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1040 Forms And Instructions

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1040 Forms And Instructions

1040 forms and instructions 17. 1040 forms and instructions   Individual Retirement Arrangements (IRAs) Table of Contents What's New Reminders Introduction Useful Items - You may want to see: Traditional IRAsWho Can Open a Traditional IRA? When and How Can a Traditional IRA Be Opened? How Much Can Be Contributed? When Can Contributions Be Made? How Much Can You Deduct? Nondeductible Contributions Inherited IRAs Can You Move Retirement Plan Assets? When Can You Withdraw or Use IRA Assets? When Must You Withdraw IRA Assets? (Required Minimum Distributions) Are Distributions Taxable? What Acts Result in Penalties or Additional Taxes? Roth IRAsWhat Is a Roth IRA? When Can a Roth IRA Be Opened? Can You Contribute to a Roth IRA? Can You Move Amounts Into a Roth IRA? Are Distributions Taxable? What's New Traditional IRA contribution and deduction limit. 1040 forms and instructions  The contribution limit to your traditional IRA for 2013 will be increased to the smaller of the following amounts: $5,500, or Your taxable compensation for the year. 1040 forms and instructions If you were age 50 or older before 2014, the most that can be contributed to your traditional IRA for 2013 will be the smaller of the following amounts: $6,500, or Your taxable compensation for the year. 1040 forms and instructions For more information, see How Much Can Be Contributed? later. 1040 forms and instructions Roth IRA contribution limit. 1040 forms and instructions  If contributions on your behalf are made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of: $5,500, or Your taxable compensation for the year. 1040 forms and instructions If you were age 50 or older before 2014 and contributions on your behalf were made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of: $6,500, or Your taxable compensation for the year. 1040 forms and instructions However, if your modified adjusted gross income (AGI) is above a certain amount, your contribution limit may be reduced. 1040 forms and instructions For more information, see How Much Can Be Contributed? under Can You Contribute to a Roth IRA? later. 1040 forms and instructions Modified AGI limit for traditional IRA contributions increased. 1040 forms and instructions  For 2013, if you were covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is: More than $95,000 but less than $115,000 for a married couple filing a joint return or a qualifying widow(er), More than $59,000 but less than $69,000 for a single individual or head of household, or Less than $10,000 for a married individual filing a separate return. 1040 forms and instructions If you either lived with your spouse or file a joint return, and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your modified AGI is more than $178,000 but less than $188,000. 1040 forms and instructions If your modified AGI is $188,000 or more, you cannot take a deduction for contributions to a traditional IRA. 1040 forms and instructions See How Much Can You Deduct , later. 1040 forms and instructions Modified AGI limit for Roth IRA contributions increased. 1040 forms and instructions  For 2013, your Roth IRA contribution limit is reduced (phased out) in the following situations. 1040 forms and instructions Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $178,000. 1040 forms and instructions You cannot make a Roth IRA contribution if your modified AGI is $188,000 or more. 1040 forms and instructions Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2013 and your modified AGI is at least $112,000. 1040 forms and instructions You cannot make a Roth IRA contribution if your modified AGI is $127,000 or more. 1040 forms and instructions Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. 1040 forms and instructions You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more. 1040 forms and instructions See Can You Contribute to a Roth IRA , later. 1040 forms and instructions Net Investment Income Tax. 1040 forms and instructions   For purposes of the Net Investment Income Tax (NIIT), net investment income does not include distributions from a qualified retirement plan including IRAs (for example; 401(a), 403(a), 403(b), 408, 408A, or 457(b) plans). 1040 forms and instructions However, these distributions are taken into account when determining the modified adjusted gross income threshold. 1040 forms and instructions Distributions from a nonqualified retirement plan are included in net investment income. 1040 forms and instructions See Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts, and its instructions for more information. 1040 forms and instructions Name change. 1040 forms and instructions  All spousal IRAs have been renamed Kay Bailey Hutchison Spousal IRAs. 1040 forms and instructions There are no changes to the rules regarding these IRAs. 1040 forms and instructions See Kay Bailey Hutchison Spousal IRA Limit , later, for more information. 1040 forms and instructions Reminders 2014 limits. 1040 forms and instructions   You can find information about the 2014 contribution and AGI limits in Publication 590. 1040 forms and instructions Contributions to both traditional and Roth IRAs. 1040 forms and instructions   For information on your combined contribution limit if you contribute to both traditional and Roth IRAs, see Roth IRAs and traditional IRAs under How Much Can Be Contributed? in Roth IRAs, later. 1040 forms and instructions Statement of required minimum distribution. 1040 forms and instructions  If a minimum distribution from your IRA is required, the trustee, custodian, or issuer that held the IRA at the end of the preceding year must either report the amount of the required minimum distribution to you, or offer to calculate it for you. 1040 forms and instructions The report or offer must include the date by which the amount must be distributed. 1040 forms and instructions The report is due January 31 of the year in which the minimum distribution is required. 1040 forms and instructions It can be provided with the year-end fair market value statement that you normally get each year. 1040 forms and instructions No report is required for IRAs of owners who have died. 1040 forms and instructions IRA interest. 1040 forms and instructions  Although interest earned from your IRA is generally not taxed in the year earned, it is not tax-exempt interest. 1040 forms and instructions Tax on your traditional IRA is generally deferred until you take a distribution. 1040 forms and instructions Do not report this interest on your tax return as tax-exempt interest. 1040 forms and instructions Form 8606. 1040 forms and instructions   To designate contributions as nondeductible, you must file Form 8606, Nondeductible IRAs. 1040 forms and instructions The term “50 or older” is used several times in this chapter. 1040 forms and instructions It refers to an IRA owner who is age 50 or older by the end of the tax year. 1040 forms and instructions Introduction An individual retirement arrangement (IRA) is a personal savings plan that gives you tax advantages for setting aside money for your retirement. 1040 forms and instructions This chapter discusses the following topics. 1040 forms and instructions The rules for a traditional IRA (any IRA that is not a Roth or SIMPLE IRA). 1040 forms and instructions The Roth IRA, which features nondeductible contributions and tax-free distributions. 1040 forms and instructions Simplified Employee Pensions (SEPs) and Savings Incentive Match Plans for Employees (SIMPLEs) are not discussed in this chapter. 1040 forms and instructions For more information on these plans and employees' SEP IRAs and SIMPLE IRAs that are part of these plans, see Publications 560 and 590. 1040 forms and instructions For information about contributions, deductions, withdrawals, transfers, rollovers, and other transactions, see Publication 590. 1040 forms and instructions Useful Items - You may want to see: Publication 560 Retirement Plans for Small Business 590 Individual Retirement Arrangements (IRAs) Form (and Instructions) 5329 Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts 8606 Nondeductible IRAs Traditional IRAs In this chapter, the original IRA (sometimes called an ordinary or regular IRA) is referred to as a “traditional IRA. 1040 forms and instructions ” A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA. 1040 forms and instructions Two advantages of a traditional IRA are: You may be able to deduct some or all of your contributions to it, depending on your circumstances, and Generally, amounts in your IRA, including earnings and gains, are not taxed until they are distributed. 1040 forms and instructions Who Can Open a Traditional IRA? You can open and make contributions to a traditional IRA if: You (or, if you file a joint return, your spouse) received taxable compensation during the year, and You were not age 70½ by the end of the year. 1040 forms and instructions What is compensation?   Generally, compensation is what you earn from working. 1040 forms and instructions Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services. 1040 forms and instructions The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). 1040 forms and instructions   Scholarship and fellowship payments are compensation for this purpose only if shown in box 1 of Form W-2. 1040 forms and instructions   Compensation also includes commissions and taxable alimony and separate maintenance payments. 1040 forms and instructions Self-employment income. 1040 forms and instructions   If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor) reduced by the total of: The deduction for contributions made on your behalf to retirement plans, and The deductible part of your self-employment tax. 1040 forms and instructions   Compensation includes earnings from self-employment even if they are not subject to self-employment tax because of your religious beliefs. 1040 forms and instructions Nontaxable combat pay. 1040 forms and instructions   For IRA purposes, if you were a member of the U. 1040 forms and instructions S. 1040 forms and instructions Armed Forces, your compensation includes any nontaxable combat pay you receive. 1040 forms and instructions What is not compensation?   Compensation does not include any of the following items. 1040 forms and instructions Earnings and profits from property, such as rental income, interest income, and dividend income. 1040 forms and instructions Pension or annuity income. 1040 forms and instructions Deferred compensation received (compensation payments postponed from a past year). 1040 forms and instructions Income from a partnership for which you do not provide services that are a material income-producing factor. 1040 forms and instructions Conservation Reserve Program (CRP) payments reported on Schedule SE (Form 1040), line 1b. 1040 forms and instructions Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs. 1040 forms and instructions When and How Can a Traditional IRA Be Opened? You can open a traditional IRA at any time. 1040 forms and instructions However, the time for making contributions for any year is limited. 1040 forms and instructions See When Can Contributions Be Made , later. 1040 forms and instructions You can open different kinds of IRAs with a variety of organizations. 1040 forms and instructions You can open an IRA at a bank or other financial institution or with a mutual fund or life insurance company. 1040 forms and instructions You can also open an IRA through your stockbroker. 1040 forms and instructions Any IRA must meet Internal Revenue Code requirements. 1040 forms and instructions Kinds of traditional IRAs. 1040 forms and instructions   Your traditional IRA can be an individual retirement account or annuity. 1040 forms and instructions It can be part of either a simplified employee pension (SEP) or an employer or employee association trust account. 1040 forms and instructions How Much Can Be Contributed? There are limits and other rules that affect the amount that can be contributed to a traditional IRA. 1040 forms and instructions These limits and other rules are explained below. 1040 forms and instructions Community property laws. 1040 forms and instructions   Except as discussed later under Kay Bailey Hutchison Spousal IRA limit , each spouse figures his or her limit separately, using his or her own compensation. 1040 forms and instructions This is the rule even in states with community property laws. 1040 forms and instructions Brokers' commissions. 1040 forms and instructions   Brokers' commissions paid in connection with your traditional IRA are subject to the contribution limit. 1040 forms and instructions Trustees' fees. 1040 forms and instructions   Trustees' administrative fees are not subject to the contribution limit. 1040 forms and instructions Qualified reservist repayments. 1040 forms and instructions   If you are (or were) a member of a reserve component and you were ordered or called to active duty after September 11, 2001, you may be able to contribute (repay) to an IRA amounts equal to any qualified reservist distributions you received. 1040 forms and instructions You can make these repayment contributions even if they would cause your total contributions to the IRA to be more than the general limit on contributions. 1040 forms and instructions To be eligible to make these repayment contributions, you must have received a qualified reservist distribution from an IRA or from a section 401(k) or 403(b) plan or similar arrangement. 1040 forms and instructions   For more information, see Qualified reservist repayments under How Much Can Be Contributed? in chapter 1 of Publication 590. 1040 forms and instructions Contributions on your behalf to a traditional IRA reduce your limit for contributions to a Roth IRA. 1040 forms and instructions (See Roth IRAs, later. 1040 forms and instructions ) General limit. 1040 forms and instructions   For 2013, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts. 1040 forms and instructions $5,500 ($6,500 if you are 50 or older). 1040 forms and instructions Your taxable compensation (defined earlier) for the year. 1040 forms and instructions This is the most that can be contributed regardless of whether the contributions are to one or more traditional IRAs or whether all or part of the contributions are nondeductible. 1040 forms and instructions (See Nondeductible Contributions , later. 1040 forms and instructions ) Qualified reservist repayments do not affect this limit. 1040 forms and instructions Example 1. 1040 forms and instructions Betty, who is 34 years old and single, earned $24,000 in 2013. 1040 forms and instructions Her IRA contributions for 2013 are limited to $5,500. 1040 forms and instructions Example 2. 1040 forms and instructions John, an unmarried college student working part time, earned $3,500 in 2013. 