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H&r Block 1040x

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H&r Block 1040x

H&r block 1040x Publication 541 - Main Content Table of Contents Forming a PartnershipOrganizations Classified as Partnerships Family Partnership Partnership Agreement Terminating a PartnershipIRS e-file (Electronic Filing) Exclusion From Partnership Rules Partnership Return (Form 1065) Partnership DistributionsSubstantially appreciated inventory items. H&r block 1040x Partner's Gain or Loss Partner's Basis for Distributed Property Transactions Between Partnership and PartnersGuaranteed Payments Sale or Exchange of Property Contribution of Property Contribution of Services Basis of Partner's InterestAdjusted Basis Effect of Partnership Liabilities Disposition of Partner's InterestSale, Exchange, or Other Transfer Payments for Unrealized Receivables and Inventory Items Liquidation at Partner's Retirement or Death Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)Partnership Item. H&r block 1040x Small Partnerships and the Small Partnership Exception Small Partnership TEFRA Election Role of Tax Matters Partner (TMP) in TEFRA Proceedings Statute of Limitations and TEFRA Amended Returns and Administrative Adjustment Requests (AARs) How To Get Tax Help Forming a Partnership The following sections contain general information about partnerships. H&r block 1040x Organizations Classified as Partnerships An unincorporated organization with two or more members is generally classified as a partnership for federal tax purposes if its members carry on a trade, business, financial operation, or venture and divide its profits. H&r block 1040x However, a joint undertaking merely to share expenses is not a partnership. H&r block 1040x For example, co-ownership of property maintained and rented or leased is not a partnership unless the co-owners provide services to the tenants. H&r block 1040x The rules you must use to determine whether an organization is classified as a partnership changed for organizations formed after 1996. H&r block 1040x Organizations formed after 1996. H&r block 1040x   An organization formed after 1996 is classified as a partnership for federal tax purposes if it has two or more members and it is none of the following. H&r block 1040x An organization formed under a federal or state law that refers to it as incorporated or as a corporation, body corporate, or body politic. H&r block 1040x An organization formed under a state law that refers to it as a joint-stock company or joint-stock association. H&r block 1040x An insurance company. H&r block 1040x Certain banks. H&r block 1040x An organization wholly owned by a state, local, or foreign government. H&r block 1040x An organization specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). H&r block 1040x Certain foreign organizations identified in section 301. H&r block 1040x 7701-2(b)(8) of the regulations. H&r block 1040x A tax-exempt organization. H&r block 1040x A real estate investment trust. H&r block 1040x An organization classified as a trust under section 301. H&r block 1040x 7701-4 of the regulations or otherwise subject to special treatment under the Internal Revenue Code. H&r block 1040x Any other organization that elects to be classified as a corporation by filing Form 8832. H&r block 1040x For more information, see the instructions for Form 8832. H&r block 1040x Limited liability company. H&r block 1040x   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. H&r block 1040x Unlike a partnership, none of the members of an LLC are personally liable for its debts. H&r block 1040x An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in Regulations section 301. H&r block 1040x 7701-3. H&r block 1040x See Form 8832 and section 301. H&r block 1040x 7701-3 of the regulations for more details. H&r block 1040x A domestic LLC with at least two members that does not file Form 8832 is classified as a partnership for federal income tax purposes. H&r block 1040x Organizations formed before 1997. H&r block 1040x   An organization formed before 1997 and classified as a partnership under the old rules will generally continue to be classified as a partnership as long as the organization has at least two members and does not elect to be classified as a corporation by filing Form 8832. H&r block 1040x Community property. H&r block 1040x    Spouses who own a qualified entity (defined later) can choose to classify the entity as a partnership for federal tax purposes by filing the appropriate partnership tax returns. H&r block 1040x They can choose to classify the entity as a sole proprietorship by filing a Schedule C (Form 1040) listing one spouse as the sole proprietor. H&r block 1040x A change in reporting position will be treated for federal tax purposes as a conversion of the entity. H&r block 1040x   A qualified entity is a business entity that meets all the following requirements. H&r block 1040x The business entity is wholly owned by spouses as community property under the laws of a state, a foreign country, or a possession of the United States. H&r block 1040x No person other than one or both spouses would be considered an owner for federal tax purposes. H&r block 1040x The business entity is not treated as a corporation. H&r block 1040x   For more information about community property, see Publication 555, Community Property. H&r block 1040x Publication 555 discusses the community property laws of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. H&r block 1040x Family Partnership Members of a family can be partners. H&r block 1040x However, family members (or any other person) will be recognized as partners only if one of the following requirements is met. H&r block 1040x If capital is a material income-producing factor, they acquired their capital interest in a bona fide transaction (even if by gift or purchase from another family member), actually own the partnership interest, and actually control the interest. H&r block 1040x If capital is not a material income-producing factor, they joined together in good faith to conduct a business. H&r block 1040x They agreed that contributions of each entitle them to a share in the profits, and some capital or service has been (or is) provided by each partner. H&r block 1040x Capital is material. H&r block 1040x   Capital is a material income-producing factor if a substantial part of the gross income of the business comes from the use of capital. H&r block 1040x Capital is ordinarily an income-producing factor if the operation of the business requires substantial inventories or investments in plants, machinery, or equipment. H&r block 1040x Capital is not material. H&r block 1040x   In general, capital is not a material income-producing factor if the income of the business consists principally of fees, commissions, or other compensation for personal services performed by members or employees of the partnership. H&r block 1040x Capital interest. H&r block 1040x   A capital interest in a partnership is an interest in its assets that is distributable to the owner of the interest in either of the following situations. H&r block 1040x The owner withdraws from the partnership. H&r block 1040x The partnership liquidates. H&r block 1040x   The mere right to share in earnings and profits is not a capital interest in the partnership. H&r block 1040x Gift of capital interest. H&r block 1040x   If a family member (or any other person) receives a gift of a capital interest in a partnership in which capital is a material income-producing factor, the donee's distributive share of partnership income is subject to both of the following restrictions. H&r block 1040x It must be figured by reducing the partnership income by reasonable compensation for services the donor renders to the partnership. H&r block 1040x The donee's distributive share of partnership income attributable to donated capital must not be proportionately greater than the donor's distributive share attributable to the donor's capital. H&r block 1040x Purchase. H&r block 1040x   For purposes of determining a partner's distributive share, an interest purchased by one family member from another family member is considered a gift from the seller. H&r block 1040x The fair market value of the purchased interest is considered donated capital. H&r block 1040x For this purpose, members of a family include only spouses, ancestors, and lineal descendants (or a trust for the primary benefit of those persons). H&r block 1040x Example. H&r block 1040x A father sold 50% of his business to his son. H&r block 1040x The resulting partnership had a profit of $60,000. H&r block 1040x Capital is a material income-producing factor. H&r block 1040x The father performed services worth $24,000, which is reasonable compensation, and the son performed no services. H&r block 1040x The $24,000 must be allocated to the father as compensation. H&r block 1040x Of the remaining $36,000 of profit due to capital, at least 50%, or $18,000, must be allocated to the father since he owns a 50% capital interest. H&r block 1040x The son's share of partnership profit cannot be more than $18,000. H&r block 1040x Business owned and operated by spouses. H&r block 1040x   If spouses carry on a business together and share in the profits and losses, they may be partners whether or not they have a formal partnership agreement. H&r block 1040x If so, they should report income or loss from the business on Form 1065. H&r block 1040x They should not report the income on a Schedule C (Form 1040) in the name of one spouse as a sole proprietor. H&r block 1040x However, the spouses can elect not to treat the joint venture as a partnership by making a Qualified Joint Venture Election. H&r block 1040x Qualified Joint Venture Election. H&r block 1040x   A "qualified joint venture," whose only members are spouses filing a joint return, can elect not to be treated as a partnership for federal tax purposes. H&r block 1040x A qualified joint venture conducts a trade or business where: the only members of the joint venture are spouses filing jointly; both spouses elect not to be treated as a partnership; both spouses materially participate in the trade or business (see Passive Activity Limitations in the Instructions for Form 1065 for a definition of material participation); and the business is co-owned by both spouses and is not held in the name of a state law entity such as a partnership or LLC. H&r block 1040x   Under this election, a qualified joint venture conducted by spouses who file a joint return is not treated as a partnership for federal tax purposes and therefore does not have a Form 1065 filing requirement. H&r block 1040x All items of income, gain, deduction, loss, and credit are divided between the spouses based on their respective interests in the venture. H&r block 1040x Each spouse takes into account his or her respective share of these items as a sole proprietor. H&r block 1040x Each spouse would account for his or her respective share on the appropriate form, such as Schedule C (Form 1040). H&r block 1040x For purposes of determining net earnings from self-employment, each spouse's share of income or loss from a qualified joint venture is taken into account just as it is for federal income tax purposes (i. H&r block 1040x e. H&r block 1040x , based on their respective interests in the venture). H&r block 1040x   If the spouses do not make the election to treat their respective interests in the joint venture as sole proprietorships, each spouse should carry his or her share of the partnership income or loss from Schedule K-1 (Form 1065) to their joint or separate Form(s) 1040. H&r block 1040x Each spouse should include his or her respective share of self-employment income on a separate Schedule SE (Form 1040), Self-Employment Tax. H&r block 1040x   This generally does not increase the total tax on the return, but it does give each spouse credit for social security earnings on which retirement benefits are based. H&r block 1040x However, this may not be true if either spouse exceeds the social