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2012 1040a Form

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2012 1040a Form

2012 1040a form Publication 561 - Main Contents Table of Contents What Is Fair Market Value (FMV)?Factors. 2012 1040a form Stock. 2012 1040a form Options. 2012 1040a form Determining Fair Market Value Problems in Determining Fair Market Value Valuation of Various Kinds of PropertyHousehold Goods Used Clothing Jewelry and Gems Paintings, Antiques, and Other Objects of Art Collections Cars, Boats, and Aircraft Inventory Patents Stocks and Bonds Real Estate Interest in a Business Annuities, Interests for Life or Terms of Years, Remainders, and Reversions Certain Life Insurance and Annuity Contracts Partial Interest in Property Not in Trust AppraisalsDeductions of More Than $5,000 Deductions of More Than $500,000 Qualified Appraisal Form 8283 Internal Revenue Service Review of Appraisals Penalty How To Get Tax HelpLow income tax clinics (LITCs). 2012 1040a form What Is Fair Market Value (FMV)? To figure how much you may deduct for property that you contribute, you must first determine its fair market value on the date of the contribution. 2012 1040a form Fair market value. 2012 1040a form   Fair market value (FMV) is the price that property would sell for on the open market. 2012 1040a form It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts. 2012 1040a form If you put a restriction on the use of property you donate, the FMV must reflect that restriction. 2012 1040a form Example 1. 2012 1040a form If you give used clothing to the Salvation Army, the FMV would be the price that typical buyers actually pay for clothing of this age, condition, style, and use. 2012 1040a form Usually, such items are worth far less than what you paid for them. 2012 1040a form Example 2. 2012 1040a form If you donate land and restrict its use to agricultural purposes, you must value the land at its value for agricultural purposes, even though it would have a higher FMV if it were not restricted. 2012 1040a form Factors. 2012 1040a form   In making and supporting the valuation of property, all factors affecting value are relevant and must be considered. 2012 1040a form These include: The cost or selling price of the item, Sales of comparable properties, Replacement cost, and Opinions of experts. 2012 1040a form   These factors are discussed later. 2012 1040a form Also, see Table 1 for a summary of questions to ask as you consider each factor. 2012 1040a form Date of contribution. 2012 1040a form   Ordinarily, the date of a contribution is the date that the transfer of the property takes place. 2012 1040a form Stock. 2012 1040a form   If you deliver, without any conditions, a properly endorsed stock certificate to a qualified organization or to an agent of the organization, the date of the contribution is the date of delivery. 2012 1040a form If the certificate is mailed and received through the regular mail, it is the date of mailing. 2012 1040a form If you deliver the certificate to a bank or broker acting as your agent or to the issuing corporation or its agent, for transfer into the name of the organization, the date of the contribution is the date the stock is transferred on the books of the corporation. 2012 1040a form Options. 2012 1040a form   If you grant an option to a qualified organization to buy real property, you have not made a charitable contribution until the organization exercises the option. 2012 1040a form The amount of the contribution is the FMV of the property on the date the option is exercised minus the exercise price. 2012 1040a form Example. 2012 1040a form You grant an option to a local university, which is a qualified organization, to buy real property. 2012 1040a form Under the option, the university could buy the property at any time during a 2-year period for $40,000. 2012 1040a form The FMV of the property on the date the option is granted is $50,000. 2012 1040a form In the following tax year, the university exercises the option. 2012 1040a form The FMV of the property on the date the option is exercised is $55,000. 2012 1040a form Therefore, you have made a charitable contribution of $15,000 ($55,000, the FMV, minus $40,000, the exercise price) in the tax year the option is exercised. 2012 1040a form Determining Fair Market Value Determining the value of donated property would be a simple matter if you could rely only on fixed formulas, rules, or methods. 2012 1040a form Usually it is not that simple. 2012 1040a form Using such formulas, etc. 2012 1040a form , seldom results in an acceptable determination of FMV. 2012 1040a form There is no single formula that always applies when determining the value of property. 2012 1040a form This is not to say that a valuation is only guesswork. 2012 1040a form You must consider all the facts and circumstances connected with the property, such as its desirability, use, and scarcity. 2012 1040a form For example, donated furniture should not be evaluated at some fixed rate such as 15% of the cost of new replacement furniture. 2012 1040a form When the furniture is contributed, it may be out of style or in poor condition, therefore having little or no market value. 2012 1040a form On the other hand, it may be an antique, the value of which could not be determined by using any formula. 2012 1040a form Cost or Selling Price of the Donated Property The cost of the property to you or the actual selling price received by the qualified organization may be the best indication of its FMV. 2012 1040a form However, because conditions in the market change, the cost or selling price of property may have less weight if the property was not bought or sold reasonably close to the date of contribution. 2012 1040a form The cost or selling price is a good indication of the property's value if: The purchase or sale took place close to the valuation date in an open market, The purchase or sale was at “arm's-length,” The buyer and seller knew all relevant facts, The buyer and seller did not have to act, and The market did not change between the date of purchase or sale and the valuation date. 2012 1040a form Example. 2012 1040a form Tom Morgan, who is not a dealer in gems, bought an assortment of gems for $5,000 from a promoter. 2012 1040a form The promoter claimed that the price was “wholesale” even though he and other dealers made similar sales at similar prices to other persons who were not dealers. 2012 1040a form The promoter said that if Tom kept the gems for more than 1 year and then gave them to charity, Tom could claim a charitable deduction of $15,000, which, according to the promoter, would be the value of the gems at the time of contribution. 2012 1040a form Tom gave the gems to a qualified charity 13 months after buying them. 2012 1040a form The selling price for these gems had not changed from the date of purchase to the date he donated them to charity. 2012 1040a form The best evidence of FMV depends on actual transactions and not on some artificial estimate. 2012 1040a form The $5,000 charged Tom and others is, therefore, the best evidence of the maximum FMV of the gems. 2012 1040a form Terms of the purchase or sale. 2012 1040a form   The terms of the purchase or sale should be considered in determining FMV if they influenced the price. 2012 1040a form These terms include any restrictions, understandings, or covenants limiting the use or disposition of the property. 2012 1040a form Rate of increase or decrease in value. 2012 1040a form   Unless you can show that there were unusual circumstances, it is assumed that the increase or decrease in the value of your donated property from your cost has been at a reasonable rate. 2012 1040a form For time adjustments, an appraiser may consider published price indexes for information on general price trends, building costs, commodity costs, securities, and works of art sold at auction in arm's-length sales. 2012 1040a form Example. 2012 1040a form Bill Brown bought a painting for $10,000. 2012 1040a form Thirteen months later he gave it to an art museum, claiming a charitable deduction of $15,000 on his tax return. 2012 1040a form The appraisal of the painting should include information showing that there were unusual circumstances that justify a 50% increase in value for the 13 months Bill held the property. 2012 1040a form Arm's-length offer. 2012 1040a form   An arm's-length offer to buy the property close to the valuation date may help to prove its value if the person making the offer was willing and able to complete the transaction. 2012 1040a form To rely on an offer, you should be able to show proof of the offer and the specific amount to be paid. 2012 1040a form Offers to buy property other than the donated item will help to determine value if the other property is reasonably similar to the donated property. 2012 1040a form Sales of Comparable Properties The sales prices of properties similar to the donated property are often important in determining the FMV. 2012 1040a form The weight to be given to each sale depends on the following. 2012 1040a form The degree of similarity between the property sold and the donated property. 2012 1040a form The time of the sale—whether it was close to the valuation date. 2012 1040a form The circumstances of the sale—whether it was at arm's-length with a knowledgeable buyer and seller, with neither having to act. 2012 1040a form The conditions of the market in which the sale was made—whether unusually inflated or deflated. 2012 1040a form The comparable sales method of valuing real estate is explained later under Valuation of Various Kinds of Property. 2012 1040a form Example 1. 2012 1040a form Mary Black, who is not a book dealer, paid a promoter $10,000 for 500 copies of a single edition of a modern translation of the Bible. 2012 1040a form The promoter had claimed that the price was considerably less than the “retail” price, and gave her a statement that the books had a total retail value of $30,000. 2012 1040a form The promoter advised her that if she kept the Bibles for more than 1 year and then gave them to a qualified organization, she could claim a charitable deduction for the “retail” price of $30,000. 2012 1040a form Thirteen months later she gave all the Bibles to a church that she selected from a list provided by the promoter. 2012 1040a form At the time of her donation, wholesale dealers were selling similar quantities of Bibles to the general public for $10,000. 2012 1040a form The FMV of the Bibles is $10,000, the price at which similar quantities of Bibles were being sold to others at the time of the contribution. 2012 1040a form Example 2. 2012 1040a form The facts are the same as in Example 1, except that the promoter gave Mary Black a second option. 2012 1040a form The promoter said that if Mary wanted a charitable deduction within 1 year of the purchase, she could buy the 500 Bibles at the “retail” price of $30,000, paying only $10,000 in cash and giving a promissory note for the remaining $20,000. 2012 1040a form The principal and interest on the note would not be due for 12 years. 2012 1040a form According to the promoter, Mary could then, within 1 year of the purchase, give the Bibles to a qualified organization and claim the full $30,000 retail price as a charitable contribution. 2012 1040a form She purchased the Bibles under the second option and, 3 months later, gave them to a church, which will use the books for church purposes. 2012 1040a form At the time of the gift, the promoter was selling similar lots of Bibles for either $10,000 or $30,000. 2012 1040a form The difference between the two prices was solely at the discretion of the buyer. 2012 1040a form The promoter was a willing seller for $10,000. 2012 1040a form Therefore, the value of Mary's contribution of the Bibles is $10,000, the amount at which similar lots of Bibles could be purchased from the promoter by members of the general public. 2012 1040a form Replacement Cost The cost of buying, building, or manufacturing property similar to the donated item should be considered in determining FMV. 2012 1040a form However, there must be a reasonable relationship between the replacement cost and the FMV. 2012 1040a form The replacement cost is the amount it would cost to replace the donated item on the valuation date. 2012 1040a form Often there is no relationship between the replacement cost and the FMV. 2012 1040a form If the supply of the donated property is more or less than the demand for it, the replacement cost becomes less important. 2012 1040a form To determine the replacement cost of the donated property, find the “estimated replacement cost new. 2012 1040a form ” Then subtract from this figure an amount for depreciation due to the physical condition and obsolescence of the donated property. 2012 1040a form You should be able to show the relationship between the depreciated replacement cost and the FMV, as well as how you arrived at the “estimated replacement cost new. 2012 1040a form ” Opinions of Experts Generally, the weight given to an expert's opinion on matters such as the authenticity of a coin or a work of art, or the most profitable and best use of a piece of real estate, depends on the knowledge and competence of the expert and the thoroughness with which the opinion is supported by experience and facts. 2012 1040a form For an expert's opinion to deserve much weight, the facts must support the opinion. 2012 1040a form For additional information, see Appraisals, later. 2012 1040a form Table 1. 2012 1040a form Factors That Affect FMV IF the factor you are considering is. 2012 1040a form . 2012 1040a form . 2012 1040a form THEN you should ask these questions. 2012 1040a form . 2012 1040a form . 2012 1040a form     cost or selling price Was the purchase or sale of the property reasonably close to the date of contribution? Was any increase or decrease in value, as compared to your cost, at a reasonable rate? Do the terms of purchase or sale limit what can be done with the property? Was there an arm's-length offer to buy the property close to the valuation date?     sales of comparable properties How similar is the property sold to the property donated? How close is the date of sale to the valuation date? Was the sale at arm's-length? What was the condition of the market at the time of sale?     replacement cost What would it cost to replace the donated property? Is there a reasonable relationship between replacement cost and FMV? Is the supply of the donated property more or less than the demand for it?     opinions of experts Is the expert knowledgeable and competent? Is the opinion thorough and supported by facts and experience? Problems in Determining Fair Market Value There are a number of problems in determining the FMV of donated property. 2012 1040a form Unusual Market Conditions The sale price of the property itself in an arm's-length transaction in an open market is often the best evidence of its value. 2012 1040a form When you rely on sales of comparable property, the sales must have been made in an open market. 2012 1040a form If those sales were made in a market that was artificially supported or stimulated so as not to be truly representative, the prices at which the sales were made will not indicate the FMV. 2012 1040a form For example, liquidation sale prices usually do not indicate the FMV. 2012 1040a form Also, sales of stock under unusual circumstances, such as sales of small lots, forced sales, and sales in a restricted market, may not represent the FMV. 2012 1040a form Selection of Comparable Sales Using sales of comparable property is an important method for determining the FMV of donated property. 2012 1040a form However, the amount of weight given to a sale depends on the degree of similarity between the comparable and the donated properties. 2012 1040a form The degree of similarity must be close enough so that this selling price would have been given consideration by reasonably well-informed buyers or sellers of the property. 2012 1040a form Example. 2012 1040a form You give a rare, old book to your former college. 2012 1040a form The book is a third edition and is in poor condition because of a missing back cover. 2012 1040a form You discover that there was a sale for $300, near the valuation date, of a first edition of the book that was in good condition. 2012 1040a form Although the contents are the same, the books are not at all similar because of the different editions and their physical condition. 2012 1040a form Little consideration would be given to the selling price of the $300 property by knowledgeable buyers or sellers. 2012 1040a form Future Events You may not consider unexpected events happening after your donation of property in making the valuation. 2012 1040a form You may consider only the facts known at the time of the gift, and those that could be reasonably expected at the time of the gift. 2012 1040a form Example. 2012 1040a form You give farmland to a qualified charity. 2012 1040a form The transfer provides that your mother will have the right to all income and full use of the property for her life. 2012 1040a form Even though your mother dies 1 week after the transfer, the value of the property on the date it is given is its present value, subject to the life interest as estimated from actuarial tables. 2012 1040a form You may not take a higher deduction because the charity received full use and possession of the land only 1 week after the transfer. 2012 1040a form Using Past Events to Predict the Future A common error is to rely too much on past events that do not fairly reflect the probable future earnings and FMV. 2012 1040a form Example. 2012 1040a form You give all your rights in a successful patent to your favorite charity. 2012 1040a form Your records show that before the valuation date there were three stages in the patent's history of earnings. 2012 1040a form First, there was rapid growth in earnings when the invention was introduced. 2012 1040a form Then, there was a period of high earnings when the invention was being exploited. 2012 1040a form Finally, there was a decline in earnings when competing inventions were introduced. 2012 1040a form The entire history of earnings may be relevant in estimating the future earnings. 2012 1040a form However, the appraiser must not rely too much on the stage of rapid growth in earnings, or of high earnings. 