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Form 1040x Fillable

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Form 1040x Fillable

Form 1040x fillable 1. Form 1040x fillable   Canceled Debts Table of Contents General RulesForm 1099-C Discounts and loan modifications Sales or other dispositions (such as foreclosures and repossessions) Abandonments Stockholder debt This chapter discusses the tax treatment of canceled debts. Form 1040x fillable General Rules Generally, if a debt for which you are personally liable is forgiven or discharged for less than the full amount owed, the debt is considered canceled in whatever amount it remained unpaid. Form 1040x fillable There are exceptions to this rule, discussed under Exceptions , later. Form 1040x fillable Generally, you must include the canceled debt in your income. Form 1040x fillable However, you may be able to exclude the canceled debt. Form 1040x fillable See Exclusions , later. Form 1040x fillable Example. Form 1040x fillable John owed $1,000 to Mary. Form 1040x fillable Mary agreed to accept and John paid $400 in satisfaction of the entire debt. Form 1040x fillable John has canceled debt of $600. Form 1040x fillable Example. Form 1040x fillable Margaret owed $1,000 to Henry. Form 1040x fillable Henry and Margaret agreed that Margaret would provide Henry with services (instead of money) in full satisfaction of the debt. Form 1040x fillable Margaret does not have canceled debt. Form 1040x fillable Instead, she has income from services. Form 1040x fillable A debt includes any indebtedness: For which you are liable, or Subject to which you hold property. Form 1040x fillable Debt for which you are personally liable is recourse debt. Form 1040x fillable All other debt is nonrecourse debt. Form 1040x fillable If you are not personally liable for the debt, you do not have ordinary income from the cancellation of debt unless you retain the collateral and either: The lender offers a discount for the early payment of the debt, or The lender agrees to a loan modification that results in the reduction of the principal balance of the debt. Form 1040x fillable See Discounts and loan modifications , later. Form 1040x fillable However, upon the disposition of the property securing a nonrecourse debt, the amount realized includes the entire unpaid amount of the debt, not just the FMV of the property. Form 1040x fillable As a result, you may realize a gain or loss if the outstanding debt immediately before the disposition is more or less than your adjusted basis in the property. Form 1040x fillable For more details on figuring your gain or loss, see chapter 2 of this publication or see Publication 544. Form 1040x fillable There are several exceptions and exclusions that may result in part or all of a canceled debt being nontaxable. Form 1040x fillable See Exceptions and Exclusions, later. Form 1040x fillable You must report any taxable canceled debt as ordinary income on: Form 1040 or Form 1040NR, line 21, if the debt is a nonbusiness debt; Schedule C (Form 1040), line 6 (or Schedule C-EZ (Form 1040), line 1), if the debt is related to a nonfarm sole proprietorship; Schedule E (Form 1040), line 3, if the debt is related to nonfarm rental of real property; Form 4835, line 6, if the debt is related to a farm rental activity for which you use Form 4835 to report farm rental income based on crops or livestock produced by a tenant; or Schedule F (Form 1040), line 8, if the debt is farm debt and you are a farmer. Form 1040x fillable Form 1099-C If you receive a Form 1099-C, that means an applicable entity has reported an identifiable event to the IRS regarding a debt you owe. Form 1040x fillable The identifiable event may be an actual cancellation of the debt or it may be an event the applicable entity is required, solely for purposes of reporting to the IRS, to treat as a cancellation of debt. Form 1040x fillable For information on the reasons an applicable entity files Form 1099-C, see Identifiable event codes, later. Form 1040x fillable Unless you meet one of the exceptions or exclusions discussed later, this canceled debt is ordinary income and must be reported on the appropriate form discussed above. Form 1040x fillable An applicable entity includes: A federal government agency, A financial institution, A credit union, and Any organization a significant trade or business of which is lending money. Form 1040x fillable Identifiable event codes. Form 1040x fillable    Box 6 of Form 1099-C should indicate the reason the creditor filed this form. Form 1040x fillable The codes shown in box 6 are explained below. Form 1040x fillable Also see the chart after the explanation for a quick reference guide for the codes used in Box 6. Form 1040x fillable Note. Form 1040x fillable Codes A through G and I identify specific occurrences resulting from an actual discharge of indebtedness. Form 1040x fillable However, Code H, Expiration of