security tax limitation. H&r block 1040x   For more information on qualified joint ventures, go to IRS. H&r block 1040x gov, enter “Election for Qualified Joint Ventures” in the search box and select the link reading “Election for Husband and Wife Unincorporated Businesses. H&r block 1040x ” Partnership Agreement The partnership agreement includes the original agreement and any modifications. H&r block 1040x The modifications must be agreed to by all partners or adopted in any other manner provided by the partnership agreement. H&r block 1040x The agreement or modifications can be oral or written. H&r block 1040x Partners can modify the partnership agreement for a particular tax year after the close of the year but not later than the date for filing the partnership return for that year. H&r block 1040x This filing date does not include any extension of time. H&r block 1040x If the partnership agreement or any modification is silent on any matter, the provisions of local law are treated as part of the agreement. H&r block 1040x Terminating a Partnership A partnership terminates when one of the following events takes place. H&r block 1040x All its operations are discontinued and no part of any business, financial operation, or venture is continued by any of its partners in a partnership. H&r block 1040x At least 50% of the total interest in partnership capital and profits is sold or exchanged within a 12-month period, including a sale or exchange to another partner. H&r block 1040x Unlike other partnerships, an electing large partnership does not terminate on the sale or exchange of 50% or more of the partnership interests within a 12-month period. H&r block 1040x See section 1. H&r block 1040x 708-1(b) of the regulations for more information on the termination of a partnership. H&r block 1040x For special rules that apply to a merger, consolidation, or division of a partnership, see sections 1. H&r block 1040x 708-1(c) and 1. H&r block 1040x 708-1(d) of the regulations. H&r block 1040x Date of termination. H&r block 1040x   The partnership's tax year ends on the date of termination. H&r block 1040x For the event described in (1), above, the date of termination is the date the partnership completes the winding up of its affairs. H&r block 1040x For the event described in (2), above, the date of termination is the date of the sale or exchange of a partnership interest that, by itself or together with other sales or exchanges in the preceding 12 months, transfers an interest of 50% or more in both capital and profits. H&r block 1040x Short period return. H&r block 1040x   If a partnership is terminated before the end of what would otherwise be its tax year, Form 1065 must be filed for the short period, which is the period from the beginning of the tax year through the date of termination. H&r block 1040x The return is due the 15th day of the fourth month following the date of termination. H&r block 1040x See Partnership Return (Form 1065), later, for information about filing Form 1065. H&r block 1040x Conversion of partnership into limited liability company (LLC). H&r block 1040x   The conversion of a partnership into an LLC classified as a partnership for federal tax purposes does not terminate the partnership. H&r block 1040x The conversion is not a sale, exchange, or liquidation of any partnership interest; the partnership's tax year does not close; and the LLC can continue to use the partnership's taxpayer identification number. H&r block 1040x   However, the conversion may change some of the partners' bases in their partnership interests if the partnership has recourse liabilities that become nonrecourse liabilities. H&r block 1040x Because the partners share recourse and nonrecourse liabilities differently, their bases must be adjusted to reflect the new sharing ratios. H&r block 1040x If a decrease in a partner's share of liabilities exceeds the partner's basis, he or she must recognize gain on the excess. H&r block 1040x For more information, see Effect of Partnership Liabilities under Basis of Partner's Interest, later. H&r block 1040x   The same rules apply if an LLC classified as a partnership is converted into a partnership. H&r block 1040x IRS e-file (Electronic Filing) Please click here for the text description of the image. H&r block 1040x e-file Certain partnerships with more than 100 partners are required to file Form 1065, Schedules K-1, and related forms and schedules electronically (e-file). H&r block 1040x Other partnerships generally have the option to file electronically. H&r block 1040x For details about IRS e-file, see the Form 1065 instructions. H&r block 1040x Exclusion From Partnership Rules Certain partnerships that do not actively conduct a business can choose to be completely or partially excluded from being treated as partnerships for federal income tax purposes. H&r block 1040x All the partners must agree to make the choice, and the partners must be able to compute their own taxable income without computing the partnership's income. H&r block 1040x However, the partners are not exempt from the rule that limits a partner's distributive share of partnership loss to the adjusted basis of the partner's partnership interest. H&r block 1040x Nor are they exempt from the requirement of a business purpose for adopting a tax year for the partnership that differs from its required tax year. H&r block 1040x Investing partnership. H&r block 1040x   An investing partnership can be excluded if the participants in the joint purchase, retention, sale, or exchange of investment property meet all the following requirements. H&r block 1040x They own the property as co-owners. H&r block 1040x They reserve the right separately to take or dispose of their shares of any property acquired or retained. H&r block 1040x They do not actively conduct business or irrevocably authorize some person acting in a representative capacity to purchase, sell, or exchange the investment property. H&r block 1040x Each separate participant can delegate authority to purchase, sell, or exchange his or her share of the investment property for the time being for his or her account, but not for a period of more than a year. H&r block 1040x Operating agreement partnership. H&r block 1040x   An operating agreement partnership group can be excluded if the participants in the joint production, extraction, or use of property meet all the following requirements. H&r block 1040x They own the property as co-owners, either in fee or under lease or other form of contract granting exclusive operating rights. H&r block 1040x They reserve the right separately to take in kind or dispose of their shares of any property produced, extracted, or used. H&r block 1040x They do not jointly sell services or the property produced or extracted. H&r block 1040x Each separate participant can delegate authority to sell his or her share of the property produced or extracted for the time being for his or her account, but not for a period of time in excess of the minimum needs of the industry, and in no event for more than one year. H&r block 1040x However, this exclusion does not apply to an unincorporated organization one of whose principal purposes is cycling, manufacturing, or processing for persons who are not members of the organization. H&r block 1040x Electing the exclusion. H&r block 1040x   An eligible organization that wishes to be excluded from the partnership rules must make the election not later than the time for filing the partnership return for the first tax year for which exclusion is desired. H&r block 1040x This filing date includes any extension of time. H&r block 1040x See Regulations section 1. H&r block 1040x 761-2(b) for the procedures to follow. H&r block 1040x Partnership Return (Form 1065) Every partnership that engages in a trade or business or has gross income must file an information return on Form 1065 showing its income, deductions, and other required information. H&r block 1040x The partnership return must show the names and addresses of each partner and each partner's distributive share of taxable income. H&r block 1040x The return must be signed by a general partner. H&r block 1040x If a limited liability company is treated as a partnership, it must file Form 1065 and one of its members must sign the return. H&r block 1040x A partnership is not considered to engage in a trade or business, and is not required to file a Form 1065, for any tax year in which it neither receives income nor pays or incurs any expenses treated as deductions or credits for federal income tax purposes. H&r block 1040x See the Instructions for Form 1065 for more information about who must file Form 1065. H&r block 1040x Partnership Distributions Partnership distributions include the following. H&r block 1040x A withdrawal by a partner in anticipation of the current year's earnings. H&r block 1040x A distribution of the current year's or prior years' earnings not needed for working capital. H&r block 1040x A complete or partial liquidation of a partner's interest. H&r block 1040x A distribution to all partners in a complete liquidation of the partnership. H&r block 1040x A partnership distribution is not taken into account in determining the partner's distributive share of partnership income or loss. H&r block 1040x If any gain or loss from the distribution is recognized by the partner, it must be reported on his or her return for the tax year in which the distribution is received. H&r block 1040x Money or property withdrawn by a partner in anticipation of the current year's earnings is treated as a distribution received on the last day of the partnership's tax year. H&r block 1040x Effect on partner's basis. H&r block 1040x   A partner's adjusted basis in his or her partnership interest is decreased (but not below zero) by the money and adjusted basis of property distributed to the partner. H&r block 1040x See Adjusted Basis under Basis of Partner's Interest, later. H&r block 1040x Effect on partnership. H&r block 1040x   A partnership generally does not recognize any gain or loss because of distributions it makes to partners. H&r block 1040x The partnership may be able to elect to adjust the basis of its undistributed property. H&r block 1040x Certain distributions treated as a sale or exchange. H&r block 1040x   When a partnership distributes the following items, the distribution may be treated as a sale or exchange of property rather than a distribution. H&r block 1040x Unrealized receivables or substantially appreciated inventory items distributed in exchange for any part of the partner's interest in other partnership property, including money. H&r block 1040x Other property (including money) distributed in exchange for any part of a partner's interest in unrealized receivables or substantially appreciated inventory items. H&r block 1040x   See Payments for Unrealized Receivables and Inventory Items under Disposition of Partner's Interest, later. H&r block 1040x   This treatment does not apply to the following distributions. H&r block 1040x A distribution of property to the partner who contributed the property to the partnership. H&r block 1040x Payments made to a retiring partner or successor in interest of a deceased partner that are the partner's distributive share of partnership income or guaranteed payments. H&r block 1040x Substantially appreciated inventory items. H&r block 1040x   Inventory items of the partnership are considered to have appreciated substantially in value if, at the time of the distribution, their total fair market value is more than 120% of the partnership's adjusted basis for the property. H&r block 1040x However, if a principal purpose for acquiring inventory property is to avoid ordinary income treatment by reducing the appreciation to less than 120%, that property is excluded. H&r block 1040x Partner's Gain or Loss A partner generally recognizes gain on a partnership distribution only to the extent any money (and marketable securities treated as money) included in the distribution exceeds the adjusted basis of the partner's interest in the