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Ez File Tax Return

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Ez File Tax Return

Ez file tax return 6. Ez file tax return   Tax Treaty Benefits Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Purpose of Tax Treaties Common Benefits Competent Authority AssistanceAdditional filing. Ez file tax return Obtaining Copies of Tax Treaties Topics - This chapter discusses: Some common tax treaty benefits, How to get help in certain situations, and How to get copies of tax treaties. Ez file tax return Useful Items - You may want to see: Publication 597 Information on the United States—Canada Income Tax Treaty 901 U. Ez file tax return S. Ez file tax return Tax Treaties See chapter 7 for information about getting these publications. Ez file tax return Purpose of Tax Treaties The United States has tax treaties or conventions with many countries. Ez file tax return See Table 6-1 at the end of this chapter for a list of these countries. Ez file tax return Under these treaties and conventions, citizens and residents of the United States who are subject to taxes imposed by the foreign countries are entitled to certain credits, deductions, exemptions, and reductions in the rate of taxes of those foreign countries. Ez file tax return If a foreign country with which the United States has a treaty imposes a tax on you, you may be entitled to benefits under the treaty. Ez file tax return Treaty benefits generally are available to residents of the United States. Ez file tax return They generally are not available to U. Ez file tax return S. Ez file tax return citizens who do not reside in the United States. Ez file tax return However, certain treaty benefits and safeguards, such as the nondiscrimination provisions, are available to U. Ez file tax return S. Ez file tax return citizens residing in the treaty countries. Ez file tax return U. Ez file tax return S. Ez file tax return citizens residing in a foreign country also may be entitled to benefits under that country's tax treaties with third countries. Ez file tax return Certification of U. Ez file tax return S. Ez file tax return residency. Ez file tax return   Use Form 8802, Application for United States Residency Certification, to request certification of U. Ez file tax return S. Ez file tax return residency for purposes of claiming benefits under a tax treaty. Ez file tax return Certification can be requested for the current and any prior calendar years. Ez file tax return You should examine the specific treaty articles to find if you are entitled to a tax credit, tax exemption, reduced rate of tax, or other treaty benefit or safeguard. Ez file tax return Common Benefits Some common tax treaty benefits are explained below. Ez file tax return The credits, deductions, exemptions, reductions in rate, and other benefits provided by tax treaties are subject to conditions and various restrictions. Ez file tax return Benefits provided by certain treaties are not provided by others. Ez file tax return Personal service income. Ez file tax return If you are a U. Ez file tax return S. Ez file tax return resident who is in a treaty country for a limited number of days in the tax year and you meet certain other requirements, the payment you receive for personal services performed in that country may be exempt from that country's income tax. Ez file tax return Professors and teachers. Ez file tax return If you are a U. Ez file tax return S. Ez file tax return resident, the payment you receive for the first 2 or 3 years that you are teaching or doing research in a treaty country may be exempt from that country's income tax. Ez file tax return Students, trainees, and apprentices. Ez file tax return If you are a U. Ez file tax return S. Ez file tax return resident, amounts you receive from the United States for study, research, or business, professional and technical training may be exempt from a treaty country's income tax. Ez file tax return Some treaties exempt grants, allowances, and awards received from governmental and certain nonprofit organizations. Ez file tax return Also, under certain circumstances, a limited amount of pay received by students, trainees, and apprentices may be exempt from the income tax of many treaty countries. Ez file tax return Pensions and annuities. Ez file tax return If you are a U. Ez file tax return S. Ez file tax return resident, nongovernment pensions and annuities you receive may be exempt from the income tax of treaty countries. Ez file tax return Most treaties contain separate provisions for exempting government pensions and annuities from treaty country income tax, and some treaties provide exemption from the treaty country's income tax for social security payments. Ez file tax return Investment income. Ez file tax return If you are a U. Ez file tax return S. Ez file tax return resident, investment income, such as interest and dividends, that you receive from sources in a treaty country may be exempt from that country's income tax or taxed at a reduced rate. Ez file tax return Several treaties provide exemption for capital gains (other than from sales of real property in most cases) if specified requirements are met. Ez file tax return Tax credit provisions. Ez file tax return If you are a U. Ez file tax return S. Ez file tax return resident who receives income from or owns capital in a foreign country, you may be taxed on that income or capital by both the United States and the treaty country. Ez file tax return Most treaties allow you to take a credit against or deduction from the treaty country's taxes based on the U. Ez file tax return S. Ez file tax return tax on the income. Ez file tax return Nondiscrimination provisions. Ez file tax return Most U. Ez file tax return S. Ez file tax return tax treaties provide that the treaty country cannot discriminate by imposing more burdensome taxes on U. Ez file tax return S. Ez file tax return citizens who are residents of the treaty country than it imposes on its own citizens in the same circumstances. Ez