2012 1040a form The market conditions at those times do not represent the condition of the market at the valuation date. 2012 1040a form What is most significant is the trend of decline in earnings up to the valuation date. 2012 1040a form For more information about donations of patents, see Patents, later. 2012 1040a form Valuation of Various Kinds of Property This section contains information on determining the FMV of ordinary kinds of donated property. 2012 1040a form For information on appraisals, see Appraisals, later. 2012 1040a form Household Goods The FMV of used household goods, such as furniture, appliances, and linens, is usually much lower than the price paid when new. 2012 1040a form Such used property may have little or no market value because of its worn condition. 2012 1040a form It may be out of style or no longer useful. 2012 1040a form You cannot take a deduction for household goods donated after August 17, 2006, unless they are in good used condition or better. 2012 1040a form A household good that is not in good used condition or better for which you take a deduction of more than $500 requires a qualified appraisal. 2012 1040a form See Deduction over $500 for certain clothing or household items, later. 2012 1040a form If the property is valuable because it is old or unique, see the discussion under Paintings, Antiques, and Other Objects of Art. 2012 1040a form Used Clothing Used clothing and other personal items are usually worth far less than the price you paid for them. 2012 1040a form Valuation of items of clothing does not lend itself to fixed formulas or methods. 2012 1040a form The price that buyers of used items actually pay in used clothing stores, such as consignment or thrift shops, is an indication of the value. 2012 1040a form You cannot take a deduction for clothing donated after August 17, 2006, unless it is in good used condition or better. 2012 1040a form An item of clothing that is not in good used condition or better for which you take a deduction of more than $500 requires a qualified appraisal. 2012 1040a form See Deduction over $500 for certain clothing or household items, later. 2012 1040a form For valuable furs or very expensive gowns, a Form 8283 may have to be sent with your tax return. 2012 1040a form Jewelry and Gems Jewelry and gems are of such a specialized nature that it is almost always necessary to get an appraisal by a specialized jewelry appraiser. 2012 1040a form The appraisal should describe, among other things, the style of the jewelry, the cut and setting of the gem, and whether it is now in fashion. 2012 1040a form If not in fashion, the possibility of having the property redesigned, recut, or reset should be reported in the appraisal. 2012 1040a form The stone's coloring, weight, cut, brilliance, and flaws should be reported and analyzed. 2012 1040a form Sentimental personal value has no effect on FMV. 2012 1040a form But if the jewelry was owned by a famous person, its value might increase. 2012 1040a form Paintings, Antiques, and Other Objects of Art Your deduction for contributions of paintings, antiques, and other objects of art, should be supported by a written appraisal from a qualified and reputable source, unless the deduction is $5,000 or less. 2012 1040a form Examples of information that should be included in appraisals of art objects—paintings in particular—are found later under Qualified Appraisal. 2012 1040a form Art valued at $20,000 or more. 2012 1040a form   If you claim a deduction of $20,000 or more for donations of art, you must attach a complete copy of the signed appraisal to your return. 2012 1040a form For individual objects valued at $20,000 or more, a photograph of a size and quality fully showing the object, preferably an 8 x 10 inch color photograph or a color transparency no smaller than 4 x 5 inches, must be provided upon request. 2012 1040a form Art valued at $50,000 or more. 2012 1040a form   If you donate an item of art that has been appraised at $50,000 or more, you can request a Statement of Value for that item from the IRS. 2012 1040a form You must request the statement before filing the tax return that reports the donation. 2012 1040a form Your request must include the following. 2012 1040a form A copy of a qualified appraisal of the item. 2012 1040a form See Qualified Appraisal, later. 2012 1040a form A $2,500 check or money order payable to the Internal Revenue Service for the user fee that applies to your request regarding one, two, or three items of art. 2012 1040a form Add $250 for each item in excess of three. 2012 1040a form A completed Form 8283, Section B. 2012 1040a form The location of the IRS territory that has examination responsibility for your return. 2012 1040a form If your request lacks essential information, you will be notified and given 30 days to provide the missing information. 2012 1040a form   Send your request to: Internal Revenue Service Attention: Art Appraisal (C:AP:ART) P. 2012 1040a form O. 2012 1040a form Box 27720 McPherson Station Washington, DC 20038 Refunds. 2012 1040a form   You can withdraw your request for a Statement of Value at any time before it is issued. 2012 1040a form However, the IRS will not refund the user fee if you do. 2012 1040a form   If the IRS declines to issue a Statement of Value in the interest of efficient tax administration, the IRS will refund the user fee. 2012 1040a form Authenticity. 2012 1040a form   The authenticity of the donated art must be determined by the appraiser. 2012 1040a form Physical condition. 2012 1040a form   Important items in the valuation of antiques and art are physical condition and extent of restoration. 2012 1040a form These have a significant effect on the value and must be fully reported in an appraisal. 2012 1040a form An antique in damaged condition, or lacking the “original brasses,” may be worth much less than a similar piece in excellent condition. 2012 1040a form Art appraisers. 2012 1040a form   More weight will usually be given to an appraisal prepared by an individual specializing in the kind and price range of the art being appraised. 2012 1040a form Certain art dealers or appraisers specialize, for example, in old masters, modern art, bronze sculpture, etc. 2012 1040a form Their opinions on the authenticity and desirability of such art would usually be given more weight than the opinions of more generalized art dealers or appraisers. 2012 1040a form They can report more recent comparable sales to support their opinion. 2012 1040a form   To identify and locate experts on unique, specialized items or collections, you may wish to use the current Official Museum Directory of the American Association of Museums. 2012 1040a form It lists museums both by state and by category. 2012 1040a form   To help you locate a qualified appraiser for your donation, you may wish to ask an art historian at a nearby college or the director or curator of a local museum. 2012 1040a form The Yellow Pages often list specialized art and antique dealers, auctioneers, and art appraisers. 2012 1040a form You may be able to find a qualified appraiser on the Internet. 2012 1040a form You may also contact associations of dealers for guidance. 2012 1040a form Collections Since many kinds of hobby collections may be the subject of a charitable donation, it is not possible to discuss all of the possible collectibles in this publication. 2012 1040a form Most common are rare books, autographs, sports memorabilia, dolls, manuscripts, stamps, coins, guns, phonograph records, and natural history items. 2012 1040a form Many of the elements of valuation that apply to paintings and other objects of art, discussed earlier, also apply to miscellaneous collections. 2012 1040a form Reference material. 2012 1040a form   Publications available to help you determine the value of many kinds of collections include catalogs, dealers' price lists, and specialized hobby periodicals. 2012 1040a form When using one of these price guides, you must use the current edition at the date of contribution. 2012 1040a form However, these sources are not always reliable indicators of FMV and should be supported by other evidence. 2012 1040a form   For example, a dealer may sell an item for much less than is shown on a price list, particularly after the item has remained unsold for a long time. 2012 1040a form The price an item sold for in an auction may have been the result of a rigged sale or a mere bidding duel. 2012 1040a form The appraiser must analyze the reference material, and recognize and make adjustments for misleading entries. 2012 1040a form If you are donating a valuable collection, you should get an appraisal. 2012 1040a form If your donation appears to be of little value, you may be able to make a satisfactory valuation using reference materials available at a state, city, college, or museum library. 2012 1040a form Stamp collections. 2012 1040a form   Most libraries have catalogs or other books that report the publisher's estimate of values. 2012 1040a form Generally, two price levels are shown for each stamp: the price postmarked and the price not postmarked. 2012 1040a form Stamp dealers generally know the value of their merchandise and are able to prepare satisfactory appraisals of valuable collections. 2012 1040a form Coin collections. 2012 1040a form   Many catalogs and other reference materials show the writer's or publisher's opinion of the value of coins on or near the date of the publication. 2012 1040a form Like many other collectors' items, the value of a coin depends on the demand for it, its age, and its rarity. 2012 1040a form Another important factor is the coin's condition. 2012 1040a form For example, there is a great difference in the value of a coin that is in mint condition and a similar coin that is only in good condition. 2012 1040a form   Catalogs usually establish a category for coins, based on their physical condition—mint or uncirculated, extremely fine, very fine, fine, very good, good, fair, or poor—with a different valuation for each category. 2012 1040a form Books. 2012 1040a form   The value of books is usually determined by selecting comparable sales and adjusting the prices according to the differences between the comparable sales and the item being evaluated. 2012 1040a form This is difficult to do and, except for a collection of little value, should be done by a specialized appraiser. 2012 1040a form Within the general category of literary property, there are dealers who specialize in certain areas, such as Americana, foreign imports, Bibles, and scientific books. 2012 1040a form Modest value of collection. 2012 1040a form   If the collection you are donating is of modest value, not requiring a written appraisal, the following information may help you in determining the FMV. 2012 1040a form   A book that is very old, or very rare, is not necessarily valuable. 2012 1040a form There are many books that are very old or rare, but that have little or no market value. 2012 1040a form Condition of book. 2012 1040a form   The condition of a book may have a great influence on its value. 2012 1040a form Collectors are interested in items that are in fine, or at least good, condition. 2012 1040a form When a book has a missing page, a loose binding, tears, stains, or is otherwise in poor condition, its value is greatly lowered. 2012 1040a form Other factors. 2012 1040a form   Some other factors in the valuation of a book are the kind of binding (leather, cloth, paper), page edges, and illustrations (drawings and photographs). 2012 1040a form Collectors usually want first editions of books. 2012 1040a form However, because of changes or additions, other editions are sometimes worth as much as, or more than, the first edition. 2012 1040a form Manuscripts, autographs, diaries, and similar items. 2012 1040a form   When these items are handwritten, or at least signed by famous people, they are often in demand and are valuable. 2012 1040a form The writings of unknowns also may be of value if they are of unusual historical or literary importance. 2012 1040a form Determining the value of such material is difficult. 2012 1040a form For example, there may be a great difference in value between two diaries that were kept by a famous person—one kept during childhood and the other during a later period in his or her life. 2012 1040a form The appraiser determines a value in these cases by applying knowledge and judgment to such factors as comparable sales and conditions. 2012 1040a form Signatures. 2012 1040a form   Signatures, or sets of signatures, that were cut from letters or other papers usually have little or no value. 2012 1040a form But complete sets of the signatures of U. 2012 1040a form S. 2012 1040a form presidents are in demand. 2012 1040a form Cars, Boats, and Aircraft If you donate a car, a boat, or an aircraft to a charitable organization, its FMV must be determined. 2012 1040a form Certain commercial firms and trade organizations publish monthly or seasonal guides for different regions of the country, containing complete dealer sale prices or dealer average prices for recent model years. 2012 1040a form Prices are reported for each make, model, and year. 2012 1040a form These guides also provide estimates for adjusting for unusual equipment, unusual mileage, and physical condition. 2012 1040a form The prices are not “official,” and these publications are not considered an appraisal of any specific donated property. 2012 1040a form But they do provide clues for making an appraisal and suggest relative prices for comparison with current sales and offerings in your area. 2012 1040a form These publications are sometimes available from public libraries or at a bank, credit union, or finance company. 2012 1040a form You can also find pricing information about used cars on the Internet. 2012 1040a form An acceptable measure of the FMV of a donated car, boat, or airplane is an amount not in excess of the price listed in a used vehicle pricing guide for a private party sale, not the dealer retail value, of a similar vehicle. 2012 1040a form However, the FMV may be less than that amount if the vehicle has engine trouble, body damage, high mileage, or any type of excessive wear. 2012 1040a form The FMV of a donated vehicle is the same as the price listed in a used vehicle pricing guide for a private party sale only if the guide lists a sales price for a vehicle that is the same make, model, and year, sold in the same area, in the same condition, with the same or similar options or accessories, and with the same or similar warranties as the donated vehicle. 2012 1040a form Example. 2012 1040a form You donate a used car in poor condition to a local high school for use by students studying car repair. 2012 1040a form A used car guide shows the dealer retail value for this type of car in poor condition is $1,600. 2012 1040a form However, the guide shows the price for a private party sale of the car is only $750. 2012 1040a form The FMV of the car is considered to be no more than $750. 2012 1040a form Boats. 2012 1040a form   Except for inexpensive small boats, the valuation of boats should be based on an appraisal by a marine surveyor because the physical condition is so critical to the value. 2012 1040a form More information. 2012 1040a form   Your deduction for a donated car, boat, or airplane generally is limited to the gross proceeds from its sale by the qualified organization. 2012 1040a form This rule applies if the claimed value of the donated vehicle is more than $500. 2012 1040a form In certain cases, you can deduct the vehicle's FMV. 2012 1040a form For details, see Publication 526. 2012 1040a form Inventory If you donate any inventory item to a charitable organization, the amount of your deductible contribution generally is the FMV of the item, minus any gain you would have realized if you had sold the item at its FMV on the date of the gift. 2012 1040a form For more information, see Publication 526. 2012 1040a form Patents To determine the FMV of a patent, you must take into account, among other factors: Whether the patented technology has been made obsolete by other technology; Any restrictions on the donee's use of, or ability to transfer, the patented technology; and The length of time remaining before the patent expires. 2012 1040a form However, your deduction for a donation of a patent or other intellectual property is its FMV, minus any gain you would have realized if you had sold the property at its FMV on the date of the gift. 2012 1040a form Generally, this means your deduction is the lesser of the property's FMV or its basis. 2012 1040a form For details, see Publication 526. 2012 1040a form Stocks and Bonds The value of stocks and bonds is the FMV of a share or bond on the valuation date. 2012 1040a form See Date of contribution, earlier, under What Is Fair Market Value (FMV). 2012 1040a form Selling prices on valuation date. 2012 1040a form   If there is an active market for the contributed stocks or bonds on a stock exchange, in an over-the-counter market, or elsewhere, the FMV of each share or bond is the average price between the highest and lowest quoted selling prices on the valuation date. 2012 1040a form For example, if the highest selling price for a share was $11, and the lowest $9, the average price is $10. 2012 1040a form You get the average price by adding $11 and $9 and dividing the sum by 2. 2012 1040a form No sales on valuation date. 2012 1040a form   If there were no sales on the valuation date, but there were sales within a reasonable period before and after the valuation date, you determine FMV by taking the average price between the highest and lowest sales prices on the nearest date before and on the nearest date after the valuation date. 2012 1040a form Then you weight these averages in inverse order by the respective number of trading days between the selling dates and the valuation date. 2012 1040a form Example. 2012 1040a form   On the day you gave stock to a qualified organization, there were no sales of the stock. 2012 1040a form Sales of the stock nearest the valuation date took place two trading days before the valuation date at an average selling price of $10 and three trading days after the valuation date at an average selling price of $15. 