nonpayment testing period, does not necessarily identify an actual discharge of indebtedness. Form 1040x fillable Code A — Bankruptcy. Form 1040x fillable Code A is used to identify cancellation of debt as a result of a title 11 bankruptcy case. Form 1040x fillable See Bankruptcy , later. Form 1040x fillable Code B — Other judicial debt relief. Form 1040x fillable Code B is used to identify cancellation of debt as a result of a receivership, foreclosure, or similar federal or state court proceeding other than bankruptcy. Form 1040x fillable Code C — Statute of limitations or expiration of deficiency period. Form 1040x fillable Code C is used to identify cancellation of debt either when the statute of limitations for collecting the debt expires or when the statutory period for filing a claim or beginning a deficiency judgment proceeding expires. Form 1040x fillable In the case of the expiration of a statute of limitations, an identifiable event occurs only if and when your affirmative defense of the statute of limitations is upheld in a final judgment or decision in a judicial proceeding, and the period for appealing the judgment or decision has expired. Form 1040x fillable Code D — Foreclosure election. Form 1040x fillable Code D is used to identify cancellation of debt when the creditor elects foreclosure remedies that statutorily end or bar the creditor's right to pursue collection of the debt. Form 1040x fillable This event applies to a mortgage lender or holder who is barred from pursuing debt collection after a power of sale in the mortgage or deed of trust is exercised. Form 1040x fillable Code E — Debt relief from probate or similar proceeding. Form 1040x fillable Code E is used to identify cancellation of debt as a result of a probate court or similar legal proceeding. Form 1040x fillable Code F — By agreement. Form 1040x fillable Code F is used to identify cancellation of debt as a result of an agreement between the creditor and the debtor to cancel the debt at less than full consideration. Form 1040x fillable Code G — Decision or policy to discontinue collection. Form 1040x fillable Code G is used to identify cancellation of debt as a result of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. Form 1040x fillable For purposes of this identifiable event, a defined policy includes both a written policy and the creditor's established business practice. Form 1040x fillable Code H — Expiration of nonpayment testing period. Form 1040x fillable Code H is used to indicate that the creditor has not received a payment on the debt during a testing period ending on December 31, 2013. Form 1040x fillable The testing period is a 36-month period increased by the number of months the creditor was prevented from engaging in collection activity by a stay in bankruptcy or similar bar under state or local law. Form 1040x fillable This identifiable event applies only for a creditor that is a financial institution or credit union (and certain of their subsidiaries), the Federal Deposit Insurance Corporation (FDIC), Resolution Trust Corporation (RTC), National Credit Union Administration (NCUA), and other Federal executive agencies. Form 1040x fillable Expiration of the nonpayment testing period does not necessarily result from an actual discharge of indebtedness. Form 1040x fillable Code I — Other actual discharge before identifiable event. Form 1040x fillable Code I is used to identify an actual cancellation of debt that occurs before any of the identifiable events described in codes A through H. Form 1040x fillable Form 1099-C Reference Guide for Box 6 Identifiable Event Codes A Bankruptcy B Other judicial debt relief C Statute of limitations or expiration of deficiency period D Foreclosure election E Debt relief from probate or similar proceeding F By agreement G Decision or policy to discontinue collection H Expiration of nonpayment testing period I Other actual discharge before identifiable event Even if you did not receive a Form 1099-C, you must report canceled debt as gross income on your tax return unless one of the exceptions or exclusions described later applies. Form 1040x fillable Amount of canceled debt. Form 1040x fillable    The amount in box 2 of Form 1099-C may represent some or all of the debt that has been canceled or treated as canceled. Form 1040x fillable The amount in box 2 will include principal and may include interest and other nonprincipal amounts (such as fees or penalties). Form 1040x fillable Unless you meet one of the exceptions or exclusions discussed later, the amount of the debt that has been canceled is ordinary income and must be reported on the appropriate form as discussed earlier. Form 1040x fillable Interest included in canceled debt. Form 1040x fillable    If any interest is included in the amount of canceled debt in box 2, it will be shown in box 3. Form 1040x fillable Whether the interest portion of the canceled debt must be included