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Download 2012 tax forms 28. Download 2012 tax forms   Miscellaneous Deductions Table of Contents What's New Introduction Useful Items - You may want to see: Deductions Subject to the 2% LimitUnreimbursed Employee Expenses (Line 21) Tax Preparation Fees (Line 22) Other Expenses (Line 23) Deductions Not Subject to the 2% LimitList of Deductions Nondeductible ExpensesList of Nondeductible Expenses What's New Standard mileage rate. Download 2012 tax forms  The 2013 rate for business use of a vehicle is 56½ cents per mile. Download 2012 tax forms Introduction This chapter explains which expenses you can claim as miscellaneous itemized deductions on Schedule A (Form 1040). Download 2012 tax forms You must reduce the total of most miscellaneous itemized deductions by 2% of your adjusted gross income. Download 2012 tax forms This chapter covers the following topics. Download 2012 tax forms Deductions subject to the 2% limit. Download 2012 tax forms Deductions not subject to the 2% limit. Download 2012 tax forms Expenses you cannot deduct. Download 2012 tax forms You must keep records to verify your deductions. Download 2012 tax forms You should keep receipts, canceled checks, substitute checks, financial account statements, and other documentary evidence. Download 2012 tax forms For more information on recordkeeping, get Publication 552, Record- keeping for Individuals. Download 2012 tax forms Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income 529 Miscellaneous Deductions 535 Business Expenses 587 Business Use of Your Home (Including Use by Daycare Providers) 946 How To Depreciate Property Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses Deductions Subject to the 2% Limit You can deduct certain expenses as miscellaneous itemized deductions on Schedule A (Form 1040). Download 2012 tax forms You can claim the amount of expenses that is more than 2% of your adjusted gross income. Download 2012 tax forms You figure your deduction on Schedule A by subtracting 2% of your adjusted gross income from the total amount of these expenses. Download 2012 tax forms Your adjusted gross income is the amount on Form 1040, line 38. Download 2012 tax forms Generally, you apply the 2% limit after you apply any other deduction limit. Download 2012 tax forms For example, you apply the 50% (or 80%) limit on business-related meals and entertainment (discussed in chapter 26) before you apply the 2% limit. Download 2012 tax forms Deductions subject to the 2% limit are discussed in the three categories in which you report them on Schedule A (Form 1040). Download 2012 tax forms Unreimbursed employee expenses (line 21). Download 2012 tax forms Tax preparation fees (line 22). Download 2012 tax forms Other expenses (line 23). Download 2012 tax forms Unreimbursed Employee Expenses (Line 21) Generally, you can deduct on Schedule A (Form 1040), line 21, unreimbursed employee expenses that are: Paid or incurred during your tax year, For carrying on your trade or business of being an employee, and Ordinary and necessary. Download 2012 tax forms An expense is ordinary if it is common and accepted in your trade, business, or profession. Download 2012 tax forms An expense is necessary if it is appropriate and helpful to your business. Download 2012 tax forms An expense does not have to be required to be considered necessary. Download 2012 tax forms Examples of unreimbursed employee expenses are listed next. Download 2012 tax forms The list is followed by discussions of additional unreimbursed employee expenses. Download 2012 tax forms Business bad debt of an employee. Download 2012 tax forms Education that is work related. Download 2012 tax forms (See chapter 27. Download 2012 tax forms ) Legal fees related to your job. Download 2012 tax forms Licenses and regulatory fees. Download 2012 tax forms Malpractice insurance premiums. Download 2012 tax forms Medical examinations required by an employer. Download 2012 tax forms Occupational taxes. Download 2012 tax forms Passport for a business trip. Download 2012 tax forms Subscriptions to professional journals and trade magazines related to your work. Download 2012 tax forms Travel, transportation, entertainment, and gifts related to your work. Download 2012 tax forms (See chapter 26. Download 2012 tax forms ) Business Liability Insurance You can deduct insurance premiums you paid for protection against personal liability for wrongful acts on the job. Download 2012 tax forms Damages for Breach of Employment Contract If you break an employment contract, you can deduct damages you pay your former employer that are attributable to the pay you received from that employer. Download 2012 tax forms Depreciation on Computers You can claim a depreciation deduction for a computer that you use in your work as an employee if its use is: For the convenience of your employer, and Required as a condition of your employment. Download 2012 tax forms For more information about the rules and exceptions to the rules affecting the allowable deductions for a home computer, see Publication 529. Download 2012 tax forms Dues to Chambers of Commerce and Professional Societies You may be able to deduct dues paid to professional organizations (such as bar associations and medical associations) and to chambers of commerce and similar organizations, if membership helps you carry out the duties of your job. Download 2012 tax forms Similar organizations include: Boards of trade, Business leagues, Civic or public service organizations, Real estate boards, and Trade associations. Download 2012 tax forms Lobbying and political activities. Download 2012 tax forms   You may not be able to deduct that part of your dues that is for certain lobbying and political activities. Download 2012 tax forms See Dues used for lobbying under Nondeductible Expenses, later. Download 2012 tax forms Educator Expenses If you were an eligible educator in 2013, you can deduct up to $250 of qualified expenses you paid in 2013 as an adjustment to gross income on Form 1040, line 23, rather than as a miscellaneous itemized deduction. Download 2012 tax forms If you file Form 1040A, you can deduct these expenses on line 16. Download 2012 tax forms If you and your spouse are filing jointly and both of you were eligible educators, the maximum deduction is $500. Download 2012 tax forms However, neither spouse can deduct more than $250 of his or her qualified expenses. Download 2012 tax forms Home Office If you use a part of your home regularly and exclusively for business purposes, you may be able to deduct a part of the operating expenses and depreciation of your home. Download 2012 tax forms You can claim this deduction for the business use of a part of your home only if you use that part of your home regularly and exclusively: As your principal place of business for any trade or business, As a place to meet or deal with your patients, clients, or customers in the normal course of your trade or business, or In the case of a separate structure not attached to your home, in connection with your trade or business. Download 2012 tax forms The regular and exclusive business use must be for the convenience of your employer and not just appropriate and helpful in your job. Download 2012 tax forms See Publication 587 for more detailed information and a worksheet. Download 2012 tax forms Job Search Expenses You can deduct certain expenses you have in looking for a new job in your present occupation, even if you do not get a new job. Download 2012 tax forms You cannot deduct these expenses if: You are looking for a job in a new occupation, There was a substantial break between the ending of your last job and your looking for a new one, or You are looking for a job for the first time. Download 2012 tax forms Employment and outplacement agency fees. Download 2012 tax forms   You can deduct employment and outplacement agency fees you pay in looking for a new job in your present occupation. Download 2012 tax forms Employer pays you back. Download 2012 tax forms   If, in a later year, your employer pays you back for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year. Download 2012 tax forms (See Recoveries in chapter 12. Download 2012 tax forms ) Employer pays the employment agency. Download 2012 tax forms   If your employer pays the fees directly to the employment agency and you are not responsible for them, you do not include them in your gross income. Download 2012 tax forms Résumé. Download 2012 tax forms   You can deduct amounts you spend for preparing and mailing copies of a résumé to prospective employers if you are looking for a new job in your present occupation. Download 2012 tax forms Travel and transportation expenses. Download 2012 tax forms   If you travel to an area and, while there, you look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. Download 2012 tax forms You can deduct the travel expenses if the trip is primarily to look for a new job. Download 2012 tax forms The amount of time you spend on personal activity compared to the amount of time you spend in looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job. Download 2012 tax forms   Even if you cannot deduct the travel expenses to and from an area, you can deduct the expenses of looking for a new job in your present occupation while in the area. Download 2012 tax forms   You can choose to use the standard mileage rate to figure your car expenses. Download 2012 tax forms The 2013 rate for business use of a vehicle is 56½ cents per mile. Download 2012 tax forms See chapter 26 for more information. Download 2012 tax forms Licenses and Regulatory Fees You can deduct the amount you pay each year to state or local governments for licenses and regulatory fees for your trade, business, or profession. Download 2012 tax forms Occupational Taxes You can deduct an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. Download 2012 tax forms If you are an employee, you can claim occupational taxes only as a miscellaneous deduction subject to the 2% limit; you cannot claim them as a deduction for taxes elsewhere on your return. Download 2012 tax forms Repayment of Income Aid Payment An “income aid payment” is one that is received under an employer's plan to aid employees who lose their jobs because of lack of work. Download 2012 tax forms If you repay a lump-sum income aid payment that you received and included in income in an earlier year, you can deduct the repayment. Download 2012 tax forms Research Expenses of a College Professor If you are a college professor, you can deduct research expenses, including travel expenses, for teaching, lecturing, or writing and publishing on subjects that relate directly to your teaching duties. Download 2012 tax forms You must have undertaken the research as a means of carrying out the duties expected of a professor and without expectation of profit apart from salary. Download 2012 tax forms However, you cannot deduct the cost of travel as a form of education. Download 2012 tax forms Tools Used in Your Work Generally, you can deduct amounts you spend for tools used in your work if the tools wear out and are thrown away within 1 year from the date of purchase. Download 2012 tax forms You can depreciate the cost of tools that have a useful life substantially beyond the tax year. Download 2012 tax forms For more information about depreciation, see Publication 946. Download 2012 tax forms Union Dues and Expenses You can deduct dues and initiation fees you pay for union membership. Download 2012 tax forms You can also deduct assessments for benefit payments to unemployed union members. Download 2012 tax forms However, you cannot deduct the part of the assessments or contributions that provides funds for the payment of sick, accident, or death benefits. Download 2012 tax forms Also, you cannot deduct contributions to a pension fund, even if the union requires you to make the contributions. Download 2012 tax forms You may not be able to deduct amounts you pay to the union that are related to certain lobbying and political activities. Download 2012 tax forms See Lobbying Expenses under Nondeductible Expenses, later. Download 2012 tax forms Work Clothes and Uniforms You can deduct the cost and upkeep of work clothes if the following two requirements are met. Download 2012 tax forms You must wear them as a condition of your employment. Download 2012 tax forms The clothes are not suitable for everyday wear. Download 2012 tax forms It is not enough that you wear distinctive clothing. Download 2012 tax forms The clothing must be specifically required by your employer. Download 2012 tax forms Nor is it enough that you do not, in fact, wear your work clothes away from work. Download 2012 tax forms The clothing must not be suitable for taking the place of your regular clothing. Download 2012 tax forms Examples of workers who may be able to deduct the cost and upkeep of work clothes are: delivery workers, firefighters, health care workers, law enforcement officers, letter carriers, professional athletes, and transportation workers (air, rail, bus, etc. Download 2012 tax forms ). Download 2012 tax forms Musicians and entertainers can deduct the cost of theatrical clothing and accessories that are not suitable for everyday wear. Download 2012 tax forms However, work clothing consisting of white cap, white shirt or white jacket, white bib overalls, and standard work shoes, which a painter is required by his union to wear on the job, is not distinctive in character or in the nature of a uniform. Download 2012 tax forms Similarly, the costs of buying and maintaining blue work clothes worn by a welder at the request of a foreman are not deductible. Download 2012 tax forms Protective clothing. Download 2012 tax forms   You can deduct the cost of protective clothing required in your work, such as safety shoes or boots, safety glasses, hard hats, and work gloves. Download 2012 tax forms   Examples of workers who may be required to wear safety items are: carpenters, cement workers, chemical workers, electricians, fishing boat crew members, machinists, oil field workers, pipe fitters, steamfitters, and truck drivers. Download 2012 tax forms Military uniforms. Download 2012 tax forms   You generally cannot deduct the cost of your uniforms if you are on full-time active duty in the armed forces. Download 2012 tax forms However, if you are an armed forces reservist, you can deduct the unreimbursed cost of your uniform if military regulations restrict you from wearing it except while on duty as a reservist. Download 2012 tax forms In figuring the deduction, you must reduce the cost by any nontaxable allowance you receive for these expenses. Download 2012 tax forms   If local military rules do not allow you to wear fatigue uniforms when you are off duty, you can deduct the amount by which the cost of buying and keeping up these uniforms is more than the uniform allowance you receive. Download 2012 tax forms   You can deduct the cost of your uniforms if you are a civilian faculty or staff member of a military school. Download 2012 tax forms Tax Preparation Fees (Line 22) You can usually deduct tax preparation fees in the year you pay them. Download 2012 tax forms Thus, on your 2013 return, you can deduct fees paid in 2013 for preparing your 2012 return. Download 2012 tax forms These fees include the cost of tax preparation software programs and tax publications. Download 2012 tax forms They also include any fee