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File State Taxes Only Free

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

File state taxes only free 8. File state taxes only free   Qualified Tuition Program (QTP) Table of Contents Introduction What Is a Qualified Tuition ProgramDesignated beneficiary. File state taxes only free Half-time student. File state taxes only free How Much Can You Contribute Are Distributions TaxableFiguring the Taxable Portion of a Distribution Additional Tax on Taxable Distributions Rollovers and Other TransfersRollovers Changing the Designated Beneficiary Introduction Qualified tuition programs (QTPs) are also called “529 plans. File state taxes only free ” States may establish and maintain programs that allow you to either prepay or contribute to an account for paying a student's qualified education expenses at a postsecondary institution. File state taxes only free Eligible educational institutions may establish and maintain programs that allow you to prepay a student's qualified education expenses. File state taxes only free If you prepay tuition, the student (designated beneficiary) will be entitled to a waiver or a payment of qualified education expenses. File state taxes only free You cannot deduct either payments or contributions to a QTP. File state taxes only free For information on a specific QTP, you will need to contact the state agency or eligible educational institution that established and maintains it. File state taxes only free What is the tax benefit of a QTP. File state taxes only free   No tax is due on a distribution from a QTP unless the amount distributed is greater than the beneficiary's adjusted qualified education expenses. File state taxes only free See Are Distributions Taxable , later, for more information. File state taxes only free    Even if a QTP is used to finance a student's education, the student or the student's parents still may be eligible to claim the American opportunity credit or the lifetime learning credit. File state taxes only free See Coordination With American Opportunity and Lifetime Learning Credits, later. File state taxes only free What Is a Qualified Tuition Program A qualified tuition program is a program set up to allow you to either prepay, or contribute to an account established for paying, a student's qualified education expenses at an eligible educational institution. File state taxes only free QTPs can be established and maintained by states (or agencies or instrumentalities of a state) and eligible educational institutions. File state taxes only free The program must meet certain requirements. File state taxes only free Your state government or the eligible educational institution in which you are interested can tell you whether or not they participate in a QTP. File state taxes only free Qualified education expenses. File state taxes only free   These are expenses related to enrollment or attendance at an Eligible educational institution (defined later). File state taxes only free As shown in the following list, to be qualified, some of the expenses must be required by the institution and some must be incurred by students who are enrolled at least half-time. File state taxes only free See Half-time student , later. File state taxes only free The following expenses must be required for enrollment or attendance of a Designated beneficiary (defined later) at an eligible educational institution. File state taxes only free Tuition and fees. File state taxes only free Books, supplies, and equipment. File state taxes only free Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible educational institution. File state taxes only free Expenses for room and board must be incurred by students who are enrolled at least half-time. File state taxes only free The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts. File state taxes only free The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. File state taxes only free The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. File state taxes only free You will need to contact the eligible educational institution for qualified room and board costs. File state taxes only free    For tax years after 2010, the purchase of computer technology or equipment is only a qualified education expense if the computer technology or equipment is required for enrollment or attendance at an eligible institution. File state taxes only free Designated beneficiary. File state taxes only free   The designated beneficiary is generally the student (or future student) for whom the QTP is intended to provide benefits. File state taxes only free The designated beneficiary can be changed after participation in the QTP begins. File state taxes only free If a state or local government or certain tax-exempt organizations purchase an interest in a QTP as part of a scholarship program, the designated beneficiary is the person who receives the interest as a scholarship. File state taxes only free Half-time student. File state taxes only free   A student is enrolled “at least half-time” if he or she is enrolled for at least half the full-time academic workload for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. File state taxes only free Eligible educational institution. File state taxes only free   For purposes of a QTP, this is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. File state taxes only free S. File state taxes