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Tax Act Online 2012 Login

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Tax Act Online 2012 Login

Tax act online 2012 login 4. Tax act online 2012 login   Interest Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Allocation of InterestOrder of funds spent. Tax act online 2012 login Payments from checking accounts. Tax act online 2012 login Amounts paid within 30 days. Tax act online 2012 login Optional method for determining date of reallocation. Tax act online 2012 login Interest on a segregated account. Tax act online 2012 login How to report. Tax act online 2012 login Interest You Can DeductStatement. Tax act online 2012 login Expenses paid to obtain a mortgage. Tax act online 2012 login Prepayment penalty. Tax act online 2012 login De minimis OID. Tax act online 2012 login Constant-yield method. Tax act online 2012 login Loan or mortgage ends. Tax act online 2012 login Interest You Cannot DeductPenalties. Tax act online 2012 login Who is a key person? Exceptions for pre-June 1997 contracts. Tax act online 2012 login Interest allocated to unborrowed policy cash value. Tax act online 2012 login Capitalization of Interest When To Deduct InterestPrepaid interest. Tax act online 2012 login Discounted loan. Tax act online 2012 login Refunds of interest. Tax act online 2012 login Prepaid interest. Tax act online 2012 login Discounted loan. Tax act online 2012 login Tax deficiency. Tax act online 2012 login Related person. Tax act online 2012 login Below-Market LoansLimit on forgone interest for gift loans of $100,000 or less. Tax act online 2012 login Introduction This chapter discusses the tax treatment of business interest expense. Tax act online 2012 login Business interest expense is an amount charged for the use of money you borrowed for business activities. Tax act online 2012 login 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. Tax act online 2012 login Sch K-1 (Form 1120S) Shareholder's Share of Income, Deductions, Credits, etc. Tax act online 2012 login 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. Tax act online 2012 login Allocation of Interest The rules for deducting interest vary, depending on whether the loan proceeds are used for business, personal, or investment activities. Tax act online 2012 login 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. Tax act online 2012 login Allocate your interest expense to the following categories. Tax act online 2012 login 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. Tax act online 2012 login You allocate loan proceeds by tracing disbursements to specific uses. Tax act online 2012 login The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. Tax act online 2012 login Secured loan. Tax act online 2012 login   The allocation of loan proceeds and the related interest is not generally affected by the use of property that secures the loan. Tax act online 2012 login Example. Tax act online 2012 login You secure a loan with property used in your business. Tax act online 2012 login You use the loan proceeds to buy an automobile for personal use. Tax act online 2012 login You must allocate interest expense on the loan to personal use (purchase of the automobile) even though the loan is secured by business property. Tax act online 2012 login    If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. Tax act online 2012 login The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. Tax act online 2012 login For more information, see Publication 936. Tax act online 2012 login Allocation period. Tax act online 2012 login   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. Tax act online 2012 login The date the loan is repaid. Tax act online 2012 login The date the loan is reallocated to another use. Tax act online 2012 login Proceeds not disbursed to borrower. Tax act online 2012 login   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. Tax act online 2012 login This applies whether you pay for property, services, or anything else by incurring a loan, or you take property subject to a debt. Tax act online 2012 login Proceeds deposited in borrower's account. Tax act online 2012 login   Treat loan proceeds deposited in an account as property held for investment. Tax act online 2012 login It does not matter whether the account pays interest. Tax act online 2012 login Any interest you pay on the loan is investment interest expense. Tax act online 2012 login If you withdraw the proceeds of the loan, you must reallocate the loan based on the use of the funds. Tax act online 2012 login Example. Tax act online 2012 login Celina, a calendar-year taxpayer, borrows $100,000 on January 4 and immediately uses the proceeds to open a checking account. Tax act online 2012 login No other amounts are deposited in the account during the year and no part of the loan principal is repaid during the year. Tax act online 2012 login On April 2, Celina uses $20,000 from the checking account for a passive activity expenditure. Tax act online 2012 login On September 4, Celina uses an additional $40,000 from the account for personal purposes. Tax act online 2012 login 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. Tax act online 2012 login 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. Tax act online 2012 login 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. Tax act online 2012 login Order of funds spent. Tax act online 2012 login   Generally, you treat loan proceeds deposited in an account as used (spent) before either of the following amounts. Tax act online 2012 login Any unborrowed amounts held in the same account. Tax act online 2012 login Any amounts deposited