you paid for electronic filing of your return. Download 2012 tax forms Other Expenses (Line 23) You can deduct certain other expenses as miscellaneous itemized deductions subject to the 2% limit. Download 2012 tax forms On Schedule A (Form 1040), line 23, you can deduct expenses that you pay: To produce or collect income that must be included in your gross income, To manage, conserve, or maintain property held for producing such income, or To determine, contest, pay, or claim a refund of any tax. Download 2012 tax forms You can deduct expenses you pay for the purposes in (1) and (2) above only if they are reasonably and closely related to these purposes. Download 2012 tax forms Some of these other expenses are explained in the following discussions. Download 2012 tax forms If the expenses you pay produce income that is only partially taxable, see Tax-Exempt Income Expenses , later, under Nondeductible Expenses. Download 2012 tax forms Appraisal Fees You can deduct appraisal fees if you pay them to figure a casualty loss or the fair market value of donated property. Download 2012 tax forms Casualty and Theft Losses You can deduct a casualty or theft loss as a miscellaneous itemized deduction subject to the 2% limit if you used the damaged or stolen property in performing services as an employee. Download 2012 tax forms First report the loss in Section B of Form 4684, Casualties and Thefts. Download 2012 tax forms You may also have to include the loss on Form 4797, Sales of Business Property, if you are otherwise required to file that form. Download 2012 tax forms To figure your deduction, add all casualty or theft losses from this type of property included on Form 4684, lines 32 and 38b, or Form 4797, line 18a. Download 2012 tax forms For other casualty and theft losses, see chapter 25. Download 2012 tax forms Clerical Help and Office Rent You can deduct office expenses, such as rent and clerical help, that you have in connection with your investments and collecting the taxable income on them. Download 2012 tax forms Credit or Debit Card Convenience Fees You can deduct the convenience fee charged by the card processor for paying your income tax (including estimated tax payments) by credit or debit card. Download 2012 tax forms The fees are deductible in the year paid. Download 2012 tax forms Depreciation on Home Computer You can deduct depreciation on your home computer if you use it to produce income (for example, to manage your investments that produce taxable income). Download 2012 tax forms You generally must depreciate the computer using the straight line method over the Alternative Depreciation System (ADS) recovery period. Download 2012 tax forms But if you work as an employee and also use the computer in that work, see Publication 946. Download 2012 tax forms Excess Deductions of an Estate If an estate's total deductions in its last tax year are more than its gross income for that year, the beneficiaries succeeding to the estate's property can deduct the excess. Download 2012 tax forms Do not include deductions for the estate's personal exemption and charitable contributions when figuring the estate's total deductions. Download 2012 tax forms The beneficiaries can claim the deduction only for the tax year in which, or with which, the estate terminates, whether the year of termination is a normal year or a short tax year. Download 2012 tax forms For more information, see Termination of Estate in Publication 559, Survivors, Executors, and Administrators. Download 2012 tax forms Fees to Collect Interest and Dividends You can deduct fees you pay to a broker, bank, trustee, or similar agent to collect your taxable bond interest or dividends on shares of stock. Download 2012 tax forms But you cannot deduct a fee you pay to a broker to buy investment property, such as stocks or bonds. Download 2012 tax forms You must add the fee to the cost of the property. Download 2012 tax forms You cannot deduct the fee you pay to a broker to sell securities. Download 2012 tax forms You can use the fee only to figure gain or loss from the sale. Download 2012 tax forms See the Instructions for Form 8949 for information on how to report the fee. Download 2012 tax forms Hobby Expenses You can generally deduct hobby expenses, but only up to the amount of hobby income. Download 2012 tax forms A hobby is not a business because it is not carried on to make a profit. Download 2012 tax forms See Activity not for profit in chapter 12 under Other Income. Download 2012 tax forms Indirect Deductions of Pass-Through Entities Pass-through entities include partnerships, S corporations, and mutual funds that are not publicly offered. Download 2012 tax forms Deductions of pass-through entities are passed through to the partners or shareholders. Download 2012 tax forms The partners or shareholders can deduct their share of passed-through deductions for investment expenses as miscellaneous itemized deductions subject to the 2% limit. Download 2012 tax forms Example. Download 2012 tax forms You are a member of an investment club that is formed solely to invest in securities. Download 2012 tax forms The club is treated as a partnership. Download 2012 tax forms The partnership's income is solely from taxable dividends, interest, and gains from sales of securities. Download 2012 tax forms In this case, you can deduct your share of the partnership's operating expenses as miscellaneous itemized deductions subject to the 2% limit. Download 2012 tax forms However, if the investment club partnership has investments that also produce nontaxable income, you cannot deduct your share of the partnership's expenses that produce the nontaxable income. Download 2012 tax forms Publicly offered mutual funds. Download 2012 tax forms   Publicly offered mutual funds do not pass deductions for investment expenses through to shareholders. Download 2012 tax forms A mutual fund is “publicly offered” if it is: Continuously offered pursuant to a public offering, Regularly traded on an established securities market, or Held by or for at least 500 persons at all times during the tax year. Download 2012 tax forms   A publicly offered mutual fund will send you a Form 1099-DIV, Dividends and Distributions, or a substitute form, showing the net amount of dividend income (gross dividends minus investment expenses). Download 2012 tax forms This net figure is the amount you report on your return as income. Download 2012 tax forms You cannot further deduct investment expenses related to publicly offered mutual funds because they are already included as part of the net income amount. Download 2012 tax forms Information returns. Download 2012 tax forms   You should receive information returns from pass-through entities. Download 2012 tax forms Partnerships and S corporations. Download 2012 tax forms   These entities issue Schedule K-1, which lists the items and amounts you must report and identifies the tax return schedules and lines to use. Download 2012 tax forms Nonpublicly offered mutual funds. Download 2012 tax forms   These funds will send you a Form 1099-DIV, Dividends and Distributions, or a substitute form, showing your share of gross income and investment expenses. Download 2012 tax forms You can claim the expenses only as a miscellaneous itemized deduction subject to the 2% limit. Download 2012 tax forms Investment Fees and Expenses You can deduct investment fees, custodial fees, trust administration fees, and other expenses you paid for managing your investments that produce taxable income. Download 2012 tax forms Legal Expenses You can usually deduct legal expenses that you incur in attempting to produce or collect taxable income or that you pay in connection with the determination, collection, or refund of any tax. Download 2012 tax forms You can also deduct legal expenses that are: Related to either doing or keeping your job, such as those you paid to defend yourself against criminal charges arising out of your trade or business, For tax advice related to a divorce, if the bill specifies how much is for tax advice and it is determined in a reasonable way, or To collect taxable alimony. Download 2012 tax forms You can deduct expenses of resolving tax issues relating to profit or loss from business (Schedule C or C-EZ), rentals or royalties (Schedule E), or farm income and expenses (Schedule F), on the appropriate schedule. Download 2012 tax forms You deduct expenses of resolving nonbusiness tax issues on Schedule A (Form 1040). Download 2012 tax forms See Tax Preparation Fees , earlier. Download 2012 tax forms Loss on Deposits For information on whether, and if so, how, you may deduct a loss on your deposit in a qualified financial institution, see Loss on Deposits in chapter 25. Download 2012 tax forms Repayments of Income If you had to repay an amount that you included in income in an earlier year, you may be able to deduct the amount you repaid. Download 2012 tax forms If the amount you had to repay was ordinary income of $3,000 or less, the deduction is subject to the 2% limit. Download 2012 tax forms If it was more than $3,000, see Repayments Under Claim of Right under Deductions Not Subject to the 2% Limit, later. Download 2012 tax forms Repayments of Social Security Benefits For information on how to deduct your repayments of certain social security benefits, see Repayments More Than Gross Benefits in chapter 11. Download 2012 tax forms Safe Deposit Box Rent You can deduct safe deposit box rent if you use the box to store taxable income-producing stocks, bonds, or investment-related papers and documents. Download 2012 tax forms You cannot deduct the rent if you use the box only for jewelry, other personal items, or tax-exempt securities. Download 2012 tax forms Service Charges on Dividend Reinvestment Plans You can deduct service charges you pay as a subscriber in a dividend reinvestment plan. Download 2012 tax forms These service charges include payments for: Holding shares acquired through a plan, Collecting and reinvesting cash dividends, and Keeping individual records and providing detailed statements of accounts. Download 2012 tax forms Trustee's Administrative Fees for IRA Trustee's administrative fees that are billed separately and paid by you in connection with your individual retirement arrangement (IRA) are deductible (if they are ordinary and necessary) as a miscellaneous itemized deduction subject to the 2% limit. Download 2012 tax forms For more information about IRAs, see chapter 17. Download 2012 tax forms Deductions Not Subject to the 2% Limit You can deduct the items listed below as miscellaneous itemized deductions. Download 2012 tax forms They are not subject to the 2% limit. Download 2012 tax forms Report these items on Schedule A (Form 1040), line 28. Download 2012 tax forms List of Deductions Each of the following items is discussed in detail after the list (except where indicated). Download 2012 tax forms Amortizable premium on taxable bonds. Download 2012 tax forms Casualty and theft losses from income- producing property. Download 2012 tax forms Federal estate tax on income in respect of a decedent. Download 2012 tax forms Gambling losses up to the amount of gambling winnings. Download 2012 tax forms Impairment-related work expenses of persons with disabilities. Download 2012 tax forms Loss from other activities from Schedule K-1 (Form 1065-B), box 2. Download 2012 tax forms Losses from Ponzi-type investment schemes. Download 2012 tax forms See Losses from Ponzi-type investment schemes under Theft in chapter 25. Download 2012 tax forms Repayments of more than $3,000 under a claim of right. Download 2012 tax forms Unrecovered investment in an annuity. Download 2012 tax forms Amortizable Premium on Taxable Bonds In general, if the amount you pay for a bond is greater than its stated principal amount, the excess is bond premium. Download 2012 tax forms You can elect to amortize the premium on taxable bonds. Download 2012 tax forms The amortization of the premium is generally an offset to interest income on the bond rather than a separate deduction item. Download 2012 tax forms Part of the premium on some bonds may be a miscellaneous deduction not subject to the 2% limit. Download 2012 tax forms For more information, see Amortizable Premium on Taxable Bonds in Publication 529, and Bond Premium Amortization in chapter 3 of Publication 550, Investment Income and Expenses. Download 2012 tax forms Casualty and Theft Losses of Income-Producing Property You can deduct a casualty or theft loss as a miscellaneous itemized deduction not subject to the 2% limit if the damaged or stolen property was income-producing property (property held for investment, such as stocks, notes, bonds, gold, silver, vacant lots, and works of art). Download 2012 tax forms First, report the loss in Form 4684, Section B. Download 2012 tax forms You may also have to include the loss on Form 4797, Sales of Business Property if you are otherwise required to file that form. Download 2012 tax forms To figure your deduction, add all casualty or theft losses from this type of property included on Form 4684, lines 32 and 38b, or Form 4797, line 18a. Download 2012 tax forms For more information on casualty and theft losses, see chapter 25. Download 2012 tax forms Federal Estate Tax on Income in Respect of a Decedent You can deduct the federal estate tax attributable to income in respect of a decedent that you as a beneficiary include in your gross income. Download 2012 tax forms Income in respect of the decedent is gross income that the decedent would have received had death not occurred and that was not properly includible in the decedent's final income tax return. Download 2012 tax forms See Publication 559 for more information. Download 2012 tax forms Gambling Losses Up to the Amount of Gambling Winnings You must report the full amount of your gambling winnings for the year on Form 1040, line 21. Download 2012 tax forms You deduct your gambling losses for the year on Schedule A (Form 1040), line 28. Download 2012 tax forms You cannot deduct gambling losses that are more than your winnings. Download 2012 tax forms You cannot reduce your gambling winnings by your gambling losses and report the difference. Download 2012 tax forms You must report the full amount of your winnings as income and claim your losses (up to the amount of winnings) as an itemized deduction. Download 2012 tax forms Therefore, your records should show your winnings separately from your losses. Download 2012 tax forms Diary of winnings and losses. Download 2012 tax forms You must keep an accurate diary or similar record of your losses and winnings. Download 2012 tax forms Your diary should contain at least the following information. Download 2012 tax forms The date and type of your specific wager or wagering activity. Download 2012 tax forms The name and address or location of the gambling establishment. Download 2012 tax forms The names of other persons present with you at the gambling establishment. Download 2012 tax forms The amount(s) you won or lost. Download 2012 tax forms See Publication 529 for more information. Download 2012 tax forms Impairment-Related Work Expenses If you have a physical or mental disability that limits your being employed, or substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, and working, you can deduct your impairment-related work expenses. Download 2012 tax forms Impairment-related work expenses are ordinary and necessary business expenses