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1040ez 2011 Pdf

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1040ez 2011 Pdf

1040ez 2011 pdf 5. 1040ez 2011 pdf   How To Get Tax Help Table of Contents Low Income Taxpayer Clinics Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. 1040ez 2011 pdf Free help with your tax return. 1040ez 2011 pdf   You can get free help preparing your return nationwide from IRS-certified volunteers. 1040ez 2011 pdf The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. 1040ez 2011 pdf The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. 1040ez 2011 pdf Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. 1040ez 2011 pdf In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. 1040ez 2011 pdf To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. 1040ez 2011 pdf gov, download the IRS2Go app, or call 1-800-906-9887. 1040ez 2011 pdf   As part of the TCE program, AARP offers the Tax-Aide counseling program. 1040ez 2011 pdf To find the nearest AARP Tax-Aide site, visit AARP's website at www. 1040ez 2011 pdf aarp. 1040ez 2011 pdf org/money/taxaide or call 1-888-227-7669. 1040ez 2011 pdf For more information on these programs, go to IRS. 1040ez 2011 pdf gov and enter “VITA” in the search box. 1040ez 2011 pdf Internet. 1040ez 2011 pdf    IRS. 1040ez 2011 pdf gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. 1040ez 2011 pdf Download the free IRS2Go app from the iTunes app store or from Google Play. 1040ez 2011 pdf Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. 1040ez 2011 pdf Check the status of your 2013 refund with the Where's My Refund? application on IRS. 1040ez 2011 pdf gov or download the IRS2Go app and select the Refund Status option. 1040ez 2011 pdf The IRS issues more than 9 out of 10 refunds in less than 21 days. 1040ez 2011 pdf Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. 1040ez 2011 pdf You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. 1040ez 2011 pdf The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. 1040ez 2011 pdf Use the Interactive Tax Assistant (ITA) to research your tax questions. 1040ez 2011 pdf No need to wait on the phone or stand in line. 1040ez 2011 pdf The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. 1040ez 2011 pdf When you reach the response screen, you can print the entire interview and the final response for your records. 1040ez 2011 pdf New subject areas are added on a regular basis. 1040ez 2011 pdf  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. 1040ez 2011 pdf gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. 1040ez 2011 pdf You can use the IRS Tax Map, to search publications and instructions by topic or keyword. 1040ez 2011 pdf The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. 1040ez 2011 pdf When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. 1040ez 2011 pdf Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. 1040ez 2011 pdf You can also ask the IRS to mail a return or an account transcript to you. 1040ez 2011 pdf Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. 1040ez 2011 pdf gov or by calling 1-800-908-9946. 1040ez 2011 pdf Tax return and tax account transcripts are generally available for the current year and the past three years. 1040ez 2011 pdf Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. 1040ez 2011 pdf Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. 1040ez 2011 pdf If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. 1040ez 2011 pdf Check the status of your amended return using Where's My Amended Return? Go to IRS. 1040ez 2011 pdf gov and enter Where's My Amended Return? in the search box. 1040ez 2011 pdf You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. 1040ez 2011 pdf It can take up to 3 weeks from the date you mailed it to show up in our system. 1040ez 2011 pdf Make a payment using one of several safe and convenient electronic payment options available on IRS. 1040ez 2011 pdf gov. 1040ez 2011 pdf Select the Payment tab on the front page of IRS. 1040ez 2011 pdf gov for more information. 1040ez 2011 pdf Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. 1040ez 2011 pdf Figure your income tax withholding with the IRS Withholding Calculator on IRS. 1040ez 2011 pdf gov. 1040ez 2011 pdf Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. 1040ez 2011 pdf Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. 1040ez 2011 pdf gov. 1040ez 2011 pdf Request an Electronic Filing PIN by going to IRS. 1040ez 2011 pdf gov and entering Electronic Filing PIN in the search box. 1040ez 2011 pdf Download forms, instructions and publications, including accessible versions for people with disabilities. 1040ez 2011 pdf Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. 1040ez 2011 pdf gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. 1040ez 2011 pdf An employee can answer questions about your tax account or help you set up a payment plan. 1040ez 2011 pdf Before you visit, check the Office Locator on IRS. 1040ez 2011 pdf gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. 1040ez 2011 pdf If you have a special need, such as a disability, you can request an appointment. 1040ez 2011 pdf Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. 1040ez 2011 pdf Apply for an Employer Identification Number (EIN). 1040ez 2011 pdf Go to IRS. 1040ez 2011 pdf gov and enter Apply for an EIN in the search box. 1040ez 2011 pdf Read the Internal Revenue Code, regulations, or other official guidance. 1040ez 2011 pdf Read Internal Revenue Bulletins. 1040ez 2011 pdf Sign up to receive local and national tax news and more by email. 1040ez 2011 pdf Just click on “subscriptions” above the search box on IRS. 1040ez 2011 pdf gov and choose from a variety of options. 