file tax return Saving clauses. Ez file tax return U. Ez file tax return S. Ez file tax return treaties contain saving clauses that provide that the treaties do not affect the U. Ez file tax return S. Ez file tax return taxation of its own citizens and residents. Ez file tax return As a result, U. Ez file tax return S. Ez file tax return citizens and residents generally cannot use the treaty to reduce their U. Ez file tax return S. Ez file tax return tax liability. Ez file tax return However, most treaties provide exceptions to saving clauses that allow certain provisions of the treaty to be claimed by U. Ez file tax return S. Ez file tax return citizens or residents. Ez file tax return It is important that you examine the applicable saving clause to determine if an exception applies. Ez file tax return More information on treaties. Ez file tax return   Publication 901 contains an explanation of treaty provisions that apply to amounts received by teachers, students, workers, and government employees and pensioners who are alien nonresidents or residents of the United States. Ez file tax return Since treaty provisions generally are reciprocal, you usually can substitute “United States” for the name of the treaty country whenever it appears, and vice versa when “U. Ez file tax return S. Ez file tax return ” appears in the treaty exemption discussions in Publication 901. Ez file tax return   Publication 597 contains an explanation of a number of frequently-used provisions of the United States–Canada income tax treaty. Ez file tax return Competent Authority Assistance If you are a U. Ez file tax return S. Ez file tax return citizen or resident alien, you can request assistance from the U. Ez file tax return S. Ez file tax return competent authority if you think that the actions of the United States, a treaty country, or both, cause or will cause a tax situation not intended by the treaty between the two countries. Ez file tax return You should read any treaty articles, including the mutual agreement procedure article, that apply in your situation. Ez file tax return The U. Ez file tax return S. Ez file tax return competent authority cannot consider requests involving countries with which the United States does not have a tax treaty. Ez file tax return Effect of request for assistance. Ez file tax return   If your request provides a basis for competent authority assistance, the U. Ez file tax return S. Ez file tax return competent authority generally will consult with the treaty country competent authority on how to resolve the situation. Ez file tax return How to make your request. Ez file tax return   It is important that you make your request for competent authority consideration as soon as either of the following occurs. Ez file tax return You are denied treaty benefits. Ez file tax return Actions taken by both the United States and the foreign country result in double taxation or will result in taxation not intended by the treaty. Ez file tax return   In addition to making a request for assistance, you should take steps so that any agreement reached by the competent authorities is not barred by administrative, legal, or procedural barriers. Ez file tax return Some of the steps you should consider taking include the following. Ez file tax return Filing a protective claim for credit or refund of U. Ez file tax return S. Ez file tax return taxes. Ez file tax return Delaying the expiration of any period of limitations on the making of a refund or other tax adjustment. Ez file tax return Avoiding the lapse or termination of your right to appeal any tax determination. Ez file tax return Complying with all applicable procedures for invoking competent authority consideration. Ez file tax return Contesting an adjustment or seeking an appropriate correlative adjustment with respect to the U. Ez file tax return S. Ez file tax return or treaty country tax. Ez file tax return Taxpayers can consult with the U. Ez file tax return S. Ez file tax return competent authority to determine whether they need to take protective steps and when any required steps need to be taken. Ez file tax return   The request should contain all essential items of information, including the following items. Ez file tax return A reference to the treaty and the treaty provisions on which the request is based. Ez file tax return The years and amounts involved in both U. Ez file tax return S. Ez file tax return dollars and foreign currency. Ez file tax return A brief description of the issues for which competent authority assistance is requested. Ez file tax return   A complete listing of the information that must be included with the request can be found in Revenue Procedure 2006-54, or its successor. Ez file tax return Revenue Procedure 2006-54 is available at www. Ez file tax return irs. Ez file tax return gov/irb/2006-49_IRB/ar13. Ez file tax return html. Ez file tax return   Also, see Notice 2013-78, which provides proposed updates to the procedures for requesting U. Ez file tax return S. Ez file tax return competent authority assistance under tax treaties. Ez file tax return As noted, Revenue Procedure 2006-54 will be superseded by a revenue procedure to be published in the future. Ez file tax return    Your request for competent authority consideration should be addressed to:   Deputy Commissioner (International) Large Business and International Division Internal Revenue Service 1111 Constitution Avenue, NW Routing M4-365 Washington, DC 20224 Attn: TAIT Additional filing. Ez file tax return   In the case of U. Ez file tax return S. Ez file tax return - initiated adjustments, you also must file a copy of the request with the IRS office where your case is pending. Ez file tax return If the request is filed after the matter has been designated for litigation or while a suit contesting your relevant tax liability is pending in a United States court, a copy of the request, with a separate statement attached identifying the court where the suit is pending and the docket number of the action, also must