for attendant care services at your place of work and for other expenses in connection with your place of work that are necessary for you to be able to work. Download 2012 tax forms Self-employed. Download 2012 tax forms   If you are self-employed, enter your impairment-related work expenses on the appropriate form (Schedule C, C-EZ, E, or F) used to report your business income and expenses. Download 2012 tax forms Loss From Other Activities From Schedule K-1 (Form 1065-B), Box 2 If the amount reported in Schedule K-1 (Form 1065-B), box 2, is a loss, report it on Schedule A (Form 1040), line 28. Download 2012 tax forms It is not subject to the passive activity limitations. Download 2012 tax forms Repayments Under Claim of Right If you had to repay more than $3,000 that you included in your income in an earlier year because at the time you thought you had an unrestricted right to it, you may be able to deduct the amount you repaid or take a credit against your tax. Download 2012 tax forms See Repayments in chapter 12 for more information. Download 2012 tax forms Unrecovered Investment in Annuity A retiree who contributed to the cost of an annuity can exclude from income a part of each payment received as a tax-free return of the retiree's investment. Download 2012 tax forms If the retiree dies before the entire investment is recovered tax free, any unrecovered investment can be deducted on the retiree's final income tax return. Download 2012 tax forms See chapter 10 for more information about the tax treatment of pensions and annuities. Download 2012 tax forms Nondeductible Expenses Examples of nondeductible expenses are listed next. Download 2012 tax forms The list is followed by discussions of additional nondeductible expenses. Download 2012 tax forms List of Nondeductible Expenses Broker's commissions that you paid in connection with your IRA or other investment property. Download 2012 tax forms Burial or funeral expenses, including the cost of a cemetery lot. Download 2012 tax forms Capital expenses. Download 2012 tax forms Fees and licenses, such as car licenses, marriage licenses, and dog tags. Download 2012 tax forms Hobby losses, but see Hobby Expenses , earlier. Download 2012 tax forms Home repairs, insurance, and rent. Download 2012 tax forms Illegal bribes and kickbacks. Download 2012 tax forms See Bribes and kickbacks in chapter 11 of Publication 535. Download 2012 tax forms Losses from the sale of your home, furniture, personal car, etc. Download 2012 tax forms Personal disability insurance premiums. Download 2012 tax forms Personal, living, or family expenses. Download 2012 tax forms The value of wages never received or lost vacation time. Download 2012 tax forms Adoption Expenses You cannot deduct the expenses of adopting a child, but you may be able to take a credit for those expenses. Download 2012 tax forms See chapter 37. Download 2012 tax forms Campaign Expenses You cannot deduct campaign expenses of a candidate for any office, even if the candidate is running for reelection to the office. Download 2012 tax forms These include qualification and registration fees for primary elections. Download 2012 tax forms Legal fees. Download 2012 tax forms   You cannot deduct legal fees paid to defend charges that arise from participation in a political campaign. Download 2012 tax forms Check-Writing Fees on Personal Account If you have a personal checking account, you cannot deduct fees charged by the bank for the privilege of writing checks, even if the account pays interest. Download 2012 tax forms Club Dues Generally, you cannot deduct the cost of membership in any club organized for business, pleasure, recreation, or other social purpose. Download 2012 tax forms This includes business, social, athletic, luncheon, sporting, airline, hotel, golf, and country clubs. Download 2012 tax forms You cannot deduct dues paid to an organization if one of its main purposes is to: Conduct entertainment activities for members or their guests, or Provide members or their guests with access to entertainment facilities. Download 2012 tax forms Dues paid to airline, hotel, and luncheon clubs are not deductible. Download 2012 tax forms Commuting Expenses You cannot deduct commuting expenses (the cost of transportation between your home and your main or regular place of work). Download 2012 tax forms If you haul tools, instruments, or other items, in your car to and from work, you can deduct only the additional cost of hauling the items such as the rent on a trailer to carry the items. Download 2012 tax forms Fines or Penalties You cannot deduct fines or penalties you pay to a governmental unit for violating a law. Download 2012 tax forms This includes an amount paid in settlement of your actual or potential liability for a fine or penalty (civil or criminal). Download 2012 tax forms Fines or penalties include parking tickets, tax penalties, and penalties deducted from teachers' paychecks after an illegal strike. Download 2012 tax forms Health Spa Expenses You cannot deduct health spa expenses, even if there is a job requirement to stay in excellent physical condition, such as might be required of a law enforcement officer. Download 2012 tax forms Home Security System You cannot deduct the cost of a home security system as a miscellaneous deduction. Download 2012 tax forms However, you may be able to claim a deduction for a home security system as a business expense if you have a home office. Download 2012 tax forms See Home Office under Unreimbursed Employee Expenses, earlier, and Security System under Deducting Expenses in Publication 587. Download 2012 tax forms Investment-Related Seminars You cannot deduct any expenses for attending a convention, seminar, or similar meeting for investment purposes. Download 2012 tax forms Life Insurance Premiums You cannot deduct premiums you pay on your life insurance. Download 2012 tax forms You may be able to deduct, as alimony, premiums you pay on life insurance policies assigned to your former spouse. Download 2012 tax forms See chapter 18 for information on alimony. Download 2012 tax forms Lobbying Expenses You generally cannot deduct amounts paid or incurred for lobbying expenses. Download 2012 tax forms These include expenses to: Influence legislation, Participate or intervene in any political campaign for, or against, any candidate for public office, Attempt to influence the general public, or segments of the public, about elections, legislative matters, or referendums, or Communicate directly with covered executive branch officials in any attempt to influence the official actions or positions of those officials. Download 2012 tax forms Lobbying expenses also include any amounts paid or incurred for research, preparation, planning, or coordination of any of these activities. Download 2012 tax forms Dues used for lobbying. Download 2012 tax forms   If a tax-exempt organization notifies you that part of the dues or other amounts you pay to the organization are used to pay nondeductible lobbying expenses, you cannot deduct that part. Download 2012 tax forms See Lobbying Expenses in Publication 529 for information on exceptions. Download 2012 tax forms Lost or Mislaid Cash or Property You cannot deduct a loss based on the mere disappearance of money or property. Download 2012 tax forms 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. Download 2012 tax forms See chapter 25. Download 2012 tax forms Example. Download 2012 tax forms A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Download 2012 tax forms The diamond falls from the ring and is never found. Download 2012 tax forms The loss of the diamond is a casualty. Download 2012 tax forms Lunches with Co-workers You cannot deduct the expenses of lunches with co-workers, except while traveling away from home on business. Download 2012 tax forms See chapter 26 for information on deductible expenses while traveling away from home. Download 2012 tax forms Meals While Working Late You cannot deduct the cost of meals while working late. Download 2012 tax forms However, you may be able to claim a deduction if the cost of meals is a deductible entertainment expense, or if you are traveling away from home. Download 2012 tax forms See chapter 26 for information on deductible entertainment expenses and expenses while traveling away from home. Download 2012 tax forms Personal Legal Expenses You cannot deduct personal legal expenses such as those for the following. Download 2012 tax forms Custody of children. Download 2012 tax forms Breach of promise to marry suit. Download 2012 tax forms Civil or criminal charges resulting from a personal relationship. Download 2012 tax forms Damages for personal injury, except for certain unlawful discrimination and whistleblower claims. Download 2012 tax forms Preparation of a title (or defense or perfection of a title). Download 2012 tax forms Preparation of a will. Download 2012 tax forms Property claims or property settlement in a divorce. Download 2012 tax forms You cannot deduct these expenses even if a result of the legal proceeding is the loss of income-producing property. Download 2012 tax forms Political Contributions You cannot deduct contributions made to a political candidate, a campaign committee, or a newsletter fund. Download 2012 tax forms Advertisements in convention bulletins and admissions to dinners or programs that benefit a political party or political candidate are not deductible. Download 2012 tax forms Professional Accreditation Fees You cannot deduct professional accreditation fees such as the following. Download 2012 tax forms Accounting certificate fees paid for the initial right to practice accounting. Download 2012 tax forms Bar exam fees and incidental expenses in securing initial admission to the bar. Download 2012 tax forms Medical and dental license fees paid to get initial licensing. Download 2012 tax forms Professional Reputation You cannot deduct expenses of radio and TV appearances to increase your personal prestige or establish your professional reputation. Download 2012 tax forms Relief Fund Contributions You cannot deduct contributions paid to a private plan that pays benefits to any covered employee who cannot work because of any injury or illness not related to the job. Download 2012 tax forms Residential Telephone Service You cannot deduct any charge (including taxes) for basic local telephone service for the first telephone line to your residence, even if it is used in a trade or business. Download 2012 tax forms Stockholders' Meetings You cannot deduct transportation and other expenses you pay to attend stockholders' meetings of companies in which you own stock but have no other interest. Download 2012 tax forms You cannot deduct these expenses even if you are attending the meeting to get information that would be useful in making further investments. Download 2012 tax forms Tax-Exempt Income Expenses You cannot deduct expenses to produce tax-exempt income. Download 2012 tax forms You cannot deduct interest on a debt incurred or continued to buy or carry  tax-exempt securities. Download 2012 tax forms If you have expenses to produce both taxable and tax-exempt income, but you cannot identify the expenses that produce each type of income, you must divide the expenses based on the amount of each type of income to determine the amount that you can deduct. Download 2012 tax forms Example. Download 2012 tax forms During the year, you received taxable interest of $4,800 and tax-exempt interest of $1,200. Download 2012 tax forms In earning this income, you had total expenses of $500 during the year. Download 2012 tax forms You cannot identify the amount of each expense item that is for each income item. Download 2012 tax forms Therefore, 80% ($4,800/$6,000) of the expense is for the taxable interest and 20% ($1,200/$6,000) is for the tax-exempt interest. Download 2012 tax forms You can deduct, subject to the 2% limit, expenses of $400 (80% of $500). Download 2012 tax forms Travel Expenses for Another Individual You generally cannot deduct travel expenses you pay or incur for a spouse, dependent, or other individual who accompanies you (or your employee) on business or personal travel unless the spouse, dependent, or other individual is an employee of the taxpayer, the travel is for a bona fide business purpose, and such expenses would otherwise be deductible by the spouse, dependent, or other individual. Download 2012 tax forms See chapter 26 for more information on deductible travel expenses. Download 2012 tax forms Voluntary Unemployment Benefit Fund Contributions You cannot deduct voluntary unemployment benefit fund contributions you make to a union fund or a private fund. Download 2012 tax forms However, you can deduct contributions as taxes if state law requires you to make them to a state unemployment fund that covers you for the loss of wages from unemployment caused by business conditions. Download 2012 tax forms Wristwatches You cannot deduct the cost of a wristwatch, even if there is a job requirement that you know the correct time to properly perform your duties. Download 2012 tax forms Prev  Up  Next   Home   More Online Publications
