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Free Income Tax Return

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Free Income Tax Return

Free income tax return Other Methods of Depreciation Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: How To Figure the DeductionBasis Useful Life Salvage Value Methods To UseStraight Line Method Declining Balance Method Income Forecast Method How To Change Methods DispositionsSale or exchange. Free income tax return Property not disposed of or abandoned. Free income tax return Special rule for normal retirements from item accounts. Free income tax return Abandoned property. Free income tax return Single item accounts. Free income tax return Multiple property account. Free income tax return Topics - This chapter discusses: How to figure the deduction Methods to use How to change methods Dispositions Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 551 Basis of Assets 583 Starting a Business and Keeping Records 946 How To Depreciate Property Form (and Instructions) 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization Schedule C (Form 1040) Profit or Loss From Business If your property is being depreciated under ACRS, you must continue to use rules for depreciation that applied when you placed the property in service. Free income tax return If your property qualified for MACRS, you must depreciate it under MACRS. Free income tax return See Publication 946. Free income tax return However, you cannot use MACRS for certain property because of special rules that exclude it from MACRS. Free income tax return Also, you can elect to exclude certain property from being depreciated under MACRS. Free income tax return Property that you cannot depreciate using MACRS includes: Intangible property, Property you can elect to exclude from MACRS that you properly depreciate under a method that is not based on a term of years, Certain public utility property, Any motion picture film or video tape, Any sound recording, and Certain real and personal property placed in service before 1987. Free income tax return Intangible property. Free income tax return   You cannot depreciate intangible property under ACRS or MACRS. Free income tax return You depreciate intangible property using any other reasonable method, usually, the straight line method. Free income tax return Note. Free income tax return The cost of certain intangible property that you acquire after August 10, 1993, must be amortized over a 15-year period. Free income tax return For more information, see chapter 12 of Publication 535. Free income tax return Public utility property. Free income tax return   The law excludes from MACRS any public utility property for which the taxpayer does not use a normalization method of accounting. Free income tax return This type of property is subject to depreciation under a special rule. Free income tax return Videocassettes. Free income tax return   If you are in the videocassette rental business, you can depreciate those videocassettes purchased for rental. Free income tax return You can depreciate the cost less salvage value of those videocassettes that have a useful life over one year using either: The straight line method, or The income forecast method. Free income tax return The straight line method, salvage value, and useful life are discussed later under Methods To Use. Free income tax return You can deduct in the year of purchase as a business expense the cost of any cassette that has a useful life of one year or less. Free income tax return How To Figure the Deduction Two other reasonable methods can be used to figure your deduction for property not covered under ACRS or MACRS. Free income tax return These methods are straight line and declining balance. Free income tax return To figure depreciation using these methods, you must generally determine three things about the property you intend to depreciate. Free income tax return They are: The basis, The useful life, and The estimated salvage value at the end of its useful life. Free income tax return The amount of the deduction in any year also depends on which method of depreciation you choose. Free income tax return Basis To deduct the proper amount of depreciation each year, first determine your basis in the property you intend to depreciate. Free income tax return The basis used for figuring depreciation is the same as the basis that would be used for figuring the gain on a sale. Free income tax return Your original basis is usually the purchase price. Free income tax return However, if you acquire property in some other way, such as inheriting it, getting it as a gift, or building it yourself, you have to figure your original basis in a different way. Free income tax return Adjusted basis. Free income tax return   Events will often change the basis of property. Free income tax return When this occurs, the changed basis is called the adjusted basis. Free income tax return Some events, such as improvements you make, increase basis. Free income tax return Events such as deducting casualty losses and depreciation decrease basis. Free income tax return If basis is adjusted, the depreciation deduction may also have to be changed, depending on the reason for the adjustment and the method of depreciation you are using. Free income tax return   Publication 551 explains how to figure basis for property acquired in different ways. Free income tax return It also discusses what items increase and decrease basis, how to figure adjusted basis, and how to allocate cost if you buy several pieces of property at one time. Free income tax return Useful Life The useful life of a piece of property is an estimate of how long you can expect to use it in your trade or business, or to produce income. Free income tax return It is the length of time over which you will make yearly depreciation deductions of your basis in the property. Free income tax return It is how long it will continue to be useful to you, not how long the property will last. Free income tax return Many things affect the useful life of property, such as: Frequency of use, Age when acquired, Your repair policy, and Environmental conditions. Free income tax