partnership. H&r block 1040x Any gain recognized is generally treated as capital gain from the sale of the partnership interest on the date of the distribution. H&r block 1040x If partnership property (other than marketable securities treated as money) is distributed to a partner, he or she generally does not recognize any gain until the sale or other disposition of the property. H&r block 1040x For exceptions to these rules, see Distribution of partner's debt and Net precontribution gain, later. H&r block 1040x Also, see Payments for Unrealized Receivables and Inventory Items under Disposition of Partner's Interest, later. H&r block 1040x Example. H&r block 1040x The adjusted basis of Jo's partnership interest is $14,000. H&r block 1040x She receives a distribution of $8,000 cash and land that has an adjusted basis of $2,000 and a fair market value of $3,000. H&r block 1040x Because the cash received does not exceed the basis of her partnership interest, Jo does not recognize any gain on the distribution. H&r block 1040x Any gain on the land will be recognized when she sells or otherwise disposes of it. H&r block 1040x The distribution decreases the adjusted basis of Jo's partnership interest to $4,000 [$14,000 − ($8,000 + $2,000)]. H&r block 1040x Marketable securities treated as money. H&r block 1040x   Generally, a marketable security distributed to a partner is treated as money in determining whether gain is recognized on the distribution. H&r block 1040x This treatment, however, does not generally apply if that partner contributed the security to the partnership or an investment partnership made the distribution to an eligible partner. H&r block 1040x   The amount treated as money is the security's fair market value when distributed, reduced (but not below zero) by the excess (if any) of: The partner's distributive share of the gain that would be recognized had the partnership sold all its marketable securities at their fair market value immediately before the transaction resulting in the distribution, over The partner's distributive share of the gain that would be recognized had the partnership sold all such securities it still held after the distribution at the fair market value in (1). H&r block 1040x   For more information, including the definition of marketable securities, see section 731(c) of the Internal Revenue Code. H&r block 1040x Loss on distribution. H&r block 1040x   A partner does not recognize loss on a partnership distribution unless all the following requirements are met. H&r block 1040x The adjusted basis of the partner's interest in the partnership exceeds the distribution. H&r block 1040x The partner's entire interest in the partnership is liquidated. H&r block 1040x The distribution is in money, unrealized receivables, or inventory items. H&r block 1040x   There are exceptions to these general rules. H&r block 1040x See the following discussions. H&r block 1040x Also, see Liquidation at Partner's Retirement or Death under Disposition of Partner's Interest, later. H&r block 1040x Distribution of partner's debt. H&r block 1040x   If a partnership acquires a partner's debt and extinguishes the debt by distributing it to the partner, the partner will recognize capital gain or loss to the extent the fair market value of the debt differs from the basis of the debt (determined under the rules discussed in Partner's Basis for Distributed Property, later). H&r block 1040x   The partner is treated as having satisfied the debt for its fair market value. H&r block 1040x If the issue price (adjusted for any premium or discount) of the debt exceeds its fair market value when distributed, the partner may have to include the excess amount in income as canceled debt. H&r block 1040x   Similarly, a deduction may be available to a corporate partner if the fair market value of the debt at the time of distribution exceeds its adjusted issue price. H&r block 1040x Net precontribution gain. H&r block 1040x   A partner generally must recognize gain on the distribution of property (other than money) if the partner contributed appreciated property to the partnership during the 7-year period before the distribution. H&r block 1040x   The gain recognized is the lesser of the following amounts. H&r block 1040x The excess of: The fair market value of the property received in the distribution, over The adjusted basis of the partner's interest in the partnership immediately before the distribution, reduced (but not below zero) by any money received in the distribution. H&r block 1040x The “net precontribution gain” of the partner. H&r block 1040x This is the net gain the partner would recognize if all the property contributed by the partner within 7 years of the distribution, and held by the partnership immediately before the distribution, were distributed to another partner, other than a partner who owns more than 50% of the partnership. H&r block 1040x For information about the distribution of contributed property to another partner, see Contribution of Property , under Transactions Between Partnership and Partners, later. H&r block 1040x   The character of the gain is determined by reference to the character of the net precontribution gain. H&r block 1040x This gain is in addition to any gain the partner must recognize if the money distributed is more than his or her basis in the partnership. H&r block 1040x For these rules, the term “money” includes marketable securities treated as money, as discussed earlier. H&r block 1040x Effect on basis. H&r block 1040x   The adjusted basis of the partner's interest in the partnership is increased by any net precontribution gain recognized by the partner. H&r block 1040x Other than for purposes of determining the gain, the increase is treated as occurring immediately before the distribution. H&r block 1040x See Basis of Partner's Interest , later. H&r block 1040x   The partnership must adjust its basis in any property the partner contributed within 7 years of the distribution to reflect any gain that partner recognizes under this rule. H&r block 1040x Exceptions. H&r block 1040x   Any part of a distribution that is property the partner previously contributed to the partnership is not taken into account in determining the amount of the excess distribution or the partner's net precontribution gain. H&r block 1040x For this purpose, the partner's previously contributed property does not include a contributed interest in an entity to the extent its value is due to property contributed to the entity after the interest was contributed to the partnership. H&r block 1040x   Recognition of gain under this rule also does not apply to a distribution of unrealized receivables or substantially appreciated inventory items if the distribution is treated as a sale or exchange, as discussed earlier. H&r block 1040x Partner's Basis for Distributed Property Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed to the partner by a partnership is its adjusted basis to the partnership immediately before the distribution. H&r block 1040x However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction. H&r block 1040x Example 1. H&r block 1040x The adjusted basis of Emily's partnership interest is $30,000. H&r block 1040x She receives a distribution of property that has an adjusted basis of $20,000 to the partnership and $4,000 in cash. H&r block 1040x Her basis for the property is $20,000. H&r block 1040x Example 2. H&r block 1040x The adjusted basis of Steve's partnership interest is $10,000. H&r block 1040x He receives a distribution of $4,000 cash and property that has an adjusted basis to the partnership of $8,000. H&r block 1040x His basis for the distributed property is limited to $6,000 ($10,000 − $4,000, the cash he receives). H&r block 1040x Complete liquidation of partner's interest. H&r block 1040x   The basis of property received in complete liquidation of a partner's interest is the adjusted basis of the partner's interest in the partnership reduced by any money distributed to the partner in the same transaction. H&r block 1040x Partner's holding period. H&r block 1040x   A partner's holding period for property distributed to the partner includes the period the property was held by the partnership. H&r block 1040x If the property was contributed to the partnership by a partner, then the period it was held by that partner is also included. H&r block 1040x Basis divided among properties. H&r block 1040x   If the basis of property received is the adjusted basis of the partner's interest in the partnership (reduced by money received in the same transaction), it must be divided among the properties distributed to the partner. H&r block 1040x For property distributed after August 5, 1997, allocate the basis using the following rules. H&r block 1040x Allocate the basis first to unrealized receivables and inventory items included in the distribution by assigning a basis to each item equal to the partnership's adjusted basis in the item immediately before the distribution. H&r block 1040x If the total of these assigned bases exceeds the allocable basis, decrease the assigned bases by the amount of the excess. H&r block 1040x Allocate any remaining basis to properties other than unrealized receivables and inventory items by assigning a basis to each property equal to the partnership's adjusted basis in the property immediately before the distribution. H&r block 1040x If the allocable basis exceeds the total of these assigned bases, increase the assigned bases by the amount of the excess. H&r block 1040x If the total of these assigned bases exceeds the allocable basis, decrease the assigned bases by the amount of the excess. H&r block 1040x Allocating a basis increase. H&r block 1040x   Allocate any basis increase required in rule (2), above, first to properties with unrealized appreciation to the extent of the unrealized appreciation. H&r block 1040x If the basis increase is less than the total unrealized appreciation, allocate it among those properties in proportion to their respective amounts of unrealized appreciation. H&r block 1040x Allocate any remaining basis increase among all the properties in proportion to their respective fair market values. H&r block 1040x Example. H&r block 1040x Eun's basis in her partnership interest is $55,000. H&r block 1040x In a distribution in liquidation of her entire interest, she receives properties A and B, neither of which is inventory or unrealized receivables. H&r block 1040x Property A has an adjusted basis to the partnership of $5,000 and a fair market value of $40,000. H&r block 1040x Property B has an adjusted basis to the partnership of $10,000 and a fair market value of $10,000. H&r block 1040x To figure her basis in each property, Eun first assigns bases of $5,000 to property A and $10,000 to property B (their adjusted bases to the partnership). H&r block 1040x This leaves a $40,000 basis increase (the $55,000 allocable basis minus the $15,000 total of the assigned bases). H&r block 1040x She first allocates $35,000 to property A (its unrealized appreciation). H&r block 1040x The remaining $5,000 is allocated between the properties based on their fair market values. H&r block 1040x $4,000 ($40,000/$50,000) is allocated to property A and $1,000 ($10,000/$50,000) is allocated to property B. H&r block 1040x Eun's basis in property A is $44,000 ($5,000 + $35,000 + $4,000) and her basis in property B is $11,000 ($10,000 + $1,000). H&r block 1040x Allocating a basis decrease. H&r block 1040x   Use the following rules to allocate any basis decrease required in rule (1) or rule (2), earlier. H&r block 1040x Allocate the basis decrease first to items with unrealized depreciation to the extent of the unrealized depreciation. H&r block 1040x If the basis decrease is less than the total unrealized depreciation, allocate it among those items in proportion to their respective amounts of unrealized depreciation. H&r block 1040x Allocate any remaining basis decrease among all the items in proportion to their respective assigned basis amounts (as decreased in (1)). H&r block 1040x Example. H&r