only free Department of Education. File state taxes only free It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. File state taxes only free The educational institution should be able to tell you if it is an eligible educational institution. File state taxes only free   Certain educational institutions located outside the United States also participate in the U. File state taxes only free S. File state taxes only free Department of Education's Federal Student Aid (FSA) programs. File state taxes only free   How Much Can You Contribute Contributions to a QTP on behalf of any beneficiary cannot be more than the amount necessary to provide for the qualified education expenses of the beneficiary. File state taxes only free There are no income restrictions on the individual contributors. File state taxes only free You can contribute to both a QTP and a Coverdell ESA in the same year for the same designated beneficiary. File state taxes only free   Are Distributions Taxable The part of a distribution representing the amount paid or contributed to a QTP does not have to be included in income. File state taxes only free This is a return of the investment in the plan. File state taxes only free The designated beneficiary generally does not have to include in income any earnings distributed from a QTP if the total distribution is less than or equal to adjusted qualified education expenses (defined under Figuring the Taxable Portion of a Distribution , later). File state taxes only free Earnings and return of investment. File state taxes only free    You will receive a Form 1099-Q, from each of the programs from which you received a QTP distribution in 2013. File state taxes only free The amount of your gross distribution (box 1) shown on each form will be divided between your earnings (box 2) and your basis, or return of investment (box 3). File state taxes only free Form 1099-Q should be sent to you by January 31, 2014. File state taxes only free Figuring the Taxable Portion of a Distribution To determine if total distributions for the year are more or less than the amount of qualified education expenses, you must compare the total of all QTP distributions for the tax year to the adjusted qualified education expenses. File state taxes only free Adjusted qualified education expenses. File state taxes only free   This amount is the total qualified education expenses reduced by any tax-free educational assistance. File state taxes only free Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. File state taxes only free Taxable earnings. File state taxes only free   Use the following steps to figure the taxable part. File state taxes only free Multiply the total distributed earnings shown in box 2 of Form 1099-Q by a fraction. File state taxes only free The numerator is the adjusted qualified education expenses paid during the year and the denominator is the total amount distributed during the year. File state taxes only free Subtract the amount figured in (1) from the total distributed earnings. File state taxes only free The result is the amount the beneficiary must include in income. File state taxes only free Report it on Form 1040 or Form 1040NR, line 21. File state taxes only free Example 1. File state taxes only free In 2007, Sara Clarke's parents opened a savings account for her with a QTP maintained by their state government. File state taxes only free Over the years they contributed $18,000 to the account. File state taxes only free The total balance in the account was $27,000 on the date the distribution was made. File state taxes only free In the summer of 2013, Sara enrolled in college and had $8,300 of qualified education expenses for the rest of the year. File state taxes only free She paid her college expenses from the following sources. File state taxes only free   Gift from parents $1,600     Partial tuition scholarship (tax-free) 3,100     QTP distribution 5,300           Before Sara can determine the taxable part of her QTP distribution, she must reduce her total qualified education expenses by any tax-free educational assistance. File state taxes only free   Total qualified education expenses $8,300     Minus: Tax-free educational assistance −3,100     Equals: Adjusted qualified  education expenses (AQEE) $5,200   Since the remaining expenses ($5,200) are less than the QTP distribution, part of the earnings will be taxable. File state taxes only free Sara's Form 1099-Q shows that $950 of the QTP distribution is earnings. File state taxes only free Sara figures the taxable part of the distributed earnings as follows. File state taxes only free   1. File state taxes only free $950 (earnings) × $5,200 AQEE  $5,300 distribution           =$932 (tax-free earnings)     2. File state taxes only free $950 (earnings)−$932 (tax-free earnings)     =$18 (taxable earnings)  Sara must include $18 in income (Form 1040, line 21) as distributed QTP earnings not used for adjusted qualified education expenses. File state taxes only free Coordination With American Opportunity and Lifetime Learning Credits An American opportunity or lifetime learning credit (education credit) can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses are not used for both benefits. File state taxes only free This means that after the beneficiary reduces qualified education expenses by tax-free educational assistance, he or she must further reduce them by the expenses taken