after these loan proceeds. Tax act online 2012 login Example. Tax act online 2012 login On January 9, Olena opened a checking account, depositing $500 of the proceeds of Loan A and $1,000 of unborrowed funds. Tax act online 2012 login The following table shows the transactions in her account during the tax year. Tax act online 2012 login 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. Tax act online 2012 login She treats the $700 used for a passive activity as made from the remaining $200 proceeds of Loan B and $500 of unborrowed funds. Tax act online 2012 login She treats the $800 used for an investment as made entirely from the proceeds of Loan C. Tax act online 2012 login She treats the $600 used for personal purposes as made from the remaining $200 proceeds of Loan C and $400 of unborrowed funds. Tax act online 2012 login For the periods during which loan proceeds are held in the account, Olena treats them as property held for investment. Tax act online 2012 login Payments from checking accounts. Tax act online 2012 login   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. Tax act online 2012 login You can treat checks written on the same day as written in any order. Tax act online 2012 login Amounts paid within 30 days. Tax act online 2012 login   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. Tax act online 2012 login This applies to any payment made within 30 days before or after the proceeds are received in cash or deposited in your account. Tax act online 2012 login   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. Tax act online 2012 login 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. Tax act online 2012 login   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. Tax act online 2012 login Example. Tax act online 2012 login Giovanni gets a loan of $1,000 on August 4 and receives the proceeds in cash. Tax act online 2012 login 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. Tax act online 2012 login Also, Giovanni deposits his paycheck, deposits other loan proceeds, and pays his bills during the same period. Tax act online 2012 login 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. Tax act online 2012 login 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. Tax act online 2012 login Optional method for determining date of reallocation. Tax act online 2012 login   You can use the following method to determine the date loan proceeds are reallocated to another use. Tax act online 2012 login You can treat all payments from loan proceeds in the account during any month as taking place on the later of the following dates. Tax act online 2012 login The first day of that month. Tax act online 2012 login The date the loan proceeds are deposited in the account. Tax act online 2012 login 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. Tax act online 2012 login Interest on a segregated account. Tax act online 2012 login   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. Tax act online 2012 login When the interest earned is used up, any remaining payments are from loan proceeds. Tax act online 2012 login Example. Tax act online 2012 login You borrowed $20,000 and used the proceeds of this loan to open a new savings account. Tax act online 2012 login When the account had earned interest of $867, you withdrew $20,000 for personal purposes. Tax act online 2012 login 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). Tax act online 2012 login 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. Tax act online 2012 login 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. Tax act online 2012 login 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. Tax act online 2012 login Loan repayment. Tax act online 2012 login   When you repay any part of a loan allocated to more than one use, treat it as being repaid in the following order. Tax act online 2012 login Personal use. Tax act online 2012 login Investments and passive activities (other than those included in (3)). Tax act online 2012 login Passive activities in connection with a rental real estate activity in which you actively participate. Tax act online 2012 login Former passive activities. Tax act online 2012 login Trade or business use and expenses for certain low-income housing projects. Tax act online 2012 login Line of credit (continuous borrowings). Tax act online 2012 login   The following rules apply if you have a line of credit or similar arrangement. Tax act online 2012 login Treat all borrowed funds on which interest accrues at the same fixed or variable rate as a single loan. Tax act online 2012 login Treat borrowed funds or parts of borrowed funds on which interest accrues at different fixed or variable rates as different loans. Tax act online 2012 login Treat these loans as repaid in the order shown on the loan agreement. Tax act online 2012 login Loan refinancing. Tax act online 2012 login   Allocate the replacement loan to the same uses to which the repaid loan was allocated. Tax act online 2012 login Make the allocation only to the extent you use the proceeds of the new loan to repay any part of the original loan. Tax act online 2012 login Debt-financed distribution. Tax act online 2012 login   A debt-financed distribution occurs when a partnership or S corporation borrows funds and allocates those funds to distributions made to partners or shareholders. Tax act online 2012 login The manner in which you report the interest expense associated with the distributed debt proceeds depends on your use of those proceeds. Tax act online 2012 login How to report. Tax act online 2012 login   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). Tax act online 2012 login 