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Form 1040ez Mailing Address

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Form 1040ez Mailing Address

Form 1040ez mailing address 4. Form 1040ez mailing address   Qualified Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Kinds of PlansDefined Contribution Plan Defined Benefit Plan Qualification RulesEarly retirement. Form 1040ez mailing address Loan secured by benefits. Form 1040ez mailing address Waiver of survivor benefits. Form 1040ez mailing address Waiver of 30-day waiting period before annuity starting date. Form 1040ez mailing address Involuntary cash-out of benefits not more than dollar limit. Form 1040ez mailing address Exception for certain loans. Form 1040ez mailing address Exception for QDRO. Form 1040ez mailing address SIMPLE and safe harbor 401(k) plan exception. Form 1040ez mailing address Setting Up a Qualified PlanAdopting a Written Plan Investing Plan Assets Minimum Funding RequirementDue dates. Form 1040ez mailing address Installment percentage. Form 1040ez mailing address Extended period for making contributions. Form 1040ez mailing address ContributionsEmployer Contributions Employee Contributions When Contributions Are Considered Made Employer DeductionDeduction Limits Deduction Limit for Self-Employed Individuals Where To Deduct Contributions Carryover of Excess Contributions Excise Tax for Nondeductible (Excess) Contributions Elective Deferrals (401(k) Plans)Limit on Elective Deferrals Automatic Enrollment Treatment of Excess Deferrals Qualified Roth Contribution ProgramElective Deferrals Qualified Distributions Reporting Requirements DistributionsRequired Distributions Distributions From 401(k) Plans Tax Treatment of Distributions Tax on Early Distributions Tax on Excess Benefits Excise Tax on Reversion of Plan Assets Notification of Significant Benefit Accrual Reduction Prohibited TransactionsTax on Prohibited Transactions Reporting RequirementsOne-participant plan. Form 1040ez mailing address Caution: Form 5500-EZ not required. Form 1040ez mailing address Form 5500. Form 1040ez mailing address Electronic filing of Forms 5500 and 5500-SF. Form 1040ez mailing address Topics - This chapter discusses: Kinds of plans Qualification rules Setting up a qualified plan Minimum funding requirement Contributions Employer deduction Elective deferrals (401(k) plans) Qualified Roth contribution program Distributions Prohibited transactions Reporting requirements Useful Items - You may want to see: Publications 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 3066 Have you had your Check-up this year? for Retirement Plans 3998 Choosing A Retirement Solution for Your Small Business 4222 401(k) Plans for Small Businesses 4530 Designated Roth Accounts under a 401(k), 403(b), or governmental 457(b) plans 4531 401(k) Plan Checklist 4674 Automatic Enrollment 401(k) Plans for Small Businesses 4806 Profit Sharing Plans for Small Businesses Forms (and Instructions) www. Form 1040ez mailing address dol. Form 1040ez mailing address gov/ebsa/pdf/2013-5500. Form 1040ez mailing address pdf www. Form 1040ez mailing address dol. Form 1040ez mailing address gov/ebsa/pdf/2013-5500-SF. Form 1040ez mailing address pdf W-2 Wage and Tax Statement Schedule K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. Form 1040ez mailing address 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Form 1040ez mailing address 1040 U. Form 1040ez mailing address S. Form 1040ez mailing address Individual Income Tax Return Schedule C (Form 1040) Profit or Loss From Business Schedule F (Form 1040) Profit or Loss From Farming 5300 Application for Determination for Employee Benefit Plan 5310 Application for Determination for Terminating Plan 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 5330 Return of Excise Taxes Related to Employee Benefit Plans 5500 Annual Return/Report of Employee Benefit Plan. Form 1040ez mailing address For copies of this form, go to: 5500-EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan. Form 1040ez mailing address For copies of this form, go to: 8717 User Fee for Employee Plan Determination Letter Request 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs 8955-SSA Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits These qualified retirement plans set up by self-employed individuals are sometimes called Keogh or H. Form 1040ez mailing address R. Form 1040ez mailing address 10 plans. Form 1040ez mailing address A sole proprietor or a partnership can set up one of these plans. Form 1040ez mailing address A common-law employee or a partner cannot set up one of these plans. Form 1040ez mailing address The plans described here can also be set up and maintained by employers that are corporations. Form 1040ez mailing address All the rules discussed here apply to corporations except where specifically limited to the self-employed. Form 1040ez mailing address The plan must be for the exclusive benefit of employees or their beneficiaries. Form 1040ez mailing address These qualified plans can include coverage for a self-employed individual. Form 1040ez mailing address As an employer, you can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. Form 1040ez mailing address The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. Form 1040ez mailing address Kinds of Plans There are two basic kinds of qualified plans—defined contribution plans and defined benefit plans—and different rules apply to each. Form 1040ez mailing address You can have more than one qualified plan, but your contributions to all the plans must not total more than the overall limits discussed under Contributions and Employer Deduction, later. Form 1040ez mailing address Defined Contribution Plan A defined contribution plan provides an individual account for each participant in the plan. Form 1040ez mailing address It provides benefits to a participant largely based on the amount contributed to that participant's account. Form 1040ez mailing address Benefits are also affected by any income, expenses, gains, losses, and forfeitures of other accounts that may be allocated to an account. Form 1040ez mailing address A defined contribution plan can be either a profit-sharing plan or a money purchase pension plan. Form 1040ez mailing address Profit-sharing plan. Form 1040ez mailing address   Although it is called a “profit-sharing plan,” you do not actually have to make a business profit for the year in order to make a contribution (except for yourself if you are self-employed as discussed under Self-employed Individual, later). Form 1040ez mailing address A profit-sharing plan can be set up to allow for discretionary employer contributions, meaning the amount contributed each year to the plan is not fixed. Form 1040ez mailing address An employer may even make no contribution to the plan for a given year. Form 1040ez mailing address   The plan must provide a definite formula for allocating the contribution among the participants and for distributing the accumulated funds to the employees after they reach a certain age, after a fixed number of years, or upon certain other occurrences. Form 1040ez mailing address   In general, you can be more flexible in making contributions to a profit-sharing plan than to a money purchase pension plan (discussed next) or a defined benefit plan (discussed later). Form 1040ez mailing address Money purchase pension plan. Form 1040ez mailing address   Contributions to a money purchase pension plan are fixed and are not based on your business profits. Form 1040ez mailing address For example, if the plan requires that contributions be 10% of the participants' compensation without regard to whether you have profits (or the self-employed person has earned income), the plan is a money purchase pension plan. Form 1040ez mailing address This applies even though the compensation of a self-employed individual as a participant is based on earned income derived from business profits. Form 1040ez mailing address Defined Benefit Plan A defined benefit plan is any plan that is not a defined contribution plan. Form 1040ez mailing address Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. Form 1040ez mailing address Actuarial assumptions and computations are required to figure these contributions. Form 1040ez mailing address Generally, you will need continuing professional help to have a defined benefit plan. Form 1040ez mailing address Qualification Rules To qualify for the tax benefits available to qualified plans, a plan must meet certain requirements (qualification rules) of the tax law. Form 1040ez mailing address Generally, unless you write your own plan, the financial institution that provided your plan will take the continuing responsibility for meeting qualification rules that are later changed. Form 1040ez mailing address The following is a brief overview of important qualification rules that generally have not yet been discussed. Form 1040ez mailing address It is not intended to be all-inclusive. Form 1040ez mailing address See Setting Up a Qualified Plan , later. Form 1040ez mailing address Generally, the following qualification rules also apply to a SIMPLE 401(k) retirement plan. Form 1040ez mailing address A SIMPLE 401(k) plan is, however, not subject to the top-heavy plan rules and nondiscrimination rules if the plan satisfies the provisions discussed in chapter 3 under SIMPLE 401(k) Plan. Form 1040ez mailing address Plan assets must not be diverted. Form 1040ez mailing address   Your plan must make it impossible for its assets to be used for, or diverted to, purposes other than the benefit of employees and their beneficiaries. Form 1040ez mailing address As a general rule, the assets cannot be diverted to the employer. Form 1040ez mailing address Minimum coverage requirement must be met. Form 1040ez mailing address   To be a qualified plan, a defined benefit plan must benefit at least the lesser of the following. Form 1040ez mailing address 50 employees, or The greater of: 40% of all employees, or Two employees. Form 1040ez mailing address If there is only one employee, the plan must benefit that employee. Form 1040ez mailing address Contributions or benefits must not discriminate. Form 1040ez mailing address   Under the plan, contributions or benefits to be provided must not discriminate in favor of highly compensated employees. Form 1040ez mailing address Contributions and benefits must not be more than certain limits. Form 1040ez mailing address   Your plan must not provide for contributions or benefits that are more than certain limits. Form 1040ez mailing address The limits apply to the annual contributions and other additions to the account of a participant in a defined contribution plan and to the annual benefit payable to a participant in a defined benefit plan. Form 1040ez mailing address These limits are discussed later in this chapter under Contributions. Form 1040ez mailing address Minimum vesting standard must be met. Form 1040ez mailing address   Your plan must satisfy certain requirements regarding when benefits vest. Form 1040ez mailing address A benefit is vested (you have a fixed right to it) when it becomes nonforfeitable. Form 1040ez mailing address A benefit is nonforfeitable if it cannot be lost upon the happening, or failure to happen, of any event. Form 1040ez mailing address Special rules apply to forfeited benefit amounts. Form 1040ez mailing address In defined contribution plans, forfeitures can be allocated to the accounts of remaining participants in a nondiscriminatory way, or they can be used to reduce your contributions. Form 1040ez mailing address   Forfeitures under a defined benefit plan cannot be used to increase the benefits any employee would otherwise receive under the plan. Form 1040ez mailing address Forfeitures must be used instead to reduce employer contributions. Form 1040ez mailing address Participation. Form 1040ez mailing address   In general, an employee must be allowed to participate in your plan if he or she meets both the following requirements. Form 1040ez mailing address Has reached age 21. Form 1040ez mailing address Has at least 1 year of service (2 years if the plan is not a 401(k) plan and provides that after not more than 2 years of service the employee has a nonforfeitable right to all his or her accrued benefit). Form 1040ez mailing address A plan cannot exclude an employee because he or she has reached a specified age. Form 1040ez mailing address Leased employee. Form 1040ez mailing address   A leased employee, defined in chapter 1, who performs services for you (recipient of the services) is treated as your employee for certain plan qualification rules. Form 1040ez mailing address These rules include those in all the following areas. Form 1040ez mailing address Nondiscrimination in coverage, contributions, and benefits. Form 1040ez mailing address Minimum age and service requirements. Form 1040ez mailing address Vesting. Form 1040ez mailing address Limits on contributions and benefits. Form 1040ez mailing address Top-heavy plan requirements. Form 1040ez mailing address Contributions or benefits provided by the leasing organization for services performed for you are treated as provided by you. Form 1040ez mailing address Benefit payment must begin when required. Form 1040ez mailing address   Your plan must provide that, unless the participant chooses otherwise, the payment of benefits to the participant must begin within 60 days after the close of the latest of the following periods. Form 1040ez mailing address The plan year in which the participant reaches the earlier of age 65 or the normal retirement age specified in the plan. Form 1040ez mailing address The plan year in which the 10th anniversary of the year in which the participant began participating in the plan occurs. Form 1040ez mailing address The plan year in which the participant separates from service. Form 1040ez mailing address Early retirement. Form 1040ez mailing address   Your plan can provide for payment of retirement benefits before the normal retirement age. Form 1040ez mailing address If your plan offers an early retirement benefit, a participant who separates from service before satisfying the early retirement age requirement is entitled to that benefit if he or she meets both the following requirements. Form 1040ez mailing address Satisfies the service requirement for the early retirement benefit. Form 1040ez mailing address Separates from service with a nonforfeitable right to an accrued benefit. Form 1040ez mailing address The benefit, which may be actuarially reduced, is payable when the early retirement age requirement is met. Form 1040ez mailing address Required minimum distributions. Form 1040ez mailing address   Special rules require minimum annual distributions from qualified plans, generally beginning after age  70½. Form 1040ez mailing address See Required Distributions , under Distributions, later. Form 1040ez mailing address Survivor benefits. Form 1040ez mailing address   Defined benefit and money purchase pension plans must provide automatic survivor benefits in both the following forms. Form 1040ez mailing address A qualified joint and survivor annuity for a vested participant who does not die before the annuity starting date. Form 1040ez mailing address A qualified pre-retirement survivor annuity for a vested participant who dies before the annuity starting date and who has a surviving spouse. Form 1040ez mailing address   The automatic survivor benefit also applies to any participant under a profit-sharing plan unless all the following conditions are met. Form 1040ez mailing address The participant does not choose benefits in the form of a life annuity. Form 1040ez mailing address The plan pays the full vested account balance to the participant's surviving spouse (or other beneficiary if the surviving spouse consents or if there is no surviving spouse) if the participant dies. Form 1040ez mailing address The plan is not a direct or indirect transferee of a plan that must provide automatic survivor benefits. Form 1040ez mailing address Loan secured by benefits. Form 1040ez mailing address   If automatic survivor benefits are required for a spouse under a plan, he or she must consent to a loan that uses as security the accrued benefits in the plan. Form 1040ez mailing address Waiver of survivor benefits. Form 1040ez mailing address   Each plan participant may be permitted to waive the joint and survivor annuity or the pre-retirement survivor annuity (or both), but only if the participant has the written consent of the spouse. Form 1040ez mailing address The plan also must allow the participant to withdraw the waiver. Form 1040ez mailing address The spouse's consent must be witnessed by a plan representative or notary public. Form 1040ez mailing address Waiver of 30-day waiting period before annuity starting date. Form 1040ez mailing address    A plan may permit a participant to waive (with spousal consent) the 30-day minimum waiting period after a written explanation of the terms and conditions of a joint and survivor annuity is provided to each participant. Form 1040ez mailing address   The waiver is allowed only if the distribution begins more than 7 days after the written explanation is provided. Form 1040ez mailing address Involuntary cash-out of benefits not more than dollar limit. Form 1040ez mailing address   A plan may provide for the immediate distribution of the participant's benefit under the plan if the present value of the benefit is not greater than $5,000. Form 1040ez mailing address   However, the distribution cannot be made after the annuity starting date unless the participant and the spouse or surviving spouse of a participant who died (if automatic survivor benefits are required for a spouse under the plan) consents in writing to the distribution. Form 1040ez mailing address If the present value is greater than $5,000, the plan must have the written consent of the participant and the spouse or surviving spouse (if automatic survivor benefits are required for a spouse under the plan) for any immediate distribution of the benefit. Form 1040ez mailing address   Benefits attributable to rollover contributions and earnings on them can be ignored in determining the present value of these benefits. Form 1040ez mailing address   A plan must provide for the automatic rollover of any cash-out distribution of more than $1,000 to an individual retirement account or annuity, unless the participant chooses otherwise. Form 1040ez mailing address A section 402(f) notice must be sent prior to an involuntary cash-out of an eligible rollover distribution. Form 1040ez mailing address See Section 402(f) Notice under Distributions, later, for more details. Form 1040ez mailing address Consolidation, merger, or transfer of assets or liabilities. Form 1040ez mailing address   Your plan must provide that, in the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan, each participant would (if the plan then terminated) receive a benefit equal to or more than the benefit he or she would have been entitled to just before the merger, etc. Form 1040ez mailing address (if the plan had then terminated). Form 1040ez mailing address Benefits must not be assigned or alienated. Form 1040ez mailing address   Your plan must provide that a participant's or beneficiary's benefits under the plan cannot be taken away by any legal or equitable proceeding except as provided below or pursuant to certain judgements or settlements against the participant for violations of plan rules. Form 1040ez mailing address Exception for certain loans. Form 1040ez mailing address   A loan from the plan (not from a third party) to a participant or beneficiary is not treated as an assignment or alienation if the loan is secured by the participant's accrued nonforfeitable benefit and is exempt from the tax on prohibited transactions under section 4975(d)(1) or would be exempt if the participant were a disqualified person. Form 1040ez mailing address A