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How Do You Amend Your Tax Return

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How Do You Amend Your Tax Return

How do you amend your tax return 4. How do you amend your tax return   Detailed Examples Table of Contents These examples use actual forms to help you prepare your income tax return. How do you amend your tax return However, the information shown on the filled-in forms is not from any actual person or scenario. How do you amend your tax return Example 1—Mortgage loan modification. How do you amend your tax return    In 2007, Nancy Oak bought a main home for $435,000. How do you amend your tax return Nancy took out a $420,000 mortgage loan to buy the home and made a down payment of $15,000. How do you amend your tax return The loan was secured by the home. How do you amend your tax return The mortgage loan was a recourse debt, meaning that Nancy was personally liable for the debt. How do you amend your tax return In 2008, Nancy took out a second mortgage loan (also a recourse debt) in the amount of $30,000 that was used to substantially improve her kitchen. How do you amend your tax return    In 2011, when the outstanding principal of the first and second mortgage loans was $440,000, Nancy refinanced the two recourse loans into one recourse loan in the amount of $475,000. How do you amend your tax return The FMV of Nancy's home at the time of the refinancing was $500,000. How do you amend your tax return Nancy used the additional $35,000 debt ($475,000 new mortgage loan minus $440,000 outstanding principal of Nancy's first and second mortgage loans immediately before the refinancing) to pay off personal credit cards and to pay college tuition for her son. How do you amend your tax return After the refinancing, Nancy has qualified principal residence indebtedness in the amount of $440,000 because the refinanced debt is qualified principal residence indebtedness only to the extent the amount of debt is not more than the old mortgage principal just before the refinancing. How do you amend your tax return   In 2013, Nancy was unable to make her mortgage loan payments. How do you amend your tax return On August 31, 2013, when the outstanding balance of her refinanced mortgage loan was still $475,000 and the FMV of the property was $425,000, Nancy's bank agreed to a loan modification (a “workout”) that resulted in a $40,000 reduction in the principal balance of her loan. How do you amend your tax return Nancy was neither insolvent nor in bankruptcy at the time of the loan modification. How do you amend your tax return   Nancy received a 2013 Form 1099-C from her bank in January 2014 showing canceled debt of $40,000 in box 2. How do you amend your tax return Identifiable event code "F" appears in box 6. How do you amend your tax return This box shows the reason the creditor has filed Form 1099-C. How do you amend your tax return To determine if she must include the canceled debt in her income, Nancy must determine whether she meets any of the exceptions or exclusions that apply to canceled debts. How do you amend your tax return Nancy determines that the only exception or exclusion that applies to her is the qualified principal residence indebtedness exclusion. How do you amend your tax return   Next, Nancy determines the amount, if any, of the $40,000 of canceled debt that was qualified principal residence indebtedness. How do you amend your tax return Although Nancy has $440,000 of qualified principal residence indebtedness, part of her loan ($35,000) was not qualified principal residence indebtedness because it was used to pay off personal credit cards and college tuition for her son. How do you amend your tax return Applying the ordering rule, the qualified principal residence indebtedness exclusion applies only to the extent the amount canceled is more than the amount of the debt (immediately before the cancellation) that is not qualified principal residence indebtedness. How do you amend your tax return Thus, Nancy can exclude only $5,000 of the canceled debt as qualified principal residence indebtedness ($40,000 amount canceled minus $35,000 nonqualified debt). How do you amend your tax return   Because Nancy does not meet any other exception or exclusion, she checks only the box on line 1e of Form 982 and enters $5,000 on line 2. How do you amend your tax return Nancy must also enter $5,000 on line 10b and reduce the basis of her main home by the $5,000 she excluded from income, bringing the adjusted basis in her home to $460,000 ($435,000 purchase price plus $30,000 substantial improvement minus $5,000). How do you amend your tax return Nancy must also include the $35,000 nonqualified debt portion in income on Form 1040, line 21. How do you amend your tax return You can see Nancy's Form 1099-C and a portion of her Form 1040 below. How do you amend your tax return Nancy's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. How do you amend your tax return Please click the link to view the image. How do you amend your tax return Form 1099-C, Cancellation of Debt Nancy's 2013 Form 1040 This image is too large to be displayed in the current screen. How do you amend your tax return Please click the link to view the image. How