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State Tax Return Online

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State Tax Return Online

State tax return online 4. State tax return online   Interest Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Allocation of InterestOrder of funds spent. State tax return online Payments from checking accounts. State tax return online Amounts paid within 30 days. State tax return online Optional method for determining date of reallocation. State tax return online Interest on a segregated account. State tax return online How to report. State tax return online Interest You Can DeductStatement. State tax return online Expenses paid to obtain a mortgage. State tax return online Prepayment penalty. State tax return online De minimis OID. State tax return online Constant-yield method. State tax return online Loan or mortgage ends. State tax return online Interest You Cannot DeductPenalties. State tax return online Who is a key person? Exceptions for pre-June 1997 contracts. State tax return online Interest allocated to unborrowed policy cash value. State tax return online Capitalization of Interest When To Deduct InterestPrepaid interest. State tax return online Discounted loan. State tax return online Refunds of interest. State tax return online Prepaid interest. State tax return online Discounted loan. State tax return online Tax deficiency. State tax return online Related person. State tax return online Below-Market LoansLimit on forgone interest for gift loans of $100,000 or less. State tax return online Introduction This chapter discusses the tax treatment of business interest expense. State tax return online Business interest expense is an amount charged for the use of money you borrowed for business activities. State tax return online Topics - This chapter discusses: Allocation of interest Interest you can deduct Interest you cannot deduct Capitalization of interest When to deduct interest Below-market loans Useful Items - You may want to see: Publication 537 Installment Sales 550 Investment Income and Expenses 936 Home Mortgage Interest Deduction Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch E (Form 1040) Supplemental Income and Loss Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. State tax return online Sch K-1 (Form 1120S) Shareholder's Share of Income, Deductions, Credits, etc. State tax return online 1098 Mortgage Interest Statement 3115 Application for Change in Accounting Method 4952 Investment Interest Expense Deduction 8582 Passive Activity Loss Limitations See chapter 12 for information about getting publications and forms. State tax return online Allocation of Interest The rules for deducting interest vary, depending on whether the loan proceeds are used for business, personal, or investment activities. State tax return online If you use the proceeds of a loan for more than one type of expense, you must allocate the interest based on the use of the loan's proceeds. State tax return online Allocate your interest expense to the following categories. State tax return online Nonpassive trade or business activity interest Passive trade or business activity interest Investment interest Portfolio interest Personal interest In general, you allocate interest on a loan the same way you allocate the loan proceeds. State tax return online You allocate loan proceeds by tracing disbursements to specific uses. State tax return online The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. State tax return online Secured loan. State tax return online   The allocation of loan proceeds and the related interest is not generally affected by the use of property that secures the loan. State tax return online Example. State tax return online You secure a loan with property used in your business. State tax return online You use the loan proceeds to buy an automobile for personal use. State tax return online You must allocate interest expense on the loan to personal use (purchase of the automobile) even though the loan is secured by business property. State tax return online    If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. State tax return online The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. State tax return online For more information, see Publication 936. State tax return online Allocation period. State tax return online   The period for which a loan is allocated to a particular use begins on the date the proceeds are used and ends on the earlier of the following dates. State tax return online The date the loan is repaid. State tax return online The date the loan is reallocated to another use. State tax return online Proceeds not disbursed to borrower. State tax return online   Even if the lender disburses the loan proceeds to a third party, the allocation of the loan is still based on your use of the funds. State tax return online This applies whether you pay for property, services, or anything else by incurring a loan, or you take property subject to a debt. State tax return online Proceeds deposited in borrower's account. State tax return online   Treat loan proceeds deposited in an account as property held for investment. State tax return online It does not matter whether the account pays interest. State tax return online Any interest you pay on the loan is investment interest expense. State tax return online If you withdraw the proceeds of the loan, you must reallocate the loan based on the use of the funds. State tax return online Example. State tax return online Celina, a calendar-year taxpayer, borrows $100,000 on January 4 and immediately uses the proceeds to open a checking account. State tax return online No other amounts are deposited in the account during the year and no part of the loan principal is repaid during the year. State tax return online On April 2, Celina uses $20,000 from the checking account for a passive activity expenditure. State tax return online On September 4, Celina uses an additional $40,000 from the account for personal purposes. State tax return online Under the interest allocation rules, the entire $100,000 loan is treated as property held for investment for the period from January 4 through April 1. State tax return online From April 2 through September 3, Celina must treat $20,000 of the loan as used in the passive activity and $80,000 of the loan as property held for investment. State tax return online From September 4 through December 31, she must treat $40,000 of the loan as used for personal purposes, $20,000 as used in the passive activity, and $40,000 as property held for investment. State tax return online Order of funds spent. State tax return online   Generally, you treat loan proceeds deposited in an account as used (spent) before either of the following amounts. State tax return online Any unborrowed amounts held in the same account. State tax return online Any amounts deposited after these loan proceeds. State tax return online Example. State tax return online On January 9, Olena opened a checking account, depositing $500 of the proceeds of Loan A and $1,000 of unborrowed funds. State tax return online The following table shows the transactions in her account during the tax year. State tax return online Date Transaction January 9 $500 proceeds of Loan A and $1,000 unborrowed funds deposited January 14 $500 proceeds of Loan B  deposited February 19 $800 used for personal purposes February 27 $700 used for passive activity June 19 $1,000 proceeds of Loan C  deposited November 20 $800 used for an investment December 18 $600 used for personal purposes Olena treats the $800 used for personal purposes as made from the $500 proceeds of Loan A and $300 of the proceeds of Loan B. State tax return online She treats