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H&r Block Tax Software

Form 1040 Ez 2013State Tax Forms 2012Irs Gov Forms 1040x2005 Tax Software1040ez FreeState Taxes Free E FileHow To Amend Tax ReturnFiling Taxes Online Free1040x Tax Return For Prior Year InstructionsFree Income Tax FilingHow Do I Amend A Tax Return For 2010Free 1040 Ez FormEfile 2012 Tax Return FreeAmendedFile 2010 Tax Return Free1040ez Filing TableTax Credits For StudentsForm 1040x More:label_form_201040x More:taxesFile Taxes For FreeFree Taxes H&r BlockTaxcut OnlineH&r Block Ez FormAmended Tax Return FormVita Irs Org1040 Tax Form 2010Free Federal State Tax FormsStudents TaxesH&rblock ComFiling State Taxes Only2011 Irs Form 1040ezH & R Block Tax SoftwareIncome Tax1040ez Illinois State Income Tax FormState Income Tax HelpHow Do I Fill Out A 1040xHow To Amend Tax ReturnFree 1040x FormHow To File A 1040ezFile Past Years Tax ReturnPast Year Taxes

H&r Block Tax Software

H&r block tax software Index A Assistance (see Tax help) C Carryback period, When To Use an NOL Carryback, waiving, Waiving the Carryback Period Carryforward period, When To Use an NOL Carryover from 2012 to 2013 Estates and trusts, Estates and trusts. H&r block tax software Worksheet instructions, Worksheet Instructions Claiming an NOL deduction, How To Claim an NOL Deduction D Deducting a carryback, Deducting a Carryback Deducting a carryforward, Deducting a Carryforward Domestic production activities deduction, Domestic production activities deduction (line 23). H&r block tax software , Modified taxable income. H&r block tax software E Eligible loss, Eligible loss. H&r block tax software F Farming business, Farming business. H&r block tax software Farming loss, Farming loss. H&r block tax software Figuring an NOL Capital losses, Adjustments for capital losses (lines 19–22). H&r block tax software Carryover, How To Figure an NOL Carryover Form 1045, Schedule A, Form 1045, Schedule A. H&r block tax software NOL deduction, NOLs from other years (line 24). H&r block tax software Nonbusiness deductions, Nonbusiness deductions (line 6). H&r block tax software Nonbusiness income, Nonbusiness income (line 7). H&r block tax software Filing status, change in, Change in Filing Status Form 1045, Schedule A, Form 1045, Schedule A. H&r block tax software Form 1045, Schedule B, Form 1045, Schedule B. H&r block tax software Forms and schedules Form 1040X, Form 1040X. H&r block tax software Form 1045, Form 1045. H&r block tax software Form 1045, Schedule A, Form 1045, Schedule A. H&r block tax software Form 1045, Schedule B, Form 1045, Schedule B. H&r block tax software Free tax services, Free help with your tax return. H&r block tax software Future developments, Reminders H Help (see Tax help) How to carry an NOL back or forward, How To Carry an NOL Back or Forward How to figure an NOL, How To Figure an NOL I Illustrated forms and schedules Form 1045, Illustrated Form 1045 Form 1045, Schedule A, Illustrated Form 1045, Schedule A Form 1045, Schedule B, Form 1045, Schedule B. H&r block tax software M Marital status, change in, Change in Marital Status Missing children, photographs of, Reminders Modified taxable income, Modified taxable income. H&r block tax software N NOL resulting in no taxable income, NOL resulting in no taxable income. H&r block tax software NOL year, Introduction, NOL year. H&r block tax software P Publications (see Tax help) Q Qualified disaster loss, Qualified disaster loss. H&r block tax software Qualified small business, Qualified small business. H&r block tax software R Refiguring tax, Refiguring your tax. H&r block tax software S Specified liability loss, Specified liability loss. H&r block tax software Steps in figuring NOL, NOL Steps T Tax help, How To Get Tax Help W Waiving the 10-year carryback, Waiving the 10-year carryback. H&r block tax software Waiving the 5-year carryback, Waiving the 5-year carryback. H&r block tax software Waiving the carryback period, Waiving the Carryback Period When to use an NOL, When To Use an NOL Worksheet (Continued), Carryover from 2012 to 2013, Prev  Up     Home   More Online Publications
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Safeguards Program

The Safeguards Program and staff are responsible for ensuring that federal, state and local agencies receiving federal tax information protect it as if the information remained in IRS’s hands.

These agencies and their contractors receiving federal tax information must protect the confidentiality of return information and are periodically reviewed by Safeguards personnel to ensure they meet the safeguarding requirements of IRC 6103(p)(4). These requirements include employee awareness programs, proper disposal, secure storage and computer security among others.

Publication 1075, Tax Information Security Guidelines for Federal, State and Local Agencies (PDF)
This document contains specific requirements for safeguarding federal tax information. This revision becomes effective on Jan. 1, 2014.

Publication 1075, Tax Information Security Guidelines for Federal, State and Local Agencies (PDF)
This revision of 1075 became effective on Aug. 24, 2010 and is superceded by the Jan. 1, 2014 version.

Comments and suggestions on the revised Publication 1075 can be forwarded to the safeguards mailbox at: safeguardreports@irs.gov.

Additional Requirements for Publication 1075
Safeguarding requirements may be supplemented or modified between editions of Publication 1075 by guidance issued by the Office of Safeguards.
 

ALERTS

See “Safeguards Alert Memorandums” below for trending security concerns.


Publication 1075

Recommendations on How to Become Compliant with the New Requirements
Given the significant changes in technical safeguards requirements found in Sections 4, 5 and 6, the IRS has some recommendations for agencies to become compliant with the new requirements.

Reporting Requirements
Publication 1075 requires agencies to use approved report templates and to transmit the reports electronically. These reports must be encrypted and submitted to the safeguardreports@irs.gov mailbox.