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Download 2012 tax forms Publication 1212 - Main Content Table of Contents Definitions Debt Instruments on the OID List Debt Instruments Not on the OID List Information for Brokers and Other MiddlemenShort-Term Obligations Redeemed at Maturity Long-Term Debt Instruments Certificates of Deposit Bearer Bonds and Coupons Backup Withholding Information for Owners of OID Debt InstrumentsExceptions. Download 2012 tax forms Adjustment for premium. Download 2012 tax forms Adjustment for acquisition premium. Download 2012 tax forms Adjustment for market discount. Download 2012 tax forms Form 1099-OID How To Report OID Figuring OID on Long-Term Debt Instruments Figuring OID on Stripped Bonds and Coupons How To Get Tax HelpLow Income Taxpayer Clinics Definitions The following terms are used throughout this publication. Download 2012 tax forms “Original issue discount” is defined first. Download 2012 tax forms The other terms are listed alphabetically. Download 2012 tax forms Original issue discount (OID). Download 2012 tax forms   OID is a form of interest. Download 2012 tax forms It is the excess of a debt instrument's stated redemption price at maturity over its issue price (acquisition price for a stripped bond or coupon). Download 2012 tax forms Zero coupon bonds and debt instruments that pay no stated interest until maturity are examples of debt instruments that have OID. Download 2012 tax forms Accrual period. Download 2012 tax forms   An accrual period is an interval of time used to measure OID. Download 2012 tax forms The length of an accrual period can be 6 months, a year, or some other period, depending on when the debt instrument was issued. Download 2012 tax forms Acquisition premium. Download 2012 tax forms   Acquisition premium is the excess of a debt instrument's adjusted basis immediately after purchase, including purchase at original issue, over the debt instrument's adjusted issue price at that time. Download 2012 tax forms A debt instrument does not have acquisition premium, however, if the debt instrument was purchased at a premium. Download 2012 tax forms See Premium, later. Download 2012 tax forms Adjusted issue price. Download 2012 tax forms   The adjusted issue price of a debt instrument at the beginning of an accrual period is used to figure the OID allocable to that period. Download 2012 tax forms In general, the adjusted issue price at the beginning of the debt instrument's first accrual period is its issue price. Download 2012 tax forms The adjusted issue price at the beginning of any subsequent accrual period is the sum of the issue price and all the OID includible in income before that accrual period minus any payment previously made on the debt instrument, other than a payment of qualified stated interest. Download 2012 tax forms Debt instrument. Download 2012 tax forms   The term “debt instrument” means any instrument or contractual arrangement that constitutes indebtedness under general principles of federal income tax law (including, for example, a bond, debenture, note, certificate, or other evidence of indebtedness). Download 2012 tax forms It generally does not include an annuity contract. Download 2012 tax forms Issue price. Download 2012 tax forms   For debt instruments listed in Section I-A and Section I-B, the issue price generally is the initial offering price to the public (excluding bond houses and brokers) at which a substantial amount of these instruments was sold. Download 2012 tax forms Market discount. Download 2012 tax forms   Market discount arises when a debt instrument purchased in the secondary market has decreased in value since its issue date, generally because of an increase in interest rates. Download 2012 tax forms An OID debt instrument has market discount if your adjusted basis in the debt instrument immediately after you acquired it (usually its purchase price) was less than the debt instrument's issue price plus the total OID that accrued before you acquired it. Download 2012 tax forms The market discount is the difference between the issue price plus accrued OID and your adjusted basis. Download 2012 tax forms Premium. Download 2012 tax forms   A debt instrument is purchased at a premium if its adjusted basis immediately after purchase is greater than the total of all amounts payable on the debt instrument after the purchase date, other than qualified stated interest. Download 2012 tax forms The premium is the excess of the adjusted basis over the payable amounts. Download 2012 tax forms See Publication 550 for information on the tax treatment of bond premium. Download 2012 tax forms Qualified stated interest. Download 2012 tax forms   In general, qualified stated interest is stated interest that is unconditionally payable in cash or property (other than debt instruments of the issuer) at least annually over the term of the debt instrument at a single fixed rate. Download 2012 tax forms Stated redemption price at maturity. Download 2012 tax forms   A debt instrument's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on the debt instrument other than qualified stated interest. Download 2012 tax forms Yield to maturity (YTM). Download 2012 tax forms   In general, the YTM is the discount rate that, when used in figuring the present value of all principal and interest payments, produces an amount equal to the issue price of the debt instrument. Download 2012 tax forms The YTM is generally shown on the face of the debt instrument or in the literature you receive from your broker. Download 2012 tax forms If you do not have this information, consult your broker, tax advisor, or the issuer. Download 2012 tax forms Debt Instruments on the OID List The OID list on the IRS website can be used by brokers and other middlemen to prepare information returns. Download 2012 tax forms If you own a listed debt instrument, you generally should not rely on the information in the OID list to determine (or compare) the OID to be reported on your tax return. Download 2012 tax forms The OID amounts listed are figured without reference to the price or date at which you acquired the debt instrument. Download 2012 tax forms For information about determining the OID to be reported on your tax return, see the instructions for figuring OID under Information for Owners of OID Debt Instruments, later. Download 2012 tax forms The following discussions explain what information is contained in each section of the list. Download 2012 tax forms Section I. Download 2012 tax forms   This section contains publicly offered, long-term debt instruments. Download 2012 tax forms Section I-A: Corporate Debt Instruments Issued Before 1985. Download 2012 tax forms Section I-B: Corporate Debt Instruments Issued After 1984. Download 2012 tax forms Section I-C: Inflation-Indexed Debt Instruments. Download 2012 tax forms For each publicly offered debt instrument in Section I, the list contains the following information. Download 2012 tax forms The name of the issuer. Download 2012 tax forms The Committee on Uniform Security Identification Procedures (CUSIP) number. Download 2012 tax forms The issue date. Download 2012 tax forms The maturity date. Download 2012 tax forms The issue price expressed as a percent of principal or of stated redemption price at maturity. Download 2012 tax forms The annual stated or coupon interest rate. Download 2012 tax forms (This rate is shown as 0. Download 2012 tax forms 00 if no annual interest payments are provided. Download 2012 tax forms ) The yield to maturity will be added to Section I-B for bonds issued after December 31, 2006. Download 2012 tax forms The total OID accrued up to January 1 of a calendar year. Download 2012 tax forms (This information is not available for every instrument. Download 2012 tax forms ) For long-term debt instruments issued after July 1, 1982, the daily OID for the accrual periods falling in a calendar year and a subsequent year. Download 2012 tax forms The total OID per $1,000 of principal or maturity value for a calendar year and a subsequent year. Download 2012 tax forms Section II. Download 2012 tax forms   This section contains stripped coupons and principal components of U. Download 2012 tax forms S. Download 2012 tax forms Treasury and Government-Sponsored Enterprise debt instruments. Download 2012 tax forms These stripped components are available through the Department of the Treasury's Separate Trading of Registered Interest and Principal of Securities (STRIPS) program and government-sponsored enterprises such as the Resolution Funding Corporation. Download 2012 tax forms This section also includes debt instruments backed by U. Download 2012 tax forms S. Download 2012 tax forms Treasury securities that represent ownership interests in those securities. Download 2012 tax forms   The obligations listed in Section II are arranged by maturity date. Download 2012 tax forms The amounts listed are the total OID for a calendar year per $1,000 of redemption price. Download 2012 tax forms Section III. Download 2012 tax forms   This section contains short-term discount obligations. Download 2012 tax forms Section III-A: Short-Term U. Download 2012 tax forms S. Download 2012 tax forms Treasury Bills. Download 2012 tax forms Section III-B: Federal Home Loan Banks. Download 2012 tax forms Section III-C: Federal National Mortgage Association. Download 2012 tax forms Section III-D: Federal Farm Credit Banks. Download 2012 tax forms Section III-E: Federal Home Loan Mortgage Corporation. Download 2012 tax forms Section III-F: Federal Agricultural Mortgage Corporation. Download 2012 tax forms    Information that supplements Section III-A is available on the Internet at http://www. Download 2012 tax forms treasurydirect. Download 2012 tax forms gov/tdhome. Download 2012 tax forms htm. Download 2012 tax forms   The short-term obligations listed in this section are arranged by maturity date. Download 2012 tax forms For each obligation, the list contains the CUSIP number, maturity date, issue date, issue price (expressed as a percent of principal), and discount to be reported as interest for a calendar year per $1,000 of redemption price. Download 2012 tax forms Brokers and other middlemen should rely on the issue price information in Section III only if they are unable to determine the price actually paid by the owner. Download 2012 tax forms Debt Instruments Not on the OID List The list of debt instruments discussed earlier does not contain the following items. Download 2012 tax forms U. Download 2012 tax forms S. Download 2012 tax forms savings bonds. Download 2012 tax forms Certificates of deposit and other face-amount certificates issued at a discount, including syndicated certificates of deposit. Download 2012 tax forms Obligations issued by tax-exempt organizations. Download 2012 tax forms OID debt instruments that matured or were entirely called by the issuer before the tables were posted on the IRS website. Download 2012 tax forms Mortgage-backed securities and mortgage participation certificates. Download 2012 tax forms Long-term OID debt instruments issued before May 28, 1969. Download 2012 tax forms Short-term obligations, other than the obligations listed in Section III. Download 2012 tax forms Debt instruments issued at a discount by states or their political subdivisions. Download 2012 tax forms REMIC regular interests and CDOs. Download 2012 tax forms Commercial paper and banker's acceptances issued at a discount. Download 2012 tax forms Obligations issued at a discount by individuals. Download 2012 tax forms Foreign obligations not traded in the United States and obligations not issued in the United States. Download 2012 tax forms Information for Brokers and Other Middlemen The following discussions contain specific instructions for brokers and middlemen who hold or redeem a debt instrument for the owner. Download 2012 tax forms In general, you must file a Form 1099 for the debt instrument if the interest or OID to be included in the owner's income for a calendar year totals $10 or more. Download 2012 tax forms You also must file a Form 1099 if you were required to deduct and withhold tax, even if the interest or OID is less than $10. Download 2012 tax forms See Backup Withholding, later. Download 2012 tax forms If you must file a Form 1099, furnish a copy to the owner of the debt instrument by January 31 in the year it is due. Download 2012 tax forms File all your Forms 1099 with the IRS, accompanied by Form 1096, by February 28 in the year it is due (March 31 if you file electronically). Download 2012 tax forms Electronic payee statements. Download 2012 tax forms   You can issue Form 1099-OID electronically with the consent of the recipient. Download 2012 tax forms More information. Download 2012 tax forms   For more information, including penalties for failure to file (or furnish) required information returns or statements, see the General Instructions for Certain Information Returns (Forms 1098, 1099, 3921, 3922, 5498, and W-2G) for the appropriate calendar year. Download 2012 tax forms Short-Term Obligations Redeemed at Maturity If you redeem a short-term discount obligation for the owner at maturity, you must report the discount as interest on Form 1099-INT. Download 2012 tax forms To figure the discount, use the purchase price shown on the owner's copy of the purchase confirmation receipt or similar record, or the price shown in your transaction records. Download 2012 tax forms If you sell the obligation for the owner before maturity, you must file Form 1099-B to reflect the gross proceeds to the seller. Download 2012 tax forms Do not report the accrued discount to the date of sale on either Form 1099-INT or Form 1099-OID. Download 2012 tax forms If the owner's purchase price cannot be determined, figure the discount as if the owner had purchased the obligation at its original issue price. Download 2012 tax forms A special rule is used to determine the original issue price for information reporting on U. Download 2012 tax forms S. Download 2012 tax forms Treasury bills (T-bills) listed in Section III-A. Download 2012 tax forms Under this rule, you treat as the original issue price of the T-bill the noncompetitive (weighted average of accepted auction bids) discount price for the longest-maturity T-bill maturing on the same date as the T-bill being redeemed. Download 2012 tax forms This noncompetitive discount price is the issue price (expressed as a percent of principal) shown in Section III-A. Download 2012 tax forms A similar rule is used to figure the discount on short-term discount obligations issued by the organizations listed in Section III-B through Section III-F. Download 2012 tax forms Example 1. Download 2012 tax forms There are 13-week and 26-week T-bills maturing on the same date as the T-bill being redeemed. Download 2012 tax forms The price actually paid by the owner cannot be established by owner or middleman records. Download 2012 tax forms You treat as the issue price of the T-bill the noncompetitive discount price (expressed as a percent of principal) shown in Section III-A for a 26-week bill maturing on the same date as the T-bill redeemed. Download 2012 tax forms The interest you report on Form 1099-INT is the OID (per $1,000 of principal) shown in Section III-A for that obligation. Download 2012 tax forms Long-Term Debt Instruments If you hold a long-term OID debt instrument as a nominee for the true owner, you generally must file Form 1099-OID. Download 2012 tax forms For this purpose, you can rely on Section I of the OID list to determine the following information. Download 2012 tax forms Whether a debt instrument has OID. Download 2012 tax forms The OID to be reported on the Form 1099-OID. Download 2012 tax forms In general, you must report OID on publicly offered, long-term debt instruments listed in Section I. Download 2012 tax forms You also can report OID on other long-term debt instruments. Download 2012 tax forms Form 1099-OID. Download 2012 tax forms   On Form 1099-OID for a calendar year show the following information. Download 2012 tax forms Box 1. Download 2012 tax forms The OID for the actual dates the owner held the debt instruments during a calendar year. Download 2012 tax forms To determine this amount, see Figuring OID, next. Download 2012 tax forms Box 2. Download 2012 tax forms The qualified stated interest paid or credited during the calendar year. Download 2012 tax forms Interest reported here is not reported on Form 1099-INT. Download 2012 tax forms The qualified stated interest on Treasury inflation-protected securities may be reported on Form 1099-INT in box 3 instead. Download 2012 tax forms Box 3. Download 2012 tax forms Any interest or principal forfeited because of an early withdrawal that the owner can deduct from gross income. Download 2012 tax forms Do not reduce the amounts in boxes 1 and 2 by the forfeiture. Download 2012 tax forms Box 4. Download 2012 tax forms Any backup withholding for this debt instrument. Download 2012 tax forms Box 7. Download 2012 tax forms The CUSIP number, if any. Download 2012 tax forms If there is no CUSIP number, give a description of the debt instrument, including the abbreviation for the stock exchange, the abbreviation used by the stock exchange for the issuer, the coupon rate, and the year of maturity (for example, NYSE XYZ 12. Download 2012 tax forms 50 2006). Download 2012 tax forms If the issuer of the debt instrument is other than the payer, show the name of the issuer in this box. Download 2012 tax forms Box 8. Download 2012 tax forms The OID on a U. Download 2012 tax forms S. Download 2012 tax forms Treasury obligation for the part of the year the owner held the debt instrument. Download 2012 tax forms Box 9. Download 2012 tax forms