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A Software With 1040x

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A Software With 1040x

A software with 1040x 11. A software with 1040x   Casualties, Thefts, and Condemnations Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Casualties and TheftsDeductible losses. A software with 1040x Nondeductible losses. A software with 1040x Family pet. A software with 1040x Progressive deterioration. A software with 1040x Decline in market value of stock. A software with 1040x Mislaid or lost property. A software with 1040x Farming Losses How To Figure a Loss Deduction Limits on Losses of Personal-Use Property When Loss Is Deductible Proof of Loss Figuring a Gain Other Involuntary ConversionsCondemnation Irrigation Project Livestock Losses Tree Seedlings Postponing GainException. A software with 1040x Related persons. A software with 1040x Replacement Property Replacement Period How To Postpone Gain Disaster Area LossesWho is eligible. A software with 1040x Covered disaster area. A software with 1040x Reporting Gains and Losses Introduction This chapter explains the tax treatment of casualties, thefts, and condemnations. A software with 1040x A casualty occurs when property is damaged, destroyed, or lost due to a sudden, unexpected, or unusual event. A software with 1040x A theft occurs when property is stolen. A software with 1040x A condemnation occurs when private property is legally taken for public use without the owner's consent. A software with 1040x A casualty, theft, or condemnation may result in a deductible loss or taxable gain on your federal income tax return. A software with 1040x You may have a deductible loss or a taxable gain even if only a portion of your property was affected by a casualty, theft, or condemnation. A software with 1040x An involuntary conversion occurs when you receive money or other property as reimbursement for a casualty, theft, condemnation, disposition of property under threat of condemnation, or certain other events discussed in this chapter. A software with 1040x If an involuntary conversion results in a gain and you buy qualified replacement property within the specified replacement period, you can postpone reporting the gain on your income tax return. A software with 1040x For more information, see Postponing Gain , later. A software with 1040x Topics - This chapter discusses: Casualties and thefts How to figure a loss or gain Other involuntary conversions Postponing gain Disaster area losses Reporting gains and losses Drought involving property connected with a trade or business or a transaction entered into for profit Useful Items - You may want to see: Publication 523 Selling Your Home 525 Taxable and Nontaxable Income 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 544 Sales and Other Dispositions of Assets 547 Casualties, Disasters, and Thefts 584 Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property) 584-B Business Casualty, Disaster, and Theft Loss Workbook Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch D (Form 1040) Capital Gains and Losses Sch F (Form 1040) Profit or Loss From Farming 4684 Casualties and Thefts 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. A software with 1040x Casualties and Thefts If your property is destroyed, damaged, or stolen, you may have a deductible loss. A software with 1040x If the insurance or other reimbursement is more than the adjusted basis of the destroyed, damaged, or stolen property, you may have a taxable gain. A software with 1040x Casualty. A software with 1040x   A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. A software with 1040x A sudden event is one that is swift, not gradual or progressive. A software with 1040x An unexpected event is one that is ordinarily unanticipated and unintended. A software with 1040x An unusual event is one that is not a day-to-day occurrence and that is not typical of the activity in which you were engaged. A software with 1040x Deductible losses. A software with 1040x   Deductible casualty losses can result from a number of different causes, including the following. A software with 1040x Airplane crashes. A software with 1040x Car, truck, or farm equipment accidents not resulting from your willful act or willful negligence. A software with 1040x Earthquakes. A software with 1040x Fires (but see Nondeductible losses next for exceptions). A software with 1040x Floods. A software with 1040x Freezing. A software with 1040x Government-ordered demolition or relocation of a home that is unsafe to use because of a disaster as discussed under Disaster Area Losses, in Publication 547. A software with 1040x Lightning. A software with 1040x Storms, including hurricanes and tornadoes. A software with 1040x Terrorist attacks. A software with 1040x Vandalism. A software with 1040x Volcanic eruptions. A software with 1040x Nondeductible losses. A software with 1040x   A casualty loss is not deductible if the damage or destruction is caused by the following. A software with 1040x Accidentally breaking articles such as glassware or china under normal conditions. A software with 1040x A family pet (explained below). A software with 1040x A fire if you willfully set it, or pay someone else to set it. A software with 1040x A car, truck, or farm equipment accident if your willful negligence or willful act caused it. A software with 1040x The same is true if the willful act or willful negligence of someone acting for you caused the accident. A software with 1040x Progressive deterioration (explained below). A software with 1040x Family pet. A software with 1040x   Loss of property due to damage by a family pet is not deductible as a casualty loss unless the requirements discussed above under Casualty are met. A software with 1040x Example. A software with 1040x You keep your horse in your yard. A software with 1040x The ornamental fruit trees in your yard were damaged when your horse stripped the bark from them. A software with 1040x Some of the trees were completely girdled and died. A software with 1040x Because the damage was not unexpected or unusual, the loss is not deductible. A software with 1040x Progressive deterioration. A software with 1040x   Loss of property due to progressive deterioration is not deductible as a casualty loss. A software with 1040x This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. A software with 1040x Examples of damage due to progressive deterioration include damage from rust, corrosion, or termites. A software with 1040x However, weather-related conditions or disease may cause another type of involuntary conversion. A software with 1040x See Other Involuntary Conversions , later. A software with 1040x Theft. A software with 1040x   A theft is the taking and removing of money or property with the intent to deprive the owner of it. A software with 1040x The taking of property must be illegal under the law of the state where it occurred and it must have been done with criminal intent. A software with 1040x You do not need to show a conviction for theft. A software with 1040x   Theft includes the taking of money or property by the following means: Blackmail, Burglary, Embezzlement, Extortion, Kidnapping for ransom, Larceny, Robbery, or Threats. A software with 1040x The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. A software with 1040x Decline in market value of stock. A software with 1040x   You cannot deduct as a theft loss the decline in market value of stock acquired on the open market for investment if the decline is caused by disclosure of accounting fraud or other illegal misconduct by the officers or directors of the corporation that issued the stock. A software with 1040x However, you can deduct as a capital loss the loss you sustain when you sell or exchange the stock or the stock becomes completely worthless. A software with 1040x You report a capital loss on Schedule D (Form 1040). A software with 1040x For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. A software with 1040x Mislaid or lost property. A software with 1040x   The simple disappearance of money or property is not a theft. A software with 1040x However, an accidental loss or disappearance of property can qualify as a casualty if it results from an identifiable event that is sudden, unexpected, or unusual. A software with 1040x Example. A software with 1040x A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. A software with 1040x The diamond falls from the ring and is never found. A software with 1040x The loss of the diamond is a casualty. A software with 1040x Farming Losses You can deduct certain casualty or theft losses that occur in the business of farming. A software with 1040x The following is a discussion of some losses you can deduct and some you cannot deduct. A software with 1040x Livestock or produce bought for resale. A software with 1040x   Casualty or theft losses of livestock or produce bought for resale are deductible if you report your income on the cash method. A software with 1040x If you report your income on an accrual method, take casualty and theft losses on property bought for resale by omitting the item from the closing inventory for the year of the loss. A software with 1040x You cannot take a separate deduction. A software with 1040x Livestock, plants, produce, and crops raised for sale. A software with 1040x   Losses of livestock, plants, produce, and crops raised for sale are generally not deductible if you report your income on the cash method. A software with 1040x You have already deducted the cost of raising these items as farm expenses, so their basis is equal to zero. A software with 1040x   For plants with a preproductive period of more than 2 years, you may have a deductible loss if you have a tax basis in the plants. A software with 1040x You usually have a tax basis if you capitalized the expenses associated with these plants under the uniform capitalization rules. A software with 1040x The uniform capitalization rules are discussed in chapter 6. A software with 1040x   If you report your income on an accrual method, casualty or theft losses are deductible only if you included the items in your inventory at the beginning of your tax year. A software with 1040x You get the deduction by omitting the item from your inventory at the close of your tax year. A software with 1040x You cannot take a separate casualty or theft deduction. A software with 1040x Income loss. A software with 1040x   A loss of future income is not deductible. A software with 1040x Example. A software with 1040x A severe flood destroyed your crops. A software with 1040x Because you are a cash method taxpayer and already deducted the cost of raising the crops as farm expenses, this loss is not deductible, as explained above under Livestock, plants, produce, and crops raised for sale . A software with 1040x You estimate that the crop loss will reduce your farm income by $25,000. A software with 1040x This loss of future income is also not deductible. A software with 1040x Loss of timber. A software with 1040x   If you sell timber downed as a result of a casualty, treat the proceeds from the sale as a reimbursement. A software with 1040x If you use the proceeds to buy qualified replacement property, you can postpone reporting the gain. A software with 1040x See Postponing Gain , later. A software with 1040x Property used in farming. A software with 1040x   Casualty and theft losses of property used in your farm business usually result in deductible losses. A software with 1040x If a fire or storm destroyed your barn, or you lose by casualty or theft an animal you bought for draft, breeding, dairy, or sport, you may have a deductible loss. A software with 1040x See How To Figure a Loss , later. A software with 1040x Raised draft, breeding, dairy, or sporting animals. A software with 1040x   Generally, losses of raised draft, breeding, dairy, or sporting animals do not result in deductible casualty or theft losses because you have no basis in the animals. A software with 1040x However, you may have a basis in the animal and therefore may be able to claim a deduction if either of the following situations applies to you. A software with 1040x You use inventories to determine your income and you included the animals in your inventory. A software with 1040x You capitalized the expenses associated with the animals under the uniform capitalization rules and therefore have a tax basis in the animals subject to a casualty or theft. A software with 1040x When you include livestock in inventory, its last inventory value is its basis. A software with 1040x When you lose an inventoried animal held for draft, breeding, dairy, or sport by casualty or theft during the year, decrease ending inventory by the amount you included in inventory for the animal. A software with 1040x You cannot take a separate deduction. A software with 1040x How To Figure a Loss How you figure a deductible casualty or theft loss depends on whether the loss was to farm or personal-use property and whether the property was stolen or partly or completely destroyed. A software with 1040x Farm property. A software with 1040x   Farm property is the property you use in your farming business. A software with 1040x If your farm property was completely destroyed or stolen, your loss is figured as follows:      Your adjusted basis in the property     MINUS     Any salvage value     MINUS     Any insurance or other reimbursement you  receive or expect to receive      You can use the schedules in Publication 584-B to list your stolen, damaged, or destroyed business property and to figure your loss. A software with 1040x   If your farm property was partially damaged, use the steps shown under Personal-use property next to figure your casualty loss. A software with 1040x However, the deduction limits, discussed later, do not apply to farm property. A software with 1040x Personal-use property. A software with 1040x   Personal-use property is property used by you or your family members for personal purposes and not used in your farm business or for income-producing purposes. A software with 1040x The following items are examples of personal-use property: Your main home. A software with 1040x Furniture and electronics used in your main home and not used in a home office or for business purposes. A software with 1040x Clothing and jewelry. A software with 1040x An automobile used for nonbusiness purposes. A software with 1040x You figure the casualty or theft loss on this property by taking the following steps. A software with 1040x Determine your adjusted basis in the property before the casualty or theft. A software with 1040x Determine the decrease in fair market value of the property as a result of the casualty or theft. A software with 1040x From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you receive or expect to receive. A software with 1040x You must apply the deduction limits, discussed later, to determine your deductible loss. A software with 1040x    You can use Publication 584 to list your stolen or damaged personal-use property and figure your loss. A software with 1040x It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles. A software with 1040x Adjusted basis. A software with 1040x   Adjusted basis is your basis (usually cost) increased or decreased by various events, such as improvements and casualty losses. A software with 1040x For more information about adjusted basis, see chapter 6. A software with 1040x Decrease in fair market value (FMV). A software with 1040x   The decrease in FMV is the difference between the property's value immediately before the casualty or theft and its value immediately afterward. A software with 1040x FMV is defined in chapter 10 under Payments Received or Considered Received . A software with 1040x Appraisal. A software with 1040x   To figure the decrease in FMV because of a casualty or theft, you generally need a competent appraisal. A software with 1040x But other measures, such as the cost of cleaning up or making repairs (discussed next) can be used to establish decreases in FMV. A software with 1040x   An appraisal to determine the difference between the FMV of the property immediately before a casualty or theft and immediately afterward should be made by a competent appraiser. A software with 1040x The appraiser must recognize the effects of any general market decline that may occur along with the casualty. A software with 1040x This information is needed to limit any deduction to the actual loss resulting from damage to the property. A software with 1040x Cost of cleaning up or making repairs. A software with 1040x   The cost of cleaning up after a casualty is not part of a casualty loss. A software with 1040x Neither is the cost of repairing damaged property after a casualty. A software with 1040x But you can use the cost of cleaning up or making repairs after a casualty as a measure of the decrease in FMV if you meet all the following conditions. A software with 1040x The repairs are actually made. A software with 1040x The repairs are necessary to bring the property back to its condition before the casualty. A software with 1040x The amount spent for repairs is not excessive. A software with 1040x The repairs fix the damage only. A software with 1040x The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. A software with 1040x Related expenses. A software with 1040x   The incidental expenses due to a casualty or theft, such as expenses for the treatment of personal injuries, temporary housing, or a rental car, are not part of your casualty or theft loss. A software with 1040x However, they may be deductible as farm business expenses if the damaged or stolen property is farm property. A software with 1040x Separate computations for more than one item of property. A software with 1040x   Generally, if a single casualty or theft involves more than one item of property, you must figure your loss separately for each item of property. A software with 1040x Then combine the losses to determine your total loss. A software with 1040x    There is an exception to this rule for personal-use real property. A software with 1040x See Exception for personal-use real property, later. A software with 1040x Example. A software with 1040x A fire on your farm damaged a tractor and the barn in which it was stored. A software with 1040x The tractor had an adjusted basis of $3,300. A software with 1040x Its FMV was $28,000 just before the fire and $10,000 immediately afterward. A software with 1040x The barn had an adjusted basis of $28,000. A software with 1040x Its FMV was $55,000 just before the fire and $25,000 immediately afterward. A software with 1040x You received insurance reimbursements of $2,100 on the tractor and $26,000 on the barn. A software with 1040x Figure your deductible casualty loss separately for the two items of property. A software with 1040x     Tractor Barn 1) Adjusted basis $3,300 $28,000 2) FMV before fire $28,000 $55,000 3) FMV after fire 10,000 25,000 4) Decrease in FMV  (line 2 − line 3) $18,000 $30,000 5) Loss (lesser of line 1 or line 4) $3,300 $28,000 6) Minus: Insurance 2,100 26,000 7) Deductible casualty loss $1,200 $2,000 8) Total deductible casualty loss $3,200 Exception for personal-use real property. A software with 1040x   In figuring a casualty loss on personal-use real property, the entire property (including any improvements, such as buildings, trees, and shrubs) is treated as one item. A software with 1040x Figure the loss using the smaller of the following. A software with 1040x The decrease in FMV of the entire property. A software with 1040x The adjusted basis of the entire property. A software with 1040x Example. A software with 1040x You bought a farm in 1990 for $160,000. A software with 1040x The adjusted basis of the residential part is now $128,000. A software with 1040x In 2013, a windstorm blew down shade trees and three ornamental trees planted at a cost of $7,500 on the residential part. A software with 1040x The adjusted basis of the residential part includes the $7,500. A software with 1040x The fair market value (FMV) of the residential part immediately before the storm was $400,000, and $385,000 immediately after the storm. A software with 1040x The trees were not covered by insurance. A software with 1040x 1) Adjusted basis $128,000 2) FMV before the storm $400,000 3) FMV after the storm 385,000 4) Decrease in FMV (line 2 − line 3) $15,000 5) Loss before insurance (lesser of line 1 or line 4) $15,000 6) Minus: Insurance -0- 7) Amount of loss $15,000 Insurance and other reimbursements. A software with 1040x   If you receive an insurance or other type of reimbursement, you must subtract the reimbursement when you figure your loss. A software with 1040x You do not have a casualty or theft loss to the extent you are reimbursed. A software with 1040x   If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. A software with 1040x You must reduce your loss even if you do not receive payment until a later tax year. A software with 1040x    Do not subtract from your loss any insurance payments you receive for living expenses if you lose the use of your main home or are denied access to it because of a casualty. A software with 1040x You may have to include a portion of these payments in your income. A software with 1040x See Insurance payments for living expenses in Publication 547 for details. A software with 1040x Disaster relief. A software with 1040x   Food, medical supplies, and other forms of assistance you receive do not reduce your casualty loss, unless they are replacements for lost or destroyed property. A software with 1040x Excludable cash gifts you receive also do not reduce your casualty loss if there are no limits on how you can use the money. A software with 1040x   Generally, disaster relief grants received under the Robert T. A software with 1040x Stafford Disaster Relief and Emergency Assistance Act are not included in your income. A software with 1040x See Federal disaster relief grants , later, under Disaster Area Losses . A software with 1040x   Qualified disaster relief payments for expenses you incurred as a result of a federally declared disaster are not taxable income to you. A software with 1040x See Qualified disaster relief payments , later, under Disaster Area Losses . A software with 1040x Reimbursement received after deducting loss. A software with 1040x   If you figure your casualty or theft loss using your expected reimbursement, you may have to adjust your tax return for the tax year in which you get your actual reimbursement. A software with 1040x Actual reimbursement less than expected. A software with 1040x   If you later receive less reimbursement than you expected, include that difference as a loss with your other losses (if any) on your return for the year in which you can reasonably expect no more reimbursement. A software with 1040x Actual reimbursement more