do you amend your tax return Form 1040, U. How do you amend your tax return S. How do you amend your tax return Individual Income Tax Nancy's Form 982 This image is too large to be displayed in the current screen. How do you amend your tax return Please click the link to view the image. How do you amend your tax return Form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)              Example 2—Mortgage loan foreclosure. How do you amend your tax return    In 2005, John and Mary Elm bought a main home for $335,000. How do you amend your tax return John and Mary took out a $320,000 mortgage loan to buy the home and made a down payment of $15,000. How do you amend your tax return The loan was secured by the home and is a recourse debt, meaning John and Mary are personally liable for the debt. How do you amend your tax return   John and Mary became unable to make their mortgage loan payments and on March 1, 2013, when the outstanding balance of the mortgage loan was $315,000 and the FMV of the property was $290,000, the bank foreclosed on the property and simultaneously canceled the remaining mortgage debt. How do you amend your tax return Immediately before the foreclosure, John and Mary's only other assets and liabilities were a checking account with a balance of $6,000, retirement savings of $13,000, and credit card debt of $5,500. How do you amend your tax return   John and Mary received a 2013 Form 1099-C showing canceled debt of $25,000 in box 2 ($315,000 outstanding balance minus $290,000 FMV) and an FMV of $290,000 in box 7. How do you amend your tax return Identifiable event code "D" appears in box 6. How do you amend your tax return This box shows the reason the creditor has filed Form 1099-C. How do you amend your tax return In order to determine if John and Mary must include the canceled debt in income, they must first determine whether they meet any of the exceptions or exclusions that apply to canceled debts. How do you amend your tax return In this example, John and Mary meet both the insolvency and qualified principal residence indebtedness exclusions. How do you amend your tax return Their sample Form 1099-C is shown on this page. How do you amend your tax return   John and Mary complete the insolvency worksheet and determine that they were insolvent immediately before the cancellation because at that time their liabilities exceeded the FMV of their assets by $11,500 ($320,500 total liabilities minus $309,000 FMV of total assets). How do you amend your tax return However, because the entire debt canceled is qualified principal residence indebtedness, the insolvency exclusion only applies if John and Mary elect to apply the insolvency exclusion instead of the qualified principal residence exclusion. How do you amend your tax return   John and Mary do not elect to apply the insolvency exclusion instead of the qualified principal residence exclusion because under the insolvency exclusion their exclusion would be limited to the amount by which they were insolvent ($11,500). How do you amend your tax return Instead, John and Mary check box 1e of Form 982 to exclude the canceled debt under the qualified principal residence exclusion. How do you amend your tax return Under the qualified principal residence exclusion, the amount that John and Mary can exclude is not limited because their qualified principal residence indebtedness is not more than $2 million and no portion of the loan was nonqualified debt. How do you amend your tax return As a result, John and Mary enter the full $25,000 of canceled debt on line 2 of Form 982. How do you amend your tax return Because John and Mary no longer own the home due to the foreclosure, John and Mary have no remaining basis in the home at the time of the debt cancellation. How do you amend your tax return Thus, John and Mary leave line 10b of Form 982 blank. How do you amend your tax return   John and Mary must also determine whether they have a gain or loss from the foreclosure. How do you amend your tax return John and Mary complete Table 1-1 (shown below) and find that they have a $45,000 loss from the foreclosure. How do you amend your tax return Because this loss relates to their home, it is a nondeductible loss. How do you amend your tax return   John and Mary's Form 1099-C, Insolvency Worksheet, and Form 982 follow. How do you amend your tax return John and Mary's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. How do you amend your tax return Please click the link to view the image. How do you amend your tax return Form 1099-C, Cancellation of Debt Table 1-1. How do you amend your tax return Worksheet for Foreclosures and Repossessions (for John and Mary Elm) Part 1. How do you amend your tax return Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). How do you amend your tax return Otherwise, go to Part 2. How do you amend your tax return 1. How do you amend your tax return Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property $315,000. How do you amend your tax return 00 2. How do you amend your tax return Enter the fair market value of the transferred property $290,000. How do you amend your tax return 00 3. How do you amend your tax return Ordinary income from the cancellation of debt upon foreclosure or