disqualified person is defined later in this chapter under Prohibited Transactions. Form 1040ez mailing address Exception for QDRO. Form 1040ez mailing address   Compliance with a QDRO (qualified domestic relations order) does not result in a prohibited assignment or alienation of benefits. Form 1040ez mailing address   Payments to an alternate payee under a QDRO before the participant attains age 59½ are not subject to the 10% additional tax that would otherwise apply under certain circumstances. Form 1040ez mailing address Benefits distributed to an alternate payee under a QDRO can be rolled over tax free to an individual retirement account or to an individual retirement annuity. Form 1040ez mailing address No benefit reduction for social security increases. Form 1040ez mailing address   Your plan must not permit a benefit reduction for a post-separation increase in the social security benefit level or wage base for any participant or beneficiary who is receiving benefits under your plan, or who is separated from service and has nonforfeitable rights to benefits. Form 1040ez mailing address This rule also applies to plans supplementing the benefits provided by other federal or state laws. Form 1040ez mailing address Elective deferrals must be limited. Form 1040ez mailing address   If your plan provides for elective deferrals, it must limit those deferrals to the amount in effect for that particular year. Form 1040ez mailing address See Limit on Elective Deferrals later in this chapter. Form 1040ez mailing address Top-heavy plan requirements. Form 1040ez mailing address   A top-heavy plan is one that mainly favors partners, sole proprietors, and other key employees. Form 1040ez mailing address   A plan is top-heavy for a plan year if, for the preceding plan year, the total value of accrued benefits or account balances of key employees is more than 60% of the total value of accrued benefits or account balances of all employees. Form 1040ez mailing address Additional requirements apply to a top-heavy plan primarily to provide minimum benefits or contributions for non-key employees covered by the plan. Form 1040ez mailing address   Most qualified plans, whether or not top-heavy, must contain provisions that meet the top-heavy requirements and will take effect in plan years in which the plans are top-heavy. Form 1040ez mailing address These qualification requirements for top-heavy plans are explained in section 416 and its regulations. Form 1040ez mailing address SIMPLE and safe harbor 401(k) plan exception. Form 1040ez mailing address   The top-heavy plan requirements do not apply to SIMPLE 401(k) plans, discussed earlier in chapter 3, or to safe harbor 401(k) plans that consist solely of safe harbor contributions, discussed later in this chapter. Form 1040ez mailing address QACAs (discussed later) also are not subject to top-heavy requirements. Form 1040ez mailing address Setting Up a Qualified Plan There are two basic steps in setting up a qualified plan. Form 1040ez mailing address First you adopt a written plan. Form 1040ez mailing address Then you invest the plan assets. Form 1040ez mailing address You, the employer, are responsible for setting up and maintaining the plan. Form 1040ez mailing address If you are self-employed, it is not necessary to have employees besides yourself to sponsor and set up a qualified plan. Form 1040ez mailing address If you have employees, see Participation, under Qualification Rules, earlier. Form 1040ez mailing address Set-up deadline. Form 1040ez mailing address   To take a deduction for contributions for a tax year, your plan must be set up (adopted) by the last day of that year (December 31 for calendar-year employers). Form 1040ez mailing address Credit for startup costs. Form 1040ez mailing address   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a qualified plan that first became effective in 2013. Form 1040ez mailing address For more information, see Credit for startup costs under Reminders, earlier. Form 1040ez mailing address Adopting a Written Plan You must adopt a written plan. Form 1040ez mailing address The plan can be an IRS-approved master or prototype plan offered by a sponsoring organization. Form 1040ez mailing address Or it can be an individually designed plan. Form 1040ez mailing address Written plan requirement. Form 1040ez mailing address   To qualify, the plan you set up must be in writing and must be communicated to your employees. Form 1040ez mailing address The plan's provisions must be stated in the plan. Form 1040ez mailing address It is not sufficient for the plan to merely refer to a requirement of the Internal Revenue Code. Form 1040ez mailing address Master or prototype plans. Form 1040ez mailing address   Most qualified plans follow a standard form of plan (a master or prototype plan) approved by the IRS. Form 1040ez mailing address Master and prototype plans are plans made available by plan providers for adoption by employers (including self-employed individuals). Form 1040ez mailing address Under a master plan, a single trust or custodial account is established, as part of the plan, for the joint use of all adopting employers. Form 1040ez mailing address Under a prototype plan, a separate trust or custodial account is established for each employer. Form 1040ez mailing address Plan providers. Form 1040ez mailing address   The following organizations generally can provide IRS-approved master or prototype plans. Form 1040ez mailing address Banks (including some savings and loan associations and federally insured credit unions). Form 1040ez mailing address Trade or professional organizations. Form 1040ez mailing address Insurance companies. Form 1040ez mailing address Mutual funds. Form 1040ez mailing address Individually designed plan. Form 1040ez mailing address   If you prefer, you can set up an individually designed plan to meet specific needs. Form 1040ez mailing address Although advance IRS approval is not required, you can apply for approval by paying a fee and requesting a determination letter. Form 1040ez mailing address You may need professional help for this. Form 1040ez mailing address See Rev. Form 1040ez mailing address Proc. Form 1040ez mailing address 2014-6, 2014-1 I. Form 1040ez mailing address R. Form 1040ez mailing address B. Form 1040ez mailing address 198, available at www. Form 1040ez mailing address irs. Form 1040ez mailing address gov/irb/2014-1_IRB/ar10. Form 1040ez mailing address html, as annually updated, that may help you decide whether to apply for approval. Form 1040ez mailing address Internal Revenue Bulletins are available on the IRS website at IRS. Form 1040ez mailing address gov They are also available at most IRS offices and at certain libraries. Form 1040ez mailing address User fee. Form 1040ez mailing address   The fee mentioned earlier for requesting a determination letter does not apply to employers who have 100 or fewer employees who received at least $5,000 of compensation from the employer for the preceding year. Form 1040ez mailing address At least one of them must be a non-highly compensated employee participating in the plan. Form 1040ez mailing address The fee does not apply to requests made by the later of the following dates. Form 1040ez mailing address The end of the 5th plan year the plan is in effect. Form 1040ez mailing address The end of any remedial amendment period for the plan that begins within the first 5 plan years. Form 1040ez mailing address The request cannot be made by the sponsor of a prototype or similar plan the sponsor intends to market to participating employers. Form 1040ez mailing address   For more information about whether the user fee applies, see Rev. Form 1040ez mailing address Proc. Form 1040ez mailing address 2014-8, 2014-1 I. Form 1040ez mailing address R. Form 1040ez mailing address B. Form 1040ez mailing address 242, available at www. Form 1040ez mailing address irs. Form 1040ez mailing address gov/irb/2014-1_IRB/ar12. Form 1040ez mailing address html, as may be annually updated; Notice 2003-49, 2003-32 I. Form 1040ez mailing address R. Form 1040ez mailing address B. Form 1040ez mailing address 294, available at www. Form 1040ez mailing address irs. Form 1040ez mailing address gov/irb/2003-32_IRB/ar13. Form 1040ez mailing address html; and Notice 2011-86, 2011-45 I. Form 1040ez mailing address R. Form 1040ez mailing address B. Form 1040ez mailing address 698, available at www. Form 1040ez mailing address irs. Form 1040ez mailing address gov/irb/2011-45_IRB/ar11. Form 1040ez mailing address html. Form 1040ez mailing address Investing Plan Assets In setting up a qualified plan, you arrange how the plan's funds will be used to build its assets. Form 1040ez mailing address You can establish a trust or custodial account to invest the funds. Form 1040ez mailing address You, the trust, or the custodial account can buy an annuity contract from an insurance company. Form 1040ez mailing address Life insurance can be included only if it is incidental to the retirement benefits. Form 1040ez mailing address You set up a trust by a legal instrument (written document). Form 1040ez mailing address You may need professional help to do this. Form 1040ez mailing address You can set up a custodial account with a bank, savings and loan association, credit union, or other person who can act as the plan trustee. Form 1040ez mailing address You do not need a trust or custodial account, although you can have one, to invest the plan's funds in annuity contracts or face-amount certificates. Form 1040ez mailing address If anyone other than a trustee holds them, however, the contracts or certificates must state they are not transferable. Form 1040ez mailing address Other plan requirements. Form 1040ez mailing address   For information on other important plan requirements, see Qualification Rules , earlier in this chapter. Form 1040ez mailing address Minimum Funding Requirement In general, if your plan is a money purchase pension plan or a defined benefit plan, you must actually pay enough into the plan to satisfy the minimum funding standard for each year. Form 1040ez mailing address Determining the amount needed to satisfy the minimum funding standard for a defined benefit plan is complicated, and you should seek professional help in order to meet these contribution requirements. Form 1040ez mailing address For information on this funding requirement, see section 412 and its regulations. Form 1040ez mailing address Quarterly installments of required contributions. Form 1040ez mailing address   If your plan is a defined benefit plan subject to the minimum funding requirements, you generally must make quarterly installment payments of the required contributions. Form 1040ez mailing address If you do not pay the full installments timely, you may have to pay interest on any underpayment for the period of the underpayment. Form 1040ez mailing address Due dates. Form 1040ez mailing address   The due dates for the installments are 15 days after the end of each quarter. Form 1040ez mailing address For a calendar-year plan, the installments are due April 15, July 15, October 15, and January 15 (of the following year). Form 1040ez mailing address Installment percentage. Form 1040ez mailing address   Each quarterly installment must be 25% of the required annual payment. Form 1040ez mailing address Extended period for making contributions. Form 1040ez mailing address   Additional contributions required to satisfy the minimum funding requirement for a plan year will be considered timely if made by 8½ months after the end of that year. Form 1040ez mailing address Contributions A qualified plan is generally funded by your contributions. Form 1040ez mailing address However, employees participating in the plan may be permitted to make contributions, and you may be permitted to make contributions on your own behalf. Form 1040ez mailing address See Employee Contributions and Elective Deferrals later. Form 1040ez mailing address Contributions deadline. Form 1040ez mailing address   You can make deductible contributions for a tax year up to the due date of your return (plus extensions) for that year. Form 1040ez mailing address Self-employed individual. Form 1040ez mailing address   You can make contributions on behalf of yourself only if you have net earnings (compensation) from self-employment in the trade or business for which the plan was set up. Form 1040ez mailing address Your net earnings must be from your personal services, not from your investments. Form 1040ez mailing address If you have a net loss from self-employment, you cannot make contributions for yourself for the year, even if you can contribute for common-law employees based on their compensation. Form 1040ez mailing address Employer Contributions There are certain limits on the contributions and other annual additions you can make each year for plan participants. Form 1040ez mailing address There are also limits on the amount you can deduct. Form 1040ez mailing address See Deduction Limits , later. Form 1040ez mailing address Limits on Contributions and Benefits Your plan must provide that contributions or benefits cannot exceed certain limits. Form 1040ez mailing address The limits differ depending on whether your plan is a defined contribution plan or a defined benefit plan. Form 1040ez mailing address Defined benefit plan. Form 1040ez mailing address   For 2013, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of the following amounts. Form 1040ez mailing address 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. Form 1040ez mailing address $205,000 ($210,000 for 2014). Form 1040ez mailing address Defined contribution plan. Form 1040ez mailing address   For 2013, a defined contribution plan's annual contributions and other additions (excluding earnings) to the account of a participant cannot exceed the lesser of the following amounts. Form 1040ez mailing address 100% of the participant's compensation. Form 1040ez mailing address $51,000 ($52,000 for 2014). Form 1040ez mailing address   Catch-up contributions (discussed later under Limit on Elective Deferrals) are not subject to the above limit. Form 1040ez mailing address Employee Contributions Participants may be permitted to make nondeductible contributions to a plan in addition to your contributions. Form 1040ez mailing address Even though these employee contributions are not deductible, the earnings on them are tax free until distributed in later years. Form 1040ez mailing address Also, these contributions must satisfy the actual contribution percentage (ACP) test of section 401(m)(2), a nondiscrimination test that applies to employee contributions and matching contributions. Form 1040ez mailing address See Regulations sections 1. Form 1040ez mailing address 401(k)-2 and 1. Form 1040ez mailing address 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). Form 1040ez mailing address When Contributions Are Considered Made You generally apply your plan contributions to the year in which you make them. Form 1040ez mailing address But you can apply them to the previous year if all the following requirements are met. Form 1040ez mailing address You make them by the due date of your tax return for the previous year (plus extensions). Form 1040ez mailing address The plan was established by the end of the previous year. Form 1040ez mailing address The plan treats the contributions as though it had received them on the last day of the previous year. Form 1040ez mailing address You do either of the following. Form 1040ez mailing address You specify in writing to the plan administrator or trustee that the contributions apply to the previous year. Form 1040ez mailing address You deduct the contributions on your tax return for the previous year. Form 1040ez mailing address A partnership shows contributions for partners on Form 1065. Form 1040ez mailing address Employer's promissory note. Form 1040ez mailing address   Your promissory note made out to the plan is not a payment that qualifies for the deduction. Form 1040ez mailing address Also, issuing this note is a prohibited transaction subject to tax. Form 1040ez mailing address See Prohibited Transactions , later. Form 1040ez mailing address Employer Deduction You can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. Form 1040ez mailing address The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. Form 1040ez mailing address Deduction Limits The deduction limit for your contributions to a qualified plan depends on the kind of plan you have. Form 1040ez mailing address Defined contribution plans. Form 1040ez mailing address   The deduction for contributions to a defined contribution plan (profit-sharing plan or money purchase pension plan) cannot be more than 25% of the compensation paid (or accrued) during the year to your eligible employees participating in the plan. Form 1040ez mailing address If you are self-employed, you must reduce this limit in figuring the deduction for contributions you make for your own account. Form 1040ez mailing address See Deduction Limit for Self-Employed Individuals , later. Form 1040ez mailing address   When figuring the deduction limit, the following rules apply. Form 1040ez mailing address Elective deferrals (discussed later) are not subject to the limit. Form 1040ez mailing address Compensation includes elective deferrals. Form 1040ez mailing address The maximum compensation that can be taken into account for each employee in 2013 is $255,000 ($260,000 for 2014). Form 1040ez mailing address Defined benefit plans. Form 1040ez mailing address   The deduction for contributions to a defined benefit plan is based on actuarial assumptions and computations. Form 1040ez mailing address Consequently, an actuary must figure your deduction limit. Form 1040ez mailing address    In figuring the deduction for contributions, you cannot take into account any contributions or benefits that are more than the limits discussed earlier under Limits on Contributions and Benefits, earlier. Form 1040ez mailing address Table 4–1. Form 1040ez mailing address Carryover of Excess Contributions Illustrated—Profit-Sharing Plan (000's omitted) Year Participants' compensation Participants' share of required contribution (10% of annual profit) Deductible  limit for current year (25% of compensation) Contribution Excess contribution carryover used1 Total  deduction including carryovers Excess contribution carryover available at end of year 2010 $1,000 $100 $250 $100 $ 0 $100 $ 0 2011 400 165 100 165 0 100 65 2012 500 100 125 100 25 125 40 2013 600 100 150 100 40 140 0  1There were no carryovers from years before 2010. Form 1040ez mailing address Deduction Limit for Self-Employed Individuals If you make contributions for yourself, you need to make a special computation to figure your maximum deduction for these contributions. Form 1040ez mailing address Compensation is your net earnings from self-employment, defined in chapter 1. Form 1040ez mailing address This definition takes into account both the following items. Form 1040ez mailing address The deduction for the deductible part of your self-employment tax. Form 1040ez mailing address The deduction for contributions on your behalf to the plan. Form 1040ez mailing address The deduction for your own contributions and your net earnings depend on each other. Form 1040ez mailing address For this reason, you determine the deduction for your own contributions indirectly by reducing the contribution rate called for in your plan. Form 1040ez mailing address To do this, use either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed in chapter 5. Form 1040ez mailing address Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. Form 1040ez mailing address Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. Form 1040ez mailing address For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120, or Form 1120S. Form 1040ez mailing address Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. Form 1040ez mailing