Reporting Unauthorized Accesses, Disclosures or Data Breaches
Local, state and federal agencies receiving federal tax information must follow the revised provisions of Section 10 of Publication 1075 (PDF) upon discovering a possible improper inspection or disclosure of FTI, including breaches and security incidents. Agencies must contact Treasury Inspector General for Tax Administration and the IRS Office of Safeguards immediately, but no later than 24-hours after identification of a possible issue involving federal tax information. Agencies are not to wait until after their own internal investigation as been conducted.

Contacting TIGTA is critical to expedite the recovery of compromised data and identify potential criminal acts. The IRS Office of Safeguards investigation focuses on identifying processes, procedures or systems within the agency with inadequate security controls which led to the incident.

Internal Inspections Reports
Section 6.3 of Publication 1075, Tax Information Security guidelines for Federal, State and Local Agencies and Entities, requires that agencies receiving federal tax information (FTI) establish a review cycle for internal inspections of headquarters offices and all local/field offices that receive FTI. The Internal Inspections Report – Headquarters Office and Internal Inspections Report – Field Office are for these inspections. 

In addition, these agencies must also include an internal inspection of IT operations, using the Internal Inspections Report – IT Operations. Internal inspections of contractors with access to FTI and any off-site storage facilities must also be completed. All scheduled and completed internal inspections should be provided to the IRS Office of Safeguards on the Internal Inspections Implementation Report.

Safeguards Technical Assistance by Topic
The IRS has recommendations and discussions on various Safeguards Program topics available for agencies to help stay in compliance. These documents may assist with preparation of reports, protecting federal tax information, and knowing the legalities of the Safeguards Program.

IRS Disclosure Awareness Videos
IRS Disclosure Awareness training videos are available for local, state and federal governmental agencies that receive federal tax information (FTI). The IRS Office of Safeguards created videos (with captions in English and Spanish) to help explain several key concepts in protecting the confidentiality of FTI.

References/Related Topics

Physical Security and Disclosure References/Related Topics
Publication 1075 requirements pertaining to the protection of FTI in a physical environment and the disclosure of FTI to other persons are available in the Safeguard Disclosure Security Evaluation Matrix.

Document

Version

Release Date

Safeguard Disclosure Security Evaluation Matrix (SDSEM) (XLS)

3.0

9/12/2012


Safeguards Alert Memorandums
The following resources address recent security trends regarding the protection of FTI.

Document

Version

Release Date

Alert Memo – Multi-factor Authentication Implementation

N/A

6/17/2013

Alert Memo – Protecting FTI On Mainframes with Open Port 23

N/A

6/17/2013


Computer Security Compliance References/Related Topics
The following Computer Security Evaluation Matrix (SCSEM) downloads are available for use in preparing an IT environment that will receive, process, or store FTI.

Document

Version

Release Date

Application – Generic Application SCSEM (XLS)

1.3

9/26/2013

Application – GenTax SCSEM (XLS)

1.3

9/26/2013

Application – Internet Explorer SCSEM (XLS)

1.2

9/26/2013

Database – DB2 SCSEM (XLS)

1.2

2/12/2013

Database – Oracle 11g SCSEM (XLS)

1.1

9/26/2013

Database – Oracle 10g SCSEM (XLS)

1.3

9/26/2013

Database – Oracle 9i SCSEM (XLS)

1.2

2/12/2013

Database – SQL Server 2000 SCSEM (XLS)

1.2

2/12/2013

Database – SQL Server 2005 SCSEM (XLS)

1.2

2/12/2013

Mainframe – ACF2 SCSEM (XLS)

1.3

9/26/2013

Mainframe – i5 OS SCSEM (XLS)

1.3

9/26/2013

Mainframe – RACF SCSEM (XLS)

1.3

9/26/2013

Mainframe – Top Secret SCSEM (XLS)

1.3

9/26/2013

Mainframe – UNISYS SCSEM (XLS)

2.4

9/26/2013

Management, Operational and Technical (MOT) (XLS)

2.0

9/27/2013

MOT Appendix – Data Warehouse SCSEM (XLS)

1.3

2/12/2013

MOT Appendix – Multi-functional Device SCSEM (MFD) (XLS)

2.2

2/12/2013

Network – Cisco IOS SCSEM (XLS)

1.2

9/26/2013

Network – Firewall SCSEM (XLS)

1.2

9/26/2013

Network – Network Assessment SCSEM (XLS)

1.2

9/26/2013

Network – Storage Area Network SCSEM (SAN) (XLS)

1.2

9/26/2013

Network – Virtual Private Network (VPN) SCSEM (XLS)

1.2

9/26/2013

Network – Voice Over Internet Protocol (VoIP) SCSEM (XLS)

1.2

9/26/2013

Network – Wireless Local Area Network (LAN) SCSEM (XLS)

1.2

9/26/2013

Other – Cloud Computing SCSEM (XLS)

1.0

4/1/2013

Other - Oracle Public Sector Revenue Management (PSRM) (formerly Enterprise Taxation and Policy Management (ETPM))

1.1

2/5/2014

Other – Generic Operating System SCSEM (XLS)

1.3

2/12/2013

Other – Mobile Devices SCSEM (XLS)

1.0

4/1/2013

Other – OpenVMS SCSEM (XLS)

1.2

9/26/2013

Other - RSI Revenue Premier

1.0

9/23/2013

Other - Teradata

1.0

9/23/2013

Other – Web Server SCSEM (XLS)

1.3

9/26/2013

UNIX and Linux – Solaris, HP-UX, AIX, Red Hat, SuSE SCSEM (XLS)

1.4

2/12/2013

Virtualization – VMWare ESX 4.x SCSEM (XLS)

1.2

2/12/2013

Virtualization – VMWare ESXi 5.x SCSEM (XLS)