1040 forms and instructions His IRA contributions for 2013 are limited to $3,500, the amount of his compensation. 1040 forms and instructions Kay Bailey Hutchison Spousal IRA limit. 1040 forms and instructions   For 2013, if you file a joint return and your taxable compensation is less than that of your spouse, the most that can be contributed for the year to your IRA is the smaller of the following amounts. 1040 forms and instructions $5,500 ($6,500 if you are 50 or older). 1040 forms and instructions The total compensation includible in the gross income of both you and your spouse for the year, reduced by the following two amounts. 1040 forms and instructions Your spouse's IRA contribution for the year to a traditional IRA. 1040 forms and instructions Any contribution for the year to a Roth IRA on behalf of your spouse. 1040 forms and instructions This means that the total combined contributions that can be made for the year to your IRA and your spouse's IRA can be as much as $11,000 ($12,000 if only one of you is 50 or older, or $13,000 if both of you are 50 or older). 1040 forms and instructions When Can Contributions Be Made? As soon as you open your traditional IRA, contributions can be made to it through your chosen sponsor (trustee or other administrator). 1040 forms and instructions Contributions must be in the form of money (cash, check, or money order). 1040 forms and instructions Property cannot be contributed. 1040 forms and instructions Contributions must be made by due date. 1040 forms and instructions   Contributions can be made to your traditional IRA for a year at any time during the year or by the due date for filing your return for that year, not including extensions. 1040 forms and instructions Age 70½ rule. 1040 forms and instructions   Contributions cannot be made to your traditional IRA for the year in which you reach age 70½ or for any later year. 1040 forms and instructions   You attain age 70½ on the date that is 6 calendar months after the 70th anniversary of your birth. 1040 forms and instructions If you were born on or before June 30, 1943, you cannot contribute for 2013 or any later year. 1040 forms and instructions Designating year for which contribution is made. 1040 forms and instructions   If an amount is contributed to your traditional IRA between January 1 and April 15, you should tell the sponsor which year (the current year or the previous year) the contribution is for. 1040 forms and instructions If you do not tell the sponsor which year it is for, the sponsor can assume, and report to the IRS, that the contribution is for the current year (the year the sponsor received it). 1040 forms and instructions Filing before a contribution is made. 1040 forms and instructions   You can file your return claiming a traditional IRA contribution before the contribution is actually made. 1040 forms and instructions Generally, the contribution must be made by the due date of your return, not including extensions. 1040 forms and instructions Contributions not required. 1040 forms and instructions   You do not have to contribute to your traditional IRA for every tax year, even if you can. 1040 forms and instructions How Much Can You Deduct? Generally, you can deduct the lesser of: The contributions to your traditional IRA for the year, or The general limit (or the Kay Bailey Hutchison Spousal IRA limit, if it applies). 1040 forms and instructions However, if you or your spouse was covered by an employer retirement plan, you may not be able to deduct this amount. 1040 forms and instructions See Limit If Covered by Employer Plan , later. 1040 forms and instructions You may be able to claim a credit for contributions to your traditional IRA. 1040 forms and instructions For more information, see chapter 37. 1040 forms and instructions Trustees' fees. 1040 forms and instructions   Trustees' administrative fees that are billed separately and paid in connection with your traditional IRA are not deductible as IRA contributions. 1040 forms and instructions However, they may be deductible as a miscellaneous itemized deduction on Schedule A (Form 1040). 1040 forms and instructions See chapter 28. 1040 forms and instructions Brokers' commissions. 1040 forms and instructions   Brokers' commissions are part of your IRA contribution and, as such, are deductible subject to the limits. 1040 forms and instructions Full deduction. 1040 forms and instructions   If neither you nor your spouse was covered for any part of the year by an employer retirement plan, you can take a deduction for total contributions to one or more traditional IRAs of up to the lesser of: $5,500 ($6,500 if you are age 50 or older in 2013). 1040 forms and instructions 100% of your compensation. 1040 forms and instructions This limit is reduced by any contributions made to a 501(c)(18) plan on your behalf. 1040 forms and instructions Kay Bailey Hutchison Spousal IRA. 1040 forms and instructions   In the case of a married couple with unequal compensation who file a joint return, the deduction for contributions to the traditional IRA of the spouse with less compensation is limited to the lesser of the following amounts. 1040 forms and instructions $5,500 ($6,500 if the spouse with the lower compensation is age 50 or older in 2013). 1040 forms and instructions The total compensation includible in the gross income of both spouses for the year reduced by the following three amounts. 1040 forms and instructions The IRA deduction for the year of the spouse with the greater compensation. 1040 forms and instructions Any designated nondeductible contribution for the year made on behalf of the spouse with the greater compensation. 1040 forms and instructions Any contributions for the year to a Roth IRA on behalf of the spouse with the greater compensation. 1040 forms and instructions This limit is reduced by any contributions to a 501(c)(18) plan on behalf of the spouse with the lesser compensation. 1040 forms and instructions Note. 1040 forms and instructions If you were divorced or legally separated (and did not remarry) before the end of the year, you cannot deduct any contributions to your spouse's IRA. 1040 forms and instructions After a divorce or legal separation, you can deduct only contributions to your own IRA. 1040 forms and instructions Your deductions are subject to the rules for single individuals. 1040 forms and instructions Covered by an employer retirement plan. 1040 forms and instructions   If you or your spouse was covered by an employer retirement plan at any time during the year for which contributions were made, your deduction may be further limited. 1040 forms and instructions This is discussed later under Limit If Covered by Employer Plan . 1040 forms and instructions Limits on the amount you can deduct do not affect the amount that can be contributed. 1040 forms and instructions See Nondeductible Contributions , later. 1040 forms and instructions Are You Covered by an Employer Plan? The Form W-2 you receive from your employer has a box used to indicate whether you were covered for the year. 1040 forms and instructions The “Retirement plan” box should be checked if you were covered. 1040 forms and instructions Reservists and volunteer firefighters should also see Situations in Which You Are Not Covered by an Employer Plan , later. 1040 forms and instructions If you are not certain whether you were covered by your employer's retirement plan, you should ask your employer. 1040 forms and instructions Federal judges. 1040 forms and instructions   For purposes of the IRA deduction, federal judges are covered by an employer retirement plan. 1040 forms and instructions For Which Year(s) Are You Covered by an Employer Plan? Special rules apply to determine the tax years for which you are covered by an employer plan. 1040 forms and instructions These rules differ depending on whether the plan is a defined contribution plan or a defined benefit plan. 1040 forms and instructions Tax year. 1040 forms and instructions   Your tax year is the annual accounting period you use to keep records and report income and expenses on your income tax return. 1040 forms and instructions For almost all people, the tax year is the calendar year. 1040 forms and instructions Defined contribution plan. 1040 forms and instructions   Generally, you are covered by a defined contribution plan for a tax year if amounts are contributed or allocated to your account for the plan year that ends with or within that tax year. 1040 forms and instructions   A defined contribution plan is a plan that provides for a separate account for each person covered by the plan. 1040 forms and instructions Types of defined contribution plans include profit-sharing plans, stock bonus plans, and money purchase pension plans. 1040 forms and instructions Defined benefit plan. 1040 forms and instructions   If you are eligible to participate in your employer's defined benefit plan for the plan year that ends within your tax year, you are covered by the plan. 1040 forms and instructions This rule applies even if you: Declined to participate in the plan, Did not make a required contribution, or Did not perform the minimum service required to accrue a benefit for the year. 1040 forms and instructions   A defined benefit plan is any plan that is not a defined contribution plan. 1040 forms and instructions Defined benefit plans include pension plans and annuity plans. 1040 forms and instructions No vested interest. 1040 forms and instructions   If you accrue a benefit for a plan year, you are covered by that plan even if you have no vested interest in (legal right to) the accrual. 1040 forms and instructions Situations in Which You Are Not Covered by an Employer Plan Unless you are covered under another employer plan, you are not covered by an employer plan if you are in one of the situations described below. 1040 forms and instructions Social security or railroad retirement. 1040 forms and instructions   Coverage under social security or railroad retirement is not coverage under an employer retirement plan. 1040 forms and instructions Benefits from a previous employer's plan. 1040 forms and instructions   If you receive retirement benefits from a previous employer's plan, you are not covered by that plan. 1040 forms and instructions Reservists. 1040 forms and instructions   If the only reason you participate in a plan is because you are a member of a reserve unit of the armed forces, you may not be covered by the plan. 1040 forms and instructions You are not covered by the plan if both of the following conditions are met. 1040 forms and instructions The plan you participate in is established for its employees by: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. 1040 forms and instructions You did not serve more than 90 days on active duty during the year (not counting duty for training). 1040 forms and instructions Volunteer firefighters. 1040 forms and instructions   If the only reason you participate in a plan is because you are a volunteer firefighter, you may not be covered by the plan. 1040 forms and instructions You are not covered by the plan if both of the following conditions are met. 1040 forms and instructions The plan you participate in is established for its employees by: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. 1040 forms and instructions Your accrued retirement benefits at the beginning of the year will not provide more than $1,800 per year at retirement. 1040 forms and instructions Limit If Covered by Employer Plan If either you or your spouse was covered by an employer retirement plan, you may be entitled to only a partial (reduced) deduction or no deduction at all, depending on your income and your filing status. 1040 forms and instructions Your deduction begins to decrease (phase out) when your income rises above a certain amount and is eliminated altogether when it reaches a higher amount. 1040 forms and instructions These amounts vary depending on your filing status. 1040 forms and instructions To determine if your deduction is subject to phaseout, you must determine your modified adjusted gross income (AGI) and your filing status. 1040 forms and instructions See Filing status and Modified adjusted gross income (AGI) , later. 1040 forms and instructions Then use Table 17-1 or 17-2 to determine if the phaseout applies. 1040 forms and instructions Social security recipients. 1040 forms and instructions   Instead of using Table 17-1 or Table 17-2, use the worksheets in Appendix B of Publication 590 if, for the year, all of the following apply. 1040 forms and instructions You received social security benefits. 1040 forms and instructions You received taxable compensation. 1040 forms and instructions Contributions were made to your traditional IRA. 1040 forms and instructions You or your spouse was covered by an employer retirement plan. 1040 forms and instructions Use those worksheets to figure your IRA deduction, your nondeductible contribution, and the taxable portion, if any, of your social security benefits. 1040 forms and instructions Deduction phaseout. 1040 forms and instructions   If you were covered by an employer retirement plan and you did not receive any social security retirement benefits, your IRA deduction may be reduced or eliminated depending on your filing status and modified AGI as shown in Table 17-1. 1040 forms and instructions Table 17-1. 1040 forms and instructions Effect of Modified AGI1 on Deduction if You Are Covered by Retirement Plan at Work If you are covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. 1040 forms and instructions IF your filing status is. 1040 forms and instructions . 1040 forms and instructions . 1040 forms and instructions   AND your modified AGI is. 1040 forms and instructions . 1040 forms and instructions . 1040 forms and instructions   THEN you can take. 1040 forms and instructions . 1040 forms and instructions . 1040 forms and instructions single   or  head of household   $59,000 or less   a full deduction. 1040 forms and instructions   more than $59,000 but less than $69,000   a partial deduction. 1040 forms and instructions   $69,000 or more   no deduction. 1040 forms and instructions married filing jointly   or  qualifying widow(er)   $95,000 or less   a full deduction. 1040 forms and instructions   more than $95,000 but less than $115,000   a partial deduction. 1040 forms and instructions   $115,000 or more   no deduction. 1040 forms and instructions married filing separately2   less than $10,000   a partial deduction. 1040 forms and instructions   $10,000 or more   no deduction. 1040 forms and instructions 1Modified AGI (adjusted gross income). 1040 forms and instructions See Modified adjusted gross income (AGI) . 1040 forms and instructions 2If you did not live with your spouse at any time during the year, your filing status is considered Single for this purpose (therefore, your IRA deduction is determined under the “Single” column). 