return The useful life can also be affected by technological improvements, progress in the arts, reasonably foreseeable economic changes, shifting of business centers, prohibitory laws, and other causes. Free income tax return Consider all these factors before you arrive at a useful life for your property. Free income tax return The useful life of the same type of property varies from user to user. Free income tax return When you determine the useful life of your property, keep in mind your own experience with similar property. Free income tax return You can use the general experience of the industry you are in until you are able to determine a useful life of your property from your own experience. Free income tax return Change in useful life. Free income tax return   You base your estimate of useful life on certain facts. Free income tax return If these facts change significantly, you can adjust your estimate of the remaining useful life. Free income tax return However, you redetermine the estimated useful life only when the change is substantial and there is a clear reason for making the change. Free income tax return Salvage Value It is important for you to accurately determine the correct salvage value of the property you want to depreciate. Free income tax return You generally cannot depreciate property below a reasonable salvage value. Free income tax return Determining salvage value. Free income tax return   Salvage value is the estimated value of property at the end of its useful life. Free income tax return It is what you expect to get for the property if you sell it after you can no longer use it productively. Free income tax return You must estimate the salvage value of a piece of property when you first acquire it. Free income tax return   Salvage value is affected both by how you use the property and how long you use it. Free income tax return If it is your policy to dispose of property that is still in good operating condition, the salvage value can be relatively large. Free income tax return However, if your policy is to use property until it is no longer usable, its salvage value can be its junk value. Free income tax return Changing salvage value. Free income tax return   Once you determine the salvage value for property, you should not change it merely because prices have changed. Free income tax return However, if you redetermine the useful life of property, as discussed earlier under Change in useful life, you can also redetermine the salvage value. Free income tax return When you redetermine the salvage value, take into account the facts that exist at the time. Free income tax return Net salvage. Free income tax return   Net salvage is the salvage value of property minus what it costs to remove it when you dispose of it. Free income tax return You can choose either salvage value or net salvage when you figure depreciation. Free income tax return You must consistently use the one you choose and the treatment of the costs of removal must be consistent with the practice adopted. Free income tax return However, if the cost to remove the property is more than the estimated salvage value, then net salvage is zero. Free income tax return Your salvage value can never be less than zero. Free income tax return Ten percent rule. Free income tax return   If you acquire personal property that has a useful life of 3 years or more, you can use an amount for salvage value that is less than your actual estimate. Free income tax return You can subtract from your estimate of salvage value an amount equal to 10% of your basis in the property. Free income tax return If salvage value is less than 10% of basis, you can ignore salvage value when you figure depreciation. Free income tax return Methods To Use Two methods of depreciation are the straight line and declining balance methods. Free income tax return If ACRS or MACRS does not apply, you can use one of these methods. Free income tax return The straight line and declining balance methods discussed in this section are not figured in the same way as straight line or declining balance methods under MACRS. Free income tax return Straight Line Method Before 1981, you could use any reasonable method for every kind of depreciable property. Free income tax return One of these methods was the straight line method. Free income tax return This method was also used for intangible property. Free income tax return It lets you deduct the same amount of depreciation each year. Free income tax return To figure your deduction, determine the adjusted basis of your property, its salvage value, and its estimated useful life. Free income tax return Subtract the salvage value, if any, from the adjusted basis. Free income tax return The balance is the total amount of depreciation you can take over the useful life of the property. Free income tax return Divide the balance by the number of years remaining in the useful life. Free income tax return This gives you the amount of your yearly depreciation deduction. Free income tax return Unless there is a big change in adjusted basis, or useful life, this amount will stay the same throughout the time you depreciate the property. Free income tax return If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. Free income tax return Example. Free income tax return In April 1994, Frank bought a franchise for $5,600. Free income tax return It expires in 10 years. Free income tax return This property is intangible property that cannot be depreciated under MACRS. Free income tax return Frank depreciates the franchise under the straight line method, using a 10-year useful life and no salvage value. Free income tax return He takes the $5,600 basis and divides that amount by 10 years ($5,600 ÷ 10 = $560, a full year's use). Free income tax return He must prorate the $560 for his 9 months of use in 1994. Free income tax return This gives him a deduction of $420 ($560 ÷ 9/12). Free income tax return In 1995, Frank can deduct $560 for the full year. Free income tax return Declining Balance Method The declining balance method allows you to recover a larger amount of the cost of the property in the early years of your use of the property. Free