Investment expenses passed on to holders of a single-class REMIC. Download 2012 tax forms Boxes 10-12. Download 2012 tax forms Use to report any state income tax withheld for this debt instrument. Download 2012 tax forms Figuring OID. Download 2012 tax forms   You can determine the OID on a long-term debt instrument by using either of the following. Download 2012 tax forms Section I of the OID list. Download 2012 tax forms The income tax regulations. Download 2012 tax forms Using Section I. Download 2012 tax forms   If the owner held the debt instrument for the entire calendar year, report the OID shown in Section I for the calendar year. Download 2012 tax forms Because OID is listed for each $1,000 of stated redemption price at maturity, you must adjust the listed amount to reflect the debt instrument's actual stated redemption price at maturity. Download 2012 tax forms For example, if the debt instrument's stated redemption price at maturity is $500, report one-half the listed OID. Download 2012 tax forms   If the owner held the debt instrument for less than the entire calendar year, figure the OID to report as follows. Download 2012 tax forms Look up the daily OID for the first accrual period in the calendar year during which the owner held the debt instrument. Download 2012 tax forms Multiply the daily OID by the number of days the owner held the debt instrument during that accrual period. Download 2012 tax forms Repeat steps (1) and (2) for any remaining accrual periods for the year during which the owner held the debt instrument. Download 2012 tax forms Add the results in steps (2) and (3) to determine the owner's OID per $1,000 of stated redemption price at maturity. Download 2012 tax forms If necessary, adjust the OID in (4) to reflect the debt instrument's stated redemption price at maturity. Download 2012 tax forms Report the result on Form 1099-OID in box 1. Download 2012 tax forms Using the income tax regulations. Download 2012 tax forms   Instead of using Section I to figure OID, you can use the regulations under sections 1272 through 1275 of the Internal Revenue Code. Download 2012 tax forms For example, under the regulations, you can use monthly accrual periods in figuring OID for a debt instrument issued after April 3, 1994, that provides for monthly payments. Download 2012 tax forms (If you use Section I-B, the OID is figured using 6-month accrual periods. Download 2012 tax forms )   For a general explanation of the rules for figuring OID under the regulations, see Figuring OID on Long-Term Debt Instruments under Information for Owners of OID Debt Instruments, later. Download 2012 tax forms Certificates of Deposit If you hold a bank certificate of deposit (CD) as a nominee, you must determine whether the CD has OID and any OID includible in the income of the owner. Download 2012 tax forms You must file an information return showing the reportable interest and OID, if any, on the CD. Download 2012 tax forms These rules apply whether or not you sold the CD to the owner. Download 2012 tax forms Report OID on a CD in the same way as OID on other debt instruments. Download 2012 tax forms See Short-Term Obligations Redeemed at Maturity and Long-Term Debt Instruments, earlier. Download 2012 tax forms Bearer Bonds and Coupons If a coupon from a bearer bond is presented to you for collection before the bond matures, you generally must report the interest on Form 1099-INT. Download 2012 tax forms However, do not report the interest if either of the following apply. Download 2012 tax forms You hold the bond as a nominee for the true owner. Download 2012 tax forms The payee is a foreign person. Download 2012 tax forms See Payments to foreign person under Backup Withholding, later. Download 2012 tax forms Because you cannot assume the presenter of the coupon also owns the bond, you should not report OID on the bond on Form 1099-OID. Download 2012 tax forms The coupon may have been “stripped” (separated) from the bond and separately purchased. Download 2012 tax forms However, if a long-term bearer bond on the OID list is presented to you for redemption upon call or maturity, you should prepare a Form 1099-OID showing the OID for that calendar year, as well as any coupon interest payments collected at the time of redemption. Download 2012 tax forms Backup Withholding If you report OID on Form 1099-OID or interest on Form 1099-INT for a calendar year, you may be required to apply backup withholding to the reportable payment at a rate of 28%. Download 2012 tax forms The backup withholding is deducted at the time a cash payment is made. Download 2012 tax forms See Pub. Download 2012 tax forms 1281, Backup Withholding for Missing and Incorrect Name/TIN(s), for more information. Download 2012 tax forms Backup withholding generally applies in the following situations. Download 2012 tax forms The payee does not give you a taxpayer identification number (TIN). Download 2012 tax forms The IRS notifies you that the payee gave an incorrect TIN. Download 2012 tax forms The IRS notifies you that the payee is subject to backup withholding due to payee underreporting. Download 2012 tax forms For debt instruments acquired after 1983: The payee does not certify, under penalties of perjury, that he or she is not subject to backup withholding under (3), or The payee does not certify, under penalties of perjury, that the TIN given is correct. Download 2012 tax forms However, for short-term discount obligations (other than government obligations), bearer bonds and coupons, and U. Download 2012 tax forms S. Download 2012 tax forms savings bonds, backup withholding applies only if the payee does not give you a TIN or gives you an obviously incorrect number for a TIN. Download 2012 tax forms Short-term obligations. Download 2012 tax forms   Backup withholding applies to OID on a short-term obligation only when the OID is paid at maturity. Download 2012 tax forms However, backup withholding applies to any interest payable before maturity when the interest is paid or credited. Download 2012 tax forms   If the owner of a short-term obligation at maturity is not the original owner and can establish the purchase price of the obligation, the amount subject to backup withholding must be determined by treating the purchase price as the issue price. Download 2012 tax forms However, you can choose to disregard that price if it would require significant manual intervention in the computer or recordkeeping system used for the obligation. Download 2012 tax forms If the purchase price of a listed obligation is not established or is disregarded, you must use the issue price shown in Section III. Download 2012 tax forms Long-term obligations. Download 2012 tax forms   If no cash payments are made on a long-term obligation before maturity, backup withholding applies only at maturity. Download 2012 tax forms The amount subject to backup withholding is the OID includible in the owner's gross income for the calendar year when the obligation matures. Download 2012 tax forms The amount to be withheld is limited to the cash paid. Download 2012 tax forms Registered long-term obligations with cash payments. Download 2012 tax forms   If a registered long-term obligation has cash payments before maturity, backup withholding applies when a cash payment is made. Download 2012 tax forms The amount subject to backup withholding is the total of the qualified stated interest (defined earlier under Definitions) and OID includible in the owner's gross income for the calendar year when the payment is made. Download 2012 tax forms If more than one cash payment is made during the year, the OID subject to withholding for the year must be allocated among the expected cash payments in the ratio that each bears to the total of the expected cash payments. Download 2012 tax forms For any payment, the required withholding is limited to the cash paid. Download 2012 tax forms Payee not the original owner. Download 2012 tax forms   If the payee is not the original owner of the obligation, the OID subject to backup withholding is the OID includible in the gross income of all owners during the calendar year (without regard to any amount paid by the new owner at the time of transfer). Download 2012 tax forms The amount subject to backup withholding at maturity of a listed obligation must be determined using the issue price shown in Section I. Download 2012 tax forms Bearer long-term obligations with cash payments. Download 2012 tax forms   If a bearer long-term obligation has cash payments before maturity, backup withholding applies when the cash payments are made. Download 2012 tax forms For payments before maturity, the amount subject to withholding is the qualified stated interest (defined earlier under Definitions) includible in the owner's gross income for the calendar year. Download 2012 tax forms For a payment at maturity, the amount subject to withholding is only the total of any qualified stated interest paid at maturity and the OID includible in the owner's gross income for the calendar year when the obligation matures. Download 2012 tax forms The required withholding at maturity is limited to the cash paid. Download 2012 tax forms Sales and redemptions. Download 2012 tax forms   If you report the gross proceeds from a sale, exchange, or redemption of a debt instrument on Form 1099-B for a calendar year, you may be required to withhold 28% of the amount reported. Download 2012 tax forms Backup withholding applies in the following situations. Download 2012 tax forms The payee does not give you a TIN. Download 2012 tax forms The IRS notifies you that the payee gave an incorrect TIN. Download 2012 tax forms For debt instruments held in an account opened after 1983, the payee does not certify, under penalties of perjury, that the TIN given is correct. Download 2012 tax forms Payments outside the United States to U. Download 2012 tax forms S. Download 2012 tax forms person. Download 2012 tax forms   The requirements for backup withholding and information reporting apply to payments of OID and interest made outside the United States to a U. Download 2012 tax forms S. Download 2012 tax forms person, a controlled foreign corporation, or a foreign person at least 50% of whose income for the preceding 3-year period is effectively connected with the conduct of a U. Download 2012 tax forms S. Download 2012 tax forms trade or business. Download 2012 tax forms Payments to foreign person. Download 2012 tax forms   The following discussions explain the rules for backup withholding and information reporting on payments to foreign persons. Download 2012 tax forms U. Download 2012 tax forms S. Download 2012 tax forms -source amount. Download 2012 tax forms   Backup withholding and information reporting are not required for payments of U. Download 2012 tax forms S. Download 2012 tax forms -source OID, interest, or proceeds from a sale or redemption of an OID instrument if the payee has given you proof (generally the appropriate Form W-8 or an acceptable substitute) that the payee is a foreign person. Download 2012 tax forms A U. Download 2012 tax forms S. Download 2012 tax forms resident is not a foreign person. Download 2012 tax forms For proof of the payee's foreign status, you can rely on the appropriate Form W-8 or on documentary evidence for payments made outside the United States to an offshore account or, in case of broker proceeds, a sale effected outside the United States. Download 2012 tax forms Receipt of the appropriate Form W-8 does not relieve you from information reporting and backup withholding if you actually know the payee is a U. Download 2012 tax forms S. Download 2012 tax forms person. Download 2012 tax forms   For information about the 28% withholding tax that may apply to payments of U. Download 2012 tax forms S. Download 2012 tax forms -source OID or interest to foreign persons, see Publication 515. Download 2012 tax forms Foreign-source amount. Download 2012 tax forms   Backup withholding and information reporting are not required for payments of foreign-source OID and interest made outside the United States. Download 2012 tax forms However, if the payments are made inside the United States, the requirements for backup withholding and information reporting will apply unless the payee has given you the appropriate Form W-8 or acceptable substitute as proof that the payee is a foreign person. Download 2012 tax forms More information. Download 2012 tax forms   For more information about backup withholding and information reporting on foreign-source amounts or payments to foreign persons, see Regulations section 1. Download 2012 tax forms 6049-5. Download 2012 tax forms Information for Owners of OID Debt Instruments This section is for persons who prepare their own tax returns. Download 2012 tax forms It discusses the income tax rules for figuring and reporting OID on long-term debt instruments. Download 2012 tax forms It also includes a similar discussion for stripped bonds and coupons, such as zero coupon bonds available through the Department of the Treasury's STRIPS program and government-sponsored enterprises such as the Resolution Funding Corporation. Download 2012 tax forms However, the information provided does not cover every situation. Download 2012 tax forms More information can be found in the regulations under sections 1271 through 1275 of the Internal Revenue Code. Download 2012 tax forms Including OID in income. Download 2012 tax forms   Generally, you include OID in income as it accrues each year, whether or not you receive any payments from the debt instrument issuer. Download 2012 tax forms Exceptions. Download 2012 tax forms   The rules for including OID in income as it accrues generally do not apply to the following debt instruments. Download 2012 tax forms U. Download 2012 tax forms S. Download 2012 tax forms savings bonds. Download 2012 tax forms Tax-exempt obligations. Download 2012 tax forms (However, see Tax-Exempt Bonds and Coupons, later. Download 2012 tax forms ) Obligations issued by individuals before March 2, 1984. Download 2012 tax forms Loans of $10,000 or less between individuals who are not in the business of lending money. Download 2012 tax forms (The dollar limit includes outstanding prior loans by the lender to the borrower. Download 2012 tax forms ) This exception does not apply if a principal purpose of the loan is to avoid any federal tax. Download 2012 tax forms   See chapter 1 of Publication 550 for information about the rules for these and other types of discounted debt instruments, such as short-term and market discount obligations. Download 2012 tax forms Publication 550 also discusses rules for holders of REMIC interests and CDOs. Download 2012 tax forms De minimis rule. Download 2012 tax forms   You can treat OID as zero if the total OID on a debt instrument is less than one-fourth of 1% (. Download 2012 tax forms 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. Download 2012 tax forms Debt instruments with de minimis OID are not listed in this publication. Download 2012 tax forms There are special rules to determine the de minimis amount in the case of debt instruments that provide for more than one payment of principal. Download 2012 tax forms Also, the de minimis rules generally do not apply to tax-exempt obligations. Download 2012 tax forms Example 2. Download 2012 tax forms You bought at issuance a 10-year debt instrument with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. Download 