1040ez 2011 pdf Phone. 1040ez 2011 pdf    You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. 1040ez 2011 pdf Download the free IRS2Go app from the iTunes app store or from Google Play. 1040ez 2011 pdf Call to locate the nearest volunteer help site, 1-800-906-9887 or you can use the VITA Locator Tool on IRS. 1040ez 2011 pdf gov, or download the IRS2Go app. 1040ez 2011 pdf Low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. 1040ez 2011 pdf The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. 1040ez 2011 pdf Most VITA and TCE sites offer free electronic filing. 1040ez 2011 pdf Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. 1040ez 2011 pdf Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. 1040ez 2011 pdf Call the automated Where's My Refund? information hotline to check the status of your 2013 refund 24 hours a day, 7 days a week at 1-800-829-1954. 1040ez 2011 pdf If you e-file, you can start checking on the status of your return within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. 1040ez 2011 pdf The IRS issues more than 9 out of 10 refunds in less than 21 days. 1040ez 2011 pdf Where's My Refund? will give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. 1040ez 2011 pdf Before you call this automated hotline, have your 2013 tax return handy so you can enter your social security number, your filing status, and the exact whole dollar amount of your refund. 1040ez 2011 pdf The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. 1040ez 2011 pdf Note, the above information is for our automated hotline. 1040ez 2011 pdf Our live phone and walk-in assistors can research the status of your refund only if it's been 21 days or more since you filed electronically or more than 6 weeks since you mailed your paper return. 1040ez 2011 pdf Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. 1040ez 2011 pdf You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. 1040ez 2011 pdf It can take up to 3 weeks from the date you mailed it to show up in our system. 1040ez 2011 pdf Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, publications, and prior-year forms and instructions (limited to 5 years). 1040ez 2011 pdf You should receive your order within 10 business days. 1040ez 2011 pdf Call TeleTax, 1-800-829-4477, to listen to pre-recorded messages covering general and business tax information. 1040ez 2011 pdf If, between January and April 15, you still have questions about the Form 1040, 1040A, or 1040EZ (like filing requirements, dependents, credits, Schedule D, pensions and IRAs or self-employment taxes), call 1-800-829-1040. 1040ez 2011 pdf Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. 1040ez 2011 pdf The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. 1040ez 2011 pdf These individuals can also contact the IRS through relay services such as the Federal Relay Service. 1040ez 2011 pdf Walk-in. 1040ez 2011 pdf   You can find a selection of forms, publications and services — in-person. 1040ez 2011 pdf Products. 1040ez 2011 pdf You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. 1040ez 2011 pdf Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. 1040ez 2011 pdf Services. 1040ez 2011 pdf You can walk in to your local TAC for face-to-face tax help. 1040ez 2011 pdf An employee can answer questions about your tax account or help you set up a payment plan. 1040ez 2011 pdf Before visiting, use the Office Locator tool on IRS. 1040ez 2011 pdf gov, or choose the Contact Us option on the IRS2Go app and search Local Offices for days and hours of operation, and services provided. 1040ez 2011 pdf Mail. 1040ez 2011 pdf   You can send your order for forms, instructions, and publications to the address below. 1040ez 2011 pdf You should receive a response within 10 business days after your request is received. 1040ez 2011 pdf Internal Revenue Service 1201 N. 1040ez 2011 pdf Mitsubishi Motorway Bloomington, IL 61705-6613    The Taxpayer Advocate Service Is Here to Help You. 1040ez 2011 pdf The Taxpayer Advocate Service (TAS) is your voice at the IRS. 1040ez 2011 pdf Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. 1040ez 2011 pdf   What can TAS do for you? We can offer you free help with IRS problems that you can't resolve on your own. 1040ez 2011 pdf We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. 1040ez 2011 pdf You face (or your business is facing) an immediate threat of adverse action. 1040ez 2011 pdf You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. 1040ez 2011 pdf   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. 1040ez 2011 pdf Here's why we can help: TAS is an independent organization within the IRS. 1040ez 2011 pdf Our advocates know how to work with the IRS. 1040ez 2011 pdf Our services are free and tailored to meet your needs. 1040ez 2011 pdf We have offices in every state, the District of Columbia, and Puerto Rico. 1040ez 2011 pdf   How can you reach us? If you think TAS can help you, call your local advocate, whose number is in your local directory and at Taxpayer Advocate, or call us toll-free at 1-877-777-4778. 1040ez 2011 pdf   How else does TAS help taxpayers?  TAS also works to resolve large-scale, systemic problems that affect many taxpayers. 1040ez 2011 pdf If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System. 1040ez 2011 pdf Low Income Taxpayer Clinics Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals and tax collection disputes. 1040ez 2011 pdf Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. 1040ez 2011 pdf Visit Taxpayer Advocate or see IRS Publication 4134, Low Income Taxpayer Clinic List. 1040ez 2011 pdf Prev  Up  Next   Home   More Online Publications
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Understanding Your CP286 Notice