be filed with the: Office of Associate Chief Counsel (International) Internal Revenue Service 1111 Constitution Avenue, NW Washington, DC 20224 Additional details on the procedures for requesting competent authority assistance are included in Revenue Procedure 2006-54, or its successor. Ez file tax return Obtaining Copies of Tax Treaties Table 6-1 lists those countries with which the United States has income tax treaties. Ez file tax return This table is updated through October 31, 2013. Ez file tax return You can get complete information about treaty provisions from the taxing authority in the country from which you receive income or from the treaty itself. Ez file tax return You can obtain the text of most U. Ez file tax return S. Ez file tax return treaties at IRS. Ez file tax return gov. Ez file tax return You also can request the text of treaties from the Department of Treasury at the following address. Ez file tax return Department of Treasury Office of Business and Public Liaison Rm. Ez file tax return 3411 1500 Pennsylvania Avenue, NW  Washington, DC 20220 If you have questions about a treaty and you are in the United States, Puerto Rico, or the U. Ez file tax return S. Ez file tax return Virgin Islands, you can call the IRS at 1-800-829-1040. Ez file tax return Table 6–1. Ez file tax return List of Tax Treaties (Updated through October 31, 2013) Country Official Text  Symbol1 General  Effective Date Citation Applicable Treasury Explanations  or Treasury Decision (T. Ez file tax return D. Ez file tax return ) Australia TIAS 10773 Dec. Ez file tax return 1, 1983 1986-2 C. Ez file tax return B. Ez file tax return 220 1986-2 C. Ez file tax return B. Ez file tax return 246 Protocol TIAS Jan. Ez file tax return 1, 2004     Austria TIAS Jan. Ez file tax return 1, 1999     Bangladesh TIAS Jan. Ez file tax return 1, 2007     Barbados TIAS 11090 Jan. Ez file tax return 1, 1984 1991-2 C. Ez file tax return B. Ez file tax return 436 1991-2 C. Ez file tax return B. Ez file tax return 466 Protocol TIAS Jan. Ez file tax return 1, 2005     Belgium TIAS Jan. Ez file tax return 1, 2008     Bulgaria TIAS Jan. Ez file tax return 1, 2009     Canada2 TIAS 11087 Jan. Ez file tax return 1, 1985 1986-2 C. Ez file tax return B. Ez file tax return 258 1987-2 C. Ez file tax return B. Ez file tax return 298 Protocol TIAS Jan. Ez file tax return 1, 2009     China, People's Republic of TIAS 12065 Jan. Ez file tax return 1, 1987 1988-1 C. Ez file tax return B. Ez file tax return 414 1988-1 C. Ez file tax return B. Ez file tax return 447 Commonwealth of Independent States3 TIAS 8225 Jan. Ez file tax return 1, 1976 1976-2 C. Ez file tax return B. Ez file tax return 463 1976-2 C. Ez file tax return B. Ez file tax return 475 Cyprus TIAS 10965 Jan. Ez file tax return 1, 1986 1989-2 C. Ez file tax return B. Ez file tax return 280 1989-2 C. Ez file tax return B. Ez file tax return 314 Czech Republic TIAS Jan. Ez file tax return 1, 1993     Denmark TIAS Jan. Ez file tax return 1, 2001     Protocol TIAS Jan. Ez file tax return 1, 2008     Egypt TIAS 10149 Jan. Ez file tax return 1, 1982 1982-1 C. Ez file tax return B. Ez file tax return 219 1982-1 C. Ez file tax return B. Ez file tax return 243 Estonia TIAS Jan. Ez file tax return 1, 2000     Finland TIAS 12101 Jan. Ez file tax return 1, 1991     Protocol TIAS Jan. Ez file tax return 1, 2008     France TIAS Jan. Ez file tax return 1, 1996     Protocol TIAS Jan. Ez file tax return 1, 2009     Germany TIAS Jan. Ez file tax return 1, 1990     Protocol TIAS Jan. Ez file tax return 1, 2008     Greece TIAS 2902 Jan. Ez file tax return 1, 1953 1958-2 C. Ez file tax return B. Ez file tax return 1054 T. Ez file tax return D. Ez file tax return 6109, 1954-2 C. Ez file tax return B. Ez file tax return 638 Hungary TIAS 9560 Jan. Ez file tax return 1, 1980 1980-1 C. Ez file tax return B. Ez file tax return 333 1980-1 C. Ez file tax return B. Ez file tax return 354 Iceland TIAS 8151 Jan. Ez file tax return 1, 2009     India TIAS Jan. Ez file tax return 1, 1991     Indonesia TIAS 11593 Jan. Ez file tax return 1, 1990     Ireland TIAS Jan. Ez file tax return 1, 1998     Israel TIAS Jan. Ez file tax return 1, 1995     Italy TIAS Jan. Ez file tax return 1, 2010     Jamaica TIAS 10207 Jan. Ez file tax return 1, 1982 1982-1 C. Ez file tax return B. Ez file tax return 257 1982-1 C. Ez file tax return B. Ez file tax return 291 Japan TIAS Jan. Ez file tax return 1, 2005     Kazakhstan TIAS Jan. Ez file tax return 1, 1996     Korea, South TIAS 9506 Jan. Ez file tax return 1, 1980 1979-2 C. Ez file tax return B. Ez file tax return 435 1979-2 C. Ez file tax return B. Ez file tax return 458 Latvia TIAS Jan. Ez file tax return 1, 2000     Lithuania TIAS Jan. Ez file tax return 1, 2000     Luxembourg TIAS Jan. Ez file tax return 1, 2001     Malta TIAS Jan. Ez file tax return 1, 2011     Mexico TIAS Jan. Ez file tax return 1,1994     Protocol TIAS Jan. Ez file tax return 1, 2004               Table 6–1 (continued). Ez file tax return Country Official Text  Symbol1 General  Effective Date Citation Applicable Treasury Explanations  or Treasury Decision (T. Ez file tax return D. Ez file tax return ) Morocco TIAS 10195 Jan. Ez file tax return 1, 1981 1982-2 C. Ez file tax return B. Ez file tax return 405 1982-2 C. Ez file tax return B. Ez file tax return 427 Netherlands TIAS Jan. Ez file tax return 1, 1994     Protocol TIAS Jan. Ez file tax return 1, 2005     New Zealand TIAS 10772 Nov. Ez file tax return 2, 1983 1990-2 C. Ez file tax return B. Ez file tax return 274 1990-2 C. Ez file tax return B. Ez file tax return 303 Protocol TIAS Jan. Ez file tax return 1, 2011     Norway TIAS 7474 Jan. Ez file tax return 1, 1971 1973-1 C. Ez file tax return B. Ez file tax return 669 1973-1 C. Ez file tax return B. Ez file tax return 693 Protocol TIAS 10205 Jan. Ez file tax return 1, 1982 1982-2 C. Ez file tax return B. Ez file tax return 440 1982-2 C. Ez file tax return B. Ez file tax return 454 Pakistan TIAS 4232 Jan. Ez file tax return 1, 1959 1960-2 C. Ez file tax return B. Ez file tax return 