2012 tax forms One-fourth of 1% of $1,000 (the stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. Download 2012 tax forms Under the de minimis rule, you can treat the OID as zero because the $20 discount is less than $25. Download 2012 tax forms Example 3. Download 2012 tax forms Assume the same facts as Example 2, except the debt instrument was issued at $950. Download 2012 tax forms You must report part of the $50 OID each year because it is more than $25. Download 2012 tax forms Choice to report all interest as OID. Download 2012 tax forms   Generally, you can choose to treat all interest on a debt instrument acquired after April 3, 1994, as OID and include it in gross income by using the constant yield method. Download 2012 tax forms See Constant yield method under Debt Instruments Issued After 1984, later, for more information. Download 2012 tax forms   For this choice, interest includes stated interest, acquisition discount, OID, de minimis OID, market discount, de minimis market discount, and unstated interest, as adjusted by any amortizable bond premium or acquisition premium. Download 2012 tax forms For more information, see Regulations section 1. Download 2012 tax forms 1272-3. Download 2012 tax forms Purchase after date of original issue. Download 2012 tax forms   A debt instrument you purchased after the date of original issue may have premium, acquisition premium, or market discount. Download 2012 tax forms If so, the OID reported to you on Form 1099-OID may have to be adjusted. Download 2012 tax forms For more information, see Showing an OID adjustment under How To Report OID, later. Download 2012 tax forms The following rules generally do not apply to contingent payment debt instruments. Download 2012 tax forms Adjustment for premium. Download 2012 tax forms   If your debt instrument (other than an inflation-indexed debt instrument) has premium, do not report any OID as ordinary income. Download 2012 tax forms Your adjustment is the total OID shown on your Form 1099-OID. Download 2012 tax forms Adjustment for acquisition premium. Download 2012 tax forms   If your debt instrument has acquisition premium, reduce the OID you report. Download 2012 tax forms Your adjustment is the difference between the OID shown on your Form 1099-OID and the reduced OID amount figured using the rules explained later under Figuring OID on Long-Term Debt Instruments. Download 2012 tax forms Adjustment for market discount. Download 2012 tax forms   If your debt instrument has market discount that you choose to include in income currently, increase the OID you report. Download 2012 tax forms Your adjustment is the accrued market discount for the year. Download 2012 tax forms See Market Discount Bonds in chapter 1 of Publication 550 for information on how to figure accrued market discount and include it in your income currently and for other information about market discount bonds. Download 2012 tax forms If you choose to use the constant yield method to figure accrued market discount, also see Figuring OID on Long-Term Debt Instruments, later. Download 2012 tax forms The constant yield method of figuring accrued OID, explained in those discussions under Constant yield method, is also used to figure accrued market discount. Download 2012 tax forms For more information concerning premium or market discount on an inflation-indexed debt instrument, see Regulations section 1. Download 2012 tax forms 1275-7. Download 2012 tax forms Sale, exchange, or redemption. Download 2012 tax forms   Generally, you treat your gain or loss from the sale, exchange, or redemption of a discounted debt instrument as a capital gain or loss if you held the debt instrument as a capital asset. Download 2012 tax forms If you sold the debt instrument through a broker, you should receive Form 1099-B or an equivalent statement from the broker. Download 2012 tax forms Use the Form 1099-B or other statement and your brokerage statements to complete Form 8949, and Schedule D (Form 1040). Download 2012 tax forms   Your gain or loss is the difference between the amount you realized on the sale, exchange, or redemption and your basis in the debt instrument. Download 2012 tax forms Your basis, generally, is your cost increased by the OID you have included in income each year you held it. Download 2012 tax forms In general, to determine your gain or loss on a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. Download 2012 tax forms   See chapter 4 of Publication 550 for more information about the tax treatment of the sale or redemption of discounted debt instruments. Download 2012 tax forms Example 4. Download 2012 tax forms Larry, a calendar year taxpayer, bought a corporate debt instrument at original issue for $86,235. Download 2012 tax forms 00 on November 1 of Year 1. Download 2012 tax forms The 15-year debt instrument matures on October 31 of Year 16 at a stated redemption price of $100,000. Download 2012 tax forms The debt instrument provides for semiannual payments of interest at 10%. Download 2012 tax forms Assume the debt instrument is a capital asset in Larry's hands. Download 2012 tax forms The debt instrument has $13,765. Download 2012 tax forms 00 of OID ($100,000 stated redemption price at maturity minus $86,235. Download 2012 tax forms 00 issue price). Download 2012 tax forms Larry sold the debt instrument for $90,000 on November 1 of Year 4. Download 2012 tax forms Including the OID he will report for the period he held the debt instrument in Year 4, Larry has included $4,556. Download 2012 tax forms 00 of OID in income and has increased his basis by that amount to $90,791. Download 2012 tax forms 00. Download 2012 tax forms Larry has realized a loss of $791. Download 2012 tax forms 00. Download 2012 tax forms All of Larry's loss is capital loss. Download 2012 tax forms Form 1099-OID The issuer of the debt instrument (or your broker, if you purchased or held the debt instrument through a broker) should give you a copy of Form 1099-OID or a similar statement if the accrued OID for the calendar year is $10 or more and the term of the debt instrument is more than 1 year. Download 2012 tax forms Form 1099-OID shows all OID income in box 1 except OID on a U. Download 2012 tax forms S. Download 2012 tax forms Treasury obligation, which is shown in box 8. Download 2012 tax forms It also shows, in box 2, any qualified stated interest you must include in income. Download 2012 tax forms (However, any qualified stated interest on Treasury inflation-protected securities can be reported on Form 1099-INT in box 3. Download 2012 tax forms ) A copy of Form 1099-OID will be sent to the IRS. Download 2012 tax forms Do not attach your copy to your tax return. Download 2012 tax forms Keep it for your records. Download 2012 tax forms If you are required to file a tax return and you receive Form 1099-OID showing taxable amounts, you must report these amounts on your return. Download 2012 tax forms A 20% accuracy-related penalty may be charged for underpayment of tax due to either negligence or disregard of rules and regulations or substantial understatement of tax. Download 2012 tax forms Form 1099-OID not received. Download 2012 tax forms   If you held an OID debt instrument for a calendar year but did not receive a Form 1099-OID, refer to the discussions under Figuring OID on Long-Term Debt Instruments, later, for information on the OID you must report. Download 2012 tax forms Refiguring OID. Download 2012 tax forms   You must refigure the OID shown on Form 1099-OID, in box 1 or box 8, to determine the proper amount to include in income if one of the following applies. Download 2012 tax forms You bought the debt instrument at a premium or at an acquisition premium. Download 2012 tax forms The debt instrument is a stripped bond or coupon (including zero coupon bonds backed by U. Download 2012 tax forms S. Download 2012 tax forms Treasury securities). Download 2012 tax forms The debt instrument is a contingent payment or inflation-indexed debt instrument. Download 2012 tax forms See the discussions under Figuring OID on Long-Term Debt Instruments or Figuring OID on Stripped Bonds and Coupons, later, for the specific computations. Download 2012 tax forms Refiguring interest. Download 2012 tax forms   If you disposed of a debt instrument or acquired it from another holder between interest dates, see the discussion under Bonds Sold Between Interest Dates in chapter 1 of Publication 550 for information about refiguring the interest shown on Form 1099-OID in box 2. Download 2012 tax forms Nominee. Download 2012 tax forms   If you are the holder of an OID debt instrument and you receive a Form 1099-OID that shows your taxpayer identification number and includes amounts belonging to another person, you are considered a “nominee. Download 2012 tax forms ” You must file another Form 1099-OID for each actual owner, showing the OID for the owner. Download 2012 tax forms Show the owner of the debt instrument as the “recipient” and you as the “payer. Download 2012 tax forms ”   Complete Form 1099-OID and Form 1096 and file the forms with the Internal Revenue Service Center for your area. Download 2012 tax forms You must also give a copy of the Form 1099-OID to the actual owner. Download 2012 tax forms However, you are not required to file a nominee return to show amounts belonging to your spouse. Download 2012 tax forms See the Form 1099 instructions for more information. Download 2012 tax forms   When preparing your tax return, follow the instructions under Showing an OID adjustment in the next discussion. Download 2012 tax forms How To Report OID Generally, you report your taxable interest and OID income on the interest line of Form 1040EZ, Form 1040A, or Form 1040. Download 2012 tax forms Form 1040 or Form 1040A required. Download 2012 tax forms   You must use Form 1040 or Form 1040A (you cannot use Form 1040EZ) under either of the following conditions. Download 2012 tax forms You received a Form 1099-OID as a nominee for the actual owner. Download 2012 tax forms Your total interest and OID income for the year was more than $1,500. Download 2012 tax forms Form 1040 required. Download 2012 tax forms   You must use Form 1040 (you cannot use Form 1040A or Form 1040EZ) if you are reporting more or less OID than the amount shown on Form 1099-OID, other than because you are a nominee. Download 2012 tax forms For example, if you paid a premium or an acquisition premium when you purchased the debt instrument, you must use Form 1040 because you will report less OID than shown on Form 1099-OID. Download 2012 tax forms Also, you must use Form 1040 if you were charged an early withdrawal penalty. Download 2012 tax forms Where to report. Download 2012 tax forms   List each payer's name (if a brokerage firm gave you a Form 1099, list the brokerage firm as the payer) and the amount received from each payer on Form 1040A, Schedule B, Part I, line 1, or Form 1040, Schedule B, line 1. Download 2012 tax forms Include all OID and periodic interest shown on any Form 1099-OID, boxes 1, 2, and 8, you received for the tax year. Download 2012 tax forms Also include any other OID and interest income for which you did not receive a Form 1099. Download 2012 tax forms Showing an OID adjustment. Download 2012 tax forms   If you use Form 1040 to report more or less OID than shown on Form 1099-OID, list the full OID on Schedule B, Part I, line 1, and follow the instructions under 1 or 2, next. Download 2012 tax forms   If you use Form 1040A to report the OID shown on a Form 1099-OID you received as a nominee for the actual owner, list the full OID on Schedule B, Part I, line 1 and follow the instructions under 1. Download 2012 tax forms If the OID, as adjusted, is less than the amount shown on Form 1099-OID, show the adjustment as follows. Download 2012 tax forms Under your last entry on line 1, subtotal all interest and OID income listed on line 1. Download 2012 tax forms Below the subtotal, write “Nominee Distribution” or “OID Adjustment” and show the OID you are not required to report. Download 2012 tax forms Subtract that OID from the subtotal and enter the result on line 2. Download 2012 tax forms If the OID, as adjusted, is more than the amount shown on Form 1099-OID, show the adjustment as follows. Download 2012 tax forms Under your last entry on line 1, subtotal all interest and OID income listed on line 1. Download 2012 tax forms Below the subtotal, write “OID Adjustment” and show the additional OID. Download 2012 tax forms Add that OID to the subtotal and enter the result on line 2. Download 2012 tax forms Figuring OID on Long-Term Debt Instruments How you figure the OID on a long-term debt instrument depends on the date it was issued. Download 2012 tax forms It also may depend on the type of the debt instrument. Download 2012 tax forms There are different rules for each of the following debt instruments. Download 2012 tax forms Corporate debt instruments issued after 1954 and before May 28, 1969, and government debt instruments issued after 1954 and before July 2, 1982. Download 2012 tax forms Corporate debt instruments issued after May 27, 1969, and before July 2, 1982. Download 2012 tax forms Debt instruments issued after July 1, 1982, and before 1985. Download 2012 tax forms Debt instruments issued after 1984 (other than debt instruments described in (5) and (6)). Download 2012 tax forms Contingent payment debt instruments issued after August 12, 1996. Download 2012 tax forms Inflation-indexed debt instruments (including Treasury inflation-protected securities) issued after January 5, 1997. Download 2012 tax forms Zero coupon bonds. Download 2012 tax forms   The rules for figuring OID on zero coupon bonds backed by U. Download 2012 tax forms S. Download 2012 tax forms Treasury securities are discussed under Figuring OID on Stripped Bonds and Coupons, later. Download 2012 tax forms Corporate Debt Instruments Issued After 1954 and Before May 28, 1969, and Government Debt Instruments Issued After 1954 and Before July 2, 1982 If you hold these debt instruments as capital assets, you include OID in income only in the year the debt instrument is sold, exchanged, or redeemed, and only if you have a gain. Download 2012 tax forms The OID, which is taxed as ordinary income, generally equals the following amount. Download 2012 tax forms   number of full months you held the debt instrument  number of full months from date of original issue to date of maturity X original issue discount The balance of the gain is capital gain. Download 2012 tax forms If there is a loss on the sale of the debt instrument, the entire loss is a capital loss and no OID is reported. Download 2012 tax forms Corporate Debt Instruments Issued After May 27, 1969, and Before July 2, 1982 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments. Download 2012 tax forms For information about showing the correct OID on your tax return, see the discussion under How To Report OID, earlier. Download 2012 tax forms Your basis in the debt instrument is increased by the OID you include in income. Download 2012 tax forms Form 1099-OID. Download 2012 tax forms   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. Download 2012 tax forms However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Download 2012 tax forms See Reduction for acquisition premium, later. Download 2012 tax forms If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. Download 2012 tax forms irs. Download 2012 