the $700 used for a passive activity as made from the remaining $200 proceeds of Loan B and $500 of unborrowed funds. State tax return online She treats the $800 used for an investment as made entirely from the proceeds of Loan C. State tax return online She treats the $600 used for personal purposes as made from the remaining $200 proceeds of Loan C and $400 of unborrowed funds. State tax return online For the periods during which loan proceeds are held in the account, Olena treats them as property held for investment. State tax return online Payments from checking accounts. State tax return online   Generally, you treat a payment from a checking or similar account as made at the time the check is written if you mail or deliver it to the payee within a reasonable period after you write it. State tax return online You can treat checks written on the same day as written in any order. State tax return online Amounts paid within 30 days. State tax return online   If you receive loan proceeds in cash or if the loan proceeds are deposited in an account, you can treat any payment (up to the amount of the proceeds) made from any account you own, or from cash, as made from those proceeds. State tax return online This applies to any payment made within 30 days before or after the proceeds are received in cash or deposited in your account. State tax return online   If the loan proceeds are deposited in an account, you can apply this rule even if the rules stated earlier under Order of funds spent would otherwise require you to treat the proceeds as used for other purposes. State tax return online If you apply this rule to any payments, disregard those payments (and the proceeds from which they are made) when applying the rules stated under Order of funds spent. State tax return online   If you received the loan proceeds in cash, you can treat the payment as made on the date you received the cash instead of the date you actually made the payment. State tax return online Example. State tax return online Giovanni gets a loan of $1,000 on August 4 and receives the proceeds in cash. State tax return online Giovanni deposits $1,500 in an account on August 18 and on August 28 writes a check on the account for a passive activity expense. State tax return online Also, Giovanni deposits his paycheck, deposits other loan proceeds, and pays his bills during the same period. State tax return online Regardless of these other transactions, Giovanni can treat $1,000 of the deposit he made on August 18 as being paid on August 4 from the loan proceeds. State tax return online In addition, Giovanni can treat the passive activity expense he paid on August 28 as made from the $1,000 loan proceeds treated as deposited in the account. State tax return online Optional method for determining date of reallocation. State tax return online   You can use the following method to determine the date loan proceeds are reallocated to another use. State tax return online You can treat all payments from loan proceeds in the account during any month as taking place on the later of the following dates. State tax return online The first day of that month. State tax return online The date the loan proceeds are deposited in the account. State tax return online However, you can use this optional method only if you treat all payments from the account during the same calendar month in the same way. State tax return online Interest on a segregated account. State tax return online   If you have an account that contains only loan proceeds and interest earned on the account, you can treat any payment from that account as being made first from the interest. State tax return online When the interest earned is used up, any remaining payments are from loan proceeds. State tax return online Example. State tax return online You borrowed $20,000 and used the proceeds of this loan to open a new savings account. State tax return online When the account had earned interest of $867, you withdrew $20,000 for personal purposes. State tax return online You can treat the withdrawal as coming first from the interest earned on the account, $867, and then from the loan proceeds, $19,133 ($20,000 − $867). State tax return online All the interest charged on the loan from the time it was deposited in the account until the time of the withdrawal is investment interest expense. State tax return online The interest charged on the part of the proceeds used for personal purposes ($19,133) from the time you withdrew it until you either repay it or reallocate it to another use is personal interest expense. State tax return online The interest charged on the loan proceeds you left in the account ($867) continues to be investment interest expense until you either repay it or reallocate it to another use. State tax return online Loan repayment. State tax return online   When you repay any part of a loan allocated to more than one use, treat it as being repaid in the following order. State tax return online Personal use. State tax return online Investments and passive activities (other than those included in (3)). State tax return online Passive activities in connection with a rental real estate activity in which you actively participate. State tax return online Former passive activities. State tax return online Trade or business use and expenses for certain low-income housing projects. State tax return online Line of credit (continuous borrowings). State tax return online   The following rules apply if you have a line of credit or similar arrangement. State tax return online Treat all borrowed funds on which interest accrues at the same fixed or variable rate as a single loan. State tax return online Treat borrowed funds or parts of borrowed funds on which interest accrues at different fixed or variable rates as different loans. State tax return online Treat these loans as repaid in the order shown on the loan agreement. State tax return online Loan refinancing. State tax return online   Allocate the replacement loan to the same uses to which the repaid loan was allocated. State tax return online Make the allocation only to the extent you use the proceeds of the new loan to repay any part of the original loan. State tax return online Debt-financed distribution. State tax return online   A debt-financed distribution occurs when a partnership or S corporation borrows funds and allocates those funds to distributions made to partners or shareholders. State tax return online The manner in which you report the interest expense associated with the distributed debt proceeds depends on your use of those proceeds. State tax return online How to report. State tax return online   If the proceeds were used in a nonpassive trade or business activity, report the interest on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership or S corporation in column (a) and the amount in column (h). State tax return online If the proceeds were used in a passive activity, follow the Instructions for Form 8582, Passive Activity Loss Limitations, to determine the amount of interest expense that can be reported on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership in column (a) and the amount in column (f). State tax return online If the proceeds were used in an investment activity, enter the interest on Form 4952. State tax return online If the proceeds are used for personal purposes, the interest is generally not deductible. State tax return online Interest You Can Deduct You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your trade or business. State tax return online Interest relates to your trade or business if you use the proceeds of the loan for a trade or business expense. State tax return online It does not matter what type of property