1040 forms and instructions If your spouse is covered. 1040 forms and instructions   If you are not covered by an employer retirement plan, but your spouse is, and you did not receive any social security benefits, your IRA deduction may be reduced or eliminated entirely depending on your filing status and modified AGI as shown in Table 17-2. 1040 forms and instructions Filing status. 1040 forms and instructions   Your filing status depends primarily on your marital status. 1040 forms and instructions For this purpose, you need to know if your filing status is single or head of household, married filing jointly or qualifying widow(er), or married filing separately. 1040 forms and instructions If you need more information on filing status, see chapter 2. 1040 forms and instructions Lived apart from spouse. 1040 forms and instructions   If you did not live with your spouse at any time during the year and you file a separate return, your filing status, for this purpose, is single. 1040 forms and instructions Table 17-2. 1040 forms and instructions Effect of Modified AGI1 on Deduction if You Are NOT Covered by Retirement Plan at Work If you are not covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. 1040 forms and instructions IF your filing status is. 1040 forms and instructions . 1040 forms and instructions . 1040 forms and instructions   AND your modified AGI is. 1040 forms and instructions . 1040 forms and instructions . 1040 forms and instructions   THEN you can take. 1040 forms and instructions . 1040 forms and instructions . 1040 forms and instructions single, head of household, or qualifying widow(er)   any amount   a full deduction. 1040 forms and instructions married filing jointly or separately with a spouse who is not covered by a plan at work   any amount   a full deduction. 1040 forms and instructions married filing jointly with a spouse who is covered by a plan at work   $178,000 or less   a full deduction. 1040 forms and instructions   more than $178,000 but less than $188,000   a partial deduction. 1040 forms and instructions   $188,000 or more   no deduction. 1040 forms and instructions married filing separately with a spouse who is covered by a plan at work2   less than $10,000   a partial deduction. 1040 forms and instructions   $10,000 or more   no deduction. 1040 forms and instructions 1Modified AGI (adjusted gross income). 1040 forms and instructions See Modified adjusted gross income (AGI) . 1040 forms and instructions 2You are entitled to the full deduction if you did not live with your spouse at any time during the year. 1040 forms and instructions Modified adjusted gross income (AGI). 1040 forms and instructions   How you figure your modified AGI depends on whether you are filing Form 1040 or Form 1040A. 1040 forms and instructions If you made contributions to your IRA for 2013 and received a distribution from your IRA in 2013, see Publication 590. 1040 forms and instructions You may be able to use Worksheet 17-1 to figure your modified AGI. 1040 forms and instructions    Do not assume that your modified AGI is the same as your compensation. 1040 forms and instructions Your modified AGI may include income in addition to your compensation (discussed earlier), such as interest, dividends, and income from IRA distributions. 1040 forms and instructions Form 1040. 1040 forms and instructions   If you file Form 1040, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following eight amounts. 1040 forms and instructions IRA deduction. 1040 forms and instructions Student loan interest deduction. 1040 forms and instructions Tuition and fees deduction. 1040 forms and instructions Domestic production activities deduction. 1040 forms and instructions Foreign earned income exclusion. 1040 forms and instructions Foreign housing exclusion or deduction. 1040 forms and instructions Exclusion of qualified savings bond interest shown on Form 8815, Exclusion of Interest From Series EE and I U. 1040 forms and instructions S. 1040 forms and instructions Savings Bonds Issued After 1989. 1040 forms and instructions Exclusion of employer-provided adoption benefits shown on Form 8839, Qualified Adoption Expenses. 1040 forms and instructions This is your modified AGI. 1040 forms and instructions Form 1040A. 1040 forms and instructions   If you file Form 1040A, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts. 1040 forms and instructions IRA deduction. 1040 forms and instructions Student loan interest deduction. 1040 forms and instructions Tuition and fees deduction. 1040 forms and instructions Exclusion of qualified savings bond interest shown on Form 8815. 1040 forms and instructions This is your modified AGI. 1040 forms and instructions Both contributions for 2013 and distributions in 2013. 1040 forms and instructions   If all three of the following apply, any IRA distributions you received in 2013 may be partly tax free and partly taxable. 1040 forms and instructions You received distributions in 2013 from one or more traditional IRAs. 1040 forms and instructions You made contributions to a traditional IRA for 2013. 1040 forms and instructions Some of those contributions may be nondeductible contributions. 1040 forms and instructions If this is your situation, you must figure the taxable part of the traditional IRA distribution before you can figure your modified AGI. 1040 forms and instructions To do this, you can use Worksheet 1-5, Figuring the Taxable Part of Your IRA Distribution, in Publication 590. 1040 forms and instructions   If at least one of the above does not apply, figure your modified AGI using Worksheet 17-1, later. 1040 forms and instructions    How to figure your reduced IRA deduction. 1040 forms and instructions   You can figure your reduced IRA deduction for either Form 1040 or Form 1040A by using the worksheets in chapter 1 of Publication 590. 1040 forms and instructions Also, the instructions for Form 1040 and Form 1040A include similar worksheets that you may be able to use instead. 1040 forms and instructions Worksheet 17-1. 1040 forms and instructions Figuring Your Modified AGI Use this worksheet to figure your modified adjusted gross income for traditional IRA purposes. 1040 forms and instructions 1. 1040 forms and instructions Enter your adjusted gross income (AGI) from Form 1040, line 38, or Form 1040A, line 22, figured without taking into account the amount from Form 1040, line 32, or Form 1040A, line 17 1. 1040 forms and instructions   2. 1040 forms and instructions Enter any student loan interest deduction from Form 1040, line 33, or Form 1040A, line 18 2. 1040 forms and instructions   3. 1040 forms and instructions Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19 3. 1040 forms and instructions   4. 1040 forms and instructions Enter any domestic production activities deduction from Form 1040, line 35 4. 1040 forms and instructions   5. 1040 forms and instructions Enter any foreign earned income and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18 5. 1040 forms and instructions   6. 1040 forms and instructions Enter any foreign housing deduction from Form 2555, line 50 6. 1040 forms and instructions   7. 1040 forms and instructions Enter any excludable savings bond interest from Form 8815, line 14 7. 1040 forms and instructions   8. 1040 forms and instructions Enter any excluded employer-provided adoption benefits from Form 8839, line 28 8. 1040 forms and instructions   9. 1040 forms and instructions Add lines 1 through 8. 1040 forms and instructions This is your Modified AGI for traditional IRA purposes 9. 1040 forms and instructions   Reporting Deductible Contributions If you file Form 1040, enter your IRA deduction on line 32 of that form. 1040 forms and instructions If you file Form 1040A, enter your IRA deduction on line 17. 1040 forms and instructions You cannot deduct IRA contributions on Form 1040EZ. 1040 forms and instructions Nondeductible Contributions Although your deduction for IRA contributions may be reduced or eliminated, contributions can be made to your IRA up to the general limit or, if it applies, the Kay Bailey Hutchison Spousal IRA limit. 1040 forms and instructions The difference between your total permitted contributions and your IRA deduction, if any, is your nondeductible contribution. 1040 forms and instructions Example. 1040 forms and instructions Mike is 28 years old and single. 1040 forms and instructions In 2013, he was covered by a retirement plan at work. 1040 forms and instructions His salary was $57,312. 1040 forms and instructions His modified AGI was $70,000. 1040 forms and instructions Mike made a $5,500 IRA contribution for 2013. 1040 forms and instructions Because he was covered by a retirement plan and his modified AGI was over $69,000, he cannot deduct his $5,500 IRA contribution. 1040 forms and instructions He must designate this contribution as a nondeductible contribution by reporting it on Form 8606, as explained next. 1040 forms and instructions Form 8606. 1040 forms and instructions   To designate contributions as nondeductible, you must file Form 8606. 1040 forms and instructions   You do not have to designate a contribution as nondeductible until you file your tax return. 1040 forms and instructions When you file, you can even designate otherwise deductible contributions as nondeductible. 1040 forms and instructions   You must file Form 8606 to report nondeductible contributions even if you do not have to file a tax return for the year. 1040 forms and instructions A Form 8606 is not used for the year that you make a rollover from a qualified retirement plan to a traditional IRA and the rollover includes nontaxable amounts. 1040 forms and instructions In those situations, a Form 8606 is completed for the year you take a distribution from that IRA. 1040 forms and instructions See Form 8606 under Distributions Fully or Partly Taxable, later. 1040 forms and instructions Failure to report nondeductible contributions. 1040 forms and instructions   If you do not report nondeductible contributions, all of the contributions to your traditional IRA will be treated as deductible contributions when withdrawn. 1040 forms and instructions All distributions from your IRA will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. 1040 forms and instructions Penalty for overstatement. 1040 forms and instructions   If you overstate the amount of nondeductible contributions on your Form 8606 for any tax year, you must pay a penalty of $100 for each overstatement, unless it was due to reasonable cause. 1040 forms and instructions Penalty for failure to file Form 8606. 1040 forms and instructions   You will have to pay a $50 penalty if you do not file a required Form 8606, unless you can prove that the failure was due to reasonable cause. 1040 forms and instructions    Tax on earnings on nondeductible contributions. 1040 forms and instructions   As long as contributions are within the contribution limits, none of the earnings or gains on contributions (deductible or nondeductible) will be taxed until they are distributed. 1040 forms and instructions See When Can You Withdraw or Use IRA Assets , later. 1040 forms and instructions Cost basis. 1040 forms and instructions   You will have a cost basis in your traditional IRA if you made any nondeductible contributions. 1040 forms and instructions Your cost basis is the sum of the nondeductible contributions to your IRA minus any withdrawals or distributions of nondeductible contributions. 1040 forms and instructions Inherited IRAs If you inherit a traditional IRA, you are called a beneficiary. 1040 forms and instructions A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies. 1040 forms and instructions Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive. 1040 forms and instructions Inherited from spouse. 1040 forms and instructions   If you inherit a traditional IRA from your spouse, you generally have the following three choices. 1040 forms and instructions You can: Treat it as your own IRA by designating yourself as the account owner. 1040 forms and instructions Treat it as your own by rolling it over into your IRA, or to the extent it is taxable, into a: Qualified employer plan, Qualified employee annuity plan (section 403(a) plan), Tax-sheltered annuity plan (section 403(b) plan), or Deferred compensation plan of a state or local government (section 457 plan). 1040 forms and instructions Treat yourself as the beneficiary rather than treating the IRA as your own. 1040 forms and instructions Treating it as your own. 1040 forms and instructions   You will be considered to have chosen to treat the IRA as your own if: Contributions (including rollover contributions) are made to the inherited IRA, or You do not take the required minimum distribution for a year as a beneficiary of the IRA. 1040 forms and instructions You will only be considered to have chosen to treat the IRA as your own if: You are the sole beneficiary of the IRA, and You have an unlimited right to withdraw amounts from it. 1040 forms and instructions   However, if you receive a distribution from your deceased spouse's IRA, you can roll that distribution over into your own IRA within the 60-day time limit, as long as the distribution is not a required distribution, even if you are not the sole beneficiary of your deceased spouse's IRA. 1040 forms and instructions Inherited from someone other than spouse. 1040 forms and instructions   If you inherit a traditional IRA from anyone other than your deceased spouse, you cannot treat the inherited IRA as your own. 1040 forms and instructions This means that you cannot make any contributions to the IRA. 1040 forms and instructions It also means you cannot roll over any amounts into or out of the inherited IRA. 1040 forms and instructions However, you can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of you as beneficiary. 1040 forms and instructions For more information, see the discussion of inherited IRAs under Rollover From One IRA Into Another, later. 1040 forms and instructions Can You Move Retirement Plan Assets? You can transfer, tax free, assets (money or property) from other retirement plans (including traditional IRAs) to a traditional IRA. 1040 forms and instructions You can make the following kinds of transfers. 1040 forms and instructions Transfers from one trustee to another. 1040 forms and instructions Rollovers. 1040 forms and instructions Transfers incident to a divorce. 1040 forms and instructions Transfers to Roth IRAs. 1040 forms and instructions   Under certain conditions, you can move assets from a traditional IRA or from a designated Roth account to a Roth IRA. 1040 forms and instructions You can also move assets from a qualified retirement plan to a Roth IRA. 1040 forms and instructions See Can You Move Amounts Into a Roth IRA? under Roth IRAs, later. 1040 forms and instructions Trustee-to-Trustee Transfer A transfer of funds in your traditional IRA from one trustee directly to another, either at your request or at the trustee's request, is not a rollover. 