646 T. Ez file tax return D. Ez file tax return 6431, 1960-1 C. Ez file tax return B. Ez file tax return 755 Philippines TIAS 10417 Jan. Ez file tax return 1, 1983 1984-2 C. Ez file tax return B. Ez file tax return 384 1984-2 C. Ez file tax return B. Ez file tax return 412 Poland TIAS 8486 Jan. Ez file tax return 1, 1974 1977-1 C. Ez file tax return B. Ez file tax return 416 1977-1 C. Ez file tax return B. Ez file tax return 427 Portugal TIAS Jan. Ez file tax return 1, 1996     Romania TIAS 8228 Jan. Ez file tax return 1, 1974 1976-2 C. Ez file tax return B. Ez file tax return 492 1976-2 C. Ez file tax return B. Ez file tax return 504 Russia TIAS Jan. Ez file tax return 1, 1994     Slovak Republic TIAS Jan. Ez file tax return 1, 1993     Slovenia TIAS Jan. Ez file tax return 1, 2002     South Africa TIAS Jan. Ez file tax return 1, 1998     Spain TIAS Jan. Ez file tax return 1, 1991     Sri Lanka TIAS Jan. Ez file tax return 1, 2004     Sweden TIAS Jan. Ez file tax return 1, 1996     Protocol TIAS Jan. Ez file tax return 1, 2007     Switzerland TIAS Jan. Ez file tax return 1, 1998     Thailand TIAS Jan. Ez file tax return 1, 1998     Trinidad and Tobago TIAS 7047 Jan. Ez file tax return 1, 1970 1971-2 C. Ez file tax return B. Ez file tax return 479   Tunisia TIAS Jan. Ez file tax return 1, 1990     Turkey TIAS Jan. Ez file tax return 1, 1998     Ukraine TIAS Jan. Ez file tax return 1, 2001     United Kingdom TIAS Jan. Ez file tax return 1, 2004     Venezuela TIAS Jan. Ez file tax return 1, 2000      1(TIAS) — Treaties and Other International Act Series. Ez file tax return  2Information on the treaty can be found in Publication 597, Information on the United States—Canada Income Tax Treaty. Ez file tax return 3The U. Ez file tax return S. Ez file tax return -U. Ez file tax return S. Ez file tax return S. Ez file tax return R. Ez file tax return income tax treaty applies to the countries of Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, and Uzbekistan. 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Ez file tax return 4. Ez file tax return   Detailed Examples Table of Contents These examples use actual forms to help you prepare your income tax return. Ez file tax return However, the information shown on the filled-in forms is not from any actual person or scenario. Ez file tax return Example 1—Mortgage loan modification. Ez file tax return    In 2007, Nancy Oak bought a main home for $435,000. Ez file tax return Nancy took out a $420,000 mortgage loan to buy the home and made a down payment of $15,000. Ez file tax return The loan was secured by the home. Ez file tax return The mortgage loan was a recourse debt, meaning that Nancy was personally liable for the debt. Ez file tax return In 2008, Nancy took out a second mortgage loan (also a recourse debt) in the amount of $30,000 that was used to substantially improve her kitchen. Ez file tax return    In 2011, when the outstanding principal of the first and second mortgage loans was $440,000, Nancy refinanced the two recourse loans into one recourse loan in the amount of $475,000. Ez file tax return The FMV of Nancy's home at the time of the refinancing was $500,000. Ez file tax return Nancy used the additional $35,000 debt ($475,000 new mortgage loan minus $440,000 outstanding principal of Nancy's first and second mortgage loans immediately before the refinancing) to pay off personal credit cards and to pay college tuition for her son. Ez file tax return After the refinancing, Nancy has qualified principal residence indebtedness in the amount of $440,000 because the refinanced debt is qualified principal residence indebtedness only to the extent the amount of debt is not more than the old mortgage principal just before the refinancing. Ez file tax return   In 2013, Nancy was unable to make her mortgage loan payments. Ez file tax return On August 31, 2013, when the outstanding balance of her refinanced mortgage loan was still $475,000 and the FMV of the property was $425,000, Nancy's bank agreed to a loan modification (a “workout”) that resulted in a $40,000 reduction in the principal balance of her loan. Ez file tax return Nancy was neither insolvent nor in bankruptcy at the time of the loan modification. Ez file tax return   Nancy received a 2013 Form 1099-C from her bank in January 2014 showing canceled debt of $40,000 in box 2. Ez file tax return Identifiable event code "F" appears in box 6. Ez file tax return This box shows the reason the creditor has filed Form 1099-C. Ez file tax return To determine if she must include the canceled debt in her income, Nancy must determine whether she meets any of the exceptions or exclusions that apply to canceled debts. Ez file tax return Nancy determines that the only exception or exclusion that applies to her is the qualified principal residence indebtedness exclusion. Ez file tax return   Next, Nancy determines the amount, if any, of the $40,000 of canceled debt that was qualified principal residence indebtedness. Ez file tax return Although Nancy has $440,000 of qualified principal residence indebtedness, part of her loan ($35,000) was not qualified principal residence indebtedness because it was used to pay off personal credit cards and college tuition for her son. Ez file tax return Applying the ordering rule, the qualified principal residence indebtedness exclusion applies only to the extent the amount canceled is more than the amount of the debt (immediately before the cancellation) that is not qualified principal residence indebtedness. Ez file tax return Thus, Nancy can exclude only $5,000 of the canceled debt as qualified principal residence indebtedness ($40,000 amount canceled minus $35,000 nonqualified debt). Ez file tax return   Because Nancy does not meet any other exception or exclusion, she checks only the box on line 1e of Form 982 and enters $5,000 on line 2. Ez file tax return Nancy must also enter $5,000 on line 10b and reduce the basis of her main home by the $5,000 she excluded from income, bringing the adjusted basis in her home to $460,000 ($435,000 purchase price plus $30,000 substantial improvement minus $5,000). Ez file tax return Nancy must also include the $35,000 nonqualified debt portion in income on Form 1040, line 21. Ez file tax return You can see Nancy's Form 1099-C and a portion of her Form 1040 below. Ez file tax return Nancy's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. Ez file tax return Please click the link to view the image. Ez file tax return Form 1099-C, Cancellation of Debt Nancy's 2013 Form 1040 This image is too large to be displayed in the current screen. Ez file tax return Please click the link to view the image. Ez file tax return Form 1040, U. Ez file tax return S. Ez file tax return Individual Income Tax Nancy's Form 982 This image is too large to be displayed in the current screen. Ez file tax return Please click the link to view the image. Ez file tax return Form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)              Example 2—Mortgage loan foreclosure. Ez file tax return    In 2005, John and Mary Elm bought a main home for $335,000. Ez file tax return John and Mary took out a $320,000 mortgage loan to buy the home and made a down payment of $15,000. Ez file tax return The loan was secured by the home and is a recourse debt, meaning John and Mary are personally liable for the debt. Ez file tax return   John and Mary became unable to make their mortgage loan payments and on March 1, 2013, when the outstanding balance of the mortgage loan was $315,000 and the FMV of the property was $290,000, the bank foreclosed on the property and simultaneously canceled the remaining mortgage debt. Ez file tax return Immediately before the foreclosure, John and Mary's only other assets and liabilities were a checking account with a balance of $6,000, retirement savings of $13,000, and credit card debt of $5,500. Ez file tax return   John and Mary received a 2013 Form 1099-C showing canceled debt of $25,000 in box 2 ($315,000 outstanding balance minus $290,000 FMV) and an FMV of $290,000 in box 7. Ez file tax return Identifiable event code "D" appears in box 6. Ez file tax return This box shows the reason the creditor has filed Form 1099-C. Ez file tax return In order to determine if John and Mary must include the canceled debt in income, they must first determine whether they meet any of the exceptions or exclusions that apply to canceled debts. Ez file tax return In this example, John and Mary meet both the insolvency and qualified principal residence indebtedness exclusions. Ez file tax return Their sample Form 1099-C is shown on this page. Ez file tax return   John and Mary complete the insolvency worksheet and determine that they were insolvent immediately before the cancellation because at that time their liabilities exceeded the FMV of their assets by $11,500 ($320,500 total liabilities minus $309,000 FMV of total assets). Ez file tax return However, because the entire debt canceled is qualified principal residence indebtedness, the insolvency exclusion only applies if John and Mary elect to apply the insolvency exclusion instead of the qualified principal residence exclusion. Ez file tax return   John and Mary do not elect to apply the insolvency exclusion instead of the qualified principal residence exclusion because under the insolvency exclusion their exclusion would be limited to the amount by which they were insolvent ($11,500). Ez file tax return Instead, John and Mary check box 1e of Form 982 to exclude the canceled debt under the qualified principal residence exclusion. Ez file tax return Under the qualified principal residence exclusion, the amount that John and Mary can exclude is not limited because their qualified principal residence indebtedness is not more than $2 million and no portion of the loan was nonqualified debt. Ez file tax return As a result, John and Mary enter the full $25,000 of canceled debt on line 2 of Form 982. Ez file tax return Because John and Mary no longer own the home due to the foreclosure, John and Mary have no remaining basis in the home at the time of the debt cancellation. Ez file tax return Thus, John and Mary leave line 10b of Form 982 blank. Ez file tax return   John and Mary must also determine whether they have a gain or loss from the foreclosure. Ez file tax return John and Mary complete Table 1-1 (shown below) and find that they have a $45,000 loss from the foreclosure. Ez file tax return Because this loss relates to their home, it is a nondeductible loss. Ez file tax return   John and Mary's Form 1099-C, Insolvency Worksheet, and Form 982 follow. Ez file tax return John and Mary's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. Ez file tax return Please click the link to view the image. Ez file tax return Form 1099-C, Cancellation of Debt Table 1-1. Ez file tax return Worksheet for Foreclosures and Repossessions (for John and Mary Elm) Part 1. Ez file tax return Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). Ez file tax return Otherwise, go to Part 2. Ez file tax return 1. Ez file tax return Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property $315,000. Ez file tax return 00 2. Ez file tax return Enter the fair market value of the transferred property $290,000. Ez file tax return 00 3. Ez file tax return Ordinary income from the cancellation of debt upon foreclosure or repossession. Ez file tax return * Subtract line 2 from line 1. Ez file tax return If less than zero, enter zero. Ez file tax return Next, go to Part 2 $ 25,000. Ez file tax return 00 Part 2. Ez file tax return Gain or loss from foreclosure or repossession. Ez file tax return   4. Ez file tax return Enter the smaller of line 1 or line 2. Ez file tax return If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property $290,000. Ez file tax return 00 5. Ez file tax return Enter any proceeds you received from the foreclosure sale   6. Ez file tax return Add line 4 and line 5 $290,000. Ez file tax return 00 7. Ez file tax return Enter the adjusted basis of the transferred property $335,000. Ez file tax return 00 8. Ez file tax return