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). Tax act online 2012 login If the proceeds were used in an investment activity, enter the interest on Form 4952. Tax act online 2012 login If the proceeds are used for personal purposes, the interest is generally not deductible. Tax act online 2012 login 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. Tax act online 2012 login Interest relates to your trade or business if you use the proceeds of the loan for a trade or business expense. Tax act online 2012 login It does not matter what type of property secures the loan. Tax act online 2012 login You can deduct interest on a debt only if you meet all the following requirements. Tax act online 2012 login You are legally liable for that debt. Tax act online 2012 login Both you and the lender intend that the debt be repaid. Tax act online 2012 login You and the lender have a true debtor-creditor relationship. Tax act online 2012 login Partial liability. Tax act online 2012 login   If you are liable for part of a business debt, you can deduct only your share of the total interest paid or accrued. Tax act online 2012 login Example. Tax act online 2012 login You and your brother borrow money. Tax act online 2012 login You are liable for 50% of the note. Tax act online 2012 login You use your half of the loan in your business, and you make one-half of the loan payments. Tax act online 2012 login You can deduct your half of the total interest payments as a business deduction. Tax act online 2012 login Mortgage. Tax act online 2012 login   Generally, mortgage interest paid or accrued on real estate you own legally or equitably is deductible. Tax act online 2012 login 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. Tax act online 2012 login Statement. Tax act online 2012 login   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. Tax act online 2012 login 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. Tax act online 2012 login A governmental unit is a person for purposes of furnishing the statement. Tax act online 2012 login   If you receive a refund of interest you overpaid in an earlier year, this amount will be reported in box 3 of Form 1098. Tax act online 2012 login You cannot deduct this amount. Tax act online 2012 login For information on how to report this refund, see Refunds of interest, later in this chapter. Tax act online 2012 login Expenses paid to obtain a mortgage. Tax act online 2012 login   Certain expenses you pay to obtain a mortgage cannot be deducted as interest. Tax act online 2012 login These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses. Tax act online 2012 login If the property mortgaged is business or income-producing property, you can amortize the costs over the life of the mortgage. Tax act online 2012 login Prepayment penalty. Tax act online 2012 login   If you pay off your mortgage early and pay the lender a penalty for doing this, you can deduct the penalty as interest. Tax act online 2012 login Interest on employment tax deficiency. Tax act online 2012 login   Interest charged on employment taxes assessed on your business is deductible. Tax act online 2012 login Original issue discount (OID). Tax act online 2012 login   OID is a form of interest. Tax act online 2012 login A loan (mortgage or other debt) generally has OID when its proceeds are less than its principal amount. Tax act online 2012 login The OID is the difference between the stated redemption price at maturity and the issue price of the loan. Tax act online 2012 login   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. Tax act online 2012 login 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. Tax act online 2012 login You generally deduct OID over the term of the loan. Tax act online 2012 login Figure the amount to deduct each year using the constant-yield method, unless the OID on the loan is de minimis. Tax act online 2012 login De minimis OID. Tax act online 2012 login   The OID is de minimis if it is less than one-fourth of 1% (. Tax act online 2012 login 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). Tax act online 2012 login   If the OID is de minimis, you can choose one of the following ways to figure the amount you can deduct each year. Tax act online 2012 login On a constant-yield basis over the term of the loan. Tax act online 2012 login On a straight-line basis over the term of the loan. Tax act online 2012 login In proportion to stated interest payments. Tax act online 2012 login In its entirety at maturity of the loan. Tax act online 2012 login 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. Tax act online 2012 login Example. Tax act online 2012 login On January 1, 2013, you took out a $100,000 discounted loan and received $98,500 in proceeds. Tax act online 2012 login The loan will mature on January 1, 2023 (a 10-year term), and the $100,000 principal is payable on that date. Tax act online 2012 login Interest of $10,000 is payable on January 1 of each year, beginning January 1, 2014. Tax act online 2012 login The $1,500 OID on the loan is de minimis because it is less than $2,500 ($100,000 × . Tax act online 2012 login 0025 × 10). Tax act online 2012 login You choose to deduct the OID on a straight-line basis over the term of the loan. Tax act online 2012 login Beginning in 2013, you can deduct $150 each year for 10 years. Tax act online 2012 login Constant-yield method. Tax act online 2012 login   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. Tax act online 2012 login You figure your deduction for the first year using the following steps. Tax act online 2012 login Determine the issue price of the loan. Tax act online 2012 login