secures the loan. State tax return online You can deduct interest on a debt only if you meet all the following requirements. State tax return online You are legally liable for that debt. State tax return online Both you and the lender intend that the debt be repaid. State tax return online You and the lender have a true debtor-creditor relationship. State tax return online Partial liability. State tax return online   If you are liable for part of a business debt, you can deduct only your share of the total interest paid or accrued. State tax return online Example. State tax return online You and your brother borrow money. State tax return online You are liable for 50% of the note. State tax return online You use your half of the loan in your business, and you make one-half of the loan payments. State tax return online You can deduct your half of the total interest payments as a business deduction. State tax return online Mortgage. State tax return online   Generally, mortgage interest paid or accrued on real estate you own legally or equitably is deductible. State tax return online However, rather than deducting the interest currently, you may have to add it to the cost basis of the property as explained later under Capitalization of Interest. State tax return online Statement. State tax return online   If you paid $600 or more of mortgage interest (including certain points) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement. State tax return online You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. State tax return online A governmental unit is a person for purposes of furnishing the statement. State tax return online   If you receive a refund of interest you overpaid in an earlier year, this amount will be reported in box 3 of Form 1098. State tax return online You cannot deduct this amount. State tax return online For information on how to report this refund, see Refunds of interest, later in this chapter. State tax return online Expenses paid to obtain a mortgage. State tax return online   Certain expenses you pay to obtain a mortgage cannot be deducted as interest. State tax return online These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses. State tax return online If the property mortgaged is business or income-producing property, you can amortize the costs over the life of the mortgage. State tax return online Prepayment penalty. State tax return online   If you pay off your mortgage early and pay the lender a penalty for doing this, you can deduct the penalty as interest. State tax return online Interest on employment tax deficiency. State tax return online   Interest charged on employment taxes assessed on your business is deductible. State tax return online Original issue discount (OID). State tax return online   OID is a form of interest. State tax return online A loan (mortgage or other debt) generally has OID when its proceeds are less than its principal amount. State tax return online The OID is the difference between the stated redemption price at maturity and the issue price of the loan. State tax return online   A loan's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on it other than qualified stated interest. State tax return online Qualified stated interest is stated interest that is unconditionally payable in cash or property (other than another loan of the issuer) at least annually over the term of the loan at a single fixed rate. State tax return online You generally deduct OID over the term of the loan. State tax return online Figure the amount to deduct each year using the constant-yield method, unless the OID on the loan is de minimis. State tax return online De minimis OID. State tax return online   The OID is de minimis if it is less than one-fourth of 1% (. State tax return online 0025) of the stated redemption price of the loan at maturity multiplied by the number of full years from the date of original issue to maturity (the term of the loan). State tax return online   If the OID is de minimis, you can choose one of the following ways to figure the amount you can deduct each year. State tax return online On a constant-yield basis over the term of the loan. State tax return online On a straight-line basis over the term of the loan. State tax return online In proportion to stated interest payments. State tax return online In its entirety at maturity of the loan. State tax return online You make this choice by deducting the OID in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued. State tax return online Example. State tax return online On January 1, 2013, you took out a $100,000 discounted loan and received $98,500 in proceeds. State tax return online The loan will mature on January 1, 2023 (a 10-year term), and the $100,000 principal is payable on that date. State tax return online Interest of $10,000 is payable on January 1 of each year, beginning January 1, 2014. State tax return online The $1,500 OID on the loan is de minimis because it is less than $2,500 ($100,000 × . State tax return online 0025 × 10). State tax return online You choose to deduct the OID on a straight-line basis over the term of the loan. State tax return online Beginning in 2013, you can deduct $150 each year for 10 years. State tax return online Constant-yield method. State tax return online   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. State tax return online You figure your deduction for the first year using the following steps. State tax return online Determine the issue price of the loan. State tax return online Generally, this equals the proceeds of the loan. State tax return online If you paid points on the loan (as discussed later), the issue price generally is the difference between the proceeds and the points. State tax return online Multiply the result in (1) by the yield to maturity. State tax return online Subtract any qualified stated interest payments from the result in (2). State tax return online This is the OID you can deduct in the first year. State tax return online   To figure your deduction in any subsequent year, follow the above steps, except determine the adjusted issue price in step (1). State tax return online To get the adjusted issue price, add to the issue price any OID previously deducted. State tax return online Then follow steps (2) and (3) above. State tax return online   The yield to maturity is generally shown in the literature you receive from your lender. State tax return online If you do not have this information, consult your lender or tax advisor. State tax return online In general, the yield to maturity is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the principal amount of the loan. State tax return online Example. State tax return online The facts are the same as in the previous example, except that you deduct the OID on a constant yield basis over the term of the loan. State tax return online The yield to maturity on your loan is 10. State tax return online 2467%, compounded annually. State tax return online For 2013, you can deduct $93 [($98,500 × . State tax return online 102467) − $10,000]. State tax return online For 2014, you can deduct $103 [($98,593 × . State tax return online 102467) − $10,000]. State tax return online Loan or mortgage ends. State tax return online   If your loan or mortgage ends, you may be able to deduct any remaining OID in the tax year in which the loan or mortgage ends. State tax return online A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. State tax return online If you refinance with the original lender, you generally cannot deduct the remaining OID in the year in which the refinancing occurs, but you may be able to deduct it over the term of the new mortgage or loan. State tax return online See Interest