income tax return The rate cannot be more than twice the straight line rate. Free income tax return Rate of depreciation. Free income tax return   Under this method, you must determine your declining balance rate of depreciation. Free income tax return The initial step is to: Divide the number 1 by the useful life of your property to get a straight line rate. Free income tax return (For example, if property has a useful life of 5 years, its normal straight line rate of depreciation is ⅕, or 20%. Free income tax return ) Multiply this straight line rate by a number that is more than 1 but not more than 2 to determine the declining balance rate. Free income tax return Unless there is a change in the useful life during the time you depreciate the property, the rate of depreciation generally will not change. Free income tax return Depreciation deductions. Free income tax return   After you determine the rate of depreciation, multiply the adjusted basis of the property by it. Free income tax return This gives you the amount of your deduction. Free income tax return For example, if your adjusted basis at the beginning of the first year is $10,000, and your declining balance rate is 20%, your depreciation deduction for the first year is $2,000 ($10,000 ÷ 20%). Free income tax return To figure your depreciation deduction in the second year, you must first adjust the basis for the amount of depreciation you deducted in the first year. Free income tax return Subtract the previous year's depreciation from your basis ($10,000 - $2,000 = $8,000). Free income tax return Multiply this amount by the rate of depreciation ($8,000 ÷ 20% = $1,600). Free income tax return Your depreciation deduction for the second year is $1,600. Free income tax return   As you can see from this example, your adjusted basis in the property gets smaller each year. Free income tax return Also, under this method, deductions are larger in the earlier years and smaller in the later years. Free income tax return You can make a change to the straight line method without consent. Free income tax return Salvage value. Free income tax return   Do not subtract salvage value when you figure your yearly depreciation deductions under the declining balance method. Free income tax return However, you cannot depreciate the property below its reasonable salvage value. Free income tax return Determine salvage value using the rules discussed earlier, including the special 10% rule. Free income tax return Example. Free income tax return If your adjusted basis has been decreased to $1,000 and the rate of depreciation is 20%, your depreciation deduction should be $200. Free income tax return But if your estimate of salvage value was $900, you can only deduct $100. Free income tax return This is because $100 is the amount that would lower your adjusted basis to equal salvage value. Free income tax return Income Forecast Method The income forecast method requires income projections for each videocassette or group of videocassettes. Free income tax return You can group the videocassettes by title for making this projection. Free income tax return You determine the depreciation by applying a fraction to the cost less salvage value of the cassette. Free income tax return The numerator is the income from the videocassette for the tax year and the denominator is the total projected income for the cassette. Free income tax return For more information on the income forecast method, see Revenue Ruling 60-358 in Cumulative Bulletin 1960, Volume 2, on page 68. Free income tax return How To Change Methods In some cases, you may change your method of depreciation for property depreciated under a reasonable method. Free income tax return If you change your method of depreciation, it is generally a change in your method of accounting. Free income tax return You must get IRS consent before making the change. Free income tax return However, you do not need permission for certain changes in your method of depreciation. Free income tax return The rules discussed in this section do not apply to property depreciated under ACRS or MACRS. Free income tax return For information on ACRS elections,see Revocation of election, in chapter 1 under Alternate ACRS Method. Free income tax return Change to the straight line method. Free income tax return   You can change from the declining balance method to the straight line method at any time during the useful life of your property without IRS consent. Free income tax return However, if you have a written agreement with the IRS that prohibits a change, you must first get IRS permission. Free income tax return When the change is made, figure depreciation based on your adjusted basis in the property at that time. Free income tax return Your adjusted basis takes into account all previous depreciation deductions. Free income tax return Use the estimated remaining useful life of your property at the time of change and its estimated salvage value. Free income tax return   You can change from the declining balance method to straight line only on the original tax return for the year you first use the straight line method. Free income tax return You cannot make the change on an amended return filed after the due date of the original return (including extensions). Free income tax return   When you make the change, attach a statement to your tax return showing: When you acquired the property, Its original cost or other original basis, The total amount claimed for depreciation and other allowances since you acquired it, Its salvage value and remaining useful life, and A description of the property and its use. Free income tax return   After you change to straight line, you cannot change back to the declining balance method or to any other method for a period of 10 years without written permission from the IRS. Free income tax return Changes that require permission. Free income tax return   For most other changes in method of depreciation, you must get permission from the IRS. Free income tax return To request a change in method of depreciation, file Form 3115. Free income tax return File the application within the first 180 days of the tax year the change is to