repossession. How do you amend your tax return * Subtract line 2 from line 1. How do you amend your tax return If less than zero, enter zero. How do you amend your tax return Next, go to Part 2 $ 25,000. How do you amend your tax return 00 Part 2. How do you amend your tax return Gain or loss from foreclosure or repossession. How do you amend your tax return   4. How do you amend your tax return Enter the smaller of line 1 or line 2. How do you amend your tax return If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property $290,000. How do you amend your tax return 00 5. How do you amend your tax return Enter any proceeds you received from the foreclosure sale   6. How do you amend your tax return Add line 4 and line 5 $290,000. How do you amend your tax return 00 7. How do you amend your tax return Enter the adjusted basis of the transferred property $335,000. How do you amend your tax return 00 8. How do you amend your tax return Gain or loss from foreclosure or repossession. How do you amend your tax return Subtract line 7 from line 6 ($ 45,000. How do you amend your tax return 00) * The income may not be taxable. How do you amend your tax return See chapter 1 for more details. How do you amend your tax return Insolvency Worksheet—John and Mary Elm Date debt was canceled (mm/dd/yy) 03/01/13 Part I. How do you amend your tax return Total liabilities immediately before the cancellation (do not include the same liability in more than one category) Liabilities (debts) Amount Owed Immediately Before the Cancellation 1. How do you amend your tax return Credit card debt $ 5,500 2. How do you amend your tax return Mortgage(s) on real property (including first and second mortgages and home equity loans) (mortgage(s) can be on personal residence, any additional residence, or property held for investment or used in a trade or business) $ 315,000 3. How do you amend your tax return Car and other vehicle loans $ 4. How do you amend your tax return Medical bills owed $ 5. How do you amend your tax return Student loans $ 6. How do you amend your tax return Accrued or past-due mortgage interest $ 7. How do you amend your tax return Accrued or past-due real estate taxes $ 8. How do you amend your tax return Accrued or past-due utilities (water, gas, electric) $ 9. How do you amend your tax return Accrued or past-due child care costs $ 10. How do you amend your tax return Federal or state income taxes remaining due (for prior tax years) $ 11. How do you amend your tax return Judgments $ 12. How do you amend your tax return Business debts (including those owed as a sole proprietor or partner) $ 13. How do you amend your tax return Margin debt on stocks and other debt to purchase or secured by investment assets other than real property $ 14. How do you amend your tax return Other liabilities (debts) not included above $ 15. How do you amend your tax return Total liabilities immediately before the cancellation. How do you amend your tax return Add lines 1 through 14. How do you amend your tax return $ 320,500 Part II. How do you amend your tax return Fair market value (FMV) of assets owned immediately before the cancellation (do not include the FMV of the same asset in more than one category) Assets FMV Immediately Before  the Cancellation 16. How do you amend your tax return Cash and bank account balances $ 6,000 17. How do you amend your tax return Real property, including the value of land (can be main home, any additional home, or property held for investment or used in a trade or business) $ 290,000 18. How do you amend your tax return Cars and other vehicles $ 19. How do you amend your tax return Computers $ 20. How do you amend your tax return Household goods and furnishings (for example, appliances, electronics, furniture, etc. How do you amend your tax return ) $ 21. How do you amend your tax return Tools $ 22. How do you amend your tax return Jewelry $ 23. How do you amend your tax return Clothing $ 24. How do you amend your tax return Books $ 25. How do you amend your tax return Stocks and bonds $ 26. How do you amend your tax return Investments in coins, stamps, paintings, or other collectibles $ 27. How do you amend your tax return Firearms, sports, photographic, and other hobby equipment $ 28. How do you amend your tax return Interest in retirement accounts (IRA accounts, 401(k) accounts, and other retirement accounts) $ 13,000 29. How do you amend your tax return Interest in a pension plan $ 30. How do you amend your tax return Interest in education accounts $ 31. How do you amend your tax return Cash value of life insurance $ 32. How do you amend your tax return Security deposits with landlords, utilities, and others $ 33. How do you amend your tax return Interests in partnerships $ 34. How do you amend your tax return Value of investment in a business $ 35. How do you amend your tax return Other investments (for example, annuity contracts, guaranteed investment contracts, mutual funds, commodity accounts, interests in hedge funds, and options) $ 36. How do you amend your tax return Other assets not included above $ 37. How do you amend your tax return FMV of total assets immediately before the cancellation. How do you amend your tax return Add lines 16 through 36. How do you amend your