in your income depends on whether the interest would be deductible if you paid it. Form 1040x fillable See Deductible Debt under Exceptions, later. Form 1040x fillable Persons who each receive a Form 1099-C showing the full amount of debt. Form 1040x fillable    If you and another person were jointly and severally liable for a canceled debt, each of you may get a Form 1099-C showing the entire amount of the canceled debt. Form 1040x fillable However, you may not have to report that entire amount as income. Form 1040x fillable The amount, if any, you must report depends on all the facts and circumstances, including: State law, The amount of debt proceeds each person received, How much of any interest deduction from the debt was claimed by each person, How much of the basis of any co-owned property bought with the debt proceeds was allocated to each co-owner, and Whether the canceled debt qualifies for any of the exceptions or exclusions described in this publication. Form 1040x fillable See Example 3 under Insolvency, later. Form 1040x fillable Discounts and loan modifications If a lender discounts (reduces) the principal balance of a loan because you pay it off early, or agrees to a loan modification (a “workout”) that includes a reduction in the principal balance of a loan, the amount of the discount or the amount of principal reduction is canceled debt. Form 1040x fillable However, if the debt is nonrecourse and you did not retain the collateral, you do not have cancellation of the debt income. Form 1040x fillable The amount of the canceled debt must be included in income unless one of the exceptions or exclusions described later applies. Form 1040x fillable For more details, see Exceptions and Exclusions, later. Form 1040x fillable Sales or other dispositions (such as foreclosures and repossessions) Recourse debt. Form 1040x fillable   If you owned property that was subject to a recourse debt in excess of the FMV of the property, the lender's foreclosure or repossession of the property is treated as a sale or disposition of the property by you and may result in your realization of gain or loss. Form 1040x fillable The gain or loss on the disposition of the property is measured by the difference between the FMV of the property at the time of the disposition and your adjusted basis (usually your cost) in the property. Form 1040x fillable The character of the gain or loss (such as ordinary or capital) is determined by the character of the property. Form 1040x fillable If the lender forgives all or part of the amount of the debt in excess of the FMV of the property, the cancellation of the excess debt may result in ordinary income. Form 1040x fillable The ordinary income from the cancellation of debt (the excess of the canceled debt over the FMV of the property) must be included in your gross income reported on your tax return unless one of the exceptions or exclusions described later applies. Form 1040x fillable For more details, see Exceptions and Exclusions, later. Form 1040x fillable Nonrecourse debt. Form 1040x fillable   If you owned property that was subject to a nonrecourse debt in excess of the FMV of the property, the lender's foreclosure on the property does not result in ordinary income from the cancellation of debt. Form 1040x fillable The entire amount of the nonrecourse debt is treated as an amount realized on the disposition of the property. Form 1040x fillable The gain or loss on the disposition of the property is measured by the difference between the total amount realized (the entire amount of the nonrecourse debt plus the amount of cash and the FMV of any property received) and your adjusted basis in the property. Form 1040x fillable The character of the gain or loss is determined by the character of the property. Form 1040x fillable More information. Form 1040x fillable    See Publications 523, 544, and 551, and chapter 2 of this publication for more details. Form 1040x fillable Abandonments Recourse debt. Form 1040x fillable   If you abandon property that secures a debt for which you are personally liable (recourse debt) and the debt is canceled, you will realize ordinary income equal to the canceled debt. Form 1040x fillable You must report this income on your tax return unless one of the exceptions or exclusions described later applies. Form 1040x fillable For more details, see Exceptions and Exclusions, later. Form 1040x fillable This income is separate from any amount realized from the abandonment of the property. Form 1040x fillable For more details, see chapter 3. Form 1040x fillable Nonrecourse debt. Form 1040x fillable   If you abandon property that secures a debt for which you are not personally liable (nonrecourse debt), you may realize gain or loss but will not have cancellation of indebtedness income. Form 1040x fillable Stockholder debt If you are a stockholder in a corporation and the corporation cancels or forgives your debt to it, the canceled debt is a constructive distribution. Form 1040x fillable For more information, see Publication 542, Corporations. Form 1040x fillable Prev  Up  Next   Home   More Online Publications