become effective. Free income tax return In most cases, there is a user fee that must accompany Form 3115. Free income tax return See the instructions for Form 3115 to determine if a fee is required. Free income tax return Changes granted automatically. Free income tax return   The IRS automatically approves certain changes of a method of depreciation. Free income tax return But, you must file Form 3115 for these automatic changes. Free income tax return   However, IRS can deny permission if Form 3115 is not filed on time. Free income tax return For more information on automatic changes, see Revenue Procedure 74-11, 1974-1 C. Free income tax return B. Free income tax return 420. Free income tax return Changes for which approval is not automatic. Free income tax return   The automatic change procedures do not apply to: Property or an account where you made a change in depreciation within the last 10 tax years (unless the change was made under the Class Life System), Class Life Asset Depreciation Range System, and Public utility property. Free income tax return   You must request and receive permission for these changes. Free income tax return To make the request, file Form 3115 during the first 180 days of the tax year for which you want the change to be effective. Free income tax return Change from an improper method. Free income tax return   If the IRS disallows the method you are using, you do not need permission to change to a proper method. Free income tax return You can adopt the straight line method, or any other method that would have been permitted if you had used it from the beginning. Free income tax return If you file your tax return using an improper method, but later file an amended return, you can use a proper method on the amended return without getting IRS permission. Free income tax return However, you must file the amended return before the filing date for the next tax year. Free income tax return Dispositions Retirement is the permanent withdrawal of depreciable property from use in your trade or business or for the production of income. Free income tax return You can do this by selling, exchanging, or abandoning the item of property. Free income tax return You can also withdraw it from use without disposing of it. Free income tax return For example, you could place it in a supplies or scrap account. Free income tax return Retirements can be either normal or abnormal depending on all facts and circumstances. Free income tax return The rules discussed next do not apply to MACRS and ACRS property. Free income tax return Normal retirement. Free income tax return   A normal retirement is a permanent withdrawal of depreciable property from use if the following apply: The retirement is made within the useful life you estimated originally, and The property has reached a condition at which you customarily retire or would retire similar property from use. Free income tax return A retirement is generally considered normal unless you can show that you retired the property because of a reason you did not consider when you originally estimated the useful life of the property. Free income tax return Abnormal retirement. Free income tax return   A retirement can be abnormal if you withdraw the property early or under other circumstances. Free income tax return For example, if the property is damaged by a fire or suddenly becomes obsolete and is now useless. Free income tax return Gain or loss on retirement. Free income tax return   There are special rules for figuring the gain or loss on retirement of property. Free income tax return The gain or loss will depend on several factors. Free income tax return These include the type of withdrawal, if the withdrawal was from a single property or multiple property account, and if the retirement was normal or abnormal. Free income tax return A single property account contains only one item of property. Free income tax return A multiple property account is one in which several items have been combined with a single rate of depreciation assigned to the entire account. Free income tax return Sale or exchange. Free income tax return   If property is retired by sale or exchange, you figure gain or loss by the usual rules that apply to sales or other dispositions of property. Free income tax return See Publication 544. Free income tax return Property not disposed of or abandoned. Free income tax return   If property is retired permanently, but not disposed of or physically abandoned, you do not recognize gain. Free income tax return You are allowed a loss in such a case, but only if the retirement is: An abnormal retirement, A normal retirement from a single property account in which you determined the life of each item of property separately, or A normal retirement from a multiple property account in which the depreciation rate is based on the maximum expected life of the longest lived item of property and the loss occurs before the expiration of the full useful life. Free income tax return However, you are not allowed a loss if the depreciation rate is based on the average useful life of the items of property in the account. Free income tax return   To figure your loss, subtract the estimated salvage or fair market value of the property at the date of retirement, whichever is more, from its adjusted basis. Free income tax return Special rule for normal retirements from item accounts. Free income tax return   You can generally deduct losses upon retirement of a few depreciable items of property with similar useful lives, if: You account for each one in a separate account, and You use the average useful life to figure depreciation. Free income tax return However, you cannot deduct losses if you use the average useful life to figure depreciation and they have a wide range of useful lives. Free income tax return   If you have a large number of depreciable property items and use average useful lives to figure depreciation, you cannot deduct the losses upon normal retirements from these accounts. Free income tax return Abandoned property. Free income tax return   If you physically abandon property, you can deduct as a loss the adjusted basis of the property at the time