than expected. A software with 1040x   If you later receive more reimbursement than you expected after you have claimed a deduction for the loss, you may have to include the extra reimbursement in your income for the year you receive it. A software with 1040x However, if any part of your original deduction did not reduce your tax for the earlier year, do not include that part of the reimbursement in your income. A software with 1040x Do not refigure your tax for the year you claimed the deduction. A software with 1040x See Recoveries in Publication 525 to find out how much extra reimbursement to include in income. A software with 1040x If the total of all the reimbursements you receive is more than your adjusted basis in the destroyed or stolen property, you will have a gain on the casualty or theft. A software with 1040x See Figuring a Gain in Publication 547 for information on how to treat a gain from the reimbursement you receive because of a casualty or theft. A software with 1040x Actual reimbursement same as expected. A software with 1040x   If you receive exactly the reimbursement you expected to receive, you do not have to include any of the reimbursement in your income and you cannot deduct any additional loss. A software with 1040x Lump-sum reimbursement. A software with 1040x   If you have a casualty or theft loss of several assets at the same time without an allocation of reimbursement to specific assets, divide the lump-sum reimbursement among the assets according to the fair market value of each asset at the time of the loss. A software with 1040x Figure the gain or loss separately for each asset that has a separate basis. A software with 1040x Adjustments to basis. A software with 1040x   If you have a casualty or theft loss, you must decrease your basis in the property by any insurance or other reimbursement you receive and by any deductible loss. A software with 1040x The result is your adjusted basis in the property. A software with 1040x Amounts you spend on repairs to restore your property to its pre-casualty condition increase your adjusted basis. A software with 1040x See Adjusted Basis in chapter 6 for more information. A software with 1040x Example. A software with 1040x You built a new silo for $25,000. A software with 1040x This is the basis in your silo because that is the total cost you incurred to build it. A software with 1040x During the year, a tornado damaged your silo and your allowable casualty loss deduction was $1,000. A software with 1040x In addition, your insurance company reimbursed you $4,000 for the damage and you spent $6,000 to restore the silo to its pre-casualty condition. A software with 1040x Your adjusted basis in the silo after the casualty is $26,000 ($25,000 - $1,000 - $4,000 + $6,000). A software with 1040x Deduction Limits on Losses of Personal-Use Property Casualty and theft losses of property held for personal use may be deductible if you itemize deductions on Schedule A (Form 1040). A software with 1040x There are two limits on the deduction for casualty or theft loss of personal-use property. A software with 1040x You figure these limits on Form 4684. A software with 1040x $100 rule. A software with 1040x   You must reduce each casualty or theft loss on personal-use property by $100. A software with 1040x This rule applies after you have subtracted any reimbursement. A software with 1040x 10% rule. A software with 1040x   You must further reduce the total of all your casualty or theft losses on personal-use property by 10% of your adjusted gross income. A software with 1040x Apply this rule after you reduce each loss by $100. A software with 1040x Adjusted gross income is on line 38 of Form 1040. A software with 1040x Example. A software with 1040x In June, you discovered that your house had been burglarized. A software with 1040x Your loss after insurance reimbursement was $2,000. A software with 1040x Your adjusted gross income for the year you discovered the burglary is $57,000. A software with 1040x Figure your theft loss deduction as follows: 1. A software with 1040x Loss after insurance $2,000 2. A software with 1040x Subtract $100 100 3. A software with 1040x Loss after $100 rule $1,900 4. A software with 1040x Subtract 10% (. A software with 1040x 10) × $57,000 AGI $5,700 5. A software with 1040x Theft loss deduction -0- You do not have a theft loss deduction because your loss ($1,900) is less than 10% of your adjusted gross income ($5,700). A software with 1040x    If you have a casualty or theft gain in addition to a loss, you will have to make a special computation before you figure your 10% limit. A software with 1040x See 10% Rule in Publication 547. A software with 1040x When Loss Is Deductible Generally, you can deduct casualty losses that are not reimbursable only in the tax year in which they occur. A software with 1040x You generally can deduct theft losses that are not reimbursable only in the year you discover your property was stolen. A software with 1040x However, losses in federally declared disaster areas are subject to different rules. A software with 1040x See Disaster Area Losses , later, for an exception. A software with 1040x If you are not sure whether part of your casualty or theft loss will be reimbursed, do not deduct that part until the tax year when you become reasonably certain that it will not be reimbursed. A software with 1040x Leased property. A software with 1040x   If you lease property from someone else, you can deduct a loss on the property in the year your liability for the loss is fixed. A software with 1040x This is true even if the loss occurred or the liability was paid in a different year. A software with 1040x You are not entitled to a deduction until your liability under the lease can be determined with reasonable accuracy. A software with 1040x Your liability can be determined when a claim for recovery is settled, adjudicated, or abandoned. A software with 1040x Example. A software with 1040x Robert leased a tractor from First Implement, Inc. A software with 1040x , for use in his farm business. A software with 1040x The tractor was destroyed by a tornado in June 2012. A software with 1040x The loss was not insured. A software with 1040x First Implement billed Robert for the fair market value of the tractor on the date of the loss. A software with 1040x Robert disagreed with the bill and refused to pay it. A software with 1040x First Implement later filed suit in court against Robert. A software with 1040x In 2013, Robert and First Implement agreed to settle the suit for $20,000, and the court entered a judgment in favor of First Implement. A software with 1040x Robert paid $20,000 in June 2013. A software with 1040x He can claim the $20,000 as a loss on his 2013 tax return. A software with 1040x Net operating loss (NOL). A software with 1040x   If your deductions, including casualty or theft loss deductions, are more than your income for the year, you may have an NOL. A software with 1040x An NOL can be carried back or carried forward and deducted from income in other years. A software with 1040x See Publication 536 for more information on NOLs. A software with 1040x Proof of Loss To deduct a casualty or theft loss, you must be able to prove that there was a casualty or theft. A software with 1040x You must have records to support the amount you claim for the loss. A software with 1040x Casualty loss proof. A software with 1040x   For a casualty loss, your records should show all the following information. A software with 1040x The type of casualty (car accident, fire, storm, etc. A software with 1040x ) and when it occurred. A software with 1040x That the loss was a direct result of the casualty. A software with 1040x That you were the owner of the property or, if you leased the property from someone else, that you were contractually liable to the owner for the damage. A software with 1040x Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. A software with 1040x Theft loss proof. A software with 1040x   For a theft loss, your records should show all the following information. A software with 1040x When you discovered your property was missing. A software with 1040x That your property was stolen. A software with 1040x That you were the owner of the property. A software with 1040x Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. A software with 1040x Figuring a Gain A casualty or theft may result in a taxable gain. A software with 1040x If you receive an insurance payment or other reimbursement that is more than your adjusted basis in the destroyed, damaged, or stolen property, you have a gain from the casualty or theft. A software with 1040x You generally report your gain as income in the year you receive the reimbursement. A software with 1040x However, depending on the type of property you receive, you may not have to report your gain. A software with 1040x See Postponing Gain , later. A software with 1040x Your gain is figured as follows: The amount you receive, minus Your adjusted basis in the property at the time of the casualty or theft. A software with 1040x Even if the decrease in FMV of your property is smaller than the adjusted basis of your property, use your adjusted basis to figure the gain. A software with 1040x Amount you receive. A software with 1040x   The amount you receive includes any money plus the value of any property you receive, minus any expenses you have in obtaining reimbursement. A software with 1040x It also includes any reimbursement used to pay off a mortgage or other lien on the damaged, destroyed, or stolen property. A software with 1040x Example. A software with 1040x A tornado severely damaged your barn. A software with 1040x The adjusted basis of the barn was $25,000. A software with 1040x Your insurance company reimbursed you $40,000 for the damaged barn. A software with 1040x However, you had legal expenses of $2,000 to collect that insurance. A software with 1040x Your insurance minus your expenses to collect the insurance is more than your adjusted basis in the barn, so you have a gain. A software with 1040x 1) Insurance reimbursement $40,000 2) Legal expenses 2,000 3) Amount received  (line 1 − line 2) $38,000 4) Adjusted basis 25,000 5) Gain on casualty (line 3 − line 4) $13,000 Other Involuntary Conversions In addition to casualties and thefts, other events cause involuntary conversions of property. A software with 1040x Some of these are discussed in the following paragraphs. A software with 1040x Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes. A software with 1040x You report the gain or deduct the loss on your tax return for the year you realize it. A software with 1040x However, depending on the type of property you receive, you may not have to report your gain on the involuntary conversion. A software with 1040x See Postponing Gain , later. A software with 1040x Condemnation Condemnation is the process by which private property is legally taken for public use without the owner's consent. A software with 1040x The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take property. A software with 1040x The owner receives a condemnation award (money or property) in exchange for the property taken. A software with 1040x A condemnation is a forced sale, the owner being the seller and the condemning authority being the buyer. A software with 1040x Threat of condemnation. A software with 1040x   Treat the sale of your property under threat of condemnation as a condemnation, provided you have reasonable grounds to believe that your property will be condemned. A software with 1040x Main home condemned. A software with 1040x   If you have a gain because your main home is condemned, you generally can exclude the gain from your income as if you had sold or exchanged your home. A software with 1040x For information on this exclusion, see Publication 523. A software with 1040x If your gain is more than the amount you can exclude, but you buy replacement property, you may be able to postpone reporting the excess gain. A software with 1040x See Postponing Gain , later. A software with 1040x (You cannot deduct a loss from the condemnation of your main home. A software with 1040x ) More information. A software with 1040x   For information on how to figure the gain or loss on condemned property, see chapter 1 in Publication 544. A software with 1040x Also see Postponing Gain , later, to find out if you can postpone reporting the gain. A software with 1040x Irrigation Project The sale or other disposition of property located within an irrigation project to conform to the acreage limits of federal reclamation laws is an involuntary conversion. A software with 1040x Livestock Losses Diseased livestock. A software with 1040x   If your livestock die from disease, or are destroyed, sold, or exchanged because of disease, even though the disease is not of epidemic proportions, treat these occurrences as involuntary conversions. A software with 1040x If the livestock were raised or purchased for resale, follow the rules for livestock discussed earlier under Farming Losses . A software with 1040x Otherwise, figure the gain or loss from these conversions using the rules discussed under Determining Gain or Loss in chapter 8. A software with 1040x If you replace the livestock, you may be able to postpone reporting the gain. A software with 1040x See Postponing Gain below. A software with 1040x Reporting dispositions of diseased livestock. A software with 1040x   If you choose to postpone reporting gain on the disposition of diseased livestock, you must attach a statement to your return explaining that the livestock were disposed of because of disease. A software with 1040x You must also include other information on this statement. A software with 1040x See How To Postpone Gain , later, under Postponing Gain . A software with 1040x Weather-related sales of livestock. A software with 1040x   If you sell or exchange livestock (other than poultry) held for draft, breeding, or dairy purposes solely because of drought, flood, or other weather-related conditions, treat the sale or exchange as an involuntary conversion. A software with 1040x Only livestock sold in excess of the number you normally would sell under usual business practice, in the absence of weather-related conditions, are considered involuntary conversions. A software with 1040x Figure the gain or loss using the rules discussed under Determining Gain or Loss in chapter 8. A software with 1040x If you replace the livestock, you may be able to postpone reporting the gain. A software with 1040x See Postponing Gain below. A software with 1040x Example. A software with 1040x It is your usual business practice to sell five of your dairy animals during the year. A software with 1040x This year you sold 20 dairy animals because of drought. A software with 1040x The sale of 15 animals is treated as an involuntary conversion. A software with 1040x    If you do not replace the livestock, you may be able to report the gain in the following year's income. A software with 1040x This rule also applies to other livestock (including poultry). A software with 1040x See Sales Caused by Weather-Related Conditions in chapter 3. A software with 1040x Tree Seedlings If, because of an abnormal drought, the failure of planted tree seedlings is greater than normally anticipated, you may have a deductible loss. A software with 1040x Treat the loss as a loss from an involuntary conversion. A software with 1040x The loss equals the previously capitalized reforestation costs you had to duplicate on replanting. A software with 1040x You deduct the loss on the return for the year the seedlings died. A software with 1040x Postponing Gain Do not report a gain if you receive reimbursement in the form of property similar or related in service or use to the destroyed, stolen, or other involuntarily converted property. A software with 1040x Your basis in the new property is generally the same as your adjusted basis in the property it replaces. A software with 1040x You must ordinarily report the gain on your stolen, destroyed, or other involuntarily converted property if you receive money or unlike property as reimbursement. A software with 1040x However, you can choose to postpone reporting the gain if you purchase replacement property similar or related in service or use to your destroyed, stolen, or other involuntarily converted property within a specific replacement period. A software with 1040x If you have a gain on damaged property, you can postpone reporting the gain if you spend the reimbursement to restore the property. A software with 1040x To postpone reporting all the gain, the cost of your replacement property must be at least as much as the reimbursement you receive. A software with 1040x If the cost of the replacement property is less than the reimbursement, you must include the gain in your income up to the amount of the unspent reimbursement. A software with 1040x Example 1. A software with 1040x In 1985, you constructed a barn to store farm equipment at a cost of $20,000. A software with 1040x In 1987, you added a silo to the barn at a cost of $15,000 to store grain. A software with 1040x In May of this year, the property was worth $100,000. A software with 1040x In June the barn and silo were destroyed by a tornado. A software with 1040x At the time of the tornado, you had an adjusted basis of $0 in the property. A software with 1040x You received $85,000 from the insurance company. A software with 1040x You had a gain of $85,000 ($85,000 – $0). A software with 1040x You spent $80,000 to rebuild the barn and silo. A software with 1040x Since this is less than the insurance proceeds received, you must include $5,000 ($85,000 – $80,000) in your income. A software with 1040x Example 2. A software with 1040x In 1970, you bought a cabin in the mountains for your personal use at a cost of $18,000. A software with 1040x You made no further improvements or additions to it. A software with 1040x When a storm destroyed the cabin this January, the cabin was worth $250,000. A software with 1040x You received $146,000 from the insurance company in March. A software with 1040x You had a gain of $128,000 ($146,000 − $18,000). A software with 1040x You spent $144,000 to rebuild the cabin. A software with 1040x Since this is less than the insurance proceeds received, you must include $2,000 ($146,000 − $144,000) in your income. A software with 1040x Buying replacement property from a related person. A software with 1040x   You cannot postpone reporting a gain from a casualty, theft, or other involuntary conversion if you buy the replacement property from a related person (discussed later). A software with 1040x This rule applies to the following taxpayers. A software with 1040x C corporations. A software with 1040x Partnerships in which more than 50% of the capital or profits interest is owned by C corporations. A software with 1040x Individuals, partnerships (other than those in (2) above), and S corporations if the total realized gain for the tax year on all involuntarily converted properties on which there are realized gains is more than $100,000. A software with 1040x For involuntary conversions described in (3) above, gains cannot be offset by any losses when determining whether the total gain is more than $100,000. A software with 1040x If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. A software with 1040x If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. A software with 1040x Exception. A software with 1040x   This rule does not apply if the related person acquired the property from an unrelated person within the period of time allowed for replacing the involuntarily converted property. A software with 1040x Related persons. A software with 1040x   Under this rule, related persons include, for example, a parent and child, a brother and sister, a corporation and an individual who owns more than 50% of its outstanding stock, and two partnerships in which the same C corporations own more than 50% of the capital or profits interests. A software with 1040x For more information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. A software with 1040x Death of a taxpayer. A software with 1040x   If a taxpayer dies after having a gain, but before buying replacement property, the gain must be reported for the year in which the decedent realized the gain. A software with 1040x The executor of the estate or the person succeeding to the funds from the involuntary conversion cannot postpone reporting the gain by buying replacement property. A software with 1040x Replacement Property You must buy replacement property for the specific purpose of replacing your property. A software with 1040x Your replacement property must be similar or related in service or use to the property it replaces. A software with 1040x You do not have to use the same funds you receive as reimbursement for your old property to acquire the replacement property. A software with 1040x If you spend the money you receive for other purposes, and borrow money to buy replacement property, you can still choose to postpone reporting the gain if you meet the other requirements. A software with 1040x Property you acquire by gift or inheritance does not qualify as replacement property. A software with 1040x Owner-user. A software with 1040x   If you are an owner-user, similar or related in service or use means that replacement property must function in the same way as the property it replaces. A software with 1040x Examples of property that functions in the same way as the property it replaces are a home that replaces another home, a dairy cow that replaces another dairy cow, and farm land that replaces other farm land. A software with 1040x A grinding mill that replaces a tractor does not qualify. A software with 1040x Neither does a breeding or draft animal that replaces a dairy cow. A software with 1040x Soil or other environmental contamination. A software with 1040x   If, because of soil or other environmental contamination, it is not feasible for you to reinvest your insurance money or other proceeds from destroyed or damaged livestock in property similar or related in service or use to the livestock, you can treat other property (including real property) used for farming purposes, as property similar or related in service or use to the destroyed or damaged livestock. A software with 1040x Weather-related conditions. A software with 1040x   If, because of drought, flood, or other weather-related conditions, it is not feasible for you to reinvest the insurance money or other proceeds in property similar or related in service or use to the livestock, you can treat other property (excluding real property) used for farming purposes, as property similar or related in service or use to the livestock you disposed of. A software with 1040x Example. A software with 1040x Each year you normally sell 25 cows from your beef herd. A software with 