1.1

3/7/2013

Microsoft Windows 7 SCSEM (XLS)

1.2

2/12/2013

Microsoft Windows Server 2003 SCSEM (XLS)

1.2

2/12/2013

Microsoft Windows Server 2008 and 2008 R2 SCSEM (XLS)

1.2

2/12/2013

Microsoft Windows Vista SCSEM (XLS)

1.2

2/12/2013

Microsoft Windows XP SCSEM (XLS)

1.2

2/12/2013

 

Page Last Reviewed or Updated: 25-Mar-2014

The H&r Block Tax Software

H&r block tax software 4. H&r block tax software   Interest Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Allocation of InterestOrder of funds spent. H&r block tax software Payments from checking accounts. H&r block tax software Amounts paid within 30 days. H&r block tax software Optional method for determining date of reallocation. H&r block tax software Interest on a segregated account. H&r block tax software How to report. H&r block tax software Interest You Can DeductStatement. H&r block tax software Expenses paid to obtain a mortgage. H&r block tax software Prepayment penalty. H&r block tax software De minimis OID. H&r block tax software Constant-yield method. H&r block tax software Loan or mortgage ends. H&r block tax software Interest You Cannot DeductPenalties. H&r block tax software Who is a key person? Exceptions for pre-June 1997 contracts. H&r block tax software Interest allocated to unborrowed policy cash value. H&r block tax software Capitalization of Interest When To Deduct InterestPrepaid interest. H&r block tax software Discounted loan. H&r block tax software Refunds of interest. H&r block tax software Prepaid interest. H&r block tax software Discounted loan. H&r block tax software Tax deficiency. H&r block tax software Related person. H&r block tax software Below-Market LoansLimit on forgone interest for gift loans of $100,000 or less. H&r block tax software Introduction This chapter discusses the tax treatment of business interest expense. H&r block tax software Business interest expense is an amount charged for the use of money you borrowed for business activities. H&r block tax software Topics - This chapter discusses: Allocation of interest Interest you can deduct Interest you cannot deduct Capitalization of interest When to deduct interest Below-market loans Useful Items - You may want to see: Publication 537 Installment Sales 550 Investment Income and Expenses 936 Home Mortgage Interest Deduction Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch E (Form 1040) Supplemental Income and Loss Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. H&r block tax software Sch K-1 (Form 1120S) Shareholder's Share of Income, Deductions, Credits, etc. H&r block tax software 1098 Mortgage Interest Statement 3115 Application for Change in Accounting Method 4952 Investment Interest Expense Deduction 8582 Passive Activity Loss Limitations See chapter 12 for information about getting publications and forms. H&r block tax software Allocation of Interest The rules for deducting interest vary, depending on whether the loan proceeds are used for business, personal, or investment activities. H&r block tax software If you use the proceeds of a loan for more than one type of expense, you must allocate the interest based on the use of the loan's proceeds. H&r block tax software Allocate your interest expense to the following categories. H&r block tax software Nonpassive trade or business activity interest Passive trade or business activity interest Investment interest Portfolio interest Personal interest In general, you allocate interest on a loan the same way you allocate the loan proceeds. H&r block tax software You allocate loan proceeds by tracing disbursements to specific uses. H&r block tax software The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. H&r block tax software Secured loan. H&r block tax software   The allocation of loan proceeds and the related interest is not generally affected by the use of property that secures the loan. H&r block tax software Example. H&r block tax software You secure a loan with property used in your business. H&r block tax software You use the loan proceeds to buy an automobile for personal use. H&r block tax software You must allocate interest expense on the loan to personal use (purchase of the automobile) even though the loan is secured by business property. H&r block tax software    If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. H&r block tax software The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. H&r block tax software For more information, see Publication 936. H&r block tax software Allocation period. H&r block tax software   The period for which a loan is allocated to a particular use begins on the date the proceeds are used and ends on the earlier of the following dates. H&r block tax software The date the loan is repaid. H&r block tax software The date the loan is reallocated to another use. H&r block tax software Proceeds not disbursed to borrower. H&r block tax software   Even if the lender disburses the loan proceeds to a third party, the allocation of the loan is still based on your use of the funds. H&r block tax software This applies whether you pay for property, services, or anything else by incurring a loan, or you take property subject to a debt. H&r block tax software Proceeds deposited in borrower's account. H&r block tax software   Treat loan proceeds deposited in an account as property held for investment. H&r block tax software It does not matter whether the account pays interest. H&r block tax software Any interest you pay on the loan is investment interest expense. H&r block tax software If you withdraw the proceeds of the loan, you must reallocate the loan based on the use of the funds. H&r block tax software Example. H&r block tax software Celina, a calendar-year taxpayer, borrows $100,000 on January 4 and immediately uses the proceeds to open a checking account. H&r block tax software No other amounts are deposited in the account during the year and no part of the loan principal is repaid during the year. H&r block tax software On April 2, Celina uses $20,000 from the checking account for a passive activity expenditure. H&r block tax software On September 4, Celina uses an additional $40,000 from the account for personal purposes. H&r block tax software Under the interest allocation rules, the entire $100,000 loan is treated as property held for investment for the period from January 4 through April 1. H&r block tax software From April 2 through September 3, Celina must treat $20,000 of the loan as used in the passive activity and $80,000 of the loan as property held for investment. H&r block tax software From September 4 through December 31, she must treat $40,000 of the loan as used for personal purposes, $20,000 as used in the passive activity, and $40,000 as property held for investment. H&r block tax software Order of funds spent. H&r block tax software   Generally, you treat loan proceeds deposited in an account as used (spent) before either of the following amounts. H&r block tax software Any unborrowed amounts held in the same account. H&r block tax software Any amounts deposited after these loan proceeds. H&r block tax software Example. H&r block tax software On January 9, Olena opened a checking account, depositing $500 of the proceeds of Loan A and $1,000 of unborrowed funds. H&r block tax software The following table shows the transactions in her account during the tax year. H&r block tax software Date Transaction January 9 $500 proceeds of Loan A and $1,000 unborrowed funds deposited January 14 $500 proceeds of Loan B  deposited February 19 $800 used for personal purposes February 27 $700 used for passive activity June 19 $1,000 proceeds of Loan C  deposited November 20 $800 used for an investment December 18 $600 used for personal purposes Olena treats the $800 used for personal purposes as made from the $500 proceeds of Loan A and $300 of the proceeds of Loan B. H&r block tax software She treats the $700 used for a passive activity as made from the remaining $200 proceeds of Loan B and $500 of unborrowed funds. H&r block tax software She treats the $800 used for an investment as made entirely from the proceeds of Loan C. H&r block tax software She treats the $600 used for personal purposes as made from the remaining $200 proceeds of Loan C and $400 of unborrowed funds. H&r block tax software For the periods during which loan proceeds are held in the account, Olena treats them as property held for investment. H&r block tax software Payments from checking accounts. H&r block tax software   Generally, you treat a payment from a checking or similar account as made at the time the check is written if you mail or deliver it to the payee within a reasonable period after you write it. H&r block tax software You can treat checks written on the same day as written in any order. H&r block tax software Amounts paid within 30 days. H&r block tax software   If you receive loan proceeds in cash or if the loan proceeds are deposited in an account, you can treat any payment (up to the amount of the proceeds) made from any account you own, or from cash, as made from those proceeds. H&r block tax software This applies to any payment made within 30 days before or after the proceeds are received in cash or deposited in your account. H&r block tax software   If the loan proceeds are deposited in an account, you can apply this rule even if the rules stated earlier under Order of funds spent would otherwise require you to treat the proceeds as used for other purposes. H&r block tax software If you apply this rule to any payments, disregard those payments (and the proceeds from which they are made) when applying the rules stated under Order of funds spent. H&r block tax software   If you received the loan proceeds in cash, you can treat the payment as made on the date you received the cash instead of the date you actually made the payment. H&r block tax software Example. H&r block tax software Giovanni gets a loan of $1,000 on August 4 and receives the proceeds in cash. H&r block tax software Giovanni deposits $1,500 in an account on August 18 and on August 28 writes a check on the account for a passive activity expense. H&r block tax software Also, Giovanni deposits his paycheck, deposits other loan proceeds, and pays his bills during the same period. H&r block tax software Regardless of these other transactions, Giovanni can treat $1,000 of the deposit he made on August 18 as being paid on August 4 from the loan proceeds. H&r block tax software In addition, Giovanni can treat the passive activity expense he paid on August 28 as made from the $1,000 loan proceeds treated as deposited in the account. H&r block tax software Optional method for determining date of reallocation. H&r block tax software   You can use the following method to determine the date loan proceeds are reallocated to another use. H&r block tax software You can treat all payments from loan proceeds in the account during any month as taking place on the later of the following dates. H&r block tax software The first day of that month. H&r block tax software The date the loan proceeds are deposited in the account. H&r block tax software However, you can use this optional method only if you treat all payments from the account during the same calendar month in the same way. H&r block tax software Interest on a segregated account. H&r block tax software   If you have an account that contains only loan proceeds and interest earned on the account, you can treat any payment from that account as being made first from the interest. H&r block tax software When the interest earned is used up, any remaining payments are from loan proceeds. H&r block tax software Example. H&r block tax software You borrowed $20,000 and used the proceeds of this loan to open a new savings account. H&r block tax software When the account had earned interest of $867, you withdrew $20,000 for personal purposes. H&r block tax software You can treat the withdrawal as coming first from the interest earned on the account, $867, and then from the loan proceeds, $19,133 ($20,000 − $867). H&r block tax software All the interest charged on the loan from the time it was deposited in the account until the time of the withdrawal is investment interest expense. H&r block tax software The interest charged on the part of the proceeds used for personal purposes ($19,133) from the time you withdrew it until you either repay it or reallocate it to another use is personal interest expense. H&r block tax software The interest charged on the loan proceeds you left in the account ($867) continues to be investment interest expense until you either repay it or reallocate it to another use. H&r block tax software Loan repayment. H&r block tax software   When you repay any part of a loan allocated to more than one use, treat it as being repaid in the following order. H&r block tax software Personal use. H&r block tax software Investments and passive activities (other than those included in (3)). H&r block tax software Passive activities in connection with a rental real estate activity in which you actively participate. H&r block tax software Former passive activities. H&r block tax software Trade or business use and expenses for certain low-income housing projects. H&r block tax software Line of credit (continuous borrowings). H&r block tax software   The following rules apply if you have a line of credit or similar arrangement. H&r block tax software Treat all borrowed funds on which interest accrues at the same fixed or variable rate as a single loan. H&r block tax software Treat borrowed funds or parts of borrowed funds on which interest accrues at different fixed or variable rates as different loans. H&r block tax software Treat these loans as repaid in the order shown on the loan agreement. H&r block tax software Loan refinancing. H&r block tax software   Allocate the replacement loan to the same uses to which the repaid loan was allocated. H&r block tax software Make the allocation only to the extent you use the proceeds of the new loan to repay any part of the original loan. H&r block tax software Debt-financed distribution. H&r block tax software   A debt-financed distribution occurs when a partnership or S corporation borrows funds and allocates those funds to distributions made to partners or shareholders. H&r block tax software The manner in which you report the interest expense associated with the distributed debt proceeds depends on your use of those proceeds. H&r block tax software How to report. H&r block tax software   If the proceeds were used in a nonpassive trade or business activity, report the interest on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership or S corporation in column (a) and the amount in column (h). H&r block tax software If the proceeds were used in a passive activity, follow the Instructions for Form 8582, Passive Activity Loss Limitations, to determine the amount of interest expense that can be reported on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership in column (a) and the amount in column (f). H&r block tax software If the proceeds were used in an investment activity, enter the interest on Form 4952. H&r block tax software If the proceeds are used for personal purposes, the interest is generally not deductible. H&r block tax software Interest You Can Deduct You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your trade or business. H&r block tax software