block 1040x Armando's basis in his partnership interest is $20,000. H&r block 1040x In a distribution in liquidation of his entire interest, he receives properties C and D, neither of which is inventory or unrealized receivables. H&r block 1040x Property C has an adjusted basis to the partnership of $15,000 and a fair market value of $15,000. H&r block 1040x Property D has an adjusted basis to the partnership of $15,000 and a fair market value of $5,000. H&r block 1040x To figure his basis in each property, Armando first assigns bases of $15,000 to property C and $15,000 to property D (their adjusted bases to the partnership). H&r block 1040x This leaves a $10,000 basis decrease (the $30,000 total of the assigned bases minus the $20,000 allocable basis). H&r block 1040x He allocates the entire $10,000 to property D (its unrealized depreciation). H&r block 1040x Armando's basis in property C is $15,000 and his basis in property D is $5,000 ($15,000 − $10,000). H&r block 1040x Distributions before August 6, 1997. H&r block 1040x   For property distributed before August 6, 1997, allocate the basis using the following rules. H&r block 1040x Allocate the basis first to unrealized receivables and inventory items included in the distribution to the extent of the partnership's adjusted basis in those items. H&r block 1040x If the partnership's adjusted basis in those items exceeded the allocable basis, allocate the basis among the items in proportion to their adjusted bases to the partnership. H&r block 1040x Allocate any remaining basis to other distributed properties in proportion to their adjusted bases to the partnership. H&r block 1040x Partner's interest more than partnership basis. H&r block 1040x   If the basis of a partner's interest to be divided in a complete liquidation of the partner's interest is more than the partnership's adjusted basis for the unrealized receivables and inventory items distributed, and if no other property is distributed to which the partner can apply the remaining basis, the partner has a capital loss to the extent of the remaining basis of the partnership interest. H&r block 1040x Special adjustment to basis. H&r block 1040x   A partner who acquired any part of his or her partnership interest in a sale or exchange or upon the death of another partner may be able to choose a special basis adjustment for property distributed by the partnership. H&r block 1040x To choose the special adjustment, the partner must have received the distribution within 2 years after acquiring the partnership interest. H&r block 1040x Also, the partnership must not have chosen the optional adjustment to basis when the partner acquired the partnership interest. H&r block 1040x   If a partner chooses this special basis adjustment, the partner's basis for the property distributed is the same as it would have been if the partnership had chosen the optional adjustment to basis. H&r block 1040x However, this assigned basis is not reduced by any depletion or depreciation that would have been allowed or allowable if the partnership had previously chosen the optional adjustment. H&r block 1040x   The choice must be made with the partner's tax return for the year of the distribution if the distribution includes any property subject to depreciation, depletion, or amortization. H&r block 1040x If the choice does not have to be made for the distribution year, it must be made with the return for the first year in which the basis of the distributed property is pertinent in determining the partner's income tax. H&r block 1040x   A partner choosing this special basis adjustment must attach a statement to his or her tax return that the partner chooses under section 732(d) of the Internal Revenue Code to adjust the basis of property received in a distribution. H&r block 1040x The statement must show the computation of the special basis adjustment for the property distributed and list the properties to which the adjustment has been allocated. H&r block 1040x Example. H&r block 1040x Chin Ho purchased a 25% interest in X partnership for $17,000 cash. H&r block 1040x At the time of the purchase, the partnership owned inventory having a basis to the partnership of $14,000 and a fair market value of $16,000. H&r block 1040x Thus, $4,000 of the $17,000 he paid was attributable to his share of inventory with a basis to the partnership of $3,500. H&r block 1040x Within 2 years after acquiring his interest, Chin Ho withdrew from the partnership and for his entire interest received cash of $1,500, inventory with a basis to the partnership of $3,500, and other property with a basis of $6,000. H&r block 1040x The value of the inventory received was 25% of the value of all partnership inventory. H&r block 1040x (It is immaterial whether the inventory he received was on hand when he acquired his interest. H&r block 1040x ) Since the partnership from which Chin Ho withdrew did not make the optional adjustment to basis, he chose to adjust the basis of the inventory received. H&r block 1040x His share of the partnership's basis for the inventory is increased by $500 (25% of the $2,000 difference between the $16,000 fair market value of the inventory and its $14,000 basis to the partnership at the time he acquired his interest). H&r block 1040x The adjustment applies only for purposes of determining his new basis in the inventory, and not for purposes of partnership gain or loss on disposition. H&r block 1040x The total to be allocated among the properties Chin Ho received in the distribution is $15,500 ($17,000 basis of his interest − $1,500 cash received). H&r block 1040x His basis in the inventory items is $4,000 ($3,500 partnership basis + $500 special adjustment). H&r block 1040x The remaining $11,500 is allocated to his new basis for the other property he received. H&r block 1040x Mandatory adjustment. H&r block 1040x   A partner does not always have a choice of making this special adjustment to basis. H&r block 1040x The special adjustment to basis must be made for a distribution of property (whether or not within 2 years after the partnership interest was acquired) if all the following conditions existed when the partner received the partnership interest. H&r block 1040x The fair market value of all partnership property (other than money) was more than 110% of its adjusted basis to the partnership. H&r block 1040x If there had been a liquidation of the partner's interest immediately after it was acquired, an allocation of the basis of that interest under the general rules (discussed earlier under Basis divided among properties) would have decreased the basis of property that could not be depreciated, depleted, or amortized and increased the basis of property that could be. H&r block 1040x The optional basis adjustment, if it had been chosen by the partnership, would have changed the partner's basis for the property actually distributed. H&r block 1040x Required statement. H&r block 1040x   Generally, if a partner chooses a special basis adjustment and notifies the partnership, or if the partnership makes a distribution for which the special basis adjustment is mandatory, the partnership must provide a statement to the partner. H&r block 1040x The statement must provide information necessary for the partner to compute the special basis adjustment. H&r block 1040x Marketable securities. H&r block 1040x   A partner's basis in marketable securities received in a partnership distribution, as determined in the preceding discussions, is increased by any gain recognized by treating the securities as money. H&r block 1040x See Marketable securities treated as money under Partner's Gain or Loss, earlier. H&r block 1040x The basis increase is allocated among the securities in proportion to their respective amounts of unrealized appreciation before the basis increase. H&r block 1040x Transactions Between Partnership and Partners For certain transactions between a partner and his or her partnership, the partner is treated as not being a member of the partnership. H&r block 1040x These transactions include the following. H&r block 1040x Performing services for, or transferring property to, a partnership if: There is a related allocation and distribution to a partner, and The entire transaction, when viewed together, is properly characterized as occurring between the partnership and a partner not acting in the capacity of a partner. H&r block 1040x Transferring money or other property to a partnership if: There is a related transfer of money or other property by the partnership to the contributing partner or another partner, and The transfers together are properly characterized as a sale or exchange of property. H&r block 1040x Payments by accrual basis partnership to cash basis partner. H&r block 1040x   A partnership that uses an accrual method of accounting cannot deduct any business expense owed to a cash basis partner until the amount is paid. H&r block 1040x However, this rule does not apply to guaranteed payments made to a partner, which are generally deductible when accrued. H&r block 1040x Guaranteed Payments Guaranteed payments are those made by a partnership to a partner that are determined without regard to the partnership's income. H&r block 1040x A partnership treats guaranteed payments for services, or for the use of capital, as if they were made to a person who is not a partner. H&r block 1040x This treatment is for purposes of determining gross income and deductible business expenses only. H&r block 1040x For other tax purposes, guaranteed payments are treated as a partner's distributive share of ordinary income. H&r block 1040x Guaranteed payments are not subject to income tax withholding. H&r block 1040x The partnership generally deducts guaranteed payments on line 10 of Form 1065 as a business expense. H&r block 1040x They are also listed on Schedules K and K-1 of the partnership return. H&r block 1040x The individual partner reports guaranteed payments on Schedule E (Form 1040) as ordinary income, along with his or her distributive share of the partnership's other ordinary income. H&r block 1040x Guaranteed payments made to partners for organizing the partnership or syndicating interests in the partnership are capital expenses. H&r block 1040x Generally, organizational and syndication expenses are not deductible by the partnership. H&r block 1040x However, a partnership can elect to deduct a portion of its organizational expenses and amortize the remaining expenses (see Business start-up and organizational costs in the Instructions for Form 1065). H&r block 1040x Organizational expenses (if the election is not made) and syndication expenses paid to partners must be reported on the partners' Schedule K-1 as guaranteed payments. H&r block 1040x Minimum payment. H&r block 1040x   If a partner is to receive a minimum payment from the partnership, the guaranteed payment is the amount by which the minimum payment is more than the partner's distributive share of the partnership income before taking into account the guaranteed payment. H&r block 1040x Example. H&r block 1040x Under a partnership agreement, Divya is to receive 30% of the partnership income, but not less than $8,000. H&r block 1040x The partnership has net income of $20,000. H&r block 1040x Divya's share, without regard to the minimum guarantee, is $6,000 (30% × $20,000). H&r block 1040x The guaranteed payment that can be deducted by the partnership is $2,000 ($8,000 − $6,000). H&r block 1040x Divya's income from the partnership is $8,000, and the remaining $12,000 of partnership income will be reported by the other partners in proportion to their shares under the partnership agreement. H&r block 1040x If the partnership net income had been $30,000, there would have been no guaranteed payment since her share, without regard to the guarantee, would have been greater than the guarantee. H&r block 1040x Self-employed health insurance premiums. H&r block 1040x   Premiums for health insurance paid by a partnership on behalf of a partner, for services as a partner, are treated as guaranteed payments. H&r block 1040x