into account in determining the credit. File state taxes only free Example 2. File state taxes only free Assume the same facts as in Example 1 , except that Sara's parents claimed an American opportunity credit of $2,500 (based on $4,000 expenses). File state taxes only free   Total qualified education expenses $8,300     Minus: Tax-free educational assistance −3,100     Minus: Expenses taken into account  in figuring American opportunity credit −4,000     Equals: Adjusted qualified  education expenses (AQEE) $1,200           The taxable part of the distribution is figured as follows. File state taxes only free   1. File state taxes only free $950 (earnings) × $1,200 AQEE  $5,300 distribution           =$215 (tax-free earnings)     2. File state taxes only free $950 (earnings)−$215 (tax-free earnings)     =$735 (taxable earnings)       Sara must include $735 in income (Form 1040, line 21). File state taxes only free This represents distributed earnings not used for adjusted qualified education expenses. File state taxes only free Coordination With Coverdell ESA Distributions If a designated beneficiary receives distributions from both a QTP and a Coverdell ESA in the same year, and the total of these distributions is more than the beneficiary's adjusted qualified higher education expenses, the expenses must be allocated between the distributions. File state taxes only free For purposes of this allocation, disregard any qualified elementary and secondary education expenses. File state taxes only free Example 3. File state taxes only free Assume the same facts as in Example 2 , except that instead of receiving a $5,300 distribution from her QTP, Sara received $4,600 from that account and $700 from her Coverdell ESA. File state taxes only free In this case, Sara must allocate her $1,200 of adjusted qualified higher education expenses (AQHEE) between the two distributions. File state taxes only free   $1,200 AQHEE × $700 ESA distribution  $5,300 total distribution = $158 AQHEE (ESA)     $1,200 AQHEE × $4,600 QTP distribution  $5,300 total distribution = $1,042 AQHEE (QTP)   Sara then figures the taxable portion of her Coverdell ESA distribution based on qualified higher education expenses of $158, and the taxable portion of her QTP distribution based on the other $1,042. File state taxes only free Note. File state taxes only free If you are required to allocate your expenses between Coverdell ESA and QTP distributions, and you have adjusted qualified elementary and secondary education expenses, see the examples in chapter 7, Coverdell Education Savings Account under Coordination With Qualified Tuition Program (QTP) Distributions . File state taxes only free Coordination With Tuition and Fees Deduction. File state taxes only free   A tuition and fees deduction can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses are not used for both benefits. File state taxes only free Losses on QTP Investments If you have a loss on your investment in a QTP account, you may be able to take the loss on your income tax return. File state taxes only free You can take the loss only when all amounts from that account have been distributed and the total distributions are less than your unrecovered basis. File state taxes only free Your basis is the total amount of contributions to that QTP account. File state taxes only free You claim the loss as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23 (Schedule A (Form 1040NR), line 9), subject to the 2%-of-adjusted-gross-income limit. File state taxes only free If you have distributions from more than one QTP account during a year, you must combine the information (amount of distribution, basis, etc. File state taxes only free ) from all such accounts in order to determine your taxable earnings for the year. File state taxes only free By doing this, the loss from one QTP account reduces the distributed earnings (if any) from any other QTP accounts. File state taxes only free Example 1. File state taxes only free In 2013, Taylor received a final distribution of $1,000 from QTP #1. File state taxes only free His unrecovered basis in that account before the distribution was $3,000. File state taxes only free If Taylor itemizes his deductions, he can claim the $2,000 loss on Schedule A (Form 1040). File state taxes only free Example 2. File state taxes only free Assume the same facts as in Example 1 , except that Taylor also had a distribution of $9,000 from QTP #2, giving him total distributions for 2013 of $10,000. File state taxes only free His total basis in these distributions was $4,500 ($3,000 for QTP #1 and $1,500 for QTP #2). File state taxes only free Taylor's adjusted qualified education expenses for 2013 totaled $6,000. File state taxes only free In order to figure his taxable earnings, Taylor combines the two accounts and determines his taxable earnings as follows. File state taxes only free   1. File state taxes only free $10,000 (total distribution)−$4,500 (basis portion of distribution)     = $5,500 (earnings included in distribution)   2. File state taxes only free $5,500 (earnings) x $6,000 AQEE  $10,000 distribution           =$3,300 (tax-free earnings)     3. File state taxes only free $5,500 (earnings)−$3,300 (tax-free earnings)     =$2,200 (taxable earnings)                 Taylor must include $2,200 in income on Form 1040, line 21. File state taxes only free Because Taylor's accounts must be combined, he