Interest relates to your trade or business if you use the proceeds of the loan for a trade or business expense. H&r block tax software It does not matter what type of property secures the loan. H&r block tax software You can deduct interest on a debt only if you meet all the following requirements. H&r block tax software You are legally liable for that debt. H&r block tax software Both you and the lender intend that the debt be repaid. H&r block tax software You and the lender have a true debtor-creditor relationship. H&r block tax software Partial liability. H&r block tax software   If you are liable for part of a business debt, you can deduct only your share of the total interest paid or accrued. H&r block tax software Example. H&r block tax software You and your brother borrow money. H&r block tax software You are liable for 50% of the note. H&r block tax software You use your half of the loan in your business, and you make one-half of the loan payments. H&r block tax software You can deduct your half of the total interest payments as a business deduction. H&r block tax software Mortgage. H&r block tax software   Generally, mortgage interest paid or accrued on real estate you own legally or equitably is deductible. H&r block tax software However, rather than deducting the interest currently, you may have to add it to the cost basis of the property as explained later under Capitalization of Interest. H&r block tax software Statement. H&r block tax software   If you paid $600 or more of mortgage interest (including certain points) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement. H&r block tax software You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. H&r block tax software A governmental unit is a person for purposes of furnishing the statement. H&r block tax software   If you receive a refund of interest you overpaid in an earlier year, this amount will be reported in box 3 of Form 1098. H&r block tax software You cannot deduct this amount. H&r block tax software For information on how to report this refund, see Refunds of interest, later in this chapter. H&r block tax software Expenses paid to obtain a mortgage. H&r block tax software   Certain expenses you pay to obtain a mortgage cannot be deducted as interest. H&r block tax software These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses. H&r block tax software If the property mortgaged is business or income-producing property, you can amortize the costs over the life of the mortgage. H&r block tax software Prepayment penalty. H&r block tax software   If you pay off your mortgage early and pay the lender a penalty for doing this, you can deduct the penalty as interest. H&r block tax software Interest on employment tax deficiency. H&r block tax software   Interest charged on employment taxes assessed on your business is deductible. H&r block tax software Original issue discount (OID). H&r block tax software   OID is a form of interest. H&r block tax software A loan (mortgage or other debt) generally has OID when its proceeds are less than its principal amount. H&r block tax software The OID is the difference between the stated redemption price at maturity and the issue price of the loan. H&r block tax software   A loan's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on it other than qualified stated interest. H&r block tax software Qualified stated interest is stated interest that is unconditionally payable in cash or property (other than another loan of the issuer) at least annually over the term of the loan at a single fixed rate. H&r block tax software You generally deduct OID over the term of the loan. H&r block tax software Figure the amount to deduct each year using the constant-yield method, unless the OID on the loan is de minimis. H&r block tax software De minimis OID. H&r block tax software   The OID is de minimis if it is less than one-fourth of 1% (. H&r block tax software 0025) of the stated redemption price of the loan at maturity multiplied by the number of full years from the date of original issue to maturity (the term of the loan). H&r block tax software   If the OID is de minimis, you can choose one of the following ways to figure the amount you can deduct each year. H&r block tax software On a constant-yield basis over the term of the loan. H&r block tax software On a straight-line basis over the term of the loan. H&r block tax software In proportion to stated interest payments. H&r block tax software In its entirety at maturity of the loan. H&r block tax software You make this choice by deducting the OID in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued. H&r block tax software Example. H&r block tax software On January 1, 2013, you took out a $100,000 discounted loan and received $98,500 in proceeds. H&r block tax software The loan will mature on January 1, 2023 (a 10-year term), and the $100,000 principal is payable on that date. H&r block tax software Interest of $10,000 is payable on January 1 of each year, beginning January 1, 2014. H&r block tax software The $1,500 OID on the loan is de minimis because it is less than $2,500 ($100,000 × . H&r block tax software 0025 × 10). H&r block tax software You choose to deduct the OID on a straight-line basis over the term of the loan. H&r block tax software Beginning in 2013, you can deduct $150 each year for 10 years. H&r block tax software Constant-yield method. H&r block tax software   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. H&r block tax software You figure your deduction for the first year using the following steps. H&r block tax software Determine the issue price of the loan. H&r block tax software Generally, this equals the proceeds of the loan. H&r block tax software If you paid points on the loan (as discussed later), the issue price generally is the difference between the proceeds and the points. H&r block tax software Multiply the result in (1) by the yield to maturity. H&r block tax software Subtract any qualified stated interest payments from the result in (2). H&r block tax software This is the OID you can deduct in the first year. H&r block tax software   To figure your deduction in any subsequent year, follow the above steps, except determine the adjusted issue price in step (1). H&r block tax software To get the adjusted issue price, add to the issue price any OID previously deducted. H&r block tax software Then follow steps (2) and (3) above. H&r block tax software   The yield to maturity is generally shown in the literature you receive from your lender. H&r block tax software If you do not have this information, consult your lender or tax advisor. H&r block tax software In general, the yield to maturity is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the principal amount of the loan. H&r block tax software Example. H&r block tax software The facts are the same as in the previous example, except that you deduct the OID on a constant yield basis over the term of the loan. H&r block tax software The yield to maturity on your loan is 10. H&r block tax software 2467%, compounded annually. H&r block tax software For 2013, you can deduct $93 [($98,500 × . H&r block tax software 102467) − $10,000]. H&r block tax software For 2014, you can deduct $103 [($98,593 × . H&r block tax software 102467) − $10,000]. H&r block tax software Loan or mortgage ends. H&r block tax software   If your loan or mortgage ends, you may be able to deduct any remaining OID in the tax year in which the loan or mortgage ends. H&r block tax software A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. H&r block tax software If you refinance with the original lender, you generally cannot deduct the remaining OID in the year