We send this notice when we approve Form 8716, Election To Have a Tax Year Other Than a Required Tax Year.


What you need to do


You may want to


Answers to Common Questions

What should I do if I want to change my tax year for Form 1065 or Form 1120S to a calendar year filing?
File a final Form 8752, which will terminate your section 444 election. If you have a credit on your account, you must file a final Form 8752 for us to refund the payments to you. You must also file a short period business income tax return with your final Form 8752 (Form 1065 or Form 1120S) ending December 31.

Do I need to file Form 8752 when I don’t owe a payment?
Yes. You must file Form 8752 each year the section 444 election is in effect, even if no payment is due.

What if I am no longer required to file a Form 1065 or Form 1120S? Do I need to ask the IRS to terminate my election?
Yes. You must send a final Form 1065 or Form 1120S, along with a final Form 8752.

Are there any consequences if I don’t file Form 8752 or send in my payment when I file?
Failure to file or failure to pay will result in the termination of your fiscal year election.


Understanding your notice

Your notice may look different from the sample because the information contained in your notice is tailored to your situation.

Notice CP286, Page 1

 

Page Last Reviewed or Updated: 14-Jan-2014

Printable samples of this notice (PDF)

 

 

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The 1040ez 2011 Pdf

1040ez 2011 pdf 4. 1040ez 2011 pdf   Interest Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Allocation of InterestOrder of funds spent. 1040ez 2011 pdf Payments from checking accounts. 1040ez 2011 pdf Amounts paid within 30 days. 1040ez 2011 pdf Optional method for determining date of reallocation. 1040ez 2011 pdf Interest on a segregated account. 1040ez 2011 pdf How to report. 1040ez 2011 pdf Interest You Can DeductStatement. 1040ez 2011 pdf Expenses paid to obtain a mortgage. 1040ez 2011 pdf Prepayment penalty. 1040ez 2011 pdf De minimis OID. 1040ez 2011 pdf Constant-yield method. 1040ez 2011 pdf Loan or mortgage ends. 1040ez 2011 pdf Interest You Cannot DeductPenalties. 1040ez 2011 pdf Who is a key person? Exceptions for pre-June 1997 contracts. 1040ez 2011 pdf Interest allocated to unborrowed policy cash value. 1040ez 2011 pdf Capitalization of Interest When To Deduct InterestPrepaid interest. 1040ez 2011 pdf Discounted loan. 1040ez 2011 pdf Refunds of interest. 1040ez 2011 pdf Prepaid interest. 1040ez 2011 pdf Discounted loan. 1040ez 2011 pdf Tax deficiency. 1040ez 2011 pdf Related person. 1040ez 2011 pdf Below-Market LoansLimit on forgone interest for gift loans of $100,000 or less. 1040ez 2011 pdf Introduction This chapter discusses the tax treatment of business interest expense. 1040ez 2011 pdf Business interest expense is an amount charged for the use of money you borrowed for business activities. 1040ez 2011 pdf Topics - This chapter discusses: Allocation of interest Interest you can deduct Interest you cannot deduct Capitalization of interest When to deduct interest Below-market loans Useful Items - You may want to see: Publication 537 Installment Sales 550 Investment Income and Expenses 936 Home Mortgage Interest Deduction Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch E (Form 1040) Supplemental Income and Loss Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. 1040ez 2011 pdf Sch K-1 (Form 1120S) Shareholder's Share of Income, Deductions, Credits, etc. 1040ez 2011 pdf 1098 Mortgage Interest Statement 3115 Application for Change in Accounting Method 4952 Investment Interest Expense Deduction 8582 Passive Activity Loss Limitations See chapter 12 for information about getting publications and forms. 1040ez 2011 pdf Allocation of Interest The rules for deducting interest vary, depending on whether the loan proceeds are used for business, personal, or investment activities. 1040ez 2011 pdf If you use the proceeds of a loan for more than one type of expense, you must allocate the interest based on the use of the loan's proceeds. 1040ez 2011 pdf Allocate your interest expense to the following categories. 1040ez 2011 pdf Nonpassive trade or business activity interest Passive trade or business activity interest Investment interest Portfolio interest Personal interest In general, you allocate interest on a loan the same way you allocate the loan proceeds. 1040ez 2011 pdf You allocate loan proceeds by tracing disbursements to specific uses. 1040ez 2011 pdf The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. 1040ez 2011 pdf Secured loan. 1040ez 2011 pdf   The allocation of loan proceeds and the related interest is not generally affected by the use of property that secures the loan. 1040ez 2011 pdf Example. 1040ez 2011 pdf You secure a loan with property used in your business. 1040ez 2011 pdf You use the loan proceeds to buy an automobile for personal use. 1040ez 2011 pdf You must allocate interest expense on the loan to personal use (purchase of the automobile) even though the loan is secured by business property. 1040ez 2011 pdf    If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. 1040ez 2011 pdf The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. 1040ez 2011 pdf For more information, see Publication 936. 1040ez 2011 pdf Allocation period. 1040ez 2011 pdf   The period for which a loan is allocated to a particular use begins on the date the proceeds are used and ends on the earlier of the following dates. 1040ez 2011 pdf The date the loan is repaid. 1040ez 2011 pdf The date the loan is reallocated to another use. 1040ez 2011 pdf Proceeds not disbursed to borrower. 1040ez 2011 pdf   Even if the lender disburses the loan proceeds to a third party, the allocation of the loan is still based on your use of the funds. 1040ez 2011 pdf This applies whether you pay for property, services, or anything else by incurring a loan, or you take property subject to a debt. 1040ez 2011 pdf Proceeds deposited in borrower's account. 1040ez 2011 pdf   Treat loan proceeds deposited in an account as property held for investment. 1040ez 2011 pdf It does not matter whether the account pays interest. 1040ez 2011 pdf Any interest you pay on the loan is investment interest expense. 1040ez 2011 pdf If you withdraw the proceeds of the loan, you must reallocate the loan based on the use of the funds. 1040ez 2011 pdf Example. 1040ez 2011 pdf Celina, a calendar-year taxpayer, borrows $100,000 on January 4 and immediately uses the proceeds to open a checking account. 1040ez 2011 pdf No other amounts are deposited in the account during the year and no part of the loan principal is repaid during the year. 1040ez 2011 pdf On April 2, Celina uses $20,000 from the checking account for a passive activity expenditure. 1040ez 2011 pdf On September 4, Celina uses an additional $40,000 from the account for personal purposes. 1040ez 2011 pdf Under the interest allocation rules, the entire $100,000 loan is treated as property held for investment for the period from January 4 through April 1. 1040ez 2011 pdf From April 2 through September 3, Celina must treat $20,000 of the loan as used in the passive activity and $80,000 of the loan as property held for investment. 1040ez 2011 pdf From September 4 through December 31, she must treat $40,000 of the loan as used for personal purposes, $20,000 as used in the passive activity, and $40,000 as property held for investment. 