address (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you get from the partnership. Form 1040ez mailing address ) Carryover of Excess Contributions If you contribute more to the plans than you can deduct for the year, you can carry over and deduct the difference in later years, combined with your contributions for those years. Form 1040ez mailing address Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year. Form 1040ez mailing address For purposes of this limit, a SEP is treated as a profit-sharing (defined contribution) plan. Form 1040ez mailing address However, this percentage limit must be reduced to figure your maximum deduction for contributions you make for yourself. Form 1040ez mailing address See Deduction Limit for Self-Employed Individuals, earlier. Form 1040ez mailing address The amount you carry over and deduct may be subject to the excise tax discussed next. Form 1040ez mailing address Table 4-1, earlier, illustrates the carryover of excess contributions to a profit-sharing plan. Form 1040ez mailing address Excise Tax for Nondeductible (Excess) Contributions If you contribute more than your deduction limit to a retirement plan, you have made nondeductible contributions and you may be liable for an excise tax. Form 1040ez mailing address In general, a 10% excise tax applies to nondeductible contributions made to qualified pension and profit-sharing plans and to SEPs. Form 1040ez mailing address Special rule for self-employed individuals. Form 1040ez mailing address   The 10% excise tax does not apply to any contribution made to meet the minimum funding requirements in a money purchase pension plan or a defined benefit plan. Form 1040ez mailing address Even if that contribution is more than your earned income from the trade or business for which the plan is set up, the difference is not subject to this excise tax. Form 1040ez mailing address See Minimum Funding Requirement , earlier. Form 1040ez mailing address Reporting the tax. Form 1040ez mailing address   You must report the tax on your nondeductible contributions on Form 5330. Form 1040ez mailing address Form 5330 includes a computation of the tax. Form 1040ez mailing address See the separate instructions for completing the form. Form 1040ez mailing address Elective Deferrals (401(k) Plans) Your qualified plan can include a cash or deferred arrangement under which participants can choose to have you contribute part of their before-tax compensation to the plan rather than receive the compensation in cash. Form 1040ez mailing address A plan with this type of arrangement is popularly known as a “401(k) plan. Form 1040ez mailing address ” (As a self-employed individual participating in the plan, you can contribute part of your before-tax net earnings from the business. Form 1040ez mailing address ) This contribution is called an “elective deferral” because participants choose (elect) to defer receipt of the money. Form 1040ez mailing address In general, a qualified plan can include a cash or deferred arrangement only if the qualified plan is one of the following plans. Form 1040ez mailing address A profit-sharing plan. Form 1040ez mailing address A money purchase pension plan in existence on June 27, 1974, that included a salary reduction arrangement on that date. Form 1040ez mailing address Partnership. Form 1040ez mailing address   A partnership can have a 401(k) plan. Form 1040ez mailing address Restriction on conditions of participation. Form 1040ez mailing address   The plan cannot require, as a condition of participation, that an employee complete more than 1 year of service. Form 1040ez mailing address Matching contributions. Form 1040ez mailing address   If your plan permits, you can make matching contributions for an employee who makes an elective deferral to your 401(k) plan. Form 1040ez mailing address For example, the plan might provide that you will contribute 50 cents for each dollar your participating employees choose to defer under your 401(k) plan. Form 1040ez mailing address Matching contributions are generally subject to the ACP test discussed earlier under Employee Contributions. Form 1040ez mailing address Nonelective contributions. Form 1040ez mailing address   You can also make contributions (other than matching contributions) for your participating employees without giving them the choice to take cash instead. Form 1040ez mailing address These are called nonelective contributions. Form 1040ez mailing address Employee compensation limit. Form 1040ez mailing address   No more than $255,000 of the employee's compensation can be taken into account when figuring contributions other than elective deferrals in 2013. Form 1040ez mailing address This limit is $260,000 in 2014. Form 1040ez mailing address SIMPLE 401(k) plan. Form 1040ez mailing address   If you had 100 or fewer employees who earned $5,000 or more in compensation during the preceding year, you may be able to set up a SIMPLE 401(k) plan. Form 1040ez mailing address A SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy plan requirements discussed earlier under Qualification Rules. Form 1040ez mailing address For details about SIMPLE 401(k) plans, see SIMPLE 401(k) Plan in chapter 3. Form 1040ez mailing address Distributions. Form 1040ez mailing address   Certain rules apply to distributions from 401(k) plans. Form 1040ez mailing address See Distributions From 401(k) Plans , later. Form 1040ez mailing address Limit on Elective Deferrals There is a limit on the amount an employee can defer each year under these plans. Form 1040ez mailing address This limit applies without regard to community property laws. Form 1040ez mailing address Your plan must provide that your employees cannot defer more than the limit that applies for a particular year. Form 1040ez mailing address For 2013 and 2014, the basic limit on elective deferrals is $17,500. Form 1040ez mailing address This limit applies to all salary reduction contributions and elective deferrals. Form 1040ez mailing address If, in conjunction with other plans, the deferral limit is exceeded, the difference is included in the employee's gross income. Form 1040ez mailing address Catch-up contributions. Form 1040ez mailing address   A 401(k) plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. Form 1040ez mailing address The catch-up contribution limit for 2013 and 2014 is $5,500. Form 1040ez mailing address Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the $17,500 limit, the actual deferral percentage (ADP) test limit of section 401(k)(3), or the plan limit (if any). Form 1040ez mailing address However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. Form 1040ez mailing address The catch-up contribution limit. Form 1040ez mailing address The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. Form 1040ez mailing address Treatment of contributions. Form 1040ez mailing address   Your contributions to your own 401(k) plan are generally deductible by you for the year they are contributed to the plan. Form 1040ez mailing address Matching or nonelective contributions made to the plan are also deductible by you in the year of contribution. Form 1040ez mailing address Your employees' elective deferrals other than designated Roth contributions are tax free until distributed from the plan. Form 1040ez mailing address Elective deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. Form 1040ez mailing address Forfeiture. Form 1040ez mailing address   Employees have a nonforfeitable right at all times to their accrued benefit attributable to elective deferrals. Form 1040ez mailing address Reporting on Form W-2. Form 1040ez mailing address   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. Form 1040ez mailing address You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. Form 1040ez mailing address You must also include them in box 12. Form 1040ez mailing address Mark the “Retirement plan” checkbox in box 13. Form 1040ez mailing address For more information, see the Form W-2 instructions. Form 1040ez mailing address Automatic Enrollment Your 401(k) plan can have an automatic enrollment feature. Form 1040ez mailing address Under this feature, you can automatically reduce an employee's pay by a fixed percentage and contribute that amount to the 401(k) plan on his or her behalf unless the employee affirmatively chooses not to have his or her pay reduced or chooses to have it reduced by a different percentage. Form 1040ez mailing address These contributions are elective deferrals. Form 1040ez mailing address An automatic enrollment feature will encourage employees' saving for retirement and will help your plan pass nondiscrimination testing (if applicable). Form 1040ez mailing address For more information, see Publication 4674, Automatic Enrollment 401(k) Plans for Small Businesses. Form 1040ez mailing address Eligible automatic contribution arrangement. Form 1040ez mailing address   Under an eligible automatic contribution arrangement (EACA), a participant is treated as having elected to have the employer make contributions in an amount equal to a uniform percentage of compensation. Form 1040ez mailing address This automatic election will remain in place until the participant specifically elects not to have such deferral percentage made (or elects a different percentage). Form 1040ez mailing address There is no required deferral percentage. Form 1040ez mailing address Withdrawals. Form 1040ez mailing address   Under an EACA, you may allow participants to withdraw their automatic contributions to the plan if certain conditions are met. Form 1040ez mailing address The participant must elect the withdrawal no later than 90 days after the date of the first elective contributions under the EACA. Form 1040ez mailing address The participant must withdraw the entire amount of EACA default contributions, including any earnings thereon. Form 1040ez mailing address   If the plan allows withdrawals under the EACA, the amount of the withdrawal other than the amount of any designated Roth contributions must be included in the employee's gross income for the tax year in which the distribution is made. Form 1040ez mailing address The additional 10% tax on early distributions will not apply to the distribution. Form 1040ez mailing address Notice requirement. Form 1040ez mailing address   Under an EACA, employees must be given written notice of the terms of the EACA within a reasonable period of time before each plan year. Form 1040ez mailing address The notice must be written in a manner calculated to be understood by the average employee and be sufficiently accurate and comprehensive in order to apprise the employee of his or her rights and obligations under the EACA. Form 1040ez mailing address The notice must include an explanation of the employee's right to elect not to have elective contributions made on his or her behalf, or to elect a different percentage, and the employee must be given a reasonable period of time after receipt of the notice before the first elective contribution is made. Form 1040ez mailing address The notice also must explain how contributions will be invested in the absence of an investment election by the employee. Form 1040ez mailing address Qualified automatic contribution arrangement. Form 1040ez mailing address    A qualified automatic contribution arrangement (QACA) is a type of safe harbor plan. Form 1040ez mailing address It contains an automatic enrollment feature, and mandatory employer contributions are required. Form 1040ez mailing address If your plan includes a QACA, it will not be subject to the ADP test (discussed later) nor the top-heavy requirements (discussed earlier). Form 1040ez mailing address Additionally, your plan will not be subject to the actual contribution percentage (ACP) test if certain additional requirements are met. Form 1040ez mailing address Under a QACA, each employee who is eligible to participate in the plan will be treated as having elected to make elective deferral contributions equal to a certain default percentage of compensation. Form 1040ez mailing address In order to not have default elective deferrals made, an employee must make an affirmative election specifying a deferral percentage (including zero, if desired). Form 1040ez mailing address If an employee does not make an affirmative election, the default deferral percentage must meet the following conditions. Form 1040ez mailing address It must be applied uniformly. Form 1040ez mailing address It must not exceed 10%. Form 1040ez mailing address It must be at least 3% in the first plan year it applies to an employee and through the end of the following year. Form 1040ez mailing address It must increase to at least 4% in the following plan year. Form 1040ez mailing address It must increase to at least 5% in the following plan year. Form 1040ez mailing address It must increase to at least 6% in subsequent plan years. Form 1040ez mailing address Matching or nonelective contributions. Form 1040ez mailing address   Under the terms of the QACA, you must make either matching or nonelective contributions according to the following terms. Form 1040ez mailing address Matching contributions. Form 1040ez mailing address You must make matching contributions on behalf of each non-highly compensated employee in the following amounts. Form 1040ez mailing address An amount equal to 100% of elective deferrals, up to 1% of compensation. Form 1040ez mailing address An amount equal to 50% of elective deferrals, from 1% up to 6% of compensation. Form 1040ez mailing address Other formulas may be used as long as they are at least as favorable to non-highly compensated employees. Form 1040ez mailing address The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. Form 1040ez mailing address Nonelective contributions. Form 1040ez mailing address You must make nonelective contributions on behalf of every non-highly compensated employee eligible to participate in the plan, regardless of whether they elected to participate, in an amount equal to at least 3% of their compensation. Form 1040ez mailing address Vesting requirements. Form 1040ez mailing address   All accrued benefits attributed to matching or nonelective contributions under the QACA must be 100% vested for all employees who complete 2 years of service. Form 1040ez mailing address These contributions are subject to special withdrawal restrictions, discussed later. Form 1040ez mailing address Notice requirements. Form 1040ez mailing address   Each employee eligible to participate in the QACA must receive written notice of their rights and obligations under the QACA, within a reasonable period before each plan year. Form 1040ez mailing address The notice must be written in a manner calculated to be understood by the average employee, and it must be accurate and comprehensive. Form 1040ez mailing address The notice must explain their right to elect not to have elective contributions made on their behalf, or to have contributions made at a different percentage than the default percentage. Form 1040ez mailing address Additionally, the notice must explain how contributions will be invested in the absence of any investment election by the employee. Form 1040ez mailing address The employee must have a reasonable period of time after receiving the notice to make such contribution and investment elections prior to the first contributions under the QACA. Form 1040ez mailing address Treatment of Excess Deferrals If the total of an employee's deferrals is more than the limit for 2013, the employee can have the difference (called an excess deferral) paid out of any of the plans that permit these distributions. Form 1040ez mailing address He or she must notify the plan by April 15, 2014 (or an earlier date specified in the plan), of the amount to be paid from each plan. Form 1040ez mailing address The plan must then pay the employee that amount, plus earnings on the amount through the end of 2013, by April 15, 2014. Form 1040ez mailing address Excess withdrawn by April 15. Form 1040ez mailing address   If the employee takes out the excess deferral by April 15, 2014, it is not reported again by including it in the employee's gross income for 2014. Form 1040ez mailing address However, any income earned in 2013 on the excess deferral taken out is taxable in the tax year in which it is taken out. Form 1040ez mailing address The distribution is not subject to the additional 10% tax on early distributions. Form 1040ez mailing address   If the employee takes out part of the excess deferral and the income on it, the distribution is treated as made proportionately from the excess deferral and the income. Form 1040ez mailing address   Even if the employee takes out the excess deferral by April 15, the amount will be considered for purposes of nondiscrimination testing requirements of the plan, unless the distributed amount is for a non-highly compensated employee who participates in only one employer's 401(k) plan or plans. Form 1040ez mailing address Excess not withdrawn by April 15. Form 1040ez mailing address   If the employee does not take out the excess deferral by April 15, 2014, the excess, though taxable in 2013, is not included in the employee's cost basis in figuring the taxable amount of any eventual distributions under the plan. Form 1040ez mailing address In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. Form 1040ez mailing address Also, if the employee's excess deferral is allowed to stay in the plan and the employee participates in no other employer's plan, the plan can be disqualified. Form 1040ez mailing address Reporting corrective distributions on Form 1099-R. Form 1040ez mailing address   Report corrective distributions of excess deferrals (including any earnings) on Form 1099-R. Form 1040ez mailing address For specific information about reporting corrective distributions, see the Instructions for Forms 1099-R and 5498. Form 1040ez mailing address Tax on excess contributions of highly compensated employees. Form 1040ez mailing address   The law provides tests to detect discrimination in a plan. Form 1040ez mailing address If tests, such as the actual deferral percentage test (ADP test) (see section 401(k)(3)) and the actual contribution percentage test (ACP test) (see section 401(m)(2)), show that contributions for highly compensated employees are more than the test limits for these contributions, the employer may have to pay a 10% excise tax. Form 1040ez mailing address Report the tax on Form 5330. Form 1040ez mailing address The ADP test does not apply to a safe harbor 401(k) plan (discussed next) nor to a QACA. Form 1040ez mailing address Also, the ACP test does not apply to these plans if certain additional requirements are met. Form 1040ez mailing address   The tax for the year is 10% of the excess contributions for the plan year ending in your tax year. Form 1040ez mailing address Excess contributions are elective deferrals, employee contributions, or employer matching or nonelective contributions that are more than the amount permitted under the ADP test or the ACP test. Form 1040ez mailing address   See Regulations sections 1. Form 1040ez mailing address 401(k)-2 and 1. Form 1040ez mailing address 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). Form 1040ez mailing address    If the plan fails the ADP or ACP testing, and the failure is not corrected by the end of the next plan year, the plan can be disqualified. Form 1040ez mailing address Safe harbor 401(k) plan. Form 1040ez mailing address If you meet the requirements for a safe harbor 401(k) plan, you do not have to satisfy the ADP test, nor the ACP test, if certain additional requirements are met. Form 1040ez mailing address For your plan to be a safe harbor plan, you must meet the following conditions. Form 1040ez mailing address Matching or nonelective contributions. Form 1040ez mailing address You must make matching or nonelective contributions according to one of the following formulas. Form 1040ez mailing address