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Form 1040nr Ez

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Form 1040nr Ez

Form 1040nr ez 1. Form 1040nr ez   Gain or Loss Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesGain or Loss From Sales and Exchanges Abandonments Foreclosures and RepossessionsAmount realized on a nonrecourse debt. Form 1040nr ez Amount realized on a recourse debt. Form 1040nr ez Involuntary ConversionsCondemnations Nontaxable ExchangesLike-Kind Exchanges Other Nontaxable Exchanges Transfers to Spouse Rollover of Gain From Publicly Traded Securities Gains on Sales of Qualified Small Business Stock Exclusion of Gain From Sale of DC Zone Assets Topics - This chapter discusses: Sales and exchanges Abandonments Foreclosures and repossessions Involuntary conversions Nontaxable exchanges Transfers to spouse Rollovers and exclusions for certain capital gains Useful Items - You may want to see: Publication 523 Selling Your Home 537 Installment Sales 547 Casualties, Disasters, and Thefts 550 Investment Income and Expenses 551 Basis of Assets 908 Bankruptcy Tax Guide 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 1040 U. Form 1040nr ez S. Form 1040nr ez Individual Income Tax Return 1040X Amended U. Form 1040nr ez S. Form 1040nr ez Individual Income Tax Return 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets Although the discussions in this chapter may at times refer mainly to individuals, many of the rules discussed also apply to taxpayers other than individuals. Form 1040nr ez However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. Form 1040nr ez See chapter 5 for information about getting publications and forms. Form 1040nr ez Sales and Exchanges A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Form 1040nr ez An exchange is a transfer of property for other property or services. Form 1040nr ez The following discussions describe the kinds of transactions that are treated as sales or exchanges and explain how to figure gain or loss. Form 1040nr ez Sale or lease. Form 1040nr ez    Some agreements that seem to be leases may really be conditional sales contracts. Form 1040nr ez The intention of the parties to the agreement can help you distinguish between a sale and a lease. Form 1040nr ez   There is no test or group of tests to prove what the parties intended when they made the agreement. Form 1040nr ez You should consider each agreement based on its own facts and circumstances. Form 1040nr ez For more information, see chapter 3 in Publication 535, Business Expenses. Form 1040nr ez Cancellation of a lease. Form 1040nr ez    Payments received by a tenant for the cancellation of a lease are treated as an amount realized from the sale of property. Form 1040nr ez Payments received by a landlord (lessor) for the cancellation of a lease are essentially a substitute for rental payments and are taxed as ordinary income in the year in which they are received. Form 1040nr ez Copyright. Form 1040nr ez    Payments you receive for granting the exclusive use of (or right to exploit) a copyright throughout its life in a particular medium are treated as received from the sale of property. Form 1040nr ez It does not matter if the payments are a fixed amount or a percentage of receipts from the sale, performance, exhibition, or publication of the copyrighted work, or an amount based on the number of copies sold, performances given, or exhibitions made. Form 1040nr ez Nor does it matter if the payments are made over the same period as that covering the grantee's use of the copyrighted work. Form 1040nr ez   If the copyright was used in your trade or business and you held it longer than a year, the gain or loss may be a section 1231 gain or loss. Form 1040nr ez For more information, see Section 1231 Gains and Losses in chapter 3. Form 1040nr ez Easement. Form 1040nr ez   The amount received for granting an easement is subtracted from the basis of the property. Form 1040nr ez If only a specific part of the entire tract of property is affected by the easement, only the basis of that part is reduced by the amount received. Form 1040nr ez If it is impossible or impractical to separate the basis of the part of the property on which the easement is granted, the basis of the whole property is reduced by the amount received. Form 1040nr ez   Any amount received that is more than the basis to be reduced is a taxable gain. Form 1040nr ez The transaction is reported as a sale of property. Form 1040nr ez   If you transfer a perpetual easement for consideration and do not keep any beneficial interest in the part of the property affected by the easement, the transaction will be treated as a sale of property. Form 1040nr ez However, if you make a qualified conservation contribution of a restriction or easement granted in perpetuity, it is treated as a charitable contribution and not a sale or exchange, even though you keep a beneficial interest in the property affected by the easement. Form 1040nr ez   If you grant an easement on your property (for example, a right-of-way over it) under condemnation or threat of condemnation, you are considered to have made a forced sale, even though you keep the legal title. Form 1040nr ez Although you figure gain or loss on the easement in the same way as a sale of property, the gain or loss is treated as a gain or loss from a condemnation. Form 1040nr ez See Gain or Loss From Condemnations, later. Form 1040nr ez Property transferred to satisfy debt. Form 1040nr ez   A transfer of property to satisfy a debt is an exchange. Form 1040nr ez Note's maturity date extended. Form 1040nr ez   The extension of a note's maturity date is not treated as an exchange of an outstanding note for a new and different note. Form 1040nr ez Also, it is not considered a closed and completed transaction that would result in a gain or loss. Form 1040nr ez However, an extension will be treated as a taxable exchange of the outstanding note for a new and materially different note if the changes in the terms of the note are significant. Form 1040nr ez Each case must be determined by its own facts. Form 1040nr ez For more information, see Regulations section 1. Form 1040nr ez 1001-3. Form 1040nr ez Transfer on death. Form 1040nr ez   The transfer of property of a decedent to an executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or exchange or other disposition. Form 1040nr ez No taxable gain or deductible loss results from the transfer. Form 1040nr ez Bankruptcy. Form 1040nr ez   Generally, a transfer (other than by sale or exchange) of property from a debtor to a bankruptcy estate is not treated as a disposition. Form 1040nr ez Consequently, the transfer generally does not result in gain or loss. Form 1040nr ez For more information, see Publication 908, Bankruptcy Tax Guide. Form 1040nr ez Gain or Loss From Sales and Exchanges You usually realize gain or loss when property is sold or exchanged. Form 1040nr ez A gain is the amount you realize from a sale or exchange of property that is more than its adjusted basis. Form 1040nr ez A loss is the adjusted basis of the property that is more than the amount you realize. Form 1040nr ez   Table 1-1. Form 1040nr ez How To Figure Whether You Have a Gain or Loss IF your. Form 1040nr ez . Form 1040nr ez . Form 1040nr ez THEN you have a. Form 1040nr ez . Form 1040nr ez . Form 1040nr ez Adjusted basis is more than the amount realized, Loss. Form 1040nr ez Amount realized is more than the adjusted basis, Gain. Form 1040nr ez Basis. Form 1040nr ez   You must know the basis of your property to determine whether you have a gain or loss from its sale or other disposition. Form 1040nr ez The basis of property you buy is usually its cost. Form 1040nr ez However, if you acquired the property by gift, inheritance, or in some way other than buying it, you must use a basis other than its cost. Form 1040nr ez See Basis Other Than Cost in Publication 551, Basis of Assets. Form 1040nr ez Special rules apply to property acquired from a decedent who died in 2010 and the executor made the election to file Form 8939, Allocation of Increase in Basis for Property Received From a Decedent. Form 1040nr ez See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. Form 1040nr ez Adjusted basis. Form 1040nr ez   The adjusted basis of property is your original cost or other basis plus (increased by) certain additions and minus (decreased by) certain deductions. Form 1040nr ez Increases include costs of any improvements having a useful life of more than 1 year. Form 1040nr ez Decreases include depreciation and casualty losses. Form 1040nr ez For more details and additional examples, see Adjusted Basis in Publication 551. Form 1040nr ez Amount realized. Form 1040nr ez   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (defined below) of all property or services you receive. Form 1040nr ez The amount you realize also includes any of your liabilities that were assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. Form 1040nr ez Fair market value. Form 1040nr ez   Fair market value (FMV) is the price at which the property would change hands between a buyer and a seller when both have reasonable knowledge of all the necessary facts and neither is being forced to buy or sell. Form 1040nr ez If parties with adverse interests place a value on property in an arm's-length transaction, that is strong evidence of FMV. Form 1040nr ez If there is a stated price for services, this price is treated as the FMV unless there is evidence to the contrary. Form 1040nr ez Example. Form 1040nr ez You used a building in your business that cost you $70,000. Form 1040nr ez You made certain permanent improvements at a cost of $20,000 and deducted depreciation totaling $10,000. Form 1040nr ez You sold the building for $100,000 plus property having an FMV of $20,000. Form 1040nr ez The buyer assumed your real estate taxes of $3,000 and a mortgage of $17,000 on the building. Form 1040nr ez The selling expenses were $4,000. Form 1040nr ez Your gain on the sale is figured as follows. Form 1040nr ez Amount realized:     Cash $100,000   FMV of property received 20,000   Real estate taxes assumed by buyer 3,000   Mortgage assumed by  buyer 17,000   Total 140,000   Minus: Selling expenses 4,000 $136,000 Adjusted basis:     Cost of building $70,000   Improvements 20,000   Total $90,000   Minus: Depreciation 10,000   Adjusted basis   $80,000 Gain on sale $56,000 Amount recognized. Form 1040nr ez   Your gain or loss realized from a sale or exchange of property is usually a recognized gain or loss for tax purposes. Form 1040nr ez Recognized gains must be included in gross income. Form 1040nr ez Recognized losses are deductible from gross income. Form 1040nr ez However, your gain or loss realized from certain exchanges of property is not recognized for tax purposes. Form 1040nr ez See Nontaxable Exchanges, later. Form 1040nr ez Also, a loss from the sale or other disposition of property held for personal use is not deductible, except in the case of a casualty or theft. Form 1040nr ez Interest in property. Form 1040nr ez   The amount you realize from the disposition of a life interest in property, an interest in property for a set number of years, or an income interest in a trust is a recognized gain under certain circumstances. Form 1040nr ez If you received the interest as a gift, inheritance, or in a transfer from a spouse or former spouse incident to a divorce, the amount realized is a recognized gain. Form 1040nr ez Your basis in the property is disregarded. Form 1040nr ez This rule does not apply if all interests in the property are disposed of at the same time. Form 1040nr ez Example 1. Form 1040nr ez Your father dies and leaves his farm to you for life with a remainder interest to your younger brother. Form 1040nr ez You decide to sell your life interest in the farm. Form 1040nr ez The entire amount you receive is a recognized gain. Form 1040nr ez Your basis in the farm is disregarded. Form 1040nr ez Example 2. Form 1040nr ez The facts are the same as in Example 1, except that your brother joins you in selling the farm. Form 1040nr ez The entire interest in the property is sold, so your basis in the farm is not disregarded. Form 1040nr ez Your gain or loss is the difference between your share of the sales price and your adjusted basis in the farm. Form 1040nr ez Canceling a sale of real property. Form 1040nr ez   If you sell real property under a sales contract that allows the buyer to return the property for a full refund and the buyer does so, you may not have to recognize gain or loss on the sale. Form 1040nr ez If the buyer returns the property in the year of sale, no gain or loss is recognized. Form 1040nr ez This cancellation of the sale in the same year it occurred places both you and the buyer in the same positions you were in before the sale. Form 1040nr ez If the buyer returns the property in a later tax year, you must recognize gain (or loss, if allowed) in the year of the sale. Form 1040nr ez When the property is returned in a later year, you acquire a new basis in the property. Form 1040nr ez That basis is equal to the amount you pay to the buyer. Form 1040nr ez Bargain Sale If you sell or exchange property for less than fair market value with the intent of making a gift, the transaction is partly a sale or exchange and partly a gift. Form 1040nr ez You have a gain if the amount realized is more than your adjusted basis in the property. Form 1040nr ez However, you do not have a loss if the amount realized is less than the adjusted basis of the property. Form 1040nr ez Bargain sales to charity. Form 1040nr ez   A bargain sale of property to a charitable organization is partly a sale or exchange and partly a charitable contribution. Form 1040nr ez If a charitable deduction for the contribution is allowable, you must allocate your adjusted basis in the property between the part sold and the part contributed based on the fair market value of each. Form 1040nr ez The adjusted basis of the part sold is figured as follows. Form 1040nr ez Adjusted basis of entire property × Amount realized (fair market value of part sold)   Fair market value of entire property   Based on this allocation rule, you