1040ez 2011 pdf Order of funds spent. 1040ez 2011 pdf   Generally, you treat loan proceeds deposited in an account as used (spent) before either of the following amounts. 1040ez 2011 pdf Any unborrowed amounts held in the same account. 1040ez 2011 pdf Any amounts deposited after these loan proceeds. 1040ez 2011 pdf Example. 1040ez 2011 pdf On January 9, Olena opened a checking account, depositing $500 of the proceeds of Loan A and $1,000 of unborrowed funds. 1040ez 2011 pdf The following table shows the transactions in her account during the tax year. 1040ez 2011 pdf Date Transaction January 9 $500 proceeds of Loan A and $1,000 unborrowed funds deposited January 14 $500 proceeds of Loan B  deposited February 19 $800 used for personal purposes February 27 $700 used for passive activity June 19 $1,000 proceeds of Loan C  deposited November 20 $800 used for an investment December 18 $600 used for personal purposes Olena treats the $800 used for personal purposes as made from the $500 proceeds of Loan A and $300 of the proceeds of Loan B. 1040ez 2011 pdf She treats the $700 used for a passive activity as made from the remaining $200 proceeds of Loan B and $500 of unborrowed funds. 1040ez 2011 pdf She treats the $800 used for an investment as made entirely from the proceeds of Loan C. 1040ez 2011 pdf She treats the $600 used for personal purposes as made from the remaining $200 proceeds of Loan C and $400 of unborrowed funds. 1040ez 2011 pdf For the periods during which loan proceeds are held in the account, Olena treats them as property held for investment. 1040ez 2011 pdf Payments from checking accounts. 1040ez 2011 pdf   Generally, you treat a payment from a checking or similar account as made at the time the check is written if you mail or deliver it to the payee within a reasonable period after you write it. 1040ez 2011 pdf You can treat checks written on the same day as written in any order. 1040ez 2011 pdf Amounts paid within 30 days. 1040ez 2011 pdf   If you receive loan proceeds in cash or if the loan proceeds are deposited in an account, you can treat any payment (up to the amount of the proceeds) made from any account you own, or from cash, as made from those proceeds. 1040ez 2011 pdf This applies to any payment made within 30 days before or after the proceeds are received in cash or deposited in your account. 1040ez 2011 pdf   If the loan proceeds are deposited in an account, you can apply this rule even if the rules stated earlier under Order of funds spent would otherwise require you to treat the proceeds as used for other purposes. 1040ez 2011 pdf If you apply this rule to any payments, disregard those payments (and the proceeds from which they are made) when applying the rules stated under Order of funds spent. 1040ez 2011 pdf   If you received the loan proceeds in cash, you can treat the payment as made on the date you received the cash instead of the date you actually made the payment. 1040ez 2011 pdf Example. 1040ez 2011 pdf Giovanni gets a loan of $1,000 on August 4 and receives the proceeds in cash. 1040ez 2011 pdf Giovanni deposits $1,500 in an account on August 18 and on August 28 writes a check on the account for a passive activity expense. 1040ez 2011 pdf Also, Giovanni deposits his paycheck, deposits other loan proceeds, and pays his bills during the same period. 1040ez 2011 pdf Regardless of these other transactions, Giovanni can treat $1,000 of the deposit he made on August 18 as being paid on August 4 from the loan proceeds. 1040ez 2011 pdf In addition, Giovanni can treat the passive activity expense he paid on August 28 as made from the $1,000 loan proceeds treated as deposited in the account. 1040ez 2011 pdf Optional method for determining date of reallocation. 1040ez 2011 pdf   You can use the following method to determine the date loan proceeds are reallocated to another use. 1040ez 2011 pdf You can treat all payments from loan proceeds in the account during any month as taking place on the later of the following dates. 1040ez 2011 pdf The first day of that month. 1040ez 2011 pdf The date the loan proceeds are deposited in the account. 1040ez 2011 pdf However, you can use this optional method only if you treat all payments from the account during the same calendar month in the same way. 1040ez 2011 pdf Interest on a segregated account. 1040ez 2011 pdf   If you have an account that contains only loan proceeds and interest earned on the account, you can treat any payment from that account as being made first from the interest. 1040ez 2011 pdf When the interest earned is used up, any remaining payments are from loan proceeds. 1040ez 2011 pdf Example. 1040ez 2011 pdf You borrowed $20,000 and used the proceeds of this loan to open a new savings account. 1040ez 2011 pdf When the account had earned interest of $867, you withdrew $20,000 for personal purposes. 1040ez 2011 pdf You can treat the withdrawal as coming first from the interest earned on the account, $867, and then from the loan proceeds, $19,133 ($20,000 − $867). 1040ez 2011 pdf All the interest charged on the loan from the time it was deposited in the account until the time of the withdrawal is investment interest expense. 1040ez 2011 pdf The interest charged on the part of the proceeds used for personal purposes ($19,133) from the time you withdrew it until you either repay it or reallocate it to another use is personal interest expense. 1040ez 2011 pdf The interest charged on the loan proceeds you left in the account ($867) continues to be investment interest expense until you either repay it or reallocate it to another use. 1040ez 2011 pdf Loan repayment. 1040ez 2011 pdf   When you repay any part of a loan allocated to more than one use, treat it as being repaid in the following order. 1040ez 2011 pdf Personal use. 1040ez 2011 pdf Investments and passive activities (other than those included in (3)). 1040ez 2011 pdf Passive activities in connection with a rental real estate activity in which you actively participate. 1040ez 2011 pdf Former passive activities. 1040ez 2011 pdf Trade or business use and expenses for certain low-income housing projects. 1040ez 2011 pdf Line of credit (continuous borrowings). 1040ez 2011 pdf   The following rules apply if you have a line of credit or similar arrangement. 1040ez 2011 pdf Treat all borrowed funds on which interest accrues at the same fixed or variable rate as a single loan. 1040ez 2011 pdf Treat borrowed funds or parts of borrowed funds on which interest accrues at different fixed or variable rates as different loans. 1040ez 2011 pdf Treat these loans as repaid in the order shown on the loan agreement. 1040ez 2011 pdf Loan refinancing. 1040ez 2011 pdf   Allocate the replacement loan to the same uses to which the repaid loan was allocated. 1040ez 2011 pdf Make the allocation only to the extent you use the proceeds of the new loan to repay any part of the original loan. 1040ez 2011 pdf Debt-financed distribution. 1040ez 2011 pdf   A debt-financed distribution occurs when a partnership or S corporation borrows funds and allocates those funds to distributions made to partners or shareholders. 1040ez 2011 pdf The manner in which you report the interest expense associated with the distributed debt proceeds depends on your use of those proceeds. 1040ez 2011 pdf How to report. 