2012 1040a form The FMV on the valuation date was $12, figured as follows: [(3 x $10) + (2 x $15)] ÷ 5 = $12 Listings on more than one stock exchange. 2012 1040a form   Stocks or bonds listed on more than one stock exchange are valued based on the prices of the exchange on which they are principally dealt. 2012 1040a form This applies if these prices are published in a generally available listing or publication of general circulation. 2012 1040a form If this is not applicable, and the stocks or bonds are reported on a composite listing of combined exchanges in a publication of general circulation, use the composite list. 2012 1040a form See also Unavailable prices or closely held corporation, later. 2012 1040a form Bid and asked prices on valuation date. 2012 1040a form   If there were no sales within a reasonable period before and after the valuation date, the FMV is the average price between the bona fide bid and asked prices on the valuation date. 2012 1040a form Example. 2012 1040a form Although there were no sales of Blue Corporation stock on the valuation date, bona fide bid and asked prices were available on that date of $14 and $16, respectively. 2012 1040a form The FMV is $15, the average price between the bid and asked prices. 2012 1040a form No prices on valuation date. 2012 1040a form   If there were no prices available on the valuation date, you determine FMV by taking the average prices between the bona fide bid and asked prices on the closest trading date before and after the valuation date. 2012 1040a form Both dates must be within a reasonable period. 2012 1040a form Then you weight these averages in inverse order by the respective number of trading days between the bid and asked dates and the valuation date. 2012 1040a form Example. 2012 1040a form On the day you gave stock to a qualified organization, no prices were available. 2012 1040a form Bona fide bid and asked prices 3 days before the valuation date were $10 and 2 days after the valuation date were $15. 2012 1040a form The FMV on the valuation date is $13, figured as follows: [(2 x $10) + (3 x $15)] ÷ 5 = $13 Prices only before or after valuation date, but not both. 2012 1040a form   If no selling prices or bona fide bid and asked prices are available on a date within a reasonable period before the valuation date, but are available on a date within a reasonable period after the valuation date, or vice versa, then the average price between the highest and lowest of such available prices may be treated as the value. 2012 1040a form Large blocks of stock. 2012 1040a form   When a large block of stock is put on the market, it may lower the selling price of the stock if the supply is greater than the demand. 2012 1040a form On the other hand, market forces may exist that will afford higher prices for large blocks of stock. 2012 1040a form Because of the many factors to be considered, determining the value of large blocks of stock usually requires the help of experts specializing in underwriting large quantities of securities, or in trading in the securities of the industry of which the particular company is a part. 2012 1040a form Unavailable prices or closely held corporation. 2012 1040a form   If selling prices or bid and asked prices are not available, or if securities of a closely held corporation are involved, determine the FMV by considering the following factors. 2012 1040a form For bonds, the soundness of the security, the interest yield, the date of maturity, and other relevant factors. 2012 1040a form For shares of stock, the company's net worth, prospective earning power and dividend-paying capacity, and other relevant factors. 2012 1040a form Other factors. 2012 1040a form   Other relevant factors include: The nature and history of the business, especially its recent history, The goodwill of the business, The economic outlook in the particular industry, The company's position in the industry, its competitors, and its management, and The value of securities of corporations engaged in the same or similar business. 2012 1040a form For preferred stock, the most important factors are its yield, dividend coverage, and protection of its liquidation preference. 2012 1040a form   You should keep complete financial and other information on which the valuation is based. 2012 1040a form This includes copies of reports of examinations of the company made by accountants, engineers, or any technical experts on or close to the valuation date. 2012 1040a form Restricted securities. 2012 1040a form   Some classes of stock cannot be traded publicly because of restrictions imposed by the Securities and Exchange Commission, or by the corporate charter or a trust agreement. 2012 1040a form These restricted securities usually trade at a discount in relation to freely traded securities. 2012 1040a form   To arrive at the FMV of restricted securities, factors that you must consider include the resale provisions found in the restriction agreements, the relative negotiating strengths of the buyer and seller, and the market experience of freely traded securities of the same class as the restricted securities. 2012 1040a form Real Estate Because each piece of real estate is unique and its valuation is complicated, a detailed appraisal by a professional appraiser is necessary. 2012 1040a form The appraiser must be thoroughly trained in the application of appraisal principles and theory. 2012 1040a form In some instances the opinions of equally qualified appraisers may carry unequal weight, such as when one appraiser has a better knowledge of local conditions. 2012 1040a form The appraisal report must contain a complete description of the property, such as street address, legal description, and lot and block number, as well as physical features, condition, and dimensions. 2012 1040a form The use to which the property is put, zoning and permitted uses, and its potential use for other higher and better uses are also relevant. 2012 1040a form In general, there are three main approaches to the valuation of real estate. 2012 1040a form An appraisal may require the combined use of two or three methods rather than one method only. 2012 1040a form 1. 2012 1040a form Comparable Sales The comparable sales method compares the donated property with several similar properties that have been sold. 2012 1040a form The selling prices, after adjustments for differences in date of sale, size, condition, and location, would then indicate the estimated FMV of the donated property. 2012 1040a form If the comparable sales method is used to determine the value of unimproved real property (land without significant buildings, structures, or any other improvements that add to its value), the appraiser should consider the following factors when comparing the potential comparable property and the donated property: Location, size, and zoning or use restrictions, Accessibility and road frontage, and available utilities and water rights, Riparian rights (right of access to and use of the water by owners of land on the bank of a river) and existing easements, rights-of-way, leases, etc. 2012 1040a form , Soil characteristics, vegetative cover, and status of mineral rights, and Other factors affecting value. 2012 1040a form For each comparable sale, the appraisal must include the names of the buyer and seller, the deed book and page number, the date of sale and selling price, a property description, the amount and terms of mortgages, property surveys, the assessed value, the tax rate, and the assessor's appraised FMV. 2012 1040a form The comparable selling prices must be adjusted to account for differences between the sale property and the donated property. 2012 1040a form Because differences of opinion may arise between appraisers as to the degree of comparability and the amount of the adjustment considered necessary for comparison purposes, an appraiser should document each item of adjustment. 2012 1040a form Only comparable sales having the least adjustments in terms of items and/or total dollar adjustments should be considered as comparable to the donated property. 2012 1040a form 2. 2012 1040a form Capitalization of Income This method capitalizes the net income from the property at a rate that represents a fair return on the particular investment at the particular time, considering the risks involved. 2012 1040a form The key elements are the determination of the income to be capitalized and the rate of capitalization. 2012 1040a form 3. 2012 1040a form Replacement Cost New or Reproduction Cost Minus Observed Depreciation This method, used alone, usually does not result in a determination of FMV. 2012 1040a form Instead, it generally tends to set the upper limit of value, particularly in periods of rising costs, because it is reasonable to assume that an informed buyer will not pay more for the real estate than it would cost to reproduce a similar property. 2012 1040a form Of course, this reasoning does not apply if a similar property cannot be created because of location, unusual construction, or some other reason. 2012 1040a form Generally, this method serves to support the value determined from other methods. 2012 1040a form When the replacement cost method is applied to improved realty, the land and improvements are valued separately. 2012 1040a form The replacement cost of a building is figured by considering the materials, the quality of workmanship, and the number of square feet or cubic feet in the building. 2012 1040a form This cost represents the total cost of labor and material, overhead, and profit. 2012 1040a form After the replacement cost has been figured, consideration must be given to the following factors: Physical deterioration—the wear and tear on the building itself, Functional obsolescence—usually in older buildings with, for example, inadequate lighting, plumbing, or heating, small rooms, or a poor floor plan, and Economic obsolescence—outside forces causing the whole area to become less desirable. 2012 1040a form Interest in a Business The FMV of any interest in a business, whether a sole proprietorship or a partnership, is the amount that a willing buyer would pay for the interest to a willing seller after consideration of all relevant factors. 2012 1040a form The relevant factors to be considered in valuing the business are: The FMV of the assets of the business, The demonstrated earnings capacity of the business, based on a review of past and current earnings, and The other factors used in evaluating corporate stock, if they apply. 2012 1040a form The value of the goodwill of the business should also be taken into consideration. 2012 1040a form You should keep complete financial and other information on which you base the valuation. 2012 1040a form This includes copies of reports of examinations of the business made by accountants, engineers, or any technical experts on or close to the valuation date. 2012 1040a form Annuities, Interests for Life or Terms of Years, Remainders, and Reversions The value of these kinds of property is their present value, except in the case of annuities under contracts issued by companies regularly engaged in their sale. 2012 1040a form The valuation of these commercial annuity contracts and of insurance policies is discussed later under Certain Life Insurance and Annuity Contracts. 2012 1040a form To determine present value, you must know the applicable interest rate and use actuarial tables. 2012 1040a form Interest rate. 2012 1040a form   The applicable interest rate varies. 2012 1040a form It is announced monthly in a news release and published in the Internal Revenue Bulletin as a Revenue Ruling. 2012 1040a form The interest rate to use is under the heading “Rate Under Section 7520” for a given month and year. 2012 1040a form You can call the IRS office at 1-800-829-1040 to obtain this rate. 2012 1040a form Actuarial tables. 2012 1040a form   You need to refer to actuarial tables to determine a qualified interest in the form of an annuity, any interest for life or a term of years, or any remainder interest to a charitable organization. 2012 1040a form   Use the valuation tables set forth in IRS Publications 1457, Actuarial Values (Book Aleph), and 1458, Actuarial Values (Book Beth). 2012 1040a form Both of these publications provide tables containing actuarial factors to be used in determining the present value of an annuity, an interest for life or for a term of years, or a remainder or reversionary interest. 2012 1040a form For qualified charitable transfers, you can use the factor for the month in which you made the contribution or for either of the 2 months preceding that month. 2012 1040a form   Publication 1457 also contains actuarial factors for computing the value of a remainder interest in a charitable remainder annuity trust and a pooled income fund. 2012 1040a form Publication 1458 contains the factors for valuing the remainder interest in a charitable remainder unitrust. 2012 1040a form You can download Publications 1457 and 1458 from www. 2012 1040a form irs. 2012 1040a form gov. 2012 1040a form In addition, they are available for purchase via the website of the U. 2012 1040a form S. 2012 1040a form Government Printing Office, by phone at (202) 512-1800, or by mail from the: Superintendent of Documents P. 2012 1040a form O. 2012 1040a form Box 371954 Pittsburgh, PA 15250-7954 Tables containing actuarial factors for transfers to pooled income funds may also be found in Income Tax Regulation 1. 2012 1040a form 642(c)-6(e)(6), transfers to charitable remainder unitrusts in Regulation 1. 2012 1040a form 664-4(e), and other transfers in Regulation 20. 2012 1040a form 2031-7(d)(6). 2012 1040a form Special factors. 2012 1040a form   If you need a special factor for an actual transaction, you can request a letter ruling. 2012 1040a form Be sure to include the date of birth of each person the duration of whose life may affect the value of the interest. 2012 1040a form Also include copies of the relevant instruments. 2012 1040a form IRS charges a user fee for providing special factors. 2012 1040a form   For more information about requesting a ruling, see Revenue Procedure 2006-1 (or annual update), 2006-1 I. 2012 1040a form R. 2012 1040a form B. 2012 1040a form 1. 2012 1040a form Revenue Procedure 2006-1 is available at www. 2012 1040a form irs. 2012 1040a form gov/irb/2006-01_IRB/ar06. 2012 1040a form html. 2012 1040a form   For information on the circumstances under which a charitable deduction may be allowed for the donation of a partial interest in property not in trust, see Partial Interest in Property Not in Trust, later. 2012 1040a form Certain Life Insurance and Annuity Contracts The value of an annuity contract or a life insurance policy issued by a company regularly engaged in the sale of such contracts or policies is the amount that company would charge for a comparable contract. 2012 1040a form But if the donee of a life insurance policy may reasonably be expected to cash the policy rather than hold it as an investment, then the FMV is the cash surrender value rather than the replacement cost. 2012 1040a form If an annuity is payable under a combination annuity contract and life insurance policy (for example, a retirement income policy with a death benefit) and there was no insurance element when it was transferred to the charity, the policy is treated as an annuity contract. 2012 1040a form Partial Interest in Property Not in Trust Generally, no deduction is allowed for a charitable contribution, not made in trust, of less than your entire interest in property. 2012 1040a form However, this does not apply to a transfer of less than your entire interest if it is a transfer of: A remainder interest in your personal residence or farm, An undivided part of your entire interest in property, or A qualified conservation contribution. 2012 1040a form Remainder Interest in Real Property The amount of the deduction for a donation of a remainder interest in real property is the FMV of the remainder interest at the time of the contribution. 2012 1040a form To determine this value, you must know the FMV of the property on the date of the contribution. 2012 1040a form Multiply this value by the appropriate factor. 2012 1040a form Publications 1457 and 1458 contain these factors. 2012 1040a form You must make an adjustment for depreciation or depletion using the factors shown in Publication 1459, Actuarial Values (Book Gimel). 2012 1040a form You can use the factors for the month in which you made the contribution or for either of the two months preceding that month. 2012 1040a form See the earlier discussion on Annuities, Interests for Life or Terms of Years, Remainders, and Reversions. 2012 1040a form You can download Publication 1459 from www. 2012 1040a form irs. 2012 1040a form gov. 2012 1040a form For this purpose, the term “depreciable property” means any property subject to wear and tear or obsolescence, even if not used in a trade or business or for the production of income. 2012 1040a form If the remainder interest includes both depreciable and nondepreciable property, for example a house and land, the FMV must be allocated between each kind of property at the time of the contribution. 2012 1040a form This rule also applies to a gift of a remainder interest that includes property that is part depletable and part not depletable. 2012 1040a form Take into account depreciation or depletion only for the property that is subject to depreciation or depletion. 2012 1040a form For more information, see section 1. 2012 1040a form 170A-12 of the Income Tax Regulations. 2012 1040a form Undivided Part of Your Entire Interest A contribution of an undivided part of your entire interest in property must consist of a part of each and every substantial interest or right you own in the property. 2012 1040a form It must extend over the entire term of your interest in the property. 2012 1040a form For example, you are entitled to the income from certain property for your life (life estate) and you contribute 20% of that life estate to a qualified organization. 2012 1040a form You can claim a deduction for the contribution if you do not have any other interest in the property. 2012 1040a form To figure the value of a contribution involving a partial interest, see Publication 1457. 