will have a gain even if the amount realized is not more than your adjusted basis in the property. Form 1040nr ez This allocation rule does not apply if a charitable contribution deduction is not allowable. Form 1040nr ez   See Publication 526, Charitable Contributions, for information on figuring your charitable contribution. Form 1040nr ez Example. Form 1040nr ez You sold property with a fair market value of $10,000 to a charitable organization for $2,000 and are allowed a deduction for your contribution. Form 1040nr ez Your adjusted basis in the property is $4,000. Form 1040nr ez Your gain on the sale is $1,200, figured as follows. Form 1040nr ez Sales price $2,000 Minus: Adjusted basis of part sold ($4,000 × ($2,000 ÷ $10,000)) 800 Gain on the sale $1,200 Property Used Partly for Business or Rental Generally, if you sell or exchange property you used partly for business or rental purposes and partly for personal purposes, you must figure the gain or loss on the sale or exchange as though you had sold two separate pieces of property. Form 1040nr ez You must subtract depreciation you took or could have taken from the basis of the business or rental part. Form 1040nr ez However, see the special rule below for a home used partly for business or rental. Form 1040nr ez You must allocate the selling price, selling expenses, and the basis of the property between the business or rental part and the personal part. Form 1040nr ez Gain or loss on the business or rental part of the property may be a capital gain or loss or an ordinary gain or loss, as discussed in chapter 3 under Section 1231 Gains and Losses. Form 1040nr ez Any gain on the personal part of the property is a capital gain. Form 1040nr ez You cannot deduct a loss on the personal part. Form 1040nr ez Home used partly for business or rental. Form 1040nr ez    If you use property partly as a home and partly for business or to produce rental income, the computation and treatment of any gain on the sale depends partly on whether the business or rental part of the property is part of your home or separate from it. Form 1040nr ez See Property Used Partly for Business or Rental, in Publication 523. Form 1040nr ez Property Changed to Business or Rental Use You cannot deduct a loss on the sale of property you purchased or constructed for use as your home and used as your home until the time of sale. Form 1040nr ez You can deduct a loss on the sale of property you acquired for use as your home but changed to business or rental property and used as business or rental property at the time of sale. Form 1040nr ez However, if the adjusted basis of the property at the time of the change was more than its fair market value, the loss you can deduct is limited. Form 1040nr ez Figure the loss you can deduct as follows. Form 1040nr ez Use the lesser of the property's adjusted basis or fair market value at the time of the change. Form 1040nr ez Add to (1) the cost of any improvements and other increases to basis since the change. Form 1040nr ez Subtract from (2) depreciation and any other decreases to basis since the change. Form 1040nr ez Subtract the amount you realized on the sale from the result in (3). Form 1040nr ez If the amount you realized is more than the result in (3), treat this result as zero. Form 1040nr ez The result in (4) is the loss you can deduct. Form 1040nr ez Example. Form 1040nr ez You changed your main home to rental property 5 years ago. Form 1040nr ez At the time of the change, the adjusted basis of your home was $75,000 and the fair market value was $70,000. Form 1040nr ez This year, you sold the property for $55,000. Form 1040nr ez You made no improvements to the property but you have depreciation expense of $12,620 over the 5 prior years. Form 1040nr ez Although your loss on the sale is $7,380 [($75,000 − $12,620) − $55,000], the amount you can deduct as a loss is limited to $2,380, figured as follows. Form 1040nr ez Lesser of adjusted basis or fair market value at time of the change $70,000 Plus: Cost of any improvements and any other additions to basis after the change -0-   70,000 Minus: Depreciation and any other decreases to basis after the change 12,620   57,380 Minus: Amount you realized from the sale 55,000 Deductible loss $2,380 Gain. Form 1040nr ez   If you have a gain on the sale, you generally must recognize the full amount of the gain. Form 1040nr ez You figure the gain by subtracting your adjusted basis from your amount realized, as described earlier. Form 1040nr ez   You may be able to exclude all or part of the gain if you owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. Form 1040nr ez However, you may not be able to exclude the part of the gain allocated to any period of nonqualified use. Form 1040nr ez   For more information, see Business Use or Rental of Home in Publication 523. Form 1040nr ez In addition, special rules apply if the home sold was acquired in a like-kind exchange. Form 1040nr ez See Special Situations in Publication 523. Form 1040nr ez Also see Like-Kind Exchanges, later. Form 1040nr ez Abandonments The abandonment of property is a disposition of property. Form 1040nr ez You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership but without passing it on to anyone else. Form 1040nr ez Generally, abandonment is not treated as a sale or exchange of the property. Form 1040nr ez If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Form 1040nr ez If your adjusted basis is more than the amount you realize (if any), then you have a loss. Form 1040nr ez Loss from abandonment of business or investment property is deductible as a loss. Form 1040nr ez A loss from an abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Form 1040nr ez This rule also applies to leasehold improvements the lessor made for the lessee that were abandoned. Form 1040nr ez If the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed later under Foreclosure and Repossessions. Form 1040nr ez The abandonment loss is deducted in the tax year in which the loss is sustained. Form 1040nr ez If the abandoned property is secured by debt, special rules apply. Form 1040nr ez The tax consequences of abandonment of property that is secured by debt depend on whether you are personally liable for the debt (recourse debt) or you are not personally liable for the debt (nonrecourse debt). Form 1040nr ez For more information, including examples, see chapter 3 of Publication 4681. Form 1040nr ez You cannot deduct any loss from abandonment of your home or other property held for personal use only. Form 1040nr ez Cancellation of debt. Form 1040nr ez   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you may realize ordinary income equal to the canceled debt. Form 1040nr ez This income is separate from any loss realized from abandonment of the property. Form 1040nr ez   You must report this income on your tax return unless one of the following applies. Form 1040nr ez The cancellation is intended as a gift. Form 1040nr ez The debt is qualified farm debt. Form 1040nr ez The debt is qualified real property business debt. Form 1040nr ez You are insolvent or bankrupt. Form 1040nr ez The debt is qualified principal residence indebtedness. Form 1040nr ez File Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the income exclusion. Form 1040nr ez For more information, including other exceptions and exclusion, see Publication 4681. Form 1040nr ez Forms 1099-A and 1099-C. Form 1040nr ez   If you abandon property that secures a loan and the lender knows the property has been abandoned, the lender should send you Form 1099-A showing information you need to figure your loss from the abandonment. Form 1040nr ez However, if your debt is canceled and the lender must file Form 1099-C, the lender may include the information about the abandonment on that form instead of on Form 1099-A, and send you Form 1099-C only. Form 1040nr ez The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Form 1040nr ez For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Form 1040nr ez Foreclosures and Repossessions If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. Form 1040nr ez The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Form 1040nr ez This is true even if you voluntarily return the property to the lender. Form 1040nr ez You also may realize ordinary income from cancellation of debt if the loan balance is more than the fair market value of the property. Form 1040nr ez Buyer's (borrower's) gain or loss. Form 1040nr ez   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. Form 1040nr ez The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Form 1040nr ez See Gain or Loss From Sales and Exchanges, earlier. Form 1040nr ez You can use Table 1-2 to figure your gain or loss from a foreclosure or repossession. Form 1040nr ez Amount realized on a nonrecourse debt. Form 1040nr ez   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full debt canceled by the transfer. Form 1040nr ez The full canceled debt is included even if the fair market value of the property is less than the canceled debt. Form 1040nr ez Example 1. Form 1040nr ez Chris bought a new car for $15,000. Form 1040nr ez He paid $2,000 down and borrowed the remaining $13,000 from the dealer's credit company. Form 1040nr ez Chris is not personally liable for the loan (nonrecourse debt), but pledges the new car as security. Form 1040nr ez The credit company repossessed the car because he stopped making loan payments. Form 1040nr ez The balance due after taking into account the payments Chris made was $10,000. Form 1040nr ez The fair market value of the car when repossessed was $9,000. Form 1040nr ez The amount Chris realized on the repossession is $10,000. Form 1040nr ez That is the outstanding amount of the debt canceled by the repossession, even though the car's fair market value is less than $10,000. Form 1040nr ez Chris figures his gain or loss on the repossession by comparing the amount realized ($10,000) with his adjusted basis ($15,000). Form 1040nr ez He has a $5,000 nondeductible loss. Form 1040nr ez Example 2. Form 1040nr ez Abena paid $200,000 for her home. Form 1040nr ez She paid $15,000 down and borrowed the remaining $185,000 from a bank. Form 1040nr ez Abena is not personally liable for the loan (nonrecourse debt), but pledges the house as security. Form 1040nr ez The bank foreclosed on the loan because Abena stopped making payments. Form 1040nr ez When the bank foreclosed on the loan, the balance due was $180,000, the fair market value of the house was $170,000, and Abena's adjusted basis was $175,000 due to a casualty loss she had deducted. Form 1040nr ez The amount Abena realized on the foreclosure is $180,000, the balance due and debt canceled by the foreclosure. Form 1040nr ez She figures her gain or loss by comparing the amount realized ($180,000) with her adjusted basis ($175,000). Form 1040nr ez She has a $5,000 realized gain. Form 1040nr ez Amount realized on a recourse debt. Form 1040nr ez   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. Form 1040nr ez You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. Form 1040nr ez The amount realized does not include the canceled debt that is your income from cancellation of debt. Form 1040nr ez See Cancellation of debt, below. Form 1040nr ez Seller's (lender's) gain or loss on repossession. Form 1040nr ez   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. Form 1040nr ez For more information, see Repossession in Publication 537. Form 1040nr ez    Table 1-2. Form 1040nr ez Worksheet for Foreclosures and Repossessions Part 1. Form 1040nr ez Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Form 1040nr ez Complete this part only  if you were personally liable for the debt. Form 1040nr ez Otherwise,  go to Part 2. Form 1040nr ez   1. Form 1040nr ez Enter the amount of outstanding debt immediately before the transfer of   property reduced by any amount for which you remain personally liable after   the transfer of property   2. Form 1040nr ez Enter the fair market value of the transferred property   3. Form 1040nr ez Ordinary income from cancellation of debt upon foreclosure or    repossession. Form 1040nr ez * Subtract line 2 from line 1. Form 1040nr ez   If less than zero, enter zero   Part 2. Form 1040nr ez Figure your gain or loss from foreclosure or repossession. Form 1040nr ez   4. Form 1040nr ez If you completed Part 1, enter the smaller of line 1 or line 2. Form 1040nr ez   If you did not complete Part 1, enter the outstanding debt immediately before   the transfer of property   5. Form 1040nr ez Enter any proceeds you received from the foreclosure sale   6. Form 1040nr ez Add lines 4 and 5   7. Form 1040nr ez Enter the adjusted basis of the transferred property   8. Form 1040nr ez Gain or loss from foreclosure or repossession. Form 1040nr ez Subtract line 7  from line 6   * The income may not be taxable. Form 1040nr ez See Cancellation of debt. Form 1040nr ez Cancellation of debt. Form 1040nr ez   If property that is repossessed or foreclosed on secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the fair market value of the property. Form 1040nr ez This income is separate from any gain or loss realized from the foreclosure or repossession. Form 1040nr ez Report the income from cancellation of a debt related to a business or rental activity as business or rental income. Form 1040nr ez    You can use Table 1-2 to figure your income from cancellation of debt. Form 1040nr ez   You must report this income on your tax return unless one of the following applies. Form 1040nr ez The cancellation is intended as a gift. Form 1040nr ez The debt is qualified farm debt. Form 1040nr ez The debt is qualified real property business debt. Form 1040nr ez You are insolvent or bankrupt. Form 1040nr ez The debt is qualified principal residence indebtedness. Form 1040nr ez File Form 982 to report the income exclusion. Form 1040nr ez Example 1. Form 1040nr ez Assume the same facts as in Example 1 under Amount realized on a nonrecourse debt, earlier, except Chris is personally liable for the car loan (recourse debt). Form 1040nr ez In this case, the amount he realizes is $9,000. Form 1040nr ez This is the lesser of the canceled debt ($10,000) or