1040x However, this year you had to sell 50 cows. A software with 1040x This is because a severe drought significantly reduced the amount of hay and pasture yield needed to feed your herd for the rest of the year. A software with 1040x Because, as a result of the severe drought, it is not feasible for you to use the proceeds from selling the extra cows to buy new cows, you can treat other property (excluding real property) used for farming purposes, as property similar or related in service or use to the cows you sold. A software with 1040x Standing crop destroyed by casualty. A software with 1040x   If a storm or other casualty destroyed your standing crop and you use the insurance money to acquire either another standing crop or a harvested crop, this purchase qualifies as replacement property. A software with 1040x The costs of planting and raising a new crop qualify as replacement costs for the destroyed crop only if you use the crop method of accounting (discussed in chapter 2). A software with 1040x In that case, the costs of bringing the new crop to the same level of maturity as the destroyed crop qualify as replacement costs to the extent they are incurred during the replacement period. A software with 1040x Timber loss. A software with 1040x   Standing timber you bought with the proceeds from the sale of timber downed as a result of a casualty, such as high winds, earthquakes, or volcanic eruptions, qualifies as replacement property. A software with 1040x If you bought the standing timber within the replacement period, you can postpone reporting the gain. A software with 1040x Business or income-producing property located in a federally declared disaster area. A software with 1040x   If your destroyed business or income-producing property was located in a federally declared disaster area, any tangible replacement property you acquire for use in any business is treated as similar or related in service or use to the destroyed property. A software with 1040x For more information, see Disaster Area Losses in Publication 547. A software with 1040x Substituting replacement property. A software with 1040x   Once you have acquired qualified replacement property that you designate as replacement property in a statement attached to your tax return, you cannot substitute other qualified replacement property. A software with 1040x This is true even if you acquire the other property within the replacement period. A software with 1040x However, if you discover that the original replacement property was not qualified replacement property, you can, within the replacement period, substitute the new qualified replacement property. A software with 1040x Basis of replacement property. A software with 1040x   You must reduce the basis of your replacement property (its cost) by the amount of postponed gain. A software with 1040x In this way, tax on the gain is postponed until you dispose of the replacement property. A software with 1040x Replacement Period To postpone reporting your gain, you must buy replacement property within a specified period of time. A software with 1040x This is the replacement period. A software with 1040x The replacement period begins on the date your property was damaged, destroyed, stolen, sold, or exchanged. A software with 1040x The replacement period generally ends 2 years after the close of the first tax year in which you realize any part of your gain from the involuntary conversion. A software with 1040x Example. A software with 1040x You are a calendar year taxpayer. A software with 1040x While you were on vacation, farm equipment that cost $2,200 was stolen from your farm. A software with 1040x You discovered the theft when you returned to your farm on November 11, 2012. A software with 1040x Your insurance company investigated the theft and did not settle your claim until January 5, 2013, when they paid you $3,000. A software with 1040x You first realized a gain from the reimbursement for the theft during 2013, so you have until December 31, 2015, to replace the property. A software with 1040x Main home in disaster area. A software with 1040x   For your main home (or its contents) located in a federally declared disaster area, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the involuntary conversion. A software with 1040x See Disaster Area Losses , later. A software with 1040x Property in the Midwestern disaster areas. A software with 1040x   For property located in the Midwestern disaster areas (defined in Table 4 in the 2008 Publication 547) that was destroyed, damaged, stolen, or condemned, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. A software with 1040x This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Midwestern disaster areas. A software with 1040x Property in the Kansas disaster area. A software with 1040x   For property located in the Kansas disaster area that was destroyed, damaged, stolen, or condemned after May 3, 2007, as a result of the Kansas storms and tornadoes, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. A software with 1040x This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Kansas disaster area. A software with 1040x Property in the Hurricane Katrina disaster area. A software with 1040x   For property located in the Hurricane Katrina disaster area that was destroyed, damaged, stolen, or condemned after August 24, 2005, as a result of Hurricane Katrina, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. A software with 1040x This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. A software with 1040x Weather-related sales of livestock in an area eligible for federal assistance. A software with 1040x   For the sale or exchange of livestock due to drought, flood, or other weather-related conditions in an area eligible for federal assistance, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the sale or exchange. A software with 1040x The IRS may extend the replacement period on a regional basis if the weather-related conditions continue for longer than 3 years. A software with 1040x   For information on extensions of the replacement period because of persistent drought, see Notice 2006-82, 2006-39 I. A software with 1040x R. A software with 1040x B. A software with 1040x 529, available at  www. A software with 1040x irs. A software with 1040x gov/irb/2006-39_IRB/ar11. A software with 1040x html. A software with 1040x For a list of counties for which exceptional, extreme, or severe drought was reported during the 12 months ending August 31, 2013, see Notice 2013-62, available at IRS. A software with 1040x gov. A software with 1040x Condemnation. A software with 1040x   The replacement period for a condemnation begins on the earlier of the following dates. A software with 1040x The date on which you disposed of the condemned property. A software with 1040x The date on which the threat of condemnation began. A software with 1040x The replacement period generally ends 2 years after the close of the first tax year in which any part of the gain on the condemnation is realized. A software with 1040x But see Main home in disaster area , Property in the Midwestern disaster areas , Property in the Kansas disaster area , and Property in the Hurricane Katrina disaster area , earlier, for exceptions. A software with 1040x Business or investment real property. A software with 1040x   If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the close of the first tax year in which any part of the gain on the condemnation is realized. A software with 1040x Extension. A software with 1040x   You can apply for an extension of the replacement period. A software with 1040x Send your written application to the Internal Revenue Service Center where you file your tax return. A software with 1040x See your tax return instructions for the address. A software with 1040x Include all the details about your need for an extension. A software with 1040x Make your application before the end of the replacement period. A software with 1040x However, you can file an application within a reasonable time after the replacement period ends if you can show a good reason for the delay. A software with 1040x You will get an extension of the replacement period if you can show reasonable cause for not making the replacement within the regular period. A software with 1040x How To Postpone Gain You postpone reporting your gain by reporting your choice on your tax return for the year you have the gain. A software with 1040x You have the gain in the year you receive insurance proceeds or other reimbursements that result in a gain. A software with 1040x Required statement. A software with 1040x   You should attach a statement to your return for the year you have the gain. A software with 1040x This statement should include all the following information. A software with 1040x The date and details of the casualty, theft, or other involuntary conversion. A software with 1040x The insurance or other reimbursement you received. A software with 1040x How you figured the gain. A software with 1040x Replacement property acquired before return filed. A software with 1040x   If you acquire replacement property before you file your return for the year you have the gain, your statement should also include detailed information about all the following items. A software with 1040x The replacement property. A software with 1040x The postponed gain. A software with 1040x The basis adjustment that reflects the postponed gain. A software with 1040x Any gain you are reporting as income. A software with 1040x Replacement property acquired after return filed. A software with 1040x   If you intend to buy replacement property after you file your return for the year you realize gain, your statement should also say that you are choosing to replace the property within the required replacement period. A software with 1040x   You should then attach another statement to your return for the year in which you buy the replacement property. A software with 1040x This statement should contain detailed information on the replacement property. A software with 1040x If you acquire part of your replacement property in one year and part in another year, you must attach a statement to each year's return. A software with 1040x Include in the statement detailed information on the replacement property bought in that year. A software with 1040x Reporting weather-related sales of livestock. A software with 1040x   If you choose to postpone reporting the gain on weather-related sales or exchanges of livestock, show all the following information on a statement attached to your return for the tax year in which you first realize any of the gain. A software with 1040x Evidence of the weather-related conditions that forced the sale or exchange of the livestock. A software with 1040x The gain realized on the sale or exchange. A software with 1040x The number and kind of livestock sold or exchanged. A software with 1040x The number of livestock of each kind you would have sold or exchanged under your usual business practice. A software with 1040x   Show all the following information and the preceding information on the return for the year in which you replace the livestock. A software with 1040x The dates you bought the replacement property. A software with 1040x The cost of the replacement property. A software with 1040x Description of the replacement property (for example, the number and kind of the replacement livestock). A software with 1040x Amended return. A software with 1040x   You must file an amended return (Form 1040X) for the tax year of the gain in either of the following situations. A software with 1040x You do not acquire replacement property within the replacement period, plus extensions. A software with 1040x On this amended return, you must report the gain and pay any additional tax due. A software with 1040x You acquire replacement property within the required replacement period, plus extensions, but at a cost less than the amount you receive from the casualty, theft, or other involuntary conversion. A software with 1040x On this amended return, you must report the part of the gain that cannot be postponed and pay any additional tax due. A software with 1040x Disaster Area Losses Special rules apply to federally declared disaster area losses. A software with 1040x A federally declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Robert T. A software with 1040x Stafford Disaster Relief and Emergency Assistance Act. A software with 1040x It includes a major disaster or emergency declaration under the act. A software with 1040x A list of the areas warranting public or individual assistance (or both) under the Act is available at the Federal Emergency Management Agency (FEMA) web site at www. A software with 1040x fema. A software with 1040x gov. A software with 1040x This part discusses the special rules for when to deduct a disaster area loss and what tax deadlines may be postponed. A software with 1040x For other special rules, see Disaster Area Losses in Publication 547. A software with 1040x When to deduct the loss. A software with 1040x   You generally must deduct a casualty loss in the year it occurred. A software with 1040x However, if you have a deductible loss from a disaster that occurred in an area warranting public or individual assistance (or both), you can choose to deduct that loss on your return or amended return for the tax year immediately preceding the tax year in which the disaster happened. A software with 1040x If you make this choice, the loss is treated as having occurred in the preceding year. A software with 1040x    Claiming a qualifying disaster loss on the previous year's return may result in a lower tax for that year, often producing or increasing a cash refund. A software with 1040x   You must make the choice to take your casualty loss for the disaster in the preceding year by the later of the following dates. A software with 1040x The due date (without extensions) for filing your tax return for the tax year in which the disaster actually occurred. A software with 1040x The due date (with extensions) for the return for the preceding tax year. A software with 1040x Federal disaster relief grants. A software with 1040x   Do not include post-disaster relief grants received under the Robert T. A software with 1040x Stafford Disaster Relief and Emergency Assistance Act in your income if the grant payments are made to help you meet necessary expenses or serious needs for medical, dental, housing, personal property, transportation, or funeral expenses. A software with 1040x Do not deduct casualty losses or medical expenses to the extent they are specifically reimbursed by these disaster relief grants. A software with 1040x If the casualty loss was specifically reimbursed by the grant and you received the grant after the year in which you deducted the casualty loss, see Reimbursement received after deducting loss , earlier. A software with 1040x Unemployment assistance payments under the Act are taxable unemployment compensation. A software with 1040x Qualified disaster relief payments. A software with 1040x   Qualified disaster relief payments are not included in the income of individuals to the extent any expenses compensated by these payments are not otherwise compensated for by insurance or other reimbursement. A software with 1040x These payments are not subject to income tax, self-employment tax, or employment taxes (social security, Medicare, and federal unemployment taxes). A software with 1040x No withholding applies to these payments. A software with 1040x   Qualified disaster relief payments include payments you receive (regardless of the source) for the following expenses. A software with 1040x Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a federally declared disaster. A software with 1040x Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a federally declared disaster. A software with 1040x (A personal residence can be a rented residence or one you own. A software with 1040x ) Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a federally declared disaster. A software with 1040x   Qualified disaster relief payments include amounts paid by a federal, state, or local government in connection with a federally declared disaster to individuals affected by the disaster. A software with 1040x    Qualified disaster relief payments do not include: Payments for expenses otherwise paid for by insurance or other reimbursements, or Income replacement payments, such as payments of lost wages, lost business income, or unemployment compensation. A software with 1040x Qualified disaster mitigation payments. A software with 1040x   Qualified disaster mitigation payments made under the Robert T. A software with 1040x Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) are not included in income. A software with 1040x These are payments you, as a property owner, receive to reduce the risk of future damage to your property. A software with 1040x You cannot increase your basis in property, or take a deduction or credit, for expenditures made with respect to those payments. A software with 1040x Sale of property under hazard mitigation program. A software with 1040x   Generally, if you sell or otherwise transfer property, you must recognize any gain or loss for tax purposes unless the property is your main home. A software with 1040x You report the gain or deduct the loss on your tax return for the year you realize it. A software with 1040x (You cannot deduct a loss on personal-use property unless the loss resulted from a casualty, as discussed earlier. A software with 1040x ) However, if you sell or otherwise transfer property to the Federal Government, a state or local government, or an Indian tribal government under a hazard mitigation program, you can choose to postpone reporting the gain if you buy qualifying replacement property within a certain period of time. A software with 1040x See Postponing Gain , earlier, for the rules that apply. A software with 1040x Other federal assistance programs. A software with 1040x    For more information about other federal assistance programs, see Crop Insurance and Crop Disaster Payments and Feed Assistance and Payments in chapter 3 earlier. A software with 1040x Postponed tax deadlines. A software with 1040x   The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a federally declared disaster. A software with 1040x The tax deadlines the IRS may postpone include those for filing income, excise, and employment tax returns, paying income, excise, and employment taxes, and making contributions to a traditional IRA or Roth IRA. A software with 1040x   If any tax deadline is postponed, the IRS will publicize the postponement in your area and publish a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB). A software with 1040x Go to http://www. A software with 1040x irs. A software with 1040x gov/uac/Tax-Relief-in-Disaster-Situations to find out if a tax deadline has been postponed for your area. A software with 1040x Who is eligible. A software with 1040x   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. A software with 1040x Any individual whose main home is located in a covered disaster area (defined next). A software with 1040x Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. A software with 1040x Any individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in a covered disaster area. A software with 1040x Any individual, business entity, or sole proprietorship whose records are needed to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. A software with 1040x The main home or principal place of business does not have to be located in the covered disaster area. A software with 1040x Any estate or trust that has tax records necessary to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. A software with 1040x The spouse on a joint return with a taxpayer who is eligible for postponements. A software with 1040x Any individual, business entity, or sole proprietorship not located in a covered disaster area, but whose necessary records to meet a postponed tax deadline are located in the covered disaster area. A software with 1040x Any individual visiting the covered disaster area who was killed or injured as a result of the disaster. A software with 1040x Any other person determined by the IRS to be affected by a federally declared disaster. A software with 1040x Covered disaster area. A software with 1040x   This is an area of a federally declared disaster area in which the IRS has decided to postpone tax deadlines for up to 1 year. A software with 1040x Abatement of interest and penalties. A software with 1040x   The IRS may abate the interest and penalties on the underpaid income tax for the length of any postponement of tax deadlines. A software with 1040x Reporting Gains and Losses You will have to file one or more of the following forms to report your gains or losses from involuntary conversions. A software with 1040x Form 4684. A software with 1040x   Use this form to report your gains and losses from casualties and thefts. A software with 1040x Form 4797. A software with 1040x   Use this form to report involuntary conversions (other than from casualty or theft) of property used in your trade or business and capital assets held in connection with a trade or business or a transaction entered into for profit. A software with 1040x Also use this form if you have a gain from a casualty or theft on trade, business or income-producing property held for more than 1 year and you have to recapture some or all of your gain as ordinary income. A software with 1040x Form 8949. A software with 1040x   Use this form to report gain from an involuntary conversion (other than from casualty or theft) of personal-use property. A software with 1040x Schedule A (Form 1040). A software with 1040x   Use this form to deduct your losses from casualties and thefts of personal-use property and income-producing property, that you reported on Form 4684. A software with 1040x Schedule D (Form 1040). A software with 1040x   Use this form to carry over the following gains. A software with 1040x Net gain shown on Form 4797 from an involuntary conversion of business property held for more than 1 year. A software with 1040x Net gain shown on Form 4684 from the casualty or theft of personal-use property. A software with 1040x    Also use this form to figure the overall gain or loss from transactions reported on Form 8949. A software with 1040x Schedule F (Form 1040). A software with 1040x   Use this form to deduct your losses from casualty or theft of livestock or produce bought for sale under Other expenses in Part II, line 32, if you use the cash method of accounting and have not otherwise deducted these losses. A software with 1040x Prev  Up  Next   Home   More Online Publications
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Tax Relief for Victims of Severe Storms, Straight-line Winds and Flooding in Illinois