Generally, this equals the proceeds of the loan. Tax act online 2012 login If you paid points on the loan (as discussed later), the issue price generally is the difference between the proceeds and the points. Tax act online 2012 login Multiply the result in (1) by the yield to maturity. Tax act online 2012 login Subtract any qualified stated interest payments from the result in (2). Tax act online 2012 login This is the OID you can deduct in the first year. Tax act online 2012 login   To figure your deduction in any subsequent year, follow the above steps, except determine the adjusted issue price in step (1). Tax act online 2012 login To get the adjusted issue price, add to the issue price any OID previously deducted. Tax act online 2012 login Then follow steps (2) and (3) above. Tax act online 2012 login   The yield to maturity is generally shown in the literature you receive from your lender. Tax act online 2012 login If you do not have this information, consult your lender or tax advisor. Tax act online 2012 login 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. Tax act online 2012 login Example. Tax act online 2012 login 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. Tax act online 2012 login The yield to maturity on your loan is 10. Tax act online 2012 login 2467%, compounded annually. Tax act online 2012 login For 2013, you can deduct $93 [($98,500 × . Tax act online 2012 login 102467) − $10,000]. Tax act online 2012 login For 2014, you can deduct $103 [($98,593 × . Tax act online 2012 login 102467) − $10,000]. Tax act online 2012 login Loan or mortgage ends. Tax act online 2012 login   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. Tax act online 2012 login A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. Tax act online 2012 login 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. Tax act online 2012 login See Interest paid with funds borrowed from original lender under Interest You Cannot Deduct, later. Tax act online 2012 login Points. Tax act online 2012 login   The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a loan or a mortgage. Tax act online 2012 login These charges are also called loan origination fees, maximum loan charges, discount points, or premium charges. Tax act online 2012 login If any of these charges (points) are solely for the use of money, they are interest. Tax act online 2012 login   Because points are prepaid interest, you generally cannot deduct the full amount in the year paid. Tax act online 2012 login However, you can choose to fully deduct points in the year paid if you meet certain tests. Tax act online 2012 login For exceptions to the general rule, see Publication 936. Tax act online 2012 login The points reduce the issue price of the loan and result in original issue discount (OID), deductible as explained in the preceding discussion. Tax act online 2012 login Partial payments on a nontax debt. Tax act online 2012 login   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. Tax act online 2012 login You can deduct only the interest. Tax act online 2012 login 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. Tax act online 2012 login Installment purchase. Tax act online 2012 login   If you make an installment purchase of business property, the contract between you and the seller generally provides for the payment of interest. Tax act online 2012 login 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). Tax act online 2012 login The amount recharacterized as interest reduces your basis in the property and increases your interest expense. Tax act online 2012 login For more information on installment sales and unstated interest, see Publication 537. Tax act online 2012 login Interest You Cannot Deduct Certain interest payments cannot be deducted. Tax act online 2012 login In addition, certain other expenses that may seem to be interest but are not, cannot be deducted as interest. Tax act online 2012 login You cannot currently deduct interest that must be capitalized, and you generally cannot deduct personal interest. Tax act online 2012 login Interest paid with funds borrowed from original lender. Tax act online 2012 login   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. Tax act online 2012 login You can deduct the interest expense once you start making payments on the new loan. Tax act online 2012 login   When you make a payment on the new loan, you first apply the payment to interest and then to the principal. Tax act online 2012 login 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. Tax act online 2012 login Capitalized interest. Tax act online 2012 login   You cannot currently deduct interest you are required to capitalize under the uniform capitalization rules. Tax act online 2012 login See Capitalization of Interest, later. Tax act online 2012 login 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. Tax act online 2012 login Add this interest to the basis of the property. Tax act online 2012 login Commitment fees or standby charges. Tax act online 2012 login   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. Tax act online 2012 login You may be able to deduct them as business expenses. Tax act online 2012 login   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. Tax act online 2012 login See Capitalization of Interest, later. Tax act online 2012 login Interest on income tax. Tax act online 2012 login   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. Tax act online 2012 login Treat this interest as a business deduction only in figuring a net operating loss deduction. Tax act online 2012 login Penalties. Tax act online 2012 login   Penalties on underpaid deficiencies and underpaid estimated tax are not interest. Tax act online 2012 login You cannot deduct them. Tax act online 2012 login Generally, you cannot deduct any fines or penalties. Tax act online 2012 login Interest on loans with respect to life insurance policies. Tax act online 2012 login   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. Tax act online 2012 login   If the policy or contract covers a key person, you can deduct the interest on up to $50,000 of debt for that person. Tax act online 2012 login 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. Tax act online 2012 login Who is a key person?   