The partnership can deduct the payments as a business expense, and the partner must include them in gross income. H&r block 1040x However, if the partnership accounts for insurance paid for a partner as a reduction in distributions to the partner, the partnership cannot deduct the premiums. H&r block 1040x   A partner who qualifies can deduct 100% of the health insurance premiums paid by the partnership on his or her behalf as an adjustment to income. H&r block 1040x The partner cannot deduct the premiums for any calendar month, or part of a month, in which the partner is eligible to participate in any subsidized health plan maintained by any employer of the partner, the partner's spouse, the partner's dependents, or any children under age 27 who are not dependents. H&r block 1040x For more information on the self-employed health insurance deduction, see chapter 6 in Publication 535. H&r block 1040x Including payments in partner's income. H&r block 1040x   Guaranteed payments are included in income in the partner's tax year in which the partnership's tax year ends. H&r block 1040x Example 1. H&r block 1040x Under the terms of a partnership agreement, Erica is entitled to a fixed annual payment of $10,000 without regard to the income of the partnership. H&r block 1040x Her distributive share of the partnership income is 10%. H&r block 1040x The partnership has $50,000 of ordinary income after deducting the guaranteed payment. H&r block 1040x She must include ordinary income of $15,000 ($10,000 guaranteed payment + $5,000 ($50,000 × 10%) distributive share) on her individual income tax return for her tax year in which the partnership's tax year ends. H&r block 1040x Example 2. H&r block 1040x Lamont is a calendar year taxpayer who is a partner in a partnership. H&r block 1040x The partnership uses a fiscal year that ended January 31, 2013. H&r block 1040x Lamont received guaranteed payments from the partnership from February 1, 2012, until December 31, 2012. H&r block 1040x He must include these guaranteed payments in income for 2013 and report them on his 2013 income tax return. H&r block 1040x Payments resulting in loss. H&r block 1040x   If guaranteed payments to a partner result in a partnership loss in which the partner shares, the partner must report the full amount of the guaranteed payments as ordinary income. H&r block 1040x The partner separately takes into account his or her distributive share of the partnership loss, to the extent of the adjusted basis of the partner's partnership interest. H&r block 1040x Sale or Exchange of Property Special rules apply to a sale or exchange of property between a partnership and certain persons. H&r block 1040x Losses. H&r block 1040x   Losses will not be allowed from a sale or exchange of property (other than an interest in the partnership) directly or indirectly between a partnership and a person whose direct or indirect interest in the capital or profits of the partnership is more than 50%. H&r block 1040x   If the sale or exchange is between two partnerships in which the same persons directly or indirectly own more than 50% of the capital or profits interests in each partnership, no deduction of a loss is allowed. H&r block 1040x   The basis of each partner's interest in the partnership is decreased (but not below zero) by the partner's share of the disallowed loss. H&r block 1040x   If the purchaser later sells the property, only the gain realized that is greater than the loss not allowed will be taxable. H&r block 1040x If any gain from the sale of the property is not recognized because of this rule, the basis of each partner's interest in the partnership is increased by the partner's share of that gain. H&r block 1040x Gains. H&r block 1040x   Gains are treated as ordinary income in a sale or exchange of property directly or indirectly between a person and a partnership, or between two partnerships, if both of the following tests are met. H&r block 1040x More than 50% of the capital or profits interest in the partnership(s) is directly or indirectly owned by the same person(s). H&r block 1040x The property in the hands of the transferee immediately after the transfer is not a capital asset. H&r block 1040x Property that is not a capital asset includes accounts receivable, inventory, stock-in-trade, and depreciable or real property used in a trade or business. H&r block 1040x More than 50% ownership. H&r block 1040x   To determine if there is more than 50% ownership in partnership capital or profits, the following rules apply. H&r block 1040x An interest directly or indirectly owned by, or for, a corporation, partnership, estate, or trust is considered to be owned proportionately by, or for, its shareholders, partners, or beneficiaries. H&r block 1040x An individual is considered to own the interest directly or indirectly owned by, or for, the individual's family. H&r block 1040x For this rule, “family” includes only brothers, sisters, half-brothers, half-sisters, spouses, ancestors, and lineal descendants. H&r block 1040x If a person is considered to own an interest using rule (1), that person (the “constructive owner”) is treated as if actually owning that interest when rules (1) and (2) are applied. H&r block 1040x However, if a person is considered to own an interest using rule (2), that person is not treated as actually owning that interest in reapplying rule (2) to make another person the constructive owner. H&r block 1040x Example. H&r block 1040x Individuals A and B and Trust T are equal partners in Partnership ABT. H&r block 1040x A's husband, AH, is the sole beneficiary of Trust T. H&r block 1040x Trust T's partnership interest will be attributed to AH only for the purpose of further attributing the interest to A. H&r block 1040x As a result, A is a more-than-50% partner. H&r block 1040x This means that any deduction for losses on transactions between her and ABT will not be allowed, and gain from property that in the hands of the transferee is not a capital asset is treated as ordinary, rather than capital, gain. H&r block 1040x More information. H&r block 1040x   For more information on these special rules, see Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. H&r block 1040x Contribution of Property Usually, neither the partner nor the partnership recognizes a gain or loss when property is contributed to the partnership in exchange for a partnership interest. H&r block 1040x This applies whether a partnership is being formed or is already operating. H&r block 1040x The partnership's holding period for the property includes the partner's holding period. H&r block 1040x The contribution of limited partnership interests in one partnership for limited partnership interests in another partnership qualifies as a tax-free contribution of property to the second partnership if the transaction is made for business purposes. H&r block 1040x The exchange is not subject to the rules explained later under Disposition of Partner's Interest. H&r block 1040x Disguised sales. H&r block 1040x   A contribution of money or other property to the partnership followed by a distribution of different property from the partnership to the partner is treated not as a contribution and distribution, but as a sale of property, if both of the following tests are met. H&r block 1040x The distribution would not have been made but for the contribution. H&r block 1040x The partner's right to the distribution does not depend on the success of partnership operations. H&r block 1040x   All facts and circumstances are considered in determining if the contribution and distribution are more properly characterized as a sale. H&r block 1040x However, if the contribution and distribution occur within 2 years of each other, the transfers are presumed to be a sale unless the facts clearly indicate that the transfers are not a sale. H&r block 1040x If the contribution and distribution occur more than 2 years apart, the transfers are presumed not to be a sale unless the facts clearly indicate that the transfers are a sale. H&r block 1040x Form 8275 required. H&r block 1040x   A partner must attach Form 8275, Disclosure Statement, (or other statement) to his or her return if the partner contributes property to a partnership and, within 2 years (before or after the contribution), the partnership transfers money or other consideration to the partner. H&r block 1040x For exceptions to this requirement, see section 1. H&r block 1040x 707-3(c)(2) of the regulations. H&r block 1040x   A partnership must attach Form 8275 (or other statement) to its return if it distributes property to a partner, and, within 2 years (before or after the distribution), the partner transfers money or other consideration to the partnership. H&r block 1040x   Form 8275 must include the following information. H&r block 1040x A caption identifying the statement as a disclosure under section 707 of the Internal Revenue Code. H&r block 1040x A description of the transferred property or money, including its value. H&r block 1040x A description of any relevant facts in determining if the transfers are properly viewed as a disguised sale. H&r block 1040x See section 1. H&r block 1040x 707-3(b)(2) of the regulations for a description of the facts and circumstances considered in determining if the transfers are a disguised sale. H&r block 1040x Contribution to partnership treated as investment company. H&r block 1040x   Gain is recognized when property is contributed (in exchange for an interest in the partnership) to a partnership that would be treated as an investment company if it were incorporated. H&r block 1040x   A partnership is generally treated as an investment company if over 80% of the value of its assets is held for investment and consists of certain readily marketable items. H&r block 1040x These items include money, stocks and other equity interests in a corporation, and interests in regulated investment companies and real estate investment trusts. H&r block 1040x For more information, see section 351(e)(1) of the Internal Revenue Code and the related regulations. H&r block 1040x Whether a partnership is treated as an investment company under this test is ordinarily determined immediately after the transfer of property. H&r block 1040x   This rule applies to limited partnerships and general partnerships, regardless of whether they are privately formed or publicly syndicated. H&r block 1040x Contribution to foreign partnership. H&r block 1040x   A domestic partnership that contributed property after August 5, 1997, to a foreign partnership in exchange for a partnership interest may have to file Form 8865 if either of the following apply. H&r block 1040x Immediately after the contribution, the partnership owned, directly or indirectly, at least a 10% interest in the foreign partnership. H&r block 1040x The fair market value of the property contributed to the foreign partnership, when added to other contributions of property made to the partnership during the preceding 12-month period, is greater than $100,000. H&r block 1040x   The partnership may also have to file Form 8865, even if no contributions are made during the tax year, if it owns a 10% or more interest in a foreign partnership at any time during the year. H&r block 1040x See the form instructions for more information. H&r block 1040x Basis of contributed property. H&r block 1040x   If a partner contributes property to a partnership, the partnership's basis for determining depreciation, depletion, gain, or loss for the property is the same as the partner's adjusted basis for the property when it was contributed, increased by any gain recognized by the partner at the time of contribution. H&r block 1040x Allocations to account for built-in gain or loss. H&r block 1040x   The fair market value of property at the time it is contributed may be different from the partner's adjusted basis. H&r block 1040x The partnership must allocate among the partners any income, deduction, gain, or loss on the property in a manner that will account for the difference. H&r block 1040x This rule also applies to