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The Form 1040x Fillable

Form 1040x fillable 10. Form 1040x fillable   Education Savings Bond Program Table of Contents Introduction Who Can Cash In Bonds Tax FreeAdjusted qualified education expenses. Form 1040x fillable Eligible educational institution. Form 1040x fillable Dependent for whom you claim an exemption. Form 1040x fillable MAGI when using Form 1040A. Form 1040x fillable MAGI when using Form 1040. Form 1040x fillable Figuring the Tax-Free AmountEffect of the Amount of Your Income on the Amount of Your Exclusion Claiming the Exclusion Introduction Generally, you must pay tax on the interest earned on U. Form 1040x fillable S. Form 1040x fillable savings bonds. Form 1040x fillable If you do not include the interest in income in the years it is earned, you must include it in your income in the year in which you cash in the bonds. Form 1040x fillable However, when you cash in certain savings bonds under an education savings bond program, you may be able to exclude the interest from income. Form 1040x fillable Who Can Cash In Bonds Tax Free You may be able to cash in qualified U. Form 1040x fillable S. Form 1040x fillable savings bonds without having to include in your income some or all of the interest earned on the bonds if you meet the following conditions. Form 1040x fillable You pay qualified education expenses for yourself, your spouse, or a dependent for whom you claim an exemption on your return. Form 1040x fillable Your modified adjusted gross income (MAGI) is less than the amount specified for your filing status. Form 1040x fillable Your filing status is not married filing separately. Form 1040x fillable Qualified U. Form 1040x fillable S. Form 1040x fillable savings bonds. Form 1040x fillable   A qualified U. Form 1040x fillable S. Form 1040x fillable savings bond is a series EE bond issued after 1989 or a series I bond. Form 1040x fillable The bond must be issued either in your name (as the sole owner) or in the name of both you and your spouse (as co-owners). Form 1040x fillable   The owner must be at least 24 years old before the bond's issue date. Form 1040x fillable The issue date is printed on the front of the savings bond. Form 1040x fillable    The issue date is not necessarily the date of purchase—it will be the first day of the month in which the bond is purchased (or posted, if bought electronically). Form 1040x fillable Qualified education expenses. Form 1040x fillable   These include the following items you pay for either yourself, your spouse, or a dependent for whom you claim an exemption. Form 1040x fillable Tuition and fees required to enroll at or attend an eligible educational institution. Form 1040x fillable Qualified education expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Form 1040x fillable Contributions to a qualified tuition program (QTP) (see How Much Can You Contribute in chapter 8, Qualified Tuition Program). Form 1040x fillable Contributions to a Coverdell education savings account (ESA) (see Contributions in chapter 7, Coverdell Education Savings Account). Form 1040x fillable Adjusted qualified education expenses. Form 1040x fillable   You must reduce your qualified education expenses by all of the following tax-free benefits. Form 1040x fillable Tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions). Form 1040x fillable Expenses used to figure the tax-free portion of distributions from a Coverdell ESA (see Qualified Education Expenses in chapter 7, Coverdell Education Savings Account). Form 1040x fillable Expenses used to figure the tax-free portion of distributions from a QTP (see Qualified education expenses in chapter 8, Qualified Tuition Program). Form 1040x fillable Any tax-free payments (other than gifts or inheritances) received as educational assistance, such as: Veterans' educational assistance benefits (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Qualified tuition reductions (see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), or Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ). Form 1040x fillable Any expenses used in figuring the American opportunity and lifetime learning credits. Form 1040x fillable See What Expenses Qualify in chapter 2, American Opportunity Credit, and What Expenses Qualify in chapter 3, Lifetime Learning Credit, for more information. Form 1040x fillable Eligible educational institution. Form 1040x fillable   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Form 1040x fillable S. Form 1040x fillable Department of Education. Form 1040x fillable It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Form 1040x fillable The educational institution should be able to tell you if it is an eligible educational