Information, or your income tax form instructions. State income tax tables How To Report How you report any taxable scholarship or fellowship income depends on which return you file. State income tax tables Form 1040EZ. State income tax tables   If you file Form 1040EZ, include the taxable amount in the total on line 1. State income tax tables If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 1. State income tax tables Form 1040A. State income tax tables   If you file Form 1040A, include the taxable amount in the total on line 7. State income tax tables If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 7. State income tax tables Form 1040. State income tax tables   If you file Form 1040, include the taxable amount in the total on line 7. State income tax tables If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount on the dotted line next to line 7. State income tax tables Schedule SE (Form 1040). State income tax tables   To determine your net earnings from self-employment, include amounts you receive under a scholarship as pay for your services that are reported to you on Form 1099-MISC, Miscellaneous Income. State income tax tables If your net earnings are $400 or more, you must pay self-employment tax. State income tax tables Use Schedule SE, Self-Employment Tax, to figure this tax. State income tax tables Form 1040NR. State income tax tables   If you file Form 1040NR, report the taxable amount on line 12. State income tax tables Generally, you must report the amount shown in box 2 of Form(s) 1042-S, Foreign Person's U. State income tax tables S. State income tax tables Source Income Subject to Withholding. State income tax tables See the Instructions for Form 1040NR for more information. State income tax tables Form 1040NR-EZ. State income tax tables   If you file Form 1040NR-EZ, report the taxable amount on line 5. State income tax tables Generally, you must report the amount shown in box 2 of Form(s) 1042-S. State income tax tables See the Instructions for Form 1040NR-EZ for more information. State income tax tables Other Types of Educational Assistance The following discussions deal with other common types of educational assistance. State income tax tables Fulbright Grants A Fulbright grant is generally treated as a scholarship or fellowship in figuring how much of the grant is tax free. State income tax tables Pell Grants and Other Title IV Need-Based Education Grants These need-based grants are treated as scholarships for purposes of determining their tax treatment. State income tax tables They are tax free to the extent used for qualified education expenses during the period for which a grant is awarded. State income tax tables Payment to Service Academy Cadets An appointment to a United States military academy is not a scholarship or fellowship. State income tax tables Payment you receive as a cadet or midshipman at an armed services academy is pay for personal services and will be reported to you in box 1 of Form W-2. State income tax tables Include this pay in your income in the year you receive it unless one of the exceptions, discussed earlier under Payment for services , applies. State income tax tables Veterans' Benefits Payments you receive for education, training, or subsistence under any law administered by the Department of Veterans Affairs (VA) are tax free. State income tax tables Do not include these payments as income on your federal tax return. State income tax tables If you qualify for one or more of the education benefits discussed in chapters 2 through 12, you may have to reduce the amount of education expenses qualifying for a specific benefit by part or all of your VA payments. State income tax tables This applies only to the part of your VA payments that is required to be used for education expenses. State income tax tables You may want to visit the Veteran's Administration website at www. State income tax tables gibill. State income tax tables va. State income tax tables gov for specific information about the various VA benefits for education. State income tax tables Example. State income tax tables You have returned to college and are receiving two education benefits under the latest GI Bill: (1) a $1,534 monthly basic housing allowance (BHA) that is directly deposited to your checking account, and (2) $3,840 paid directly to your college for tuition. State income tax tables Neither of these benefits is taxable and you do not report them on your tax return. State income tax tables You also want to claim an American opportunity credit on your return. State income tax tables You paid $5,000 in qualified education expenses (see chapter 2, American Opportunity Credit , later). State income tax tables To figure the amount of credit, you must first subtract the $3,840 from your qualified education expenses because this payment under the GI Bill was required to be used for education expenses. State income tax tables You do not subtract any amount of the BHA because it was paid to you and its use was not restricted. State income tax tables Qualified Tuition Reduction If you are allowed to study tuition free or for a reduced rate of tuition, you may not have to pay tax on this benefit. State income tax tables This is called a “tuition reduction. State income tax tables ” You do not have to include a qualified tuition reduction in your income. State income tax tables A tuition reduction is qualified only if you receive it from, and use it at, an eligible educational institution. State income tax tables You do not have to use the tuition reduction at the eligible educational institution from which you received it. State income tax tables In other words, if you work for an eligible educational institution and the institution arranges for you to take courses at another eligible educational institution without paying any tuition, you may not have to include the value of the free courses in your income. State income tax tables The rules for determining if a tuition reduction is qualified, and therefore tax free, are different if the education provided is below the graduate level or is graduate education. State income tax tables You must include in your income any tuition reduction you receive that is payment for your services. State income tax tables Eligible educational institution. State income tax tables   An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. State income tax tables Officers, owners, and highly compensated employees. State income tax tables   Qualified tuition reductions apply to officers, owners, or highly compensated employees only if benefits are available to employees on a nondiscriminatory basis. State income tax tables This means that the tuition reduction benefits must be available on substantially the same basis to each member of a group of employees. State income tax tables The group must be defined under a reasonable classification set up by the employer. State income tax tables The classification must not discriminate in favor of owners, officers, or highly compensated employees. State income tax tables Payment for services. State income tax tables   Generally, you must include in income the part of any qualified tuition reduction that represents payment for teaching, research, or other services by the student required as a condition of receiving the qualified tuition reduction. State income tax tables This applies even if all candidates for a degree must perform the services to receive the degree. State income tax tables (See below for exceptions. State income tax tables ) Exceptions. State income tax tables   You do not have to include in income the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. State income tax tables Education Below the Graduate Level If you receive a tuition reduction for education below the graduate level (including primary, secondary, or high school), it is a qualified tuition reduction, and therefore tax free, only if your relationship to the educational institution providing the benefit is described below. State income tax tables You are an employee of the eligible educational institution. State income tax tables You were an employee of the eligible educational institution, but you retired or left on disability. State income tax tables You are a widow or widower of an individual who died while an employee of the eligible educational institution or who retired or left on disability. State income tax tables You are the dependent child or spouse of an individual described in (1) through (3), above. State income tax tables Child of deceased parents. State income tax tables   For purposes of the qualified tuition reduction, a child is a dependent child if the child is under age 25 and both parents have died. State income tax tables Child of divorced parents. State income tax tables   For purposes of the qualified tuition reduction, a dependent child of divorced parents is treated as the dependent of both parents. State income tax tables Graduate Education A tuition reduction you receive for graduate education is qualified, and therefore tax free, if both of the following requirements are met. State income tax tables It is provided by an eligible educational institution. State income tax tables You are a graduate student who performs teaching or research activities for the educational institution. State income tax tables You must include in income any other tuition reductions for graduate education that you receive. State income tax tables How To Report Any tuition reduction that is taxable should be included as wages in box 1 of your Form W-2. State income tax tables Report the amount from Form W-2, box 1, on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). State income tax tables Prev  Up  Next   Home   More Online Publications