in which the refinancing occurs, but you may be able to deduct it over the term of the new mortgage or loan. H&r block tax software See Interest paid with funds borrowed from original lender under Interest You Cannot Deduct, later. H&r block tax software Points. H&r block tax software   The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a loan or a mortgage. H&r block tax software These charges are also called loan origination fees, maximum loan charges, discount points, or premium charges. H&r block tax software If any of these charges (points) are solely for the use of money, they are interest. H&r block tax software   Because points are prepaid interest, you generally cannot deduct the full amount in the year paid. H&r block tax software However, you can choose to fully deduct points in the year paid if you meet certain tests. H&r block tax software For exceptions to the general rule, see Publication 936. H&r block tax software The points reduce the issue price of the loan and result in original issue discount (OID), deductible as explained in the preceding discussion. H&r block tax software Partial payments on a nontax debt. H&r block tax software   If you make partial payments on a debt (other than a debt owed the IRS), the payments are applied, in general, first to interest and any remainder to principal. H&r block tax software You can deduct only the interest. H&r block tax software This rule does not apply when it can be inferred that the borrower and lender understood that a different allocation of the payments would be made. H&r block tax software Installment purchase. H&r block tax software   If you make an installment purchase of business property, the contract between you and the seller generally provides for the payment of interest. H&r block tax software If no interest or a low rate of interest is charged under the contract, a portion of the stated principal amount payable under the contract may be recharacterized as interest (unstated interest). H&r block tax software The amount recharacterized as interest reduces your basis in the property and increases your interest expense. H&r block tax software For more information on installment sales and unstated interest, see Publication 537. H&r block tax software Interest You Cannot Deduct Certain interest payments cannot be deducted. H&r block tax software In addition, certain other expenses that may seem to be interest but are not, cannot be deducted as interest. H&r block tax software You cannot currently deduct interest that must be capitalized, and you generally cannot deduct personal interest. H&r block tax software Interest paid with funds borrowed from original lender. H&r block tax software   If you use the cash method of accounting, you cannot deduct interest you pay with funds borrowed from the original lender through a second loan, an advance, or any other arrangement similar to a loan. H&r block tax software You can deduct the interest expense once you start making payments on the new loan. H&r block tax software   When you make a payment on the new loan, you first apply the payment to interest and then to the principal. H&r block tax software All amounts you apply to the interest on the first loan are deductible, along with any interest you pay on the second loan, subject to any limits that apply. H&r block tax software Capitalized interest. H&r block tax software   You cannot currently deduct interest you are required to capitalize under the uniform capitalization rules. H&r block tax software See Capitalization of Interest, later. H&r block tax software In addition, if you buy property and pay interest owed by the seller (for example, by assuming the debt and any interest accrued on the property), you cannot deduct the interest. H&r block tax software Add this interest to the basis of the property. H&r block tax software Commitment fees or standby charges. H&r block tax software   Fees you incur to have business funds available on a standby basis, but not for the actual use of the funds, are not deductible as interest payments. H&r block tax software You may be able to deduct them as business expenses. H&r block tax software   If the funds are for inventory or certain property used in your business, the fees are indirect costs and you generally must capitalize them under the uniform capitalization rules. H&r block tax software See Capitalization of Interest, later. H&r block tax software Interest on income tax. H&r block tax software   Interest charged on income tax assessed on your individual income tax return is not a business deduction even though the tax due is related to income from your trade or business. H&r block tax software Treat this interest as a business deduction only in figuring a net operating loss deduction. H&r block tax software Penalties. H&r block tax software   Penalties on underpaid deficiencies and underpaid estimated tax are not interest. H&r block tax software You cannot deduct them. H&r block tax software Generally, you cannot deduct any fines or penalties. H&r block tax software Interest on loans with respect to life insurance policies. H&r block tax software   You generally cannot deduct interest on a debt incurred with respect to any life insurance, annuity, or endowment contract that covers any individual unless that individual is a key person. H&r block tax software   If the policy or contract covers a key person, you can deduct the interest on up to $50,000 of debt for that person. H&r block tax software However, the deduction for any month cannot be more than the interest figured using Moody's Composite Yield on Seasoned Corporate Bonds (formerly known as Moody's Corporate Bond Yield Average-Monthly Average Corporates) (Moody's rate) for that month. H&r block tax software Who is a key person?   A key person is an officer or 20% owner. H&r block tax software However, the number of individuals you can treat as key persons is limited to the greater of the following. H&r block tax software Five individuals. H&r block tax software The lesser of 5% of the total officers and employees of the company or 20 individuals. H&r block tax software Exceptions for pre-June 1997 contracts. H&r block tax software   You can generally deduct the interest if the contract was issued before June 9, 1997, and the covered individual is someone other than an employee, officer, or someone financially interested in your business. H&r block tax software If the contract was purchased before June 21, 1986, you can generally deduct the interest no matter who is covered by the contract. H&r block tax software Interest allocated to unborrowed policy cash value. H&r block tax software   Corporations and partnerships generally cannot deduct any interest expense allocable to unborrowed cash values of life insurance, annuity, or endowment contracts. H&r block tax software This rule applies to contracts issued after June 8, 1997, that cover someone other than an officer, director, employee, or 20% owner. H&r block tax software For more information, see section 264(f) of the Internal Revenue Code. H&r block tax software Capitalization of Interest Under the uniform capitalization rules, you generally must capitalize interest on debt equal to your expenditures to produce real property or certain tangible personal property. H&r block tax software The property must be produced by you for use in your trade or business or for sale to customers. H&r block tax software You cannot capitalize interest related to property that you acquire in any other manner. H&r block tax software Interest you paid or incurred during the production period must be capitalized if the property produced is designated property. H&r block tax software