2012 1040a form If the only interest you own in real property is a remainder interest and you transfer part of that interest to a qualified organization, see the previous discussion on valuation of a remainder interest in real property. 2012 1040a form Qualified Conservation Contribution A qualified conservation contribution is a contribution of a qualified real property interest to a qualified organization to be used only for conservation purposes. 2012 1040a form Qualified organization. 2012 1040a form   For purposes of a qualified conservation contribution, a qualified organization is: A governmental unit, A publicly supported charitable, religious, scientific, literary, educational, etc. 2012 1040a form , organization, or An organization that is controlled by, and operated for the exclusive benefit of, a governmental unit or a publicly supported charity. 2012 1040a form The organization also must have a commitment to protect the conservation purposes of the donation and must have the resources to enforce the restrictions. 2012 1040a form Conservation purposes. 2012 1040a form   Your contribution must be made only for one of the following conservation purposes. 2012 1040a form Preserving land areas for outdoor recreation by, or for the education of, the general public. 2012 1040a form Protecting a relatively natural habitat of fish, wildlife, or plants, or a similar ecosystem. 2012 1040a form Preserving open space, including farmland and forest land, if it yields a significant public benefit. 2012 1040a form It must be either for the scenic enjoyment of the general public or under a clearly defined federal, state, or local governmental conservation policy. 2012 1040a form Preserving a historically important land area or a certified historic structure. 2012 1040a form There must be some visual public access to the property. 2012 1040a form Factors used in determining the type and amount of public access required include the historical significance of the property, the remoteness or accessibility of the site, and the extent to which intrusions on the privacy of individuals living on the property would be unreasonable. 2012 1040a form Building in registered historic district. 2012 1040a form   A contribution after July 25, 2006, of a qualified real property interest that is an easement or other restriction on the exterior of a building in a registered historic district is deductible only if it meets all of the following three conditions. 2012 1040a form The restriction must preserve the entire exterior of the building and must prohibit any change to the exterior of the building that is inconsistent with its historical character. 2012 1040a form You and the organization receiving the contribution must enter into a written agreement certifying, that the organization is a qualified organization and that it has the resources and commitment to maintain the property as donated. 2012 1040a form If you make the contribution in a tax year beginning after August 17, 2006, you must include with your return: A qualified appraisal, Photographs of the building's entire exterior, and A description of all restrictions on development of the building, such as zoning laws and restrictive covenants. 2012 1040a form   If you make this type of contribution after February 12, 2007, and claim a deduction of more than $10,000, your deduction will not be allowed unless you pay a $500 filing fee. 2012 1040a form See Form 8283-V, Payment Voucher for Filing Fee Under Section 170(f)(13), and its instructions. 2012 1040a form Qualified real property interest. 2012 1040a form   This is any of the following interests in real property. 2012 1040a form Your entire interest in real estate other than a mineral interest (subsurface oil, gas, or other minerals, and the right of access to these minerals). 2012 1040a form A remainder interest. 2012 1040a form A restriction (granted in perpetuity) on the use that may be made of the real property. 2012 1040a form Valuation. 2012 1040a form   A qualified real property interest described in (1) should be valued in a manner that is consistent with the type of interest transferred. 2012 1040a form If you transferred all the interest in the property, the FMV of the property is the amount of the contribution. 2012 1040a form If you do not transfer the mineral interest, the FMV of the surface rights in the property is the amount of the contribution. 2012 1040a form   If you owned only a remainder interest or an income interest (life estate), see Undivided Part of Your Entire Interest, earlier. 2012 1040a form If you owned the entire property but transferred only a remainder interest (item (2)), see Remainder Interest in Real Property, earlier. 2012 1040a form   In determining the value of restrictions, you should take into account the selling price in arm's-length transactions of other properties that have comparable restrictions. 2012 1040a form If there are no comparable sales, the restrictions are valued indirectly as the difference between the FMVs of the property involved before and after the grant of the restriction. 2012 1040a form   The FMV of the property before contribution of the restriction should take into account not only current use but the likelihood that the property, without the restriction, would be developed. 2012 1040a form You should also consider any zoning, conservation, or historical preservation laws that would restrict development. 2012 1040a form Granting an easement may increase, rather than reduce, the value of property, and in such a situation no deduction would be allowed. 2012 1040a form Example. 2012 1040a form   You own 10 acres of farmland. 2012 1040a form Similar land in the area has an FMV of $2,000 an acre. 2012 1040a form However, land in the general area that is restricted solely to farm use has an FMV of $1,500 an acre. 2012 1040a form Your county wants to preserve open space and prevent further development in your area. 2012 1040a form   You grant to the county an enforceable open space easement in perpetuity on 8 of the 10 acres, restricting its use to farmland. 2012 1040a form The value of this easement is $4,000, determined as follows: FMV of the property before granting easement:   $2,000 × 10 acres $20,000 FMV of the property after granting easement:   $1,500 × 8 acres $12,000   $2,000 × 2 acres 4,000 16,000 Value of easement   $4,000   If you later transfer in fee your remaining interest in the 8 acres to another qualified organization, the FMV of your remaining interest is the FMV of the 8 acres reduced by the FMV of the easement granted to the first organization. 2012 1040a form More information. 2012 1040a form   For more information about qualified conservation contributions, see Publication 526. 2012 1040a form Appraisals Appraisals are not necessary for items of property for which you claim a deduction of $5,000 or less. 2012 1040a form (There is one exception, described next, for certain clothing and household items. 2012 1040a form ) However, you generally will need an appraisal for donated property for which you claim a deduction of more than $5,000. 2012 1040a form There are exceptions. 2012 1040a form See Deductions of More Than $5,000, later. 2012 1040a form The weight given an appraisal depends on the completeness of the report, the qualifications of the appraiser, and the appraiser's demonstrated knowledge of the donated property. 2012 1040a form An appraisal must give all the facts on which to base an intelligent judgment of the value of the property. 2012 1040a form The appraisal will not be given much weight if: All the factors that apply are not considered, The opinion is not supported with facts, such as purchase price and comparable sales, or The opinion is not consistent with known facts. 2012 1040a form The appraiser's opinion is never more valid than the facts on which it is based; without these facts it is simply a guess. 2012 1040a form The opinion of a person claiming to be an expert is not binding on the Internal Revenue Service. 2012 1040a form All facts associated with the donation must be considered. 2012 1040a form Deduction over $500 for certain clothing or household items. 2012 1040a form   You must include with your return a qualified appraisal of any single item of clothing or any household item that is not in good used condition or better, that you donated after August 17, 2006, and for which you deduct more than $500. 2012 1040a form See Household Goods and Used Clothing, earlier. 2012 1040a form Cost of appraisals. 2012 1040a form   You may not take a charitable contribution deduction for fees you pay for appraisals of your donated property. 2012 1040a form However, these fees may qualify as a miscellaneous deduction, subject to the 2% limit, on Schedule A (Form 1040) if paid to determine the amount allowable as a charitable contribution. 2012 1040a form Deductions of More Than $5,000 Generally, if the claimed deduction for an item or group of similar items of donated property is more than $5,000, you must get a qualified appraisal made by a qualified appraiser, and you must attach Section B of Form 8283 to your tax return. 2012 1040a form There are exceptions, discussed later. 2012 1040a form You should keep the appraiser's report with your written records. 2012 1040a form Records are discussed in Publication 526. 2012 1040a form The phrase “similar items” means property of the same generic category or type (whether or not donated to the same donee), such as stamp collections, coin collections, lithographs, paintings, photographs, books, nonpublicly traded stock, nonpublicly traded securities other than nonpublicly traded stock, land, buildings, clothing, jewelry, furniture, electronic equipment, household appliances, toys, everyday kitchenware, china, crystal, or silver. 2012 1040a form For example, if you give books to three schools and you deduct $2,000, $2,500, and $900, respectively, your claimed deduction is more than $5,000 for these books. 2012 1040a form You must get a qualified appraisal of the books and for each school you must attach a fully completed Form 8283, Section B, to your tax return. 2012 1040a form Exceptions. 2012 1040a form   You do not need an appraisal if the property is: Nonpublicly traded stock of $10,000 or less, A vehicle (including a car, boat, or airplane) for which your deduction is limited to the gross proceeds from its sale, Qualified intellectual property, such as a patent, Certain publicly traded securities described next, Inventory and other property donated by a corporation that are “qualified contributions” for the care of the ill, the needy, or infants, within the meaning of section 170(e)(3)(A) of the Internal Revenue Code, or Stock in trade, inventory, or property held primarily for sale to customers in the ordinary course of your trade or business. 2012 1040a form   Although an appraisal is not required for the types of property just listed, you must provide certain information about a donation of any of these types of property on Form 8283. 2012 1040a form Publicly traded securities. 2012 1040a form   Even if your claimed deduction is more than $5,000, neither a qualified appraisal nor Section B of Form 8283 is required for publicly traded securities that are: Listed on a stock exchange in which quotations are published on a daily basis, Regularly traded in a national or regional over-the-counter market for which published quotations are available, or Shares of an open-end investment company (mutual fund) for which quotations are published on a daily basis in a newspaper of general circulation throughout the United States. 2012 1040a form Publicly traded securities that meet these requirements must be reported on Form 8283, Section A. 2012 1040a form   A qualified appraisal is not required, but Form 8283, Section B, Parts I and IV, must be completed, for an issue of a security that does not meet the requirements just listed but does meet these requirements: The issue is regularly traded during the computation period (defined later) in a market for which there is an “interdealer quotation system” (defined later), The issuer or agent computes the “average trading price” (defined later) for the same issue for the computation period, The average trading price and total volume of the issue during the computation period are published in a newspaper of general circulation throughout the United States, not later than the last day of the month following the end of the calendar quarter in which the computation period ends, The issuer or agent keeps books and records that list for each transaction during the computation period the date of settlement of the transaction, the name and address of the broker or dealer making the market in which the transaction occurred, and the trading price and volume, and The issuer or agent permits the Internal Revenue Service to review the books and records described in item (4) with respect to transactions during the computation period upon receiving reasonable notice. 2012 1040a form   An interdealer quotation system is any system of general circulation to brokers and dealers that regularly disseminates quotations of obligations by two or more identified brokers or dealers who are not related to either the issuer or agent who computes the average trading price of the security. 2012 1040a form A quotation sheet prepared and distributed by a broker or dealer in the regular course of business and containing only quotations of that broker or dealer is not an interdealer quotation system. 2012 1040a form   The average trading price is the average price of all transactions (weighted by volume), other than original issue or redemption transactions, conducted through a United States office of a broker or dealer who maintains a market in the issue of the security during the computation period. 2012 1040a form Bid and asked quotations are not taken into account. 2012 1040a form   The computation period is weekly during October through December and monthly during January through September. 2012 1040a form The weekly computation periods during October through December begin with the first Monday in October and end with the first Sunday following the last Monday in December. 2012 1040a form Nonpublicly traded stock. 2012 1040a form   If you contribute nonpublicly traded stock, for which you claim a deduction of $10,000 or less, a qualified appraisal is not required. 2012 1040a form However, you must attach Form 8283 to your tax return, with Section B, Parts I and IV, completed. 2012 1040a form Deductions of More Than $500,000 If you claim a deduction of more than $500,000 for a donation of property, you must attach a qualified appraisal of the property to your return. 2012 1040a form This does not apply to contributions of cash, inventory, publicly traded stock, or intellectual property. 2012 1040a form If you do not attach the appraisal, you cannot deduct your contribution, unless your failure to attach the appraisal is due to reasonable cause and not to willful neglect. 2012 1040a form Qualified Appraisal Generally, if the claimed deduction for an item or group of similar items of donated property is more than $5,000, you must get a qualified appraisal made by a qualified appraiser. 2012 1040a form You must also complete Form 8283, Section B, and attach it to your tax return. 2012 1040a form See Deductions of More Than $5,000, earlier. 2012 1040a form A qualified appraisal is an appraisal document that: Is made, signed, and dated by a qualified appraiser (defined later) in accordance with generally accepted appraisal standards, Meets the relevant requirements of Regulations section 1. 2012 1040a form 170A-13(c)(3) and Notice 2006-96, 2006-46 I. 2012 1040a form R. 2012 1040a form B. 2012 1040a form 902 (available at www. 2012 1040a form irs. 2012 1040a form gov/irb/2006-46_IRB/ar13. 2012 1040a form html), Relates to an appraisal made not earlier than 60 days before the date of contribution of the appraised property, Does not involve a prohibited appraisal fee, and Includes certain information (covered later). 2012 1040a form You must receive the qualified appraisal before the due date, including extensions, of the return on which a charitable contribution deduction is first claimed for the donated property. 2012 1040a form If the deduction is first claimed on an amended return, the qualified appraisal must be received before the date on which the amended return is filed. 2012 1040a form Form 8283, Section B, must be attached to your tax return. 2012 1040a form Generally, you do not need to attach the qualified appraisal itself, but you should keep a copy as long as it may be relevant under the tax law. 2012 1040a form There are four exceptions. 2012 1040a form If you claim a deduction of $20,000 or more for donations of art, you must attach a complete copy of the appraisal. 2012 1040a form See Paintings, Antiques, and Other Objects of Art, earlier. 2012 1040a form If you claim a deduction of more than $500,000 for a donation of property, you must attach the appraisal. 2012 1040a form See Deductions of More Than $500,000, earlier. 2012 1040a form If you claim a deduction of more than $500 for an article of clothing, or a household item, that is not in good used condition or better, that you donated after August 17, 2006, you must attach the appraisal. 2012 1040a form See Deduction over $500 for certain clothing or household items, earlier. 2012 1040a form If you claim a deduction in a tax year beginning after August 17, 2006, for an easement or other restriction on the exterior of a building in a historic district, you must attach the appraisal. 2012 1040a form See Building in registered historic district, earlier. 2012 1040a form Prohibited appraisal fee. 2012 1040a form   Generally, no part of the fee arrangement for a qualified appraisal can be based on a percentage of the appraised value of the property. 2012 1040a form If a fee arrangement is based on what is allowed as a deduction, after Internal Revenue Service examination or otherwise, it is treated as a fee based on a percentage of appraised value. 2012 1040a form However, appraisals are not disqualified when an otherwise prohi
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U.S. Department of the Treasury

The Department of the Treasury manages Federal finances by collecting taxes and paying bills and by managing currency, government accounts and public debt. The Department of the Treasury also enforces finance and tax laws.