Updated 7/03/2013 to include Putnam and Warren counties.

Updated 5/31/2013 to include Brown, Calhoun, Clark,  Douglas, Henry, Pike, Whiteside, and Winnebago counties.

Updated 5/23/2013 to include Bureau, Crawford, Henderson, Knox, Livingston, Marshall, Mason, McDonough, Peoria, Rock Island, Schuyler, Stark, Tazewell and Woodford counties.

IL/KS/MO 2013-28, May. 14, 2013

CHICAGO — Victims of severe storms, straight-line winds, and flooding that began on April 16, 2013 in parts of Illinois may qualify for tax relief from the Internal Revenue Service.

The President has declared Brown, Bureau, Calhoun, Clark, Cook, Crawford, DeKalb, Douglas, DuPage, Fulton, Grundy, Henderson, Henry, Kane, Kendall, Knox, Lake, LaSalle, Livingston, Marshall, Mason, McDonough, McHenry, Peoria, Pike, Putnam, Rock Island, Schuyler, Stark, Tazewell,  Warren, Whiteside, Will, Winnebago and Woodford  counties a federal disaster area. Individuals who reside or have a business in these counties may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after April 16, and on or before July 1, have been postponed to July 1, 2013. This includes the June 17 deadline for second quarter estimated tax payments.

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after April 16, and on or before May 1, as long as the deposits are made by May 1, 2013.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866-562-5227 to request this tax relief.

Covered Disaster Area

The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until July 1 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after April 16 and on or before July 1.

The IRS also gives affected taxpayers until July 1 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after April 16 and on or before July 1.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after April 16 and on or before May 1provided the taxpayer makes these deposits by May 1.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Illinois/Severe Storms, Straight-line Winds, and Flooding” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 800-TAX-FORM (800-829-3676). The IRS toll-free number for general tax questions is 800-829-1040.

 

Related Information

Disaster Assistance and Emergency Relief for Individuals and Businesses

Recent IRS Disaster Relief Announcements

 