contributions of accounts payable and other accrued but unpaid items of a cash basis partner. H&r block 1040x   The partnership can use different allocation methods for different items of contributed property. H&r block 1040x A single reasonable method must be consistently applied to each item, and the overall method or combination of methods must be reasonable. H&r block 1040x See section 1. H&r block 1040x 704-3 of the regulations for allocation methods generally considered reasonable. H&r block 1040x   If the partnership sells contributed property and recognizes gain or loss, built-in gain or loss is allocated to the contributing partner. H&r block 1040x If contributed property is subject to depreciation or other cost recovery, the allocation of deductions for these items takes into account built-in gain or loss on the property. H&r block 1040x However, the total depreciation, depletion, gain, or loss allocated to partners cannot be more than the depreciation or depletion allowable to the partnership or the gain or loss realized by the partnership. H&r block 1040x Example. H&r block 1040x Areta and Sofia formed an equal partnership. H&r block 1040x Areta contributed $10,000 in cash to the partnership and Sofia contributed depreciable property with a fair market value of $10,000 and an adjusted basis of $4,000. H&r block 1040x The partnership's basis for depreciation is limited to the adjusted basis of the property in Sofia's hands, $4,000. H&r block 1040x In effect, Areta purchased an undivided one-half interest in the depreciable property with her contribution of $10,000. H&r block 1040x Assuming that the depreciation rate is 10% a year under the General Depreciation System (GDS), she would have been entitled to a depreciation deduction of $500 per year, based on her interest in the partnership, if the adjusted basis of the property equaled its fair market value when contributed. H&r block 1040x To simplify this example, the depreciation deductions are determined without regard to any first-year depreciation conventions. H&r block 1040x However, since the partnership is allowed only $400 per year of depreciation (10% of $4,000), no more than $400 can be allocated between the partners. H&r block 1040x The entire $400 must be allocated to Areta. H&r block 1040x Distribution of contributed property to another partner. H&r block 1040x   If a partner contributes property to a partnership and the partnership distributes the property to another partner within 7 years of the contribution, the contributing partner must recognize gain or loss on the distribution. H&r block 1040x   The recognized gain or loss is the amount the contributing partner would have recognized if the property had been sold for its fair market value when it was distributed. H&r block 1040x This amount is the difference between the property's basis and its fair market value at the time of contribution. H&r block 1040x The character of the gain or loss will be the same as the character of the gain or loss that would have resulted if the partnership had sold the property to the distributee partner. H&r block 1040x Appropriate adjustments must be made to the adjusted basis of the contributing partner's partnership interest and to the adjusted basis of the property distributed to reflect the recognized gain or loss. H&r block 1040x Disposition of certain contributed property. H&r block 1040x   The following rules determine the character of the partnership's gain or loss on a disposition of certain types of contributed property. H&r block 1040x Unrealized receivables. H&r block 1040x If the property was an unrealized receivable in the hands of the contributing partner, any gain or loss on its disposition by the partnership is ordinary income or loss. H&r block 1040x Unrealized receivables are defined later under Payments for Unrealized Receivables and Inventory Items. H&r block 1040x When reading the definition, substitute “partner” for “partnership. H&r block 1040x ” Inventory items. H&r block 1040x If the property was an inventory item in the hands of the contributing partner, any gain or loss on its disposition by the partnership within 5 years after the contribution is ordinary income or loss. H&r block 1040x Inventory items are defined later in Payments for Unrealized Receivables and Inventory Items. H&r block 1040x Capital loss property. H&r block 1040x If the property was a capital asset in the contributing partner's hands, any loss on its disposition by the partnership within 5 years after the contribution is a capital loss. H&r block 1040x The capital loss is limited to the amount by which the partner's adjusted basis for the property exceeded the property's fair market value immediately before the contribution. H&r block 1040x Substituted basis property. H&r block 1040x If the disposition of any of the property listed in (1), (2), or (3) is a nonrecognition transaction, these rules apply when the recipient of the property disposes of any substituted basis property (other than certain corporate stock) resulting from the transaction. H&r block 1040x Contribution of Services A partner can acquire an interest in partnership capital or profits as compensation for services performed or to be performed. H&r block 1040x Capital interest. H&r block 1040x   A capital interest is an interest that would give the holder a share of the proceeds if the partnership's assets were sold at fair market value and the proceeds were distributed in a complete liquidation of the partnership. H&r block 1040x This determination generally is made at the time of receipt of the partnership interest. H&r block 1040x The fair market value of such an interest received by a partner as compensation for services must generally be included in the partner's gross income in the first tax year in which the partner can transfer the interest or the interest is not subject to a substantial risk of forfeiture. H&r block 1040x The capital interest transferred as compensation for services is subject to the rules for restricted property discussed in Publication 525 under Employee Compensation. H&r block 1040x   The fair market value of an interest in partnership capital transferred to a partner as payment for services to the partnership is a guaranteed payment, discussed earlier. H&r block 1040x Profits interest. H&r block 1040x   A profits interest is a partnership interest other than a capital interest. H&r block 1040x If a person receives a profits interest for providing services to, or for the benefit of, a partnership in a partner capacity or in anticipation of being a partner, the receipt of such an interest is not a taxable event for the partner or the partnership. H&r block 1040x However, this does not apply in the following situations. H&r block 1040x The profits interest relates to a substantially certain and predictable stream of income from partnership assets, such as income from high-quality debt securities or a high-quality net lease. H&r block 1040x Within 2 years of receipt, the partner disposes of the profits interest. H&r block 1040x The profits interest is a limited partnership interest in a publicly traded partnership. H&r block 1040x   A profits interest transferred as compensation for services is not subject to the rules for restricted property that apply to capital interests. H&r block 1040x Basis of Partner's Interest The basis of a partnership interest is the money plus the adjusted basis of any property the partner contributed. H&r block 1040x If the partner must recognize gain as a result of the contribution, this gain is included in the basis of his or her interest. H&r block 1040x Any increase in a partner's individual liabilities because of an assumption of partnership liabilities is considered a contribution of money to the partnership by the partner. H&r block 1040x Interest acquired by gift, etc. H&r block 1040x   If a partner acquires an interest in a partnership by gift, inheritance, or under any circumstance other than by a contribution of money or property to the partnership, the partner's basis must be determined using the basis rules described in Publication 551. H&r block 1040x Adjusted Basis There is a worksheet for adjusting the basis of a partner's interest in the partnership in the Partner's Instructions for Schedule K-1 (Form 1065). H&r block 1040x The basis of an interest in a partnership is increased or decreased by certain items. H&r block 1040x Increases. H&r block 1040x   A partner's basis is increased by the following items. H&r block 1040x The partner's additional contributions to the partnership, including an increased share of, or assumption of, partnership liabilities. H&r block 1040x The partner's distributive share of taxable and nontaxable partnership income. H&r block 1040x The partner's distributive share of the excess of the deductions for depletion over the basis of the depletable property, unless the property is oil or gas wells whose basis has been allocated to partners. H&r block 1040x Decreases. H&r block 1040x   The partner's basis is decreased (but never below zero) by the following items. H&r block 1040x The money (including a decreased share of partnership liabilities or an assumption of the partner's individual liabilities by the partnership) and adjusted basis of property distributed to the partner by the partnership. H&r block 1040x The partner's distributive share of the partnership losses (including capital losses). H&r block 1040x The partner's distributive share of nondeductible partnership expenses that are not capital expenditures. H&r block 1040x This includes the partner's share of any section 179 expenses, even if the partner cannot deduct the entire amount on his or her individual income tax return. H&r block 1040x The partner's deduction for depletion for any partnership oil and gas wells, up to the proportionate share of the adjusted basis of the wells allocated to the partner. H&r block 1040x Partner's liabilities assumed by partnership. H&r block 1040x   If contributed property is subject to a debt or if a partner's liabilities are assumed by the partnership, the basis of that partner's interest is reduced (but not below zero) by the liability assumed by the other partners. H&r block 1040x This partner must reduce his or her basis because the assumption of the liability is treated as a distribution of money to that partner. H&r block 1040x The other partners' assumption of the liability is treated as a contribution by them of money to the partnership. H&r block 1040x See Effect of Partnership Liabilities , later. H&r block 1040x Example 1. H&r block 1040x Ivan acquired a 20% interest in a partnership by contributing property that had an adjusted basis to him of $8,000 and a $4,000 mortgage. H&r block 1040x The partnership assumed payment of the mortgage. H&r block 1040x The basis of Ivan's interest is: Adjusted basis of contributed property $8,000 Minus: Part of mortgage assumed by other partners (80% × $4,000) 3,200 Basis of Ivan's partnership interest $4,800 Example 2. H&r block 1040x If, in Example 1, the contributed property had a $12,000 mortgage, the basis of Ivan's partnership interest would be zero. H&r block 1040x The $1,600 difference between the mortgage assumed by the other partners, $9,600 (80% × $12,000), and his basis of $8,000 would be treated as capital gain from the sale or exchange of a partnership interest. H&r block 1040x However, this gain would not increase the basis of his partnership interest. H&r block 1040x Book value of partner's interest. H&r block 1040x   The adjusted basis of a partner's interest is determined without considering any amount shown in the partnership books as a capital, equity, or similar account. H&r block 1040x Example. H&r block 1040x Enzo contributes to his partnership property that has an adjusted basis of $400 and a fair market value of $1,000. H&r block 1040x His partner contributes $1,000 cash. H&r block 1040x While each partner has increased his capital account by $1,000, which will be re
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SOI Tax Stats - Gift Tax Statistics