Matching contributions. Form 1040ez mailing address You must make matching contributions according to the following rules. Form 1040ez mailing address You must contribute an amount equal to 100% of each non-highly compensated employee's elective deferrals, up to 3% of compensation. Form 1040ez mailing address You must contribute an amount equal to 50% of each non-highly compensated employee's elective deferrals, from 3% up to 5% of compensation. Form 1040ez mailing address The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. Form 1040ez mailing address Nonelective contributions. Form 1040ez mailing address You must make nonelective contributions, without regard to whether the employee made elective deferrals, on behalf of all non-highly compensated employees eligible to participate in the plan, equal to at least 3% of the employee's compensation. Form 1040ez mailing address These mandatory matching and nonelective contributions must be immediately 100% vested and are subject to special withdrawal restrictions. Form 1040ez mailing address Notice requirement. Form 1040ez mailing address You must give eligible employees written notice of their rights and obligations with regard to contributions under the plan, within a reasonable period before the plan year. Form 1040ez mailing address The other requirements for a 401(k) plan, including withdrawal and vesting rules, must also be met for your plan to qualify as a safe harbor 401(k) plan. Form 1040ez mailing address Qualified Roth Contribution Program Under this program an eligible employee can designate all or a portion of his or her elective deferrals as after-tax Roth contributions. Form 1040ez mailing address Elective deferrals designated as Roth contributions must be maintained in a separate Roth account. Form 1040ez mailing address However, unlike other elective deferrals, designated Roth contributions are not excluded from employees' gross income, but qualified distributions from a Roth account are excluded from employees' gross income. Form 1040ez mailing address Elective Deferrals Under a qualified Roth contribution program, the amount of elective deferrals that an employee may designate as a Roth contribution is limited to the maximum amount of elective deferrals excludable from gross income for the year (for 2013 and 2014, $17,500 if under age 50 and $23,000 if age 50 or over) less the total amount of the employee's elective deferrals not designated as Roth contributions. Form 1040ez mailing address Designated Roth deferrals are treated the same as pre-tax elective deferrals for most purposes, including: The annual individual elective deferral limit (total of all designated Roth contributions and traditional, pre-tax elective deferrals) of $17,500 for 2013 and 2014, with an additional $5,500 if age 50 or over for 2013 and 2014, Determining the maximum employee and employer annual contributions of the lesser of 100% of compensation or $51,000 for 2013 ($52,000 for 2014), Nondiscrimination testing, Required distributions, and Elective deferrals not taken into account for purposes of deduction limits. Form 1040ez mailing address Qualified Distributions A qualified distribution is a distribution that is made after the employee's nonexclusion period and: On or after the employee attains age   59½, On account of the employee's being disabled, or On or after the employee's death. Form 1040ez mailing address An employee's nonexclusion period for a plan is the 5-tax-year period beginning with the earlier of the following tax years. Form 1040ez mailing address The first tax year in which the employee made a contribution to his or her Roth account in the plan, or If a rollover contribution was made to the employee's designated Roth account from a designated Roth account previously established for the employee under another plan, then the first tax year the employee made a designated Roth contribution to the previously established account. Form 1040ez mailing address Rollover. Form 1040ez mailing address   Beginning September 28, 2010, a rollover from another account can be made to a designated Roth account in the same plan. Form 1040ez mailing address For additional information on these in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. Form 1040ez mailing address R. Form 1040ez mailing address B. Form 1040ez mailing address 872, available at www. Form 1040ez mailing address irs. Form 1040ez mailing address gov/irb/2010-51_IRB/ar11. Form 1040ez mailing address html, and Notice 2013-74. Form 1040ez mailing address A distribution from a designated Roth account can only be rolled over to another designated Roth account or a Roth IRA. Form 1040ez mailing address Rollover amounts do not apply toward the annual deferral limit. Form 1040ez mailing address Reporting Requirements You must report a contribution to a Roth account on Form W-2 and a distribution from a Roth account on Form 1099-R. Form 1040ez mailing address See the Form W-2 and 1099-R instructions for detailed information. Form 1040ez mailing address Distributions Amounts paid to plan participants from a qualified plan are called distributions. Form 1040ez mailing address Distributions may be nonperiodic, such as lump-sum distributions, or periodic, such as annuity payments. Form 1040ez mailing address Also, certain loans may be treated as distributions. Form 1040ez mailing address See Loans Treated as Distributions in Publication 575. Form 1040ez mailing address Required Distributions A qualified plan must provide that each participant will either: Receive his or her entire interest (benefits) in the plan by the required beginning date (defined later), or Begin receiving regular periodic distributions by the required beginning date in annual amounts calculated to distribute the participant's entire interest (benefits) over his or her life expectancy or over the joint life expectancy of the participant and the designated beneficiary (or over a shorter period). Form 1040ez mailing address These distribution rules apply individually to each qualified plan. Form 1040ez mailing address You cannot satisfy the requirement for one plan by taking a distribution from another. Form 1040ez mailing address The plan must provide that these rules override any inconsistent distribution options previously offered. Form 1040ez mailing address Minimum distribution. Form 1040ez mailing address   If the account balance of a qualified plan participant is to be distributed (other than as an annuity), the plan administrator must figure the minimum amount required to be distributed each distribution calendar year. Form 1040ez mailing address This minimum is figured by dividing the account balance by the applicable life expectancy. Form 1040ez mailing address The plan administrator can use the life expectancy tables in Appendix C of Publication 590 for this purpose. Form 1040ez mailing address For more information on figuring the minimum distribution, see Tax on Excess Accumulation in Publication 575. Form 1040ez mailing address Required beginning date. Form 1040ez mailing address   Generally, each participant must receive his or her entire benefits in the plan or begin to receive periodic distributions of benefits from the plan by the required beginning date. Form 1040ez mailing address   A participant must begin to receive distributions from his or her qualified retirement plan by April 1 of the first year after the later of the following years. Form 1040ez mailing address Calendar year in which he or she reaches age 70½. Form 1040ez mailing address Calendar year in which he or she retires from employment with the employer maintaining the plan. Form 1040ez mailing address However, the plan may require the participant to begin receiving distributions by April 1 of the year after the participant reaches age 70½ even if the participant has not retired. Form 1040ez mailing address   If the participant is a 5% owner of the employer maintaining the plan, the participant must begin receiving distributions by April 1 of the first year after the calendar year in which the participant reached age 70½. Form 1040ez mailing address For more information, see Tax on Excess Accumulation in Publication 575. Form 1040ez mailing address Distributions after the starting year. Form 1040ez mailing address   The distribution required to be made by April 1 is treated as a distribution for the starting year. Form 1040ez mailing address (The starting year is the year in which the participant meets (1) or (2) above, whichever applies. Form 1040ez mailing address ) After the starting year, the participant must receive the required distribution for each year by December 31 of that year. Form 1040ez mailing address If no distribution is made in the starting year, required distributions for 2 years must be made in the next year (one by April 1 and one by December 31). Form 1040ez mailing address Distributions after participant's death. Form 1040ez mailing address   See Publication 575 for the special rules covering distributions made after the death of a participant. Form 1040ez mailing address Distributions From 401(k) Plans Generally, distributions cannot be made until one of the following occurs. Form 1040ez mailing address The employee retires, dies, becomes disabled, or otherwise severs employment. Form 1040ez mailing address The plan ends and no other defined contribution plan is established or continued. Form 1040ez mailing address In the case of a 401(k) plan that is part of a profit-sharing plan, the employee reaches age 59½ or suffers financial hardship. Form 1040ez mailing address For the rules on hardship distributions, including the limits on them, see Regulations section 1. Form 1040ez mailing address 401(k)-1(d). Form 1040ez mailing address The employee becomes eligible for a qualified reservist distribution (defined next). Form 1040ez mailing address Certain distributions listed above may be subject to the tax on early distributions discussed later. Form 1040ez mailing address Qualified reservist distributions. Form 1040ez mailing address   A qualified reservist distribution is a distribution from an IRA or an elective deferral account made after September 11, 2001, to a military reservist or a member of the National Guard who has been called to active duty for at least 180 days or for an indefinite period. Form 1040ez mailing address All or part of a qualified reservist distribution can be recontributed to an IRA. Form 1040ez mailing address The additional 10% tax on early distributions does not apply to a qualified reservist distribution. Form 1040ez mailing address Tax Treatment of Distributions Distributions from a qualified plan minus a prorated part of any cost basis are subject to income tax in the year they are distributed. Form 1040ez mailing address Since most recipients have no cost basis, a distribution is generally fully taxable. Form 1040ez mailing address An exception is a distribution that is properly rolled over as discussed under Rollover, next. Form 1040ez mailing address The tax treatment of distributions depends on whether they are made periodically over several years or life (periodic distributions) or are nonperiodic distributions. Form 1040ez mailing address See Taxation of Periodic Payments and Taxation of Nonperiodic Payments in Publication 575 for a detailed description of how distributions are taxed, including the 10-year tax option or capital gain treatment of a lump-sum distribution. Form 1040ez mailing address Note. Form 1040ez mailing address A recipient of a distribution from a designated Roth account will have a cost basis since designated Roth contributions are made on an after-tax basis. Form 1040ez mailing address Also, a distribution from a designated Roth account is entirely tax-free if certain conditions are met. Form 1040ez mailing address See Qualified distributions under Qualified Roth Contribution Program, earlier. Form 1040ez mailing address Rollover. Form 1040ez mailing address   The recipient of an eligible rollover distribution from a qualified plan can defer the tax on it by rolling it over into a traditional IRA or another eligible retirement plan. Form 1040ez mailing address However, it may be subject to withholding as discussed under Withholding requirement, later. Form 1040ez mailing address A rollover can also be made to a Roth IRA, in which case, any previously untaxed amounts are includible in gross income unless the rollover is from a designated Roth account. Form 1040ez mailing address Eligible rollover distribution. Form 1040ez mailing address   This is a distribution of all or any part of an employee's balance in a qualified retirement plan that is not any of the following. Form 1040ez mailing address A required minimum distribution. Form 1040ez mailing address See Required Distributions , earlier. Form 1040ez mailing address Any of a series of substantially equal payments made at least once a year over any of the following periods. Form 1040ez mailing address The employee's life or life expectancy. Form 1040ez mailing address The joint lives or life expectancies of the employee and beneficiary. Form 1040ez mailing address A period of 10 years or longer. Form 1040ez mailing address A hardship distribution. Form 1040ez mailing address The portion of a distribution that represents the return of an employee's nondeductible contributions to the plan. Form 1040ez mailing address See Employee Contributions , earlier, and Rollover of nontaxable amounts, next. Form 1040ez mailing address Loans treated as distributions. Form 1040ez mailing address Dividends on employer securities. Form 1040ez mailing address The cost of any life insurance coverage provided under a qualified retirement plan. Form 1040ez mailing address Similar items designated by the IRS in published guidance. Form 1040ez mailing address See, for example, the Instructions for Forms 1099-R and 5498. Form 1040ez mailing address Rollover of nontaxable amounts. Form 1040ez mailing address   You may be able to roll over the nontaxable part of a distribution to another qualified retirement plan or a section 403(b) plan, or to an IRA. Form 1040ez mailing address If the rollover is to a qualified retirement plan or a section 403(b) plan that separately accounts for the taxable and nontaxable parts of the rollover, the transfer must be made through a direct (trustee-to-trustee) rollover. Form 1040ez mailing address If the rollover is to an IRA, the transfer can be made by any rollover method. Form 1040ez mailing address Note. Form 1040ez mailing address A distribution from a designated Roth account can be rolled over to another designated Roth account or to a Roth IRA. Form 1040ez mailing address If the rollover is to a Roth IRA, it can be rolled over by any rollover method, but if the rollover is to another designated Roth account, it must be rolled over directly (trustee-to-trustee). Form 1040ez mailing address More information. Form 1040ez mailing address   For more information about rollovers, see Rollovers in Pubs. Form 1040ez mailing address 575 and 590. Form 1040ez mailing address Withholding requirement. Form 1040ez mailing address   If, during a year, a qualified plan pays to a participant one or more eligible rollover distributions (defined earlier) that are reasonably expected to total $200 or more, the payor must withhold 20% of the taxable portion of each distribution for federal income tax. Form 1040ez mailing address Exceptions. Form 1040ez mailing address   If, instead of having the distribution paid to him or her, the participant chooses to have the plan pay it directly to an IRA or another eligible retirement plan (a direct rollover), no withholding is required. Form 1040ez mailing address   If the distribution is not an eligible rollover distribution, defined earlier, the 20% withholding requirement does not apply. Form 1040ez mailing address Other withholding rules apply to distributions that are not eligible rollover distributions, such as long-term periodic distributions and required distributions (periodic or nonperiodic). Form 1040ez mailing address However, the participant can choose not to have tax withheld from these distributions. Form 1040ez mailing address If the participant does not make this choice, the following withholding rules apply. Form 1040ez mailing address For periodic distributions, withholding is based on their treatment as wages. Form 1040ez mailing address For nonperiodic distributions, 10% of the taxable part is withheld. Form 1040ez mailing address Estimated tax payments. Form 1040ez mailing address   If no income tax is withheld or not enough tax is withheld, the recipient of a distribution may have to make estimated tax payments. Form 1040ez mailing address For more information, see Withholding Tax and Estimated Tax in Publication 575. Form 1040ez mailing address Section 402(f) Notice. Form 1040ez mailing address   If a distribution is an eligible rollover distribution, as defined earlier, you must provide a written notice to the recipient that explains the following rules regarding such distributions. Form 1040ez mailing address That the distribution may be directly transferred to an eligible retirement plan and information about which distributions are eligible for this direct transfer. Form 1040ez mailing address That tax will be withheld from the distribution if it is not directly transferred to an eligible retirement plan. Form 1040ez mailing address That the distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date the recipient receives the distribution. Form 1040ez mailing address Certain other rules that may be applicable. Form 1040ez mailing address   Notice 2009-68, 2009-39 I. Form 1040ez mailing address R. Form 1040ez mailing address B. Form 1040ez mailing address 423, available at www. Form 1040ez mailing address irs. Form 1040ez mailing address gov/irb/2009-39_IRB/ar14. Form 1040ez mailing address html, contains two updated safe harbor section 402(f) notices that plan administrators may provide recipients of eligible rollover distributions. Form 1040ez mailing address If the plan allows in-plan Roth rollovers, the 402(f) notice must be amended to reflect this. Form 1040ez mailing address Notice 2010-84 contains guidance on how to modify a 402(f) notice for in-plan Roth rollovers. Form 1040ez mailing address Timing of notice. Form 1040ez mailing address   The notice generally must be provided no less than 30 days and no more than 180 days before the date of a distribution. Form 1040ez mailing address Method of notice. Form 1040ez mailing address   The written notice must be provided individually to each distributee of an eligible rollover distribution. Form 1040ez mailing address Posting of the notice is not sufficient. Form 1040ez mailing address However, the written requirement may be satisfied through the use of electronic media if certain additional conditions are met. Form 1040ez mailing address See Regulations section 1. Form 1040ez mailing address 401(a)-21. Form 1040ez mailing address Tax on failure to give notice. Form 1040ez mailing address   Failure to give a 402(f) notice will result in a tax of $100 for each failure, with a total not exceeding $50,000 per calendar year. Form 1040ez mailing address The tax will not be imposed if it is shown that such failure is due to reasonable cause and not to willful neglect. Form 1040ez mailing address Tax on Early Distributions If a distribution is made to an employee under the plan before he or she reaches age 59½, the employee may have to pay a 10% additional tax on the distribution. Form 1040ez mailing address This tax applies to the amount received that the employee must include in income. Form 1040ez mailing address Exceptions. Form 1040ez mailing address   The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances. Form 1040ez mailing address Made to a beneficiary (or to the estate of the employee) on or after the death of the employee. Form 1040ez mailing address Made due to the employee having a qualifying disability. Form 1040ez mailing address Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the employee or the joint lives or life expectancies of the employee and his or her designated beneficiary. Form 1040ez mailing address (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period. Form 1040ez mailing address ) Made to an employee after separation from service if the separation occurred during o