Page Last Reviewed or Updated: 03-Jul-2013

The A Software With 1040x

A software with 1040x 1. A software with 1040x   Investment Income Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: General InformationSSN for joint account. A software with 1040x Custodian account for your child. A software with 1040x Penalty for failure to supply SSN. A software with 1040x Certification. A software with 1040x Underreported interest and dividends. A software with 1040x How to stop backup withholding due to underreporting. A software with 1040x How to stop backup withholding due to an incorrect identification number. A software with 1040x Reporting backup withholding. A software with 1040x Nonresident aliens. A software with 1040x Penalties. A software with 1040x Savings account with parent as trustee. A software with 1040x Interest IncomeInterest not reported on Form 1099-INT. A software with 1040x Nominees. A software with 1040x Incorrect amount. A software with 1040x Information reporting requirement. A software with 1040x Taxable Interest — General Below-Market Loans U. A software with 1040x S. A software with 1040x Savings Bonds U. A software with 1040x S. A software with 1040x Treasury Bills, Notes, and Bonds Bonds Sold Between Interest Dates Insurance State or Local Government Obligations Discount on Debt InstrumentsOriginal Issue Discount (OID) Market Discount Bonds Discount on Short-Term Obligations Election To Report All Interest as OID When To Report Interest IncomeConstructive receipt. A software with 1040x How To Report Interest IncomeSchedule B (Form 1040A or 1040). A software with 1040x Worksheet for savings bonds distributed from a retirement or profit-sharing plan. A software with 1040x File Form 1099-INT with the IRS. A software with 1040x Dividends and Other DistributionsDividends not reported on Form 1099-DIV. A software with 1040x Nominees. A software with 1040x Ordinary Dividends Capital Gain Distributions Nondividend Distributions Liquidating Distributions Distributions of Stock and Stock Rights Other Distributions How To Report Dividend IncomeElection. A software with 1040x Independent contractor. A software with 1040x Investment interest deducted. A software with 1040x Exception 1. A software with 1040x Exception 2. A software with 1040x Undistributed capital gains. A software with 1040x File Form 1099-DIV with the IRS. A software with 1040x Stripped Preferred Stock REMICs, FASITs, and Other CDOsREMICs Collateralized Debt Obligations (CDOs) FASITs S CorporationsLimit on losses and deductions. A software with 1040x Passive activity losses. A software with 1040x Form 8582. A software with 1040x Investment ClubsInvestments in name of member. A software with 1040x Tax Treatment of the Club Topics - This chapter discusses: Interest Income , Discount on Debt Instruments , When To Report Interest Income , How To Report Interest Income , Dividends and Other Distributions , How To Report Dividend Income , Stripped Preferred Stock , Real estate mortgage investment conduits (REMICs), financial asset securitization investment trusts (FASITs), and other collateralized debt obligations (CDOs) , S Corporations , and Investment Clubs . A software with 1040x Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 537 Installment Sales 590 Individual Retirement Arrangements (IRAs) 925 Passive Activity and At-Risk Rules 1212 Guide to Original Issue Discount (OID) Instruments Form (and Instructions) Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends Schedule D (Form 1040) Capital Gains and Losses 1040 U. A software with 1040x S. A software with 1040x Individual Income Tax Return 1040A U. A software with 1040x S. A software with 1040x Individual Income Tax Return 1040EZ Income Tax Return for Single and Joint Filers With No Dependents 1099 General Instructions for Certain Information Returns 2439 Notice to Shareholder of Undistributed Long-Term Capital Gains 3115 Application for Change in Accounting Method 6251 Alternative Minimum Tax — Individuals 8582 Passive Activity Loss Limitations 8615 Tax for Certain Children Who Have Unearned Income 8814 Parents' Election To Report Child's Interest and Dividends 8815 Exclusion of Interest From Series EE and I U. A software with 1040x S. A software with 1040x Savings Bonds Issued After 1989 8818 Optional Form To Record Redemption of Series EE and I U. A software with 1040x S. A software with 1040x Savings Bonds Issued After 1989 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets 8960 Net Investment Income Tax—Individuals, Estates, and Trusts See chapter 5, How To Get Tax Help , for information about getting these publications and forms. A software with 1040x General Information A few items of general interest are covered here. A software with 1040x Recordkeeping. A software with 1040x You should keep a list showing sources and investment income amounts you receive during the year. A software with 1040x Also keep the forms you receive showing your investment income (Forms 1099-INT, Interest Income, and 1099-DIV, Dividends and Distributions, for example) as an important part of your records. A software with 1040x Net investment income tax (NIIT). A software with 1040x   Beginning in 2013, you may be subject to the NIIT. A software with 1040x The NIIT is a 3. A software with 1040x 8% tax on the lesser of your net investment income or the amount of your modified adjusted gross income (MAGI) that is over a threshold amount based on your filing status. A software with 1040x    Filing Status Threshold Amount Married filing jointly $250,000 Married filing separately $125,000 Single $200,000 Head of household (with qualifying person) $200,000 Qualifying Widow(er) with dependent child $250,000    For more information, see Form 8960 and Instructions for Form 8960. A software with 1040x Tax on unearned income of certain children. A software with 1040x   Part of a child's 2013 unearned income may be taxed at the parent's tax rate. A software with 1040x This may happen if all of the following are true. A software with 1040x The child had more than $2,000 of unearned income. A software with 1040x The child is required to file a tax return. A software with 1040x The child was: Under age 18 at the end of 2013, Age 18 at the end of 2013 and did not have earned income that was more than half of the child's support, or A full-time student over age 18 and under age 24 at the end of 2013 and did not have earned income that was more than half of the child's support. A software with 1040x At least one of the child's parents was alive at the end of 2013. A software with 1040x The child does not file a joint return for 2013. A software with 1040x A child born on January 1, 1996, is considered to be age 18 at the end of 2013; a child born on January 1, 1995, is considered to be age 19 at the end of 2013; a child born on January 1, 1990, is considered to be age 24 at the end of 2013. A software with 1040x   If all of these statements are true, Form 8615 must be completed and attached to the child's tax return. A software with 1040x If any of these statements is not true, Form 8615 is not required and the child's income is taxed at his or her own tax rate. A software with 1040x    However, the parent can choose to include the child's interest and dividends on the parent's return if certain requirements are met. A software with 1040x Use Form 8814 for this purpose. A software with 1040x   For more information about the tax on unearned income of children and the parents' election, see Publication 929, Tax Rules for Children and Dependents. A software with 1040x Beneficiary of an estate or trust. A software with 1040x   Interest, dividends, and other investment income you receive as a beneficiary of an estate or trust is generally taxable income. A software with 1040x You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. A software with 1040x , from the fiduciary. A software with 1040x Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. A software with 1040x Social security number (SSN). A software with 1040x   You must give your name and SSN or individual tax identification number (ITIN) to any person required by federal tax law to make a return, statement, or other document that relates to you. A software with 1040x This includes payers of interest and dividends. A software with 1040x If you do not give your SSN or ITIN to the payer of interest, you may have to pay a penalty. A software with 1040x SSN for joint account. A software with 1040x   If the funds in a joint account belong to one person, list that person's name first on the account and give that person's SSN to the payer. A software with 1040x (For information on who owns the funds in a joint account, see Joint accounts , later. A software with 1040x ) If the joint account contains combined funds, give the SSN of the person whose name is listed first on the account. A software with 1040x This is because only one name and SSN can be shown on Form 1099. A software with 1040x   These rules apply both to joint ownership by a married couple and to joint ownership by other individuals. A software with 1040x For example, if you open a joint savings account with your child using funds belonging to the child, list the child's name first on the account and give the child's SSN. A software with 1040x Custodian account for your child. A software with 1040x   If your child is the actual owner of an account that is recorded in your name as custodian for the child, give the child's SSN to the payer. A software with 1040x For example, you must give your child's SSN to the payer of dividends on stock owned by your child, even though the dividends are paid to you as custodian. A software with 1040x Penalty for failure to supply SSN. A software with 1040x   You will be subject to a penalty if, when required, you fail to: Include your SSN on any return, statement, or other document, Give your SSN to another person who must include it on any return, statement, or other document, or Include the SSN of another person on any return, statement, or other document. A software with 1040x The penalty is $50 for each failure up to a maximum penalty of $100,000 for any calendar year. A software with 1040x   You will not be subject to this penalty if you can show that your failure to provide the SSN was due to reasonable cause and not to willful neglect. A software with 1040x   If you fail to supply an SSN, you may also be subject to backup withholding. A software with 1040x Backup withholding. A software with 1040x   Your investment income is generally not subject to regular withholding. A software with 1040x However, it may be subject to backup withholding to ensure that income tax is collected on the income. A software with 1040x Under backup withholding, the bank, broker, or other payer of interest, original issue discount (OID), dividends, cash patronage dividends, or royalties must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. A software with 1040x   Backup withholding applies if: You do not give the payer your identification number (either a social security number or an employer identification number) in the required manner, The IRS notifies the payer that you gave an incorrect identification number, The IRS notifies the payer that you are subject to backup withholding on interest or dividends because you have underreported interest or dividends on your income tax return, or You are required, but fail, to certify that you are not subject to backup withholding for the reason described in (3). A software with 1040x Certification. A software with 1040x   For new accounts paying interest or dividends, you must certify under penalties of perjury that your SSN is correct and that you are not subject to backup withholding. A software with 1040x Your payer will give you a Form W-9, Request for Taxpayer Identification Number and Certification, or similar form, to make this certification. A software with 1040x If you fail to make this certification, backup withholding may begin immediately on your new account or investment. A software with 1040x Underreported interest and dividends. A software with 1040x   You will be considered to have underreported your interest and dividends if the IRS has determined for a tax year that: You failed to include any part of a reportable interest or dividend payment required to be shown on your return, or You were required to file a return and to include a reportable interest or dividend payment on that return, but you failed to file the return. A software with 1040x How to stop backup withholding due to underreporting. A software with 1040x   If you have been notified that you underreported interest or dividends, you can request a determination from the IRS to prevent backup withholding from starting or to stop backup withholding once it has begun. A software with 1040x You must show that at least one of the following situations applies. A software with 1040x No underreporting occurred. A software with 1040x You have a bona fide dispute with the IRS about whether underreporting occurred. A software with 1040x Backup withholding will cause or is causing an undue hardship, and it is unlikely that you will underreport interest and dividends in the future. A software with 1040x You have corrected the underreporting by filing a return if you did not previously file one and by paying all taxes, penalties, and interest due for any underreported interest or dividend payments. A software with 1040x   If the IRS determines that backup withholding should stop, it will provide you with a certification and will notify the payers who were sent notices earlier. A software with 1040x How to stop backup withholding due to an incorrect identification number. A software with 1040x   If you have been notified by a payer that you are subject to backup withholding because you have provided an incorrect SSN or employer identification number, you can stop it by following the instructions the payer gives you. A software with 1040x Reporting backup withholding. A software with 1040x   If backup withholding is deducted from your interest or dividend income or other reportable payment, the bank or other business must give you an information return for the year (for example, a Form 1099-INT) indicating the amount withheld. A software with 1040x The information return will show any backup withholding as “Federal income tax withheld. A software with 1040x ” Nonresident aliens. A software with 1040x    Generally, payments made to nonresident aliens are not subject to backup withholding. A software with 1040x You can use Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, to certify exempt status. A software with 1040x However, this does not exempt you from the 30% (or lower treaty) withholding rate that may apply to your investment income. A software with 1040x For information on the 30% rate, see Publication 519, U. A software with 1040x S. A software with 1040x Tax Guide for Aliens. A software with 1040x Penalties. A software with 1040x   There are civil and criminal penalties for giving false information to avoid backup withholding. A software with 1040x The civil penalty is $500. A software with 1040x The criminal penalty, upon conviction, is a fine of up to $1,000, or imprisonment of up to 1 year, or both. A software with 1040x Where to report investment income. A software with 1040x   Table 1-1 gives an overview of the forms and schedules to use to report some common types of investment income. A software with 1040x But see the rest of this publication for detailed information about reporting investment income. A software with 1040x Joint accounts. A software with 1040x   If two or more persons hold property (such as a savings account, bond, or stock) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest or dividends from the property is determined by local law. A software with 1040x Community property states. A software with 1040x   If you are married and receive a distribution that is community income, one-half of the distribution is generally considered to be received by each spouse. A software with 1040x If you file separate returns, you must each report one-half of any taxable distribution. A software with 1040x See Publication 555, Community Property, for more information on community income. A software with 1040x   If the distribution is not considered community property and you and your spouse file separate returns, each of you must report your separate taxable distributions. A software with 1040x Example. A software with 1040x You and your spouse have a joint money market account. A software with 1040x Under state law, half the income from the account belongs to you, and half belongs to your spouse. A software with 1040x If you file separate returns, you each report half the income. A software with 1040x Income from property given to a child. A software with 1040x   Property you give as a parent to your child under the Model Gifts of Securities to Minors Act, the Uniform Gifts to Minors Act, or any similar law becomes the child's property. A software with 1040x   Income from the property is taxable to the child, except that any part used to satisfy a legal obligation to support the child is taxable to the parent or guardian having that legal obligation. A software with 1040x Savings account with parent as trustee. A software with 1040x   Interest income from a savings account opened for a minor child, but placed in the name and subject to the order of the parents as trustees, is taxable to the child if, under the law of the state in which the child resides, both of the following are true. A software with 1040x The savings account legally belongs to the child. A software with 1040x The parents are not legally permitted to use any of the funds to support the child. A software with 1040x Table 1-1. A software with 1040x Where To Report Common Types of Investment Income (For detailed information about reporting investment income, see the rest of this publication, especially How To Report Interest Income and How To Report Dividend Income in chapter 1. A software with 1040x ) Type of Income If you file Form 1040, report on . A software with 1040x . A software with 1040x . A software with 1040x If you can file Form 1040A, report on . A software with 1040x . A software with 1040x . A software with 1040x If you can file Form 1040EZ, report on . A software with 1040x . A software with 1040x . A software with 1040x Tax-exempt interest (Form 1099-INT, box 8) Line 8b Line 8b Space to the left of line 2 (enter “TEI” and the amount) Taxable interest that totals $1,500 or less Line 8a (You may need to file Schedule B as well. A software with 1040x ) Line 8a (You may need to file Schedule B as well. A software with 1040x ) Line 2 Taxable interest that totals more than $1,500 Line 8a; also use Schedule B, line 1 Line 8a; also use Schedule B, line 1   Savings bond interest you will exclude because of higher education expenses Schedule B; also use Form 8815 Schedule B; also use Form 8815   Ordinary dividends that total $1,500 or less Line 9a (You may need to file Schedule B as well. A software with 1040x ) Line 9a (You may need to file Schedule B as well. A software with 1040x )   Ordinary dividends that total more than $1,500 Line 9a; also use Schedule B, line 5 Line 9a; also use Schedule B, line 5   Qualified dividends (if you do not have to file Schedule D) Line 9b; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 2 Line 