tax forms gov/pub1212 by clicking the link under Recent Developments. Download 2012 tax forms Form 1099-OID not received. Download 2012 tax forms    The OID listed is for each $1,000 of redemption price. Download 2012 tax forms You must adjust the listed amount if your debt instrument has a different principal amount. Download 2012 tax forms For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Download 2012 tax forms   If you held the debt instrument the entire year, use the OID shown in Section I-A for a calendar year. Download 2012 tax forms (If your debt instrument is not listed in Section I-A, consult the issuer for information about the issue price and the OID that accrued for that year. Download 2012 tax forms ) If you did not hold the debt instrument the entire year, figure your OID using the following method. Download 2012 tax forms Divide the OID shown by 12. Download 2012 tax forms Multiply the result in (1) by the number of complete and partial months (for example, 6½ months) you held the debt instrument during a calendar year. Download 2012 tax forms This is the OID to include in income unless you paid an acquisition premium. Download 2012 tax forms The reduction for acquisition premium is discussed next. Download 2012 tax forms Reduction for acquisition premium. Download 2012 tax forms   If you bought the debt instrument at an acquisition premium, figure the OID to include in income as follows. Download 2012 tax forms Divide the total OID on the debt instrument by the number of complete months, and any part of a month, from the date of original issue to the maturity date. Download 2012 tax forms This is the monthly OID. Download 2012 tax forms Subtract from your cost the issue price and the accumulated OID from the date of issue to the date of purchase. Download 2012 tax forms (If the result is zero or less, stop here. Download 2012 tax forms You did not pay an acquisition premium. Download 2012 tax forms ) Divide the amount figured in (2) by the number of complete months, and any part of a month, from the date of your purchase to the maturity date. Download 2012 tax forms Subtract the amount figured in (3) from the amount figured in (1). Download 2012 tax forms This is the OID to include in income for each month you hold the debt instrument during the year. Download 2012 tax forms Transfers during the month. Download 2012 tax forms   If you buy or sell a debt instrument on any day other than the same day of the month as the date of original issue, the ratable monthly portion of OID for the month of sale is divided between the seller and the buyer according to the number of days each held the debt instrument. Download 2012 tax forms Your holding period for this purpose begins the day you acquire the debt instrument and ends the day before you dispose of it. Download 2012 tax forms Debt Instruments Issued After July 1, 1982, and Before 1985 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments and increase your basis by the amount included. Download 2012 tax forms For information about showing the correct OID on your tax return, see How To Report OID, earlier. Download 2012 tax forms Form 1099-OID. Download 2012 tax forms   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. Download 2012 tax forms However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Download 2012 tax forms See Constant yield method and the discussions on acquisition premium that follow, later. Download 2012 tax forms If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. Download 2012 tax forms irs. Download 2012 tax forms gov/pub1212 by clicking the link under Recent Developments. Download 2012 tax forms Form 1099-OID not received. Download 2012 tax forms    The OID listed is for each $1,000 of redemption price. Download 2012 tax forms You must adjust the listed amount if your debt instrument has a different principal amount. Download 2012 tax forms For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Download 2012 tax forms   If you held the debt instrument the entire year, use the OID shown in Section I-A. Download 2012 tax forms (If your instrument is not listed in Section I-A, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. Download 2012 tax forms ) If you did not hold the debt instrument the entire year, figure your OID using either of the following methods. Download 2012 tax forms Method 1. Download 2012 tax forms    Divide the total OID for a calendar year by 365 (366 for leap years). Download 2012 tax forms Multiply the result in (1) by the number of days you held the debt instrument during that particular year. Download 2012 tax forms  This computation is an approximation and may result in a slightly higher OID than Method 2. Download 2012 tax forms Method 2. Download 2012 tax forms    Look up the daily OID for the first accrual period you held the debt instrument during a calendar year. Download 2012 tax forms (See Accrual period under Constant yield method, next. Download 2012 tax forms ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. Download 2012 tax forms If you held the debt instrument for part of both accrual periods, repeat (1) and (2) for the second accrual period. Download 2012 tax forms Add the results of (2) and (3). Download 2012 tax forms This is the OID to include in income, unless you paid an acquisition premium. Download 2012 tax forms (The reduction for acquisition premium is discussed later. Download 2012 tax forms ) Constant yield method. Download 2012 tax forms   This discussion shows how to figure OID on debt instruments issued after July 1, 1982, and before 1985, using a constant yield method. Download 2012 tax forms OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. Download 2012 tax forms   Figure the OID allocable to any accrual period as follows. Download 2012 tax forms Multiply the adjusted issue price at the beginning of the accrual period by the debt instrument's yield to maturity. Download 2012 tax forms Subtract from the result in (1) any qualified stated interest allocable to the accrual period. Download 2012 tax forms Accrual period. Download 2012 tax forms   An accrual period for any OID debt instrument issued after July 1, 1982, and before 1985 is each 1-year period beginning on the date of the issue of the obligation and each anniversary thereafter, or the shorter period to maturity for the last accrual period. Download 2012 tax forms Your tax year will usually include parts of two accrual periods. Download 2012 tax forms Daily OID. Download 2012 tax forms   The OID for any accrual period is allocated equally to each day in the accrual period. Download 2012 tax forms You must include in income the sum of the OID amounts for each day you hold the debt instrument during the year. Download 2012 tax forms If your tax year includes parts of two or more accrual periods, you must include the proper daily OID amounts for each accrual period. Download 2012 tax forms Figuring daily OID. Download 2012 tax forms   The daily OID for the initial accrual period is figured using the following formula. Download 2012 tax forms   (ip × ytm) − qsi     p   ip = issue price ytm = yield to maturity qsi = qualified stated interest p = number of days in accrual period         The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. Download 2012 tax forms Reduction for acquisition premium on debt instruments purchased before July 19, 1984. Download 2012 tax forms   If you bought the debt instrument at an acquisition premium before July 19, 1984, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Download 2012 tax forms Figure the daily acquisition premium by dividing the total acquisition premium by the number of days in the period beginning on your purchase date and ending on the day before the date of maturity. Download 2012 tax forms Reduction for acquisition premium on debt instruments purchased after July 18, 1984. Download 2012 tax forms   If you bought the debt instrument at an acquisition premium after July 18, 1984, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Download 2012 tax forms However, the method of figuring the daily acquisition premium is different from the method described in the preceding discussion. Download 2012 tax forms To figure the daily acquisition premium under this method, multiply the daily OID by the following fraction. Download 2012 tax forms The numerator is the acquisition premium. Download 2012 tax forms The denominator is the total OID remaining for the debt instrument after your purchase date. Download 2012 tax forms Section I-A is available at www. Download 2012 tax forms irs. Download 2012 tax forms gov/pub1212 and clicking the link under Recent Developments. Download 2012 tax forms Using Section I-A to figure accumulated OID. Download 2012 tax forms   If you bought your corporate debt instrument in a calendar year or the subsequent year, you can figure the accumulated OID to the date of purchase by adding the following amounts. Download 2012 tax forms The amount from the “Total OID to January 1, YYYY” column for your debt instrument. Download 2012 tax forms The OID from January 1 of a calendar year to the date of purchase, figured as follows. Download 2012 tax forms Multiply the daily OID for the first accrual period in the calendar year by the number of days from January 1 to the date of purchase, or the end of the accrual period if the debt instrument was purchased in the second or third accrual period. Download 2012 tax forms Multiply the daily OID for each subsequent accrual period by the number of days in the period to the date of purchase or the end of the accrual period, whichever applies. Download 2012 tax forms Add the amounts figured in (2a) and (2b). Download 2012 tax forms Debt Instruments Issued After 1984 If you hold debt instruments issued after 1984, you must report part of the OID in gross income each year that you own the debt instruments. Download 2012 tax forms You must include the OID in gross income whether or not you hold the debt instrument as a capital asset. Download 2012 tax forms Your basis in the debt instrument is increased by the OID you include in income. Download 2012 tax forms For information about showing the correct OID on your tax return, see How To Report OID, earlier. Download 2012 tax forms Form 1099-OID. Download 2012 tax forms   You should receive a Form 1099-OID showing OID for the part of a calendar year you held the debt instrument. Download 2012 tax forms However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Download 2012 tax forms See Constant yield method and Reduction for acquisition premium, later. Download 2012 tax forms   You may also need to refigure the OID for a contingent payment or inflation-indexed debt instrument on which the amount reported on Form 1099-OID is inaccurate. Download 2012 tax forms See Contingent Payment Debt Instruments or Inflation-Indexed Debt Instruments, later. Download 2012 tax forms If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-B available at www. Download 2012 tax forms irs. Download 2012 tax forms gov/pub1212 by clicking the link under Recent Developments. Download 2012 tax forms Form 1099-OID not received. Download 2012 tax forms   The OID listed is for each $1,000 of redemption price. Download 2012 tax forms You must adjust the listed amount if your debt instrument has a different principal amount. Download 2012 tax forms For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Download 2012 tax forms   Use the OID shown in Section I-B for a calendar year if you held the debt instrument the entire year. Download 2012 tax forms (If your debt instrument is not listed in Section I-B, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. Download 2012 tax forms ) If you did not hold the debt instrument the entire year, figure your OID as follows. Download 2012 tax forms Look up the daily OID for the first accrual period in which you held the debt instrument during a calendar year. Download 2012 tax forms (See Accrual period under Constant yield method, later. Download 2012 tax forms ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. Download 2012 tax forms Repeat (1) and (2) for any remaining accrual periods in which you held the debt instrument. Download 2012 tax forms Add the results of (2) and (3). Download 2012 tax forms This is the OID to include in income for that year, unless you paid an acquisition premium. Download 2012 tax forms (The reduction for acquisition premium is discussed later. Download 2012 tax forms ) Tax-exempt bond. Download 2012 tax forms   If you own a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. Download 2012 tax forms You need to make this adjustment to determine if you have a gain or loss on a later disposition of the bond. Download 2012 tax forms In general, use the rules that follow to determine your OID. Download 2012 tax forms Constant yield method. Download 2012 tax forms   This discussion shows how to figure OID on debt instruments issued after 1984 using a constant yield method. Download 2012 tax forms (The special rules that apply to contingent payment debt instruments and inflation-indexed debt instruments are explained later. Download 2012 tax forms ) OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. Download 2012 tax forms   Figure the OID allocable to any accrual period as follows. Download 2012 tax forms Multiply the adjusted issue price at the beginning of the accrual period by a fraction. Download 2012 tax forms The numerator of the fraction is the debt instrument's yield to maturity and the denominator is the number of accrual periods per year. Download 2012 tax forms The yield must be stated appropriately taking into account the length of the particular accrual period. Download 2012 tax forms Subtract from the result in (1) any qualified stated interest allocable to the accrual period. Download 2012 tax forms Accrual period. Download 2012 tax forms   For debt instruments issued after 1984 and before April 4, 1994, an accrual period is each 6-month period that ends on the day that corresponds to the stated maturity date of the debt instrument or the date 6 months before that date. Download 2012 tax forms For example, a debt instrument maturing on March 31 has accrual periods that end on September 30 and March 31 of each calendar year. Download 2012 tax forms Any short period is included as the first accrual period. Download 2012 tax forms   For debt instruments issued after April 3, 1994, accrual periods may be of any length and may vary in length over the term of the debt instrument, as long as each accrual period is no longer than 1 year and all payments are made on the first or last day of an accrual period. Download 2012 tax forms However, the OID listed for these debt instruments in Section I-B has been figured using 6-month accrual periods. Download 2012 tax forms Daily OID. Download 2012 tax forms   The OID for any accrual period is allocated equally to each day in the accrual period. Download 2012 tax forms Figure the amount to include in income by adding the OID for each day you hold the debt instrument during the year. Download 2012 tax forms Since your tax year will usually include parts of two or more accrual periods, you must include the proper daily OID for each accrual period. Download 2012 tax forms If your debt instrument has 6-month accrual periods, your tax year will usually include one full 6-month accrual period and parts of two other 6-month periods. Download 2012 tax forms Figuring daily OID. Download 2012 tax