the car's fair market value ($9,000). Form 1040nr ez Chris figures his gain or loss on the repossession by comparing the amount realized ($9,000) with his adjusted basis ($15,000). Form 1040nr ez He has a $6,000 nondeductible loss. Form 1040nr ez He also is treated as receiving ordinary income from cancellation of debt. Form 1040nr ez That income is $1,000 ($10,000 − $9,000). Form 1040nr ez This is the part of the canceled debt not included in the amount realized. Form 1040nr ez Example 2. Form 1040nr ez Assume the same facts as in Example 2 under Amount realized on a nonrecourse debt, earlier, except Abena is personally liable for the loan (recourse debt). Form 1040nr ez In this case, the amount she realizes is $170,000. Form 1040nr ez This is the lesser of the canceled debt ($180,000) or the fair market value of the house ($170,000). Form 1040nr ez Abena figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($175,000). Form 1040nr ez She has a $5,000 nondeductible loss. Form 1040nr ez She also is treated as receiving ordinary income from cancellation of debt. Form 1040nr ez (The debt is not exempt from tax as discussed under Cancellation of debt, above. Form 1040nr ez ) That income is $10,000 ($180,000 − $170,000). Form 1040nr ez This is the part of the canceled debt not included in the amount realized. Form 1040nr ez Forms 1099-A and 1099-C. Form 1040nr ez   A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A showing the information you need to figure your gain or loss. Form 1040nr ez However, if the lender also cancels part of your debt and must file Form 1099-C, the lender may include the information about the foreclosure or repossession on that form instead of on Form 1099-A and send you Form 1099-C only. Form 1040nr ez The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Form 1040nr ez For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. Form 1040nr ez Involuntary Conversions An involuntary conversion occurs when your property is destroyed, stolen, condemned, or disposed of under the threat of condemnation and you receive other property or money in payment, such as insurance or a condemnation award. Form 1040nr ez Involuntary conversions are also called involuntary exchanges. Form 1040nr ez Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes unless the property is your main home. Form 1040nr ez You report the gain or deduct the loss on your tax return for the year you realize it. Form 1040nr ez You cannot deduct a loss from an involuntary conversion of property you held for personal use unless the loss resulted from a casualty or theft. Form 1040nr ez However, depending on the type of property you receive, you may not have to report a gain on an involuntary conversion. Form 1040nr ez Generally, you do not report the gain if you receive property that is similar or related in service or use to the converted property. Form 1040nr ez Your basis for the new property is the same as your basis for the converted property. Form 1040nr ez This means that the gain is deferred until a taxable sale or exchange occurs. Form 1040nr ez If you receive money or property that is not similar or related in service or use to the involuntarily converted property and you buy qualifying replacement property within a certain period of time, you can elect to postpone reporting the gain on the property purchased. Form 1040nr ez This publication explains the treatment of a gain or loss from a condemnation or disposition under the threat of condemnation. Form 1040nr ez If you have a gain or loss from the destruction or theft of property, see Publication 547. Form 1040nr ez Condemnations A condemnation is the process by which private property is legally taken for public use without the owner's consent. Form 1040nr ez The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take it. Form 1040nr ez The owner receives a condemnation award (money or property) in exchange for the property taken. Form 1040nr ez A condemnation is like a forced sale, the owner being the seller and the condemning authority being the buyer. Form 1040nr ez Example. Form 1040nr ez A local government authorized to acquire land for public parks informed you that it wished to acquire your property. Form 1040nr ez After the local government took action to condemn your property, you went to court to keep it. Form 1040nr ez But, the court decided in favor of the local government, which took your property and paid you an amount fixed by the court. Form 1040nr ez This is a condemnation of private property for public use. Form 1040nr ez Threat of condemnation. Form 1040nr ez   A threat of condemnation exists if a representative of a government body or a public official authorized to acquire property for public use informs you that the government body or official has decided to acquire your property. Form 1040nr ez You must have reasonable grounds to believe that, if you do not sell voluntarily, your property will be condemned. Form 1040nr ez   The sale of your property to someone other than the condemning authority will also qualify as an involuntary conversion, provided you have reasonable grounds to believe that your property will be condemned. Form 1040nr ez If the buyer of this property knows at the time of purchase that it will be condemned and sells it to the condemning authority, this sale also qualifies as an involuntary conversion. Form 1040nr ez Reports of condemnation. Form 1040nr ez   A threat of condemnation exists if you learn of a decision to acquire your property for public use through a report in a newspaper or other news medium, and this report is confirmed by a representative of the government body or public official involved. Form 1040nr ez You must have reasonable grounds to believe that they will take necessary steps to condemn your property if you do not sell voluntarily. Form 1040nr ez If you relied on oral statements made by a government representative or public official, the Internal Revenue Service (IRS) may ask you to get written confirmation of the statements. Form 1040nr ez Example. Form 1040nr ez Your property lies along public utility lines. Form 1040nr ez The utility company has the authority to condemn your property. Form 1040nr ez The company informs you that it intends to acquire your property by negotiation or condemnation. Form 1040nr ez A threat of condemnation exists when you receive the notice. Form 1040nr ez Related property voluntarily sold. Form 1040nr ez   A voluntary sale of your property may be treated as a forced sale that qualifies as an involuntary conversion if the property had a substantial economic relationship to property of yours that was condemned. Form 1040nr ez A substantial economic relationship exists if together the properties were one economic unit. Form 1040nr ez You also must show that the condemned property could not reasonably or adequately be replaced. Form 1040nr ez You can elect to postpone reporting the gain by buying replacement property. Form 1040nr ez See Postponement of Gain, later. Form 1040nr ez Gain or Loss From Condemnations If your property was condemned or disposed of under the threat of condemnation, figure your gain or loss by comparing the adjusted basis of your condemned property with your net condemnation award. Form 1040nr ez If your net condemnation award is more than the adjusted basis of the condemned property, you have a gain. Form 1040nr ez You can postpone reporting gain from a condemnation if you buy replacement property. Form 1040nr ez If only part of your property is condemned, you can treat the cost of restoring the remaining part to its former usefulness as the cost of replacement property. Form 1040nr ez See Postponement of Gain, later. Form 1040nr ez If your net condemnation award is less than your adjusted basis, you have a loss. Form 1040nr ez If your loss is from property you held for personal use, you cannot deduct it. Form 1040nr ez You must report any deductible loss in the tax year it happened. Form 1040nr ez You can use Part 2 of Table 1-3 to figure your gain or loss from a condemnation award. Form 1040nr ez Main home condemned. Form 1040nr ez   If you have a gain because your main home is condemned, you generally can exclude the gain from your income as if you had sold or exchanged your home. Form 1040nr ez You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). Form 1040nr ez For information on this exclusion, see Publication 523. Form 1040nr ez If your gain is more than you can exclude but you buy replacement property, you may be able to postpone reporting the rest of the gain. Form 1040nr ez See Postponement of Gain, later. Form 1040nr ez Table 1-3. Form 1040nr ez Worksheet for Condemnations Part 1. Form 1040nr ez Gain from severance damages. Form 1040nr ez  If you did not receive severance damages, skip Part 1 and go to Part 2. Form 1040nr ez   1. Form 1040nr ez Enter gross severance damages received   2. Form 1040nr ez Enter your expenses in getting severance damages   3. Form 1040nr ez Subtract line 2 from line 1. Form 1040nr ez If less than zero, enter -0-   4. Form 1040nr ez Enter any special assessment on remaining property taken out of your award   5. Form 1040nr ez Net severance damages. Form 1040nr ez Subtract line 4 from line 3. Form 1040nr ez If less than zero, enter -0-   6. Form 1040nr ez Enter the adjusted basis of the remaining property   7. Form 1040nr ez Gain from severance damages. Form 1040nr ez Subtract line 6 from line 5. Form 1040nr ez If less than zero, enter -0-   8. Form 1040nr ez Refigured adjusted basis of the remaining property. Form 1040nr ez Subtract line 5 from line 6. Form 1040nr ez If less than zero, enter -0-   Part 2. Form 1040nr ez Gain or loss from condemnation award. Form 1040nr ez   9. Form 1040nr ez Enter the gross condemnation award received   10. Form 1040nr ez Enter your expenses in getting the condemnation award   11. Form 1040nr ez If you completed Part 1, and line 4 is more than line 3, subtract line 3 from line 4. Form 1040nr ez If you did not complete Part 1, but a special assessment was taken out of your award, enter that amount. Form 1040nr ez Otherwise, enter -0-   12. Form 1040nr ez Add lines 10 and 11   13. Form 1040nr ez Net condemnation award. Form 1040nr ez Subtract line 12 from line 9   14. Form 1040nr ez Enter the adjusted basis of the condemned property   15. Form 1040nr ez Gain from condemnation award. Form 1040nr ez If line 14 is more than line 13, enter -0-. Form 1040nr ez Otherwise, subtract line 14 from  line 13 and skip line 16   16. Form 1040nr ez Loss from condemnation award. Form 1040nr ez Subtract line 13 from line 14     (Note: You cannot deduct the amount on line 16 if the condemned property was held for personal use. Form 1040nr ez )   Part 3. Form 1040nr ez Postponed gain from condemnation. Form 1040nr ez  (Complete only if line 7 or line 15 is more than zero and you bought qualifying replacement property or made expenditures to restore the usefulness of your remaining property. Form 1040nr ez )   17. Form 1040nr ez If you completed Part 1, and line 7 is more than zero, enter the amount from line 5. Form 1040nr ez Otherwise, enter -0-   18. Form 1040nr ez If line 15 is more than zero, enter the amount from line 13. Form 1040nr ez Otherwise, enter -0-   19. Form 1040nr ez Add lines 17 and 18. Form 1040nr ez If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   20. Form 1040nr ez Enter the total cost of replacement property and any expenses to restore the usefulness of your remaining property   21. Form 1040nr ez Subtract line 20 from line 19. Form 1040nr ez If less than zero, enter -0-   22. Form 1040nr ez If you completed Part 1, add lines 7 and 15. Form 1040nr ez Otherwise, enter the amount from line 15. Form 1040nr ez If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   23. Form 1040nr ez Recognized gain. Form 1040nr ez Enter the smaller of line 21 or line 22. Form 1040nr ez   24. Form 1040nr ez Postponed gain. Form 1040nr ez Subtract line 23 from line 22. Form 1040nr ez If less than zero, enter -0-   Condemnation award. Form 1040nr ez   A condemnation award is the money you are paid or the value of other property you receive for your condemned property. Form 1040nr ez The award is also the amount you are paid for the sale of your property under threat of condemnation. Form 1040nr ez Payment of your debts. Form 1040nr ez   Amounts taken out of the award to pay your debts are considered paid to you. Form 1040nr ez Amounts the government pays directly to the holder of a mortgage or lien against your property are part of your award, even if the debt attaches to the property and is not your personal liability. Form 1040nr ez Example. Form 1040nr ez The state condemned your property for public use. Form 1040nr ez The award was set at $200,000. Form 1040nr ez The state paid you only $148,000 because it paid $50,000 to your mortgage holder and $2,000 accrued real estate taxes. Form 1040nr ez You are considered to have received the entire $200,000 as a condemnation award. Form 1040nr ez Interest on award. Form 1040nr ez   If the condemning authority pays you interest for its delay in paying your award, it is not part of the condemnation award. Form 1040nr ez You must report the interest separately as ordinary income. Form 1040nr ez Payments to relocate. Form 1040nr ez   Payments you receive to relocate and replace housing because you have been displaced from your home, business, or farm as a result of federal or federally assisted programs are not part of the condemnation award. Form 1040nr ez Do not include them in your income. Form 1040nr ez Replacement housing payments used to buy new property are included in the property's basis as part of your cost. Form 1040nr ez Net condemnation award. Form 1040nr ez   A net condemnation award is the total award you received, or are considered to have received, for the condemned property minus your expenses of obtaining the award. Form 1040nr ez If only a part of your property was condemned, you also must reduce the award by any special assessment levied against the part of the property you retain. Form 1040nr ez This is discussed later under Special assessment taken out of award. Form 1040nr ez Severance damages. Form 1040nr ez    Severance