9b; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 2   Qualified dividends (if you have to file Schedule D) Line 9b; also use the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet, line 2 You cannot use Form 1040A    You cannot use Form 1040EZ Capital gain distributions (if you do not have to file Schedule D) Line 13; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 3 Line 10; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 3   Capital gain distributions (if you have to file Schedule D) Schedule D, line 13; also use the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet     Section 1250, 1202, or collectibles gain (Form 1099-DIV, box 2b, 2c, or 2d) Form 8949 and Schedule D     Nondividend distributions (Form 1099-DIV, box 3) Generally not reported*     Undistributed capital gains (Form 2439, boxes 1a - 1d) Schedule D     Gain or loss from sales of stocks or bonds Line 13; also use Form 8949, Schedule D, and the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet You cannot use Form 1040A   Gain or loss from exchanges of like-kind investment property Line 13; also use Schedule D, Form 8824, and the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet     *Report any amounts in excess of your basis in your mutual fund shares on Form 8949. A software with 1040x Use Part II if you held the shares more than 1 year. A software with 1040x Use Part I if you held your mutual fund shares 1 year or less. A software with 1040x For details on Form 8949, see Reporting Capital Gains and Losses in chapter 4, and the Instructions for Form 8949. A software with 1040x Accuracy-related penalty. A software with 1040x   An accuracy-related penalty of 20% can be charged for underpayments of tax due to negligence or disregard of rules or regulations or substantial understatement of tax. A software with 1040x For information on the penalty and any interest that applies, see Penalties in chapter 2. A software with 1040x Interest Income This section discusses the tax treatment of different types of interest income. A software with 1040x In general, any interest that you receive or that is credited to your account and can be withdrawn is taxable income. A software with 1040x (It does not have to be entered in your passbook. A software with 1040x ) Exceptions to this rule are discussed later. A software with 1040x Form 1099-INT. A software with 1040x   Interest income is generally reported to you on Form 1099-INT, or a similar statement, by banks, savings and loans, and other payers of interest. A software with 1040x This form shows you the interest you received during the year. A software with 1040x Keep this form for your records. A software with 1040x You do not have to attach it to your tax return. A software with 1040x   Report on your tax return the total interest income you receive for the tax year. A software with 1040x Interest not reported on Form 1099-INT. A software with 1040x   Even if you do not receive Form 1099-INT, you must still report all of your interest income. A software with 1040x For example, you may receive distributive shares of interest from partnerships or S corporations. A software with 1040x This interest is reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. A software with 1040x , and Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. A software with 1040x Nominees. A software with 1040x   Generally, if someone receives interest as a nominee for you, that person must give you a Form 1099-INT showing the interest received on your behalf. A software with 1040x   If you receive a Form 1099-INT that includes amounts belonging to another person, see the discussion on Nominee distributions , later, under How To Report Interest Income. A software with 1040x Incorrect amount. A software with 1040x   If you receive a Form 1099-INT that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. A software with 1040x The new Form 1099-INT you receive will be marked “Corrected. A software with 1040x ” Form 1099-OID. A software with 1040x   Reportable interest income also may be shown on Form 1099-OID, Original Issue Discount. A software with 1040x For more information about amounts shown on this form, see Original Issue Discount (OID) , later in this chapter. A software with 1040x Exempt-interest dividends. A software with 1040x   Exempt-interest dividends you receive from a mutual fund or other regulated investment company, including those received from a qualified fund of funds in any tax year beginning after December 22, 2010, are not included in your taxable income. A software with 1040x (However, see Information reporting requirement , next. A software with 1040x ) Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. A software with 1040x You do not reduce your basis for distributions that are exempt-interest dividends. A software with 1040x Information reporting requirement. A software with 1040x   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file. A software with 1040x This is an information reporting requirement and does not change the exempt-interest dividends into taxable income. A software with 1040x See How To Report Interest Income , later. A software with 1040x Note. A software with 1040x Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. A software with 1040x The exempt-interest dividends subject to the alternative minimum tax are shown in box 11 of Form 1099-DIV. A software with 1040x See Form 6251 and its instructions for more information about this tax. A software with 1040x Private activity bonds are discussed later under State or Local Government Obligations. A software with 1040x Interest on VA dividends. A software with 1040x   Interest on insurance dividends left on deposit with the Department of Veterans Affairs (VA) is not taxable. A software with 1040x This includes interest paid on dividends on converted United States Government Life Insurance policies and on National Service Life Insurance policies. A software with 1040x Individual retirement arrangements (IRAs). A software with 1040x   Interest on a Roth IRA generally is not taxable. A software with 1040x Interest on a traditional IRA is tax deferred. A software with 1040x You generally do not include it in your income until you make withdrawals from the IRA. A software with 1040x See Publication 590 for more information. A software with 1040x Taxable Interest — General Taxable interest includes interest you receive from bank accounts, loans you make to others, and other sources. A software with 1040x The following are some sources of taxable interest. A software with 1040x Dividends that are actually interest. A software with 1040x   Certain distributions commonly called dividends are actually interest. A software with 1040x You must report as interest so-called “dividends” on deposits or on share accounts in: Cooperative banks, Credit unions, Domestic building and loan associations, Domestic savings and loan associations, Federal savings and loan associations, and Mutual savings banks. A software with 1040x  The “dividends” will be shown as interest income on Form 1099-INT. A software with 1040x Money market funds. A software with 1040x   Money market funds are offered by nonbank financial institutions such as mutual funds and stock brokerage houses, and pay dividends. A software with 1040x Generally, amounts you receive from money market funds should be reported as dividends, not as interest. A software with 1040x Certificates of deposit and other deferred interest accounts. A software with 1040x   If you open any of these accounts, interest may be paid at fixed intervals of 1 year or less during the term of the account. A software with 1040x You generally must include this interest in your income when you actually receive it or are entitled to receive it without paying a substantial penalty. A software with 1040x The same is true for accounts that mature in 1 year or less and pay interest in a single payment at maturity. A software with 1040x If interest is deferred for more than 1 year, see Original Issue Discount (OID) , later. A software with 1040x Interest subject to penalty for early withdrawal. A software with 1040x   If you withdraw funds from a deferred interest account before maturity, you may have to pay a penalty. A software with 1040x You must report the total amount of interest paid or credited to your account during the year, without subtracting the penalty. A software with 1040x See Penalty on early withdrawal of savings under How To Report Interest Income, later, for more information on how to report the interest and deduct the penalty. A software with 1040x Money borrowed to invest in certificate of deposit. A software with 1040x   The interest you pay on money borrowed from a bank or savings institution to meet the minimum deposit required for a certificate of deposit from the institution and the interest you earn on the certificate are two separate items. A software with 1040x You must report the total interest you earn on the certificate in your income. A software with 1040x If you itemize deductions, you can deduct the interest you pay as investment interest, up to the amount of your net investment income. A software with 1040x See Interest Expenses in chapter 3. A software with 1040x Example. A software with 1040x You deposited $5,000 with a bank and borrowed $5,000 from the bank to make up the $10,000 minimum deposit required to buy a 6-month certificate of deposit. A software with 1040x The certificate earned $575 at maturity in 2013, but you received only $265, which represented the $575 you earned minus $310 interest charged on your $5,000 loan. A software with 1040x The bank gives you a Form 1099-INT for 2013 showing the $575 interest you earned. A software with 1040x The bank also gives you a statement showing that you paid $310 interest for 2013. A software with 1040x You must include the $575 in your income. A software with 1040x If you itemize your deductions on Schedule A (Form 1040), Itemized Deductions, you can deduct $310, subject to the net investment income limit. A software with 1040x Gift for opening account. A software with 1040x   If you receive noncash gifts or services for making deposits or for opening an account in a savings institution, you may have to report the value as interest. A software with 1040x   For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest. A software with 1040x For deposits of $5,000 or more, gifts or services valued at more than $20 must be reported as interest. A software with 1040x The value is determined by the cost to the financial institution. A software with 1040x Example. A software with 1040x You open a savings account at your local bank and deposit $800. A software with 1040x The account earns $20 interest. A software with 1040x You also receive a $15 calculator. A software with 1040x If no other interest is credited to your account during the year, the Form 1099-INT you receive will show $35 interest for the year. A software with 1040x You must report $35 interest income on your tax return. A software with 1040x Interest on insurance dividends. A software with 1040x   Interest on insurance dividends left on deposit with an insurance company that can be withdrawn annually is taxable to you in the year it is credited to your account. A software with 1040x However, if you can withdraw it only on the anniversary date of the policy (or other specified date), the interest is taxable in the year that date occurs. A software with 1040x Prepaid insurance premiums. A software with 1040x   Any increase in the value of prepaid insurance premiums, advance premiums, or premium deposit funds is interest if it is applied to the payment of premiums due on insurance policies or made available for you to withdraw. A software with 1040x U. A software with 1040x S. A software with 1040x obligations. A software with 1040x   Interest on U. A software with 1040x S. A software with 1040x obligations, such as U. A software with 1040x S. A software with 1040x Treasury bills, notes, and bonds, issued by any agency or instrumentality of the United States is taxable for federal income tax purposes. A software with 1040x Interest on tax refunds. A software with 1040x   Interest you receive on tax refunds is taxable income. A software with 1040x Interest on condemnation award. A software with 1040x   If the condemning authority pays you interest to compensate you for a delay in payment of an award, the interest is taxable. A software with 1040x Installment sale payments. A software with 1040x   If a contract for the sale or exchange of property provides for deferred payments, it also usually provides for interest payable with the deferred payments. A software with 1040x That interest is taxable when you receive it. A software with 1040x If little or no interest is provided for in a deferred payment contract, part of each payment may be treated as interest. A software with 1040x See Unstated Interest and Original Issue Discount (OID) in Publication 537. A software with 1040x Interest on annuity contract. A software with 1040x   Accumulated interest on an annuity contract you sell before its maturity date is taxable. A software with 1040x Usurious interest. A software with 1040x   Usurious interest is interest charged at an illegal rate. A software with 1040x This is taxable as interest unless state law automatically changes it to a payment on the principal. A software with 1040x Interest income on frozen deposits. A software with 1040x   Exclude from your gross income interest on frozen deposits. A software with 1040x A deposit is frozen if, at the end of the year, you cannot withdraw any part of the deposit because: The financial institution is bankrupt or insolvent, or The state in which the institution is located has placed limits on withdrawals because other financial institutions in the state are bankrupt or insolvent. A software with 1040x   The amount of interest you must exclude is the interest that was credited on the frozen deposits minus the sum of: The net amount you withdrew from these deposits during the year, and The amount you could have withdrawn as of the end of the year (not reduced by any penalty for premature withdrawals of a time deposit). A software with 1040x If you receive a Form 1099-INT for interest income on deposits that were frozen at the end of 2013, see Frozen deposits under How To Report Interest Income for information about reporting this interest income exclusion on your tax return. A software with 1040x   The interest you exclude is treated as credited to your account in the following year. A software with 1040x You must include it in income in the year you can withdraw it. A software with 1040x Example. A software with 1040x $100 of interest was credited on your frozen deposit during the year. A software with 1040x You withdrew $80 but could not withdraw any more as of the end of the year. A software with 1040x You must include $80 in your income and exclude $20 from your income for the year. A software with 1040x You must include the $20 in your income for the year you can withdraw it. A software with 1040x Bonds traded flat. A software with 1040x    If you buy a bond at a discount when interest has been defaulted or when the interest has accrued but has not been paid, the transaction is described as trading a bond flat. A software with 1040x The defaulted or unpaid interest is not income and is not taxable as interest if paid later. A software with 1040x When you receive a payment of that interest, it is a return of capital that reduces the remaining cost basis of your bond. A software with 1040x Interest that accrues after the date of purchase, however, is taxable interest income for the year received or accrued. A software with 1040x See Bonds Sold Between Interest Dates , later in this chapter. A software with 1040x Below-Market Loans If you make a below-market gift or demand loan, you must report as interest income any forgone interest (defined later) from that loan. A software with 1040x The below-market loan rules and exceptions are described in this section. A software with 1040x For more information, see section 7872 of the Internal Revenue Code and its regulations. A software with 1040x If you receive a below-market loan, you may be able to deduct the forgone interest as well as any interest you actually paid, but not if it is personal interest. A software with 1040x Loans subject to the rules. A software with 1040x   The rules for below-market loans apply to: Gift loans, Pay-related loans, Corporation-shareholder loans, Tax avoidance loans, and Certain loans made to qualified continuing care facilities under a continuing care contract. A software with 1040x A pay-related loan is any below-market loan between an employer and an employee or between an independent contractor and a person for whom the contractor provides services. A software with 1040x A tax avoidance loan is any below-market loan where the avoidance of federal tax is one of the main purposes of the interest arrangement. A software with 1040x Forgone interest. A software with 1040x   For any period, forgone interest is: The amount of interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. A software with 1040x Applicable federal rate. A software with 1040x   Applicable federal rates are published by the IRS each month in the Internal Revenue Bulletin. A software with 1040x Some IRS offices have these bulletins available for research. A software with 1040x See chapter 5, How To Get Tax Help , for other ways to get this information. A software with 1040x Rules for below-market loans. A software with 1040x   The rules that apply to a below-market loan depend on whether the loan is a gift loan, demand loan, or term loan. A software with 1040x Gift and demand loans. A software with 1040x   A gift loan is any below-market loan where the forgone interest is in the nature of a gift. A software with 1040x   A demand loan is a loan payable in full at any time upon demand by the lender. A software with 1040x A demand loan is a below-market loan if no interest is charged or if interest is charged at a rate below the applicable federal rate. A software with 1040x   A demand loan or gift loan that is a below-market loan is generally treated as an arm's-length transaction in which the lender is treated as having made: A loan to the borrower in exchange for a note that requires the payment of interest at the applicable federal rate, and An additional payment to the borrower in an amount equal to the forgone interest. A software with 1040x The borrower is generally treated as transferring the additional payment back to the lender as interest. A software with 1040x The lender must report that amount as interest income. A software with 1040x   The lender's additional payment to the borrower is treated as a gift, dividend, contribution to capital, pay for services, or other payment, depending on the substance of the transaction. A software with 1040x The borrower may have to report this payment as taxable income, depending on its classification. A software with 1040x These transfers are considered to occur annually, generally on December 31. A software with 1040x Term loans. A software with 1040x   A term loan is any loan that is not a demand loan. A software with 1040x A term loan is a below-market loan if the amount of the loan is more than the present value of all payments due under the loan. A software with 1040x   A