1040ez 2011 pdf   If the proceeds were used in a nonpassive trade or business activity, report the interest on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership or S corporation in column (a) and the amount in column (h). 1040ez 2011 pdf If the proceeds were used in a passive activity, follow the Instructions for Form 8582, Passive Activity Loss Limitations, to determine the amount of interest expense that can be reported on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership in column (a) and the amount in column (f). 1040ez 2011 pdf If the proceeds were used in an investment activity, enter the interest on Form 4952. 1040ez 2011 pdf If the proceeds are used for personal purposes, the interest is generally not deductible. 1040ez 2011 pdf Interest You Can Deduct You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your trade or business. 1040ez 2011 pdf Interest relates to your trade or business if you use the proceeds of the loan for a trade or business expense. 1040ez 2011 pdf It does not matter what type of property secures the loan. 1040ez 2011 pdf You can deduct interest on a debt only if you meet all the following requirements. 1040ez 2011 pdf You are legally liable for that debt. 1040ez 2011 pdf Both you and the lender intend that the debt be repaid. 1040ez 2011 pdf You and the lender have a true debtor-creditor relationship. 1040ez 2011 pdf Partial liability. 1040ez 2011 pdf   If you are liable for part of a business debt, you can deduct only your share of the total interest paid or accrued. 1040ez 2011 pdf Example. 1040ez 2011 pdf You and your brother borrow money. 1040ez 2011 pdf You are liable for 50% of the note. 1040ez 2011 pdf You use your half of the loan in your business, and you make one-half of the loan payments. 1040ez 2011 pdf You can deduct your half of the total interest payments as a business deduction. 1040ez 2011 pdf Mortgage. 1040ez 2011 pdf   Generally, mortgage interest paid or accrued on real estate you own legally or equitably is deductible. 1040ez 2011 pdf However, rather than deducting the interest currently, you may have to add it to the cost basis of the property as explained later under Capitalization of Interest. 1040ez 2011 pdf Statement. 1040ez 2011 pdf   If you paid $600 or more of mortgage interest (including certain points) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement. 1040ez 2011 pdf You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. 1040ez 2011 pdf A governmental unit is a person for purposes of furnishing the statement. 1040ez 2011 pdf   If you receive a refund of interest you overpaid in an earlier year, this amount will be reported in box 3 of Form 1098. 1040ez 2011 pdf You cannot deduct this amount. 1040ez 2011 pdf For information on how to report this refund, see Refunds of interest, later in this chapter. 1040ez 2011 pdf Expenses paid to obtain a mortgage. 1040ez 2011 pdf   Certain expenses you pay to obtain a mortgage cannot be deducted as interest. 1040ez 2011 pdf These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses. 1040ez 2011 pdf If the property mortgaged is business or income-producing property, you can amortize the costs over the life of the mortgage. 1040ez 2011 pdf Prepayment penalty. 1040ez 2011 pdf   If you pay off your mortgage early and pay the lender a penalty for doing this, you can deduct the penalty as interest. 1040ez 2011 pdf Interest on employment tax deficiency. 1040ez 2011 pdf   Interest charged on employment taxes assessed on your business is deductible. 1040ez 2011 pdf Original issue discount (OID). 1040ez 2011 pdf   OID is a form of interest. 1040ez 2011 pdf A loan (mortgage or other debt) generally has OID when its proceeds are less than its principal amount. 1040ez 2011 pdf The OID is the difference between the stated redemption price at maturity and the issue price of the loan. 1040ez 2011 pdf   A loan's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on it other than qualified stated interest. 1040ez 2011 pdf Qualified stated interest is stated interest that is unconditionally payable in cash or property (other than another loan of the issuer) at least annually over the term of the loan at a single fixed rate. 1040ez 2011 pdf You generally deduct OID over the term of the loan. 1040ez 2011 pdf Figure the amount to deduct each year using the constant-yield method, unless the OID on the loan is de minimis. 1040ez 2011 pdf De minimis OID. 1040ez 2011 pdf   The OID is de minimis if it is less than one-fourth of 1% (. 1040ez 2011 pdf 0025) of the stated redemption price of the loan at maturity multiplied by the number of full years from the date of original issue to maturity (the term of the loan). 1040ez 2011 pdf   If the OID is de minimis, you can choose one of the following ways to figure the amount you can deduct each year. 1040ez 2011 pdf On a constant-yield basis over the term of the loan. 1040ez 2011 pdf On a straight-line basis over the term of the loan. 1040ez 2011 pdf In proportion to stated interest payments. 1040ez 2011 pdf In its entirety at maturity of the loan. 1040ez 2011 pdf You make this choice by deducting the OID in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued. 1040ez 2011 pdf Example. 1040ez 2011 pdf On January 1, 2013, you took out a $100,000 discounted loan and received $98,500 in proceeds. 1040ez 2011 pdf The loan will mature on January 1, 2023 (a 10-year term), and the $100,000 principal is payable on that date. 1040ez 2011 pdf Interest of $10,000 is payable on January 1 of each year, beginning January 1, 2014. 1040ez 2011 pdf The $1,500 OID on the loan is de minimis because it is less than $2,500 ($100,000 × . 1040ez 2011 pdf 0025 × 10). 1040ez 2011 pdf You choose to deduct the OID on a straight-line basis over the term of the loan. 1040ez 2011 pdf Beginning in 2013, you can deduct $150 each year for 10 years. 1040ez 2011 pdf Constant-yield method. 1040ez 2011 pdf   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. 1040ez 2011 pdf You figure your deduction for the first year using the following steps. 1040ez 2011 pdf Determine the issue price of the loan. 1040ez 2011 pdf Generally, this equals the proceeds of the loan. 1040ez 2011 pdf If you paid points on the loan (as discussed later), the issue price generally is the difference between the proceeds and the points. 1040ez 2011 pdf Multiply the result in (1) by the yield to maturity. 1040ez 2011 pdf Subtract any qualified stated interest payments from the result in (2). 1040ez 2011 pdf This is the OID you can deduct in the first year. 1040ez 2011 pdf   To figure your deduction in any subsequent year, follow the above steps, except determine the adjusted issue price in step (1). 1040ez 2011 pdf To get the adjusted issue price, add to the issue price any OID previously deducted. 1040ez 2011 pdf Then follow steps (2) and (3) above. 1040ez 2011 pdf   The yield to maturity is generally shown in the literature you receive from your lender. 1040ez 2011 pdf If you do not have this information, consult your lender or tax advisor. 1040ez 2011 pdf In general, the yield to maturity is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the principal amount of the loan. 1040ez 2011 pdf Example. 1040ez 2011 pdf The facts are the same as in the previous example, except that you deduct the OID on a constant yield basis over the term of the loan. 1040ez 2011 pdf The yield to maturity on your loan is 10. 1040ez 2011 pdf 2467%, compounded annually. 1040ez 2011 pdf For 2013, you can deduct $93 [($98,500 × . 