damages are not part of the award paid for the property condemned. Form 1040nr ez They are paid to you if part of your property is condemned and the value of the part you keep is decreased because of the condemnation. Form 1040nr ez   For example, you may receive severance damages if your property is subject to flooding because you sell flowage easement rights (the condemned property) under threat of condemnation. Form 1040nr ez Severance damages also may be given to you if, because part of your property is condemned for a highway, you must replace fences, dig new wells or ditches, or plant trees to restore your remaining property to the same usefulness it had before the condemnation. Form 1040nr ez   The contracting parties should agree on the specific amount of severance damages in writing. Form 1040nr ez If this is not done, all proceeds from the condemning authority are considered awarded for your condemned property. Form 1040nr ez   You cannot make a completely new allocation of the total award after the transaction is completed. Form 1040nr ez However, you can show how much of the award both parties intended for severance damages. Form 1040nr ez The severance damages part of the award is determined from all the facts and circumstances. Form 1040nr ez Example. Form 1040nr ez You sold part of your property to the state under threat of condemnation. Form 1040nr ez The contract you and the condemning authority signed showed only the total purchase price. Form 1040nr ez It did not specify a fixed sum for severance damages. Form 1040nr ez However, at settlement, the condemning authority gave you closing papers showing clearly the part of the purchase price that was for severance damages. Form 1040nr ez You may treat this part as severance damages. Form 1040nr ez Treatment of severance damages. Form 1040nr ez   Your net severance damages are treated as the amount realized from an involuntary conversion of the remaining part of your property. Form 1040nr ez Use them to reduce the basis of the remaining property. Form 1040nr ez If the amount of severance damages is based on damage to a specific part of the property you kept, reduce the basis of only that part by the net severance damages. Form 1040nr ez   If your net severance damages are more than the basis of your retained property, you have a gain. Form 1040nr ez You may be able to postpone reporting the gain. Form 1040nr ez See Postponement of Gain, later. Form 1040nr ez    You can use Part 1 of Table 1-3 to figure any gain from severance damages and to refigure the adjusted basis of the remaining part of your property. Form 1040nr ez Net severance damages. Form 1040nr ez   To figure your net severance damages, you first must reduce your severance damages by your expenses in obtaining the damages. Form 1040nr ez You then reduce them by any special assessment (described later) levied against the remaining part of the property and retained out of the award by the condemning authority. Form 1040nr ez The balance is your net severance damages. Form 1040nr ez Expenses of obtaining a condemnation award and severance damages. Form 1040nr ez   Subtract the expenses of obtaining a condemnation award, such as legal, engineering, and appraisal fees, from the total award. Form 1040nr ez Also, subtract the expenses of obtaining severance damages, which may include similar expenses, from the severance damages paid to you. Form 1040nr ez If you cannot determine which part of your expenses is for each part of the condemnation proceeds, you must make a proportionate allocation. Form 1040nr ez Example. Form 1040nr ez You receive a condemnation award and severance damages. Form 1040nr ez One-fourth of the total was designated as severance damages in your agreement with the condemning authority. Form 1040nr ez You had legal expenses for the entire condemnation proceeding. Form 1040nr ez You cannot determine how much of your legal expenses is for each part of the condemnation proceeds. Form 1040nr ez You must allocate one-fourth of your legal expenses to the severance damages and the other three-fourths to the condemnation award. Form 1040nr ez Special assessment retained out of award. Form 1040nr ez   When only part of your property is condemned, a special assessment levied against the remaining property may be retained by the governing body out of your condemnation award. Form 1040nr ez An assessment may be levied if the remaining part of your property benefited by the improvement resulting from the condemnation. Form 1040nr ez Examples of improvements that may cause a special assessment are widening a street and installing a sewer. Form 1040nr ez   To figure your net condemnation award, you must reduce the amount of the award by the assessment retained out of the award. Form 1040nr ez Example. Form 1040nr ez To widen the street in front of your home, the city condemned a 25-foot deep strip of your land. Form 1040nr ez You were awarded $5,000 for this and spent $300 to get the award. Form 1040nr ez Before paying the award, the city levied a special assessment of $700 for the street improvement against your remaining property. Form 1040nr ez The city then paid you only $4,300. Form 1040nr ez Your net award is $4,000 ($5,000 total award minus $300 expenses in obtaining the award and $700 for the special assessment retained). Form 1040nr ez If the $700 special assessment was not retained out of the award and you were paid $5,000, your net award would be $4,700 ($5,000 − $300). Form 1040nr ez The net award would not change, even if you later paid the assessment from the amount you received. Form 1040nr ez Severance damages received. Form 1040nr ez   If severance damages are included in the condemnation proceeds, the special assessment retained out of the severance damages is first used to reduce the severance damages. Form 1040nr ez Any balance of the special assessment is used to reduce the condemnation award. Form 1040nr ez Example. Form 1040nr ez You were awarded $4,000 for the condemnation of your property and $1,000 for severance damages. Form 1040nr ez You spent $300 to obtain the severance damages. Form 1040nr ez A special assessment of $800 was retained out of the award. Form 1040nr ez The $1,000 severance damages are reduced to zero by first subtracting the $300 expenses and then $700 of the special assessment. Form 1040nr ez Your $4,000 condemnation award is reduced by the $100 balance of the special assessment, leaving a $3,900 net condemnation award. Form 1040nr ez Part business or rental. Form 1040nr ez   If you used part of your condemned property as your home and part as business or rental property, treat each part as a separate property. Form 1040nr ez Figure your gain or loss separately because gain or loss on each part may be treated differently. Form 1040nr ez   Some examples of this type of property are a building in which you live and operate a grocery, and a building in which you live on the first floor and rent out the second floor. Form 1040nr ez Example. Form 1040nr ez You sold your building for $24,000 under threat of condemnation to a public utility company that had the authority to condemn. Form 1040nr ez You rented half the building and lived in the other half. Form 1040nr ez You paid $25,000 for the building and spent an additional $1,000 for a new roof. Form 1040nr ez You claimed allowable depreciation of $4,600 on the rental half. Form 1040nr ez You spent $200 in legal expenses to obtain the condemnation award. Form 1040nr ez Figure your gain or loss as follows. Form 1040nr ez     Resi- dential Part Busi- ness Part 1) Condemnation award received $12,000 $12,000 2) Minus: Legal expenses, $200 100 100 3) Net condemnation award $11,900 $11,900 4) Adjusted basis:       ½ of original cost, $25,000 $12,500 $12,500   Plus: ½ of cost of roof, $1,000 500 500   Total $13,000 $13,000 5) Minus: Depreciation   4,600 6) Adjusted basis, business part   $8,400 7) (Loss) on residential property ($1,100)   8) Gain on business property $3,500 The loss on the residential part of the property is not deductible. Form 1040nr ez Postponement of Gain Do not report the gain on condemned property if you receive only property that is similar or related in service or use to the condemned property. Form 1040nr ez Your basis for the new property is the same as your basis for the old. Form 1040nr ez Money or unlike property received. Form 1040nr ez   You ordinarily must report the gain if you receive money or unlike property. Form 1040nr ez You can elect to postpone reporting the gain if you buy property that is similar or related in service or use to the condemned property within the replacement period, discussed later. Form 1040nr ez You also can elect to postpone reporting the gain if you buy a controlling interest (at least 80%) in a corporation owning property that is similar or related in service or use to the condemned property. Form 1040nr ez See Controlling interest in a corporation, later. Form 1040nr ez   To postpone reporting all the gain, you must buy replacement property costing at least as much as the amount realized for the condemned property. Form 1040nr ez If the cost of the replacement property is less than the amount realized, you must report the gain up to the unspent part of the amount realized. Form 1040nr ez   The basis of the replacement property is its cost, reduced by the postponed gain. Form 1040nr ez Also, if your replacement property is stock in a corporation that owns property similar or related in service or use, the corporation generally will reduce its basis in its assets by the amount by which you reduce your basis in the stock. Form 1040nr ez See Controlling interest in a corporation, later. Form 1040nr ez You can use Part 3 of Table 1-3 to figure the gain you must report and your postponed gain. Form 1040nr ez Postponing gain on severance damages. Form 1040nr ez   If you received severance damages for part of your property because another part was condemned and you buy replacement property, you can elect to postpone reporting gain. Form 1040nr ez See Treatment of severance damages, earlier. Form 1040nr ez You can postpone reporting all your gain if the replacement property costs at least as much as your net severance damages plus your net condemnation award (if resulting in gain). Form 1040nr ez   You also can make this election if you spend the severance damages, together with other money you received for the condemned property (if resulting in gain), to acquire nearby property that will allow you to continue your business. Form 1040nr ez If suitable nearby property is not available and you are forced to sell the remaining property and relocate in order to continue your business, see Postponing gain on the sale of related property, next. Form 1040nr ez   If you restore the remaining property to its former usefulness, you can treat the cost of restoring it as the cost of replacement property. Form 1040nr ez Postponing gain on the sale of related property. Form 1040nr ez   If you sell property that is related to the condemned property and then buy replacement property, you can elect to postpone reporting gain on the sale. Form 1040nr ez You must meet the requirements explained earlier under Related property voluntarily sold. Form 1040nr ez You can postpone reporting all your gain if the replacement property costs at least as much as the amount realized from the sale plus your net condemnation award (if resulting in gain) plus your net severance damages, if any (if resulting in gain). Form 1040nr ez Buying replacement property from a related person. Form 1040nr ez   Certain taxpayers cannot postpone reporting gain from a condemnation if they buy the replacement property from a related person. Form 1040nr ez For information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2. Form 1040nr ez   This rule applies to the following taxpayers. Form 1040nr ez C corporations. Form 1040nr ez Partnerships in which more than 50% of the capital or profits interest is owned by  C corporations. Form 1040nr ez All others (including individuals, partnerships (other than those in (2)), and S corporations) if the total realized gain for the tax year on all involuntarily converted properties on which there is realized gain of more than $100,000. Form 1040nr ez   For taxpayers described in (3) above, gains cannot be offset with any losses when determining whether the total gain is more than $100,000. Form 1040nr ez If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. Form 1040nr ez If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. Form 1040nr ez Exception. Form 1040nr ez   This rule does not apply if the related person acquired the property from an unrelated person within the replacement period. Form 1040nr ez Advance payment. Form 1040nr ez   If you pay a contractor in advance to build your replacement property, you have not bought replacement property unless it is finished before the end of the replacement period (discussed later). Form 1040nr ez Replacement property. Form 1040nr ez   To postpone reporting gain, you must buy replacement property for the specific purpose of replacing your condemned property. Form 1040nr ez You do not have to use the actual funds from the condemnation award to acquire the replacement property. Form 1040nr ez Property you acquire by gift or inheritance does not qualify as replacement property. Form 1040nr ez Similar or related in service or use. Form 1040nr ez   Your replacement property must be similar or related in service or use to the property it replaces. Form 1040nr ez   If the condemned property is real property you held for productive use in your trade or business or for investment (other than property held mainly for sale), like-kind property to be held either for productive use in trade or business or for investment will be treated as property similar or related in service or use. Form 1040nr ez For a discussion of like-kind property, see Like-Kind Property under Like-Kind Exchanges, later. Form 1040nr ez Owner-user. Form 1040nr ez   If you are an owner-user, similar or related in service or use means that replacement property must function in the same way as the property it replaces. Form 1040nr ez Example. Form 1040nr