Designated property is any of the following. H&r block tax software Real property. H&r block tax software Tangible personal property with a class life of 20 years or more. H&r block tax software Tangible personal property with an estimated production period of more than 2 years. H&r block tax software Tangible personal property with an estimated production period of more than 1 year if the estimated cost of production is more than $1 million. H&r block tax software Property you produce. H&r block tax software   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow it. H&r block tax software Treat property produced for you under a contract as produced by you up to the amount you pay or incur for the property. H&r block tax software Carrying charges. H&r block tax software   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. H&r block tax software You can choose to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. H&r block tax software For more information, see chapter 7. H&r block tax software Capitalized interest. H&r block tax software   Treat capitalized interest as a cost of the property produced. H&r block tax software You recover your interest when you sell or use the property. H&r block tax software If the property is inventory, recover capitalized interest through cost of goods sold. H&r block tax software If the property is used in your trade or business, recover capitalized interest through an adjustment to basis, depreciation, amortization, or other method. H&r block tax software Partnerships and S corporations. H&r block tax software   The interest capitalization rules are applied first at the partnership or S corporation level. H&r block tax software The rules are then applied at the partners' or shareholders' level to the extent the partnership or S corporation has insufficient debt to support the production or construction costs. H&r block tax software   If you are a partner or a shareholder, you may have to capitalize interest you incur during the tax year for the production costs of the partnership or S corporation. H&r block tax software You may also have to capitalize interest incurred by the partnership or S corporation for your own production costs. H&r block tax software To properly capitalize interest under these rules, you must be given the required information in an attachment to the Schedule K-1 you receive from the partnership or S corporation. H&r block tax software Additional information. H&r block tax software   The procedures for applying the uniform capitalization rules are beyond the scope of this publication. H&r block tax software For more information, see sections 1. H&r block tax software 263A-8 through 1. H&r block tax software 263A-15 of the regulations and Notice 88-99. H&r block tax software Notice 88-99 is in Cumulative Bulletin 1988-2. H&r block tax software When To Deduct Interest If the uniform capitalization rules, discussed under Capitalization of Interest, earlier, do not apply to you, deduct interest as follows. H&r block tax software Cash method. H&r block tax software   Under the cash method, you can generally deduct only the interest you actually paid during the tax year. H&r block tax software You cannot deduct a promissory note you gave as payment because it is a promise to pay and not an actual payment. H&r block tax software Prepaid interest. H&r block tax software   You generally cannot deduct any interest paid before the year it is due. H&r block tax software Interest paid in advance can be deducted only in the tax year in which it is due. H&r block tax software Discounted loan. H&r block tax software   If interest or a discount is subtracted from your loan proceeds, it is not a payment of interest and you cannot deduct it when you get the loan. H&r block tax software For more information, see Original issue discount (OID) under Interest You Can Deduct, earlier. H&r block tax software Refunds of interest. H&r block tax software   If you pay interest and then receive a refund in the same tax year of any part of the interest, reduce your interest deduction by the refund. H&r block tax software If you receive the refund in a later tax year, include the refund in your income to the extent the deduction for the interest reduced your tax. H&r block tax software Accrual method. H&r block tax software   Under an accrual method, you can deduct only interest that has accrued during the tax year. H&r block tax software Prepaid interest. H&r block tax software   See Prepaid interest, earlier. H&r block tax software Discounted loan. H&r block tax software   See Discounted loan, earlier. H&r block tax software Tax deficiency. H&r block tax software   If you contest a federal income tax deficiency, interest does not accrue until the tax year the final determination of liability is made. H&r block tax software If you do not contest the deficiency, then the interest accrues in the year the tax was asserted and agreed to by you. H&r block tax software   However, if you contest but pay the proposed tax deficiency and interest, and you do not designate the payment as a cash bond, then the interest is deductible in the year paid. H&r block tax software Related person. H&r block tax software   If you use an accrual method, you cannot deduct interest owed to a related person who uses the cash method until payment is made and the interest is includible in the gross income of that person. H&r block tax software The relationship is determined as of the end of the tax year for which the interest would otherwise be deductible. H&r block tax software See section 267 of the Internal Revenue Code for more information. H&r block tax software Below-Market Loans If you receive a below-market gift or demand loan and use the proceeds in your trade or business, you may be able to deduct the forgone interest. H&r block tax software See Treatment of gift and demand loans, later, in this discussion. H&r block tax software A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. H&r block tax software A gift or demand loan that is a below-market loan generally is considered an arm's-length transaction in which you, the borrower, are considered as having received both the following. H&r block tax software A loan in exchange for a note that requires the payment of interest at the applicable federal rate. H&r block tax software An additional payment in an amount equal to the forgone interest. H&r block tax software The additional payment is treated as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. H&r block tax software Forgone interest. H&r block tax software   For any period, forgone interest is The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. H&r block tax software Applicable federal rates are published by the IRS each month in the Internal Revenue Bulletin. H&r block tax software Internal Revenue Bulletins are available on the IRS web site at www. H&r block tax software irs. H&r block tax software gov/irb. H&r block tax software You can also contact an IRS office to get these rates. H&r block tax software Loans subject to the rules. H&r block tax software   The rules for below-market loans apply to the following. H&r block tax software Gift loans (below-market loans where the forgone interest is in the nature of a gift). H&r block tax software Compensation-related loans (below-market loans between an employer and an employee or between an independent contractor and a person for whom the contractor provides services). H&r block tax software Corporation-shareholder loans. H&r block tax software Tax avoidance loans (below-market loans where the avoidance of federal tax is one of the main purposes of the interest arrangement). H&r block tax software Loans to