The 2012 1040a Form

2012 1040a form 2. 2012 1040a form   Taxable and Nontaxable Income Table of Contents Compensation for Services Retirement Plan DistributionsIndividual Retirement Arrangements (IRAs) Pensions and Annuities Social Security and Equivalent Railroad Retirement BenefitsAre Any of Your Benefits Taxable? How Much Is Taxable? How To Report Your Benefits Lump-Sum Election Repayments More Than Gross Benefits Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Life Insurance ProceedsInstallments for life. 2012 1040a form Surviving spouse. 2012 1040a form Endowment Contract Proceeds Accelerated Death Benefits Sale of HomeMaximum Amount of Exclusion Ownership and Use Tests Married Persons Business Use or Rental of Home Reporting the Sale Reverse Mortgages Other ItemsWelfare benefits. 2012 1040a form Payments from a state fund for victims of crime. 2012 1040a form Home Affordable Modification Program (HAMP). 2012 1040a form Mortgage assistance payments. 2012 1040a form Payments to reduce cost of winter energy use. 2012 1040a form Nutrition Program for the Elderly. 2012 1040a form Reemployment Trade Adjustment Assistance (RTAA). 2012 1040a form Generally, income is taxable unless it is specifically exempt (not taxed) by law. 2012 1040a form Your taxable income may include compensation for services, interest, dividends, rents, royalties, income from partnerships, estate or trust income, gain from sales or exchanges of property, and business income of all kinds. 2012 1040a form Under special provisions of the law, certain items are partially or fully exempt from tax. 2012 1040a form Provisions that are of special interest to older taxpayers are discussed in this chapter. 2012 1040a form Compensation for Services Generally, you must include in gross income everything you receive in payment for personal services. 2012 1040a form In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. 2012 1040a form You need not receive the compensation in cash for it to be taxable. 2012 1040a form Payments you receive in the form of goods or services generally must be included in gross income at their fair market value. 2012 1040a form Volunteer work. 2012 1040a form   Do not include in your gross income amounts you receive for supportive services or reimbursements for out-of-pocket expenses under any of the following volunteer programs. 2012 1040a form Retired Senior Volunteer Program (RSVP). 2012 1040a form Foster Grandparent Program. 2012 1040a form Senior Companion Program. 2012 1040a form Service Corps of Retired Executives (SCORE). 2012 1040a form Unemployment compensation. 2012 1040a form   You must include in income all unemployment compensation you or your spouse (if married filing jointly) received. 2012 1040a form More information. 2012 1040a form   See Publication 525, Taxable and Nontaxable Income, for more detailed information on specific types of income. 2012 1040a form Retirement Plan Distributions This section summarizes the tax treatment of amounts you receive from traditional individual retirement arrangements (IRA), employee pensions or annuities, and disability pensions or annuities. 2012 1040a form A traditional IRA is any IRA that is not a Roth or SIMPLE IRA. 2012 1040a form A Roth IRA is an individual retirement plan that can be either an account or an annuity and features nondeductible contributions and tax-free distributions. 2012 1040a form A SIMPLE IRA is a tax-favored retirement plan that certain small employers (including self-employed individuals) can set up for the benefit of their employees. 2012 1040a form More detailed information can be found in Publication 590, Individual Retirement Arrangements (IRAs), and Publication 575, Pension and Annuity Income. 2012 1040a form Individual Retirement Arrangements (IRAs) In general, distributions from a traditional IRA are taxable in the year you receive them. 2012 1040a form Exceptions to the general rule are rollovers, tax-free withdrawals of contributions, and the return of nondeductible contributions. 2012 1040a form These are discussed in Publication 590. 2012 1040a form If you made nondeductible contributions to a traditional IRA, you must file Form 8606, Nondeductible IRAs. 2012 1040a form If you do not file Form 8606 with your return, you may have to pay a $50 penalty. 2012 1040a form Also, when you receive distributions from your traditional IRA, the amounts will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. 2012 1040a form Early distributions. 2012 1040a form   Generally, early distributions are amounts distributed from your traditional IRA account or annuity before you are age 59½, or amounts you receive when you cash in retirement bonds before you are age  59½. 2012 1040a form You must include early distributions of taxable amounts in your gross income. 2012 1040a form These taxable amounts are also subject to an additional 10% tax unless the distribution qualifies for an exception. 2012 1040a form For purposes of the additional 10% tax, an IRA is a qualified retirement plan. 2012 1040a form For more information about this tax, see Tax on Early Distributions under Pensions and Annuities, later. 2012 1040a form After age 59½ and before age 70½. 2012 1040a form   After you reach age 59½, you can receive distributions from your traditional IRA without having to pay the 10% additional tax. 2012 1040a form Even though you can receive distributions after you reach age 59½, distributions are not required until you reach  age 70½. 2012 1040a form Required distributions. 2012 1040a form   If you are the owner of a traditional IRA, you generally must receive the entire balance in your IRA or start receiving periodic distributions from your IRA by April 1 of the year following the year in which you reach age 70½. 2012 1040a form See When Must You Withdraw Assets? (Required Minimum Distributions) in Publication 590. 2012 1040a form If distributions from your traditional IRA(s) are less than the required minimum distribution for the year, you may have to pay a 50% excise tax for that year on the amount not distributed as required. 2012 1040a form For purposes of the 50% excise tax, an IRA is a qualified retirement plan. 2012 1040a form For more information about this tax, see Tax on Excess Accumulation under Pensions and Annuities, later. 2012 1040a form See also Excess Accumulations (Insufficient Distributions) in Publication 590. 2012 1040a form Pensions and Annuities Generally, if you did not pay any part of the cost of your employee pension or annuity, and your employer did not withhold part of the cost of the contract from your pay while you worked, the amounts you receive each year are fully taxable. 2012 1040a form However, see Insurance Premiums for Retired Public Safety Officers , later. 2012 1040a form If you paid part of the cost of your pension or annuity plan (see Cost , later), you can exclude part of each annuity payment from income as a recovery of your cost (investment in the contract). 2012 1040a form This tax-free part of the payment is figured when your annuity starts and remains the same each year, even if the amount of the payment changes. 2012 1040a form The rest of each payment is taxable. 2012 1040a form However, see Insurance Premiums for Retired Public Safety Officers , later. 2012 1040a form You figure the tax-free part of the payment using one of the following methods. 2012 1040a form Simplified Method. 2012 1040a form You generally must use this method if your annuity is paid under a qualified plan (a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity plan or contract). 2012 1040a form You cannot use this method if your annuity is paid under a nonqualified plan. 2012 1040a form General Rule. 2012 1040a form You must use this method if your annuity is paid under a nonqualified plan. 2012 1040a form You generally cannot use this method if your annuity is paid under a qualified plan. 2012 1040a form Contact your employer or plan administrator to find out if your pension or annuity is paid under a qualified or nonqualified plan. 2012 1040a form You determine which method to use when you first begin receiving your annuity, and you continue using it each year that you recover part of your cost. 2012 1040a form Exclusion limit. 2012 1040a form   If your annuity starting date is after 1986, the total amount of annuity income you can exclude over the years as a recovery of the cost cannot exceed your total cost. 2012 1040a form Any unrecovered cost at your (or the last annuitant's) death is allowed as a miscellaneous itemized deduction on the final return of the decedent. 2012 1040a form This deduction is not subject to the 2%-of-adjusted-gross-income limit on miscellaneous deductions. 2012 1040a form   If you contributed to your pension or annuity and your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. 2012 1040a form If you chose a joint and survivor annuity, your survivor can continue to take the survivor's exclusion figured as of the annuity starting date. 2012 1040a form The total exclusion may be more than your cost. 2012 1040a form Cost. 2012 1040a form   Before you can figure how much, if any, of your pension or annuity benefits are taxable, you must determine your cost in the plan (your investment in the contract). 2012 1040a form Your total cost in the plan includes everything that you paid. 2012 1040a form It also includes amounts your employer contributed that were taxable to you when paid. 2012 1040a form However, see Foreign employment contributions , later. 2012 1040a form   From this total cost, subtract any refunded premiums, rebates, dividends, unrepaid loans, or other tax-free amounts you received by the later of the annuity starting date or the date on which you received your first payment. 2012 1040a form   The annuity starting date is the later of the first day of the first period for which you received a payment from the plan or the date on which the plan's obligations became fixed. 2012 1040a form    The amount of your contributions to the plan may be shown in box 9b of any Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 2012 1040a form , that you receive. 2012 1040a form Foreign employment contributions. 2012 1040a form   If you worked abroad, certain amounts your employer paid into your retirement plan that were not includible in your gross income may be considered part of your cost. 2012 1040a form For details, see Foreign employment contributions in Publication 575. 2012 1040a form Withholding. 2012 1040a form   The payer of your pension, profit-sharing, stock bonus, annuity, or deferred compensation plan will withhold income tax on the taxable part of amounts paid to you. 2012 1040a form However, you can choose not to have tax withheld on the payments you receive, unless they are eligible rollover distributions. 2012 1040a form (These are distributions that are eligible for rollover treatment but are not paid directly to another qualified retirement plan or to a traditional IRA. 2012 1040a form ) See Withholding Tax and Estimated Tax and Rollovers in Publication 575 for more information. 2012 1040a form   For payments other than eligible rollover distributions, you can tell the payer how much to withhold by filing a Form W-4P, Withholding Certificate for Pension or Annuity Payments. 2012 1040a form Simplified Method. 2012 1040a form   Under the Simplified Method, you figure the tax-free part of each annuity payment by dividing your cost by the total number of anticipated monthly payments. 2012 1040a form For an annuity that is payable over the lives of the annuitants, this number is based on the annuitants' ages on the annuity starting date and is determined from a table. 2012 1040a form For any other annuity, this number is the number of monthly annuity payments under the contract. 2012 1040a form Who must use the Simplified Method. 2012 1040a form   You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you receive your pension or annuity payments from a qualified plan or annuity, unless you were at least 75 years old and entitled to at least 5 years of guaranteed payments (defined next). 2012 1040a form   In addition, if your annuity starting date is after July 1, 1986, and before November 19, 1996, you could have chosen to use the Simplified Method for payments from a qualified plan, unless you were at least 75 years old and entitled to at least 5 years of guaranteed payments. 2012 1040a form If you chose to use the Simplified Method, you must continue to use it each year that you recover part of your cost. 2012 1040a form Guaranteed payments. 2012 1040a form   Your annuity contract provides guaranteed payments if a minimum number of payments or a minimum amount (for example, the amount of your investment) is payable even if you and any survivor annuitant do not live to receive the minimum. 2012 1040a form If the minimum amount is less than the total amount of the payments you are to receive, barring death, during the first 5 years after payments begin (figured by ignoring any payment increases), you are entitled to less than 5 years of guaranteed payments. 2012 1040a form Who cannot use the Simplified Method. 2012 1040a form   You cannot use the Simplified Method and must use the General Rule if you receive pension or annuity payments from: A nonqualified plan, such as a private annuity, a purchased commercial annuity, or a nonqualified employee plan, or A qualified plan if you are age 75 or older on your annuity starting date and you are entitled to at least 5 years of guaranteed payments (defined above). 2012 1040a form   In addition, you had to use the General Rule for either circumstance described above if your annuity starting date is after July 1, 1986, and before November 19, 1996. 2012 1040a form If you did not have to use the General Rule, you could have chosen to use it. 2012 1040a form You also had to use the General Rule for payments from a qualified plan if your annuity starting date is before July 2, 1986, and you did not qualify to use the Three-Year Rule. 2012 1040a form   If you had to use the General Rule (or chose to use it), you must continue to use it each year that you recover your cost. 2012 1040a form   Unless your annuity starting date was before 1987, once you have recovered all of your non-taxable investment, all of each remaining payment you receive is fully taxable. 2012 1040a form Once your remaining payments are fully taxable, there is no longer a concern with the General Rule or Simplified Method. 2012 1040a form   Complete information on the General Rule, including the actuarial tables you need, is contained in Publication 939, General Rule for Pensions and Annuities. 2012 1040a form How to use the Simplified Method. 2012 1040a form   Complete the Simplified Method Worksheet in the Form 1040, Form 1040A, or Form 1040NR instructions or in Publication 575 to figure your taxable annuity for 2013. 2012 1040a form Be sure to keep the completed worksheet; it will help you figure your taxable annuity next year. 2012 1040a form   To complete line 3 of the worksheet, you must determine the total number of expected monthly payments for your annuity. 2012 1040a form How you do this depends on whether the annuity is for a single life, multiple lives, or a fixed period. 2012 1040a form For this purpose, treat an annuity that is payable over the life of an annuitant as payable for that annuitant's life even if the annuity has a fixed-period feature or also provides a temporary annuity payable to the annuitant's child under age 25. 2012 1040a form    You do not need to complete line 3 of the worksheet or make the computation on line 4 if you received annuity payments last year and used last year's worksheet to figure your taxable annuity. 2012 1040a form Instead, enter the amount from line 4 of last year's worksheet on line 4 of this year's worksheet. 2012 1040a form Single-life annuity. 2012 1040a form   If your annuity is payable for your life alone, use Table 1 at the bottom of the worksheet to determine the total number of expected monthly payments. 2012 1040a form Enter on line 3 the number shown for your age on your annuity starting date. 2012 1040a form This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. 2012 1040a form Multiple-lives annuity. 2012 1040a form   If your annuity is payable for the lives of more than one annuitant, use Table 2 at the bottom of the worksheet to determine the total number of expected monthly payments. 2012 1040a form Enter on line 3 the number shown for the annuitants' combined ages on the annuity starting date. 2012 1040a form For an annuity payable to you as the primary annuitant and to more than one survivor annuitant, combine your age and the age of the youngest survivor annuitant. 2012 1040a form For an annuity that has no primary annuitant and is payable to you and others as survivor annuitants, combine the ages of the oldest and youngest annuitants. 2012 1040a form Do not treat as a survivor annuitant anyone whose entitlement to payments depends on an event other than the primary annuitant's death. 2012 1040a form   However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages. 2012 1040a form Instead, you must use Table 1 at the bottom of the worksheet and enter on line 3 the number shown for the primary annuitant's age on the annuity starting date. 2012 1040a form This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. 2012 1040a form Fixed-period annuities. 2012 1040a form   If your annuity does not depend in whole or in part on anyone's life expectancy, the total number of expected monthly payments to enter on line 3 of the worksheet is the number of monthly annuity payments under the contract. 