lender who makes a below-market term loan other than a gift loan is treated as transferring an additional lump-sum cash payment to the borrower (as a dividend, contribution to capital, etc. A software with 1040x ) on the date the loan is made. A software with 1040x The amount of this payment is the amount of the loan minus the present value, at the applicable federal rate, of all payments due under the loan. A software with 1040x An equal amount is treated as original issue discount (OID). A software with 1040x The lender must report the annual part of the OID as interest income. A software with 1040x The borrower may be able to deduct the OID as interest expense. A software with 1040x See Original Issue Discount (OID) , later. A software with 1040x Exceptions to the below-market loan rules. A software with 1040x   Exceptions to the below-market loan rules are discussed here. A software with 1040x Exception for loans of $10,000 or less. A software with 1040x   The rules for below-market loans do not apply to any day on which the total outstanding amount of loans between the borrower and lender is $10,000 or less. A software with 1040x This exception applies only to: Gift loans between individuals if the gift loan is not directly used to buy or carry income-producing assets, and Pay-related loans or corporation-shareholder loans if the avoidance of federal tax is not a principal purpose of the interest arrangement. A software with 1040x This exception does not apply to a term loan described in (2) earlier that previously has been subject to the below-market loan rules. A software with 1040x Those rules will continue to apply even if the outstanding balance is reduced to $10,000 or less. A software with 1040x Exception for loans to continuing care facilities. A software with 1040x   Loans to qualified continuing care facilities under continuing care contracts are not subject to the rules for below-market loans for the calendar year if the lender or the lender's spouse is age 62 or older at the end of the year. A software with 1040x For the definitions of qualified continuing care facility and continuing care contract, see Internal Revenue Code section 7872(h). A software with 1040x Exception for loans without significant tax effect. A software with 1040x   Loans are excluded from the below-market loan rules if their interest arrangements do not have a significant effect on the federal tax liability of the borrower or the lender. A software with 1040x These loans include: Loans made available by the lender to the general public on the same terms and conditions that are consistent with the lender's customary business practice; Loans subsidized by a federal, state, or municipal government that are made available under a program of general application to the public; Certain employee-relocation loans; Certain loans from a foreign person, unless the interest income would be effectively connected with the conduct of a U. A software with 1040x S. A software with 1040x trade or business and would not be exempt from U. A software with 1040x S. A software with 1040x tax under an income tax treaty; Gift loans to a charitable organization, contributions to which are deductible, if the total outstanding amount of loans between the organization and lender is $250,000 or less at all times during the tax year; and Other loans on which the interest arrangement can be shown to have no significant effect on the federal tax liability of the lender or the borrower. A software with 1040x For a loan described in (6) above, all the facts and circumstances are used to determine if the interest arrangement has a significant effect on the federal tax liability of the lender or borrower. A software with 1040x Some factors to be considered are: Whether items of income and deduction generated by the loan offset each other; The amount of these items; The cost to you of complying with the below-market loan rules, if they were to apply; and Any reasons other than taxes for structuring the transaction as a below-market loan. A software with 1040x If you structure a transaction to meet this exception and one of the principal purposes of that structure is the avoidance of federal tax, the loan will be considered a tax-avoidance loan, and this exception will not apply. A software with 1040x Limit on forgone interest for gift loans of $100,000 or less. A software with 1040x   For gift loans between individuals, if the outstanding loans between the lender and borrower total $100,000 or less, the forgone interest to be included in income by the lender and deducted by the borrower is limited to the amount of the borrower's net investment income for the year. A software with 1040x If the borrower's net investment income is $1,000 or less, it is treated as zero. A software with 1040x This limit does not apply to a loan if the avoidance of federal tax is one of the main purposes of the interest arrangement. A software with 1040x Effective dates. A software with 1040x    These rules apply to term loans made after June 6, 1984, and to demand loans outstanding after that date. A software with 1040x U. A software with 1040x S. A software with 1040x Savings Bonds This section provides tax information on U. A software with 1040x S. A software with 1040x savings bonds. A software with 1040x It explains how to report the interest income on these bonds and how to treat transfers of these bonds. A software with 1040x U. A software with 1040x S. A software with 1040x savings bonds currently offered to individuals include Series EE bonds and Series I bonds. A software with 1040x For other information on U. A software with 1040x S. A software with 1040x savings bonds, write to:  For Series HH/H: Bureau of the Fiscal Service Division of Customer Assistance P. A software with 1040x O. A software with 1040x Box 2186 Parkersburg, WV 26106-2186  For Series EE and I paper savings bonds: Bureau of the Fiscal Service Division of Customer Assistance P. A software with 1040x O. A software with 1040x Box 7012 Parkersburg, WV 26106-7012  For Series EE and I electronic bonds: Bureau of the Fiscal Service  Division of Customer Assistance P. A software with 1040x O. A software with 1040x Box 7015 Parkersburg, WV 26106-7015 Or, on the Internet, visit: www. A software with 1040x treasurydirect. A software with 1040x gov/indiv/indiv. A software with 1040x htm. A software with 1040x Accrual method taxpayers. A software with 1040x   If you use an accrual method of accounting, you must report interest on U. A software with 1040x S. A software with 1040x savings bonds each year as it accrues. A software with 1040x You cannot postpone reporting interest until you receive it or until the bonds mature. A software with 1040x Cash method taxpayers. A software with 1040x   If you use the cash method of accounting, as most individual taxpayers do, you generally report the interest on U. A software with 1040x S. A software with 1040x savings bonds when you receive it. A software with 1040x But see Reporting options for cash method taxpayers , later. A software with 1040x Series HH bonds. A software with 1040x   These bonds were issued at face value. A software with 1040x Interest is paid twice a year by direct deposit to your bank account. A software with 1040x If you are a cash method taxpayer, you must report interest on these bonds as income in the year you receive it. A software with 1040x   Series HH bonds were first offered in 1980 and last offered in August 2004. A software with 1040x Before 1980, series H bonds were issued. A software with 1040x Series H bonds are treated the same as series HH bonds. A software with 1040x If you are a cash method taxpayer, you must report the interest when you receive it. A software with 1040x   Series H bonds have a maturity period of 30 years. A software with 1040x Series HH bonds mature in 20 years. A software with 1040x The last series H bonds matured in 2009. A software with 1040x The last series HH bonds will mature in 2024. A software with 1040x Series EE and series I bonds. A software with 1040x   Interest on these bonds is payable when you redeem the bonds. A software with 1040x The difference between the purchase price and the redemption value is taxable interest. A software with 1040x Series EE bonds. A software with 1040x   Series EE bonds were first offered in January 1980 and have a maturity period of 30 years. A software with 1040x Before July 1980, series E bonds were issued. A software with 1040x The original 10-year maturity period of series E bonds has been extended to 40 years for bonds issued before December 1965 and 30 years for bonds issued after November 1965. A software with 1040x Paper series EE and series E bonds are issued at a discount. A software with 1040x The face value is payable to you at maturity. A software with 1040x Electronic series EE bonds are issued at their face value. A software with 1040x The face value plus accrued interest is payable to you at maturity. A software with 1040x As of January 1, 2012, paper savings bonds were no longer sold at financial institutions. A software with 1040x    Owners of paper series EE bonds can convert them to electronic bonds. A software with 1040x These converted bonds do not retain the denomination listed on the paper certificate but are posted at their purchase price (with accrued interest). A software with 1040x Series I bonds. A software with 1040x   Series I bonds were first offered in 1998. A software with 1040x These are inflation-indexed bonds issued at their face amount with a maturity period of 30 years. A software with 1040x The face value plus all accrued interest is payable to you at maturity. A software with 1040x Reporting options for cash method taxpayers. A software with 1040x   If you use the cash method of reporting income, you can report the interest on series EE, series E, and series I bonds in either of the following ways. A software with 1040x Method 1. A software with 1040x Postpone reporting the interest until the earlier of the year you cash or dispose of the bonds or the year in which they mature. A software with 1040x (However, see Savings bonds traded , later. A software with 1040x )  Note. A software with 1040x Series EE bonds issued in 1983 matured in 2013. A software with 1040x If you have used method 1, you generally must report the interest on these bonds on your 2013 return. A software with 1040x The last series E bonds were issued in 1980 and matured in 2010. A software with 1040x If you used method 1, you generally should have reported the interest on these bonds on your 2010 return. A software with 1040x Method 2. A software with 1040x Choose to report the increase in redemption value as interest each year. A software with 1040x  You must use the same method for all series EE, series E, and series I bonds you own. A software with 1040x If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1. A software with 1040x If you plan to cash your bonds in the same year you will pay for higher educational expenses, you may want to use method 1 because you may be able to exclude the interest from your income. A software with 1040x To learn how, see Education Savings Bond Program, later. A software with 1040x Change from method 1. A software with 1040x   If you want to change your method of reporting the interest from method 1 to method 2, you can do so without permission from the IRS. A software with 1040x In the year of change, you must report all interest accrued to date and not previously reported for all your bonds. A software with 1040x   Once you choose to report the interest each year, you must continue to do so for all series EE, series E, and series I bonds you own and for any you get later, unless you request permission to change, as explained next. A software with 1040x Change from method 2. A software with 1040x   To change from method 2 to method 1, you must request permission from the IRS. A software with 1040x Permission for the change is automatically granted if you send the IRS a statement that meets all the following requirements. A software with 1040x You have typed or printed the following number at the top: “131. A software with 1040x ” It includes your name and social security number under “131. A software with 1040x ” It includes the year of change (both the beginning and ending dates). A software with 1040x It identifies the savings bonds for which you are requesting this change. A software with 1040x It includes your agreement to: Report all interest on any bonds acquired during or after the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest; and Report all interest on the bonds acquired before the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, with the exception of the interest reported in prior tax years. A software with 1040x   You must attach this statement to your tax return for the year of change, which you must file by the due date (including extensions). A software with 1040x   You can have an automatic extension of 6 months from the due date of your return for the year of change (excluding extensions) to file the statement with an amended return. A software with 1040x On the statement, type or print “Filed pursuant to section 301. A software with 1040x 9100-2. A software with 1040x ” To get this extension, you must have filed your original return for the year of the change by the due date (including extensions). A software with 1040x    By the date you file the original statement with your return, you must also send a signed copy to the address below. A software with 1040x    Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) P. A software with 1040x O. A software with 1040x Box 7604 Benjamin Franklin Station Washington, DC 20044   If you use a private delivery service, send the signed copy to the address below. A software with 1040x Internal Revenue Service Attention: CC:IT&A  (Automatic Rulings Branch) Room 5336 1111 Constitution Avenue, NW Washington, DC 20224    Instead of filing this statement, you can request permission to change from method 2 to method 1 by filing Form 3115. A software with 1040x In that case, follow the form instructions for an automatic change. A software with 1040x No user fee is required. A software with 1040x Co-owners. A software with 1040x   If a U. A software with 1040x S. A software with 1040x savings bond is issued in the names of co-owners, such as you and your child or you and your spouse, interest on the bond is generally taxable to the co-owner who bought the bond. A software with 1040x One co-owner's funds used. A software with 1040x   If you used your funds to buy the bond, you must pay the tax on the interest. A software with 1040x This is true even if you let the other co-owner redeem the bond and keep all the proceeds. A software with 1040x Under these circumstances, the co-owner who redeemed the bond will receive a Form 1099-INT at the time of redemption and must provide you with another Form 1099-INT showing the amount of interest from the bond taxable to you. A software with 1040x The co-owner who redeemed the bond is a “nominee. A software with 1040x ” See Nominee distributions under How To Report Interest Income, later, for more information about how a person who is a nominee reports interest income belonging to another person. A software with 1040x Both co-owners' funds used. A software with 1040x   If you and the other co-owner each contribute part of the bond's purchase price, the interest is generally taxable to each of you, in proportion to the amount each of you paid. A software with 1040x Community property. A software with 1040x   If you and your spouse live in a community property state and hold bonds as community property, one-half of the interest is considered received by each of you. A software with 1040x If you file separate returns, each of you generally must report one-half of the bond interest. A software with 1040x For more information about community property, see Publication 555. A software with 1040x Table 1-2. A software with 1040x   These rules are also shown in Table 1-2. A software with 1040x Child as only owner. A software with 1040x   Interest on U. A software with 1040x S. A software with 1040x savings bonds bought for and registered only in the name of your child is income to your child, even if you paid for the bonds and are named as beneficiary. A software with 1040x If the bonds are series EE, series E, or series I bonds, the interest on the bonds is income to your child in the earlier of the year the bonds are cashed or disposed of or the year the bonds mature, unless your child chooses to report the interest income each year. A software with 1040x Choice to report interest each year. A software with 1040x   The choice to report the accrued interest each year can be made either by your child or by you for your child. A software with 1040x This choice is made by filing an income tax return that shows all the interest earned to date, and by stating on the return that your child chooses to report the interest each year. A software with 1040x Either you or your child should keep a copy of this return. A software with 1040x   Unless your child is otherwise required to file a tax return for any year after making this choice, your child does not have to file a return only to report the annual accrual of U. A software with 1040x S. A software with 1040x savings bond interest under this choice. A software with 1040x However, see Tax on unearned income of certain children , earlier, under General Information. A software with 1040x Neither you nor your child can change the way you report the interest unless you request permission from the IRS, as discussed earlier under Change from method 2 . A software with 1040x Ownership transferred. A software with 1040x   If you bought series E, series EE, or series I bonds entirely with your own funds and had them reissued in your co-owner's name or beneficiary's name alone, you must include in your gross income for the year of reissue all interest that you earned on these bonds and have not previously reported. A software with 1040x But, if the bonds were reissued in your name alone, you do not have to report the interest accrued at that time. A software with 1040x   This same rule applies when bonds (other than bonds held as community property) are transferred between spouses or incident to divorce. A software with 1040x Example. A software with 1040x You bought series EE bonds entirely with your own funds. A software with 1040x You did not choose to report the accrued interest each year. A software with 1040x Later, you transfer the bonds to your former spouse under a divorce agreement. A software with 1040x You must include the deferred accrued interest, from the date of the original issue of the bonds to the date of transfer, in your income in the year of transfer. A software with 1040x Your former spouse includes in income the interest on the bonds from the date of transfer to the date of redemption. A software with 1040x Table 1-2. A software with 1040x Who Pays the Tax on U. A software with 1040x S. A software with 1040x Savings Bond Interest IF . A software with 1040x . A software with 1040x . A software with 1040x THEN the interest must be reported by . A software with 1040x . A software with 1040x . A software with 1040x you buy a bond in your name and the name of another person as co-owners, using only your own funds you. A software with 1040x you buy a bond