paid with funds borrowed from original lender under Interest You Cannot Deduct, later. State tax return online Points. State tax return online   The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a loan or a mortgage. State tax return online These charges are also called loan origination fees, maximum loan charges, discount points, or premium charges. State tax return online If any of these charges (points) are solely for the use of money, they are interest. State tax return online   Because points are prepaid interest, you generally cannot deduct the full amount in the year paid. State tax return online However, you can choose to fully deduct points in the year paid if you meet certain tests. State tax return online For exceptions to the general rule, see Publication 936. State tax return online The points reduce the issue price of the loan and result in original issue discount (OID), deductible as explained in the preceding discussion. State tax return online Partial payments on a nontax debt. State tax return online   If you make partial payments on a debt (other than a debt owed the IRS), the payments are applied, in general, first to interest and any remainder to principal. State tax return online You can deduct only the interest. State tax return online This rule does not apply when it can be inferred that the borrower and lender understood that a different allocation of the payments would be made. State tax return online Installment purchase. State tax return online   If you make an installment purchase of business property, the contract between you and the seller generally provides for the payment of interest. State tax return online If no interest or a low rate of interest is charged under the contract, a portion of the stated principal amount payable under the contract may be recharacterized as interest (unstated interest). State tax return online The amount recharacterized as interest reduces your basis in the property and increases your interest expense. State tax return online For more information on installment sales and unstated interest, see Publication 537. State tax return online Interest You Cannot Deduct Certain interest payments cannot be deducted. State tax return online In addition, certain other expenses that may seem to be interest but are not, cannot be deducted as interest. State tax return online You cannot currently deduct interest that must be capitalized, and you generally cannot deduct personal interest. State tax return online Interest paid with funds borrowed from original lender. State tax return online   If you use the cash method of accounting, you cannot deduct interest you pay with funds borrowed from the original lender through a second loan, an advance, or any other arrangement similar to a loan. State tax return online You can deduct the interest expense once you start making payments on the new loan. State tax return online   When you make a payment on the new loan, you first apply the payment to interest and then to the principal. State tax return online All amounts you apply to the interest on the first loan are deductible, along with any interest you pay on the second loan, subject to any limits that apply. State tax return online Capitalized interest. State tax return online   You cannot currently deduct interest you are required to capitalize under the uniform capitalization rules. State tax return online See Capitalization of Interest, later. State tax return online In addition, if you buy property and pay interest owed by the seller (for example, by assuming the debt and any interest accrued on the property), you cannot deduct the interest. State tax return online Add this interest to the basis of the property. State tax return online Commitment fees or standby charges. State tax return online   Fees you incur to have business funds available on a standby basis, but not for the actual use of the funds, are not deductible as interest payments. State tax return online You may be able to deduct them as business expenses. State tax return online   If the funds are for inventory or certain property used in your business, the fees are indirect costs and you generally must capitalize them under the uniform capitalization rules. State tax return online See Capitalization of Interest, later. State tax return online Interest on income tax. State tax return online   Interest charged on income tax assessed on your individual income tax return is not a business deduction even though the tax due is related to income from your trade or business. State tax return online Treat this interest as a business deduction only in figuring a net operating loss deduction. State tax return online Penalties. State tax return online   Penalties on underpaid deficiencies and underpaid estimated tax are not interest. State tax return online You cannot deduct them. State tax return online Generally, you cannot deduct any fines or penalties. State tax return online Interest on loans with respect to life insurance policies. State tax return online   You generally cannot deduct interest on a debt incurred with respect to any life insurance, annuity, or endowment contract that covers any individual unless that individual is a key person. State tax return online   If the policy or contract covers a key person, you can deduct the interest on up to $50,000 of debt for that person. State tax return online However, the deduction for any month cannot be more than the interest figured using Moody's Composite Yield on Seasoned Corporate Bonds (formerly known as Moody's Corporate Bond Yield Average-Monthly Average Corporates) (Moody's rate) for that month. State tax return online Who is a key person?   A key person is an officer or 20% owner. State tax return online However, the number of individuals you can treat as key persons is limited to the greater of the following. State tax return online Five individuals. State tax return online The lesser of 5% of the total officers and employees of the company or 20 individuals. State tax return online Exceptions for pre-June 1997 contracts. State tax return online   You can generally deduct the interest if the contract was issued before June 9, 1997, and the covered individual is someone other than an employee, officer, or someone financially interested in your business. State tax return online If the contract was purchased before June 21, 1986, you can generally deduct the interest no matter who is covered by the contract. State tax return online Interest allocated to unborrowed policy cash value. State tax return online   Corporations and partnerships generally cannot deduct any interest expense allocable to unborrowed cash values of life insurance, annuity, or endowment contracts. State tax return online This rule applies to contracts issued after June 8, 1997, that cover someone other than an officer, director, employee, or 20% owner. State tax return online For more information, see section 264(f) of the Internal Revenue Code. State tax return online Capitalization of Interest Under the uniform capitalization rules, you generally must capitalize interest on debt equal to your expenditures to produce real property or certain tangible personal property. State tax return online The property must be produced by you for use in your trade or business or for sale to customers. State tax return online You cannot capitalize interest related to property that you acquire in any other manner. State tax return online Interest you paid or incurred during the production period must be capitalized if the property produced is designated property. State tax return online Designated property is any of the following. State tax return online Real property. State tax return online Tangible personal property