tax return $ 309,000 Part III. How do you amend your tax return Insolvency 38. How do you amend your tax return Amount of Insolvency. How do you amend your tax return Subtract line 37 from line 15. How do you amend your tax return If zero or less, you are not insolvent. How do you amend your tax return $ 11,500 John and Mary's Form 982 This image is too large to be displayed in the current screen. How do you amend your tax return Please click the link to view the image. How do you amend your tax return Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)          Example 3—Mortgage loan foreclosure with debt exceeding $2 million limit. How do you amend your tax return    In 2011, Kathy and Frank Willow got married and entered into a contract with Hive Construction Corporation to build a house for $3,000,000 to be used as their main home. How do you amend your tax return Kathy and Frank made a $400,000 down payment and took out a $2,600,000 mortgage to finance the remaining cost of the house. How do you amend your tax return Kathy and Frank are personally liable for the mortgage loan, which is secured by the home. How do you amend your tax return   In November 2013, when the outstanding principal balance on the mortgage loan was $2,500,000, the FMV of the property fell to $1,750,000 and Kathy and Frank abandoned the property by permanently moving out. How do you amend your tax return The lender foreclosed on the property and, on December 5, 2013, sold the property to another buyer for $1,750,000. How do you amend your tax return On December 26, 2013, the lender canceled the remaining debt. How do you amend your tax return Kathy and Frank have no tax attributes other than basis of personal-use property. How do you amend your tax return   The lender issued a 2013 Form 1099-C to Kathy and Frank showing canceled debt of $750,000 in box 2 (the remaining balance on the $2,500,000 mortgage debt after application of the foreclosure sale proceeds) and $1,750,000 in box 7 (FMV of the property). How do you amend your tax return Identifiable event code "D" appears in box 6. How do you amend your tax return This box shows the reason the creditor has filed Form 1099-C. How do you amend your tax return Although Kathy and Frank abandoned the property, the lender did not need to also file a Form 1099-A because the lender canceled the debt in connection with the foreclosure in the same calendar year. How do you amend your tax return Kathy and Frank are filing a joint return for 2013. How do you amend your tax return   Because the foreclosure occurred prior to the debt cancellation, Kathy and Frank first calculate their gain or loss from the foreclosure using Table 1-1. How do you amend your tax return Because Kathy and Frank remained personally liable for the $750,000 debt remaining after the foreclosure ($2,500,000 outstanding debt immediately before the foreclosure minus $1,750,000 satisfied through the sale of the home), Kathy and Frank enter $1,750,000 on line 1 of Table 1-1 ($2,500,000 outstanding debt immediately before the foreclosure minus the $750,000 for which they remained liable). How do you amend your tax return Completing Table 1-1, Kathy and Frank find that they have no ordinary income from the cancellation of debt upon foreclosure and that they have a $1,250,000 loss. How do you amend your tax return Because this loss relates to their home, it is a nondeductible loss. How do you amend your tax return   Because the lender later canceled the remaining amount of the debt, Kathy and Frank must also determine whether that canceled debt is taxable. How do you amend your tax return Immediately before the cancellation, Kathy and Frank had $15,000 in a savings account, household furnishings with an FMV of $17,000, a car with an FMV of $10,000, and $18,000 in credit card debt. How do you amend your tax return Kathy and Frank also had the $750,000 remaining balance on the mortgage loan at that time. How do you amend your tax return The household furnishings originally cost $30,000. How do you amend your tax return The car had been fully paid off (so there was no related outstanding debt) and was originally purchased for $16,000. How do you amend your tax return Kathy and Frank had no adjustments to the cost basis of the car. How do you amend your tax return Kathy and Frank had no other assets or liabilities at the time of the cancellation. How do you amend your tax return Kathy and Frank complete the insolvency worksheet to calculate that they were insolvent to the extent of $726,000 immediately before the cancellation ($768,000 of total liabilities minus $42,000 FMV of total assets). How do you amend your tax return   At the beginning of 2014, Kathy and Frank had $9,000 in their savings account and $15,000 in credit card debt. How do you amend your tax return Kathy and Frank also owned the same car at that time (still with an FMV of $10,000 and basis of $16,000) and the same household furnishings (still with an FMV of $17,000 and a basis of $30,000). How do you amend your tax return Kathy and Frank had no other assets or liabilities at that time. How do you amend your tax return Kathy and Frank no longer own the home because the lender foreclosed on it in 2013. How do you amend your tax return   Because