ez Your home was condemned and you invested the proceeds from the condemnation in a grocery store. Form 1040nr ez Your replacement property is not similar or related in service or use to the condemned property. Form 1040nr ez To be similar or related in service or use, your replacement property must also be used by you as your home. Form 1040nr ez Owner-investor. Form 1040nr ez   If you are an owner-investor, similar or related in service or use means that any replacement property must have the same relationship of services or uses to you as the property it replaces. Form 1040nr ez You decide this by determining all the following information. Form 1040nr ez Whether the properties are of similar service to you. Form 1040nr ez The nature of the business risks connected with the properties. Form 1040nr ez What the properties demand of you in the way of management, service, and relations to your tenants. Form 1040nr ez Example. Form 1040nr ez You owned land and a building you rented to a manufacturing company. Form 1040nr ez The building was condemned. Form 1040nr ez During the replacement period, you had a new building built on other land you already owned. Form 1040nr ez You rented out the new building for use as a wholesale grocery warehouse. Form 1040nr ez The replacement property is also rental property, so the two properties are considered similar or related in service or use if there is a similarity in all the following areas. Form 1040nr ez Your management activities. Form 1040nr ez The amount and kind of services you provide to your tenants. Form 1040nr ez The nature of your business risks connected with the properties. Form 1040nr ez Leasehold replaced with fee simple property. Form 1040nr ez   Fee simple property you will use in your trade or business or for investment can qualify as replacement property that is similar or related in service or use to a condemned leasehold if you use it in the same business and for the identical purpose as the condemned leasehold. Form 1040nr ez   A fee simple property interest generally is a property interest that entitles the owner to the entire property with unconditional power to dispose of it during his or her lifetime. Form 1040nr ez A leasehold is property held under a lease, usually for a term of years. Form 1040nr ez Outdoor advertising display replaced with real property. Form 1040nr ez   You can elect to treat an outdoor advertising display as real property. Form 1040nr ez If you make this election and you replace the display with real property in which you hold a different kind of interest, your replacement property can qualify as like-kind property. Form 1040nr ez For example, real property bought to replace a destroyed billboard and leased property on which the billboard was located qualify as property of a like-kind. Form 1040nr ez   You can make this election only if you did not claim a section 179 deduction for the display. Form 1040nr ez You cannot cancel this election unless you get the consent of the IRS. Form 1040nr ez   An outdoor advertising display is a sign or device rigidly assembled and permanently attached to the ground, a building, or any other permanent structure used to display a commercial or other advertisement to the public. Form 1040nr ez Substituting replacement property. Form 1040nr ez   Once you designate certain property as replacement property on your tax return, you cannot substitute other qualified property. Form 1040nr ez But, if your previously designated replacement property does not qualify, you can substitute qualified property if you acquire it within the replacement period. Form 1040nr ez Controlling interest in a corporation. Form 1040nr ez   You can replace property by acquiring a controlling interest in a corporation that owns property similar or related in service or use to your condemned property. Form 1040nr ez You have controlling interest if you own stock having at least 80% of the combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation. Form 1040nr ez Basis adjustment to corporation's property. Form 1040nr ez   The basis of property held by the corporation at the time you acquired control must be reduced by your postponed gain, if any. Form 1040nr ez You are not required to reduce the adjusted basis of the corporation's properties below your adjusted basis in the corporation's stock (determined after reduction by your postponed gain). Form 1040nr ez   Allocate this reduction to the following classes of property in the order shown below. Form 1040nr ez Property that is similar or related in service or use to the condemned property. Form 1040nr ez Depreciable property not reduced in (1). Form 1040nr ez All other property. Form 1040nr ez If two or more properties fall in the same class, allocate the reduction to each property in proportion to the adjusted basis of all the properties in that class. Form 1040nr ez The reduced basis of any single property cannot be less than zero. Form 1040nr ez Main home replaced. Form 1040nr ez   If your gain from a condemnation of your main home is more than you can exclude from your income (see Main home condemned under Gain or Loss From Condemnations, earlier), you can postpone reporting the rest of the gain by buying replacement property that is similar or related in service or use. Form 1040nr ez The replacement property must cost at least as much as the amount realized from the condemnation minus the excluded gain. Form 1040nr ez   You must reduce the basis of your replacement property by the postponed gain. Form 1040nr ez Also, if you postpone reporting any part of your gain under these rules, you are treated as having owned and used the replacement property as your main home for the period you owned and used the condemned property as your main home. Form 1040nr ez Example. Form 1040nr ez City authorities condemned your home that you had used as a personal residence for 5 years prior to the condemnation. Form 1040nr ez The city paid you a condemnation award of $400,000. Form 1040nr ez Your adjusted basis in the property was $80,000. Form 1040nr ez You realize a gain of $320,000 ($400,000 − $80,000). Form 1040nr ez You purchased a new home for $100,000. Form 1040nr ez You can exclude $250,000 of the realized gain from your gross income. Form 1040nr ez The amount realized is then treated as being $150,000 ($400,000 − $250,000) and the gain realized is $70,000 ($150,000 amount realized − $80,000 adjusted basis). Form 1040nr ez You must recognize $50,000 of the gain ($150,000 amount realized − $100,000 cost of new home). Form 1040nr ez The remaining $20,000 of realized gain is postponed. Form 1040nr ez Your basis in the new home is $80,000 ($100,000 cost − $20,000 gain postponed). Form 1040nr ez Replacement period. Form 1040nr ez   To postpone reporting your gain from a condemnation, you must buy replacement property within a certain period of time. Form 1040nr ez This is the replacement period. Form 1040nr ez   The replacement period for a condemnation begins on the earlier of the following dates. Form 1040nr ez The date on which you disposed of the condemned property. Form 1040nr ez The date on which the threat of condemnation began. Form 1040nr ez   The replacement period generally ends 2 years after the end of the first tax year in which any part of the gain on the condemnation is realized. Form 1040nr ez However, see the exceptions below. Form 1040nr ez Three-year replacement period for certain property. Form 1040nr ez   If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the end of the first tax year in which any part of the gain on the condemnation is realized. Form 1040nr ez However, this 3-year replacement period cannot be used if you replace the condemned property by acquiring control of a corporation owning property that is similar or related in service or use. Form 1040nr ez Five-year replacement period for certain property. Form 1040nr ez   The replacement period ends 5 years after the end of the first tax year in which any part of the gain is realized on the compulsory or involuntary conversion of the following qualified property. Form 1040nr ez Property in any Midwestern disaster area compulsorily or involuntarily converted on or after the applicable disaster date as a result of severe storms, tornadoes, or flooding, but only if substantially all of the use of the replacement property is in a Midwestern disaster area. Form 1040nr ez Property in the Kansas disaster area compulsorily or involuntarily converted after May 3, 2007, but only if substantially all of the use of the replacement property is in the Kansas disaster area. Form 1040nr ez Property in the Hurricane Katrina disaster area compulsorily or involuntarily converted after August 24, 2005, as a result of Hurricane Katrina, but only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. Form 1040nr ez Extended replacement period for taxpayers affected by other federally declared disasters. Form 1040nr ez    If you are affected by a federally declared disaster, the IRS may grant disaster relief by extending the periods to perform certain tax-related acts for 2013, including the replacement period, by up to one year. Form 1040nr ez For more information visit www. Form 1040nr ez irs. Form 1040nr ez gov/uac/Tax-Relief-in-Disaster-Situations. Form 1040nr ez Weather-related sales of livestock in an area eligible for federal assistance. Form 1040nr ez   Generally, if the sale or exchange of livestock is due to drought, flood, or other weather-related conditions in an area eligible for federal assistance, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the sale or exchange. Form 1040nr ez    If the weather-related conditions continue for longer than 3 years, the replacement period may be extended on a regional basis until the end of your first drought-free year for the applicable region. Form 1040nr ez See Notice 2006-82. Form 1040nr ez You can find Notice 2006-82 on page 529 of Internal Revenue Bulletin 2006-39 at www. Form 1040nr ez irs. Form 1040nr ez gov/irb/2006-39_IRB/ar13. Form 1040nr ez html. Form 1040nr ez    Each year, the IRS publishes a list of counties, districts, cities, or parishes for which exceptional, extreme, or severe drought was reported during the preceding 12 months. Form 1040nr ez If you qualified for a 4-year replacement period for livestock sold or exchanged on account of drought and your replacement period is scheduled to expire at the end of 2013 (or at the end of the tax year that includes August 31, 2013), see Notice 2013-62. Form 1040nr ez You can find Notice 2013-62 on page 466 of Internal Revenue Bulletin 2013-45 at www. Form 1040nr ez irs. Form 1040nr ez gov/irb/2013-45_IRB/ar04. Form 1040nr ez html. Form 1040nr ez The replacement period will be extended under Notice 2006-82 if the applicable region is on the list included in Notice 2013-62. Form 1040nr ez Determining when gain is realized. Form 1040nr ez   If you are a cash basis taxpayer, you realize gain when you receive payments that are more than your basis in the property. Form 1040nr ez If the condemning authority makes deposits with the court, you realize gain when you withdraw (or have the right to withdraw) amounts that are more than your basis. Form 1040nr ez   This applies even if the amounts received are only partial or advance payments and the full award has not yet been determined. Form 1040nr ez A replacement will be too late if you wait for a final determination that does not take place in the applicable replacement period after you first realize gain. Form 1040nr ez   For accrual basis taxpayers, gain (if any) accrues in the earlier year when either of the following occurs. Form 1040nr ez All events have occurred that fix the right to the condemnation award and the amount can be determined with reasonable accuracy. Form 1040nr ez All or part of the award is actually or constructively received. Form 1040nr ez For example, if you have an absolute right to a part of a condemnation award when it is deposited with the court, the amount deposited accrues in the year the deposit is made even though the full amount of the award is still contested. Form 1040nr ez Replacement property bought before the condemnation. Form 1040nr ez   If you buy your replacement property after there is a threat of condemnation but before the actual condemnation and you still hold the replacement property at the time of the condemnation, you have bought your replacement property within the replacement period. Form 1040nr ez Property you acquire before there is a threat of condemnation does not qualify as replacement property acquired within the replacement period. Form 1040nr ez Example. Form 1040nr ez On April 3, 2012, city authorities notified you that your property would be condemned. Form 1040nr ez On June 5, 2012, you acquired property to replace the property to be condemned. Form 1040nr ez You still had the new property when the city took possession of your old property on September 4, 2013. Form 1040nr ez You have made a replacement within the replacement period. Form 1040nr ez Extension. Form 1040nr ez   You can request an extension of the replacement period from the IRS director for your area. Form 1040nr ez You should apply before the end of the replacement period. Form 1040nr ez Your request should explain in detail why you need an extension. Form 1040nr ez The IRS will consider a request filed within a reasonable time after the replacement period if you can show reasonable cause for the delay. Form 1040nr ez An extension of the replacement period will be granted if you can show reasonable cause for not making the replacement within the regular period. Form 1040nr ez   Ordinarily, requests for extensions are granted near the end of the replacement period or the extended replacement period. Form 1040nr ez Extensions are usually limited to a period of 1 year or less. Form 1040nr ez The high market value or scarcity of replacement property is not a sufficient reason for granting an extension. Form 1040nr ez If your replacement property is being built and you clearly show that the replacement or restoration cannot be made within the replacement peri
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Consumer Protection Offices