1040ez 2011 pdf 102467) − $10,000]. 1040ez 2011 pdf For 2014, you can deduct $103 [($98,593 × . 1040ez 2011 pdf 102467) − $10,000]. 1040ez 2011 pdf Loan or mortgage ends. 1040ez 2011 pdf   If your loan or mortgage ends, you may be able to deduct any remaining OID in the tax year in which the loan or mortgage ends. 1040ez 2011 pdf A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. 1040ez 2011 pdf If you refinance with the original lender, you generally cannot deduct the remaining OID in the year in which the refinancing occurs, but you may be able to deduct it over the term of the new mortgage or loan. 1040ez 2011 pdf See Interest paid with funds borrowed from original lender under Interest You Cannot Deduct, later. 1040ez 2011 pdf Points. 1040ez 2011 pdf   The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a loan or a mortgage. 1040ez 2011 pdf These charges are also called loan origination fees, maximum loan charges, discount points, or premium charges. 1040ez 2011 pdf If any of these charges (points) are solely for the use of money, they are interest. 1040ez 2011 pdf   Because points are prepaid interest, you generally cannot deduct the full amount in the year paid. 1040ez 2011 pdf However, you can choose to fully deduct points in the year paid if you meet certain tests. 1040ez 2011 pdf For exceptions to the general rule, see Publication 936. 1040ez 2011 pdf The points reduce the issue price of the loan and result in original issue discount (OID), deductible as explained in the preceding discussion. 1040ez 2011 pdf Partial payments on a nontax debt. 1040ez 2011 pdf   If you make partial payments on a debt (other than a debt owed the IRS), the payments are applied, in general, first to interest and any remainder to principal. 1040ez 2011 pdf You can deduct only the interest. 1040ez 2011 pdf This rule does not apply when it can be inferred that the borrower and lender understood that a different allocation of the payments would be made. 1040ez 2011 pdf Installment purchase. 1040ez 2011 pdf   If you make an installment purchase of business property, the contract between you and the seller generally provides for the payment of interest. 1040ez 2011 pdf If no interest or a low rate of interest is charged under the contract, a portion of the stated principal amount payable under the contract may be recharacterized as interest (unstated interest). 1040ez 2011 pdf The amount recharacterized as interest reduces your basis in the property and increases your interest expense. 1040ez 2011 pdf For more information on installment sales and unstated interest, see Publication 537. 1040ez 2011 pdf Interest You Cannot Deduct Certain interest payments cannot be deducted. 1040ez 2011 pdf In addition, certain other expenses that may seem to be interest but are not, cannot be deducted as interest. 1040ez 2011 pdf You cannot currently deduct interest that must be capitalized, and you generally cannot deduct personal interest. 1040ez 2011 pdf Interest paid with funds borrowed from original lender. 1040ez 2011 pdf   If you use the cash method of accounting, you cannot deduct interest you pay with funds borrowed from the original lender through a second loan, an advance, or any other arrangement similar to a loan. 1040ez 2011 pdf You can deduct the interest expense once you start making payments on the new loan. 1040ez 2011 pdf   When you make a payment on the new loan, you first apply the payment to interest and then to the principal. 1040ez 2011 pdf All amounts you apply to the interest on the first loan are deductible, along with any interest you pay on the second loan, subject to any limits that apply. 1040ez 2011 pdf Capitalized interest. 1040ez 2011 pdf   You cannot currently deduct interest you are required to capitalize under the uniform capitalization rules. 1040ez 2011 pdf See Capitalization of Interest, later. 1040ez 2011 pdf In addition, if you buy property and pay interest owed by the seller (for example, by assuming the debt and any interest accrued on the property), you cannot deduct the interest. 1040ez 2011 pdf Add this interest to the basis of the property. 1040ez 2011 pdf Commitment fees or standby charges. 1040ez 2011 pdf   Fees you incur to have business funds available on a standby basis, but not for the actual use of the funds, are not deductible as interest payments. 1040ez 2011 pdf You may be able to deduct them as business expenses. 1040ez 2011 pdf   If the funds are for inventory or certain property used in your business, the fees are indirect costs and you generally must capitalize them under the uniform capitalization rules. 1040ez 2011 pdf See Capitalization of Interest, later. 1040ez 2011 pdf Interest on income tax. 1040ez 2011 pdf   Interest charged on income tax assessed on your individual income tax return is not a business deduction even though the tax due is related to income from your trade or business. 1040ez 2011 pdf Treat this interest as a business deduction only in figuring a net operating loss deduction. 1040ez 2011 pdf Penalties. 1040ez 2011 pdf   Penalties on underpaid deficiencies and underpaid estimated tax are not interest. 1040ez 2011 pdf You cannot deduct them. 1040ez 2011 pdf Generally, you cannot deduct any fines or penalties. 1040ez 2011 pdf Interest on loans with respect to life insurance policies. 1040ez 2011 pdf   You generally cannot deduct interest on a debt incurred with respect to any life insurance, annuity, or endowment contract that covers any individual unless that individual is a key person. 1040ez 2011 pdf   If the policy or contract covers a key person, you can deduct the interest on up to $50,000 of debt for that person. 1040ez 2011 pdf However, the deduction for any month cannot be more than the interest figured using Moody's Composite Yield on Seasoned Corporate Bonds (formerly known as Moody's Corporate Bond Yield Average-Monthly Average Corporates) (Moody's rate) for that month. 1040ez 2011 pdf Who is a key person?   A key person is an officer or 20% owner. 1040ez 2011 pdf However, the number of individuals you can treat as key persons is limited to the greater of the following. 1040ez 2011 pdf Five individuals. 1040ez 2011 pdf The lesser of 5% of the total officers and employees of the company or 20 individuals. 1040ez 2011 pdf Exceptions for pre-June 1997 contracts. 1040ez 2011 pdf   You can generally deduct the interest if the contract was issued before June 9, 1997, and the covered individual is someone other than an employee, officer, or someone financially interested in your business. 1040ez 2011 pdf If the contract was purchased before June 21, 1986, you can generally deduct the interest no matter who is covered by the contract. 1040ez 2011 pdf Interest allocated to unborrowed policy cash value. 1040ez 2011 pdf   Corporations and partnerships generally cannot deduct any interest expense allocable to unborrowed cash values of life insurance, annuity, or endowment contracts. 1040ez 2011 pdf This rule applies to contracts issued after June 8, 1997, that cover someone other than an officer, director, employee, or 20% owner. 1040ez 2011 pdf For more information, see section 264(f) of the Internal Revenue Code. 1040ez 2011 pdf Capitalization of Interest Under the uniform capitalization rules, you generally must capitalize interest on debt equal to your expenditures to produce real property or certain tangible personal property. 