in the name of another person, who is the sole owner of the bond the person for whom you bought the bond. A software with 1040x you and another person buy a bond as co-owners, each contributing part of the purchase price both you and the other co-owner, in proportion to the amount each paid for the bond. A software with 1040x you and your spouse, who live in a community property state, buy a bond that is community property you and your spouse. A software with 1040x If you file separate returns, both you and your spouse generally report one-half of the interest. A software with 1040x Purchased jointly. A software with 1040x   If you and a co-owner each contributed funds to buy series E, series EE, or series I bonds jointly and later have the bonds reissued in the co-owner's name alone, you must include in your gross income for the year of reissue your share of all the interest earned on the bonds that you have not previously reported. A software with 1040x The former co-owner does not have to include in gross income at the time of reissue his or her share of the interest earned that was not reported before the transfer. A software with 1040x This interest, however, as well as all interest earned after the reissue, is income to the former co-owner. A software with 1040x   This income-reporting rule also applies when the bonds are reissued in the name of your former co-owner and a new co-owner. A software with 1040x But the new co-owner will report only his or her share of the interest earned after the transfer. A software with 1040x   If bonds that you and a co-owner bought jointly are reissued to each of you separately in the same proportion as your contribution to the purchase price, neither you nor your co-owner has to report at that time the interest earned before the bonds were reissued. A software with 1040x Example 1. A software with 1040x You and your spouse each spent an equal amount to buy a $1,000 series EE savings bond. A software with 1040x The bond was issued to you and your spouse as co-owners. A software with 1040x You both postpone reporting interest on the bond. A software with 1040x You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. A software with 1040x At that time neither you nor your spouse has to report the interest earned to the date of reissue. A software with 1040x Example 2. A software with 1040x You bought a $1,000 series EE savings bond entirely with your own funds. A software with 1040x The bond was issued to you and your spouse as co-owners. A software with 1040x You both postponed reporting interest on the bond. A software with 1040x You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. A software with 1040x You must report half the interest earned to the date of reissue. A software with 1040x Transfer to a trust. A software with 1040x   If you own series E, series EE, or series I bonds and transfer them to a trust, giving up all rights of ownership, you must include in your income for that year the interest earned to the date of transfer if you have not already reported it. A software with 1040x However, if you are considered the owner of the trust and if the increase in value both before and after the transfer continues to be taxable to you, you can continue to defer reporting the interest earned each year. A software with 1040x You must include the total interest in your income in the year you cash or dispose of the bonds or the year the bonds finally mature, whichever is earlier. A software with 1040x   The same rules apply to previously unreported interest on series EE or series E bonds if the transfer to a trust consisted of series HH or series H bonds you acquired in a trade for the series EE or series E bonds. A software with 1040x See Savings bonds traded , later. A software with 1040x Decedents. A software with 1040x   The manner of reporting interest income on series E, series EE, or series I bonds, after the death of the owner (decedent), depends on the accounting and income-reporting methods previously used by the decedent. A software with 1040x Decedent who reported interest each year. A software with 1040x   If the bonds transferred because of death were owned by a person who used an accrual method, or who used the cash method and had chosen to report the interest each year, the interest earned in the year of death up to the date of death must be reported on that person's final return. A software with 1040x The person who acquires the bonds includes in income only interest earned after the date of death. A software with 1040x Decedent who postponed reporting interest. A software with 1040x   If the transferred bonds were owned by a decedent who had used the cash method and had not chosen to report the interest each year, and who had bought the bonds entirely with his or her own funds, all interest earned before death must be reported in one of the following ways. A software with 1040x The surviving spouse or personal representative (executor, administrator, etc. A software with 1040x ) who files the final income tax return of the decedent can choose to include on that return all interest earned on the bonds before the decedent's death. A software with 1040x The person who acquires the bonds then includes in income only interest earned after the date of death. A software with 1040x If the choice in (1) is not made, the interest earned up to the date of death is income in respect of the decedent and should not be included in the decedent's final return. A software with 1040x All interest earned both before and after the decedent's death (except any part reported by the estate on its income tax return) is income to the person who acquires the bonds. A software with 1040x If that person uses the cash method and does not choose to report the interest each year, he or she can postpone reporting it until the year the bonds are cashed or disposed of or the year they mature, whichever is earlier. A software with 1040x In the year that person reports the interest, he or she can claim a deduction for any federal estate tax paid on the part of the interest included in the decedent's estate. A software with 1040x For more information on income in respect of a decedent, see Publication 559, Survivors, Executors, and Administrators. A software with 1040x Example 1. A software with 1040x Your uncle, a cash method taxpayer, died and left you a $1,000 series EE bond. A software with 1040x He had bought the bond for $500 and had not chosen to report the interest each year. A software with 1040x At the date of death, interest of $200 had accrued on the bond, and its value of $700 was included in your uncle's estate. A software with 1040x Your uncle's executor chose not to include the $200 accrued interest in your uncle's final income tax return. A software with 1040x The $200 is income in respect of the decedent. A software with 1040x You are a cash method taxpayer and do not choose to report the interest each year as it is earned. A software with 1040x If you cash the bond when it reaches maturity value of $1,000, you report $500 interest income—the difference between maturity value of $1,000 and the original cost of $500. A software with 1040x For that year, you can deduct (as a miscellaneous itemized deduction not subject to the 2%-of-adjusted-gross-income limit) any federal estate tax paid because the $200 interest was included in your uncle's estate. A software with 1040x Example 2. A software with 1040x If, in Example 1 , the executor had chosen to include the $200 accrued interest in your uncle's final return, you would report only $300 as interest when you cashed the bond at maturity. A software with 1040x $300 is the interest earned after your uncle's death. A software with 1040x Example 3. A software with 1040x If, in Example 1 , you make or have made the choice to report the increase in redemption value as interest each year, you include in gross income for the year you acquire the bond all of the unreported increase in value of all series E, series EE, and series I bonds you hold, including the $200 on the bond you inherited from your uncle. A software with 1040x Example 4. A software with 1040x When your aunt died, she owned series HH bonds that she had acquired in a trade for series EE bonds. A software with 1040x You were the beneficiary of these bonds. A software with 1040x Your aunt used the cash method and did not choose to report the interest on the series EE bonds each year as it accrued. A software with 1040x Your aunt's executor chose not to include any interest earned before your aunt's death on her final return. A software with 1040x The income in respect of the decedent is the sum of the unreported interest on the series EE bonds and the interest, if any, payable on the series HH bonds but not received as of the date of your aunt's death. A software with 1040x You must report any interest received during the year as income on your return. A software with 1040x The part of the interest payable but not received before your aunt's death is income in respect of the decedent and may qualify for the estate tax deduction. A software with 1040x For information on when to report the interest on the series EE bonds traded, see Savings bonds traded , later. A software with 1040x Savings bonds distributed from a retirement or profit-sharing plan. A software with 1040x   If you acquire a U. A software with 1040x S. A software with 1040x savings bond in a taxable distribution from a retirement or profit-sharing plan, your income for the year of distribution includes the bond's redemption value (its cost plus the interest accrued before the distribution). A software with 1040x When you redeem the bond (whether in the year of distribution or later), your interest income includes only the interest accrued after the bond was distributed. A software with 1040x To figure the interest reported as a taxable distribution and your interest income when you redeem the bond, see Worksheet for savings bonds distributed from a retirement or profit-sharing plan under How To Report Interest Income, later. A software with 1040x Savings bonds traded. A software with 1040x   If you postponed reporting the interest on your series EE or series E bonds, you did not recognize taxable income when you traded the bonds for series HH or series H bonds, unless you received cash in the trade. A software with 1040x (You cannot trade series I bonds for series HH bonds. A software with 1040x After August 31, 2004, you cannot trade any other series of bonds for series HH bonds. A software with 1040x ) Any cash you received is income up to the amount of the interest earned on the bonds traded. A software with 1040x When your series HH or series H bonds mature, or if you dispose of them before maturity, you report as interest the difference between their redemption value and your cost. A software with 1040x Your cost is the sum of the amount you paid for the traded series EE or series E bonds plus any amount you had to pay at the time of the trade. A software with 1040x Example. A software with 1040x You traded series EE bonds (on which you postponed reporting the interest) for $2,500 in series HH bonds and $223 in cash. A software with 1040x You reported the $223 as taxable income on your tax return. A software with 1040x At the time of the trade, the series EE bonds had accrued interest of $523 and a redemption value of $2,723. A software with 1040x You hold the series HH bonds until maturity, when you receive $2,500. A software with 1040x You must report $300 as interest income in the year of maturity. A software with 1040x This is the difference between their redemption value, $2,500, and your cost, $2,200 (the amount you paid for the series EE bonds). A software with 1040x (It is also the difference between the accrued interest of $523 on the series EE bonds and the $223 cash received on the trade. A software with 1040x ) Choice to report interest in year of trade. A software with 1040x   You could have chosen to treat all of the previously unreported accrued interest on series EE or series E bonds traded for series HH bonds as income in the year of the trade. A software with 1040x If you made this choice, it is treated as a change from method 1. A software with 1040x See Change from method 1 under Series EE and series I bonds, earlier. A software with 1040x Form 1099-INT for U. A software with 1040x S. A software with 1040x savings bond interest. A software with 1040x   When you cash a bond, the bank or other payer that redeems it must give you a Form 1099-INT if the interest part of the payment you receive is $10 or more. A software with 1040x Box 3 of your Form 1099-INT should show the interest as the difference between the amount you received and the amount paid for the bond. A software with 1040x However, your Form 1099-INT may show more interest than you have to include on your income tax return. A software with 1040x For example, this may happen if any of the following are true. A software with 1040x You chose to report the increase in the redemption value of the bond each year. A software with 1040x The interest shown on your Form 1099-INT will not be reduced by amounts previously included in income. A software with 1040x You received the bond from a decedent. A software with 1040x The interest shown on your Form 1099-INT will not be reduced by any interest reported by the decedent before death, or on the decedent's final return, or by the estate on the estate's income tax return. A software with 1040x Ownership of the bond was transferred. A software with 1040x The interest shown on your Form 1099-INT will not be reduced by interest that accrued before the transfer. A software with 1040x You were named as a co-owner, and the other co-owner contributed funds to buy the bond. A software with 1040x The interest shown on your Form 1099-INT will not be reduced by the amount you received as nominee for the other co-owner. A software with 1040x (See Co-owners , earlier in this section, for more information about the reporting requirements. A software with 1040x ) You received the bond in a taxable distribution from a retirement or profit-sharing plan. A software with 1040x The interest shown on your Form 1099-INT will not be reduced by the interest portion of the amount taxable as a distribution from the plan and not taxable as interest. A software with 1040x (This amount is generally shown on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. A software with 1040x , for the year of distribution. A software with 1040x )   For more information on including the correct amount of interest on your return, see U. A software with 1040x S. A software with 1040x savings bond interest previously reported or Nominee distributions under How To Report Interest Income, later. A software with 1040x    Interest on U. A software with 1040x S. A software with 1040x savings bonds is exempt from state and local taxes. A software with 1040x The Form 1099-INT you receive will indicate the amount that is for U. A software with 1040x S. A software with 1040x savings bonds interest in box 3. A software with 1040x Do not include this income on your state or local income tax return. A software with 1040x Education Savings Bond Program You may be able to exclude from income all or part of the interest you receive on the redemption of qualified U. A software with 1040x S. A software with 1040x savings bonds during the year if you pay qualified higher educational expenses during the same year. A software with 1040x This exclusion is known as the Education Savings Bond Program. A software with 1040x You do not qualify for this exclusion if your filing status is married filing separately. A software with 1040x Form 8815. A software with 1040x   Use Form 8815 to figure your exclusion. A software with 1040x Attach the form to your Form 1040 or Form 1040A. A software with 1040x Qualified U. A software with 1040x S. A software with 1040x savings bonds. A software with 1040x   A qualified U. A software with 1040x S. A software with 1040x savings bond is a series EE bond issued after 1989 or a series I bond. A software with 1040x The bond must be issued either in your name (sole owner) or in your and your spouse's names (co-owners). A software with 1040x You must be at least 24 years old before the bond's issue date. A software with 1040x For example, a bond bought by a parent and issued in the name of his or her child under age 24 does not qualify for the exclusion by the parent or child. A software with 1040x    The issue date of a bond may be earlier than the date the bond is purchased because the issue date assigned to a bond is the first day of the month in which it is purchased. A software with 1040x Beneficiary. A software with 1040x   You can designate any individual (including a child) as a beneficiary of the bond. A software with 1040x Verification by IRS. A software with 1040x   If you claim the exclusion, the IRS will check it by using bond redemption information from the Department of Treasury. A software with 1040x Qualified expenses. A software with 1040x   Qualified higher educational expenses are tuition and fees required for you, your spouse, or your dependent (for whom you claim an exemption) to attend an eligible educational institution. A software with 1040x   Qualified expenses include any contribution you make to a qualified tuition program or to a Coverdell education savings account. A software with 1040x For information about these programs, see Publication 970, Tax Benefits for Education. A software with 1040x   Qualified expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. A software with 1040x Eligible educational institutions. A software with 1040x   These institutions include most public, private, and nonprofit universities, colleges, and vocational schools that are accredited and eligible to participate in student aid programs run by the Department of Education. A software with 1040x Reduction for certain benefits. A software with 1040x   You must reduce your qualified higher educational expenses by all of the following tax-free benefits. A software with 1040x Tax-free part of scholarships and fellowships. A software with 1040x Expenses used to figure the tax-free portion of distributions from a Coverdell ESA. A software with 1040x Expenses used to figure the tax-free portion of distributions from a qualified tuition program. A software with 1040x Any tax-free payments (other than gifts or inheritances) received as educational assistance, such as: Veterans' educational assistance benefits, Qualified tuition reductions, or Employer-provided educational assistance. A software with 1040x Any expense used in figuring the American Opportunity and lifetime learning credits. A software with 1040x For information about these benefits, see Publication 970. A software with 1040x Amount excludable. A software with 1040x   If the total proceeds (interest and principal) from the qualified U. A software with 1040x S. A software with 1040x savings bonds you redeem during the year are not more than your adjusted qualified higher educational expenses for the year, you may be able to exclude all of the interest. A software with 1040x If the proceeds are more than the expenses, you may be able to exclude only part of the interest. A software with 1040x   To determine the excludable amount, multiply the interest part of the proceeds by a fraction. A software with 1040x The numer