A key person is an officer or 20% owner. Tax act online 2012 login However, the number of individuals you can treat as key persons is limited to the greater of the following. Tax act online 2012 login Five individuals. Tax act online 2012 login The lesser of 5% of the total officers and employees of the company or 20 individuals. Tax act online 2012 login Exceptions for pre-June 1997 contracts. Tax act online 2012 login   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. Tax act online 2012 login If the contract was purchased before June 21, 1986, you can generally deduct the interest no matter who is covered by the contract. Tax act online 2012 login Interest allocated to unborrowed policy cash value. Tax act online 2012 login   Corporations and partnerships generally cannot deduct any interest expense allocable to unborrowed cash values of life insurance, annuity, or endowment contracts. Tax act online 2012 login This rule applies to contracts issued after June 8, 1997, that cover someone other than an officer, director, employee, or 20% owner. Tax act online 2012 login For more information, see section 264(f) of the Internal Revenue Code. Tax act online 2012 login 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. Tax act online 2012 login The property must be produced by you for use in your trade or business or for sale to customers. Tax act online 2012 login You cannot capitalize interest related to property that you acquire in any other manner. Tax act online 2012 login Interest you paid or incurred during the production period must be capitalized if the property produced is designated property. Tax act online 2012 login Designated property is any of the following. Tax act online 2012 login Real property. Tax act online 2012 login Tangible personal property with a class life of 20 years or more. Tax act online 2012 login Tangible personal property with an estimated production period of more than 2 years. Tax act online 2012 login Tangible personal property with an estimated production period of more than 1 year if the estimated cost of production is more than $1 million. Tax act online 2012 login Property you produce. Tax act online 2012 login   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow it. Tax act online 2012 login Treat property produced for you under a contract as produced by you up to the amount you pay or incur for the property. Tax act online 2012 login Carrying charges. Tax act online 2012 login   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. Tax act online 2012 login You can choose to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. Tax act online 2012 login For more information, see chapter 7. Tax act online 2012 login Capitalized interest. Tax act online 2012 login   Treat capitalized interest as a cost of the property produced. Tax act online 2012 login You recover your interest when you sell or use the property. Tax act online 2012 login If the property is inventory, recover capitalized interest through cost of goods sold. Tax act online 2012 login If the property is used in your trade or business, recover capitalized interest through an adjustment to basis, depreciation, amortization, or other method. Tax act online 2012 login Partnerships and S corporations. Tax act online 2012 login   The interest capitalization rules are applied first at the partnership or S corporation level. Tax act online 2012 login 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. Tax act online 2012 login   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. Tax act online 2012 login You may also have to capitalize interest incurred by the partnership or S corporation for your own production costs. Tax act online 2012 login 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. Tax act online 2012 login Additional information. Tax act online 2012 login   The procedures for applying the uniform capitalization rules are beyond the scope of this publication. Tax act online 2012 login For more information, see sections 1. Tax act online 2012 login 263A-8 through 1. Tax act online 2012 login 263A-15 of the regulations and Notice 88-99. Tax act online 2012 login Notice 88-99 is in Cumulative Bulletin 1988-2. Tax act online 2012 login When To Deduct Interest If the uniform capitalization rules, discussed under Capitalization of Interest, earlier, do not apply to you, deduct interest as follows. Tax act online 2012 login Cash method. Tax act online 2012 login   Under the cash method, you can generally deduct only the interest you actually paid during the tax year. Tax act online 2012 login You cannot deduct a promissory note you gave as payment because it is a promise to pay and not an actual payment. Tax act online 2012 login Prepaid interest. Tax act online 2012 login   You generally cannot deduct any interest paid before the year it is due. Tax act online 2012 login Interest paid in advance can be deducted only in the tax year in which it is due. Tax act online 2012 login Discounted loan. Tax act online 2012 login   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. Tax act online 