with a class life of 20 years or more. State tax return online Tangible personal property with an estimated production period of more than 2 years. State tax return online Tangible personal property with an estimated production period of more than 1 year if the estimated cost of production is more than $1 million. State tax return online Property you produce. State tax return online   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow it. State tax return online Treat property produced for you under a contract as produced by you up to the amount you pay or incur for the property. State tax return online Carrying charges. State tax return online   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. State tax return online You can choose to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. State tax return online For more information, see chapter 7. State tax return online Capitalized interest. State tax return online   Treat capitalized interest as a cost of the property produced. State tax return online You recover your interest when you sell or use the property. State tax return online If the property is inventory, recover capitalized interest through cost of goods sold. State tax return online If the property is used in your trade or business, recover capitalized interest through an adjustment to basis, depreciation, amortization, or other method. State tax return online Partnerships and S corporations. State tax return online   The interest capitalization rules are applied first at the partnership or S corporation level. State tax return online The rules are then applied at the partners' or shareholders' level to the extent the partnership or S corporation has insufficient debt to support the production or construction costs. State tax return online   If you are a partner or a shareholder, you may have to capitalize interest you incur during the tax year for the production costs of the partnership or S corporation. State tax return online You may also have to capitalize interest incurred by the partnership or S corporation for your own production costs. State tax return online To properly capitalize interest under these rules, you must be given the required information in an attachment to the Schedule K-1 you receive from the partnership or S corporation. State tax return online Additional information. State tax return online   The procedures for applying the uniform capitalization rules are beyond the scope of this publication. State tax return online For more information, see sections 1. State tax return online 263A-8 through 1. State tax return online 263A-15 of the regulations and Notice 88-99. State tax return online Notice 88-99 is in Cumulative Bulletin 1988-2. State tax return online When To Deduct Interest If the uniform capitalization rules, discussed under Capitalization of Interest, earlier, do not apply to you, deduct interest as follows. State tax return online Cash method. State tax return online   Under the cash method, you can generally deduct only the interest you actually paid during the tax year. State tax return online You cannot deduct a promissory note you gave as payment because it is a promise to pay and not an actual payment. State tax return online Prepaid interest. State tax return online   You generally cannot deduct any interest paid before the year it is due. State tax return online Interest paid in advance can be deducted only in the tax year in which it is due. State tax return online Discounted loan. State tax return online   If interest or a discount is subtracted from your loan proceeds, it is not a payment of interest and you cannot deduct it when you get the loan. State tax return online For more information, see Original issue discount (OID) under Interest You Can Deduct, earlier. State tax return online Refunds of interest. State tax return online   If you pay interest and then receive a refund in the same tax year of any part of the interest, reduce your interest deduction by the refund. State tax return online If you receive the refund in a later tax year, include the refund in your income to the extent the deduction for the interest reduced your tax. State tax return online Accrual method. State tax return online   Under an accrual method, you can deduct only interest that has accrued during the tax year. State tax return online Prepaid interest. State tax return online   See Prepaid interest, earlier. State tax return online Discounted loan. State tax return online   See Discounted loan, earlier. State tax return online Tax deficiency. State tax return online   If you contest a federal income tax deficiency, interest does not accrue until the tax year the final determination of liability is made. State tax return online If you do not contest the deficiency, then the interest accrues in the year the tax was asserted and agreed to by you. State tax return online   However, if you contest but pay the proposed tax deficiency and interest, and you do not designate the payment as a cash bond, then the interest is deductible in the year paid. State tax return online Related person. State tax return online   If you use an accrual method, you cannot deduct interest owed to a related person who uses the cash method until payment is made and the interest is includible in the gross income of that person. State tax return online The relationship is determined as of the end of the tax year for which the interest would otherwise be deductible. State tax return online See section 267 of the Internal Revenue Code for more information. State tax return online Below-Market Loans If you receive a below-market gift or demand loan and use the proceeds in your trade or business, you may be able to deduct the forgone interest. State tax return online See Treatment of gift and demand loans, later, in this discussion. State tax return online A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. State tax return online A gift or demand loan that is a below-market loan generally is considered an arm's-length transaction in which you, the borrower, are considered as having received both the following. State tax return online A loan in exchange for a note that requires the payment of interest at the applicable federal rate. State tax return online An additional payment in an amount equal to the forgone interest. State tax return online The additional payment is treated as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. State tax return online Forgone interest. State tax return online   For any period, forgone interest is The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. State tax return online Applicable federal rates are published by the IRS each month in the Internal Revenue Bulletin. State tax return online Internal Revenue Bulletins are available on the IRS web site at www. State tax return online irs. State tax return online gov/irb. State tax return online You can also contact an IRS office to get these rates. State tax return online Loans subject to the rules. State tax return online   The rules for below-market loans apply to the following. State tax return online Gift loans (below-market loans where the forgone interest is in the nature of a gift). State tax return online Compensation-related loans (below-market loans between an employer and an employee or between an independent contractor and a person for whom the contractor provides services). State tax return online Corporation-shareholder loans. State tax return online Tax avoidance loans (below-market loans where the avoidance of federal tax is one of the main purposes of the interest arrangement). State tax return online Loans to qualified continuing care facilities under a continuing care contract (made after October 11, 1985). State