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What is the Federal Gift Tax?


 

The Federal gift tax is a tax on the right to transfer property from a living person to other persons or trusts. Reported on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, data are collected on the donor and recipient of gifts that exceed the annual exclusion. The name of the recipient, recipient's relationship to the donor, type of property, and value of gift are reported, as are the total value of a donor's lifetime gifts and tax computation items.

For information about selected terms and concepts and a description of the data sources and limitations, please visit Gift Tax Study Metadata.

 


 

Statistical Tables

Total Gifts of Donor, Total Gifts, Deductions, Credits, and Net Gift Tax

 

 


SOI Bulletin Articles

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2009 Gifts
This article presents data on gifts made during 2009. Donors filed a total of 223,093 returns for 2009, reporting a total of $$37.9 billion in assets transferred to 867,507 donees, primarily children and grandchildren.

2008 Gifts
This article presents data on gifts made during 2008. Donors filed a total of 234,714 returns for 2008, reporting a total of $40.2 billion in assets transferred to 927,554 donees, primarily children and grandchildren.

2007 Gifts
This article describes gifts made during calendar year 2007.  There were a total of 257,485 gift tax returns filed in 2008.  247,932 returns, or 96.3 percent, were nontaxable.  The remaining 9,553 (3.7 percent) were taxable.

Wealth Transfers, 2005 Gifts

This article describes gifts made during calendar year 2005.  A total of $38.5 billion in assets was transferred from donors to donees, or gift recipients.  Only 2.9 percent of returns were taxable, with $1.7 billion in gift tax liability reported.

 

Inter Vivos Wealth Transfers, 1997 Gifts
This article describes gifts made during calendar year 1997.  Like transfers of wealth at death, wealth transfers during life—called inter vivos wealth transfers—are subject to Federal taxation.  Only individual gifts in excess of $10,000 were potentially taxable for Gift Year 1997.

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Page Last Reviewed or Updated: 21-Oct-2013