of its abandonment. Free income tax return However, your intent must be to discard the property so that you will not use it again or retrieve it for sale, exchange, or other disposition. Free income tax return Basis of property retired. Free income tax return   The basis for figuring gain or loss on the retirement of property is its adjusted basis at the time of retirement, as determined in the following discussions. Free income tax return Single item accounts. Free income tax return   If an item of property is accounted for in a single item account, the adjusted basis is the basis you would use to figure gain or loss for a sale or exchange of the property. Free income tax return This is generally the cost or other basis of the item of property less depreciation. Free income tax return See Publication 551. Free income tax return Multiple property account. Free income tax return   For a normal retirement from a multiple property account, if you figured depreciation using the average expected useful life, the adjusted basis is the salvage value estimated for the item of property when it was originally acquired. Free income tax return If you figured depreciation using the maximum expected useful life of the longest lived item of property in the account, you must use the depreciation method used for the multiple property account and a rate based on the maximum expected useful life of the item of property retired. Free income tax return   You make the adjustment for depreciation for an abnormal retirement from a multiple property account at the rate that would be proper if the item of property was depreciated in a single property account. Free income tax return The method of depreciation used for the multiple property account is used. Free income tax return You base the rate on either the average expected useful life or the maximum expected useful life of the retired item of property, depending on the method used to determine the depreciation rate for the multiple property account. Free income tax return Prev  Up  Next   Home   More Online Publications
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The Free Income Tax Return

Free income tax return Publication 970 - Additional Material Table of Contents AppendicesAppendix A. Free income tax return Illustrated Example of Education Credits Glossary Appendices The following appendices are provided to help you claim the education benefits that will give you the lowest tax. Free income tax return Appendix A—An illustrated example of education credits, including a filled-in Form 8863 showing how to claim both the American opportunity credit and lifetime learning credit for 2013. Free income tax return Appendix B—A chart summarizing some of the major differences between the education tax benefits discussed in this publication. Free income tax return It is intended only as a guide. Free income tax return Look in this publication for more complete information. Free income tax return   Appendix A. Free income tax return Illustrated Example of Education Credits Dave and Valerie Jones are married and on their 2013 joint tax return they claim exemptions for their two dependent children, Sean (age 21, social security number: 000-00-0001) and Carey (age 18, social security number: 000–00–0002). Free income tax return Their modified adjusted gross income (MAGI) on Form 1040, line 38 is $110,000. Free income tax return Because Dave and Valerie have unusually high itemized deductions, their taxable income is $10,000 and their tax before credits is $1,000. Free income tax return Sean enrolled as a full-time graduate student in August 2013 at California State College. Free income tax return He graduated with his bachelor's degree in 2012 and did not attend school from January 2013 through July 2013. Free income tax return His parents claimed the Hope Scholarship Credit for Sean for 2008 and the American opportunity credit for Sean for 2010, 2011, and 2012. Free income tax return Carey enrolled full time as a freshman at the same college in January 2013 to begin working on her bachelor's degree. Free income tax return In 2013, Dave and Valerie paid $7,000 in tuition for Sean and $8,500 in tuition for Carey. Free income tax return California State College issued two Forms 1098-T, one for Sean and one for Carey, and sent them to the Joneses' residence. Free income tax return California State College reports amounts billed in 2013 instead of amounts paid during 2013. Free income tax return In completing Form 8863, the Joneses use the amounts they paid. Free income tax return Neither Sean nor Carey has been convicted of a felony for possession or distribution of a controlled substance before the end of 2013. Free income tax return Dave and Valerie figure their education credits by completing Form 8863. Free income tax return They begin Form 8863 on page 2 before completing Part I on page 1. Free income tax return Because the Joneses have two eligible students, they will complete page 2 twice, once for their son, Sean, and once for their daughter, Carey. Free income tax return The Joneses decide to complete Part III for Carey first, as shown later. Free income tax return They carry over the amount of $2,500 entered on Part III, line 30, to Part I, line 1. Free income tax return The Joneses complete a separate Part III for their son Sean. Free income tax return They check the “Yes” box on line 23, determine that Sean is not eligible for the American opportunity credit, and go to line 31 as instructed. Free income tax return They figure their line 31 adjusted qualified education expenses for Sean to be $7,000. Free income tax return Once they have completed Part III for each student, they figure their credits. Free income tax return The Joneses figure their refundable American opportunity credit of $1,000 by completing Form 8863, Part I, lines 1 through 8. Free income tax return They enter the amount from line 8, $1,000, on line 66 of their Form 1040. Free income tax return The Joneses enter $7,000 on Part II, line 10, of Form 8863 and figure their tentative lifetime learning credit for 2013 to be $1,400 (line 12). Free income tax return They cannot claim the full amount because