Gain or loss from foreclosure or repossession. Ez file tax return Subtract line 7 from line 6 ($ 45,000. Ez file tax return 00) * The income may not be taxable. Ez file tax return See chapter 1 for more details. Ez file tax return Insolvency Worksheet—John and Mary Elm Date debt was canceled (mm/dd/yy) 03/01/13 Part I. Ez file tax return Total liabilities immediately before the cancellation (do not include the same liability in more than one category) Liabilities (debts) Amount Owed Immediately Before the Cancellation 1. Ez file tax return Credit card debt $ 5,500 2. Ez file tax return Mortgage(s) on real property (including first and second mortgages and home equity loans) (mortgage(s) can be on personal residence, any additional residence, or property held for investment or used in a trade or business) $ 315,000 3. Ez file tax return Car and other vehicle loans $ 4. Ez file tax return Medical bills owed $ 5. Ez file tax return Student loans $ 6. Ez file tax return Accrued or past-due mortgage interest $ 7. Ez file tax return Accrued or past-due real estate taxes $ 8. Ez file tax return Accrued or past-due utilities (water, gas, electric) $ 9. Ez file tax return Accrued or past-due child care costs $ 10. Ez file tax return Federal or state income taxes remaining due (for prior tax years) $ 11. Ez file tax return Judgments $ 12. Ez file tax return Business debts (including those owed as a sole proprietor or partner) $ 13. Ez file tax return Margin debt on stocks and other debt to purchase or secured by investment assets other than real property $ 14. Ez file tax return Other liabilities (debts) not included above $ 15. Ez file tax return Total liabilities immediately before the cancellation. Ez file tax return Add lines 1 through 14. Ez file tax return $ 320,500 Part II. Ez file tax return Fair market value (FMV) of assets owned immediately before the cancellation (do not include the FMV of the same asset in more than one category) Assets FMV Immediately Before  the Cancellation 16. Ez file tax return Cash and bank account balances $ 6,000 17. Ez file tax return Real property, including the value of land (can be main home, any additional home, or property held for investment or used in a trade or business) $ 290,000 18. Ez file tax return Cars and other vehicles $ 19. Ez file tax return Computers $ 20. Ez file tax return Household goods and furnishings (for example, appliances, electronics, furniture, etc. Ez file tax return ) $ 21. Ez file tax return Tools $ 22. Ez file tax return Jewelry $ 23. Ez file tax return Clothing $ 24. Ez file tax return Books $ 25. Ez file tax return Stocks and bonds $ 26. Ez file tax return Investments in coins, stamps, paintings, or other collectibles $ 27. Ez file tax return Firearms, sports, photographic, and other hobby equipment $ 28. Ez file tax return Interest in retirement accounts (IRA accounts, 401(k) accounts, and other retirement accounts) $ 13,000 29. Ez file tax return Interest in a pension plan $ 30. Ez file tax return Interest in education accounts $ 31. Ez file tax return Cash value of life insurance $ 32. Ez file tax return Security deposits with landlords, utilities, and others $ 33. Ez file tax return Interests in partnerships $ 34. Ez file tax return Value of investment in a business $ 35. Ez file tax return Other investments (for example, annuity contracts, guaranteed investment contracts, mutual funds, commodity accounts, interests in hedge funds, and options) $ 36. Ez file tax return Other assets not included above $ 37. Ez file tax return FMV of total assets immediately before the cancellation. Ez file tax return Add lines 16 through 36. Ez file tax return $ 309,000 Part III. Ez file tax return Insolvency 38. Ez file tax return Amount of Insolvency. Ez file tax return Subtract line 37 from line 15. Ez file tax return If zero or less, you are not insolvent. Ez file tax return $ 11,500 John and Mary's Form 982 This image is too large to be displayed in the current screen. Ez file tax return Please click the link to view the image. Ez file tax return Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)          Example 3—Mortgage loan foreclosure with debt exceeding $2 million limit. Ez file tax return    In 2011, Kathy and Frank Willow got married and entered into a contract with Hive Construction Corporation to build a house for $3,000,000 to be used as their main home. Ez file tax return Kathy and Frank made a $400,000 down payment and took out a $2,600,000 mortgage to finance the remaining cost of the house. Ez file tax return Kathy and Frank are personally liable for the mortgage loan, which is secured by the home. Ez file tax return   In November 2013, when the outstanding principal balance on the mortgage loan was $2,500,000, the FMV of the property fell to $1,750,000 and Kathy and Frank abandoned the property by permanently moving out. Ez file tax return The lender foreclosed on the property and, on December 5, 2013, sold the property to another buyer for $1,750,000. Ez file tax return On December 26, 2013, the lender canceled the remaining debt. Ez file tax return Kathy and Frank have no tax attributes other than basis of personal-use property. Ez file tax return   The lender issued a 2013 Form 1099-C to Kathy and Frank showing canceled debt of $750,000 in box 2 (the remaining balance on the $2,500,000 mortgage debt after application of the foreclosure sale proceeds) and $1,750,000 in box 7 (FMV of the property). Ez file tax return Identifiable event code "D" appears in box 6. Ez file tax return This box shows the reason the creditor has filed Form 1099-C. Ez file tax return Although Kathy and Frank abandoned the property, the lender did not need to also file a Form 1099-A because the lender canceled the debt in connection with the foreclosure in the same calendar year. Ez file tax return Kathy and Frank are filing a joint return for 2013. Ez file tax return   Because the foreclosure occurred prior to the debt cancellation, Kathy and Frank first calculate their gain or loss from the foreclosure using Table 