1040ez 2011 pdf The property must be produced by you for use in your trade or business or for sale to customers. 1040ez 2011 pdf You cannot capitalize interest related to property that you acquire in any other manner. 1040ez 2011 pdf Interest you paid or incurred during the production period must be capitalized if the property produced is designated property. 1040ez 2011 pdf Designated property is any of the following. 1040ez 2011 pdf Real property. 1040ez 2011 pdf Tangible personal property with a class life of 20 years or more. 1040ez 2011 pdf Tangible personal property with an estimated production period of more than 2 years. 1040ez 2011 pdf Tangible personal property with an estimated production period of more than 1 year if the estimated cost of production is more than $1 million. 1040ez 2011 pdf Property you produce. 1040ez 2011 pdf   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow it. 1040ez 2011 pdf Treat property produced for you under a contract as produced by you up to the amount you pay or incur for the property. 1040ez 2011 pdf Carrying charges. 1040ez 2011 pdf   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. 1040ez 2011 pdf You can choose to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. 1040ez 2011 pdf For more information, see chapter 7. 1040ez 2011 pdf Capitalized interest. 1040ez 2011 pdf   Treat capitalized interest as a cost of the property produced. 1040ez 2011 pdf You recover your interest when you sell or use the property. 1040ez 2011 pdf If the property is inventory, recover capitalized interest through cost of goods sold. 1040ez 2011 pdf If the property is used in your trade or business, recover capitalized interest through an adjustment to basis, depreciation, amortization, or other method. 1040ez 2011 pdf Partnerships and S corporations. 1040ez 2011 pdf   The interest capitalization rules are applied first at the partnership or S corporation level. 1040ez 2011 pdf The rules are then applied at the partners' or shareholders' level to the extent the partnership or S corporation has insufficient debt to support the production or construction costs. 1040ez 2011 pdf   If you are a partner or a shareholder, you may have to capitalize interest you incur during the tax year for the production costs of the partnership or S corporation. 1040ez 2011 pdf You may also have to capitalize interest incurred by the partnership or S corporation for your own production costs. 1040ez 2011 pdf To properly capitalize interest under these rules, you must be given the required information in an attachment to the Schedule K-1 you receive from the partnership or S corporation. 1040ez 2011 pdf Additional information. 1040ez 2011 pdf   The procedures for applying the uniform capitalization rules are beyond the scope of this publication. 1040ez 2011 pdf For more information, see sections 1. 1040ez 2011 pdf 263A-8 through 1. 1040ez 2011 pdf 263A-15 of the regulations and Notice 88-99. 1040ez 2011 pdf Notice 88-99 is in Cumulative Bulletin 1988-2. 1040ez 2011 pdf When To Deduct Interest If the uniform capitalization rules, discussed under Capitalization of Interest, earlier, do not apply to you, deduct interest as follows. 1040ez 2011 pdf Cash method. 1040ez 2011 pdf   Under the cash method, you can generally deduct only the interest you actually paid during the tax year. 1040ez 2011 pdf You cannot deduct a promissory note you gave as payment because it is a promise to pay and not an actual payment. 1040ez 2011 pdf Prepaid interest. 1040ez 2011 pdf   You generally cannot deduct any interest paid before the year it is due. 1040ez 2011 pdf Interest paid in advance can be deducted only in the tax year in which it is due. 1040ez 2011 pdf Discounted loan. 1040ez 2011 pdf   If interest or a discount is subtracted from your loan proceeds, it is not a payment of interest and you cannot deduct it when you get the loan. 1040ez 2011 pdf For more information, see Original issue discount (OID) under Interest You Can Deduct, earlier. 1040ez 2011 pdf Refunds of interest. 1040ez 2011 pdf   If you pay interest and then receive a refund in the same tax year of any part of the interest, reduce your interest deduction by the refund. 1040ez 2011 pdf If you receive the refund in a later tax year, include the refund in your income to the extent the deduction for the interest reduced your tax. 1040ez 2011 pdf Accrual method. 1040ez 2011 pdf   Under an accrual method, you can deduct only interest that has accrued during the tax year. 1040ez 2011 pdf Prepaid interest. 1040ez 2011 pdf   See Prepaid interest, earlier. 1040ez 2011 pdf Discounted loan. 1040ez 2011 pdf   See Discounted loan, earlier. 1040ez 2011 pdf Tax deficiency. 1040ez 2011 pdf   If you contest a federal income tax deficiency, interest does not accrue until the tax year the final determination of liability is made. 1040ez 2011 pdf If you do not contest the deficiency, then the interest accrues in the year the tax was asserted and agreed to by you. 1040ez 2011 pdf   However, if you contest but pay the proposed tax deficiency and interest, and you do not designate the payment as a cash bond, then the interest is deductible in the year paid. 1040ez 2011 pdf Related person. 1040ez 2011 pdf   If you use an accrual method, you cannot deduct interest owed to a related person who uses the cash method until payment is made and the interest is includible in the gross income of that person. 1040ez 2011 pdf The relationship is determined as of the end of the tax year for which the interest would otherwise be deductible. 1040ez 2011 pdf See section 267 of the Internal Revenue Code for more information. 1040ez 2011 pdf Below-Market Loans If you receive a below-market gift or demand loan and use the proceeds in your trade or business, you may be able to deduct the forgone interest. 1040ez 2011 pdf See Treatment of gift and demand loans, later, in this discussion. 1040ez 2011 pdf A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. 1040ez 2011 pdf A gift or demand loan that is a below-market loan generally is considered an arm's-length transaction in which you, the borrower, are considered as having received both the following. 1040ez 2011 pdf A loan in exchange for a note that requires the payment of interest at the applicable federal rate. 1040ez 2011 pdf An additional payment in an amount equal to the forgone interest. 1040ez 2011 pdf The additional payment is treated as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. 1040ez 2011 pdf Forgone interest. 1040ez 2011 pdf   For any period, forgone interest is The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. 1040ez 2011 pdf Applicable federal rates are published by the IRS each month in the Internal Revenue Bulletin. 1040ez 2011 pdf Internal Revenue Bulletins are available on the IRS web site at www. 1040ez 2011 pdf irs. 1040ez 2011 pdf gov/irb. 1040ez 2011 pdf You can also contact an IRS office to get these rates. 1040ez 2011 pdf Loans subject to the rules. 1040ez 2011 pdf   The rules for below-market loans apply to the following. 1040ez 2011 pdf Gift loans (below-market loans where the forgone interest is in the nature of a gift). 1040ez 2011 pdf Compensation-related loans (below-market loans between an employer and an employee or between an independent contractor and a person for whom the contractor provides services). 1040ez 2011 pdf Corporation-shareholder loans. 