institution. Form 1040x fillable   Certain educational institutions located outside the United States also participate in the U. Form 1040x fillable S. Form 1040x fillable Department of Education's Federal Student Aid (FSA) programs. Form 1040x fillable Dependent for whom you claim an exemption. Form 1040x fillable   You claim an exemption for a person if you list his or her name and other required information on Form 1040 (or Form 1040A), line 6c. Form 1040x fillable Modified adjusted gross income (MAGI). Form 1040x fillable   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return without taking into account this interest exclusion. Form 1040x fillable However, as discussed below, there may be other modifications. Form 1040x fillable MAGI when using Form 1040A. Form 1040x fillable   If you file Form 1040A, your MAGI is the AGI on line 22 of that form figured without taking into account any savings bond interest exclusion and modified by adding back any amount on line 18 (student loan interest deduction) and line 19 (tuition and fees deduction). Form 1040x fillable MAGI when using Form 1040. Form 1040x fillable   If you file Form 1040, your MAGI is the AGI on line 38 of that form figured without taking into account any savings bond interest exclusion and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, Exclusion of income by bona fide residents of Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for student loan interest, Deduction for tuition and fees, and Deduction for domestic production activities. Form 1040x fillable    Use the worksheet in the instructions for line 9 of Form 8815 to figure your MAGI. Form 1040x fillable If you claim any of the exclusion or deduction items (1)–(6) listed above, add the amount of the exclusion or deduction to the amount on line 5 of the worksheet. Form 1040x fillable Do not add in the deduction for (7) student loan interest, and (8) tuition and fees, or (9) domestic production activities because line 4 of the worksheet already includes these amounts. Form 1040x fillable Enter the total on Form 8815, line 9, as your modified adjusted gross income (MAGI). Form 1040x fillable    Because the deduction for interest expenses attributable to royalties and other investments is limited to your net investment income, you cannot figure the deduction until you have figured this interest exclusion. Form 1040x fillable Therefore, if you had interest expenses attributable to royalties and deductible on Schedule E (Form 1040), Supplemental Income and Loss, you must make a special computation of your deductible interest without regard to this exclusion to figure the net royalty income included in your MAGI. Form 1040x fillable See Royalties included in MAGI under Education Savings Bond Program in Publication 550, chapter 1. Form 1040x fillable Figuring the Tax-Free Amount If the total you receive when you cash in the bonds is not more than the adjusted qualified education expenses for the year, all of the interest on the bonds may be tax free. Form 1040x fillable However, if the total you receive when you cash in the bonds is more than the adjusted expenses, only part of the interest may be tax free. Form 1040x fillable To determine the tax-free amount, multiply the interest part of the proceeds by a fraction. Form 1040x fillable The numerator (top part) of the fraction is the adjusted qualified education expenses (AQEE) you paid during the year. Form 1040x fillable The denominator (bottom part) of the fraction is the total proceeds you received during the year. Form 1040x fillable Example. Form 1040x fillable In February 2013, Mark and Joan Washington, a married couple, cashed a qualified series EE U. Form 1040x fillable S. Form 1040x fillable savings bond. Form 1040x fillable They received proceeds of $9,000, representing principal of $6,000 and interest of $3,000. Form 1040x fillable In 2013, they paid $7,650 of their daughter's college tuition. Form 1040x fillable They are not claiming an American opportunity or lifetime learning credit for those expenses, and their daughter does not have any tax-free educational assistance. Form 1040x fillable Their MAGI for 2013 was $80,000. Form 1040x fillable   $3,000 interest × $7,650 AQEE  $9,000 proceeds = $2,550 tax-free interest   They can exclude $2,550 of interest in 2013. Form 1040x fillable They must pay tax on the remaining $450 ($3,000 − $2,550) interest. Form 1040x fillable Effect of the Amount of Your Income on the Amount of Your Exclusion The amount of your interest exclusion is gradually reduced (phased out) based on your MAGI and filing status. Form 1040x fillable Claiming the Exclusion Use Form 8815 to figure your education savings bond interest exclusion. Form 1040x fillable Enter your exclusion on line 3 of Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. Form 1040x fillable Attach Form 8815 to your tax return. Form 1040x fillable Prev  Up  Next   Home   More Online Publications