City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

New Hampshire Office of the Attorney General

Website: New Hampshire Office of the Attorney General

Address: New Hampshire Office of the Attorney General
Consumer Protection and Antitrust Bureau
33 Capitol St.
Concord, NH 03301

Phone Number: 603-271-3641

Toll-free: 1-888-468-4454 (Consumer Protection Hotline)

TTY: 1-800-735-2964 (NH)

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

State Banking Department

Website: State Banking Department

Address: State Banking Department
53 Regional Dr., Suite 200
Concord, NH 03301

Phone Number: 603-271-3561

Toll-free: 1-800-437-5991

TTY: 1-800-735-2964

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Insurance Department

Website: Insurance Department

Address: Insurance Department
21 S. Fruit St., Suite 14
Concord, NH 03301

Phone Number: 603-271-2261

Toll-free: 1-800-852-3416 (NH)

TTY: 1-800-735-2964 (NH)

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Secretary of State

Website: Secretary of State

Address: Secretary of State
Bureau of Securities Regulation
107 N. Main St., #204
Concord, NH 03301

Phone Number: 603-271-1463

Toll-free: 1-800-994-4200

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Public Utilities Commission

Website: Public Utilities Commission

Address: Public Utilities Commission
Consumer Affairs Division
21 S. Fruit St., Suite 10
Concord, NH 03301-2429

Phone Number: 603-271-2431

Toll-free: 1-800-852-3793 (NH)