The H&r Block 1040x

H&r block 1040x Publication 970 - Additional Material Table of Contents AppendicesAppendix A. H&r block 1040x 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. H&r block 1040x 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. H&r block 1040x Appendix B—A chart summarizing some of the major differences between the education tax benefits discussed in this publication. H&r block 1040x It is intended only as a guide. H&r block 1040x Look in this publication for more complete information. H&r block 1040x   Appendix A. H&r block 1040x 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). H&r block 1040x Their modified adjusted gross income (MAGI) on Form 1040, line 38 is $110,000. H&r block 1040x Because Dave and Valerie have unusually high itemized deductions, their taxable income is $10,000 and their tax before credits is $1,000. H&r block 1040x Sean enrolled as a full-time graduate student in August 2013 at California State College. H&r block 1040x He graduated with his bachelor's degree in 2012 and did not attend school from January 2013 through July 2013. H&r block 1040x His parents claimed the Hope Scholarship Credit for Sean for 2008 and the American opportunity credit for Sean for 2010, 2011, and 2012. H&r block 1040x Carey enrolled full time as a freshman at the same college in January 2013 to begin working on her bachelor's degree. H&r block 1040x In 2013, Dave and Valerie paid $7,000 in tuition for Sean and $8,500 in tuition for Carey. H&r block 1040x California State College issued two Forms 1098-T, one for Sean and one for Carey, and sent them to the Joneses' residence. H&r block 1040x California State College reports amounts billed in 2013 instead of amounts paid during 2013. H&r block 1040x In completing Form 8863, the Joneses use the amounts they paid. H&r block 1040x Neither Sean nor Carey has been convicted of a felony for possession or distribution of a controlled substance before the end of 2013. H&r block 1040x Dave and Valerie figure their education credits by completing Form 8863. H&r block 1040x They begin Form 8863 on page 2 before completing Part I on page 1. H&r block 1040x Because the Joneses have two eligible students, they will complete page 2 twice, once for their son, Sean, and once for their daughter, Carey. H&r block 1040x The Joneses decide to complete Part III for Carey first, as shown later. H&r block 1040x They carry over the amount of $2,500 entered on Part III, line 30, to Part I, line 1. H&r block 1040x The Joneses complete a separate Part III for their son Sean. H&r block 1040x 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. H&r block 1040x They figure their line 31 adjusted qualified education expenses for Sean to be $7,000. H&r block 1040x Once they have completed Part III for each student, they figure their credits. H&r block 1040x The Joneses figure their refundable American opportunity credit of $1,000 by completing Form 8863, Part I, lines 1 through 8. H&r block 1040x They enter the amount from line 8, $1,000, on line 66 of their Form 1040. H&r block 1040x 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). H&r block 1040x They cannot claim the full amount because their MAGI of $110,000 is greater than $107,000. H&r block 1040x They enter the reduced amount of $1,190 (figured on Part II, line 18) on the Credit Limit Worksheet, line 1. H&r block 1040x 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. H&r block 1040x 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. H&r block 1040x They enter $1,000 on line 19, Part II of Form 8863 and on line 49 of Form 1040. H&r block 1040x This image is too large to be displayed in the current screen. H&r block 1040x Please click the link to view the image. H&r block 1040x Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. H&r block 1040x Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 8,500 2. H&r block 1040x Less adjustments:     a. H&r block 1040x Tax-free educational assistance received in 2013 allocable to the academic period   0     b. H&r block 1040x Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. H&r block 1040x 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. H&r block 1040x Total adjustments (add lines 2a, 2b, and 2c) 0 4. H&r block 1040x Adjusted qualified education expenses. H&r block 1040x Subtract line 3 from line 1. H&r block 1040x If zero or less, enter -0- 8,500 This image is too large to be displayed in the current screen. H&r block 1040x Please click the link to view the image. H&r block 1040x Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. H&r block 1040x Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 7,000 2. H&r block 1040x Less adjustments:     a. H&r block 1040x Tax-free educational assistance received in 2013 allocable to the academic period   0     b. H&r block 1040x Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. H&r block 1040x 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. H&r block 1040x Total adjustments (add lines 2a, 2b, and 2c) 0 4. H&r block 1040x Adjusted qualified education expenses. H&r block 1040x Subtract line 3 from line 1. H&r block 1040x If zero or less, enter -0- 7,000 Credit Limit Worksheet (Form 8863 instructions) Nonrefundable Credit Worksheet 1. H&r block 1040x Enter the amount from Form 8863, line 18 1. H&r block 1040x 1,190 2. H&r block 1040x Enter the amount from Form 8863, line 9 2. H&r block 1040x 1,500 3. H&r block 1040x Add lines 1 and 2 3. H&r block 1040x 2,690 4. H&r block 1040x Enter the amount from: Form 1040, line 46; or Form 1040A, line 28 4. H&r block 1040x 1,000 5. H&r block 1040x 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. H&r block 1040x 0 6. H&r block 1040x Subtract line 5 from line 4 6. H&r block 1040x 1,000 7. H&r block 1040x   Enter the smaller of line 3 or line 6 here and on Form 8863, line 19 7. H&r block 1040x 1,000 This image is too large to be displayed in the current screen. H&r block 1040x Please click the link to view the image. H&r block 1040x Form 8863 for Dave and Valerie Jones This image is too large to be displayed in the current screen. H&r block 1040x Please click the link to view the image. H&r block 1040x Carey Jones page 2 This image is too large to be displayed in the current screen. H&r block 1040x Please click the link to view the image. H&r block 1040x Filled-in Form 8863 Jones page 2 Appendix B. H&r block 1040x Highlights of Education Tax Benefits for Tax Year 2013 This chart highlights some differences among the benefits discussed in this publication. H&r block 1040x See the text for definitions and details. H&r block 1040x Do not rely on this chart alone. H&r block 1040x    Caution:You generally cannot claim more than one benefit for the same education expense. H&r block 1040x   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. H&r block 1040x    40% of the credit may be refundable (limited to $1,000 per student). H&r block 1040x 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. H&r block 1040x , that must be paid to the educational institution, etc. H&r block 1040x , 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. H&r block 1040x   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. H&r block 1040x 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. H&r block 1040x 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. H&r block 1040x For each term listed below that has more than one definition, the definition for each education benefit is listed. H&r block 1040x Academic period:   A semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. H&r block 1040x 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. H&r block 1040x 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. H&r block 1040x 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. H&r block 1040x For information on a specific benefit, see the appropriate chapter in this publication. H&r block 1040x Candidate for a degree:   A student who meets either of the following requirements. H&r block 1040x 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. H&r block 1040x 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. H&r block 1040x Eligible educational institution:    American opportunity credit. H&r block 1040x Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. H&r block 1040x It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. H&r block 1040x Coverdell education savings account (ESA). H&r block 1040x Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. H&r block 1040x It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. H&r block 1040x Also included is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. H&r block 1040x Education savings bond program. H&r block 1040x Same as American opportunity credit in this category. H&r block 1040x IRA, early distributions from. H&r block 1040x Same as American opportunity credit in this category. H&r block 1040x Lifetime learning credit. H&r block 1040x Same as American opportunity credit in this category. H&r block 1040x Qualified tuition program (QTP). H&r block 1040x Same as American opportunity credit in this category. H&r block 1040x Scholarships and fellowships. H&r block 1040x 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. H&r block 1040x Student loan, cancellation of. H&r block 1040x Same as Scholarships and fellowships in this category. H&r block 1040x Student loan interest deduction. H&r block 1040x Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. H&r block 1040x It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. H&r block 1040x 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. H&r block 1040x Tuition and fees deduction. H&r block 1040x Same as American opportunity credit in this category. H&r block 1040x Eligible student:    American opportunity credit. H&r block 1040x A student who meets all of the following requirements for the tax year for which the credit is being determined. H&r block 1040x Did not have expenses that were used to figure an American opportunity or Hope Scholarship Credit in any 4 earlier tax years. H&r block 1040x Had not completed the first 4 years of postsecondary education (generally the freshman through senior years). H&r block 1040x 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. H&r block 1040x Was free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year. H&r block 1040x Lifetime learning credit. H&r block 1040x A student who is enrolled in one or more courses at an eligible educational institution. H&r block 1040x Student loan interest deduction. H&r block 1040x 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. H&r block 1040x Tuition and fees deduction. H&r block 1040x A student who is enrolled in one or more courses at an eligible educational institution. H&r block 1040x 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. H&r block 1040x Modified adjusted gross income (MAGI):    American opportunity credit. H&r block 1040x 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. H&r block 1040x Coverdell education savings account (ESA). H&r block 1040x Same as American opportunity credit in this category. H&r block 1040x Education savings bond program. H&r block 1040x 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. H&r block 1040x Lifetime learning credit. H&r block 1040x Same as American opportunity credit in this category. H&r block 1040x Student loan interest deduction. H&r block 1040x 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. H&r block 1040x Tuition and fees deduction. H&r block 1040x 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. H&r block 1040x Phaseout:   The amount of credit or deduction allowed is reduced when modified adjusted gross income (MAGI) is greater than a specified amount of income. H&r block 1040x Qualified education expenses:   See pertinent chapter for specific items. H&r block 1040x    American opportunity credit. H&r block 1040x Tuition and certain related expenses (including student activity fees) required for enrollment or attendance at an eligible educational institution. H&r block 1040x Books, supplies, and equipment needed for a course of study are included even if not purchased from the educational institution. H&r block 1040x Does not include expenses for room and board. H&r block 1040x 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. H&r block 1040x Coverdell education savings account (ESA). H&r block 1040x Expenses related to or required for enrollment or attendance of the designated beneficiary at an eligible elementary, secondary, or postsecondary school. H&r block 1040x Many specialized expenses included for K–12. H&r block 1040x Also includes expenses for special needs services and contribution to qualified tuition program (QTP). H&r block 1040x Education savings bond program. H&r block 1040x Tuition and fees required to enroll at or attend an eligible educational institution. H&r block 1040x Also includes contributions to a qualified tuition program (QTP) or Coverdell education savings account (ESA). H&r block 1040x Does not include expenses for room and board. H&r block 1040x Does not include expenses for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. H&r block 1040x IRA, early distributions from. H&r block 1040x 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. H&r block 1040x Also includes expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance. H&r block 1040x Lifetime learning credit. H&r block 1040x Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. H&r block 1040x 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. H&r block 1040x Does not include expenses for room and board. H&r block 1040x 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. H&r block 1040x Qualified tuition program (QTP). H&r block 1040x 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. H&r block 1040x Includes expenses for special needs services and computer access. H&r block 1040x Scholarships and fellowships. H&r block 1040x 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. H&r block 1040x Course-related items must be required of all students in the course of instruction. H&r block 1040x Student loan interest deduction. H&r block 1040x Total costs of attending an eligible educational institution, including graduate school (however, limitations may apply to the cost of room and board allowed). H&r block 1040x Tuition and fees deduction. H&r block 1040x Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. H&r block 1040x 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. H&r block 1040x Recapture:   To include as income on your current year's return an amount allowed as a deduction in a prior year. H&r block 1040x To include as tax on your current year's return an amount allowed as a credit in a prior year. H&r block 1040x 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. H&r block 1040x 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. H&r block 1040x Prev  Up  Next   Home   More Online Publications