2012 1040a form Line 6. 2012 1040a form   The amount on line 6 should include all amounts that could have been recovered in prior years. 2012 1040a form If you did not recover an amount in a prior year, you may be able to amend your returns for the affected years. 2012 1040a form    Be sure to keep a copy of the completed worksheet; it will help you figure your taxable annuity in later years. 2012 1040a form Example. 2012 1040a form Bill Smith, age 65, began receiving retirement benefits in 2013, under a joint and survivor annuity. 2012 1040a form Bill's annuity starting date is January 1, 2013. 2012 1040a form The benefits are to be paid over the joint lives of Bill and his wife, Kathy, age 65. 2012 1040a form Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. 2012 1040a form Bill is to receive a retirement benefit of $1,200 a month, and Kathy is to receive a monthly survivor benefit of $600 upon Bill's death. 2012 1040a form Bill must use the Simplified Method to figure his taxable annuity because his payments are from a qualified plan and he is under age 75. 2012 1040a form See the illustrated Worksheet 2-A, Simplified Method Worksheet, later. 2012 1040a form You can find a blank version of this worksheet in Publication 575. 2012 1040a form (The references in the illustrated worksheet are to sections in Publication 575). 2012 1040a form His annuity is payable over the lives of more than one annuitant, so Bill uses his and Kathy's combined ages, 130 (65 + 65), and Table 2 at the bottom of the worksheet in completing line 3 of the worksheet and finds the line 3 amount to be 310. 2012 1040a form Bill's tax-free monthly amount is $100 ($31,000 ÷ 310 as shown on line 4 of the worksheet). 2012 1040a form Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. 2012 1040a form The full amount of any annuity payments received after 310 payments are paid must generally be included in gross income. 2012 1040a form If Bill and Kathy die before 310 payments are made, a miscellaneous itemized deduction will be allowed for the unrecovered cost on the final income tax return of the last to die. 2012 1040a form This deduction is not subject to the 2%-of-adjusted-gross-income limit. 2012 1040a form Worksheet 2-A. 2012 1040a form Simplified Method Worksheet—Illustrated 1. 2012 1040a form Enter the total pension or annuity payments received this year. 2012 1040a form Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. 2012 1040a form $ 14,400 2. 2012 1040a form Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion* See Cost (Investment in the Contract), earlier 2. 2012 1040a form 31,000   Note. 2012 1040a form If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if the amount of your pension or annuity has changed). 2012 1040a form Otherwise, go to line 3. 2012 1040a form     3. 2012 1040a form Enter the appropriate number from Table 1 below. 2012 1040a form But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2 below 3. 2012 1040a form 310 4. 2012 1040a form Divide line 2 by the number on line 3 4. 2012 1040a form 100 5. 2012 1040a form Multiply line 4 by the number of months for which this year's payments were made. 2012 1040a form If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. 2012 1040a form Otherwise, go to line 6 5. 2012 1040a form 1,200 6. 2012 1040a form Enter any amount previously recovered tax free in years after 1986. 2012 1040a form This is the amount shown on line 10 of your worksheet for last year 6. 2012 1040a form 0 7. 2012 1040a form Subtract line 6 from line 2 7. 2012 1040a form 31,000 8. 2012 1040a form Enter the smaller of line 5 or line 7 8. 2012 1040a form 1,200 9. 2012 1040a form Taxable amount for year. 2012 1040a form Subtract line 8 from line 1. 2012 1040a form Enter the result, but not less than zero. 2012 1040a form Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. 2012 1040a form Note. 2012 1040a form If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. 2012 1040a form If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers, earlier, before entering an amount on your tax return. 2012 1040a form 9. 2012 1040a form $ 13,200 10. 2012 1040a form Was your annuity starting date before 1987? □ Yes. 2012 1040a form STOP. 2012 1040a form Do not complete the rest of this worksheet. 2012 1040a form  ☑ No. 2012 1040a form Add lines 6 and 8. 2012 1040a form This is the amount you have recovered tax free through 2013. 2012 1040a form You will need this number if you need to fill out this worksheet next year. 2012 1040a form 10. 2012 1040a form 1,200 11. 2012 1040a form Balance of cost to be recovered. 2012 1040a form Subtract line 10 from line 2. 2012 1040a form If zero, you will not have to complete this worksheet next year. 2012 1040a form The payments you receive next year will generally be fully taxable 11. 2012 1040a form $ 29,800 * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. 2012 1040a form   Table 1 for Line 3 Above       AND your annuity starting date was—   IF your age on your annuity starting date was . 2012 1040a form . 2012 1040a form . 2012 1040a form   BEFORE November 19, 1996, enter on line 3 . 2012 1040a form . 2012 1040a form . 2012 1040a form AFTER November 18, 1996, enter on line 3 . 2012 1040a form . 2012 1040a form . 2012 1040a form   55 or under 300 360   56-60 260 310   61-65 240 260   66-70 170 210   71 or over 120 160 Table 2 for Line 3 Above   IF the annuitants' combined ages on your annuity starting date were . 2012 1040a form . 2012 1040a form . 2012 1040a form   THEN enter on line 3 . 2012 1040a form . 2012 1040a form . 2012 1040a form         110 or under   410         111-120   360         121-130   310         131-140   260         141 or over   210       Survivors of retirees. 2012 1040a form   Benefits paid to you as a survivor under a joint and survivor annuity must be included in your gross income in the same way the retiree would have included them in gross income. 2012 1040a form   If you receive a survivor annuity because of the death of a retiree who had reported the annuity under the Three-Year Rule, include the total received in your income. 2012 1040a form The retiree's cost has already been recovered tax free. 2012 1040a form   If the retiree was reporting the annuity payments under the General Rule, you must apply the same exclusion percentage the retiree used to your initial payment called for in the contract. 2012 1040a form The resulting tax-free amount will then remain fixed. 2012 1040a form Any increases in the survivor annuity are fully taxable. 2012 1040a form   If the retiree was reporting the annuity payments under the Simplified Method, the part of each payment that is tax free is the same as the tax-free amount figured by the retiree at the annuity starting date. 2012 1040a form See Simplified Method , earlier. 2012 1040a form How to report. 2012 1040a form   If you file Form 1040, report your total annuity on line 16a, and the taxable part on line 16b. 2012 1040a form If your pension or annuity is fully taxable, enter it on line 16b. 2012 1040a form Do not make an entry on line 16a. 2012 1040a form   If you file Form 1040A, report your total annuity on line 12a, and the taxable part on line 12b. 2012 1040a form If your pension or annuity is fully taxable, enter it on line 12b. 2012 1040a form Do not make an entry on line 12a. 2012 1040a form   If you file Form 1040NR, report your total annuity on line 17a, and the taxable part on line 17b. 2012 1040a form If your pension or annuity is fully taxable, enter it on line 17b. 2012 1040a form Do not make an entry on line 17a. 2012 1040a form Example. 2012 1040a form You are a Form 1040 filer and you received monthly payments totaling $1,200 (12 months x $100) during 2013 from a pension plan that was completely financed by your employer. 2012 1040a form You had paid no tax on the payments that your employer made to the plan, and the payments were not used to pay for accident, health, or long-term care insurance premiums (as discussed later under Insurance Premiums for Retired Public Safety Officers ). 2012 1040a form The entire $1,200 is taxable. 2012 1040a form You include $1,200 only on Form 1040, line 16b. 2012 1040a form Joint return. 2012 1040a form   If you file a joint return and you and your spouse each receive one or more pensions or annuities, report the total of the pensions and annuities on line 16a of Form 1040, line 12a of Form 1040A, or line 17a of Form 1040NR. 2012 1040a form Report the total of the taxable parts on line 16b of Form 1040, line 12b of Form 1040A, or line 17b of Form 1040NR. 2012 1040a form Form 1099-R. 2012 1040a form   You should receive a Form 1099-R for your pension or annuity. 2012 1040a form Form 1099-R shows your pension or annuity for the year and any income tax withheld. 2012 1040a form You should receive a Form W-2 if you receive distributions from certain nonqualified plans. 2012 1040a form You must attach Forms 1099-R or Forms W-2 to your 2013 tax return if federal income tax was withheld. 2012 1040a form Generally, you should be sent these forms by January 31, 2014. 2012 1040a form Nonperiodic Distributions If you receive a nonperiodic distribution from your retirement plan, you may be able to exclude all or part of it from your income as a recovery of your cost. 2012 1040a form Nonperiodic distributions include cash withdrawals, distributions of current earnings (dividends) on your investment, and certain loans. 2012 1040a form For information on how to figure the taxable amount of a nonperiodic distribution, see Taxation of Nonperiodic Payments in Publication 575. 2012 1040a form The taxable part of a nonperiodic distribution may be subject to an additional 10% tax. 2012 1040a form See Tax on Early Distributions, later. 2012 1040a form Lump-sum distributions. 2012 1040a form   If you receive a lump-sum distribution from a qualified employee plan or qualified employee annuity and the plan participant was born before January 2, 1936, you may be able to elect optional methods of figuring the tax on the distribution. 2012 1040a form The part from active participation in the plan before 1974 may qualify as capital gain subject to a 20% tax rate. 2012 1040a form The part from participation after 1973 (and any part from participation before 1974 that you do not report as capital gain) is ordinary income. 2012 1040a form You may be able to use the 10-year tax option to figure tax on the ordinary income part. 2012 1040a form Form 1099-R. 2012 1040a form   If you receive a total distribution from a plan, you should receive a Form 1099-R. 2012 1040a form If the distribution qualifies as a lump-sum distribution, box 3 shows the capital gain part of the distribution. 2012 1040a form The amount in box 2a, Taxable amount, minus the amount in box 3, Capital gain, is the ordinary income part. 2012 1040a form More information. 2012 1040a form   For more detailed information on lump-sum distributions, see Publication 575 or Form 4972, Tax on Lump-Sum Distributions. 2012 1040a form Tax on Early Distributions Most distributions you receive from your qualified retirement plan and nonqualified annuity contracts before you reach age 59½ are subject to an additional tax of 10%. 2012 1040a form The tax applies to the taxable part of the distribution. 2012 1040a form For this purpose, a qualified retirement plan is: A qualified employee plan (including a qualified cash or deferred arrangement (CODA) under Internal Revenue Code section 401(k)), A qualified employee annuity plan, A tax-sheltered annuity plan (403(b) plan), or An eligible state or local government section 457 deferred compensation plan (to the extent that any distribution is attributable to amounts the plan received in a direct transfer or rollover from one of the other plans listed here or an IRA). 2012 1040a form  An IRA is also a qualified retirement plan for purposes of this tax. 2012 1040a form General exceptions to tax. 2012 1040a form   The early distribution tax does not apply to any distributions that are: Made as part of a series of substantially equal periodic payments (made at least annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary (if from a qualified retirement plan, the payments must begin after separation from service), Made because you are totally and permanently disabled, or Made on or after the death of the plan participant or contract holder. 2012 1040a form Additional exceptions. 2012 1040a form   There are additional exceptions to the early distribution tax for certain distributions from qualified retirement plans and nonqualified annuity contracts. 2012 1040a form See Publication 575 for details. 2012 1040a form Reporting tax. 2012 1040a form   If you owe only the tax on early distributions and distribution code 1 (early distribution, no known exception) is correctly shown in Form 1099-R, box 7, multiply the taxable part of the early distribution by 10% (. 2012 1040a form 10) and enter the result on Form 1040, line 58, or Form 1040NR, line 56. 2012 1040a form See the instructions for line 58 of Form 1040 or line 56 of Form 1040NR for more information about reporting the early distribution tax. 2012 1040a form Tax on Excess Accumulation To make sure that most of your retirement benefits are paid to you during your lifetime, rather than to your beneficiaries after your death, the payments that you receive from qualified retirement plans must begin no later than your required beginning date. 2012 1040a form Unless the rule for 5% owners applies, this is generally April 1 of the year that follows the later of: The calendar year in which you reach age 70½, or The calendar year in which you retire from employment with the employer maintaining the plan. 2012 1040a form However, your plan may require you to begin to receive payments by April 1 of the year that follows the year in which you reach 70½, even if you have not retired. 2012 1040a form For this purpose, a qualified retirement plan includes: A qualified employee plan, A qualified employee annuity plan, An eligible section 457 deferred compensation plan, or A tax-sheltered annuity plan (403(b) plan) (for benefits accruing after 1986). 2012 1040a form  An IRA is also a qualified retirement plan for purposes of this tax. 2012 1040a form An excess accumulation is the undistributed remainder of the required minimum distribution that was left in your qualified retirement plan. 2012 1040a form 5% owners. 2012 1040a form   If you own (or are considered to own under section 318 of the Internal Revenue Code) more than 5% of the company maintaining your qualified retirement plan, you must begin to receive distributions from the plan by April 1 of the year after the calendar year in which you reach age 70½. 2012 1040a form See Publication 575 for more information. 2012 1040a form Amount of tax. 2012 1040a form   If you do not receive the required minimum distribution, you are subject to an additional tax. 2012 1040a form The tax equals 50% of the difference between the amount that must be distributed and the amount that was distributed during the tax year. 2012 1040a form You can get this excise tax excused if you establish that the shortfall in distributions was due to reasonable error and that you are taking reasonable steps to remedy the shortfall. 2012 1040a form Form 5329. 2012 1040a form   You must file a Form 5329 if you owe a tax because you did not receive a minimum required distribution from your qualified retirement plan. 2012 1040a form Additional information. 2012 1040a form   For more detailed information on the tax on excess accumulation, see Publication 575. 2012 1040a form Insurance Premiums for Retired Public Safety Officers If you are an eligible retired public safety officer (law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew), you can elect to exclude from income distributions made from your eligible retirement plan that are used to pay the premiums for accident or health insurance or long-term care insurance. 2012 1040a form The premiums can be for coverage for you, your spouse, or dependent(s). 2012 1040a form The distribution must be made directly from the plan to the insurance provider. 2012 1040a form You can exclude from income the smaller of the amount of the insurance premiums or $3,000. 2012 1040a form You can only make this election for amounts that would otherwise be included in your income. 2012 1040a form The amount excluded from your income cannot be used to claim a medical expense deduction. 2012 1040a form An eligible retirement plan is a governmental plan that is a: Qualified trust, Section 403(a) plan, Section 403(b) annuity, or Section 457(b) plan. 2012 1040a form If you make this election, reduce the otherwise taxable amount of your pension or annuity by the amount excluded. 2012 1040a form The taxable amount shown in box 2a of any Form 1099-R that you receive does not reflect the exclusion. 2012 1040a form Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. 2012 1040a form Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. 2012 1040a form Enter “PSO” next to the appropriate line on which you report the taxable amount. 2012 1040a form Railroad Retirement Benefits Benefits paid under the Railroad Retirement Act fall into two categories. 2012 1040a form These categories are treated differently for income tax purposes. 2012 1040a form Social security equivalent benefits. 