2012 login For more information, see Original issue discount (OID) under Interest You Can Deduct, earlier. Tax act online 2012 login Refunds of interest. Tax act online 2012 login   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. Tax act online 2012 login 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. Tax act online 2012 login Accrual method. Tax act online 2012 login   Under an accrual method, you can deduct only interest that has accrued during the tax year. Tax act online 2012 login Prepaid interest. Tax act online 2012 login   See Prepaid interest, earlier. Tax act online 2012 login Discounted loan. Tax act online 2012 login   See Discounted loan, earlier. Tax act online 2012 login Tax deficiency. Tax act online 2012 login   If you contest a federal income tax deficiency, interest does not accrue until the tax year the final determination of liability is made. Tax act online 2012 login If you do not contest the deficiency, then the interest accrues in the year the tax was asserted and agreed to by you. Tax act online 2012 login   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. Tax act online 2012 login Related person. Tax act online 2012 login   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. Tax act online 2012 login The relationship is determined as of the end of the tax year for which the interest would otherwise be deductible. Tax act online 2012 login See section 267 of the Internal Revenue Code for more information. Tax act online 2012 login 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. Tax act online 2012 login See Treatment of gift and demand loans, later, in this discussion. Tax act online 2012 login 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. Tax act online 2012 login 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. Tax act online 2012 login A loan in exchange for a note that requires the payment of interest at the applicable federal rate. Tax act online 2012 login An additional payment in an amount equal to the forgone interest. Tax act online 2012 login 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. Tax act online 2012 login Forgone interest. Tax act online 2012 login   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. Tax act online 2012 login Applicable federal rates are published by the IRS each month in the Internal Revenue Bulletin. Tax act online 2012 login Internal Revenue Bulletins are available on the IRS web site at www. Tax act online 2012 login irs. Tax act online 2012 login gov/irb. Tax act online 2012 login You can also contact an IRS office to get these rates. Tax act online 2012 login Loans subject to the rules. Tax act online 2012 login   The rules for below-market loans apply to the following. Tax act online 2012 login Gift loans (below-market loans where the forgone interest is in the nature of a gift). Tax act online 2012 login 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). Tax act online 2012 login Corporation-shareholder loans. Tax act online 2012 login Tax avoidance loans (below-market loans where the avoidance of federal tax is one of the main purposes of the interest arrangement). Tax act online 2012 login Loans to qualified continuing care facilities under a continuing care contract (made after October 11, 1985). Tax act online 2012 login   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. Tax act online 2012 login Treatment of gift and demand loans. Tax act online 2012 login   If you receive a below-market gift loan or demand loan, you are treated as receiving an additional payment (as a gift, dividend, etc. Tax act online 2012 login ) equal to the forgone interest on the loan. Tax act online 2012 login You are then treated as transferring this amount back to the lender as interest. Tax act online 2012 login These transfers are considered to occur annually, generally on December 31. Tax act online 2012 login If you use the loan proceeds in your trade or business, you can deduct the forgone interest each year as a business interest expense. Tax act online 2012 login The lender must report it as interest income. Tax act online 2012 login Limit on forgone interest for gift loans of $100,000 or less. Tax act online 2012 login   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. Tax act online 2012 login This limit applies if the outstanding loans between the lender and borrower total $100,000 or less. Tax act online 2012 login If the borrower's net investment income is $1,000 or less, it is treated as zero. Tax act online 2012 login 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. Tax act online 2012 login Treatment of term loans. Tax act online 2012 login   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. Tax act online 2012 login ) on the date the loan is made. Tax act online 2012 login This payment is equal to the loan amount minus the present value, at the applicable federal rate, of all payments due under the loan. Tax act online 2012 login The same amount is treated as original issue discount on the loan. Tax act online 2012 login See Original issue discount (OID) under Interest You Can Deduct, earlier. Tax act online 2012 login Exceptions for loans of $10,000 or less. Tax act online 2012 login   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. Tax act online 2012 login This exception applies only to the following. Tax act online 2012 login Gift loans between individuals if the loan is not directly used to buy or carry income-producing assets. Tax act online 2012 login Compensation-related loans or corporation-shareholder loans if the avoidance of any federal tax is not a principal purpose of the interest arrangement. Tax act online 2012 login This exception