1040 forms and instructions Because there is no distribution to you, the transfer is tax free. 1040 forms and instructions Because it is not a rollover, it is not affected by the 1-year waiting period required between rollovers, discussed later under Rollover From One IRA Into Another . 1040 forms and instructions For information about direct transfers to IRAs from retirement plans other than IRAs, see Can You Move Retirement Plan Assets? in chapter 1 and Can You Move Amounts Into a Roth IRA? in chapter 2 of Publication 590. 1040 forms and instructions Rollovers Generally, a rollover is a tax-free distribution to you of cash or other assets from one retirement plan that you contribute (roll over) to another retirement plan. 1040 forms and instructions The contribution to the second retirement plan is called a “rollover contribution. 1040 forms and instructions ” Note. 1040 forms and instructions An amount rolled over tax free from one retirement plan to another is generally includible in income when it is distributed from the second plan. 1040 forms and instructions Kinds of rollovers to a traditional IRA. 1040 forms and instructions   You can roll over amounts from the following plans into a traditional IRA: A traditional IRA, An employer's qualified retirement plan for its employees, A deferred compensation plan of a state or local government (section 457 plan), or A tax-sheltered annuity plan (section 403(b) plan). 1040 forms and instructions Treatment of rollovers. 1040 forms and instructions   You cannot deduct a rollover contribution, but you must report the rollover distribution on your tax return as discussed later under Reporting rollovers from IRAs and under Reporting rollovers from employer plans . 1040 forms and instructions Kinds of rollovers from a traditional IRA. 1040 forms and instructions   You may be able to roll over, tax free, a distribution from your traditional IRA into a qualified plan. 1040 forms and instructions These plans include the federal Thrift Savings Fund (for federal employees), deferred compensation plans of state or local governments (section 457 plans), and tax-sheltered annuity plans (section 403(b) plans). 1040 forms and instructions The part of the distribution that you can roll over is the part that would otherwise be taxable (includible in your income). 1040 forms and instructions Qualified plans may, but are not required to, accept such rollovers. 1040 forms and instructions Time limit for making a rollover contribution. 1040 forms and instructions   You generally must make the rollover contribution by the 60th day after the day you receive the distribution from your traditional IRA or your employer's plan. 1040 forms and instructions The IRS may waive the 60-day requirement where the failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or other event beyond your reasonable control. 1040 forms and instructions For more information, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. 1040 forms and instructions Extension of rollover period. 1040 forms and instructions   If an amount distributed to you from a traditional IRA or a qualified employer retirement plan is a frozen deposit at any time during the 60-day period allowed for a rollover, special rules extend the rollover period. 1040 forms and instructions For more information, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. 1040 forms and instructions More information. 1040 forms and instructions   For more information on rollovers, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. 1040 forms and instructions Rollover From One IRA Into Another You can withdraw, tax free, all or part of the assets from one traditional IRA if you reinvest them within 60 days in the same or another traditional IRA. 1040 forms and instructions Because this is a rollover, you cannot deduct the amount that you reinvest in an IRA. 1040 forms and instructions Waiting period between rollovers. 1040 forms and instructions   Generally, if you make a tax-free rollover of any part of a distribution from a traditional IRA, you cannot, within a 1-year period, make a tax-free rollover of any later distribution from that same IRA. 1040 forms and instructions You also cannot make a tax-free rollover of any amount distributed, within the same 1-year period, from the IRA into which you made the tax-free rollover. 1040 forms and instructions   The 1-year period begins on the date you receive the IRA distribution, not on the date you roll it over into an IRA. 1040 forms and instructions Example. 1040 forms and instructions You have two traditional IRAs, IRA-1 and IRA-2. 1040 forms and instructions You make a tax-free rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3). 1040 forms and instructions You cannot, within 1 year of the distribution from IRA-1, make a tax-free rollover of any distribution from either IRA-1 or IRA-3 into another traditional IRA. 1040 forms and instructions However, the rollover from IRA-1 into IRA-3 does not prevent you from making a tax-free rollover from IRA-2 into any other traditional IRA. 1040 forms and instructions This is because you have not, within the last year, rolled over, tax free, any distribution from IRA-2 or made a tax-free rollover into IRA-2. 1040 forms and instructions Exception. 1040 forms and instructions   For an exception for distributions from failed financial institutions, see Rollover From One IRA Into Another under Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. 1040 forms and instructions Partial rollovers. 1040 forms and instructions   If you withdraw assets from a traditional IRA, you can roll over part of the withdrawal tax free and keep the rest of it. 1040 forms and instructions The amount you keep will generally be taxable (except for the part that is a return of nondeductible contributions). 1040 forms and instructions The amount you keep may be subject to the 10% additional tax on early distributions, discussed later under What Acts Result in Penalties or Additional Taxes? . 1040 forms and instructions Required distributions. 1040 forms and instructions   Amounts that must be distributed during a particular year under the required distribution rules (discussed later) are not eligible for rollover treatment. 1040 forms and instructions Inherited IRAs. 1040 forms and instructions   If you inherit a traditional IRA from your spouse, you generally can roll it over, or you can choose to make the inherited IRA your own. 1040 forms and instructions See Treating it as your own , earlier. 1040 forms and instructions Not inherited from spouse. 1040 forms and instructions   If you inherit a traditional IRA from someone other than your spouse, you cannot roll it over or allow it to receive a rollover contribution. 1040 forms and instructions You must withdraw the IRA assets within a certain period. 1040 forms and instructions For more information, see When Must You Withdraw Assets? in chapter 1 of Publication 590. 1040 forms and instructions Reporting rollovers from IRAs. 1040 forms and instructions   Report any rollover from one traditional IRA to the same or another traditional IRA on lines 15a and 15b, Form 1040, or lines 11a and 11b, Form 1040A, as follows. 1040 forms and instructions   Enter the total amount of the distribution on Form 1040, line 15a, or Form 1040A, line 11a. 1040 forms and instructions If the total amount on Form 1040, line 15a, or Form 1040A, line 11a, was rolled over, enter zero on Form 1040, line 15b, or Form 1040A, line 11b. 1040 forms and instructions If the total distribution was not rolled over, enter the taxable portion of the part that was not rolled over on Form 1040, line 15b, or Form 1040A, line 11b. 1040 forms and instructions Put “Rollover” next to Form 1040, line 15b, or Form 1040A, line 11b. 1040 forms and instructions See your tax return instructions. 1040 forms and instructions   If you rolled over the distribution into a qualified plan (other than an IRA) or you make the rollover in 2014, attach a statement explaining what you did. 1040 forms and instructions Rollover From Employer's Plan Into an IRA You can roll over into a traditional IRA all or part of an eligible rollover distribution you receive from your (or your deceased spouse's): Employer's qualified pension, profit-sharing, or stock bonus plan; Annuity plan; Tax-sheltered annuity plan (section 403(b) plan); or Governmental deferred compensation plan (section 457 plan). 1040 forms and instructions A qualified plan is one that meets the requirements of the Internal Revenue Code. 1040 forms and instructions Eligible rollover distribution. 1040 forms and instructions   Generally, an eligible rollover distribution is any distribution of all or part of the balance to your credit in a qualified retirement plan except the following. 1040 forms and instructions A required minimum distribution (explained later under When Must You Withdraw IRA Assets? (Required Minimum Distributions) ). 1040 forms and instructions A hardship distribution. 1040 forms and instructions Any of a series of substantially equal periodic distributions paid at least once a year over: Your lifetime or life expectancy, The lifetimes or life expectancies of you and your beneficiary, or A period of 10 years or more. 1040 forms and instructions Corrective distributions of excess contributions or excess deferrals, and any income allocable to the excess, or of excess annual additions and any allocable gains. 1040 forms and instructions A loan treated as a distribution because it does not satisfy certain requirements either when made or later (such as upon default), unless the participant's accrued benefits are reduced (offset) to repay the loan. 1040 forms and instructions Dividends on employer securities. 1040 forms and instructions The cost of life insurance coverage. 1040 forms and instructions Any nontaxable amounts that you roll over into your traditional IRA become part of your basis (cost) in your IRAs. 1040 forms and instructions To recover your basis when you take distributions from your IRA, you must complete Form 8606 for the year of the distribution. 1040 forms and instructions See Form 8606 under Distributions Fully or Partly Taxable, later. 1040 forms and instructions Rollover by nonspouse beneficiary. 1040 forms and instructions   A direct transfer from a deceased employee's qualified pension, profit-sharing, or stock bonus plan; annuity plan; tax-sheltered annuity (section 403(b)) plan; or governmental deferred compensation (section 457) plan to an IRA set up to receive the distribution on your behalf can be treated as an eligible rollover distribution if you are the designated beneficiary of the plan and not the employee's spouse. 1040 forms and instructions The IRA is treated as an inherited IRA. 1040 forms and instructions For more information about inherited IRAs, see Inherited IRAs , earlier. 1040 forms and instructions Reporting rollovers from employer plans. 1040 forms and instructions    Enter the total distribution (before income tax or other deductions were withheld) on Form 1040, line 16a, or Form 1040A, line 12a. 1040 forms and instructions This amount should be shown in box 1 of Form 1099-R. 1040 forms and instructions From this amount, subtract any contributions (usually shown in box 5 of Form 1099-R) that were taxable to you when made. 1040 forms and instructions From that result, subtract the amount that was rolled over either directly or within 60 days of receiving the distribution. 1040 forms and instructions Enter the remaining amount, even if zero, on Form 1040, line 16b, or Form 1040A, line 12b. 1040 forms and instructions Also, enter "Rollover" next to Form 1040, line 16b, or Form 1040A, line 12b. 1040 forms and instructions Transfers Incident to Divorce If an interest in a traditional IRA is transferred from your spouse or former spouse to you by a divorce or separate maintenance decree or a written document related to such a decree, the interest in the IRA, starting from the date of the transfer, is treated as your IRA. 1040 forms and instructions The transfer is tax free. 1040 forms and instructions For detailed information, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. 1040 forms and instructions Converting From Any Traditional IRA to a Roth IRA Allowable conversions. 1040 forms and instructions   You can withdraw all or part of the assets from a traditional IRA and reinvest them (within 60 days) in a Roth IRA. 1040 forms and instructions The amount that you withdraw and timely contribute (convert) to the Roth IRA is called a conversion contribution. 1040 forms and instructions If properly (and timely) rolled over, the 10% additional tax on early distributions will not apply. 1040 forms and instructions However, a part or all of the conversion contribution from your traditional IRA is included in your gross income. 1040 forms and instructions Required distributions. 1040 forms and instructions   You cannot convert amounts that must be distributed from your traditional IRA for a particular year (including the calendar year in which you reach age 70½) under the required distribution rules (discussed later). 1040 forms and instructions Income. 1040 forms and instructions   You must include in your gross income distributions from a traditional IRA that you would have had to include in income if you had not converted them into a Roth IRA. 1040 forms and instructions These amounts are normally included in income on your return for the year that you converted them from a traditional IRA to a Roth IRA. 1040 forms and instructions   You do not include in gross income any part of a distribution from a traditional IRA that is a return of your basis, as discussed later. 1040 forms and instructions   You must file Form 8606 to report 2013 conversions from traditional, SEP, or SIMPLE IRAs to a Roth IRA in 2013 (unless you recharacterized the entire amount) and to figure the amount to include in income. 1040 forms and instructions   If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. 1040 forms and instructions See chapter 4. 1040 forms and instructions Recharacterizations You may be able to treat a contribution made to one type of IRA as having been made to a different type of IRA. 1040 forms and instructions This is called recharacterizing the contribution. 1040 forms and instructions See Can You Move Retirement Plan Assets? in chapter 1 of Publication 590 for more detailed information. 1040 forms and instructions How to recharacterize a contribution. 1040 forms and instructions   To recharacterize a contribution, you generally must have the contribution transferred from the first IRA (the one to which it was made) to the second IRA in a trustee-to-trustee transfer. 1040 forms and instructions If the transfer is made by the due date (including extensions) for your tax return for the year during which the contribution was made, you can elect to treat the contribution as having been originally made to the second IRA instead of to the first IRA. 1040 forms and instructions If you recharacterize your contribution, you must do all three of the following. 