1-1. Ez file tax return Because Kathy and Frank remained personally liable for the $750,000 debt remaining after the foreclosure ($2,500,000 outstanding debt immediately before the foreclosure minus $1,750,000 satisfied through the sale of the home), Kathy and Frank enter $1,750,000 on line 1 of Table 1-1 ($2,500,000 outstanding debt immediately before the foreclosure minus the $750,000 for which they remained liable). Ez file tax return Completing Table 1-1, Kathy and Frank find that they have no ordinary income from the cancellation of debt upon foreclosure and that they have a $1,250,000 loss. Ez file tax return Because this loss relates to their home, it is a nondeductible loss. Ez file tax return   Because the lender later canceled the remaining amount of the debt, Kathy and Frank must also determine whether that canceled debt is taxable. Ez file tax return Immediately before the cancellation, Kathy and Frank had $15,000 in a savings account, household furnishings with an FMV of $17,000, a car with an FMV of $10,000, and $18,000 in credit card debt. Ez file tax return Kathy and Frank also had the $750,000 remaining balance on the mortgage loan at that time. Ez file tax return The household furnishings originally cost $30,000. Ez file tax return The car had been fully paid off (so there was no related outstanding debt) and was originally purchased for $16,000. Ez file tax return Kathy and Frank had no adjustments to the cost basis of the car. Ez file tax return Kathy and Frank had no other assets or liabilities at the time of the cancellation. Ez file tax return Kathy and Frank complete the insolvency worksheet to calculate that they were insolvent to the extent of $726,000 immediately before the cancellation ($768,000 of total liabilities minus $42,000 FMV of total assets). Ez file tax return   At the beginning of 2014, Kathy and Frank had $9,000 in their savings account and $15,000 in credit card debt. Ez file tax return Kathy and Frank also owned the same car at that time (still with an FMV of $10,000 and basis of $16,000) and the same household furnishings (still with an FMV of $17,000 and a basis of $30,000). Ez file tax return Kathy and Frank had no other assets or liabilities at that time. Ez file tax return Kathy and Frank no longer own the home because the lender foreclosed on it in 2013. Ez file tax return   Because the canceled debt is qualified principal residence indebtedness, the insolvency exclusion does not apply unless Kathy and Frank elect to apply the insolvency exclusion instead of the qualified principal residence indebtedness exclusion. Ez file tax return The maximum amount that Kathy and Frank can treat as qualified principal residence indebtedness is $2,000,000. Ez file tax return The remaining $500,000 ($2,500,000 outstanding mortgage loan minus $2,000,000 limit on qualified principal residence indebtedness) is not qualified principal residence indebtedness. Ez file tax return Because only a part of the loan is qualified principal residence indebtedness, Kathy and Frank must apply the ordering rule to the canceled debt. Ez file tax return Under the ordering rule, the qualified principal residence indebtedness exclusion applies only to the extent that the amount canceled ($750,000) exceeds the amount of the loan (immediately before the cancellation) that is not qualified principal residence indebtedness ($500,000). Ez file tax return This means that Kathy and Frank can only exclude $250,000 ($750,000 amount canceled minus $500,000 nonqualified debt) under the qualified principal residence indebtedness exclusion. Ez file tax return   Kathy and Frank do not elect to have the insolvency exclusion apply instead of the qualified principal residence exclusion. Ez file tax return Nonetheless, they can still apply the insolvency exclusion to the $500,000 nonqualified debt because it is not qualified principal residence indebtedness. Ez file tax return Kathy and Frank can exclude the remaining $500,000 canceled debt under the insolvency exclusion because they were insolvent immediately before the cancellation to the extent of $726,000. Ez file tax return Thus, Kathy and Frank check the boxes on lines 1b and 1e of Form 982 and enter $750,000 on line 2 ($250,000 excluded under the qualified principal residence indebtedness exclusion plus $500,000 excluded under the insolvency exclusion). Ez file tax return   Next, Kathy and Frank reduce their tax attributes using Part II of Form 982. Ez file tax return Because Kathy and Frank no longer own the home due to the foreclosure, Kathy and Frank have no remaining basis in the home at the time of the debt cancellation. Ez file tax return Thus, Kathy and Frank leave line 10b of Form 982 blank. Ez file tax return However, Kathy and Frank are also excluding nonqualified debt under the insolvency exclusion. Ez file tax return As a result, Kathy and Frank must reduce the basis of property they own based on the amount of canceled debt they are excluding from income under the insolvency rules. Ez file tax return Because Kathy and Frank have no tax attributes other than basis of personal-use property to reduce, Kathy and Frank figure the amount they must include on line 10a of Form 982 by taking the smallest of: The $46,000 bases of their personal-use property held at the beginning of 2014 ($16,000 basis in the car plus $30,000 basis in household furnishings), The $500,000 of the nonbusiness debt (other than qualified principal residence indebtedness) that they are excluding from income on line 2 of Form 982, or The $43,000 excess of the total bases of the property and the amount of money they held immediately after the cancellation over their total liabilities immediately after the cancellation ($15,000 in savings account plus $30,000 basis in household furnishings plus $16,000 adjusted basis in car minus $18,000 credit card debt). Ez file tax return Kathy and Frank enter $43,000 on Form 982, line 10a and reduce their bases in the car and the household furnishings in proportion to the total adjusted bases in all their