does not apply to a term loan described in (2) above that was previously subject to the below-market loan rules. Tax act online 2012 login Those rules will continue to apply even if the outstanding balance is reduced to $10,000 or less. Tax act online 2012 login Exceptions for loans without significant tax effect. Tax act online 2012 login   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. Tax act online 2012 login 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. Tax act online 2012 login Loans subsidized by a federal, state, or municipal government that are made available under a program of general application to the public. Tax act online 2012 login Certain employee-relocation loans. Tax act online 2012 login Certain loans to or from a foreign person, unless the interest income would be effectively connected with the conduct of a U. Tax act online 2012 login S. Tax act online 2012 login trade or business and not exempt from U. Tax act online 2012 login S. Tax act online 2012 login tax under an income tax treaty. Tax act online 2012 login 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. Tax act online 2012 login 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. Tax act online 2012 login Consider all the following factors. Tax act online 2012 login Whether items of income and deduction generated by the loan offset each other. Tax act online 2012 login The amount of the items. Tax act online 2012 login The cost of complying with the below-market loan provisions if they were to apply. Tax act online 2012 login Any reasons, other than taxes, for structuring the transaction as a below-market loan. Tax act online 2012 login Exception for loans to qualified continuing care facilities. Tax act online 2012 login   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. Tax act online 2012 login A qualified continuing care facility is one or more facilities (excluding nursing homes) meeting the requirements listed below. Tax act online 2012 login Designed to provide services under continuing care contracts (defined below). Tax act online 2012 login Includes an independent living unit, and either an assisted living or nursing facility, or both. Tax act online 2012 login Substantially all of the independent living unit residents are covered by continuing care contracts. Tax act online 2012 login A continuing care contract is a written contract between an individual and a qualified continuing care facility that includes all of the following conditions. Tax act online 2012 login The individual or individual's spouse must be entitled to use the facility for the rest of their life or lives. Tax act online 2012 login 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. Tax act online 2012 login 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. Tax act online 2012 login For more information, see section 7872(h) of the Internal Revenue Code. Tax act online 2012 login Sale or exchange of property. Tax act online 2012 login   Different rules generally apply to a loan connected with the sale or exchange of property. Tax act online 2012 login If the loan does not provide adequate stated interest, part of the principal payment may be considered interest. Tax act online 2012 login However, there are exceptions that may require you to apply the below-market interest rate rules to these loans. Tax act online 2012 login See Unstated Interest and Original Issue Discount (OID) in Publication 537. Tax act online 2012 login More information. Tax act online 2012 login   For more information on below-market loans, see section 7872 of the Internal Revenue Code and section 1. Tax act online 2012 login 7872-5 of the regulations. Tax act online 2012 login Prev  Up  Next   Home   More Online Publications
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Third Party Reporting Information Center - Information Documents

The IRS uses third-party information reporting on forms in the 1099 series to increase voluntary compliance and improve collections. Beginning in 2011, legislation requires reporting of income in two areas: payment card (credit, debit and certain electronic transactions) and securities basis reporting.

The links below take you to forms, instructions and background information related to the reporting requirements of payment cards and cost basis of securities sales. These regulations, notices and FAQs provide details on the implementation of Section 6050W of the Housing Assistance Tax Act of 2008 and of Section 6045(g) of the Energy Improvement and Extension Act of 2008.

Information Reporting on Payment Card and Third Party Network Transactions

Cost Basis Reporting on Securities Sales

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Note: The following initiatives have been repealed.

  • Information Reporting by Government Entities on Certain Government Payments (3% Withholding)
  • Information Reporting on Payments to Corporations and Payments of Gross Proceeds and With Respect to Property
  • Information Reporting on Real Estate Rental Property Expenses Payments
Page Last Reviewed or Updated: 25-Mar-2014

The Tax Act Online 2012 Login

Tax act online 2012 login Index A Adjusted basis Worksheet 1 to figure, Worksheet A Instructions. Tax act online 2012 login Assistance (see Tax help) F Free tax services, How To Get Tax Help H Help (see Tax help) M More information (see Tax help) P Publications (see Tax help) T Tax help, How To Get Tax Help Taxpayer Advocate, Taxpayer Advocate Service. Tax act online 2012 login TTY/TDD information, How To Get Tax Help W Worksheets Adjusted basis (Worksheet 1), Worksheet A Instructions. Tax act online 2012 login Prev  Up     Home   More Online Publications