1040 forms and instructions Include in the transfer any net income allocable to the contribution. 1040 forms and instructions If there was a loss, the net income you must transfer may be a negative amount. 1040 forms and instructions Report the recharacterization on your tax return for the year during which the contribution was made. 1040 forms and instructions Treat the contribution as having been made to the second IRA on the date that it was actually made to the first IRA. 1040 forms and instructions No deduction allowed. 1040 forms and instructions   You cannot deduct the contribution to the first IRA. 1040 forms and instructions Any net income you transfer with the recharacterized contribution is treated as earned in the second IRA. 1040 forms and instructions Required notifications. 1040 forms and instructions   To recharacterize a contribution, you must notify both the trustee of the first IRA (the one to which the contribution was actually made) and the trustee of the second IRA (the one to which the contribution is being moved) that you have elected to treat the contribution as having been made to the second IRA rather than the first. 1040 forms and instructions You must make the notifications by the date of the transfer. 1040 forms and instructions Only one notification is required if both IRAs are maintained by the same trustee. 1040 forms and instructions The notification(s) must include all of the following information. 1040 forms and instructions The type and amount of the contribution to the first IRA that is to be recharacterized. 1040 forms and instructions The date on which the contribution was made to the first IRA and the year for which it was made. 1040 forms and instructions A direction to the trustee of the first IRA to transfer in a trustee-to-trustee transfer the amount of the contribution and any net income (or loss) allocable to the contribution to the trustee of the second IRA. 1040 forms and instructions The name of the trustee of the first IRA and the name of the trustee of the second IRA. 1040 forms and instructions Any additional information needed to make the transfer. 1040 forms and instructions Reporting a recharacterization. 1040 forms and instructions   If you elect to recharacterize a contribution to one IRA as a contribution to another IRA, you must report the recharacterization on your tax return as directed by Form 8606 and its instructions. 1040 forms and instructions You must treat the contribution as having been made to the second IRA. 1040 forms and instructions When Can You Withdraw or Use IRA Assets? There are rules limiting use of your IRA assets and distributions from it. 1040 forms and instructions Violation of the rules generally results in additional taxes in the year of violation. 1040 forms and instructions See What Acts Result in Penalties or Additional Taxes , later. 1040 forms and instructions Contributions returned before the due date of return. 1040 forms and instructions   If you made IRA contributions in 2013, you can withdraw them tax free by the due date of your return. 1040 forms and instructions If you have an extension of time to file your return, you can withdraw them tax free by the extended due date. 1040 forms and instructions You can do this if, for each contribution you withdraw, both of the following conditions apply. 1040 forms and instructions You did not take a deduction for the contribution. 1040 forms and instructions You withdraw any interest or other income earned on the contribution. 1040 forms and instructions You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn. 1040 forms and instructions If there was a loss, the net income earned on the contribution may be a negative amount. 1040 forms and instructions Note. 1040 forms and instructions To calculate the amount you must withdraw, see Worksheet 1-4 under When Can You Withdraw or Use Assets? in chapter 1 of Publication 590. 1040 forms and instructions Earnings includible in income. 1040 forms and instructions   You must include in income any earnings on the contributions you withdraw. 1040 forms and instructions Include the earnings in income for the year in which you made the contributions, not in the year in which you withdraw them. 1040 forms and instructions Generally, except for any part of a withdrawal that is a return of nondeductible contributions (basis), any withdrawal of your contributions after the due date (or extended due date) of your return will be treated as a taxable distribution. 1040 forms and instructions Excess contributions can also be recovered tax free as discussed under What Acts Result in Penalties or Additional Taxes?, later. 1040 forms and instructions    Early distributions tax. 1040 forms and instructions   The 10% additional tax on distributions made before you reach age 59½ does not apply to these tax-free withdrawals of your contributions. 1040 forms and instructions However, the distribution of interest or other income must be reported on Form 5329 and, unless the distribution qualifies as an exception to the age 59½ rule, it will be subject to this tax. 1040 forms and instructions When Must You Withdraw IRA Assets? (Required Minimum Distributions) You cannot keep funds in a traditional IRA indefinitely. 1040 forms and instructions Eventually they must be distributed. 1040 forms and instructions If there are no distributions, or if the distributions are not large enough, you may have to pay a 50% excise tax on the amount not distributed as required. 1040 forms and instructions See Excess Accumulations (Insufficient Distributions) , later. 1040 forms and instructions The requirements for distributing IRA funds differ depending on whether you are the IRA owner or the beneficiary of a decedent's IRA. 1040 forms and instructions Required minimum distribution. 1040 forms and instructions   The amount that must be distributed each year is referred to as the required minimum distribution. 1040 forms and instructions Required distributions not eligible for rollover. 1040 forms and instructions   Amounts that must be distributed (required minimum distributions) during a particular year are not eligible for rollover treatment. 1040 forms and instructions IRA owners. 1040 forms and instructions   If you are the owner of a traditional IRA, you must generally start receiving distributions from your IRA by April 1 of the year following the year in which you reach age 70½. 1040 forms and instructions April 1 of the year following the year in which you reach age 70½ is referred to as the required beginning date. 1040 forms and instructions Distributions by the required beginning date. 1040 forms and instructions   You must receive at least a minimum amount for each year starting with the year you reach age 70½ (your 70½ year). 1040 forms and instructions If you do not (or did not) receive that minimum amount in your 70½ year, then you must receive distributions for your 70½ year by April 1 of the next year. 1040 forms and instructions   If an IRA owner dies after reaching age 70½, but before April 1 of the next year, no minimum distribution is required because death occurred before the required beginning date. 1040 forms and instructions Even if you begin receiving distributions before you attain age 70½, you must begin calculating and receiving required minimum distributions by your required beginning date. 1040 forms and instructions Distributions after the required beginning date. 1040 forms and instructions   The required minimum distribution for any year after the year you turn 70½ must be made by December 31 of that later year. 1040 forms and instructions    Beneficiaries. 1040 forms and instructions   If you are the beneficiary of a decedent's traditional IRA, the requirements for distributions from that IRA generally depend on whether the IRA owner died before or after the required beginning date for distributions. 1040 forms and instructions More information. 1040 forms and instructions   For more information, including how to figure your minimum required distribution each year and how to figure your required distribution if you are a beneficiary of a decedent's IRA, see When Must You Withdraw Assets? in chapter 1 of Publication 590. 1040 forms and instructions Are Distributions Taxable? In general, distributions from a traditional IRA are taxable in the year you receive them. 1040 forms and instructions Exceptions. 1040 forms and instructions   Exceptions to distributions from traditional IRAs being taxable in the year you receive them are: Rollovers, Qualified charitable distributions (QCD), discussed later, Tax-free withdrawals of contributions, discussed earlier, and The return of nondeductible contributions, discussed later under Distributions Fully or Partly Taxable . 1040 forms and instructions    Although a conversion of a traditional IRA is considered a rollover for Roth IRA purposes, it is not an exception to the rule that distributions from a traditional IRA are taxable in the year you receive them. 1040 forms and instructions Conversion distributions are includible in your gross income subject to this rule and the special rules for conversions explained in Converting From Any Traditional IRA Into a Roth IRA under Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. 1040 forms and instructions Qualified charitable distributions (QCD). 1040 forms and instructions   A QCD is generally a nontaxable distribution made directly by the trustee of your IRA to an organization eligible to receive tax-deductible contributions. 1040 forms and instructions Special rules apply if you made a qualified charitable distribution in January 2013 that you elected to treat as made in 2012. 1040 forms and instructions See Qualified Charitable Distributions in Publication 590 for more information. 1040 forms and instructions Ordinary income. 1040 forms and instructions   Distributions from traditional IRAs that you include in income are taxed as ordinary income. 1040 forms and instructions No special treatment. 1040 forms and instructions   In figuring your tax, you cannot use the 10-year tax option or capital gain treatment that applies to lump-sum distributions from qualified retirement plans. 1040 forms and instructions Distributions Fully or Partly Taxable Distributions from your traditional IRA may be fully or partly taxable, depending on whether your IRA includes any nondeductible contributions. 1040 forms and instructions Fully taxable. 1040 forms and instructions   If only deductible contributions were made to your traditional IRA (or IRAs, if you have more than one), you have no basis in your IRA. 1040 forms and instructions Because you have no basis in your IRA, any distributions are fully taxable when received. 1040 forms and instructions See Reporting taxable distributions on your return , later. 1040 forms and instructions Partly taxable. 1040 forms and instructions    If you made nondeductible contributions or rolled over any after-tax amounts to any of your traditional IRAs, you have a cost basis (investment in the contract) equal to the amount of those contributions. 1040 forms and instructions These nondeductible contributions are not taxed when they are distributed to you. 1040 forms and instructions They are a return of your investment in your IRA. 1040 forms and instructions   Only the part of the distribution that represents nondeductible contributions and rolled over after-tax amounts (your cost basis) is tax free. 1040 forms and instructions If nondeductible contributions have been made or after-tax amounts have been rolled over to your IRA, distributions consist partly of nondeductible contributions (basis) and partly of deductible contributions, earnings, and gains (if there are any). 1040 forms and instructions Until all of your basis has been distributed, each distribution is partly nontaxable and partly taxable. 1040 forms and instructions Form 8606. 1040 forms and instructions   You must complete Form 8606 and attach it to your return if you receive a distribution from a traditional IRA and have ever made nondeductible contributions or rolled over after-tax amounts to any of your traditional IRAs. 1040 forms and instructions Using the form, you will figure the nontaxable distributions for 2013 and your total IRA basis for 2013 and earlier years. 1040 forms and instructions Note. 1040 forms and instructions If you are required to file Form 8606, but you are not required to file an income tax return, you still must file Form 8606. 1040 forms and instructions Send it to the IRS at the time and place you would otherwise file an income tax return. 1040 forms and instructions Distributions reported on Form 1099-R. 1040 forms and instructions   If you receive a distribution from your traditional IRA, you will receive Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 1040 forms and instructions , or a similar statement. 1040 forms and instructions IRA distributions are shown in boxes 1 and 2a of Form 1099-R. 1040 forms and instructions A number or letter code in box 7 tells you what type of distribution you received from your IRA. 1040 forms and instructions Withholding. 1040 forms and instructions   Federal income tax is withheld from distributions from traditional IRAs unless you choose not to have tax withheld. 1040 forms and instructions See chapter 4. 1040 forms and instructions IRA distributions delivered outside the United States. 1040 forms and instructions   In general, if you are a U. 1040 forms and instructions S. 1040 forms and instructions citizen or resident alien and your home address is outside the United States or its possessions, you cannot choose exemption from withholding on distributions from your traditional IRA. 1040 forms and instructions Reporting taxable distributions on your return. 1040 forms and instructions    Report fully taxable distributions, including early distributions on Form 1040, line 15b, or Form 1040A, line 11b (no entry is required on Form 1040, line 15a, or Form 1040A, line 11a). 1040 forms and instructions If only part of the distribution is taxable, enter the total amount on Form 1040, line 15a, or Form 1040A, line 11a, and the taxable part on Form 1040, line 15b, or Form 1040A, line 11b. 1040 forms and instructions You cannot report distributions on Form 1040EZ. 1040 forms and instructions What Acts Result in Penalties or Additional Taxes? The tax advantages of using traditional IRAs for retirement savings can be offset by additional taxes and penalties if you do not follow the rules. 1040 forms and instructions There are additions to the regular tax for using your IRA funds in prohibited transactions. 1040 forms and instructions There are also additional taxes for the following activities. 1040 forms and instructions Investing in collectibles. 