property. Ez file tax return Kathy and Frank reduce the basis in the car by $14,956. Ez file tax return 52 ($43,000 x $16,000/$46,000). Ez file tax return And they reduce the basis in the household furnishings by $28,043. Ez file tax return 48 ($43,000 x $30,000/$46,000). Ez file tax return   Following are Kathy and Frank's sample forms and worksheets. Ez file tax return Frank and Kathy's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. Ez file tax return Please click the link to view the image. Ez file tax return Form 1099-C, Cancellation of Debt Table 1-1. Ez file tax return Worksheet for Foreclosures and Repossessions (for Frank and Kathy Willow) Part 1. Ez file tax return Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). Ez file tax return Otherwise, go to Part 2. Ez file tax return 1. Ez file tax return Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property $1,750,000. Ez file tax return 00 2. Ez file tax return Enter the fair market value of the transferred property $1,750,000. Ez file tax return 00 3. Ez file tax return Ordinary income from the cancellation of debt upon foreclosure or repossession. Ez file tax return * Subtract line 2 from line 1. Ez file tax return If less than zero, enter zero. Ez file tax return Next, go to Part 2 $0. Ez file tax return 00 Part 2. Ez file tax return Gain or loss from foreclosure or repossession. Ez file tax return   4. Ez file tax return Enter the smaller of line 1 or line 2. Ez file tax return If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property. Ez file tax return $1,750,000. Ez file tax return 00 5. Ez file tax return Enter any proceeds you received from the foreclosure sale   6. Ez file tax return Add line 4 and line 5 $1,750,000. Ez file tax return 00 7. Ez file tax return Enter the adjusted basis of the transferred property $3,000,000. Ez file tax return 00 8. Ez file tax return Gain or loss from foreclosure or repossession. Ez file tax return Subtract line 7 from line 6 ($1,250,000. Ez file tax return 00) * The income may not be taxable. Ez file tax return See chapter 1 for more details. Ez file tax return    Insolvency Worksheet—Frank and Kathy Willow Date debt was canceled (mm/dd/yy) 12/26/13 Part I. Ez file tax return Total liabilities immediately before the cancellation (do not include the same liability in more than one category) Liabilities (debts) Amount Owed Immediately Before the Cancellation 1. Ez file tax return Credit card debt $ 18,000 2. Ez file tax return Mortgage(s) on real property (including first and second mortgages and home equity loans) (mortgage(s) can be on personal residence, any additional residence, or property held for investment or used in a trade or business) $ 750,000 3. Ez file tax return Car and other vehicle loans $ 4. Ez file tax return Medical bills owed $ 5. Ez file tax return Student loans $ 6. Ez file tax return Accrued or past-due mortgage interest $ 7. Ez file tax return Accrued or past-due real estate taxes $ 8. Ez file tax return Accrued or past-due utilities (water, gas, electric) $ 9. Ez file tax return Accrued or past-due child care costs $ 10. Ez file tax return Federal or state income taxes remaining due (for prior tax years) $ 11. Ez file tax return Judgments $ 12. Ez file tax return Business debts (including those owed as a sole proprietor or partner) $ 13. Ez file tax return Margin debt on stocks and other debt to purchase or secured by investment assets other than real property $ 14. Ez file tax return Other liabilities (debts) not included above $ 15. Ez file tax return Total liabilities immediately before the cancellation. Ez file tax return Add lines 1 through 14. Ez file tax return $ 768,000 Part II. Ez file tax return Fair market value (FMV) of assets owned immediately before the cancellation (do not include the FMV of the same asset in more than one category) Assets FMV Immediately Before  the Cancellation 16. Ez file tax return Cash and bank account balances $ 15,000 17. Ez file tax return Real property, including the value of land (can be main home, any additional home, or property held for investment or used in a trade or business) $ 18. Ez file tax return Cars and other vehicles $ 10,000 19. Ez file tax return Computers $ 20. Ez file tax return Household goods and furnishings (for example, appliances, electronics, furniture, etc. Ez file tax return ) $ 17,000 21. Ez file tax return Tools $ 22. Ez file tax return Jewelry $ 23. Ez file tax return Clothing $ 24. Ez file tax return Books $ 25. Ez file tax return Stocks and bonds $ 26. Ez file tax return Investments in coins, stamps, paintings, or other collectibles $ 27. Ez file tax return Firearms, sports, photographic, and other hobby equipment $ 28. Ez file tax return Interest in retirement accounts (IRA accounts, 401(k) accounts, and other retirement accounts) $ 29. Ez file tax return Interest in a pension plan $ 30. Ez file tax return Interest in education accounts $ 31. Ez file tax return Cash value of life insurance $ 32. Ez file tax return Security deposits with landlords, utilities, and others $ 33. Ez file tax return Interests in partnerships $ 34. Ez file tax return Value of investment in a business $ 35. Ez file tax return Other investments (for example, annuity contracts, guaranteed investment contracts, mutual funds, commodity accounts, interests in hedge funds, and options) $ 36. Ez file tax return Other assets not included above $ 37. Ez file tax return FMV of total assets immediately before the cancellation. Ez file tax return Add lines 16 through 36. Ez file tax return $ 42,000 Part III. Ez file tax return Insolvency 38. Ez file tax return Amount of Insolvency. Ez file tax return Subtract line 37 from line 15. Ez file tax return If zero or less, you are not insolvent. Ez file tax return $ 726,000    Frank and Kathy's Form 982 This image is too large to be displayed in the current screen. Ez file tax return Please click the link to view the image. Ez file tax return Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) Prev  Up  Next   Home   More Online Publications