their MAGI of $110,000 is greater than $107,000. Free income tax return They enter the reduced amount of $1,190 (figured on Part II, line 18) on the Credit Limit Worksheet, line 1. Free income tax return The $1,190 is added to their nonrefundable American opportunity credit ($1,500 on line 2 of the Credit Limit Worksheet) for a total nonrefundable credit of $2,690. Free income tax return The Joneses enter $1,000 on line 7 of the Credit Limit Worksheet, which is the smaller of their tax from line 46 of their Form 1040 (which is $1,000) or the $2,690 on line 3 of the Credit Limit Worksheet. Free income tax return They enter $1,000 on line 19, Part II of Form 8863 and on line 49 of Form 1040. Free income tax return This image is too large to be displayed in the current screen. Free income tax return Please click the link to view the image. Free income tax return Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. Free income tax return Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 8,500 2. Free income tax return Less adjustments:     a. Free income tax return Tax-free educational assistance received in 2013 allocable to the academic period   0     b. Free income tax return Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. Free income tax return Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. Free income tax return Total adjustments (add lines 2a, 2b, and 2c) 0 4. Free income tax return Adjusted qualified education expenses. Free income tax return Subtract line 3 from line 1. Free income tax return If zero or less, enter -0- 8,500 This image is too large to be displayed in the current screen. Free income tax return Please click the link to view the image. Free income tax return Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. Free income tax return Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 7,000 2. Free income tax return Less adjustments:     a. Free income tax return Tax-free educational assistance received in 2013 allocable to the academic period   0     b. Free income tax return Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. Free income tax return Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. Free income tax return Total adjustments (add lines 2a, 2b, and 2c) 0 4. Free income tax return Adjusted qualified education expenses. Free income tax return Subtract line 3 from line 1. Free income tax return If zero or less, enter -0- 7,000 Credit Limit Worksheet (Form 8863 instructions) Nonrefundable Credit Worksheet 1. Free income tax return Enter the amount from Form 8863, line 18 1. Free income tax return 1,190 2. Free income tax return Enter the amount from Form 8863, line 9 2. Free income tax return 1,500 3. Free income tax return Add lines 1 and 2 3. Free income tax return 2,690 4. Free income tax return Enter the amount from: Form 1040, line 46; or Form 1040A, line 28 4. Free income tax return 1,000 5. Free income tax return Enter the amount from either: Form 1040, lines 47 and 48, and the amount from Schedule R included on Form 1040, line 53; or Form 1040A, lines 29 and 30 5. Free income tax return 0 6. Free income tax return Subtract line 5 from line 4 6. Free income tax return 1,000 7. Free income tax return   Enter the smaller of line 3 or line 6 here and on Form 8863, line 19 7. Free income tax return 1,000 This image is too large to be displayed in the current screen. Free income tax return Please click the link to view the image. Free income tax return Form 8863 for Dave and Valerie Jones This image is too large to be displayed in the current screen. Free income tax return Please click the link to view the image. Free income tax return Carey Jones page 2 This image is too large to be displayed in the current screen. Free income tax return Please click the link to view the image. Free income tax return Filled-in Form 8863 Jones page 2 Appendix B. Free income tax return Highlights of Education Tax Benefits for Tax Year 2013 This chart highlights some differences among the benefits discussed in this publication. Free income tax return See the text for definitions and details. Free income tax return Do not rely on this chart alone. Free income tax return    Caution:You generally cannot claim more than one benefit for the same education expense. Free income tax return   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What is your  benefit? Amounts received may not be taxable   Credits can reduce the amount of tax you have to pay. Free income tax return    40% of the credit may be refundable (limited to $1,000 per student). Free income tax return Credits can reduce amount of tax you must pay Can deduct interest paid Can deduct expenses Earnings not  taxed Earnings not taxed No 10%  additional tax on early distribution Interest not taxed Employer benefits not taxed Can deduct expenses What is the annual limit? None $2,500 credit per student $2,000 credit per tax return     $2,500 deduction $4,000 deduction $2,000 contribution per beneficiary None Amount of qualified  education expenses Amount of qualified  education expenses $5,250 exclusion Amount of qualifying work-related education expenses What expenses  qualify besides  tuition and required enrollment fees? Course-related expenses such as fees, books, supplies, and equipment Course-related books, supplies, and equipment Amounts paid for required books, etc. Free income tax return , that must be paid to the educational institution, etc. Free income tax return , are required fees Books Supplies Equipment  Room & board  Transportation  Other necessary expenses  None Books Supplies Equipment  Expenses for special needs services  Payments to QTP  Higher education: Room & board if  at least half-time  student  Elem/sec (K–12) education: Tutoring Room & board Uniforms Transportation Computer  access Supplementary expenses Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Payments to Coverdell ESA  Payments to QTP Books Supplies Equipment Transportation  Travel  Other necessary expenses   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What education qualifies? Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate  Courses to acquire or improve job skills    Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Required by employer or law to keep present job, salary, status  Maintain or improve job skills What are some of the other  conditions that  apply? Must be in degree or vocational program  Payment of tuition and required fees must be allowed under the grant Can be claimed for only 4 tax years (which includes years Hope Scholarship Credit claimed)  Must be enrolled at least half-time in degree program  No felony drug conviction(s)  Must not have completed first 4 years of postsecondary education before end of preceding tax year. Free income tax return   No other conditions Must have been at least half-time  student in degree program Cannot claim both deduction & education credit for same student in same year Assets must be distributed at age 30 unless special  needs beneficiary No other conditions No other conditions Applies only to qualified series  EE bonds issued after 1989 or series I bonds No other conditions Cannot be to  meet minimum educational requirements of present trade/business  Cannot qualify  you for new trade/business   In what income  range do benefits  phase out? No phaseout $80,000 – $90,000  $160,000 – $180,000 for joint returns $53,000 – $63,000  $107,000 – $127,000 for joint returns $60,000 – $75,000  $125,000 –  $155,000 for  joint returns  $60,000 – $80,000  $130,000 –  $160,000 for  joint returns  $95,000 – $110,000  $190,000 – $220,000 for  joint returns No phaseout No phaseout   No phaseout No phaseout † Any nontaxable distribution is limited to the amount that does not exceed qualified education expenses. Free income tax return Glossary The education benefits included in this publication were enacted over many years, leading to a number of common terms being defined differently from one benefit to the next. Free income tax return For example, an eligible educational institution means one thing when determining if earnings from a Coverdell education savings account are not taxable and something else when determining if a scholarship or fellowship is not taxable. Free income tax return For each term listed below that has more than one definition, the definition for each education benefit is listed. Free income tax return Academic period:   A semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Free income tax return If an educational institution uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Free income tax return Adjusted qualified education expenses (AQEE):    Qualified education expenses (defined later) reduced by any tax-free educational assistance, such as a tax-free scholarship or employer-provided educational assistance. Free income tax return They must also be reduced by any qualified education expenses deducted elsewhere on your return, used to determine an education credit or other benefit, or used to determine a tax-free distribution. Free income tax return For information on a specific benefit, see the appropriate chapter in this publication. Free income tax return Candidate for a degree:   A student who meets either of the following requirements. Free income tax return Attends a primary or secondary school or pursues a degree at a college or university, or Attends an accredited educational institution that is authorized to provide: A program that is acceptable for full credit toward a bachelor's or higher degree, or A program of training to prepare students for gainful employment in a recognized occupation. Free income tax return Designated beneficiary:   The individual named in the document creating the account/plan who is to receive the benefit of the funds in the account/plan. Free income tax return Eligible educational institution:    American opportunity credit. Free income tax return Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Free income tax return It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Free income tax return Coverdell education savings account (ESA). Free income tax return Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Free income tax return It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Free income tax return Also included is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. Free income tax return Education savings bond program. Free income tax return Same as American opportunity credit in this category. Free income tax return IRA, early distributions from. Free income tax return Same as American opportunity credit in this category. Free income tax return Lifetime learning credit. Free income tax return Same as American opportunity credit in this category. Free income tax return Qualified tuition program (QTP). Free income tax return Same as American opportunity credit in this category. Free income tax return Scholarships and fellowships. Free income tax return An institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Free income tax return Student loan, cancellation of. Free income tax return Same as Scholarships and fellowships in this category. Free income tax return Student loan interest deduction. Free income tax return Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Free income tax return It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Free income tax return Also included is an institution that conducts an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. Free income tax return Tuition and fees deduction. Free income tax return Same as American opportunity credit in this category. Free income tax return Eligible student:    American opportunity credit. Free income tax return A student who meets all of the following requirements for the tax year for which the credit is being determined. Free income tax return Did not have expenses that were used to figure an American opportunity or Hope Scholarship Credit in any 4 earlier tax years. Free income tax return Had not completed the first 4 years of postsecondary education (generally the freshman through senior years). Free income tax return For at least one academic period beginning in the tax year, was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential at an eligible educational institution. Free income tax return Was free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year. Free income tax return Lifetime learning