1040 forms and instructions Making excess contributions. 1040 forms and instructions Taking early distributions. 1040 forms and instructions Allowing excess amounts to accumulate (failing to take required distributions). 1040 forms and instructions There are penalties for overstating the amount of nondeductible contributions and for failure to file a Form 8606, if required. 1040 forms and instructions Prohibited Transactions Generally, a prohibited transaction is any improper use of your traditional IRA by you, your beneficiary, or any disqualified person. 1040 forms and instructions Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendent, and any spouse of a lineal descendent). 1040 forms and instructions The following are examples of prohibited transactions with a traditional IRA. 1040 forms and instructions Borrowing money from it. 1040 forms and instructions Selling property to it. 1040 forms and instructions Receiving unreasonable compensation for managing it. 1040 forms and instructions Using it as security for a loan. 1040 forms and instructions Buying property for personal use (present or future) with IRA funds. 1040 forms and instructions Effect on an IRA account. 1040 forms and instructions   Generally, if you or your beneficiary engages in a prohibited transaction in connection with your traditional IRA account at any time during the year, the account stops being an IRA as of the first day of that year. 1040 forms and instructions Effect on you or your beneficiary. 1040 forms and instructions   If your account stops being an IRA because you or your beneficiary engaged in a prohibited transaction, the account is treated as distributing all its assets to you at their fair market values on the first day of the year. 1040 forms and instructions If the total of those values is more than your basis in the IRA, you will have a taxable gain that is includible in your income. 1040 forms and instructions For information on figuring your gain and reporting it in income, see Are Distributions Taxable , earlier. 1040 forms and instructions The distribution may be subject to additional taxes or penalties. 1040 forms and instructions Taxes on prohibited transactions. 1040 forms and instructions   If someone other than the owner or beneficiary of a traditional IRA engages in a prohibited transaction, that person may be liable for certain taxes. 1040 forms and instructions In general, there is a 15% tax on the amount of the prohibited transaction and a 100% additional tax if the transaction is not corrected. 1040 forms and instructions More information. 1040 forms and instructions   For more information on prohibited transactions, see What Acts Result in Penalties or Additional Taxes? in chapter 1 of Publication 590. 1040 forms and instructions Investment in Collectibles If your traditional IRA invests in collectibles, the amount invested is considered distributed to you in the year invested. 1040 forms and instructions You may have to pay the 10% additional tax on early distributions, discussed later. 1040 forms and instructions Collectibles. 1040 forms and instructions   These include: Artworks, Rugs, Antiques, Metals, Gems, Stamps, Coins, Alcoholic beverages, and Certain other tangible personal property. 1040 forms and instructions Exception. 1040 forms and instructions    Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U. 1040 forms and instructions S. 1040 forms and instructions gold coins, or one-ounce silver coins minted by the Treasury Department. 1040 forms and instructions It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion. 1040 forms and instructions Excess Contributions Generally, an excess contribution is the amount contributed to your traditional IRA(s) for the year that is more than the smaller of: The maximum deductible amount for the year. 1040 forms and instructions For 2013, this is $5,500 ($6,500 if you are 50 or older), or Your taxable compensation for the year. 1040 forms and instructions Tax on excess contributions. 1040 forms and instructions   In general, if the excess contributions for a year are not withdrawn by the date your return for the year is due (including extensions), you are subject to a 6% tax. 1040 forms and instructions You must pay the 6% tax each year on excess amounts that remain in your traditional IRA at the end of your tax year. 1040 forms and instructions The tax cannot be more than 6% of the combined value of all your IRAs as of the end of your tax year. 1040 forms and instructions Excess contributions withdrawn by due date of return. 1040 forms and instructions   You will not have to pay the 6% tax if you withdraw an excess contribution made during a tax year and you also withdraw interest or other income earned on the excess contribution. 1040 forms and instructions You must complete your withdrawal by the date your tax return for that year is due, including extensions. 1040 forms and instructions How to treat withdrawn contributions. 1040 forms and instructions   Do not include in your gross income an excess contribution that you withdraw from your traditional IRA before your tax return is due if both the following conditions are met. 1040 forms and instructions No deduction was allowed for the excess contribution. 1040 forms and instructions You withdraw the interest or other income earned on the excess contribution. 1040 forms and instructions You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn. 1040 forms and instructions If there was a loss, the net income you must withdraw may be a negative amount. 1040 forms and instructions How to treat withdrawn interest or other income. 1040 forms and instructions   You must include in your gross income the interest or other income that was earned on the excess contribution. 1040 forms and instructions Report it on your return for the year in which the excess contribution was made. 1040 forms and instructions Your withdrawal of interest or other income may be subject to an additional 10% tax on early distributions, discus

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IRS Wants You to Know About Schemes, Scams and Cons
"If it sounds too good to be true, it probably is!" Don't become a victim to any scheme that offers instant wealth or exemption from your obligation as a United States citizen to file tax returns and/or pay taxes. Some of these schemes can literally cost you your life savings. Others can result in your prosecution and imprisonment if you knowingly participate in them.

Abusive Return Preparer
Taxpayers should be very careful when choosing a tax preparer. While most preparers provide excellent service to their clients, a few unscrupulous return preparers file false and fraudulent tax returns and ultimately defraud their clients. It is important to know that even if someone else prepares your return, you are ultimately responsible for all the information on the tax return.

 

Abusive Tax Schemes
Abusive tax scheme originally took the structure of fraudulent domestic and foreign trust arrangements. However, these schemes have evolved into sophisticated arrangements to give the appearance that taxpayers are not in control of their money. However, the taxpayers receive their funds through debit/credit cards or fictitious loans. These schemes often involve offshore banking and sometimes establish scam corporations or entities.

 

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There have always been individuals who, for a variety of reasons, argue taxes are voluntary or illegal.  The courts have repeatedly rejected their arguments as frivolous and routinely impose financial penalties for raising such frivolous arguments.  Take the time to learn the truth about frivolous tax arguments.

 

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Criminal Investigation has categorized their investigative cases into specific program and emphasis areas of fraud. Examples of case summaries written from public record documents where cases were prosecuted can be viewed on the various program and emphasis area web pages.



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To help the public recognize and avoid abusive tax schemes, the IRS offers an abundance of educational materials. Participating in an illegal scheme to avoid paying taxes can result in imprisonment and fines, as well as the repayment of taxes owed with penalties and interest. Education is the best way to avoid the pitfalls of these “too good to be true” tax scams.
 



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The 1040 Forms And Instructions

1040 forms and instructions 3. 1040 forms and instructions   Claiming the Special Depreciation Allowance Table of Contents Introduction What Is Qualified Property?Qualified Reuse and Recycling Property Qualified Cellulosic Biofuel Plant Property Qualified Disaster Assistance Property Certain Qualified Property Acquired After December 31, 2007 Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance How Much Can You Deduct? How Can You Elect Not To Claim an Allowance? When Must You Recapture an Allowance? Introduction You can take a special depreciation allowance to recover part of the cost of qualified property (defined next), placed in service during the tax year. 1040 forms and instructions The allowance applies only for the first year you place the property in service. 1040 forms and instructions For qualified property placed in service in 2013, you can take an additional 50% special allowance. 1040 forms and instructions The allowance is an additional deduction you can take after any section 179 deduction and before you figure regular depreciation under MACRS for the year you place the property in service. 1040 forms and instructions This chapter explains what is qualified property. 1040 forms and instructions It also includes rules regarding how to figure an allowance, how to elect not to claim an allowance, and when you must recapture an allowance. 1040 forms and instructions Corporations can elect to accelerate certain minimum tax credits in lieu of claiming the special depreciation allowance for eligible qualified property. 1040 forms and instructions See Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance , later. 1040 forms and instructions See chapter 6 for information about getting publications and forms. 1040 forms and instructions What Is Qualified Property? Your property is qualified property if it is one of the following. 1040 forms and instructions Qualified reuse and recycling property. 1040 forms and instructions Qualified cellulosic biofuel plant property. 1040 forms and instructions Qualified disaster assistance property. 1040 forms and instructions Certain qualified property acquired after December 31, 2007. 1040 forms and instructions The following discussions provide information about the types of qualified property listed above for which you can take the special depreciation allowance. 1040 forms and instructions Qualified Reuse and Recycling Property You can take a 50% special depreciation allowance for qualified reuse and recycling property. 1040 forms and instructions Qualified reuse and recycling property is any machinery or equipment (not including buildings or real estate), along with any appurtenance, that is used exclusively to collect, distribute, or recycle qualified reuse and recyclable materials (as defined in section 168(m)(3)(B) of the Internal Revenue Code). 1040 forms and instructions Qualified reuse and recycling property also includes software necessary to operate such equipment. 1040 forms and instructions The property must meet the following requirements. 1040 forms and instructions The property must be depreciated under MACRS. 1040 forms and instructions The property must have a useful life of at least 5 years. 1040 forms and instructions The original use of the property must begin with you after August 31, 2008. 1040 forms and instructions You must have acquired the property by purchase (as discussed under Property Acquired by Purchase in chapter 2 ) after August 31, 2008, with no binding written contract for the acquisition in effect before September 1, 2008. 1040 forms and instructions The property must be placed in service for use in your trade or business after August 31, 2008. 1040 forms and instructions Excepted Property Qualified reuse and recycling property does not include any of the following. 1040 forms and instructions Any rolling stock or other equipment used to transport reuse or recyclable materials. 1040 forms and instructions Property required to be depreciated using the Alternative Depreciation System (ADS). 1040 forms and instructions For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . 1040 forms and instructions Other bonus depreciation property to which section 168(k) of the Internal Revenue Code applies. 1040 forms and instructions Property for which you elected not to claim any special depreciation allowance (discussed later). 1040 forms and instructions Property placed in service and disposed of in the same tax year. 1040 forms and instructions Property converted from business use to personal use in the same tax year acquired. 1040 forms and instructions Property converted from personal use to business use in the same or later tax year may be qualified reuse and recycling property. 1040 forms and instructions Qualified Cellulosic Biofuel Plant Property You can take a 50% special depreciation allowance for qualified cellulosic biofuel plant property. 1040 forms and instructions Cellulosic biofuel is any liquid fuel which is produced from any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis. 1040 forms and instructions Examples include bagasse (from sugar cane), corn stalks, and switchgrass. 1040 forms and instructions The property must meet the following requirements. 1040 forms and instructions The property is used in the United States solely to produce cellulosic biofuel. 1040 forms and instructions The original use of the property must begin with you after December 20, 2006. 1040 forms and instructions You must have acquired the property by purchase (as discussed under Property Acquired by Purchase in chapter 2 ) after December 20, 2006, with no binding written contract for acquisition in effect before December 21, 2006. 1040 forms and instructions The property must be placed in service for use in your trade or business or for the production of income after October 3, 2008, and before January 3, 2013. 1040 forms and instructions Note. 1040 forms and instructions For property placed in service after January 2, 2013, and before January 1, 2014, you can take a 50% special depreciation allowance for qualified second generation biofuel plant property that is used solely in the United States to produce second generation biofuel (as defined in section 40(b)(6)(E)). 1040 forms and instructions The other requirements for qualified second generation biofuel plant property to be eligible for the special depreciation allowance are identical to the requirements discussed for Qualified Cellulosic Biofuel Plant Property above. 