cannot deduct his $2,000 loss (QTP #1) on Schedule A (Form 1040). File state taxes only free Instead, the $2,000 loss reduces the total earnings that were distributed, thereby reducing his taxable earnings. File state taxes only free Additional Tax on Taxable Distributions Generally, if you receive a taxable distribution, you also must pay a 10% additional tax on the amount included in income. File state taxes only free Exceptions. File state taxes only free   The 10% additional tax does not apply to distributions: Paid to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary. File state taxes only free Made because the designated beneficiary is disabled. File state taxes only free A person is considered to be disabled if he or she shows proof that he or she cannot do any substantial gainful activity because of his or her physical or mental condition. File state taxes only free A physician must determine that his or her condition can be expected to result in death or to be of long-continued and indefinite duration. File state taxes only free Included in income because the designated beneficiary received: A tax-free scholarship or fellowship (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), or Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. File state taxes only free Made on account of the attendance of the designated beneficiary at a U. File state taxes only free S. File state taxes only free military academy (such as the USNA at Annapolis). File state taxes only free This exception applies only to the extent that the amount of the distribution does not exceed the costs of advanced education (as defined in section 2005(d)(3) of title 10 of the U. File state taxes only free S. File state taxes only free Code) attributable to such attendance. File state taxes only free Included in income only because the qualified education expenses were taken into account in determining the American opportunity or lifetime learning credit (see Coordination With American Opportunity and Lifetime Learning Credits , earlier. File state taxes only free ) Exception (3) applies only to the extent the distribution is not more than the scholarship, allowance, or payment. File state taxes only free Figuring the additional tax. File state taxes only free    Use Part II of Form 5329, to figure any additional tax. File state taxes only free Report the amount on Form 1040, line 58, or Form 1040NR, line 56. File state taxes only free Rollovers and Other Transfers Assets can be rolled over or transferred from one QTP to another. File state taxes only free In addition, the designated beneficiary can be changed without transferring accounts. File state taxes only free Rollovers Any amount distributed from a QTP is not taxable if it is rolled over to another QTP for the benefit of the same beneficiary or for the benefit of a member of the beneficiary's family (including the beneficiary's spouse). File state taxes only free An amount is rolled over if it is paid to another QTP within 60 days after the date of the distribution. File state taxes only free Do not report qualifying rollovers (those that meet the above criteria) anywhere on Form 1040 or 1040NR. File state taxes only free These are not taxable distributions. File state taxes only free Members of the beneficiary's family. File state taxes only free   For these purposes, the beneficiary's family includes the beneficiary's spouse and the following other relatives of the beneficiary. File state taxes only free Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them. File state taxes only free Brother, sister, stepbrother, or stepsister. File state taxes only free Father or mother or ancestor of either. File state taxes only free Stepfather or stepmother. File state taxes only free Son or daughter of a brother or sister. File state taxes only free Brother or sister of father or mother. File state taxes only free Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. File state taxes only free The spouse of any individual listed above. File state taxes only free First cousin. File state taxes only free Example. File state taxes only free When Aaron graduated from college last year he had $5,000 left in his QTP. File state taxes only free He wanted to give this money to his younger brother, who was in junior high school. File state taxes only free In order to avoid paying tax on the distribution of the amount remaining in his account, Aaron contributed the same amount to his brother's QTP within 60 days of the distribution. File state taxes only free If the rollover is to another QTP for the same beneficiary, only one rollover is allowed within 12 months of a previous transfer to any QTP for that designated beneficiary. File state taxes only free Changing the Designated Beneficiary There are no income tax consequences if the designated beneficiary of an account is changed to a member of the beneficiary's family. File state taxes only free See Members of the beneficiary's family , earlier. File state taxes only free Example. File state taxes only free Assume the same situation as in the last example. File state taxes only free Instead of closing his QTP and paying the distribution into his brother's QTP, Aaron could have instructed the trustee of his account to simply change the name of the beneficiary on his account to that of his brother. File state taxes only free Prev  Up  Next   Home   More Online Publications