credit. Free income tax return A student who is enrolled in one or more courses at an eligible educational institution. Free income tax return Student loan interest deduction. Free income tax return A student who was enrolled at least half-time in a program leading to a postsecondary degree, certificate, or other recognized educational credential at an eligible educational institution. Free income tax return Tuition and fees deduction. Free income tax return A student who is enrolled in one or more courses at an eligible educational institution. Free income tax return Half-time student:   A student who is enrolled for at least half the full-time academic work load for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. Free income tax return Modified adjusted gross income (MAGI):    American opportunity credit. Free income tax return Adjusted gross income (AGI) as figured on the federal income tax return, 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, and Exclusion of income by bona fide residents of Puerto Rico. Free income tax return Coverdell education savings account (ESA). Free income tax return Same as American opportunity credit in this category. Free income tax return Education savings bond program. Free income tax return Adjusted gross income (AGI) as figured on the federal income tax return 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. Free income tax return Lifetime learning credit. Free income tax return Same as American opportunity credit in this category. Free income tax return Student loan interest deduction. Free income tax return Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any student loan interest deduction, tuition and fees deduction, or domestic production activities deduction, 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, and Exclusion of income by bona fide residents of Puerto Rico. Free income tax return Tuition and fees deduction. Free income tax return Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any tuition and fees deduction, or domestic production activities deduction, 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, and Exclusion of income by bona fide residents of Puerto Rico. Free income tax return Phaseout:   The amount of credit or deduction allowed is reduced when modified adjusted gross income (MAGI) is greater than a specified amount of income. Free income tax return Qualified education expenses:   See pertinent chapter for specific items. Free income tax return    American opportunity credit. Free income tax return Tuition and certain related expenses (including student activity fees) required for enrollment or attendance at an eligible educational institution. Free income tax return Books, supplies, and equipment needed for a course of study are included even if not purchased from the educational institution. Free income tax return Does not include expenses for room and board. Free income tax return Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program. Free income tax return Coverdell education savings account (ESA). Free income tax return Expenses related to or required for enrollment or attendance of the designated beneficiary at an eligible elementary, secondary, or postsecondary school. Free income tax return Many specialized expenses included for K–12. Free income tax return Also includes expenses for special needs services and contribution to qualified tuition program (QTP). Free income tax return Education savings bond program. Free income tax return Tuition and fees required to enroll at or attend an eligible educational institution. Free income tax return Also includes contributions to a qualified tuition program (QTP) or Coverdell education savings account (ESA). Free income tax return Does not include expenses for room and board. Free income tax return Does not include expenses for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Free income tax return IRA, early distributions from. Free income tax return Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. Free income tax return Also includes expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance. Free income tax return Lifetime learning credit. Free income tax return Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Free income tax return Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. Free income tax return Does not include expenses for room and board. Free income tax return Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program, unless taken by the student to acquire or improve job skills. Free income tax return Qualified tuition program (QTP). Free income tax return Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. Free income tax return Includes expenses for special needs services and computer access. Free income tax return Scholarships and fellowships. Free income tax return Expenses for tuition and fees required to enroll at or attend an eligible educational institution, and course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Free income tax return Course-related items must be required of all students in the course of instruction. Free income tax return Student loan interest deduction. Free income tax return Total costs of attending an eligible educational institution, including graduate school (however, limitations may apply to the cost of room and board allowed). Free income tax return Tuition and fees deduction. Free income tax return Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Free income tax return Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. Free income tax return Recapture:   To include as income on your current year's return an amount allowed as a deduction in a prior year. Free income tax return To include as tax on your current year's return an amount allowed as a credit in a prior year. Free income tax return Rollover:   A tax-free distribution to you of cash or other assets from a tax-favored plan that you contribute to another tax-favored plan. Free income tax return Transfer:   A movement of funds in a tax-favored plan from one trustee directly to another, either at your request or at the trustee's request. Free income tax return Prev  Up  Next   Home   More Online Publications