1040 forms and instructions Special Rules Sale-leaseback. 1040 forms and instructions   If you sold qualified cellulosic biofuel plant property you placed in service after October 3, 2008, and leased it back within 3 months after you originally placed it in service, the property is treated as originally placed in service no earlier than the date it is used by you under the leaseback. 1040 forms and instructions   The property will not qualify for the special allowance if the lessee or a related person to the lessee or lessor had a written binding contract in effect for the acquisition of the property before December 21, 2006. 1040 forms and instructions Syndicated leasing transactions. 1040 forms and instructions   If qualified cellulosic biofuel plant property is originally placed in service by a lessor after October 3, 2008, the property is sold within 3 months of the date it was placed in service, and the user of the property does not change, then the property is treated as originally placed in service by the taxpayer no earlier than the date of the last sale. 1040 forms and instructions   Multiple units of property subject to the same lease will be treated as originally placed in service no earlier than the date of sale if the property is sold within 3 months after the final unit is placed in service and the period between the times the first and last units are placed in service does not exceed 12 months. 1040 forms and instructions Excepted Property Qualified cellulosic biofuel plant property does not include any of the following. 1040 forms and instructions Property placed in service and disposed of in the same tax year. 1040 forms and instructions Property converted from business use to personal use in the same tax year it is acquired. 1040 forms and instructions Property converted from personal use to business use in the same or later tax year may be qualified cellulosic biomass ethanol plant property. 1040 forms and instructions Property required to be depreciated using the Alternative Depreciation System (ADS). 1040 forms and instructions For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . 1040 forms and instructions Property any portion of which is financed with the proceeds of any obligation the interest on which is exempt from tax under section 103 of the Internal Revenue Code. 1040 forms and instructions Property for which you elected not to claim any special depreciation allowance (discussed later). 1040 forms and instructions Property for which a deduction was taken under section 179C for certain qualified refinery property. 1040 forms and instructions Other bonus depreciation property to which section 168(k) of the Internal Revenue Code applies. 1040 forms and instructions Qualified Disaster Assistance Property You can take a 50% special depreciation allowance for qualified disaster assistance property placed in service in federally declared disaster areas in which the disaster occurred in 2009. 1040 forms and instructions A list of the federally declared disaster areas is available at the FEMA website at www. 1040 forms and instructions fema. 1040 forms and instructions gov. 1040 forms and instructions Your property is qualified disaster assistance property if it meets the following requirements. 1040 forms and instructions The property is nonresidential real property or residential real property placed in service before January 1, 2014, in a federally declared disaster area in which the disaster occurred in 2009. 1040 forms and instructions You must have acquired the property by purchase (as discussed under Property Acquired by Purchase in chapter 2 ) on or after the applicable disaster date, with no binding written contract for the acquisition in effect before the applicable disaster date. 1040 forms and instructions The property must rehabilitate property damaged, or replace property destroyed or condemned, as a result of the applicable federally declared disaster. 1040 forms and instructions The property must be similar in nature to, and located in the same county as, the rehabilitated or replaced property. 1040 forms and instructions The original use of the property within the applicable disaster area must have begun with you on or after the applicable disaster date. 1040 forms and instructions The property is placed in service by you on or before the date which is the last day of the fourth calendar year. 1040 forms and instructions Substantially all (80% or more) of the use of the property must be in the active conduct of your trade or business in a federally declared disaster area, occurring in 2009. 1040 forms and instructions It is not excepted property (explained later in Excepted Property ). 1040 forms and instructions Special Rules Sale-leaseback. 1040 forms and instructions   If you sold qualified disaster assistance property you placed in service after the applicable disaster date and leased it back within 3 months after you originally placed it in service, the property is treated as originally placed in service no earlier than the date it is used by you under the leaseback. 1040 forms and instructions   The property will not qualify for the special allowance if the lessee or a related person to the lessee or lessor had a written binding contract in effect for the acquisition of the property before the applicable disaster date. 1040 forms and instructions Syndicated leasing transactions. 1040 forms and instructions   If qualified disaster assistance property is originally placed in service by a lessor after the applicable disaster date, the property is sold within 3 months of the date it was placed in service, and the user of the property does not change, then the property is treated as originally placed in service by the taxpayer no earlier than the date of the last sale. 1040 forms and instructions   Multiple units of property subject to the same lease will be treated as originally placed in service no earlier than the date of sale if the property is sold within 3 months after the final unit is placed in service and the period between the times the first and last units are placed in service does not exceed 12 months. 1040 forms and instructions Excepted Property Qualified disaster assistance property does not include any of the following. 1040 forms and instructions Property required to be depreciated using the Alternative Depreciation System (ADS). 1040 forms and instructions For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . 1040 forms and instructions Property any portion of which is financed with the proceeds of a tax-exempt obligation under section 103 of the Internal Revenue Code. 1040 forms and instructions Any qualified revitalization building (defined later) placed in service before January 1, 2010, for which you have elected to claim a commercial revitalization deduction for qualified revitalization expenditures. 1040 forms and instructions Any property used in connection with any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, or any store, the principal business of which is the sale of alcoholic beverages for consumption off premises. 1040 forms and instructions Any property for which the special allowance under section 168(k) or section 1400N(d) of the Internal Revenue Code applies. 1040 forms and instructions Property for which you elected not to claim any special depreciation allowance (discussed later). 1040 forms and instructions Property placed in service and disposed of in the same tax year. 1040 forms and instructions Property converted from business use to personal use in the same tax year acquired. 1040 forms and instructions Property converted from personal use to business use in the same or later tax year may be qualified disaster assistance property. 1040 forms and instructions Any gambling or animal racing property (defined later). 1040 forms and instructions Qualified revitalization building. 1040 forms and instructions   This is a commercial building and its structural components that you placed in service in a renewal community before January 1, 2010. 1040 forms and instructions If the building is new, the original use of the building must begin with you. 1040 forms and instructions If the building is not new, you must substantially rehabilitate the building and then place it in service. 1040 forms and instructions For more information, including definitions of substantially rehabilitated building and qualified revitalization expenditure, see section 1400I(b) of the Internal Revenue Code. 1040 forms and instructions Gambling or animal racing property. 1040 forms and instructions   Gambling or animal racing property includes the following personal and real property. 1040 forms and instructions Any equipment, furniture, software, or other property used directly in connection with gambling, the racing of animals, or the on-site viewing of such racing. 1040 forms and instructions Any real property determined by square footage (other than any portion that is less than 100 square feet) that is dedicated to gambling, the racing of animals, or the on-site viewing of such racing. 1040 forms and instructions Certain Qualified Property Acquired After December 31, 2007 You can take a 50% special depreciation deduction allowance for certain qualified property acquired after December 31, 2007. 1040 forms and instructions Your property is qualified property if it meets the following requirements. 1040 forms and instructions It is one of the following types of property. 1040 forms and instructions Tangible property depreciated under MACRS with a recovery period of 20 years or less. 1040 forms and instructions Water utility property. 1040 forms and instructions Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. 1040 forms and instructions (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. 1040 forms and instructions ) Qualified leasehold improvement property (defined under Qualified leasehold improvement property later). 1040 forms and instructions You must have acquired the property after December 31, 2007, with no binding written contract for the acquisition in effect before January 1, 2008. 1040 forms and instructions The property must be placed in service for use in your trade or business or for the production of income before January 1, 2014 (before January 1, 2015, for certain property with a long production period and certain aircraft (defined next)). 1040 forms and instructions The original use of the property must begin with you after December 31, 2007. 1040 forms and instructions It is not excepted property (explained later in Excepted property). 1040 forms and instructions Qualified leasehold improvement property. 1040 forms and instructions    Generally, this is any improvement to an interior part of a building that is nonresidential real property, if all the following requirements are met. 1040 forms and instructions The improvement is made under or according to a lease by the lessee (or any sublessee) or the lessor of that part of the building. 1040 forms and instructions That part of the building is to be occupied exclusively by the lessee (or any sublessee) of that part. 1040 forms and instructions The improvement is placed in service more than 3 years after the date the building was first placed in service by any person. 1040 forms and instructions The improvement is section 1250 property. 1040 forms and instructions See chapter 3 in Publication 544, Sales and Other Dispositions of Assets, for the definition of section 1250 property. 1040 forms and instructions   However, a qualified leasehold improvement does not include any improvement for which the expenditure is attributable to any of the following. 1040 forms and instructions The enlargement of the building. 1040 forms and instructions Any elevator or escalator. 1040 forms and instructions Any structural component benefiting a common area. 1040 forms and instructions The internal structural framework of the building. 1040 forms and instructions   Generally, a binding commitment to enter into a lease is treated as a lease and the parties to the commitment are treated as the lessor and lessee. 1040 forms and instructions However, a lease between related persons is not treated as a lease. 1040 forms and instructions Related persons. 1040 forms and instructions   For this purpose, the following are related persons. 1040 forms and instructions Members of an affiliated group. 1040 forms and instructions An individual and a member of his or her family, including only a spouse, child, parent, brother, sister, half-brother, half-sister, ancestor, and lineal descendant. 1040 forms and instructions A corporation and an individual who directly or indirectly owns 80% or more of the value of the outstanding stock of that corporation. 1040 forms and instructions Two corporations that are members of the same controlled group. 1040 forms and instructions A trust fiduciary and a corporation if 80% or more of the value of the outstanding stock is directly or indirectly owned by or for the trust or grantor of the trust. 1040 forms and instructions The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. 1040 forms and instructions The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. 1040 forms and instructions A tax-exempt educational or charitable organization and any person (or, if that person is an individual, a member of that person's family) who directly or indirectly controls the organization. 1040 forms and instructions Two S corporations, and an S corporation and a regular corporation, if the same persons own 80% or more of the value of the outstanding stock of each corporation. 1040 forms and instructions A corporation and a partnership if the same persons own both of the following. 1040 forms and instructions 80% or more of the value of the outstanding stock of the corporation. 1040 forms and instructions 80% or more of the capital or profits interest in the partnership. 1040 forms and instructions The executor and beneficiary of any estate. 1040 forms and instructions Long Production Period Property To be qualified property, long production period property must meet the following requirements. 1040 forms and instructions It must meet the requirements in (2)-(5), above. 1040 forms and instructions The property has a recovery period of at least 10 years or is transportation property. 1040 forms and instructions Transportation property is tangible personal property used in the trade or business of transporting persons or property. 1040 forms and instructions The property is subject to section 263A of the Internal Revenue Code. 1040 forms and instructions The property has an estimated production period exceeding 1 year and an estimated production cost exceeding $1,000,000. 1040 forms and instructions Noncommercial Aircraft To be qualified property, noncommercial aircraft must meet the following requirements. 1040 forms and instructions It must meet the requirements in (2)-(5), above. 