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The Form 1040ez Mailing Address

Form 1040ez mailing address Publication 530 - Main Content Table of Contents What You Can and Cannot DeductHardest Hit Fund and Emergency Homeowners' Loan Programs Real Estate Taxes Sales Taxes Home Mortgage Interest Mortgage Insurance Premiums Mortgage Interest CreditFiguring the Credit BasisFiguring Your Basis Adjusted Basis Keeping Records How To Get Tax HelpLow Income Taxpayer Clinics What You Can and Cannot Deduct To deduct expenses of owning a home, you must file Form 1040, U. Form 1040ez mailing address S. Form 1040ez mailing address Individual Income Tax Return, and itemize your deductions on Schedule A (Form 1040). Form 1040ez mailing address If you itemize, you cannot take the standard deduction. Form 1040ez mailing address This section explains what expenses you can deduct as a homeowner. Form 1040ez mailing address It also points out expenses that you cannot deduct. Form 1040ez mailing address There are four primary discussions: real estate taxes, sales taxes, home mortgage interest, and mortgage insurance premiums. Form 1040ez mailing address Generally, your real estate taxes, home mortgage interest, and mortgage insurance premiums are included in your house payment. Form 1040ez mailing address Your house payment. Form 1040ez mailing address   If you took out a mortgage (loan) to finance the purchase of your home, you probably have to make monthly house payments. Form 1040ez mailing address Your house payment may include several costs of owning a home. Form 1040ez mailing address The only costs you can deduct are real estate taxes actually paid to the taxing authority, interest that qualifies as home mortgage interest, and mortgage insurance premiums. Form 1040ez mailing address These are discussed in more detail later. Form 1040ez mailing address   Some nondeductible expenses that may be included in your house payment include: Fire or homeowner's insurance premiums, and The amount applied to reduce the principal of the mortgage. Form 1040ez mailing address Minister's or military housing allowance. Form 1040ez mailing address   If you are a minister or a member of the uniformed services and receive a housing allowance that is not taxable, you still can deduct your real estate taxes and your home mortgage interest. Form 1040ez mailing address You do not have to reduce your deductions by your nontaxable allowance. Form 1040ez mailing address For more information see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers, and Publication 3, Armed Forces' Tax Guide. Form 1040ez mailing address Nondeductible payments. Form 1040ez mailing address   You cannot deduct any of the following items. Form 1040ez mailing address Insurance (other than mortgage insurance premiums), including fire and comprehensive coverage, and title insurance. Form 1040ez mailing address Wages you pay for domestic help. Form 1040ez mailing address Depreciation. Form 1040ez mailing address The cost of utilities, such as gas, electricity, or water. Form 1040ez mailing address Most settlement costs. Form 1040ez mailing address See Settlement or closing costs under Cost as Basis, later, for more information. Form 1040ez mailing address Forfeited deposits, down payments, or earnest money. Form 1040ez mailing address Hardest Hit Fund and Emergency Homeowners' Loan Programs You can use a special method to compute your deduction for mortgage interest and real estate taxes on your main home if you meet the following two conditions. Form 1040ez mailing address You received assistance under: A State Housing Finance Agency (State HFA) Hardest Hit Fund program in which program payments could be used to pay mortgage interest, or An Emergency Homeowners' Loan Program administered by the Department of Housing and Urban Development (HUD) or a state. Form 1040ez mailing address You meet the rules to deduct all of the mortgage interest on your loan and all of the real estate taxes on your main home. Form 1040ez mailing address If you meet these tests, then you can deduct all of the payments you actually made during the year to your mortgage servicer, the State HFA, or HUD on the home mortgage (including the amount shown on box 3 of Form 1098-MA, Mortgage Assistance Payments), but not more than the sum of the amounts shown on Form 1098, Mortgage Interest Statement, in box 1 (mortgage interest received), box 4 (mortgage insurance premiums) and box 5 (real property taxes). Form 1040ez mailing address However, you are not required to use this special method to compute your deduction for mortgage interest and real estate taxes on your main home. Form 1040ez mailing address Real Estate Taxes Most state and local governments charge an annual tax on the value of real property. Form 1040ez mailing address This is called a real estate tax. Form 1040ez mailing address You can deduct the tax if it is assessed uniformly at a like rate on all real property throughout the community. Form 1040ez mailing address The proceeds must be for general community or governmental purposes and not be a payment for a special privilege granted or service rendered to you. Form 1040ez mailing address Deductible Real Estate Taxes You can deduct real estate taxes imposed on you. Form 1040ez mailing address You must have paid them either at settlement or closing, or to a taxing authority (either directly or through an escrow account) during the year. Form 1040ez mailing address If you own a cooperative apartment, see Special Rules for Cooperatives , later. Form 1040ez mailing address Where to deduct real estate taxes. Form 1040ez mailing address   Enter the amount of your deductible real estate taxes on Schedule A (Form 1040), line 6. Form 1040ez mailing address Real estate taxes paid at settlement or closing. Form 1040ez mailing address   Real estate taxes are generally divided so that you and the seller each pay taxes for the part of the property tax year you owned the home. Form 1040ez mailing address Your share of these taxes is fully deductible if you itemize your deductions. Form 1040ez mailing address Division of real estate taxes. Form 1040ez mailing address   For federal income tax purposes, the seller is treated as paying the property taxes up to, but not including, the date of sale. Form 1040ez mailing address You (the buyer) are treated as paying the taxes beginning with the date of sale. Form 1040ez mailing address This applies regardless of the lien dates under local law. Form 1040ez mailing address Generally, this information is included on the settlement statement you get at closing. Form 1040ez mailing address   You and the seller each are considered to have paid your own share of the taxes, even if one or the other paid the entire amount. Form 1040ez mailing address You each can deduct your own share, if you itemize deductions, for the year the property is sold. Form 1040ez mailing address Example. Form 1040ez mailing address You bought your home on September 1. Form 1040ez mailing address The property tax year (the period to which the tax relates) in your area is the calendar year. Form 1040ez mailing address The tax for the year was $730 and was due and paid by the seller on August 15. Form 1040ez mailing address You owned your new home during the property tax year for 122 days (September 1 to December 31, including your date of purchase). Form 1040ez mailing address You figure your deduction for real estate taxes on your home as follows. Form 1040ez mailing address 1. Form 1040ez mailing address Enter the total real estate taxes for the real property tax year $730 2. Form 1040ez mailing address Enter the number of days in the property tax year that you owned the property 122 3. Form 1040ez mailing address Divide line 2 by 365 . Form 1040ez mailing address 3342 4. Form 1040ez mailing address Multiply line 1 by line 3. Form 1040ez mailing address This is your deduction. Form 1040ez mailing address Enter it on Schedule A (Form 1040), line 6 $244   You can deduct $244 on your return for the year if you itemize your deductions. Form 1040ez mailing address You are considered to have paid this amount and can deduct it on your return even if, under the contract, you did not have to reimburse the seller. Form 1040ez mailing address Delinquent taxes. Form 1040ez mailing address   Delinquent taxes are unpaid taxes that were imposed on the seller for an earlier tax year. Form 1040ez mailing address If you agree to pay delinquent taxes when you buy your home, you cannot deduct them. Form 1040ez mailing address You treat them as part of the cost of your home. Form 1040ez mailing address See Real estate taxes , later, under Basis. Form 1040ez mailing address Escrow accounts. Form 1040ez mailing address   Many monthly house payments include an amount placed in escrow (put in the care of a third party) for real estate taxes. Form 1040ez mailing address You may not be able to deduct the total you pay into the escrow account. Form 1040ez mailing address You can deduct only the real estate taxes that the lender actually paid from escrow to the taxing authority. Form 1040ez mailing address Your real estate tax bill will show this amount. Form 1040ez mailing address Refund or rebate of real estate taxes. Form 1040ez mailing address   If you receive a refund or rebate of real estate taxes this year for amounts you paid this year, you must reduce your real estate tax deduction by the amount refunded to you. Form 1040ez mailing address If the refund or rebate was for real estate taxes paid for a prior year, you may have to include some or all of the refund in your income. Form 1040ez mailing address For more information, see Recoveries in Publication 525, Taxable and Nontaxable Income. Form 1040ez mailing address Items You Cannot Deduct as Real Estate Taxes The following items are not deductible as real estate taxes. Form 1040ez mailing address Charges for services. Form 1040ez mailing address   An itemized charge for services to specific property or people is not a tax, even if the charge is paid to the taxing authority. Form 1040ez mailing address You cannot deduct the charge as a real estate tax if it is: A unit fee for the delivery of a service (such as a $5 fee charged for every 1,000 gallons of water you use), A periodic charge for a residential service (such as a $20 per month or $240 annual fee charged for trash collection), or A flat fee charged for a single service provided by your local government (such as a $30 charge for mowing your lawn because it had grown higher than permitted under a local ordinance). Form 1040ez mailing address    You must look at your real estate tax bill to decide if any nondeductible itemized charges, such as those listed above, are included in the bill. Form 1040ez mailing address If your taxing authority (or lender) does not furnish you a copy of your real estate tax bill, ask for it. Form 1040ez mailing address Contact the taxing authority if you need additional information about a specific charge on your real estate tax bill. Form 1040ez mailing address Assessments for local benefits. Form 1040ez mailing address   You cannot deduct amounts you pay for local benefits that tend to increase the value of your property. Form 1040ez mailing address Local benefits include the construction of streets, sidewalks, or water and sewer systems. Form 1040ez mailing address You must add these amounts to the basis of your property. Form 1040ez mailing address   You can, however, deduct assessments (or taxes) for local benefits if they are for maintenance, repair, or interest charges related to those benefits. Form 1040ez mailing address An example is a charge to repair an existing sidewalk and any interest included in that charge. Form 1040ez mailing address   If only a part of the assessment is for maintenance, repair, or interest charges, you must be able to show the amount of that part to claim the deduction. Form 1040ez mailing address If you cannot show what part of the assessment is for maintenance, repair, or interest charges, you cannot deduct any of it. Form 1040ez mailing address   An assessment for a local benefit may be listed as an item in your real estate tax bill. Form 1040ez mailing address If so, use the rules in this section to find how much of it, if any, you can deduct. Form 1040ez mailing address Transfer taxes (or stamp taxes). Form 1040ez mailing address   You cannot deduct transfer taxes and similar taxes and charges on the sale of a personal home. Form 1040ez mailing address If you are the buyer and you pay them, include them in the cost basis of the property. Form 1040ez mailing address If you are the seller and you pay them, they are expenses of the sale and reduce the amount realized on the sale. Form 1040ez mailing address Homeowners association assessments. Form 1040ez mailing address   You cannot deduct these assessments because the homeowners association, rather than a state or local government, imposes them. Form 1040ez mailing address Special Rules for Cooperatives If you own a cooperative apartment, some special rules apply to you, though you generally receive the same tax treatment as other homeowners. Form 1040ez mailing address As an owner of a cooperative apartment, you own shares of stock in a corporation that owns or leases housing facilities. Form 1040ez mailing address You can deduct your share of the corporation's deductible real estate taxes if the cooperative housing corporation meets the following conditions: The corporation has only one class of stock outstanding, Each stockholder, solely because of ownership of the stock, can live in a house, apartment, or house trailer owned or leased by the corporation, No stockholder can receive any distribution out of capital, except on a partial or complete liquidation of the corporation, and At least one of the following: At least 80% of the corporation's gross income for the tax year was paid by the tenant-stockholders. Form 1040ez mailing address For this purpose, gross income means all income received during the entire tax year, including any received before the corporation changed to cooperative ownership. Form 1040ez mailing address At least 80% of the total square footage of the corporation's property must be available for use by the tenant-stockholders during the entire tax year. Form 1040ez mailing address At least 90% of the expenditures paid or incurred by the corporation were used for the acquisition, construction, management, maintenance, or care of the property for the benefit of the tenant-shareholders during the entire tax year. Form 1040ez mailing address Tenant-stockholders. Form 1040ez mailing address   A tenant-stockholder can be any entity (such as a corporation, trust, estate, partnership, or association) as well as an individual. Form 1040ez mailing address The tenant-stockholder does not have to live in any of the cooperative's dwelling units. Form 1040ez mailing address The units that the tenant-stockholder has the right to occupy can be rented to others. Form 1040ez mailing address Deductible taxes. Form 1040ez mailing address   You figure your share of real estate taxes in the following way. Form 1040ez mailing address Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Form 1040ez mailing address Multiply the corporation's deductible real estate taxes by the number you figured in (1). Form 1040ez mailing address This is your share of the real estate taxes. Form 1040ez mailing address   Generally, the corporation will tell you your share of its real estate tax. Form 1040ez mailing address This is the amount you can deduct if it reasonably reflects the cost of real estate taxes for your dwelling unit. Form 1040ez mailing address Refund of real estate taxes. Form 1040ez mailing address   If the corporation receives a refund of real estate taxes it paid in an earlier year, it must reduce the amount of real estate taxes paid this year when it allocates the tax expense to you. Form 1040ez mailing address Your deduction for real estate taxes the corporation paid this year is reduced by your share of the refund the corporation received. Form 1040ez mailing address Sales Taxes Generally, you can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). Form 1040ez mailing address Deductible sales taxes may include sales taxes paid on your home (including mobile and prefabricated), or home building materials if the tax rate was the same as the general sales tax rate. Form 1040ez mailing address For information on figuring your deduction, see the Instructions for Schedule A (Form 1040). Form 1040ez mailing address If you elect to deduct the sales taxes paid on your home, or home building materials, you cannot include them as part of your cost basis in the home. Form 1040ez mailing address Home Mortgage Interest This section of the publication gives you basic information about home mortgage interest, including information on interest paid at settlement, points, and Form 1098, Mortgage Interest Statement. Form 1040ez mailing address Most home buyers take out a mortgage (loan) to buy their home. Form 1040ez mailing address They then make monthly payments to either the mortgage holder or someone collecting the payments for the mortgage holder. Form 1040ez mailing address Usually, you can deduct the entire part of your payment that is for mortgage interest, if you itemize your deductions on Schedule A (Form 1040). Form 1040ez mailing address However, your deduction may be limited if: Your total mortgage balance is more than $1 million ($500,000 if married filing separately), or You took out a mortgage for reasons other than to buy, build, or improve your home. Form 1040ez mailing address If either of these situations applies to you, see Publication 936 for more information. Form 1040ez mailing address Also see Publication 936 if you later refinance your mortgage or buy a second home. Form 1040ez mailing address Refund of home mortgage interest. Form 1040ez mailing address   If you receive a refund of home mortgage interest that you deducted in an earlier year and that reduced your tax, you generally must include the refund in income in the year you receive it. Form 1040ez mailing address For more information, see Recoveries in Publication 525. Form 1040ez mailing address The amount of the refund will usually be shown on the mortgage interest statement you receive from your mortgage lender. Form 1040ez mailing address See Mortgage Interest Statement , later. Form 1040ez mailing address Deductible Mortgage Interest To be deductible, the interest you pay must be on a loan secured by your main home or a second home. Form 1040ez mailing address The loan can be a first or second mortgage, a home improvement loan, or a home equity loan. Form 1040ez mailing address Prepaid interest. Form 1040ez mailing address   If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. Form 1040ez mailing address Generally, you can deduct in each year only the interest that qualifies as home mortgage interest for that year. Form 1040ez mailing address An exception (discussed later) applies to points. Form 1040ez mailing address Late payment charge on mortgage payment. Form 1040ez mailing address   You can deduct as home mortgage interest a late payment charge if it was not for a specific service in connection with your mortgage loan. Form 1040ez mailing address Mortgage prepayment penalty. Form 1040ez mailing address   If you pay off your home mortgage early, you may have to pay a penalty. Form 1040ez mailing address You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan. Form 1040ez mailing address Ground rent. Form 1040ez mailing address   In some states (such as Maryland), you may buy your home subject to a ground rent. Form 1040ez mailing address A ground rent is an obligation you assume to pay a fixed amount per year on the property. Form 1040ez mailing address Under this arrangement, you are leasing (rather than buying) the land on which your home is located. Form 1040ez mailing address Redeemable ground rents. Form 1040ez mailing address   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct the payments as mortgage interest. Form 1040ez mailing address The ground rent is a redeemable ground rent only if all of the following are true. Form 1040ez mailing address Your lease, including renewal periods, is for more than 15 years. Form 1040ez mailing address You can freely assign the lease. Form 1040ez mailing address You have a present or future right (under state or local law) to end the lease and buy the lessor's entire interest in the land by paying a specified amount. Form 1040ez mailing address The lessor's interest in the land is primarily a security interest to protect the rental payments to which he or she is entitled. Form 1040ez mailing address   Payments made to end the lease and buy the lessor's entire interest in the land are not redeemable ground rents. Form 1040ez mailing address You cannot deduct them. Form 1040ez mailing address Nonredeemable ground rents. Form 1040ez mailing address   Payments on a nonredeemable ground rent are not mortgage interest. Form 1040ez mailing address You can deduct them as rent only if they are a business expense or if they are for rental property. Form 1040ez mailing address Cooperative apartment. Form 1040ez mailing address   You can usually treat the interest on a loan you took out to buy stock in a cooperative housing corporation as home mortgage interest if you own a cooperative apartment, and the cooperative housing corporation meets the conditions described earlier under Special Rules for Cooperatives . Form 1040ez mailing address In addition, you can treat as home mortgage interest your share of the corporation's deductible mortgage interest. Form 1040ez mailing address Figure your share of mortgage interest the same way that is shown for figuring your share of real estate taxes in the Example under Division of real estate taxes, earlier. Form 1040ez mailing address For more information on cooperatives, see Special Rule for Tenant-Stockholders in Cooperative Housing Corporations in Publication 936. Form 1040ez mailing address Refund of cooperative's mortgage interest. Form 1040ez mailing address   You must reduce your mortgage interest deduction by your share of any cash portion of a patronage dividend that the cooperative receives. Form 1040ez mailing address The patronage dividend is a partial refund to the cooperative housing corporation of mortgage interest it paid in a prior year. Form 1040ez mailing address   If you receive a Form 1098 from the cooperative housing corporation, the form should show only the amount you can deduct. Form 1040ez mailing address Mortgage Interest Paid at Settlement One item that normally appears on a settlement or closing statement is home mortgage interest. Form 1040ez mailing address You can deduct the interest that you pay at settlement if you itemize your deductions on Schedule A (Form 1040). Form 1040ez mailing address This amount should be included in the mortgage interest statement provided by your lender. Form 1040ez mailing address See the discussion under Mortgage Interest Statement , later. Form 1040ez mailing address Also, if you pay interest in advance, see Prepaid interest , earlier, and Points , next. Form 1040ez mailing address Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Form 1040ez mailing address Points also may be called loan origination fees, maximum loan charges, loan discount, or discount points. Form 1040ez mailing address A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. Form 1040ez mailing address See Points paid by the seller , later. Form 1040ez mailing address General rule. Form 1040ez mailing address   You cannot deduct the full amount of points in the year paid. Form 1040ez mailing address They are prepaid interest, so you generally must deduct them over the life (term) of the mortgage. Form 1040ez mailing address Exception. Form 1040ez mailing address   You can deduct the full amount of points in the year paid if you meet all the following tests. Form 1040ez mailing address Your loan is secured by your main home. Form 1040ez mailing address (Generally, your main home is the one you live in most of the time. Form 1040ez mailing address ) Paying points is an established business practice in the area where the loan was made. Form 1040ez mailing address The points paid were not more than the points generally charged in that area. Form 1040ez mailing address You use the cash method of accounting. Form 1040ez mailing address This means you report income in the year you receive it and deduct expenses in the year you pay them. Form 1040ez mailing address Most individuals use this method. Form 1040ez mailing address The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes. Form 1040ez mailing address The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. Form 1040ez mailing address The funds you provided are not required to have been applied to the points. Form 1040ez mailing address They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. Form 1040ez mailing address You cannot have borrowed these funds. Form 1040ez mailing address You use your loan to buy or build your main home. Form 1040ez mailing address The points were computed as a percentage of the principal amount of the mortgage. Form 1040ez mailing address The amount is clearly shown on the settlement statement (such as the Uniform Settlement Statement, Form HUD-1) as points charged for the mortgage. Form 1040ez mailing address The points may be shown as paid from either your funds or the seller's. Form 1040ez mailing address Note. Form 1040ez mailing address If you meet all of the tests listed above and you itemize your deductions in the year you get the loan, you can either deduct the full amount of points in the year paid or deduct them over the life of the loan, beginning in the year you get the loan. Form 1040ez mailing address If you do not itemize your deductions in the year you get the loan, you can spread the points over the life of the loan and deduct the appropriate amount in each future year, if any, when you do itemize your deductions. Form 1040ez mailing address Home improvement loan. Form 1040ez mailing address   You can also fully deduct in the year paid points paid on a loan to improve your main home, if you meet the first six tests listed earlier. Form 1040ez mailing address Refinanced loan. Form 1040ez mailing address   If you use part of the refinanced mortgage proceeds to improve your main home and you meet the first six tests listed earlier, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. Form 1040ez mailing address You can deduct the rest of the points over the life of the loan. Form 1040ez mailing address Points not fully deductible in year paid. Form 1040ez mailing address    If you do not qualify under the exception to deduct the full amount of points in the year paid (or choose not to do so), see Points in Publication 936 for the rules on when and how much you can deduct. Form 1040ez mailing address Figure A. Form 1040ez mailing address   You can use Figure A, next, as a quick guide to see whether your points are fully deductible in the year paid. Form 1040ez mailing address    Please click here for the text description of the image. Form 1040ez mailing address Figure A. Form 1040ez mailing address Are my points fully deductible this year? Amounts charged for services. Form 1040ez mailing address   Amounts charged by the lender for specific services connected to the loan are not interest. Form 1040ez mailing address Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. Form 1040ez mailing address You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. Form 1040ez mailing address For information about the tax treatment of these amounts and other settlement fees and closing costs, see Basis , later. Form 1040ez mailing address Points paid by the seller. Form 1040ez mailing address   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. Form 1040ez mailing address Treatment by seller. Form 1040ez mailing address   The seller cannot deduct these fees as interest. Form 1040ez mailing address However, they are a selling expense that reduces the seller's amount realized. Form 1040ez mailing address See Publication 523 for more information. Form 1040ez mailing address Treatment by buyer. Form 1040ez mailing address   The buyer treats seller-paid points as if he or she had paid them. Form 1040ez mailing address If all the tests listed earlier under Exception are met, the buyer can deduct the points in the year paid. Form 1040ez mailing address If any of those tests are not met, the buyer must deduct the points over the life of the loan. Form 1040ez mailing address   The buyer must also reduce the basis of the home by the amount of the seller-paid points. Form 1040ez mailing address For more information about the basis of your home, see Basis , later. Form 1040ez mailing address Funds provided are less than points. Form 1040ez mailing address   If you meet all the tests listed earlier under Exception except that the funds you provided were less than the points charged to you (test 6), you can deduct the points in the year paid up to the amount of funds you provided. Form 1040ez mailing address In addition, you can deduct any points paid by the seller. Form 1040ez mailing address Example 1. Form 1040ez mailing address When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). Form 1040ez mailing address You meet all the tests for deducting points in the year paid (see Exception , earlier), except the only funds you provided were a $750 down payment. Form 1040ez mailing address Of the $1,000 you were charged for points, you can deduct $750 in the year paid. Form 1040ez mailing address You spread the remaining $250 over the life of the mortgage. Form 1040ez mailing address Example 2. Form 1040ez mailing address The facts are the same as in Example 1 , except that the person who sold you your home also paid one point ($1,000) to help you get your mortgage. Form 1040ez mailing address In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). Form 1040ez mailing address You spread the remaining $250 over the life of the mortgage. Form 1040ez mailing address You must reduce the basis of your home by the $1,000 paid by the seller. Form 1040ez mailing address Excess points. Form 1040ez mailing address   If you meet all the tests under Exception , earlier, except that the points paid were more than are generally charged in your area (test 3), you can deduct in the year paid only the points that are generally charged. Form 1040ez mailing address You must spread any additional points over the life of the mortgage. Form 1040ez mailing address Mortgage ending early. Form 1040ez mailing address   If you spread your deduction for points over the life of the mortgage, you can deduct any remaining balance in the year the mortgage ends. Form 1040ez mailing address A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. Form 1040ez mailing address Example. Form 1040ez mailing address Dan paid $3,000 in points in 2006 that he had to spread out over the 15-year life of the mortgage. Form 1040ez mailing address He had deducted $1,400 of these points through 2012. Form 1040ez mailing address Dan prepaid his mortgage in full in 2013. Form 1040ez mailing address He can deduct the remaining $1,600 of points in 2013. Form 1040ez mailing address Exception. Form 1040ez mailing address   If you refinance the mortgage with the same lender, you cannot deduct any remaining points for the year. Form 1040ez mailing address Instead, deduct them over the term of the new loan. Form 1040ez mailing address Form 1098. Form 1040ez mailing address   The mortgage interest statement you receive should show not only the total interest paid during the year, but also your deductible points paid during the year. Form 1040ez mailing address See Mortgage Interest Statement , later. Form 1040ez mailing address Where To Deduct Home Mortgage Interest Enter on Schedule A (Form 1040), line 10, the home mortgage interest and points reported to you on Form 1098 (discussed next). Form 1040ez mailing address If you did not receive a Form 1098, enter your deductible interest on line 11, and any deductible points on line 12. Form 1040ez mailing address See Table 1 below for a summary of where to deduct home mortgage interest and real estate taxes. Form 1040ez mailing address If you paid home mortgage interest to the person from whom you bought your home, show that person's name, address, and social security number (SSN) or employer identification number (EIN) on the dotted lines next to line 11. Form 1040ez mailing address The seller must give you this number and you must give the seller your SSN. Form 1040ez mailing address Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. Form 1040ez mailing address Failure to meet either of these requirements may result in a $50 penalty for each failure. Form 1040ez mailing address Table 1. Form 1040ez mailing address Where To Deduct Interest and Taxes Paid on Your Home See the text for information on what expenses are eligible. Form 1040ez mailing address IF you are eligible to deduct . Form 1040ez mailing address . Form 1040ez mailing address . Form 1040ez mailing address THEN report the amount  on Schedule A (Form 1040) . Form 1040ez mailing address . Form 1040ez mailing address . Form 1040ez mailing address real estate taxes line 6. Form 1040ez mailing address home mortgage interest and points reported on Form 1098 line 10. Form 1040ez mailing address home mortgage interest not reported on  Form 1098 line 11. Form 1040ez mailing address points not reported on Form 1098 line 12. Form 1040ez mailing address qualified mortgage insurance premiums line 13. Form 1040ez mailing address Mortgage Interest Statement If you paid $600 or more of mortgage interest (including certain points and mortgage insurance premiums) during the year on any one mortgage to a mortgage holder in the course of that holder's trade or business, you should receive a Form 1098 or similar statement from the mortgage holder. Form 1040ez mailing address The statement will show the total interest paid on your mortgage during the year. Form 1040ez mailing address If you bought a main home during the year, it also will show the deductible points you paid and any points you can deduct that were paid by the person who sold you your home. Form 1040ez mailing address See Points , earlier. Form 1040ez mailing address The interest you paid at settlement should be included on the statement. Form 1040ez mailing address If it is not, add the interest from the settlement sheet that qualifies as home mortgage interest to the total shown on Form 1098 or similar statement. Form 1040ez mailing address Put the total on Schedule A (Form 1040), line 10, and attach a statement to your return explaining the difference. Form 1040ez mailing address Write “See attached” to the right of line 10. Form 1040ez mailing address A mortgage holder can be a financial institution, a governmental unit, or a cooperative housing corporation. Form 1040ez mailing address If a statement comes from a cooperative housing corporation, it generally will show your share of interest. Form 1040ez mailing address Your mortgage interest statement for 2013 should be provided or sent to you by January 31, 2014. Form 1040ez mailing address If it is mailed, you should allow adequate time to receive it before contacting the mortgage holder. Form 1040ez mailing address A copy of this form will be sent to the IRS also. Form 1040ez mailing address Example. Form 1040ez mailing address You bought a new home on May 3. Form 1040ez mailing address You paid no points on the purchase. Form 1040ez mailing address During the year, you made mortgage payments which included $4,480 deductible interest on your new home. Form 1040ez mailing address The settlement sheet for the purchase of the home included interest of $620 for 29 days in May. Form 1040ez mailing address The mortgage statement you receive from the lender includes total interest of $5,100 ($4,480 + $620). Form 1040ez mailing address You can deduct the $5,100 if you itemize your deductions. Form 1040ez mailing address Refund of overpaid interest. Form 1040ez mailing address   If you receive a refund of mortgage interest you overpaid in a prior year, you generally will receive a Form 1098 showing the refund in box 3. Form 1040ez mailing address Generally, you must include the refund in income in the year you receive it. Form 1040ez mailing address See Refund of home mortgage interest , earlier, under Home Mortgage Interest. Form 1040ez mailing address More than one borrower. Form 1040ez mailing address   If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return explaining this. Form 1040ez mailing address Show how much of the interest each of you paid, and give the name and address of the person who received the form. Form 1040ez mailing address Deduct your share of the interest on Schedule A (Form 1040), line 11, and write “See attached” to the right of that line. Form 1040ez mailing address Mortgage Insurance Premiums You may be able to take an itemized deduction on Schedule A (Form 1040), line 13, for premiums you pay or accrue during 2013 for qualified mortgage insurance in connection with home acquisition debt on your qualified home. Form 1040ez mailing address Mortgage insurance premiums you paid or accrued on any mortgage insurance contract issued before January 1, 2007, are not deductible as an itemized deduction. Form 1040ez mailing address Qualified Mortgage Insurance Qualified mortgage insurance is mortgage insurance provided by the Veterans Administration, the Federal Housing Administration, or the Rural Housing Administration, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). Form 1040ez mailing address Prepaid mortgage insurance premiums. Form 1040ez mailing address   If you paid premiums that are allocable to periods after 2013, you must allocate them over the shorter of: The stated term of the mortgage, or 84 months, beginning with the month the insurance was obtained. Form 1040ez mailing address The premiums are treated as paid in the year to which they were allocated. Form 1040ez mailing address If the mortgage is satisfied before its term, no deduction is allowed for the unamortized balance. Form 1040ez mailing address See Publication 936 for details. Form 1040ez mailing address Exception for certain mortgage insurance. Form 1040ez mailing address   The allocation rules, explained above, do not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or Rural Housing Service. Form 1040ez mailing address Home Acquisition Debt Home acquisition debt is a mortgage you took out after October 13, 1987, to buy, build, or substantially improve a qualified home. Form 1040ez mailing address It also must be secured by that home. Form 1040ez mailing address If the amount of your mortgage is more than the cost of the home plus the cost of any substantial improvements, only the debt that is not more than the cost of the home plus improvements qualifies as home acquisition debt. Form 1040ez mailing address Home acquisition debt limit. Form 1040ez mailing address   The total amount you can treat as home acquisition debt at any time on your home cannot be more than $1 million ($500,000 if married filing separately). Form 1040ez mailing address Discharges of qualified principal residence indebtedness. Form 1040ez mailing address   You can exclude from gross income any discharges of qualified principal residence indebtedness made after 2006 and before 2014. Form 1040ez mailing address You must reduce the basis of your