2012 1040a form   The first category is the amount of tier 1 railroad retirement benefits that equals the social security benefit that a railroad employee or beneficiary would have been entitled to receive under the social security system. 2012 1040a form This part of the tier 1 benefit is the social security equivalent benefit (SSEB) and is treated for tax purposes like social security benefits. 2012 1040a form (See Social Security and Equivalent Railroad Retirement Benefits , later. 2012 1040a form ) Non-social security equivalent benefits. 2012 1040a form   The second category contains the rest of the tier 1 benefits, called the non-social security equivalent benefit (NSSEB). 2012 1040a form It also contains any tier 2 benefit, vested dual benefit (VDB), and supplemental annuity benefit. 2012 1040a form This category of benefits is treated as an amount received from a qualified employee plan. 2012 1040a form This allows for the tax-free (nontaxable) recovery of employee contributions from the tier 2 benefits and the NSSEB part of the tier 1 benefits. 2012 1040a form Vested dual benefits and supplemental annuity benefits are non-contributory pensions and are fully taxable. 2012 1040a form More information. 2012 1040a form   For more information about railroad retirement benefits, see Publication 575. 2012 1040a form Military Retirement Pay Military retirement pay based on age or length of service is taxable and must be included in income as a pension on Form 1040, lines 16a and 16b; on Form 1040A, lines 12a and 12b; or on Form 1040NR, lines 17a and 17b. 2012 1040a form But, certain military and government disability pensions that are based on a percentage of disability from active service in the Armed Forces of any country generally are not taxable. 2012 1040a form For more information, including information about veterans' benefits and insurance, see Publication 525. 2012 1040a form Social Security and Equivalent Railroad Retirement Benefits This discussion explains the federal income tax rules for social security benefits and equivalent tier 1 railroad retirement benefits. 2012 1040a form Social security benefits include monthly retirement, survivor, and disability benefits. 2012 1040a form They do not include supplemental security income (SSI) payments, which are not taxable. 2012 1040a form Equivalent tier 1 railroad retirement benefits are the part of tier 1 benefits that a railroad employee or beneficiary would have been entitled to receive under the social security system. 2012 1040a form They commonly are called the social security equivalent benefit (SSEB) portion of tier 1 benefits. 2012 1040a form If you received these benefits during 2013, you should have received a Form SSA-1099 or Form RRB-1099 (Form SSA-1042S or Form RRB-1042S if you are a nonresident alien), showing the amount of the benefits. 2012 1040a form Are Any of Your Benefits Taxable? Note. 2012 1040a form When the term “benefits” is used in this section, it applies to both social security benefits and the SSEB portion of tier 1 railroad retirement benefits. 2012 1040a form  To find out whether any of your benefits may be taxable, compare the base amount for your filing status (explained later) with the total of: One-half of your benefits, plus All your other income, including tax-exempt interest. 2012 1040a form When making this comparison, do not reduce your other income by any exclusions for: Interest from qualified U. 2012 1040a form S. 2012 1040a form savings bonds, Employer-provided adoption benefits, Foreign earned income or foreign housing, or Income earned in American Samoa or Puerto Rico by bona fide residents. 2012 1040a form Figuring total income. 2012 1040a form   To figure the total of one-half of your benefits plus your other income, use Worksheet 2-B. 2012 1040a form If that total amount is more than your base amount, part of your benefits may be taxable. 2012 1040a form If you are married and file a joint return for 2013, you and your spouse must combine your incomes and your benefits to figure whether any of your combined benefits are taxable. 2012 1040a form Even if your spouse did not receive any benefits, you must add your spouse's income to yours to figure whether any of your benefits are taxable. 2012 1040a form If the only income you received during 2013 was your social security or the SSEB portion of tier 1 railroad retirement benefits, your benefits generally are not taxable and you probably do not have to file a return. 2012 1040a form If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable. 2012 1040a form Worksheet 2-B. 2012 1040a form A Quick Way To Check if Your Benefits May Be Taxable A. 2012 1040a form Enter the amount from box 5 of all your Forms SSA-1099 and RRB-1099. 2012 1040a form Include  the full amount of any lump-sum benefit payments received in 2013, for 2013 and  earlier years. 2012 1040a form (If you received more than one form, combine the amounts from box 5  and enter the total. 2012 1040a form ) A. 2012 1040a form     Note. 2012 1040a form If the amount on line A is zero or less, stop here; none of your benefits are  taxable this year. 2012 1040a form     B. 2012 1040a form Enter one-half of the amount on line A B. 2012 1040a form   C. 2012 1040a form Enter your taxable pensions, wages, interest, dividends, and other taxable income C. 2012 1040a form   D. 2012 1040a form Enter any tax-exempt interest income (such as interest on municipal bonds) plus any exclusions from income for: •Interest from qualified U. 2012 1040a form S. 2012 1040a form savings bonds, •Employer-provided adoption benefits, •Foreign earned income or foreign housing, or •Income earned in American Samoa or Puerto Rico by bona fide residents D. 2012 1040a form   E. 2012 1040a form Add lines B, C, and D and enter the total E. 2012 1040a form   F. 2012 1040a form If you are: •Married filing jointly, enter $32,000 •Single, head of household, qualifying widow(er), or married filing separately and you  lived apart from your spouse for all of 2013, enter $25,000 •Married filing separately and you lived with your spouse at any time during 2013,  enter -0- F. 2012 1040a form   G. 2012 1040a form Is the amount on line F less than or equal to the amount on line E? □ No. 2012 1040a form None of your benefits are taxable this year. 2012 1040a form  □ Yes. 2012 1040a form Some of your benefits may be taxable. 2012 1040a form To figure how much of your benefits  are taxable, see Which worksheet to use under How Much Is Taxable. 2012 1040a form     Base Amount Your base amount is: $25,000 if you are single, head of household, or qualifying widow(er) with dependent child, $25,000 if you are married filing separately and lived apart from your spouse for all of 2013, $32,000 if you are married filing jointly, or $0 if you are married filing separately and lived with your spouse at any time during 2013. 2012 1040a form Repayment of Benefits Any repayment of benefits you made during 2013 must be subtracted from the gross benefits you received in 2013. 2012 1040a form It does not matter whether the repayment was for a benefit you received in 2013 or in an earlier year. 2012 1040a form If you repaid more than the gross benefits you received in 2013, see Repayments More Than Gross Benefits , later. 2012 1040a form Your gross benefits are shown in box 3 of Form SSA-1099 or Form RRB-1099. 2012 1040a form Your repayments are shown in box 4. 2012 1040a form The amount in box 5 shows your net benefits for 2013 (box 3 minus box 4). 2012 1040a form Use the amount in box 5 to figure whether any of your benefits are taxable. 2012 1040a form Tax Withholding and Estimated Tax You can choose to have federal income tax withheld from your social security and/or the SSEB portion of your tier 1 railroad retirement benefits. 2012 1040a form If you choose to do this, you must complete a Form W-4V, Voluntary Withholding Request. 2012 1040a form If you do not choose to have income tax withheld, you may have to request additional withholding from other income, or pay estimated tax during the year. 2012 1040a form For details, see Publication 505, Tax Withholding and Estimated Tax, or the instructions for Form 1040-ES, Estimated Tax for Individuals. 2012 1040a form How Much Is Taxable? If part of your benefits is taxable, how much is taxable depends on the total amount of your benefits and other income. 2012 1040a form Generally, the higher that total amount, the greater the taxable part of your benefits. 2012 1040a form Maximum taxable part. 2012 1040a form   The taxable part of your benefits usually cannot be more than 50%. 2012 1040a form However, up to 85% of your benefits can be taxable if either of the following situations applies to you. 2012 1040a form The total of one-half of your benefits and all your other income is more than $34,000 ($44,000 if you are married filing jointly). 2012 1040a form You are married filing separately and lived with your spouse at any time during 2013. 2012 1040a form   If you are a nonresident alien, 85% of your benefits are taxable. 2012 1040a form However, this income is exempt under some tax treaties. 2012 1040a form Which worksheet to use. 2012 1040a form   A worksheet to figure your taxable benefits is in the instructions for your Form 1040 or 1040A. 2012 1040a form However, you will need to use a different worksheet(s) if any of the following situations applies to you. 2012 1040a form You contributed to a traditional individual retirement arrangement (IRA) and you or your spouse were covered by a retirement plan at work. 2012 1040a form In this situation, you must use the special worksheets in Appendix B of Publication 590 to figure both your IRA deduction and your taxable benefits. 2012 1040a form Situation (1) does not apply and you take one or more of the following exclusions. 2012 1040a form Interest from qualified U. 2012 1040a form S. 2012 1040a form savings bonds (Form 8815). 2012 1040a form Employer-provided adoption benefits (Form 8839). 2012 1040a form Foreign earned income or housing (Form 2555 or Form 2555-EZ). 2012 1040a form Income earned in American Samoa (Form 4563) or Puerto Rico by bona fide residents. 2012 1040a form In these situations, you must use Worksheet 1 in Publication 915, Social Security and Equivalent Railroad Retirement Benefits, to figure your taxable benefits. 2012 1040a form You received a lump-sum payment for an earlier year. 2012 1040a form In this situation, also complete Worksheet 2 or 3 and Worksheet 4 in Publication 915. 2012 1040a form See Lump-Sum Election , later. 2012 1040a form How To Report Your Benefits If part of your benefits are taxable, you must use Form 1040, Form 1040A, or Form 1040NR. 2012 1040a form You cannot use Form 1040EZ. 2012 1040a form Reporting on Form 1040. 2012 1040a form   Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 20a and the taxable part on line 20b. 2012 1040a form If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 20a. 2012 1040a form Reporting on Form 1040A. 2012 1040a form   Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 14a and the taxable part on line 14b. 2012 1040a form If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 14a. 2012 1040a form Reporting on Form 1040NR. 2012 1040a form   Report 85% of the total amount of your benefits (box 5 of your Form SSA-1042S or Form RRB-1042S) in the appropriate column of Form 1040NR, Schedule NEC, line 8. 2012 1040a form Benefits not taxable. 2012 1040a form   If you are filing Form 1040EZ, do not report any benefits on your tax return. 2012 1040a form If you are filing Form 1040 or Form 1040A, report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on Form 1040, line 20a, or Form 1040A, line 14a. 2012 1040a form Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. 2012 1040a form If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. 2012 1040a form Lump-Sum Election You must include the taxable part of a lump-sum (retroactive) payment of benefits received in 2013 in your 2013 income, even if the payment includes benefits for an earlier year. 2012 1040a form This type of lump-sum benefit payment should not be confused with the lump-sum death benefit that both the SSA and RRB pay to many of their beneficiaries. 2012 1040a form No part of the lump-sum death benefit is subject to tax. 2012 1040a form For more information about the lump-sum death benefit, visit the Social Security Administration website at www. 2012 1040a form SSA. 2012 1040a form gov, and use keyword: death benefit. 2012 1040a form Generally, you use your 2013 income to figure the taxable part of the total benefits received in 2013. 2012 1040a form However, you may be able to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year. 2012 1040a form You can elect this method if it lowers your taxable benefits. 2012 1040a form See Publication 915 for more information. 2012 1040a form Repayments More Than Gross Benefits In some situations, your Form SSA-1099 or Form RRB-1099 will show that the total benefits you repaid (box 4) are more than the gross benefits (box 3) you received. 2012 1040a form If this occurred, your net benefits in box 5 will be a negative figure (a figure in parentheses) and none of your benefits will be taxable. 2012 1040a form If you receive more than one form, a negative figure in box 5 of one form is used to offset a positive figure in box 5 of another form for that same year. 2012 1040a form If you have any questions about this negative figure, contact your local Social Security Administration office or your local U. 2012 1040a form S. 2012 1040a form Railroad Retirement Board field office. 2012 1040a form Joint return. 2012 1040a form   If you and your spouse file a joint return, and your Form SSA-1099 or RRB-1099 has a negative figure in box 5 but your spouse's does not, subtract the box 5 amount on your form from the box 5 amount on your spouse's form. 2012 1040a form You do this to get your net benefits when figuring if your combined benefits are taxable. 2012 1040a form Repayment of benefits received in an earlier year. 2012 1040a form   If the total amount shown in box 5 of all of your Forms SSA-1099 and RRB-1099 is a negative figure, you can take an itemized deduction for the part of this negative figure that represents benefits you included in gross income in an earlier year. 2012 1040a form   If this deduction is $3,000 or less, it is subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions. 2012 1040a form Claim it on Schedule A (Form 1040), line 23. 2012 1040a form   If this deduction is more than $3,000, you have to follow some special instructions. 2012 1040a form See Publication 915 for those instructions. 2012 1040a form Sickness and Injury Benefits Generally, you must report as income any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer. 2012 1040a form If both you and your employer pay for the plan, only the amount you receive that is due to your employer's payments is reported as income. 2012 1040a form However, certain payments may not be taxable to you. 2012 1040a form Some of these payments are discussed later in this section. 2012 1040a form Also, see Military and Government Disability Pensions and Other Sickness and Injury Benefits in Publication 525. 2012 1040a form Cost paid by you. 2012 1040a form   If you pay the entire cost of an accident or health plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return. 2012 1040a form If your plan reimbursed you for medical expenses you deducted in an earlier year, you may have to include some, or all, of the reimbursement in your income. 2012 1040a form Disability Pensions If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. 2012 1040a form You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A or on line 8 of Form 1040NR until you reach minimum retirement age. 2012 1040a form Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. 2012 1040a form If you were 65 or older by the end of 2013 or you were retired on permanent and total disability and received taxable disability income, you may be able to claim the credit for the elderly or the disabled. 2012 1040a form See Credit for the Elderly or the Disabled, later. 2012 1040a form For more information on this credit, see Publication 524, Credit for the Elderly or the Disabled. 2012 1040a form Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. 2012 1040a form Report the payments on lines 16a and 16b of Form 1040, on lines 12a and 12b of Form 1040A, or on lines 17a and 17b of Form 1040NR. 2012 1040a form For more information on pensions and annuities, see Publication 575. 2012 1040a form Retirement and profit-sharing plans. 2012 1040a form   If you receive payments from a retirement or profit-sharing plan that does not provide for disability retirement, do not treat the payments as a disability pension. 2012 1040a form The payments must be reported as a pension or annuity. 2012 1040a form Accrued leave payment. 2012 1040a form   If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. 2012 1040a form The payment is not a disability payment. 2012 1040a form Include it in your income in the tax year you receive it. 2012 1040a form Long-Term Care Insurance Contracts In most cases, long-term care insurance contracts generally are treated as accident and health insurance contracts. 2012 1040a form Amounts you receive from them (other than policyholder dividends or premium refunds) generally are excludable from income as amounts received for personal injury or sickness. 2012 1040a form However, the amount you can exclude may be limited. 2012 1040a form Long-term care insurance contracts are discussed in more detail in Publication 525. 