1040 forms and instructions The aircraft must not be tangible personal property used in the trade or business of transporting persons or property (except for agricultural or firefighting purposes). 1040 forms and instructions The aircraft must be purchased (as discussed under Property Acquired by Purchase in chapter 2 ) by a purchaser who at the time of the contract for purchase, makes a nonrefundable deposit of the lesser of 10% of the cost or $100,000. 1040 forms and instructions The aircraft must have an estimated production period exceeding four months and a cost exceeding $200,000. 1040 forms and instructions Special Rules Sale-leaseback. 1040 forms and instructions   If you sold qualified property you placed in service after December 31, 2007, and leased it back within 3 months after you originally placed in service, the property is treated as originally placed in service no earlier than the date it is used by you under the leaseback. 1040 forms and instructions   The property will not qualify for the special depreciation allowance if the lessee or a related person to the lessee or lessor had a written binding contract in effect for the acquisition of the property before January 1, 2008. 1040 forms and instructions Syndicated leasing transactions. 1040 forms and instructions   If qualified property is originally placed in service by a lessor after December 31, 2007, the property is sold within 3 months of the date it was placed in service, and the user of the property does not change, then the property is treated as originally placed in service by the taxpayer no earlier than the date of the last sale. 1040 forms and instructions   Multiple units of property subject to the same lease will be treated as originally placed in service no earlier than the date of the last sale if the property is sold within 3 months after the final unit is placed in service and the period between the time the first and last units are placed in service does not exceed 12 months. 1040 forms and instructions Excepted Property Qualified property does not include any of the following. 1040 forms and instructions Property placed in service and disposed of in the same tax year. 1040 forms and instructions Property converted from business use to personal use in the same tax year acquired. 1040 forms and instructions Property converted from personal use to business use in the same or later tax year may be qualified property. 1040 forms and instructions Property required to be depreciated under the Alternative Depreciation System (ADS). 1040 forms and instructions This includes listed property used 50% or less in a qualified business use. 1040 forms and instructions For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . 1040 forms and instructions Qualified restaurant property (as defined in section 168(e)(7) of the Internal Revenue Code). 1040 forms and instructions Qualified retail improvement property (as defined in section 168(e)(8) of the Internal Revenue Code). 1040 forms and instructions Property for which you elected not to claim any special depreciation allowance (discussed later). 1040 forms and instructions Property for which you elected to accelerate certain credits in lieu of the special depreciation allowance (discussed next). 1040 forms and instructions Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance An election made by a corporation to claim pre-2006 unused minimum tax credits in lieu of claiming the special depreciation allowance for either its first tax year ending after March 31, 2008, its first tax year ending after December 31, 2008, or its first tax year ending after December 31, 2010, continues to apply to round 2 extension property (as defined in section 168(k)(4)(I)(iv)), unless the corporation made an election not to apply the section 168(k)(4) election to round 2 extension property for its first tax year ending after December 31, 2010. 1040 forms and instructions For 2013, round 2 extension property generally is long production period and noncommercial aircraft if acquired after March 31, 2008, and placed in service after December 31, 2012, but before January 1, 2014. 1040 forms and instructions An election made by a corporation to claim pre-2006 unused minimum tax credits in lieu of claiming the special depreciation allowance for either its first tax year ending after March 31, 2008, its first tax year ending after December 31, 2008, or its first tax year ending after December 31, 2010, continues to apply to round 3 extension property (as defined in section 168(k)(4)(J)(iv)), unless the corporation makes an election not to apply the section 168(k)(4) election to round 3 extension property. 1040 forms and instructions If a corporation did not make a section 168(k)(4) election for either its first tax year ending after March 31, 2008, its first tax year ending after December 31, 2008, or its first tax year ending after December 31, 2010, the corporation may elect for its first tax year ending after December 31, 2012, to claim pre-2006 unused minimum tax credits in lieu of claiming the special depreciation allowance for only round 3 extension property. 1040 forms and instructions If you make an election to accelerate these credits in lieu of claiming the special depreciation allowance for eligible property, you must not take the 50% special depreciation allowance for the property and must depreciate the basis in the property under MACRS using the straight line method. 1040 forms and instructions See Which Depreciation Method Applies in chapter 4 . 1040 forms and instructions Once made, the election cannot be revoked without IRS consent. 1040 forms and instructions Additional guidance. 1040 forms and instructions   For additional guidance on the election to accelerate the research or minimum tax credit in lieu of claiming the special depreciation allowance, see Rev. 1040 forms and instructions Proc. 1040 forms and instructions 2008-65 on page 1082 of Internal Revenue Bulletin 2008-44, available at www. 1040 forms and instructions irs. 1040 forms and instructions gov/pub/irs-irbs/irb08-44. 1040 forms and instructions pdf, Rev. 1040 forms and instructions Proc. 1040 forms and instructions 2009-16 on page 449 of Internal Revenue Bulletin 2009-06, available at www. 1040 forms and instructions irs. 1040 forms and instructions gov/pub/irs-irbs/irb09-06. 1040 forms and instructions pdf, and Rev. 1040 forms and instructions Proc. 1040 forms and instructions 2009-33 on page 150 of Internal Revenue Bulletin 2009-29, available at www. 1040 forms and instructions irs. 1040 forms and instructions gov/pub/irs-irbs/irb09-29. 1040 forms and instructions pdf. 1040 forms and instructions Also, see Form 3800, General Business Credit; Form 8827, Credit for Prior Year Minimum Tax — Corporations; and related instructions. 1040 forms and instructions   Additional guidance regarding the election to accelerate the minimum tax credit in lieu of claiming the special depreciation allowance for round 2 extension property and round 3 extension property may also be available in later Internal Revenue Bulletins available at www. 1040 forms and instructions irs. 1040 forms and instructions gov/irb. 1040 forms and instructions How Much Can You Deduct? Figure the special depreciation allowance by multiplying the depreciable basis of qualified reuse and recycling property, qualified cellulosic biofuel plant property, qualified disaster assistance property, and certain qualified property acquired after December 31, 2007, by 50%. 1040 forms and instructions For qualified property other than listed property, enter the special allowance on line 14 in Part II of Form 4562. 1040 forms and instructions For qualified property that is listed property, enter the special allowance on line 25 in Part V of Form 4562. 1040 forms and instructions If you place qualified property in service in a short tax year, you can take the full amount of a special depreciation allowance. 1040 forms and instructions Depreciable basis. 1040 forms and instructions   This is the property's cost or other basis multiplied by the percentage of business/investment use, reduced by the total amount of any credits and deductions allocable to the property. 1040 forms and instructions   The following are examples of some credits and deductions that reduce depreciable basis. 1040 forms and instructions Any section 179 deduction. 1040 forms and instructions Any deduction for removal of barriers to the disabled and the elderly. 1040 forms and instructions Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. 1040 forms and instructions Basis adjustment to investment credit property under section 50(c) of the Internal Revenue Code. 1040 forms and instructions   For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. 1040 forms and instructions   For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property in chapter 1 . 1040 forms and instructions For a discussion of business/investment use, see Partial business or investment use under Property Used in Your Business or Income-Producing Activity in chapter 1 . 1040 forms and instructions Depreciating the remaining cost. 1040 forms and instructions   After you figure your special depreciation allowance for your qualified property, you can use the remaining cost to figure your regular MACRS depreciation deduction (discussed in chapter 4 . 1040 forms and instructions Therefore, you must reduce the depreciable basis of the property by the special depreciation allowance before figuring your regular MACRS depreciation deduction. 1040 forms and instructions Example. 1040 forms and instructions On November 1, 2013, Tom Brown bought and placed in service in his business qualified property that cost $450,000. 1040 forms and instructions He did not elect to claim a section 179 deduction. 1040 forms and instructions He deducts 50% of the cost ($225,000) as a special depreciation allowance for 2013. 1040 forms and instructions He uses the remaining $225,000 of cost to figure his regular MACRS depreciation deduction for 2013 and later years. 1040 forms and instructions Like-kind exchanges and involuntary conversions. 1040 forms and instructions   If you acquire qualified property in a like-kind exchange or involuntary conversion, the carryover basis of the acquired property is eligible for a special depreciation allowance. 1040 forms and instructions After you figure your special allowance, you can use the remaining carryover basis to figure your regular MACRS depreciation deduction. 1040 forms and instructions In the year you claim the allowance (the year you place in service the property received in the exchange or dispose of involuntarily converted property), you must reduce the carryover basis of the property by the allowance before figuring your regular MACRS depreciation deduction. 1040 forms and instructions See Figuring the Deduction for Property Acquired in a Nontaxable Exchange , in chapter 4 under How Is the Depreciation Deduction Figured . 1040 forms and instructions The excess basis (the part of the acquired property's basis that exceeds its carryover basis) is also eligible for a special depreciation allowance. 1040 forms and instructions How Can You Elect Not To Claim an Allowance? You can elect, for any class of property, not to deduct any special allowances for all property in such class placed in service during the tax year. 1040 forms and instructions To make an election, attach a statement to your return indicating what election you are making and the class of property for which you are making the election. 1040 forms and instructions When to make election. 1040 forms and instructions   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. 1040 forms and instructions   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). 1040 forms and instructions Attach the election statement to the amended return. 1040 forms and instructions On the amended return, write “Filed pursuant to section 301. 1040 forms and instructions 9100-2. 1040 forms and instructions ” Revoking an election. 1040 forms and instructions   Once you elect not to deduct a special depreciation allowance for a class of property, you cannot revoke the election without IRS consent. 1040 forms and instructions A request to revoke the election is a request for a letter ruling. 1040 forms and instructions If you elect not to have any special allowance apply, the property may be subject to an alternative minimum tax adjustment for depreciation. 1040 forms and instructions When Must You Recapture an Allowance? When you dispose of property for which you claimed a special depreciation allowance, any gain on the disposition is generally recaptured (included in income) as ordinary income up to the amount of the special depreciation allowance previously allowed or allowable. 1040 forms and instructions See When Do You Recapture MACRS Depreciation in chapter 4 or more information. 1040 forms and instructions Recapture of allowance deducted for qualified GO Zone property. 1040 forms and instructions   If, in any year after the year you claim the special depreciation allowance for qualified GO Zone property (including specified GO Zone extension property), the property ceases to be used in the GO Zone, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. 1040 forms and instructions For additional guidance, see Notice 2008-25 on page 484 of Internal Revenue Bulletin 2008-9. 1040 forms and instructions Qualified cellulosic biomass ethanol plant property and qualified cellulosic biofuel plant property. 1040 forms and instructions   If, in any year after the year you claim the special depreciation allowance for any qualified cellulosic biomass ethanol plant property or qualified biofuel plant property, the property ceases to be qualified cellulosic biomass ethanol plant property or qualified biofuel plant property, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. 1040 forms and instructions Recapture of allowance for qualified Recovery Assistance property. 1040 forms and instructions   If, in any year after the year you claim the special depreciation allowance for qualified Recovery Assistance property, the property ceases to be used in the Kansas disaster area, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. 1040 forms and instructions For additional guidance, see Notice 2008-67 on page 307 of Internal Revenue Bulletin 2008-32. 1040 forms and instructions Recapture of allowance for qualified disaster assistance property. 1040 forms and instructions   If, in any year after the year you claim the special depreciation allowance for qualified disaster assistance property, the property ceases to be used in the applicable disaster area, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. 1040 forms and instructions   For additional guidance, see Notice 2008-67 on page 307 of Internal Revenue Bulletin 2008-32. 1040 forms and instructions Prev  Up  Next   Home   More Online Publications