tax return online   Except as noted in (5) above, these rules apply to demand loans (loans payable in full at any time upon the lender's demand) outstanding after June 6, 1984, and to term loans (loans that are not demand loans) made after that date. State tax return online Treatment of gift and demand loans. State tax return online   If you receive a below-market gift loan or demand loan, you are treated as receiving an additional payment (as a gift, dividend, etc. State tax return online ) equal to the forgone interest on the loan. State tax return online You are then treated as transferring this amount back to the lender as interest. State tax return online These transfers are considered to occur annually, generally on December 31. State tax return online If you use the loan proceeds in your trade or business, you can deduct the forgone interest each year as a business interest expense. State tax return online The lender must report it as interest income. State tax return online Limit on forgone interest for gift loans of $100,000 or less. State tax return online   For gift loans between individuals, forgone interest treated as transferred back to the lender is limited to the borrower's net investment income for the year. State tax return online This limit applies if the outstanding loans between the lender and borrower total $100,000 or less. State tax return online If the borrower's net investment income is $1,000 or less, it is treated as zero. State tax return online This limit does not apply to a loan if the avoidance of any federal tax is one of the main purposes of the interest arrangement. State tax return online Treatment of term loans. State tax return online   If you receive a below-market term loan other than a gift or demand loan, you are treated as receiving an additional cash payment (as a dividend, etc. State tax return online ) on the date the loan is made. State tax return online This payment is equal to the loan amount minus the present value, at the applicable federal rate, of all payments due under the loan. State tax return online The same amount is treated as original issue discount on the loan. State tax return online See Original issue discount (OID) under Interest You Can Deduct, earlier. State tax return online Exceptions for loans of $10,000 or less. State tax return online   The rules for below-market loans do not apply to any day on which the total outstanding loans between the borrower and lender is $10,000 or less. State tax return online This exception applies only to the following. State tax return online Gift loans between individuals if the loan is not directly used to buy or carry income-producing assets. State tax return online Compensation-related loans or corporation-shareholder loans if the avoidance of any federal tax is not a principal purpose of the interest arrangement. State tax return online This exception does not apply to a term loan described in (2) above that was previously subject to the below-market loan rules. State tax return online Those rules will continue to apply even if the outstanding balance is reduced to $10,000 or less. State tax return online Exceptions for loans without significant tax effect. State tax return online   The following loans are specifically exempted from the rules for below-market loans because their interest arrangements do not have a significant effect on the federal tax liability of the borrower or the lender. State tax return online Loans made available by lenders to the general public on the same terms and conditions that are consistent with the lender's customary business practices. State tax return online Loans subsidized by a federal, state, or municipal government that are made available under a program of general application to the public. State tax return online Certain employee-relocation loans. State tax return online Certain loans to or from a foreign person, unless the interest income would be effectively connected with the conduct of a U. State tax return online S. State tax return online trade or business and not exempt from U. State tax return online S. State tax return online tax under an income tax treaty. State tax return online Any other loan if the taxpayer can show that the interest arrangement has no significant effect on the federal tax liability of the lender or the borrower. State tax return online Whether an interest arrangement has a significant effect on the federal tax liability of the lender or the borrower will be determined by all the facts and circumstances. State tax return online Consider all the following factors. State tax return online Whether items of income and deduction generated by the loan offset each other. State tax return online The amount of the items. State tax return online The cost of complying with the below-market loan provisions if they were to apply. State tax return online Any reasons, other than taxes, for structuring the transaction as a below-market loan. State tax return online Exception for loans to qualified continuing care facilities. State tax return online   The below-market interest rules do not apply to a loan owed by a qualified continuing care facility under a continuing care contract if the lender or lender's spouse is age 62 or older by the end of the calendar year. State tax return online A qualified continuing care facility is one or more facilities (excluding nursing homes) meeting the requirements listed below. State tax return online Designed to provide services under continuing care contracts (defined below). State tax return online Includes an independent living unit, and either an assisted living or nursing facility, or both. State tax return online Substantially all of the independent living unit residents are covered by continuing care contracts. State tax return online A continuing care contract is a written contract between an individual and a qualified continuing care facility that includes all of the following conditions. State tax return online The individual or individual's spouse must be entitled to use the facility for the rest of their life or lives. State tax return online The individual or individual's spouse will be provided with housing, as appropriate for the health of the individual or individual's spouse in an: independent living unit (which has additional available facilities outside the unit for the provision of meals and other personal care), and assisted living or nursing facility available in the continuing care facility. State tax return online The individual or individual's spouse will be provided with assisted living or nursing care available in the continuing care facility, as required for the health of the individual or the individual's spouse. State tax return online For more information, see section 7872(h) of the Internal Revenue Code. State tax return online Sale or exchange of property. State tax return online   Different rules generally apply to a loan connected with the sale or exchange of property. State tax return online If the loan does not provide adequate stated interest, part of the principal payment may be considered interest. State tax return online However, there are exceptions that may require you to apply the below-market interest rate rules to these loans. State tax return online See Unstated Interest and Original Issue Discount (OID) in Publication 537. State tax return online More information. State tax return online   For more information on below-market loans, see section 7872 of the Internal Revenue Code and section 1. State tax return online 7872-5 of the regulations. State tax return online Prev  Up  Next   Home   More Online Publications
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Contact My Local Office in Iowa