1040ez 2011 pdf Tax avoidance loans (below-market loans where the avoidance of federal tax is one of the main purposes of the interest arrangement). 1040ez 2011 pdf Loans to qualified continuing care facilities under a continuing care contract (made after October 11, 1985). 1040ez 2011 pdf   Except as noted in (5) above, these rules apply to demand loans (loans payable in full at any time upon the lender's demand) outstanding after June 6, 1984, and to term loans (loans that are not demand loans) made after that date. 1040ez 2011 pdf Treatment of gift and demand loans. 1040ez 2011 pdf   If you receive a below-market gift loan or demand loan, you are treated as receiving an additional payment (as a gift, dividend, etc. 1040ez 2011 pdf ) equal to the forgone interest on the loan. 1040ez 2011 pdf You are then treated as transferring this amount back to the lender as interest. 1040ez 2011 pdf These transfers are considered to occur annually, generally on December 31. 1040ez 2011 pdf If you use the loan proceeds in your trade or business, you can deduct the forgone interest each year as a business interest expense. 1040ez 2011 pdf The lender must report it as interest income. 1040ez 2011 pdf Limit on forgone interest for gift loans of $100,000 or less. 1040ez 2011 pdf   For gift loans between individuals, forgone interest treated as transferred back to the lender is limited to the borrower's net investment income for the year. 1040ez 2011 pdf This limit applies if the outstanding loans between the lender and borrower total $100,000 or less. 1040ez 2011 pdf If the borrower's net investment income is $1,000 or less, it is treated as zero. 1040ez 2011 pdf This limit does not apply to a loan if the avoidance of any federal tax is one of the main purposes of the interest arrangement. 1040ez 2011 pdf Treatment of term loans. 1040ez 2011 pdf   If you receive a below-market term loan other than a gift or demand loan, you are treated as receiving an additional cash payment (as a dividend, etc. 1040ez 2011 pdf ) on the date the loan is made. 1040ez 2011 pdf This payment is equal to the loan amount minus the present value, at the applicable federal rate, of all payments due under the loan. 1040ez 2011 pdf The same amount is treated as original issue discount on the loan. 1040ez 2011 pdf See Original issue discount (OID) under Interest You Can Deduct, earlier. 1040ez 2011 pdf Exceptions for loans of $10,000 or less. 1040ez 2011 pdf   The rules for below-market loans do not apply to any day on which the total outstanding loans between the borrower and lender is $10,000 or less. 1040ez 2011 pdf This exception applies only to the following. 1040ez 2011 pdf Gift loans between individuals if the loan is not directly used to buy or carry income-producing assets. 1040ez 2011 pdf Compensation-related loans or corporation-shareholder loans if the avoidance of any federal tax is not a principal purpose of the interest arrangement. 1040ez 2011 pdf This exception does not apply to a term loan described in (2) above that was previously subject to the below-market loan rules. 1040ez 2011 pdf Those rules will continue to apply even if the outstanding balance is reduced to $10,000 or less. 1040ez 2011 pdf Exceptions for loans without significant tax effect. 1040ez 2011 pdf   The following loans are specifically exempted from the rules for below-market loans because their interest arrangements do not have a significant effect on the federal tax liability of the borrower or the lender. 1040ez 2011 pdf Loans made available by lenders to the general public on the same terms and conditions that are consistent with the lender's customary business practices. 1040ez 2011 pdf Loans subsidized by a federal, state, or municipal government that are made available under a program of general application to the public. 1040ez 2011 pdf Certain employee-relocation loans. 1040ez 2011 pdf Certain loans to or from a foreign person, unless the interest income would be effectively connected with the conduct of a U. 1040ez 2011 pdf S. 1040ez 2011 pdf trade or business and not exempt from U. 1040ez 2011 pdf S. 1040ez 2011 pdf tax under an income tax treaty. 1040ez 2011 pdf Any other loan if the taxpayer can show that the interest arrangement has no significant effect on the federal tax liability of the lender or the borrower. 1040ez 2011 pdf Whether an interest arrangement has a significant effect on the federal tax liability of the lender or the borrower will be determined by all the facts and circumstances. 1040ez 2011 pdf Consider all the following factors. 1040ez 2011 pdf Whether items of income and deduction generated by the loan offset each other. 1040ez 2011 pdf The amount of the items. 1040ez 2011 pdf The cost of complying with the below-market loan provisions if they were to apply. 1040ez 2011 pdf Any reasons, other than taxes, for structuring the transaction as a below-market loan. 1040ez 2011 pdf Exception for loans to qualified continuing care facilities. 1040ez 2011 pdf   The below-market interest rules do not apply to a loan owed by a qualified continuing care facility under a continuing care contract if the lender or lender's spouse is age 62 or older by the end of the calendar year. 1040ez 2011 pdf A qualified continuing care facility is one or more facilities (excluding nursing homes) meeting the requirements listed below. 1040ez 2011 pdf Designed to provide services under continuing care contracts (defined below). 1040ez 2011 pdf Includes an independent living unit, and either an assisted living or nursing facility, or both. 1040ez 2011 pdf Substantially all of the independent living unit residents are covered by continuing care contracts. 1040ez 2011 pdf A continuing care contract is a written contract between an individual and a qualified continuing care facility that includes all of the following conditions. 1040ez 2011 pdf The individual or individual's spouse must be entitled to use the facility for the rest of their life or lives. 1040ez 2011 pdf The individual or individual's spouse will be provided with housing, as appropriate for the health of the individual or individual's spouse in an: independent living unit (which has additional available facilities outside the unit for the provision of meals and other personal care), and assisted living or nursing facility available in the continuing care facility. 1040ez 2011 pdf The individual or individual's spouse will be provided with assisted living or nursing care available in the continuing care facility, as required for the health of the individual or the individual's spouse. 1040ez 2011 pdf For more information, see section 7872(h) of the Internal Revenue Code. 1040ez 2011 pdf Sale or exchange of property. 1040ez 2011 pdf   Different rules generally apply to a loan connected with the sale or exchange of property. 1040ez 2011 pdf If the loan does not provide adequate stated interest, part of the principal payment may be considered interest. 1040ez 2011 pdf However, there are exceptions that may require you to apply the below-market interest rate rules to these loans. 1040ez 2011 pdf See Unstated Interest and Original Issue Discount (OID) in Publication 537. 1040ez 2011 pdf More information. 1040ez 2011 pdf   For more information on below-market loans, see section 7872 of the Internal Revenue Code and section 1. 1040ez 2011 pdf 7872-5 of the regulations. 1040ez 2011 pdf Prev  Up  Next   Home   More Online Publications