2012 1040a form Workers' Compensation Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act. 2012 1040a form The exemption also applies to your survivors. 2012 1040a form The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury. 2012 1040a form If part of your workers' compensation reduces your social security or equivalent railroad retirement benefits, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. 2012 1040a form For a discussion of the taxability of these benefits, see Social Security and Equivalent Railroad Retirement Benefits, earlier. 2012 1040a form Return to work. 2012 1040a form   If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties are taxable as wages. 2012 1040a form Other Sickness and Injury Benefits In addition to disability pensions and annuities, you may receive other payments for sickness or injury. 2012 1040a form Federal Employees' Compensation Act (FECA). 2012 1040a form   Payments received under this Act for personal injury or sickness, including payments to beneficiaries in case of death, are not taxable. 2012 1040a form However, you are taxed on amounts you receive under this Act as continuation of pay for up to 45 days while a claim is being decided. 2012 1040a form Report this income on Form 1040, line 7; Form 1040A, line 7; on Form 1040EZ, line 1; or Form 1040NR, line 8. 2012 1040a form Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages. 2012 1040a form    If part of the payments you receive under FECA reduces your social security or equivalent railroad retirement benefits, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. 2012 1040a form For a discussion of the taxability of these benefits, see Social Security and Equivalent Railroad Retirement Benefits, earlier. 2012 1040a form Other compensation. 2012 1040a form   Many other amounts you receive as compensation for sickness or injury are not taxable. 2012 1040a form These include the following amounts. 2012 1040a form Benefits you receive under an accident or health insurance policy on which either you paid the premiums or your employer paid the premiums but you had to include them in your income. 2012 1040a form Disability benefits you receive for loss of income or earning capacity as a result of injuries under a no-fault car insurance policy. 2012 1040a form Compensation you receive for permanent loss or loss of use of a part or function of your body, for your permanent disfigurement, or for such loss or disfigurement suffered by your spouse or dependent(s). 2012 1040a form This compensation must be based only on the injury and not on the period of your absence from work. 2012 1040a form These benefits are not taxable even if your employer pays for the accident and health plan that provides these benefits. 2012 1040a form Life Insurance Proceeds Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. 2012 1040a form This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. 2012 1040a form Proceeds not received in installments. 2012 1040a form   If death benefits are paid to you in a lump sum or other than at regular intervals, include in your income only the benefits that are more than the amount payable to you at the time of the insured person's death. 2012 1040a form If the benefit payable at death is not specified, you include in your income the benefit payments that are more than the present value of the payments at the time of death. 2012 1040a form Proceeds received in installments. 2012 1040a form   If you receive life insurance proceeds in installments, you can exclude part of each installment from your income. 2012 1040a form   To determine the excluded part, divide the amount held by the insurance company (generally the total lump sum payable at the death of the insured person) by the number of installments to be paid. 2012 1040a form Include anything over this excluded part in your income as interest. 2012 1040a form Installments for life. 2012 1040a form   If, as the beneficiary under an insurance contract, you are entitled to receive the proceeds in installments for the rest of your life without a refund or period-certain guarantee, you figure the excluded part of each installment by dividing the amount held by the insurance company by your life expectancy. 2012 1040a form If there is a refund or period-certain guarantee, the amount held by the insurance company for this purpose is reduced by the actuarial value of the guarantee. 2012 1040a form Surviving spouse. 2012 1040a form   If your spouse died before October 23, 1986, and insurance proceeds paid to you because of the death of your spouse are received in installments, you can exclude, in any year, up to $1,000 of the interest included in the installments. 2012 1040a form If you remarry, you can continue to take the exclusion. 2012 1040a form Surrender of policy for cash. 2012 1040a form   If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. 2012 1040a form In general, your cost (or investment in the contract) is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income. 2012 1040a form You should receive a Form 1099-R showing the total proceeds and the taxable part. 2012 1040a form Report these amounts on Form 1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or Form 1040NR, lines 17a and 17b. 2012 1040a form Endowment Contract Proceeds An endowment contract is a policy that pays over to you a specified amount of money on a certain date unless you die before that date, in which case, the money is paid to your designated beneficiary. 2012 1040a form Endowment proceeds paid in a lump sum to you at maturity are taxable only if the proceeds are more than the cost of the policy. 2012 1040a form To determine your cost, subtract from the total premiums (or other consideration) paid for the contract any amount that you previously received under the contract and excluded from your income. 2012 1040a form Include in your income the part of the lump-sum payment that is more than your cost. 2012 1040a form Endowment proceeds that you choose to receive in installments instead of a lump-sum payment at the maturity of the policy are taxed as an annuity. 2012 1040a form The tax treatment of an annuity is explained in Publication 575. 2012 1040a form For this treatment to apply, you must choose to receive the proceeds in installments before receiving any part of the lump sum. 2012 1040a form This election must be made within 60 days after the lump-sum payment first becomes payable to you. 2012 1040a form Accelerated Death Benefits Certain amounts paid as accelerated death benefits under a life insurance contract or viatical settlement before the insured's death are generally excluded from income if the insured is terminally or chronically ill. 2012 1040a form However, see Exception , later. 2012 1040a form For a chronically ill individual, accelerated death benefits paid on the basis of costs incurred for qualified long-term care services are fully excludable. 2012 1040a form Accelerated death benefits paid on a per diem or other periodic basis without regard to the costs are excludable up to a limit. 2012 1040a form In addition, if any portion of a death benefit under a life insurance contract on the life of a terminally or chronically ill individual is sold or assigned to a viatical settlement provider, the amount received also is excluded from income. 2012 1040a form Generally, a viatical settlement provider is one who regularly engages in the business of buying or taking assignment of life insurance contracts on the lives of insured individuals who are terminally or chronically ill. 2012 1040a form To report taxable accelerated death benefits made on a per diem or other periodic basis, you must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your return. 2012 1040a form Terminally or chronically ill defined. 2012 1040a form   A terminally ill person is one who has been certified by a physician as having an illness or physical condition that reasonably can be expected to result in death within 24 months from the date of the certification. 2012 1040a form A chronically ill person is one who is not terminally ill but has been certified (within the previous 12 months) by a licensed health care practitioner as meeting either of the following conditions. 2012 1040a form The person is unable to perform (without substantial help) at least two activities of daily living (eating, toileting, transferring, bathing, dressing, and continence) for a period of 90 days or more because of a loss of functional capacity. 2012 1040a form The person requires substantial supervision to protect himself or herself from threats to health and safety due to severe cognitive impairment. 2012 1040a form Exception. 2012 1040a form   The exclusion does not apply to any amount paid to a person other than the insured if that other person has an insurable interest in the life of the insured because the insured: Is a director, officer, or employee of the other person, or Has a financial interest in the business of the other person. 2012 1040a form Sale of Home You may be able to exclude from income any gain up to $250,000 ($500,000 on a joint return in most cases) on the sale of your main home. 2012 1040a form Generally, if you can exclude all of the gain, you do not need to report the sale on your tax return. 2012 1040a form You can choose not to take the exclusion by including the gain from the sale in your gross income on your tax return for the year of the sale. 2012 1040a form Main home. 2012 1040a form   Usually, your main home is the home you live in most of the time and can be a: House, Houseboat, Mobile home, Cooperative apartment, or Condominium. 2012 1040a form Repaying the first-time homebuyer credit because you sold your home. 2012 1040a form   If you claimed a first-time homebuyer credit for your main home and you sell it, you may have to repay the credit. 2012 1040a form For a home purchased in 2008 and used as your main home until sold in 2013, you must file Form 5405 and repay the balance of the unpaid credit on your 2013 tax return. 2012 1040a form   For a home purchased after 2008, you generally must repay the entire credit if the home was sold (or otherwise ceased to be your main home) within 36 months of the purchase date. 2012 1040a form If you purchased your home in 2009 and used it as your main home until sold in 2013, you do not have to repay the credit or file Form 5405. 2012 1040a form If you purchased your home in 2010 and used it as your main home until sold in 2013, you may have to file Form 5405 and repay the entire credit on your 2013 tax return. 2012 1040a form   See the Instructions for Form 5405 for more information about repaying the credit and exceptions to repayment that may apply to you. 2012 1040a form Maximum Amount of Exclusion You can generally exclude up to $250,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if all of the following are true. 2012 1040a form You meet the ownership test. 2012 1040a form You meet the use test. 2012 1040a form During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. 2012 1040a form You may be able to exclude up to $500,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if you are married and file a joint return and meet the requirements listed in the discussion of the special rules for joint returns, later, under Married Persons . 2012 1040a form Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. 2012 1040a form This means that during the 5-year period ending on the date of the sale, you must have: Owned the home for at least 2 years (the ownership test), and Lived in the home as your main home for at least 2 years (the use test). 2012 1040a form Exception to ownership and use tests. 2012 1040a form   If you owned and lived in the property as your main home for less than 2 years, you still can claim an exclusion in some cases. 2012 1040a form Generally, you must have sold the home due to a change in place of employment, health, or unforeseen circumstances. 2012 1040a form The maximum amount you can exclude will be reduced. 2012 1040a form See Publication 523, Selling Your Home, for more information. 2012 1040a form Exception to use test for individuals with a disability. 2012 1040a form   There is an exception to the use test if, during the 5-year period before the sale of your home: You become physically or mentally unable to care for yourself, and You owned and lived in your home as your main home for a total of at least 1 year. 2012 1040a form Under this exception, you are considered to live in your home during any time that you own the home and live in a facility (including a nursing home) that is licensed by a state or political subdivision to care for persons in your condition. 2012 1040a form   If you meet this exception to the use test, you still have to meet the 2-out-of-5-year ownership test to claim the exclusion. 2012 1040a form Exception to ownership test for property acquired in a like-kind exchange. 2012 1040a form   You must have owned your main home for at least 5 years to qualify for the exclusion if you acquired your main home in a like-kind exchange. 2012 1040a form This special 5-year ownership rule continues to apply to a home you acquired in a like-kind exchange and gave to another person. 2012 1040a form A like-kind exchange is an exchange of property held for productive use in a trade or business or for investment. 2012 1040a form See Publication 523 for more information. 2012 1040a form Period of nonqualified use. 2012 1040a form   Generally, the gain from the sale or exchange of your main home will not qualify for the exclusion to the extent that the gain is allocated to periods of nonqualified use. 2012 1040a form Nonqualified use is any period after December 31, 2008, during which the property is not used as the main home. 2012 1040a form See Publication 523 for more information. 2012 1040a form Married Persons In the special situations discussed below, if you and your spouse file a joint return for the year of sale and one spouse meets the ownership and use test, you can exclude up to $250,000 of gain. 2012 1040a form However, see Special rules for joint returns , next. 2012 1040a form Special rules for joint returns. 2012 1040a form   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. 2012 1040a form You are married and file a joint return for the year. 2012 1040a form Either you or your spouse meets the ownership test. 2012 1040a form Both you and your spouse meet the use test. 2012 1040a form During the 2-year period ending on the date of the sale, neither you nor your spouse exclude gain from the sale of another home. 2012 1040a form Sale of home by surviving spouse. 2012 1040a form   If your spouse died and you did not remarry before the date of sale, you are considered to have owned and lived in the property as your main home during any period of time when your spouse owned and lived in it as a main home. 2012 1040a form   If you meet all of the following requirements, you may qualify to exclude up to $500,000 of any gain from the sale or exchange of your main home in 2013. 2012 1040a form The sale or exchange took place no more than 2 years after the date of death of your spouse. 2012 1040a form You have not remarried. 2012 1040a form You and your spouse met the use test at the time of your spouse's death. 2012 1040a form You or your spouse met the ownership test at the time of your spouse's death. 2012 1040a form Neither you nor your spouse excluded gain from the sale of another home during the last 2 years. 2012 1040a form Home transferred from spouse. 2012 1040a form   If your home was transferred to you by your spouse (or former spouse if the transfer was incident to divorce), you are considered to have owned it during any period of time when your spouse owned it. 2012 1040a form Use of home after divorce. 2012 1040a form   You are considered to have used property as your main home during any period when: You owned it, and Your spouse or former spouse is allowed to live in it under a divorce or separation instrument and uses it as his or her main home. 2012 1040a form Business Use or Rental of Home You may be able to exclude gain from the sale of a home that you have used for business or to produce rental income. 2012 1040a form However, you must meet the ownership and use tests. 2012 1040a form See Publication 523 for more information. 2012 1040a form Depreciation after May 6, 1997. 2012 1040a form   If you were entitled to take depreciation deductions because you used your home for business purposes or as rental property, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. 2012 1040a form See Publication 523 for more information. 2012 1040a form Reporting the Sale Do not report the 2013 sale of your main home on your tax return unless: You have a gain and you do not qualify to exclude all of it, You have a gain and you choose not to exclude it, or You received Form 1099-S. 2012 1040a form If you have a gain that you cannot or choose not to exclude, if you received a Form 1099-S, or if you have a deductible loss, report the sale on your tax return. 2012 1040a form Report the sale on Part I or Part II of Form 8949 as a short-term or long-term transaction, depending on how long you owned the home. 2012 1040a form If you used your home for business or to produce rental income, you may have to use Form 4797, Sales of Business Property, to report the sale of the business or rental part. 2012 1040a form See Publication 523 for more information. 2012 1040a form Reverse Mortgages A revers