Face-to-face Tax Help

IRS Taxpayer Assistance Centers (TACs) are your source for personal tax help when you believe your tax issue can only be handled face-to-face. No appointment is necessary.

Keep in mind, many questions can be resolved online without waiting in line. Through IRS.gov you can:
• Set up a payment plan.
• Get a transcript of your tax return.
• Make a payment.
• Check on your refund.
• Find answers to many of your tax questions.

We are now referring all requests for tax return preparation services to other available resources. You can take advantage of free tax preparation through Free File, Free File Fillable Forms or through a volunteer site in your community. To find the nearest volunteer site location or to get more information about Free File, go to the top of the page and enter “Free Tax Help” in the Search box.

If you have a tax account issues and feel that it requires talking with someone face-to-face, visit your local TAC.

Caution:  Many of our offices are located in Federal Office Buildings. These buildings may not allow visitors to bring in cell phones with camera capabilities.

Multilingual assistance is available in every office. Hours of operation are subject to change.

Before visiting your local office click on "Services Provided" in the chart below to see what services are available. Services are limited and not all services are available at every TAC office and may vary from site to site. You can get these services on a walk-in basis.

City Street Address Days/Hours of Service Telephone*
Cedar Rapids 425 Second St. SE
Cedar Rapids, IA 52401

Monday - Friday 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:00 noon - 1:00 p.m.)

 

Services Provided

(319) 364-5327 
Davenport  101 W. 2nd St.
Davenport, IA 52801

Monday-Wednesday 8:30 a.m.-4:30 p.m.
(Closed for lunch from 12:00 noon - 1:00 p.m.)

 

**This office will be open 10:30 a.m. - 4:30 p.m. on Mondays**

 

**This office will be open normal hours on Tuesdays**

 

**This office will be open 8:30 a.m. - 2:00 p.m. on Wednesdays**

 

**This office will be closed Thursdays and Fridays until further notice**

 

Services Provided

(563) 326-6052 
Des Moines  210 Walnut St.
Des Moines, IA 50309 

Monday-Friday 8:30 a.m.-4:30 p.m.
(Closed for lunch from 12:00 noon - 1:00 p.m.)

 

Services Provided

(515) 564-6618 
Fort Dodge**  1728 Central Ave.
Fort Dodge, IA 50501 

January - April: This office will be open the 1st and 3rd Monday of each month.

May - December: This office will be open only the 1st Monday of each month..

Monday 10:00 a.m.-3:30 p.m.
(Closed for lunch 12:00 noon - 1:00 p.m.)

 

**Whenever a Federal Holiday falls on the Monday we are scheduled to be open, we will be open on Tuesday of that week.
 

Services Provided

(515) 576-1744 
Sioux City  3539 Southern Hills Drive
Sioux City, IA
51106 

Monday-Friday 8:30 a.m.-4:30 p.m.
(Closed for lunch 11:30 a.m. - 12:30 p.m.)

 

Services Provided

(712) 274-8019 
Waterloo  201 Tower Park Dr.
Suite 102
Waterloo, IA 50701 

Monday - Friday 8:30 a.m.- 4:30 p.m.
(Closed for lunch 12:00 noon - 1:00 p.m.) 