principal residence (but not below zero) by the amount you exclude. Form 1040ez mailing address Principal residence. Form 1040ez mailing address   Your principal residence is the home where you ordinarily live most of the time. Form 1040ez mailing address You can have only one principal residence at any one time. Form 1040ez mailing address Qualified principal residence indebtedness. Form 1040ez mailing address   This is a mortgage that you took out to buy, build, or substantially improve your principal residence and that is secured by that residence. Form 1040ez mailing address If the amount of your original mortgage is more than the cost of your principal residence plus the cost of substantial improvements, qualified principal residence indebtedness cannot be more than the cost of your principal residence plus improvements. Form 1040ez mailing address   Any debt secured by your principal residence that you use to refinance qualified principal residence indebtedness is qualified principal residence indebtedness up to the amount of your old mortgage principal just before the refinancing. Form 1040ez mailing address Additional debt incurred to substantially improve your principal residence is also qualified principal residence indebtedness. Form 1040ez mailing address Amount you can exclude. Form 1040ez mailing address   You can only exclude debt discharged after 2006 and before 2014. Form 1040ez mailing address The most you can exclude is $2 million ($1 million if married filing separately). Form 1040ez mailing address You cannot exclude any amount that was discharged because of services performed for the lender or on account of any other factor not directly related either to a decline in the value of your residence or to your financial condition. Form 1040ez mailing address Ordering rule. Form 1040ez mailing address   If only a part of a loan is qualified principal residence indebtedness, you can exclude only the amount of the discharge that is more than the amount of the loan (immediately before the discharge) that is not qualified principal residence indebtedness. Form 1040ez mailing address Qualified Home This means your main home or your second home. Form 1040ez mailing address A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. Form 1040ez mailing address Main home. Form 1040ez mailing address   You can have only one main home at any one time. Form 1040ez mailing address This is the home where you ordinarily live most of the time. Form 1040ez mailing address Second home and other special situations. Form 1040ez mailing address   If you have a second home, use part of your home for other than residential living (such as a home office), rent out part of your home, or are having your home constructed, see Qualified Home in Publication 936. Form 1040ez mailing address Limit on Deduction If your adjusted gross income (AGI) on Form 1040, line 38, is more than $100,000 ($50,000 if your filing status is married filing separately), the amount of your mortgage insurance premiums that are deductible is reduced and may be eliminated. Form 1040ez mailing address See Line 13 in the instructions for Schedule A (Form 1040) and complete the Mortgage Insurance Premiums Deduction Worksheet to figure the amount you can deduct. Form 1040ez mailing address If your AGI is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. Form 1040ez mailing address Form 1098. Form 1040ez mailing address   The amount of mortgage insurance premiums you paid during 2013 should be reported in box 4. Form 1040ez mailing address See Form 1098, Mortgage Interest Statement in Publication 936. Form 1040ez mailing address Mortgage Interest Credit The mortgage interest credit is intended to help lower-income individuals afford home ownership. Form 1040ez mailing address If you qualify, you can claim the credit on Form 8396 each year for part of the home mortgage interest you pay. Form 1040ez mailing address Who qualifies. Form 1040ez mailing address   You may be eligible for the credit if you were issued a qualified Mortgage Credit Certificate (MCC) from your state or local government. Form 1040ez mailing address Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home. Form 1040ez mailing address The MCC will show the certificate credit rate you will use to figure your credit. Form 1040ez mailing address It also will show the certified indebtedness amount. Form 1040ez mailing address Only the interest on that amount qualifies for the credit. Form 1040ez mailing address See Figuring the Credit , later. Form 1040ez mailing address You must contact the appropriate government agency about getting an MCC before you get a mortgage and buy your home. Form 1040ez mailing address Contact your state or local housing finance agency for information about the availability of MCCs in your area. Form 1040ez mailing address How to claim the credit. Form 1040ez mailing address   To claim the credit, complete Form 8396 and attach it to your Form 1040 or Form 1040NR, U. Form 1040ez mailing address S. Form 1040ez mailing address Nonresident Alien Income Tax Return. Form 1040ez mailing address Include the credit in your total for Form 1040, line 53, or Form 1040NR, line 50; be sure to check box c and write “Form 8396” on that line. Form 1040ez mailing address Reducing your home mortgage interest deduction. Form 1040ez mailing address   If you itemize your deductions on Schedule A (Form 1040), you must reduce your home mortgage interest deduction by the amount of the mortgage interest credit shown on Form 8396, line 3. Form 1040ez mailing address You must do this even if part of that amount is to be carried forward to 2014. Form 1040ez mailing address Selling your home. Form 1040ez mailing address   If you purchase a home after 1990 using an MCC, and you sell that home within 9 years, you may have to recapture (repay) all or part of the benefit you received from the MCC program. Form 1040ez mailing address For additional information, see Recapturing (Paying Back) a Federal Mortgage Subsidy, in Publication 523. Form 1040ez mailing address Figuring the Credit Figure your credit on Form 8396. Form 1040ez mailing address Mortgage not more than certified indebtedness. Form 1040ez mailing address   If your mortgage loan amount is equal to (or smaller than) the certified indebtedness amount shown on your MCC, enter on Form 8396, line 1, all the interest you paid on your mortgage during the year. Form 1040ez mailing address Mortgage more than certified indebtedness. Form 1040ez mailing address   If your mortgage loan amount is larger than the certified indebtedness amount shown on your MCC, you can figure the credit on only part of the interest you paid. Form 1040ez mailing address To find the amount to enter on line 1, multiply the total interest you paid during the year on your mortgage by the following fraction. Form 1040ez mailing address Certified indebtedness amount on your MCC Original amount of your mortgage   The fraction will not change as long as you are entitled to take the mortgage interest credit. Form 1040ez mailing address Example. Form 1040ez mailing address Emily bought a home this year. Form 1040ez mailing address Her mortgage loan is $125,000. Form 1040ez mailing address The certified indebtedness amount on her MCC is $100,000. Form 1040ez mailing address She paid $7,500 interest this year. Form 1040ez mailing address Emily figures the interest to enter on Form 8396, line 1, as follows:   $100,000 = 80% (. Form 1040ez mailing address 80)       $125,000       $7,500 x . Form 1040ez mailing address 80 = $6,000   Emily enters $6,000 on Form 8396, line 1. Form 1040ez mailing address In each later year, she will figure her credit using only 80% of the interest she pays for that year. Form 1040ez mailing address Limits Two limits may apply to your credit. Form 1040ez mailing address A limit based on the credit rate, and A limit based on your tax. Form 1040ez mailing address Limit based on credit rate. Form 1040ez mailing address   If the certificate credit rate is higher than 20%, the credit you are allowed cannot be more than $2,000. Form 1040ez mailing address Limit based on tax. Form 1040ez mailing address   After applying the limit based on the credit rate, your credit generally cannot be more than your tax liability. Form 1040ez mailing address See the Credit Limit Worksheet in the Form 8396 instructions to calculate the limit based on tax. Form 1040ez mailing address Dividing the Credit If two or more persons (other than a married couple filing a joint return) hold an interest in the home to which the MCC relates, the credit must be divided based on the interest held by each person. Form 1040ez mailing address Example. Form 1040ez mailing address John and his brother, George, were issued an MCC. Form 1040ez mailing address They used it to get a mortgage on their main home. Form 1040ez mailing address John has a 60% ownership interest in the home, and George has a 40% ownership interest in the home. Form 1040ez mailing address John paid $5,400 mortgage interest this year and George paid $3,600. Form 1040ez mailing address The MCC shows a credit rate of 25% and a certified indebtedness amount of $130,000. Form 1040ez mailing address The loan amount (mortgage) on their home is $120,000. Form 1040ez mailing address The credit is limited to $2,000 because the credit rate is more than 20%. Form 1040ez mailing address John figures the credit by multiplying the mortgage interest he paid this year ($5,400) by the certificate credit rate (25%) for a total of $1,350. Form 1040ez mailing address His credit is limited to $1,200 ($2,000 × 60%). Form 1040ez mailing address George figures the credit by multiplying the mortgage interest he paid this year ($3,600) by the certificate credit rate (25%) for a total of $900. Form 1040ez mailing address His credit is limited to $800 ($2,000 × 40%). Form 1040ez mailing address Carryforward If your allowable credit is reduced because of the limit based on your tax, you can carry forward the unused portion of the credit to the next 3 years or until used, whichever comes first. Form 1040ez mailing address Example. Form 1040ez mailing address You receive a mortgage credit certificate from State X. Form 1040ez mailing address This year, your regular tax liability is $1,100, you owe no alternative minimum tax, and your mortgage interest credit is $1,700. Form 1040ez mailing address You claim no other credits. Form 1040ez mailing address Your unused mortgage interest credit for this year is $600 ($1,700 − $1,100). Form 1040ez mailing address You can carry forward this amount to the next 3 years or until used, whichever comes first. Form 1040ez mailing address Credit rate more than 20%. Form 1040ez mailing address   If you are subject to the $2,000 limit because your certificate credit rate is more than 20%, you cannot carry forward any amount more than $2,000 (or your share of the $2,000 if you must divide the credit). Form 1040ez mailing address Example. Form 1040ez mailing address In the earlier example under Dividing the Credit , John and George used the entire $2,000 credit. Form 1040ez mailing address The excess   John $1,350 − $1,200 = $150     George $900 − $800 = $100   $150 for John ($1,350 − $1,200) and $100 for George ($900 − $800) cannot be carried forward to future years, despite the respective tax liabilities for John and George. Form 1040ez mailing address Refinancing If you refinance your original mortgage loan on which you had been given an MCC, you must get a new MCC to be able to claim the credit on the new loan. Form 1040ez mailing address The amount of credit you can claim on the new loan may change. Form 1040ez mailing address Table 2 below summarizes how to figure your credit if you refinance your original mortgage loan. Form 1040ez mailing address Table 2. Form 1040ez mailing address Effect of Refinancing on Your Credit IF you get a new (reissued) MCC and the amount of your new mortgage is . Form 1040ez mailing address . Form 1040ez mailing address . Form 1040ez mailing address THEN the interest you claim on Form 8396, line 1, is* . Form 1040ez mailing address . Form 1040ez mailing address . Form 1040ez mailing address smaller than or equal to the certified indebtedness amount on the new MCC all the interest paid during the year on your new mortgage. Form 1040ez mailing address larger than the certified indebtedness amount on the new MCC interest paid during the year on your new mortgage multiplied by the following fraction. Form 1040ez mailing address         certified indebtedness  amount on your new MCC       original amount of your  mortgage   *The credit using the new MCC cannot be more than the credit using the old MCC. Form 1040ez mailing address  See New MCC cannot increase your credit above. Form 1040ez mailing address An issuer may reissue an MCC after you refinance your mortgage. Form 1040ez mailing address If you did not get a new MCC, you may want to contact the state or local housing finance agency that issued your original MCC for information about whether you can get a reissued MCC. Form 1040ez mailing address Year of refinancing. Form 1040ez mailing address   In the year of refinancing, add the applicable amount of interest paid on the old mortgage and the applicable amount of interest paid on the new mortgage, and enter the total on Form 8396, line 1. Form 1040ez mailing address   If your new MCC has a credit rate different from the rate on the old MCC, you must attach a statement to Form 8396. Form 1040ez mailing address The statement must show the calculation for lines 1, 2, and 3 for the part of the year when the old MCC was in effect. Form 1040ez mailing address It must show a separate calculation for the part of the year when the new MCC was in effect. Form 1040ez mailing address Combine the amounts from both calculations for line 3, enter the total on line 3 of the form, and write “See attached” on the dotted line next to line 2. Form 1040ez mailing address New MCC cannot increase your credit. Form 1040ez mailing address   The credit that you claim with your new MCC cannot be more than the credit that you could have claimed with your old MCC. Form 1040ez mailing address   In most cases, the agency that issues your new MCC will make sure that it does not increase your credit. Form 1040ez mailing address However, if either your old loan or your new loan has a variable (adjustable) interest rate, you will need to check this yourself. Form 1040ez mailing address In that case, you will need to know the amount of the credit you could have claimed using the old MCC. Form 1040ez mailing address   There are two methods for figuring the credit you could have claimed. Form 1040ez mailing address Under one method, you figure the actual credit that would have been allowed. Form 1040ez mailing address This means you use the credit rate on the old MCC and the interest you would have paid on the old loan. Form 1040ez mailing address   If your old loan was a variable rate mortgage, you can use another method to determine the credit that you could have claimed. Form 1040ez mailing address Under this method, you figure the credit using a payment schedule of a hypothetical self-amortizing mortgage with level payments projected to the final maturity date of the old mortgage. Form 1040ez mailing address The interest rate of the hypothetical mortgage is the annual percentage rate (APR) of the new mortgage for purposes of the Federal Truth in Lending Act. Form 1040ez mailing address The principal of the hypothetical mortgage is the remaining outstanding balance of the certified mortgage indebtedness shown on the old MCC. Form 1040ez mailing address    You must choose one method and use it consistently beginning with the first tax year for which you claim the credit based on the new MCC. Form 1040ez mailing address    As part of your tax records, you should keep your old MCC and the schedule of payments for your old mortgage. Form 1040ez mailing address Basis Basis is your starting point for figuring a gain or loss if you later sell your home, or for figuring depreciation if you later use part of your home for business purposes or for rent. Form 1040ez mailing address While you own your home, you may add certain items to your basis. Form 1040ez mailing address You may subtract certain other items from your basis. Form 1040ez mailing address These items are called adjustments to basis and are explained later under Adjusted Basis . Form 1040ez mailing address It is important that you understand these terms when you first acquire your home because you must keep track of your basis and adjusted basis during the period you own your home. Form 1040ez mailing address You also must keep records of the events that affect basis or adjusted basis. Form 1040ez mailing address See Keeping Records , below. Form 1040ez mailing address Figuring Your Basis How you figure your basis depends on how you acquire your home. Form 1040ez mailing address If you buy or build your home, your cost is your basis. Form 1040ez mailing address If you receive your home as a gift, your basis is usually the same as the adjusted basis of the person who gave you the property. Form 1040ez mailing address If you inherit your home from a decedent, different rules apply depending on the date of the decedent's death. Form 1040ez mailing address Each of these topics is discussed later. Form 1040ez mailing address Property transferred from a spouse. Form 1040ez mailing address   If your home is transferred to you from your spouse, or from your former spouse as a result of a divorce, your basis is the same as your spouse's (or former spouse's) adjusted basis just before the transfer. Form 1040ez mailing address Publication 504, Divorced or Separated Individuals, fully discusses transfers between spouses. Form 1040ez mailing address Cost as Basis The cost of your home, whether you purchased it or constructed it, is the amount you paid for it, including any debt you assumed. Form 1040ez mailing address The cost of your home includes most settlement or closing costs you paid when you bought the home. Form 1040ez mailing address If you built your home, your cost includes most closing costs paid when you bought the land or settled on your mortgage. Form 1040ez mailing address See Settlement or closing costs , later. Form 1040ez mailing address If you elect to deduct the sales taxes on the purchase or construction of your home as an itemized deduction on Schedule A (Form 1040), you cannot include the sales taxes as part of your cost basis in the home. Form 1040ez mailing address Purchase. Form 1040ez mailing address   The basis of a home you bought is the amount you paid for it. Form 1040ez mailing address This usually includes your down payment and any debt you assumed. Form 1040ez mailing address The basis of a cooperative apartment is the amount you paid for your shares in the corporation that owns or controls the property. Form 1040ez mailing address This amount includes any purchase commissions or other costs of acquiring the shares. Form 1040ez mailing address Construction. Form 1040ez mailing address   If you contracted to have your home built on land that you own, your basis in the home is your basis in the land plus the amount you paid to have the home built. Form 1040ez mailing address This includes the cost of labor and materials, the amount you paid the contractor, any architect's fees, building permit charges, utility meter and connection charges, and legal fees that are directly connected with building your home. Form 1040ez mailing address If you built all or part of your home yourself, your basis is the total amount it cost you to build it. Form 1040ez mailing address You cannot include in basis the value of your own labor or any other labor for which you did not pay. Form 1040ez mailing address Real estate taxes. Form 1040ez mailing address   Real estate taxes are usually divided so that you and the seller each pay taxes for the part of the property tax year that each owned the