forms   The daily OID for the initial accrual period is figured using the following formula. Download 2012 tax forms   (ip × ytm/n) − qsi     p   ip = issue price ytm = yield to maturity n = number of accrual periods in 1 year qsi = qualified stated interest p = number of days in accrual period       The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. Download 2012 tax forms Example 5. Download 2012 tax forms On January 1 of Year 1, you bought a 15-year, 10% debt instrument of A Corporation at original issue for $86,235. Download 2012 tax forms 17. Download 2012 tax forms According to the prospectus, the debt instrument matures on December 31 of Year 15 at a stated redemption price of $100,000. Download 2012 tax forms The yield to maturity is 12%, compounded semiannually. Download 2012 tax forms The debt instrument provides for qualified stated interest payments of $5,000 on June 30 and December 31 of each calendar year. Download 2012 tax forms The accrual periods are the 6-month periods ending on each of these dates. Download 2012 tax forms The number of days for the first accrual period (January 1 through June 30) is 181 days (182 for leap years). Download 2012 tax forms The daily OID for the first accrual period is figured as follows. Download 2012 tax forms   ($86,235. Download 2012 tax forms 17 x . Download 2012 tax forms 12/2) – $5,000     181 days     = $174. Download 2012 tax forms 11020 = $. Download 2012 tax forms 96193   181           The adjusted issue price at the beginning of the second accrual period is the issue price plus the OID previously includible in income ($86,235. Download 2012 tax forms 17 + $174. Download 2012 tax forms 11), or $86,409. Download 2012 tax forms 28. Download 2012 tax forms The number of days for the second accrual period (July 1 through December 31) is 184 days. Download 2012 tax forms The daily OID for the second accrual period is figured as follows. Download 2012 tax forms   ($86,409. Download 2012 tax forms 28 x . Download 2012 tax forms 12/2) – $5,000     184 days     = $184. Download 2012 tax forms 55681 = $1. Download 2012 tax forms 00303   184 Since the first and second accrual periods coincide exactly with your tax year, you include in income for Year 1 the OID allocable to the first two accrual periods, $174. Download 2012 tax forms 11 ($. Download 2012 tax forms 95665 × 182 days) plus $184. Download 2012 tax forms 56 ($1. Download 2012 tax forms 00303 × 184 days), or $358. Download 2012 tax forms 67. Download 2012 tax forms Add the OID to the $10,000 interest you report on your income tax return for Year 1. Download 2012 tax forms Example 6. Download 2012 tax forms Assume the same facts as in Example 5, except that you bought the debt instrument at original issue on May 1 of Year 1, with a maturity date of April 30, Year 16. Download 2012 tax forms Also, the interest payment dates are October 31 and April 30 of each calendar year. Download 2012 tax forms The accrual periods are the 6-month periods ending on each of these dates. Download 2012 tax forms The number of days for the first accrual period (May 1 through October 31) is 184 days. Download 2012 tax forms The daily OID for the first accrual period is figured as follows. Download 2012 tax forms   ($86,235. Download 2012 tax forms 17 x . Download 2012 tax forms 12/2) – $5,000     184 days     = $174. Download 2012 tax forms 11020 = $. Download 2012 tax forms 94625   184           The number of days for the second accrual period (November 1 through April 30) is 181 days (182 for leap years). Download 2012 tax forms The daily OID for the second accrual period is figured as follows. Download 2012 tax forms   ($86,409. Download 2012 tax forms 28 x . Download 2012 tax forms 12/2) – $5,000     181 days     = $184. Download 2012 tax forms 55681 = $1. Download 2012 tax forms 01965   181 If you hold the debt instrument through the end of Year 1, you must include $236. Download 2012 tax forms 31 of OID in income. Download 2012 tax forms This is $174. Download 2012 tax forms 11 ($. Download 2012 tax forms 94625 × 184 days) for the period May 1 through October 31 plus $62. Download 2012 tax forms 20 ($1. Download 2012 tax forms 01965 × 61 days) for the period November 1 through December 31. Download 2012 tax forms The OID is added to the $5,000 interest income paid on October 31 of Year 1. Download 2012 tax forms Your basis in the debt instrument is increased by the OID you include in income. Download 2012 tax forms On January 1 of Year 2, your basis in the A Corporation debt instrument is $86,471. Download 2012 tax forms 48 ($86,235. Download 2012 tax forms 17 + $236. Download 2012 tax forms 31). Download 2012 tax forms Short first accrual period. Download 2012 tax forms   You may have to make adjustments if a debt instrument has a short first accrual period. Download 2012 tax forms For example, a debt instrument with 6-month accrual periods that is issued on February 15 and matures on October 31 has a short first accrual period that ends April 30. Download 2012 tax forms (The remaining accrual periods begin on May 1 and November 1. Download 2012 tax forms ) For this short period, figure the daily OID as described earlier, but adjust the yield for the length of the short accrual period. Download 2012 tax forms You may use any reasonable compounding method in determining OID for a short period. Download 2012 tax forms Examples of reasonable compounding methods include continuous compounding and monthly compounding (that is, simple interest within a month). Download 2012 tax forms Consult your tax advisor for more information about making this computation. Download 2012 tax forms   The OID for the final accrual period is the difference between the amount payable at maturity (other than a payment of qualified stated interest) and the adjusted issue price at the beginning of the final accrual period. Download 2012 tax forms Reduction for acquisition premium. Download 2012 tax forms   If you bought the debt instrument at an acquisition premium, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Download 2012 tax forms To figure the daily acquisition premium, multiply the daily OID by the following fraction. Download 2012 tax forms The numerator is the acquisition premium. Download 2012 tax forms The denominator is the total OID remaining for the debt instrument after your purchase date. Download 2012 tax forms Example 7. Download 2012 tax forms Assume the same facts as in Example 6, except that you bought the debt instrument on November 1 of Year 1 for $87,000, after its original issue on May 1 of Year 1. Download 2012 tax forms The adjusted issue price on November 1 of Year 1 is $86,409. Download 2012 tax forms 28 ($86,235. Download 2012 tax forms 17 + $174. Download 2012 tax forms 11). Download 2012 tax forms In this case, you paid an acquisition premium of $590. Download 2012 tax forms 72 ($87,000 − $86,409. Download 2012 tax forms 28). Download 2012 tax forms The daily OID for the accrual period November 1 through April 30, reduced for the acquisition premium, is figured as follows. Download 2012 tax forms 1) Daily OID on date of purchase (2nd accrual period) $1. Download 2012 tax forms 01965*  2)  Acquisition premium $590. Download 2012 tax forms 72    3)  Total OID remaining after purchase date ($13,764. Download 2012 tax forms 83 − $174. Download 2012 tax forms 11) 13,590. Download 2012 tax forms 72   4) Line 2 ÷ line 3 . Download 2012 tax forms 04346  5)  Line 1 × line 4 . Download 2012 tax forms 04432  6)  Daily OID reduced for the acquisition premium. Download 2012 tax forms Line 1 − line 5 $0. Download 2012 tax forms 97533  * As shown in Example 6. Download 2012 tax forms The total OID to include in income for Year 1 is $59. Download 2012 tax forms 50 ($. Download 2012 tax forms 97533 × 61 days). Download 2012 tax forms Contingent Payment Debt Instruments This discussion shows how to figure OID on a contingent payment debt instrument issued after August 12, 1996, that was issued for cash or publicly traded property. Download 2012 tax forms In general, a contingent payment debt instrument provides for one or more payments that are contingent as to timing or amount. Download 2012 tax forms If you hold a contingent payment bond, you must report OID as it accrues each year. Download 2012 tax forms Because the actual payments on a contingent payment debt instrument cannot be known in advance, issuers and holders cannot use the constant yield method (discussed earlier under Debt Instruments Issued After 1984) without making certain assumptions about the payments on the debt instrument. Download 2012 tax forms To figure OID accruals on contingent payment debt instruments, holders and issuers must use the noncontingent bond method. Download 2012 tax forms Noncontingent bond method. Download 2012 tax forms    Under this method, the issuer must compute a comparable yield for the debt instrument and, based on this yield, construct a projected payment schedule for the instrument, which includes a projected fixed amount for each contingent payment. Download 2012 tax forms In general, holders and issuers accrue OID on this projected payment schedule using the constant yield method that applies to fixed payment debt instruments. Download 2012 tax forms When a contingent payment differs from the projected fixed amount, the holders and issuers make adjustments to their OID accruals. Download 2012 tax forms If the actual contingent payment is larger than expected, both the issuer and the holder increase their OID accruals. Download 2012 tax forms If the actual contingent payment is smaller than expected, holders and issuers generally decrease their OID accruals. Download 2012 tax forms Form 1099-OID. Download 2012 tax forms   The amount shown on Form 1099-OID in box 1 you receive for a contingent payment debt instrument may not be the correct amount to include in income. Download 2012 tax forms For example, the amount may not be correct if the contingent payment was different from the projected amount. Download 2012 tax forms If the amount in box 1 is not correct, you must figure the OID to report on your return under the following rules. Download 2012 tax forms For information on showing an OID adjustment on your tax return, see How To Report OID, earlier. Download 2012 tax forms Figuring OID. Download 2012 tax forms   To figure OID on a contingent payment debt instrument, you need to know the “comparable yield” and “projected payment schedule” of the debt instrument. Download 2012 tax forms The issuer must make these available to you. Download 2012 tax forms Comparable yield. Download 2012 tax forms   The comparable yield generally is the yield at which the issuer would issue a fixed rate debt instrument with terms and conditions similar to those of the contingent payment debt instrument. Download 2012 tax forms The comparable yield is determined as of the debt instrument's issue date. Download 2012 tax forms Projected payment schedule. Download 2012 tax forms   The projected payment schedule for a contingent payment debt instrument includes all fixed payments due under the instrument and a projected fixed amount for each contingent payment. Download 2012 tax forms The projected payment schedule is created by the issuer as of the debt instrument's issue date. Download 2012 tax forms It is used to determine the issuer's and holder's interest accruals and adjustments. Download 2012 tax forms Steps for figuring OID. Download 2012 tax forms   Figure the OID on a contingent payment debt instrument in two steps. Download 2012 tax forms Figure the OID using the constant yield method (discussed earlier under Debt Instruments Issued After 1984 ) that applies to fixed payment debt instruments. Download 2012 tax forms Use the comparable yield as the yield to maturity. Download 2012 tax forms In general, use the projected payment schedule to determine the instrument's adjusted issue price at the beginning of each accrual period (other than the initial period). Download 2012 tax forms Do not treat any amount payable as qualified stated interest. Download 2012 tax forms Adjust the OID in (1) to account for actual contingent payments. Download 2012 tax forms If the contingent payment is greater than the projected fixed amount, you have a positive adjustment. Download 2012 tax forms If the contingent payment is less than the projected fixed amount, you have a negative adjustment. Download 2012 tax forms Net positive adjustment. Download 2012 tax forms   A net positive adjustment exists for a tax year when the total of any positive adjustments described in (2) above for the tax year is more than the total of any negative adjustments for the tax year. Download 2012 tax forms Treat a net positive adjustment as additional OID for the tax year. Download 2012 tax forms Net negative adjustment. Download 2012 tax forms   A net negative adjustment exists for a tax year when the total of any negative adjustments described in (2) above for the tax year is more than the total of any positive adjustments for the tax year. Download 2012 tax forms Use a net negative adjustment to offset OID on the debt instrument for the tax year. Download 2012 tax forms If the net negative adjustment is more than the OID on the debt instrument for the tax year, you can claim the difference as an ordinary loss. Download 2012 tax forms However, the amount you can claim as an ordinary loss is limited to the OID on the debt instrument you included in income in prior tax years. Download 2012 tax forms You must carry forward any net negative adjustment that is more than the total OID for the tax year and prior tax years and treat it as a negative adjustment in the next tax year. Download 2012 tax forms Basis adjustments. Download 2012 tax forms   In general, increase your basis in a contingent payment debt instrument by the OID included in income. Download 2012 tax forms Your basis, however, is not affected by any negative or positive adjustments. Download 2012 tax forms Decrease your basis by any noncontingent payment received and the projected contingent payment scheduled to be received. Download 2012 tax forms Treatment of gain or loss on sale or exchange. Download 2012 tax forms   If you sell a contingent payment debt instrument at a gain, your gain is ordinary income (interest income), even if you hold the debt instrument as a capital asset. Download 2012 tax forms If you sell a contingent payment debt instrument at a loss, your loss is an ordinary loss to the extent of your prior OID accruals on the debt instrument. Download 2012 tax forms If the debt instrument is a capital asset, treat any loss that is more than your prior OID accruals as a capital loss. Download 2012 tax forms See Regulations section 1. Download 2012 tax forms 1275-4 for exceptions to these rules. Download 2012 tax forms Premium, acquisition premium, and market discount. Download 2012 tax forms   The rules for accruing premium, acquisition premium, and market discount do not apply to a contingent payment debt instrument. Download 2012 tax forms See Regulations section 1. Download 2012 tax forms 1275-4 to determine how to account for these items. Download 2012 tax forms Inflation-Indexed Debt Instruments This discussion shows how you figure OID on certain inflation-indexed debt instruments issued after January 5, 1997. Download 2012 tax forms An inflation-indexed debt instrument is generally a debt instrument on which the payments are adjusted for inflation and d