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The Form 1040nr Ez

Form 1040nr ez 23. Form 1040nr ez   Interest Expense Table of Contents Introduction Useful Items - You may want to see: Home Mortgage InterestAmount Deductible Points Mortgage Insurance Premiums Form 1098, Mortgage Interest Statement Investment InterestInvestment Property Allocation of Interest Expense Limit on Deduction Items You Cannot DeductPersonal Interest Allocation of Interest How To ReportMore than one borrower. Form 1040nr ez Mortgage proceeds used for business or investment. Form 1040nr ez Introduction This chapter discusses what interest expenses you can deduct. Form 1040nr ez Interest is the amount you pay for the use of borrowed money. Form 1040nr ez The following are types of interest you can deduct as itemized deductions on Schedule A (Form 1040). Form 1040nr ez Home mortgage interest, including certain points and mortgage insurance premiums. Form 1040nr ez Investment interest. Form 1040nr ez This chapter explains these deductions. Form 1040nr ez It also explains where to deduct other types of interest and lists some types of interest you cannot deduct. Form 1040nr ez Use Table 23-1 to find out where to get more information on various types of interest, including investment interest. Form 1040nr ez Useful Items - You may want to see: Publication 936 Home Mortgage Interest Deduction 550 Investment Income and Expenses Home Mortgage Interest Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). Form 1040nr ez The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. Form 1040nr ez You can deduct home mortgage interest if all the following conditions are met. Form 1040nr ez You file Form 1040 and itemize deductions on Schedule A (Form 1040). Form 1040nr ez The mortgage is a secured debt on a qualified home in which you have an ownership interest. Form 1040nr ez (Generally, your mortgage is a secured debt if you put your home up as collateral to protect the interest of the lender. Form 1040nr ez The term “qualified home” means your main home or second home. Form 1040nr ez For details, see Publication 936. Form 1040nr ez )  Both you and the lender must intend that the loan be repaid. Form 1040nr ez Amount Deductible In most cases, you can deduct all of your home mortgage interest. Form 1040nr ez How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. Form 1040nr ez Fully deductible interest. Form 1040nr ez   If all of your mortgages fit into one or more of the following three categories at all times during the year, you can deduct all of the interest on those mortgages. Form 1040nr ez (If any one mortgage fits into more than one category, add the debt that fits in each category to your other debt in the same category. Form 1040nr ez )   The three categories are as follows: Mortgages you took out on or before October 13, 1987 (called grandfathered debt). Form 1040nr ez Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2013 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately). Form 1040nr ez Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2013 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2). Form 1040nr ez The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home. Form 1040nr ez   See Part II of Publication 936 for more detailed definitions of grandfathered, home acquisition, and home equity debt. Form 1040nr ez    You can use Figure 23-A to check whether your home mortgage interest is fully deductible. Form 1040nr ez Figure 23-A. Form 1040nr ez Is My Home Mortgage Interest Fully Deductible? Please click here for the text description of the image. Form 1040nr ez Figure 23-A. Form 1040nr ez Is My Interest Fully Deductible? Limits on deduction. Form 1040nr ez   You cannot fully deduct interest on a mortgage that does not fit into any of the three categories listed earlier. Form 1040nr ez If this applies to you, see Part II of Publication 936 to figure the amount of interest you can deduct. Form 1040nr ez Special Situations This section describes certain items that can be included as home mortgage interest and others that cannot. Form 1040nr ez It also describes certain special situations that may affect your deduction. Form 1040nr ez Late payment charge on mortgage payment. Form 1040nr ez   You can deduct as home mortgage interest a late payment charge if it was not for a specific service performed in connection with your mortgage loan. Form 1040nr ez Mortgage prepayment penalty. Form 1040nr ez   If you pay off your home mortgage early, you may have to pay a penalty. Form 1040nr ez 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 1040nr ez Sale of home. Form 1040nr ez   If you sell your home, you can deduct your home mortgage interest (subject to any limits that apply) paid up to, but not including, the date of sale. Form 1040nr ez Example. Form 1040nr ez John and Peggy Harris sold their home on May 7. Form 1040nr ez Through April 30, they made home mortgage interest payments of $1,220. Form 1040nr ez The settlement sheet for the sale of the home showed $50 interest for the 6-day period in May up to, but not including, the date of sale. Form 1040nr ez Their mortgage interest deduction is $1,270 ($1,220 + $50). Form 1040nr ez Prepaid interest. Form 1040nr ez   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 1040nr ez You can deduct in each year only the interest that qualifies as home mortgage interest for that year. Form 1040nr ez However, there is an exception that applies to points, discussed later. Form 1040nr ez Mortgage interest credit. Form 1040nr ez   You may be able to claim a mortgage interest credit if you were issued a mortgage credit certificate (MCC) by a state or local government. Form 1040nr ez Figure the credit on Form 8396, Mortgage Interest Credit. Form 1040nr ez If you take this credit, you must reduce your mortgage interest deduction by the amount of the credit. Form 1040nr ez   For more information on the credit, see chapter 37. Form 1040nr ez Ministers' and military housing allowance. Form 1040nr ez   If you are a minister or a member of the uniformed services and receive a housing allowance that is not taxable, you can still deduct your home mortgage interest. Form 1040nr ez Hardest Hit Fund and Emergency Homeowners' Loan Programs. Form 1040nr ez   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 1040nr ez 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 1040nr ez 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 1040nr ez 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 from payer(s) / borrower(s)), box 4 (mortgage insurance premiums) and box 5 (real property taxes). Form 1040nr ez 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 1040nr ez Mortgage assistance payments under section 235 of the National Housing Act. Form 1040nr ez   If you qualify for mortgage assistance payments for lower-income families under section 235 of the National Housing Act, part or all of the interest on your mortgage may be paid for you. Form 1040nr ez You cannot deduct the interest that is paid for you. Form 1040nr ez No other effect on taxes. Form 1040nr ez   Do not include these mortgage assistance payments in your income. Form 1040nr ez Also, do not use these payments to reduce other deductions, such as real estate taxes. Form 1040nr ez Divorced or separated individuals. Form 1040nr ez   If a divorce or separation agreement requires you or your spouse or former spouse to pay home mortgage interest on a home owned by both of you, the payment of interest may be alimony. Form 1040nr ez See the discussion of Payments for jointly-owned home in chapter 18. Form 1040nr ez Redeemable ground rents. Form 1040nr ez   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct them as mortgage interest. Form 1040nr ez   Payments made to end the lease and to buy the lessor's entire interest in the land are not deductible as mortgage interest. Form 1040nr ez For more information, see Publication 936. Form 1040nr ez Nonredeemable ground rents. Form 1040nr ez   Payments on a nonredeemable ground rent are not mortgage interest. Form 1040nr ez You can deduct them as rent if they are a business expense or if they are for rental property. Form 1040nr ez Reverse mortgages. Form 1040nr ez   A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. Form 1040nr ez With a reverse mortgage, you retain title to your home. Form 1040nr ez Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. Form 1040nr ez Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. Form 1040nr ez Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until the loan is paid in full. Form 1040nr ez Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Publication 936. Form 1040nr ez Rental payments. Form 1040nr ez   If you live in a house before final settlement on the purchase, any payments you make for that period are rent and not interest. Form 1040nr ez This is true even if the settlement papers call them interest. Form 1040nr ez You cannot deduct these payments as home mortgage interest. Form 1040nr ez Mortgage proceeds invested in tax-exempt securities. Form 1040nr ez   You cannot deduct the home mortgage interest on grandfathered debt or home equity debt if you used the proceeds of the mortgage to buy securities or certificates that produce tax-free income. Form 1040nr ez “Grandfathered debt” and “home equity debt” are defined earlier under Amount Deductible. Form 1040nr ez Refunds of interest. Form 1040nr ez   If you receive a refund of interest in the same tax year you paid it, you must reduce your interest expense by the amount refunded to you. Form 1040nr ez If you receive a refund of interest you deducted in an earlier year, you generally must include the refund in income in the year you receive it. Form 1040nr ez However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year. Form 1040nr ez This is true whether the interest overcharge was refunded to you or was used to reduce the outstanding principal on your mortgage. Form 1040nr ez    If you received a refund of interest you overpaid in an earlier year, you generally will receive a Form 1098, Mortgage Interest Statement, showing the refund in box 3. Form 1040nr ez For information about Form 1098, see Form 1098, Mortgage Interest Statement , later. Form 1040nr ez   For more information on how to treat refunds of interest deducted in earlier years, see Recoveries in chapter 12. Form 1040nr ez Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Form 1040nr ez Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. Form 1040nr ez A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. Form 1040nr ez See Points paid by the seller , later. Form 1040nr ez General Rule You generally cannot deduct the full amount of points in the year paid. Form 1040nr ez Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. Form 1040nr ez See Deduction Allowed Ratably , next. Form 1040nr ez For exceptions to the general rule, see Deduction Allowed in Year Paid , later. Form 1040nr ez Deduction Allowed Ratably If you do not meet the tests listed under Deduction Allowed in Year Paid , later, the loan is not a home improvement loan, or you choose not to deduct your points in full in the year paid, you can deduct the points ratably (equally) over the life of the loan if you meet all the following tests. Form 1040nr ez You use the cash method of accounting. Form 1040nr ez This means you report income in the year you receive it and deduct expenses in the year you pay them. Form 1040nr ez Most individuals use this method. Form 1040nr ez Your loan is secured by a home. Form 1040nr ez (The home does not need to be your main home. Form 1040nr ez ) Your loan period is not more than 30 years. Form 1040nr ez If your loan period is more than 10 years, the terms of your loan are the same as other loans offered in your area for the same or longer period. Form 1040nr ez Either your loan amount is $250,000 or less, or the number of points is not more than: 4, if your loan period is 15 years or less, or 6, if your loan period is more than 15 years. Form 1040nr ez Deduction Allowed in Year Paid You can fully deduct points in the year paid if you meet all the following tests. Form 1040nr ez (You can use Figure 23-B as a quick guide to see whether your points are fully deductible in the year paid. Form 1040nr ez ) Your loan is secured by your main home. Form 1040nr ez (Your main home is the one you ordinarily live in most of the time. Form 1040nr ez ) Paying points is an established business practice in the area where the loan was made. Form 1040nr ez The points paid were not more than the points generally charged in that area. Form 1040nr ez You use the cash method of accounting. Form 1040nr ez This means you report income in the year you receive it and deduct expenses in the year you pay them. Form 1040nr ez (If you want more information about this method, see Accounting Methods in chapter 1. Form 1040nr ez ) 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 1040nr ez The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. Form 1040nr ez The funds you provided are not required to have been applied to the points. Form 1040nr ez They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. Form 1040nr ez You cannot have borrowed these funds from your lender or mortgage broker. Form 1040nr ez You use your loan to buy or build your main home. Form 1040nr ez The points were computed as a percentage of the principal amount of the mortgage. Form 1040nr ez The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. Form 1040nr ez The points may be shown as paid from either your funds or the seller's. Form 1040nr ez Figure 23-B. Form 1040nr ez Are My Points Fully Deductible This Year? Please click here for the text description of the image. Form 1040nr ez Figure 23-B. Form 1040nr ez Are My Points Fully Deductible This Year? Note. Form 1040nr ez If you meet all of these tests, you can choose to either fully deduct the points in the year paid, or deduct them over the life of the loan. Form 1040nr ez Home improvement loan. Form 1040nr ez   You can also fully deduct in the year paid points paid on a loan to improve your main home, if tests (1) through (6) are met. Form 1040nr ez Second home. Form 1040nr ez You cannot fully deduct in the year paid points you pay on loans secured by your second home. Form 1040nr ez You can deduct these points only over the life of the loan. Form 1040nr ez Refinancing. Form 1040nr ez   Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. Form 1040nr ez This is true even if the new mortgage is secured by your main home. Form 1040nr ez   However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first 6 tests listed under Deduction Allowed in Year Paid , 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 1040nr ez You can deduct the rest of the points over the life of the loan. Form 1040nr ez Example 1. Form 1040nr ez In 1998, Bill Fields got a mortgage to buy a home. Form 1040nr ez In 2013, Bill refinanced that mortgage with a 15-year $100,000 mortgage loan. Form 1040nr ez The mortgage is secured by his home. Form 1040nr ez To get the new loan, he had to pay three points ($3,000). Form 1040nr ez Two points ($2,000) were for prepaid interest, and one point ($1,000) was charged for services, in place of amounts that ordinarily are stated separately on the settlement statement. Form 1040nr ez Bill paid the points out of his private funds, rather than out of the proceeds of the new loan. Form 1040nr ez The payment of points is an established practice in the area, and the points charged are not more than the amount generally charged there. Form 1040nr ez Bill's first payment on the new loan was due July 1. Form 1040nr ez He made six payments on the loan in 2013 and is a cash basis taxpayer. Form 1040nr ez Bill used the funds from the new mortgage to repay his existing mortgage. Form 1040nr ez Although the new mortgage loan was for Bill's continued ownership of his main home, it was not for the purchase or improvement of that home. Form 1040nr ez He cannot deduct all of the points in 2013. Form 1040nr ez He can deduct two points ($2,000) ratably over the life of the loan. Form 1040nr ez He deducts $67 [($2,000 ÷ 180 months) × 6 payments] of the points in 2013. Form 1040nr ez The other point ($1,000) was a fee for services and is not deductible. Form 1040nr ez Example 2. Form 1040nr ez The facts are the same as in Example 1, except that Bill used $25,000 of the loan proceeds to improve his home and $75,000 to repay his existing mortgage. Form 1040nr ez Bill deducts 25% ($25,000 ÷ $100,000) of the points ($2,000) in 2013. Form 1040nr ez His deduction is $500 ($2,000 × 25%). Form 1040nr ez Bill also deducts the ratable part of the remaining $1,500 ($2,000 − $500) that must be spread over the life of the loan. Form 1040nr ez This is $50 [($1,500 ÷ 180 months) × 6 payments] in 2013. Form 1040nr ez The total amount Bill deducts in 2013 is $550 ($500 + $50). Form 1040nr ez Special Situations This section describes certain special situations that may affect your deduction of points. Form 1040nr ez Original issue discount. Form 1040nr ez   If you do not qualify to either deduct the points in the year paid or deduct them ratably over the life of the loan, or if you choose not to use either of these methods, the points reduce the issue price of the loan. Form 1040nr ez This reduction results in original issue discount, which is discussed in chapter 4 of Publication 535. Form 1040nr ez Amounts charged for services. Form 1040nr ez   Amounts charged by the lender for specific services connected to the loan are not interest. Form 1040nr ez Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. Form 1040nr ez You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. Form 1040nr ez Points paid by the seller. Form 1040nr ez   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. Form 1040nr ez Treatment by seller. Form 1040nr ez   The seller cannot deduct these fees as interest. Form 1040nr ez But they are a selling expense that reduces the amount realized by the seller. Form 1040nr ez See chapter 15 for information on selling your home. Form 1040nr ez Treatment by buyer. Form 1040nr ez    The buyer reduces the basis of the home by the amount of the seller-paid points and treats the points as if he or she had paid them. Form 1040nr ez If all the tests under Deduction Allowed in Year Paid , earlier, are met, the buyer can deduct the points in the year paid. Form 1040nr ez If any of those tests are not met, the buyer deducts the points over the life of the loan. Form 1040nr ez   For information about basis, see chapter 13. Form 1040nr ez Funds provided are less than points. Form 1040nr ez   If you meet all the tests in Deduction Allowed in Year Paid , earlier, 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 1040nr ez In addition, you can deduct any points paid by the seller. Form 1040nr ez Example 1. Form 1040nr ez When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). Form 1040nr ez You meet all the tests for deducting points in the year paid, except the only funds you provided were a $750 down payment. Form 1040nr ez Of the $1,000 charged for points, you can deduct $750 in the year paid. Form 1040nr ez You spread the remaining $250 over the life of the mortgage. Form 1040nr ez Example 2. Form 1040nr ez 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 1040nr ez 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 1040nr ez You spread the remaining $250 over the life of the mortgage. Form 1040nr ez You must reduce the basis of your home by the $1,000 paid by the seller. Form 1040nr ez Excess points. Form 1040nr ez   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the points paid were more than generally paid in your area (test (3)), you deduct in the year paid only the points that are generally charged. Form 1040nr ez You must