home. Form 1040ez mailing address See the earlier discussion of Real estate taxes paid at settlement or closing , under Real Estate Taxes, earlier, to figure the real estate taxes you paid or are considered to have paid. Form 1040ez mailing address   If you pay any part of the seller's share of the real estate taxes (the taxes up to the date of sale), and the seller did not reimburse you, add those taxes to your basis in the home. Form 1040ez mailing address You cannot deduct them as taxes paid. Form 1040ez mailing address   If the seller paid any of your share of the real estate taxes (the taxes beginning with the date of sale), you can still deduct those taxes. Form 1040ez mailing address Do not include those taxes in your basis. Form 1040ez mailing address If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Form 1040ez mailing address Example 1. Form 1040ez mailing address You bought your home on September 1. Form 1040ez mailing address The property tax year in your area is the calendar year, and the tax is due on August 15. Form 1040ez mailing address The real estate taxes on the home you bought were $1,275 for the year and had been paid by the seller on August 15. Form 1040ez mailing address You did not reimburse the seller for your share of the real estate taxes from September 1 through December 31. Form 1040ez mailing address You must reduce the basis of your home by the $426 [(122 ÷ 365) × $1,275] the seller paid for you. Form 1040ez mailing address You can deduct your $426 share of real estate taxes on your return for the year you purchased your home. Form 1040ez mailing address Example 2. Form 1040ez mailing address You bought your home on May 3, 2013. Form 1040ez mailing address The property tax year in your area is the calendar year. Form 1040ez mailing address The taxes for the previous year are assessed on January 2 and are due on May 31 and November 30. Form 1040ez mailing address Under state law, the taxes become a lien on May 31. Form 1040ez mailing address You agreed to pay all taxes due after the date of sale. Form 1040ez mailing address The taxes due in 2013 for 2012 were $1,375. Form 1040ez mailing address The taxes due in 2014 for 2013 will be $1,425. Form 1040ez mailing address You cannot deduct any of the taxes paid in 2013 because they relate to the 2012 property tax year and you did not own the home until 2013. Form 1040ez mailing address Instead, you add the $1,375 to the cost (basis) of your home. Form 1040ez mailing address You owned the home in 2013 for 243 days (May 3 to December 31), so you can take a tax deduction on your 2014 return of $949 [(243 ÷ 365) × $1,425] paid in 2014 for 2013. Form 1040ez mailing address You add the remaining $476 ($1,425 − $949) of taxes paid in 2014 to the cost (basis) of your home. Form 1040ez mailing address Settlement or closing costs. Form 1040ez mailing address   If you bought your home, you probably paid settlement or closing costs in addition to the contract price. Form 1040ez mailing address These costs are divided between you and the seller according to the sales contract, local custom, or understanding of the parties. Form 1040ez mailing address If you built your home, you probably paid these costs when you bought the land or settled on your mortgage. Form 1040ez mailing address   The only settlement or closing costs you can deduct are home mortgage interest and certain real estate taxes. Form 1040ez mailing address You deduct them in the year you buy your home if you itemize your deductions. Form 1040ez mailing address You can add certain other settlement or closing costs to the basis of your home. Form 1040ez mailing address Items added to basis. Form 1040ez mailing address   You can include in your basis the settlement fees and closing costs you paid for buying your home. Form 1040ez mailing address A fee is for buying the home if you would have had to pay it even if you paid cash for the home. Form 1040ez mailing address   The following are some of the settlement fees and closing costs that you can include in the original basis of your home. Form 1040ez mailing address Abstract fees (abstract of title fees). Form 1040ez mailing address Charges for installing utility services. Form 1040ez mailing address Legal fees (including fees for the title search and preparation of the sales contract and deed). Form 1040ez mailing address Recording fees. Form 1040ez mailing address Surveys. Form 1040ez mailing address Transfer or stamp taxes. Form 1040ez mailing address Owner's title insurance. Form 1040ez mailing address Any amount the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, cost for improvements or repairs, and sales commissions. Form 1040ez mailing address   If the seller actually paid for any item for which you are liable and for which you can take a deduction (such as your share of the real estate taxes for the year of sale), you must reduce your basis by that amount unless you are charged for it in the settlement. Form 1040ez mailing address Items not added to basis and not deductible. Form 1040ez mailing address   Here are some settlement and closing costs that you cannot deduct or add to your basis. Form 1040ez mailing address Fire insurance premiums. Form 1040ez mailing address Charges for using utilities or other services related to occupancy of the home before closing. Form 1040ez mailing address Rent for occupying the home before closing. Form 1040ez mailing address Charges connected with getting or refinancing a mortgage loan, such as: Loan assumption fees, Cost of a credit report, and Fee for an appraisal required by a lender. Form 1040ez mailing address Points paid by seller. Form 1040ez mailing address   If you bought your home after April 3, 1994, you must reduce your basis by any points paid for your mortgage by the person who sold you your home. Form 1040ez mailing address   If you bought your home after 1990 but before April 4, 1994, you must reduce your basis by seller-paid points only if you deducted them. Form 1040ez mailing address See Points , earlier, for the rules on deducting points. Form 1040ez mailing address Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined later) to the donor just before it was given to you, its fair market value (FMV) at the time it was given to you, and any gift tax paid on it. Form 1040ez mailing address Fair market value. Form 1040ez mailing address   Fair market value (FMV) is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and who both have a reasonable knowledge of all the necessary facts. Form 1040ez mailing address Donor's adjusted basis is more than FMV. Form 1040ez mailing address   If someone gave you your home and the donor's adjusted basis, when it was given to you, was more than the FMV, your basis at the time of receipt is the same as the donor's adjusted basis. Form 1040ez mailing address Disposition basis. Form 1040ez mailing address   If the donor's adjusted basis at the time of the gift is more than the FMV, your basis (plus or minus any required adjustments, see Adjusted Basis , later) when you dispose of the property will depend on whether you have a gain or a loss. Form 1040ez mailing address Your basis for figuring a gain is the same as the donor's adjusted basis. Form 1040ez mailing address Your basis for figuring a loss is the FMV when you received the gift. Form 1040ez mailing address If you use the donor's adjusted basis to figure a gain and it results in a loss, then you must use the FMV (at the time of the gift) to refigure the loss. Form 1040ez mailing address However, if using the FMV results in a gain, then you neither have a gain nor a loss. Form 1040ez mailing address Example 1. Form 1040ez mailing address Andrew received a house as a gift from Ishmael (the donor). Form 1040ez mailing address At the time of the gift, the home had an FMV of $80,000. Form 1040ez mailing address Ishmael's adjusted basis was $100,000. Form 1040ez mailing address After he received the house, no events occurred to increase or decrease the basis. Form 1040ez mailing address If Andrew sells the house for $120,000, he will have a $20,000 gain because he must use the donor's adjusted basis ($100,000) at the time of the gift as his basis to figure the gain. Form 1040ez mailing address Example 2. Form 1040ez mailing address Same facts as Example 1 , except this time Andrew sells the house for $70,000. Form 1040ez mailing address He will have a loss of $10,000 because he must use the FMV ($80,000) at the time of the gift as his basis to figure the loss. Form 1040ez mailing address Example 3. Form 1040ez mailing address Same facts as Example 1 , except this time Andrew sells the house for $90,000. Form 1040ez mailing address Initially, he figures the gain using Ishmael's adjusted basis ($100,000), which results in a loss of $10,000. Form 1040ez mailing address Since it is a loss, Andrew must now recalculate the loss using the FMV ($80,000), which results in a gain of $10,000. Form 1040ez mailing address So in this situation, Andrew will neither have a gain nor a loss. Form 1040ez mailing address Donor's adjusted basis equal to or less than the FMV. Form 1040ez mailing address   If someone gave you your home after 1976 and the donor's adjusted basis, when it was given to you, was equal to or less than the FMV, your basis at the time of receipt is the same as the donor's adjusted basis, plus the part of any federal gift tax paid that is due to the net increase in value of the home. Form 1040ez mailing address Part of federal gift tax due to net increase in value. Form 1040ez mailing address   Figure the part of the federal gift tax paid that is due to the net increase in value of the home by multiplying the total federal gift tax paid by a fraction. Form 1040ez mailing address The numerator (top part) of the fraction is the net increase in the value of the home, and the denominator (bottom part) is the value of the home for gift tax purposes after reduction for any annual exclusion and marital or charitable deduction that applies to the gift. Form 1040ez mailing address The net increase in the value of the home is its FMV minus the adjusted basis of the donor. Form 1040ez mailing address Publication 551 gives more information, including examples, on figuring your basis when you receive property as a gift. Form 1040ez mailing address Inheritance Your basis in a home you inherited is generally the fair market value of the home on the date of the decedent's death or on the alternative valuation date if the personal representative for the estate chooses to use alternative valuation. Form 1040ez mailing address If an estate tax return was filed, your basis is generally the value of the home listed on the estate tax return. Form 1040ez mailing address If an estate tax return was not filed, your basis is the appraised value of the home at the decedent's date of death for state inheritance or transmission taxes. Form 1040ez mailing address Publication 551 and Publication 559, Survivors, Executors, and Administrators, have more information on the basis of inherited property. Form 1040ez mailing address If you inherited your home from someone who died in 2010, and the executor of the decedent's estate made the election to file Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, refer to the information provided by the executor or see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. Form 1040ez mailing address Adjusted Basis While you own your home, various events may take place that can change the original basis of your home. Form 1040ez mailing address These events can increase or decrease your original basis. Form 1040ez mailing address The result is called adjusted basis. Form 1040ez mailing address See Table 3, on this page, for a list of some of the items that can adjust your basis. Form 1040ez mailing address Table 3. Form 1040ez mailing address Adjusted Basis This table lists examples of some items that generally will increase or decrease your basis in your home. Form 1040ez mailing address It is not intended to be all-inclusive. Form 1040ez mailing address Increases to Basis Decreases to Basis Improvements: Putting an addition on your home Replacing an entire roof Paving your driveway Installing central air conditioning Rewiring your home Assessments for local improvements (see Assessments for local benefits , under What You Can and Cannot Deduct, earlier) Amounts spent to restore damaged property Insurance or other reimbursement for casualty losses Deductible casualty loss not covered by insurance Payments received for easement or right-of-way granted Depreciation allowed or allowable if home is used for business or rental purposes Value of subsidy for energy conservation measure excluded from income Improvements. Form 1040ez mailing address   An improvement materially adds to the value of your home, considerably prolongs its useful life, or adapts it to new uses. Form 1040ez mailing address You must add the cost of any improvements to the basis of your home. Form 1040ez mailing address You cannot deduct these costs. Form 1040ez mailing address   Improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, and paving your driveway. Form 1040ez mailing address Amount added to basis. Form 1040ez mailing address   The amount you add to your basis for improvements is your actual cost. Form 1040ez mailing address This includes all costs for material and labor, except your own labor, and all expenses related to the improvement. Form 1040ez mailing address For example, if you had your lot surveyed to put up a fence, the cost of the survey is a part of the cost of the fence. Form 1040ez mailing address   You also must add to your basis state and local assessments for improvements such as streets and sidewalks if they increase the value of the property. Form 1040ez mailing address These assessments are discussed earlier under Real Estate Taxes . Form 1040ez mailing address Improvements no longer part of home. Form 1040ez mailing address    Your home's adjusted basis does not include the cost of any improvements that are replaced and are no longer part of the home. Form 1040ez mailing address Example. Form 1040ez mailing address You put wall-to-wall carpeting in your home 15 years ago. Form 1040ez mailing address Later, you replaced that carpeting with new wall-to-wall carpeting. Form 1040ez mailing address The cost of the old carpeting you replaced is no longer part of your home's adjusted basis. Form 1040ez mailing address Repairs versus improvements. Form 1040ez mailing address   A repair keeps your home in an ordinary, efficient operating condition. Form 1040ez mailing address It does not add to the value of your home or prolong its life. Form 1040ez mailing address Repairs include repainting your home inside or outside, fixing your gutters or floors, fixing leaks or plastering, and replacing broken window panes. Form 1040ez mailing address You cannot deduct repair costs and generally cannot add them to the basis of your home. Form 1040ez mailing address   However, repairs that are done as part of an extensive remodeling or restoration of your home are considered improvements. Form 1040ez mailing address You add them to the basis of your home. Form 1040ez mailing address Records to keep. Form 1040ez mailing address   You can use Table 4 (at the end of the publication) as a guide to help you keep track of improvements to your home. Form 1040ez mailing address Also see Keeping Records , below. Form 1040ez mailing address Energy conservation subsidy. Form 1040ez mailing address   If a public utility gives you (directly or indirectly) a subsidy for the purchase or installation of an energy conservation measure for your home, do not include the value of that subsidy in your income. Form 1040ez mailing address You must reduce the basis of your home by that value. Form 1040ez mailing address   An energy conservation measure is an installation or modification primarily designed to reduce consumption of electricity or natural gas or to improve the management of energy demand. Form 1040ez mailing address Keeping Records Keeping full and accurate records is vital to properly report your income and expenses, to support your deductions and credits, and to know the basis or adjusted basis of your home. Form 1040ez mailing address These records include your purchase contract and settlement papers if you bought the property, or other objective evidence if you acquired it by gift, inheritance, or similar means. Form 1040ez mailing address You should keep any receipts, canceled checks, and similar evidence for improvements or other additions to the basis. Form 1040ez mailing address In addition, you should keep track of any decreases to the basis such as those listed in Table 3, earlier. Form 1040ez mailing address How to keep records. Form 1040ez mailing address   How you keep records is up to you, but they must be clear and accurate and must be available to the IRS. Form 1040ez mailing address How long to keep records. Form 1040ez mailing address   You must keep your records for as long as they are important for meeting any provision of the federal tax law. Form 1040ez mailing address   Keep records that support an item of income, a deduction, or a credit appearing on a return until the period of limitations for the return runs out. Form 1040ez mailing address (A period of limitations is the period of time after which no legal action can be brought. Form 1040ez mailing address ) For assessment of tax you owe, this is generally 3 years from the date you filed the return. Form 1040ez mailing address For filing a claim for credit or refund, this is generally 3 years from the date you filed the original return, or 2 years from the date you paid the tax, whichever is later. Form 1040ez mailing address Returns filed before the due date are treated as filed on the due date. Form 1040ez mailing address   You may need to keep records relating to the basis of property (discussed earlier) for longer than the period of limitations. Form 1040ez mailing address Keep those records as long as they are important in figuring the basis of the original or replacement property. Form 1040ez mailing address Generally, this means for as long as you own the property and, after you dispose of it, for the period of limitations that applies to you. Form 1040ez mailing address Table 4. Form 1040ez mailing address Record of Home Improvements Keep this for your records. Form 1040ez mailing address Also, keep receipts or other proof of improvements. Form 1040ez mailing address Remove from this record any improvements that are no longer part of your main home. Form 1040ez mailing address For example, if you put wall-to-wall carpeting in your home and later replace it with new wall-to-wall carpeting, remove the cost of the first carpeting. Form 1040ez mailing address (a) Type of Improvement (b) Date (c) Amount   (a) Type of Improvement (b) Date (c) Amount Additions:       Heating & Air  Conditioning:     Bedroom       Heating system     Bathroom       Central air conditioning     Deck       Furnace     Garage       Duct work     Porch       Central humidifier     Patio       Filtration system     Storage shed       Other     Fireplace       Electrical:     Other           Lawn & Grounds:       Lighting fixtures           Wiring upgrades     Landscaping       Other     Driveway       Plumbing:     Walkway           Fences       Water heater     Retaining wall       Soft water system     Sprinkler system       Filtration system     Swimming pool       Other     Exterior lighting       Insulation:     Other           Communications:       Attic           Walls     Satellite dish       Floors     Intercom       Pipes and duct work     Security system       Other     Other             Miscellaneous:       Interior  Improvements:     Storm windows and doors       Built-in appliances     Roof       Kitchen modernization     Central vacuum       Bathroom modernization     Other       Flooring             Wall-to-wall carpeting             Other     How To