 

Services Provided

(319) 234-5719 
Waterloo/remote
Taxpayer Assistance
available at Eastside Ministerial Alliance
205 Adams Street,
Suite 1
Waterloo, IA 50703

Monday-Thursday-9:30 a.m.-4:00 p.m.; 
Friday-9:00 a.m.-2:00 p.m.
(Closed for lunch 12:00 noon - 1:00 p.m.)
 

Services Provided

 

* Note: The phone numbers in the chart above are not toll-free for all locations. When you call, you will reach a recorded business message with information about office hours, locations and services provided in that office. If face-to-face assistance is not a priority for you, you may also get help with IRS letters or resolve tax account issues by phone, toll free at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses). For information on where to file your tax return please see Where to File Addresses.

The Taxpayer Advocate Service: Call (515) 564-6888 in Des Moines or 1-877-777-4778 elsewhere, or see  Publication 1546, The Taxpayer Advocate Service of the IRS. For further information, see  Tax Topic 104.

Partnerships

IRS and organizations all over the country are partnering to assist taxpayers. Through these partnerships, organizations are also achieving their own goals. These mutually beneficial partnerships are strengthening outreach efforts and bringing education and assistance to millions.

For more information about these programs for individuals and families, contact the Stakeholder Partnerships, Education and Communication Office at:

Internal Revenue Service
210 Walnut St. Stop 4312
Des Moines, IA 50309

For more information about these programs for businesses, your local Stakeholder Liaison office establishes relationships with organizations representing small business and self-employed taxpayers. They provide information about the policies, practices and procedures the IRS uses to ensure compliance with the tax laws. To establish a relationship with us, use this list to find a contact in your state:

Stakeholder Liaison (SL) Phone Numbers for Organizations Representing Small Businesses and Self-employed Taxpayers.

Page Last Reviewed or Updated: 28-Mar-2014

The State Tax Return Online

State tax return online 1. State tax return online   Organizations Subject to the Tax Table of Contents The tax on unrelated business income applies to most organizations exempt from tax under section 501(a). State tax return online These organizations include charitable, religious, scientific, and other organizations described in section 501(c), as well as employees' trusts forming part of pension, profit-sharing, and stock bonus plans described in section 401(a). State tax return online In addition, the following are subject to the tax on unrelated business income. State tax return online Individual retirement arrangements (IRAs), including traditional IRAs, Roth IRAs, Coverdell IRAs, simplified employee pensions (SEP-IRAs), and savings incentive match plans for employees (SIMPLE IRAs). State tax return online State and municipal colleges and universities. State tax return online Qualified state tuition programs. State tax return online Medical savings accounts (MSAs) described in section 220(d). State tax return online Coverdell savings accounts described in section 530. State tax return online U. State tax return online S. State tax return online instrumentalities. State tax return online   A corporation that is a U. State tax return online S. State tax return online instrumentality described in section 501(c)(1) is not subject to the tax on unrelated business income if the corporation is organized under an Act of Congress and, under the Act, is exempt from federal income taxes. State tax return online Colleges and universities. State tax return online   Colleges and universities that are agencies or instrumentalities of any government or any political subdivision of a government, or that are owned or operated by a government or political subdivision of a government, are subject to the tax on unrelated business income. State tax return online As used here, the word government includes any foreign government (to the extent not contrary to a treaty) and all domestic governments (the United States and any of its possessions, any state, and the District of Columbia). State tax return online   The tax is on the unrelated business income of both the universities and colleges themselves and on their wholly owned tax exempt subsidiary organizations. State tax return online It is immaterial whether the business is conducted by the university or by a separately incorporated wholly owned subsidiary. State tax return online If the business activity is unrelated, the income in both instances will be subject to the tax. State tax return online If the primary purpose of a wholly owned subsidiary is to operate or conduct any unrelated trade or business (other than holding title to property and collecting income from it), the subsidiary is not an exempt organization, and this rule does not apply. State tax return online Title-holding corporations. State tax return online   When an exempt title-holding corporation, described in section 501(c)(2), pays any of its net income to an organization that itself is exempt from tax under section 501(a) (or would pay such an amount except that the expenses of collecting its income exceed the amount collected) and files a consolidated return with that organization, the title-holding corporation is treated, for unrelated business income tax purposes, as organized and operated for the same purposes as the exempt payee organization. State tax return online   Thus, a title-holding corporation whose source of income is related to the exempt purposes of the payee organization is not subject to the unrelated business income tax if the holding corporation and the payee organization file a consolidated return. State tax return online However, if the source of the income is not so related, the title-holding corporation is subject to unrelated business income tax. State tax return online Example. State tax return online X, a title-holding corporation, is required to distribute its net income to A, an exempt organization. State tax return online During the tax year, X realizes net income of $900,000 from source M, which is related to A's exempt function. State tax return online X also receives $100,000 from source N, which is not related to A's exempt function. State tax return online X and A file a consolidated return for the tax year. State tax return online X has unrelated business income of $100,000. State tax return online Prev  Up  Next   Home   More Online Publications