spread any additional points over the life of the mortgage. Form 1040nr ez Mortgage ending early. Form 1040nr ez   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 1040nr ez However, if you refinance the mortgage with the same lender, you cannot deduct any remaining balance of spread points. Form 1040nr ez Instead, deduct the remaining balance over the term of the new loan. Form 1040nr ez    A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. Form 1040nr ez Example. Form 1040nr ez Dan paid $3,000 in points in 2002 that he had to spread out over the 15-year life of the mortgage. Form 1040nr ez He deducts $200 points per year. Form 1040nr ez Through 2012, Dan has deducted $2,200 of the points. Form 1040nr ez Dan prepaid his mortgage in full in 2013. Form 1040nr ez He can deduct the remaining $800 of points in 2013. Form 1040nr ez Limits on deduction. Form 1040nr ez   You cannot fully deduct points paid on a mortgage unless the mortgage fits into one of the categories listed earlier under Fully deductible interest . Form 1040nr ez See Publication 936 for details. Form 1040nr ez Mortgage Insurance Premiums You can treat amounts you paid during 2013 for qualified mortgage insurance as home mortgage interest. Form 1040nr ez The insurance must be in connection with home acquisition debt and the insurance contract must have been issued after 2006. Form 1040nr ez Qualified mortgage insurance. Form 1040nr ez   Qualified mortgage insurance is mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). Form 1040nr ez   Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. Form 1040nr ez If provided by the Rural Housing Service, it is commonly known as a guarantee fee. Form 1040nr ez These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013. Form 1040nr ez Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098. Form 1040nr ez Special rules for prepaid mortgage insurance. Form 1040nr ez   Generally, if you paid premiums for qualified mortgage insurance that are allocable to periods after the close of the tax year, such premiums are treated as paid in the period to which they are allocated. Form 1040nr ez You must allocate the premiums over the shorter of the stated term of the mortgage or 84 months, beginning with the month the insurance was obtained. Form 1040nr ez No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term. Form 1040nr ez This paragraph does not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. Form 1040nr ez See the Example below. Form 1040nr ez Example. Form 1040nr ez Ryan purchased a home in May of 2012 and financed the home with a 15-year mortgage. Form 1040nr ez Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May. Form 1040nr ez Since the $9,240 in private mortgage insurance is allocable to periods after 2012, Ryan must allocate the $9,240 over the shorter of the life of the mortgage or 84 months. Form 1040nr ez Ryan's adjusted gross income (AGI) for 2012 is $76,000. Form 1040nr ez Ryan can deduct $880 ($9,240 ÷ 84 × 8 months) for qualified mortgage insurance premiums in 2012. Form 1040nr ez For 2013, Ryan can deduct $1,320 ($9,240 ÷ 84 × 12 months) if his AGI is $100,000 or less. Form 1040nr ez In this example, the mortgage insurance premiums are allocated over 84 months, which is shorter than the life of the mortgage of 15 years (180 months). Form 1040nr ez Limit on deduction. Form 1040nr ez   If your adjusted gross income 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 otherwise deductible is reduced and may be eliminated. Form 1040nr ez 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 1040nr ez If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. Form 1040nr ez Form 1098, 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, you generally will receive a Form 1098 or a similar statement from the mortgage holder. Form 1040nr ez You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. Form 1040nr ez A governmental unit is a person for purposes of furnishing the statement. Form 1040nr ez The statement for each year should be sent to you by January 31 of the following year. Form 1040nr ez A copy of this form will also be sent to the IRS. Form 1040nr ez The statement will show the total interest you paid during the year, any mortgage insurance premiums you paid, and if you purchased a main home during the year, it also will show the deductible points paid during the year, including seller-paid points. Form 1040nr ez However, it should not show any interest that was paid for you by a government agency. Form 1040nr ez As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. Form 1040nr ez However, certain points not included on Form 1098 also may be deductible, either in the year paid or over the life of the loan. Form 1040nr ez See Points , earlier, to determine whether you can deduct points not shown on Form 1098. Form 1040nr ez Prepaid interest on Form 1098. Form 1040nr ez   If you prepaid interest in 2013 that accrued in full by January 15, 2014, this prepaid interest may be included in box 1 of Form 1098. Form 1040nr ez However, you cannot deduct the prepaid amount for January 2014 in 2013. Form 1040nr ez (See Prepaid interest , earlier. Form 1040nr ez ) You will have to figure the interest that accrued for 2014 and subtract it from the amount in box 1. Form 1040nr ez You will include the interest for January 2014 with the other interest you pay for 2014. Form 1040nr ez See How To Report , later. Form 1040nr ez Refunded interest. Form 1040nr ez   If you received a refund of mortgage interest you overpaid in an earlier year, you generally will receive a Form 1098 showing the refund in box 3. Form 1040nr ez See Refunds of interest , earlier. Form 1040nr ez Mortgage insurance premiums. Form 1040nr ez   The amount of mortgage insurance premiums you paid during 2013 may be shown in box 4 of Form 1098. Form 1040nr ez See Mortgage Insurance Premiums, earlier. Form 1040nr ez Investment Interest This section discusses interest expenses you may be able to deduct as an investor. Form 1040nr ez If you borrow money to buy property you hold for investment, the interest you pay is investment interest. Form 1040nr ez You can deduct investment interest subject to the limit discussed later. Form 1040nr ez However, you cannot deduct interest you incurred to produce tax-exempt income. Form 1040nr ez Nor can you deduct interest expenses on straddles. Form 1040nr ez Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. Form 1040nr ez Investment Property Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. Form 1040nr ez It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). Form 1040nr ez Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity). Form 1040nr ez Partners, shareholders, and beneficiaries. Form 1040nr ez   To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest. Form 1040nr ez Allocation of Interest Expense If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. Form 1040nr ez Only the interest expense on the part of the debt used for investment purposes is treated as investment interest. Form 1040nr ez The allocation is not affected by the use of property that secures the debt. Form 1040nr ez Limit on Deduction Generally, your deduction for investment interest expense is limited to the amount of your net investment income. Form 1040nr ez You can carry over the amount of investment interest that you could not deduct because of this limit to the next tax year. Form 1040nr ez The interest carried over is treated as investment interest paid or accrued in that next year. Form 1040nr ez You can carry over disallowed investment interest to the next tax year even if it is more than your taxable income in the year the interest was paid or accrued. Form 1040nr ez Net Investment Income Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income. Form 1040nr ez Investment income. Form 1040nr ez    This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). Form 1040nr ez Investment income does not include Alaska Permanent Fund dividends. Form 1040nr ez It also does not include qualified dividends or net capital gain unless you choose to include them. Form 1040nr ez Choosing to include qualified dividends. Form 1040nr ez   Investment income generally does not include qualified dividends, discussed in chapter 8. Form 1040nr ez However, you can choose to include all or part of your qualified dividends in investment income. Form 1040nr ez   You make this choice by completing Form 4952, line 4g, according to its instructions. Form 1040nr ez   If you choose to include any amount of your qualified dividends in investment income, you must reduce your qualified dividends that are eligible for the lower capital gains tax rates by the same amount. Form 1040nr ez Choosing to include net capital gain. Form 1040nr ez   Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). Form 1040nr ez However, you can choose to include all or part of your net capital gain in investment income. Form 1040nr ez    You make this choice by completing Form 4952, line 4g, according to its instructions. Form 1040nr ez   If you choose to include any amount of your net capital gain in investment income, you must reduce your net capital gain that is eligible for the lower capital gains tax rates by the same amount. Form 1040nr ez    Before making either choice, consider the overall effect on your tax liability. Form 1040nr ez Compare your tax if you make one or both of these choices with your tax if you do not. Form 1040nr ez Investment income of child reported on parent's return. Form 1040nr ez    Investment income includes the part of your child's interest and dividend income that you choose to report on your return. Form 1040nr ez If the child does not have qualified dividends, Alaska Permanent Fund dividends, or capital gain distributions, this is the amount on line 6 of Form 8814, Parents' Election To Report Child's Interest and Dividends. Form 1040nr ez Child's qualified dividends. Form 1040nr ez   If part of the amount you report is your child's qualified dividends, that part (which is reported on Form 1040, line 9b) generally does not count as investment income. Form 1040nr ez However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. Form 1040nr ez   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends). Form 1040nr ez Child's Alaska Permanent Fund dividends. Form 1040nr ez   If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. Form 1040nr ez To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. Form 1040nr ez Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. Form 1040nr ez Subtract the result from the amount on Form 8814, line 12. Form 1040nr ez Child's capital gain distributions. Form 1040nr ez    If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D, line 13, or Form 1040, line 13) generally does not count as investment income. Form 1040nr ez However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. Form 1040nr ez   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends , earlier). Form 1040nr ez Investment expenses. Form 1040nr ez   Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. Form 1040nr ez Investment expenses that are included as a miscellaneous itemized deduction on Schedule A (Form 1040) are allowable deductions after applying the 2% limit that applies to miscellaneous itemized deductions. Form 1040nr ez Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A, line 27. Form 1040nr ez Losses from passive activities. Form 1040nr ez   Income or expenses that you used in computing income or loss from a passive activity are not included in determining your investment income or investment expenses (including investment interest expense). Form 1040nr ez See Publication 925, Passive Activity and At-Risk Rules, for information about passive activities. Form 1040nr ez Form 4952 Use Form 4952, Investment Interest Expense Deduction, to figure your deduction for investment interest. Form 1040nr ez Exception to use of Form 4952. Form 1040nr ez   You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. Form 1040nr ez Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. Form 1040nr ez You do not have any other deductible investment expenses. Form 1040nr ez You have no carryover of investment interest expense from 2012. Form 1040nr ez If you meet all of these tests, you can deduct all of your investment interest. Form 1040nr ez More Information For more information on investment interest, see Interest Expenses in chapter 3 of Publication 550. Form 1040nr ez Items You Cannot Deduct Some interest payments are not deductible. Form 1040nr ez Certain expenses similar to interest also are not deductible. Form 1040nr ez Nondeductible expenses include the following items. Form 1040nr ez Personal interest (discussed later). Form 1040nr ez Service charges (however, see Other Expenses (Line 23) in chapter 28). Form 1040nr ez Annual fees for credit cards. Form 1040nr ez Loan fees. Form 1040nr ez Credit investigation fees. Form 1040nr ez Interest to purchase or carry tax-exempt securities. Form 1040nr ez Penalties. Form 1040nr ez   You cannot deduct fines and penalties paid to a government for violations of law, regardless of their nature. Form 1040nr ez Personal Interest Personal interest is not deductible. Form 1040nr ez Personal interest is any interest that is not home mortgage interest, investment interest, business interest, or other deductible interest. Form 1040nr ez It includes the following items. Form 1040nr ez Interest on car loans (unless you use the car for business). Form 1040nr ez Interest on federal, state, or local income tax. Form 1040nr ez Finance charges on credit cards, retail installment contracts, and revolving charge accounts incurred for personal expenses. Form 1040nr ez Late payment charges by a public utility. Form 1040nr ez You may be able to deduct interest you pay on a qualified student loan. Form 1040nr ez For details, see Publication 970, Tax Benefits for Education. Form 1040nr ez Allocation of Interest If you use the proceeds of a loan for more than one purpose (for example, personal and business), you must allocate the interest on the loan to each use. Form 1040nr ez However, you do not have to allocate home mortgage interest if it is fully deductible, regardless of how the funds are used. Form 1040nr ez You allocate interest (other than fully deductible home mortgage interest) on a loan in the same way as the loan itself is allocated. Form 1040nr ez You do this by tracing disbursements of the debt proceeds to specific uses. Form 1040nr ez For details on how to do this, see chapter 4 of Publication 535. Form 1040nr ez How To Report You must file Form 1040 to deduct any home mortgage interest expense on your tax return. Form 1040nr ez Where you deduct your interest expense generally depends on how you use the loan proceeds. Form 1040nr ez See Table 23-1 for a summary of where to deduct your interest expense. Form 1040nr ez Home mortgage interest and points. Form 1040nr ez   Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. Form 1040nr ez If you paid more deductible interest to the financial institution than the amount shown on Form 1098, show the larger deductible amount on line 10. Form 1040nr ez Attach a statement explaining the difference and print “See attached” next to line 10. Form 1040nr ez    Deduct home mortgage interest that was not reported to you on Form 1098 on Schedule A (Form 1040), line 11. Form 1040nr ez If you paid home mortgage interest to the person from whom you bought your home, show that person's name, address, and taxpayer identification number (TIN) on the dotted lines next to line 11. Form 1040nr ez The seller must give you this number and you must give the seller your TIN. Form 1040nr ez A Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. Form 1040nr ez Failure to meet any of these requirements may result in a $50 penalty for each failure. Form 1040nr ez The TIN can be either a social security number, an individual taxpayer identification number (issued by the Internal Revenue Service), or an employer identification number. Form 1040nr ez See Social Security Number (SSN) in chapter 1 for more information about TINs. Form 1040nr ez    If you can take a deduction for points that were not reported to you on Form 1098, deduct those points on Schedule A (Form 1040), line 12. Form 1040nr ez   Deduct mortgage insurance premiums on Schedule A (Form 1040), line 13. Form 1040nr ez More than one borrower. Form 1040nr ez   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 1040nr ez Show how much of the interest each of you paid, and give the name and address of the person who received the form. Form 1040nr ez Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. Form 1040nr ez Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13. Form 1040nr ez   Similarly, if you are the payer of record on a mortgage on which there are other borrowers entitled to a deduction for the interest shown on the Form 1098 you received, deduct only your share of the interest on Schedule A (Form 1040), line 10. Form 1040nr ez You should let each of the other borrowers know what his or her share is. Form 1040nr ez Mortgage proceeds used for business or investment. Form 1040nr ez    If your home mortgage interest deduction is limited, but all or part of the mortgage proceeds were used for business, investment, or other deductible activities, see Table 23-1. Form 1040nr ez It shows where to deduct the part of your excess interest that is for those activities. Form 1040nr ez Investment interest. Form 1040nr ez    Deduct investment interest, subject to certain limits discussed in Publication 550, on Schedule A (Form 1040), line 14. Form 1040nr ez Amortization of bond premium. Form 1040nr ez   There are various ways to treat the premium you pay to buy taxable bonds. Form 1040nr ez See Bond Premium Amortization in Publication 550. Form 1040nr ez Income-producing rental or royalty interest. Form 1040nr ez   Deduct interest on a loan for income-producing rental or royalty property that is not used in your business in Part I of Schedule E (Form 1040). Form 1040nr ez Example. Form 1040nr ez You rent out part of your home and borrow money to make repairs. Form 1040nr ez You can deduct only the interest payment for the rented part in Part I of Schedule E (Form 1040). Form 1040nr ez Deduct the rest of the interest payment on Schedule A (Form 1040) if it is deductible home mortgage interest. Form 1040nr ez Table 23-1. Form 1040nr ez Where To Deduct Your Interest Expense IF you have . Form 1040nr ez . Form 1040nr ez . Form 1040nr ez THEN deduct it on . Form 1040nr ez . Form 1040nr ez . Form 1040nr ez AND for more information go to . Form 1040nr ez . Form 1040nr ez . Form 1040nr ez deductible student loan interest Form 1040, line 33, or Form 1040A, line 18 Publication 970. Form 1040nr ez deductible home mortgage interest and points reported on Form 1098 Schedule A (Form 1040), line 10 Publication 936. Form 1040nr ez deductible home mortgage interest not reported on Form 1098 Schedule A (Form 1040), line 11 Publication 936. Form 1040nr ez deductible points not reported on Form 1098 Schedule A (Form 1040), line 12 Publication 936. Form 1040nr ez deductible mortgage insurance premiums Schedule A (Form 1040), line 13 Publication 936. Form 1040nr ez deductible investment interest (other than incurred to produce rents or royalties) Schedule A (Form 1040), line 14 Publication 550. Form 1040nr ez deductible business interest (non-farm) Schedule C or C-EZ (Form 1040) Publication 535. Form 1040nr ez deductible farm business interest Schedule F (Form 1040) Publications 225 and 535. Form 1040nr ez deductible interest incurred to produce rents or royalties Schedule E (Form 1040) Publications 527 and 535. Form 1040nr ez personal interest not deductible. Form 1040nr ez Prev  Up  Next   Home   More Online Publications