qualified continuing care facilities under a continuing care contract (made after October 11, 1985). H&r block tax software   Except as noted in (5) above, these rules apply to demand loans (loans payable in full at any time upon the lender's demand) outstanding after June 6, 1984, and to term loans (loans that are not demand loans) made after that date. H&r block tax software Treatment of gift and demand loans. H&r block tax software   If you receive a below-market gift loan or demand loan, you are treated as receiving an additional payment (as a gift, dividend, etc. H&r block tax software ) equal to the forgone interest on the loan. H&r block tax software You are then treated as transferring this amount back to the lender as interest. H&r block tax software These transfers are considered to occur annually, generally on December 31. H&r block tax software If you use the loan proceeds in your trade or business, you can deduct the forgone interest each year as a business interest expense. H&r block tax software The lender must report it as interest income. H&r block tax software Limit on forgone interest for gift loans of $100,000 or less. H&r block tax software   For gift loans between individuals, forgone interest treated as transferred back to the lender is limited to the borrower's net investment income for the year. H&r block tax software This limit applies if the outstanding loans between the lender and borrower total $100,000 or less. H&r block tax software If the borrower's net investment income is $1,000 or less, it is treated as zero. H&r block tax software This limit does not apply to a loan if the avoidance of any federal tax is one of the main purposes of the interest arrangement. H&r block tax software Treatment of term loans. H&r block tax software   If you receive a below-market term loan other than a gift or demand loan, you are treated as receiving an additional cash payment (as a dividend, etc. H&r block tax software ) on the date the loan is made. H&r block tax software This payment is equal to the loan amount minus the present value, at the applicable federal rate, of all payments due under the loan. H&r block tax software The same amount is treated as original issue discount on the loan. H&r block tax software See Original issue discount (OID) under Interest You Can Deduct, earlier. H&r block tax software Exceptions for loans of $10,000 or less. H&r block tax software   The rules for below-market loans do not apply to any day on which the total outstanding loans between the borrower and lender is $10,000 or less. H&r block tax software This exception applies only to the following. H&r block tax software Gift loans between individuals if the loan is not directly used to buy or carry income-producing assets. H&r block tax software Compensation-related loans or corporation-shareholder loans if the avoidance of any federal tax is not a principal purpose of the interest arrangement. H&r block tax software This exception does not apply to a term loan described in (2) above that was previously subject to the below-market loan rules. H&r block tax software Those rules will continue to apply even if the outstanding balance is reduced to $10,000 or less. H&r block tax software Exceptions for loans without significant tax effect. H&r block tax software   The following loans are specifically exempted from the rules for below-market loans because their interest arrangements do not have a significant effect on the federal tax liability of the borrower or the lender. H&r block tax software Loans made available by lenders to the general public on the same terms and conditions that are consistent with the lender's customary business practices. H&r block tax software Loans subsidized by a federal, state, or municipal government that are made available under a program of general application to the public. H&r block tax software Certain employee-relocation loans. H&r block tax software Certain loans to or from a foreign person, unless the interest income would be effectively connected with the conduct of a U. H&r block tax software S. H&r block tax software trade or business and not exempt from U. H&r block tax software S. H&r block tax software tax under an income tax treaty. H&r block tax software Any other loan if the taxpayer can show that the interest arrangement has no significant effect on the federal tax liability of the lender or the borrower. H&r block tax software Whether an interest arrangement has a significant effect on the federal tax liability of the lender or the borrower will be determined by all the facts and circumstances. H&r block tax software Consider all the following factors. H&r block tax software Whether items of income and deduction generated by the loan offset each other. H&r block tax software The amount of the items. H&r block tax software The cost of complying with the below-market loan provisions if they were to apply. H&r block tax software Any reasons, other than taxes, for structuring the transaction as a below-market loan. H&r block tax software Exception for loans to qualified continuing care facilities. H&r block tax software   The below-market interest rules do not apply to a loan owed by a qualified continuing care facility under a continuing care contract if the lender or lender's spouse is age 62 or older by the end of the calendar year. H&r block tax software A qualified continuing care facility is one or more facilities (excluding nursing homes) meeting the requirements listed below. H&r block tax software Designed to provide services under continuing care contracts (defined below). H&r block tax software Includes an independent living unit, and either an assisted living or nursing facility, or both. H&r block tax software Substantially all of the independent living unit residents are covered by continuing care contracts. H&r block tax software A continuing care contract is a written contract between an individual and a qualified continuing care facility that includes all of the following conditions. H&r block tax software The individual or individual's spouse must be entitled to use the facility for the rest of their life or lives. H&r block tax software The individual or individual's spouse will be provided with housing, as appropriate for the health of the individual or individual's spouse in an: independent living unit (which has additional available facilities outside the unit for the provision of meals and other personal care), and assisted living or nursing facility available in the continuing care facility. H&r block tax software The individual or individual's spouse will be provided with assisted living or nursing care available in the continuing care facility, as required for the health of the individual or the individual's spouse. H&r block tax software For more information, see section 7872(h) of the Internal Revenue Code. H&r block tax software Sale or exchange of property. H&r block tax software   Different rules generally apply to a loan connected with the sale or exchange of property. H&r block tax software If the loan does not provide adequate stated interest, part of the principal payment may be considered interest. H&r block tax software However, there are exceptions that may require you to apply the below-market interest rate rules to these loans. H&r block tax software See Unstated Interest and Original Issue Discount (OID) in Publication 537. H&r block tax software More information. H&r block tax software   For more information on below-market loans, see section 7872 of the Internal Revenue Code and section 1. H&r block tax software 7872-5 of the regulations. H&r block tax software Prev  Up  Next   Home   More Online Publications