the canceled debt is qualified principal residence indebtedness, the insolvency exclusion does not apply unless Kathy and Frank elect to apply the insolvency exclusion instead of the qualified principal residence indebtedness exclusion. How do you amend your tax return The maximum amount that Kathy and Frank can treat as qualified principal residence indebtedness is $2,000,000. How do you amend your tax return The remaining $500,000 ($2,500,000 outstanding mortgage loan minus $2,000,000 limit on qualified principal residence indebtedness) is not qualified principal residence indebtedness. How do you amend your tax return Because only a part of the loan is qualified principal residence indebtedness, Kathy and Frank must apply the ordering rule to the canceled debt. How do you amend your tax return Under the ordering rule, the qualified principal residence indebtedness exclusion applies only to the extent that the amount canceled ($750,000) exceeds the amount of the loan (immediately before the cancellation) that is not qualified principal residence indebtedness ($500,000). How do you amend your tax return This means that Kathy and Frank can only exclude $250,000 ($750,000 amount canceled minus $500,000 nonqualified debt) under the qualified principal residence indebtedness exclusion. How do you amend your tax return   Kathy and Frank do not elect to have the insolvency exclusion apply instead of the qualified principal residence exclusion. How do you amend your tax return Nonetheless, they can still apply the insolvency exclusion to the $500,000 nonqualified debt because it is not qualified principal residence indebtedness. How do you amend your tax return Kathy and Frank can exclude the remaining $500,000 canceled debt under the insolvency exclusion because they were insolvent immediately before the cancellation to the extent of $726,000. How do you amend your tax return Thus, Kathy and Frank check the boxes on lines 1b and 1e of Form 982 and enter $750,000 on line 2 ($250,000 excluded under the qualified principal residence indebtedness exclusion plus $500,000 excluded under the insolvency exclusion). How do you amend your tax return   Next, Kathy and Frank reduce their tax attributes using Part II of Form 982. How do you amend your tax return Because Kathy and Frank no longer own the home due to the foreclosure, Kathy and Frank have no remaining basis in the home at the time of the debt cancellation. How do you amend your tax return Thus, Kathy and Frank leave line 10b of Form 982 blank. How do you amend your tax return However, Kathy and Frank are also excluding nonqualified debt under the insolvency exclusion. How do you amend your tax return As a result, Kathy and Frank must reduce the basis of property they own based on the amount of canceled debt they are excluding from income under the insolvency rules. How do you amend your tax return Because Kathy and Frank have no tax attributes other than basis of personal-use property to reduce, Kathy and Frank figure the amount they must include on line 10a of Form 982 by taking the smallest of: The $46,000 bases of their personal-use property held at the beginning of 2014 ($16,000 basis in the car plus $30,000 basis in household furnishings), The $500,000 of the nonbusiness debt (other than qualified principal residence indebtedness) that they are excluding from income on line 2 of Form 982, or The $43,000 excess of the total bases of the property and the amount of money they held immediately after the cancellation over their total liabilities immediately after the cancellation ($15,000 in savings account plus $30,000 basis in household furnishings plus $16,000 adjusted basis in car minus $18,000 credit card debt). How do you amend your tax return Kathy and Frank enter $43,000 on Form 982, line 10a and reduce their bases in the car and the household furnishings in proportion to the total adjusted bases in all their property. How do you amend your tax return Kathy and Frank reduce the basis in the car by $14,956. How do you amend your tax return 52 ($43,000 x $16,000/$46,000). How do you amend your tax return And they reduce the basis in the household furnishings by $28,043. How do you amend your tax return 48 ($43,000 x $30,000/$46,000). How do you amend your tax return   Following are Kathy and Frank's sample forms and worksheets. How do you amend your tax return Frank and Kathy's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. How do you amend your tax return Please click the link to view the image. How do you amend your tax return Form 1099-C, Cancellation of Debt Table 1-1. How do you amend your tax return Worksheet for Foreclosures and Repossessions (for Frank and Kathy Willow) Part 1. How do you amend your tax return Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). How do you amend your tax return Otherwise, go to Part 2. How do you amend your tax return 1. How do you amend your tax return Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property $1,750,000. How do you amend your tax return 00 2. How do you amend your tax return Enter the fair market value of the transferred property $1,750,000. How do you amend your tax return 00 3. How do you amend your tax return Ordinary income from the cancellation of debt upon foreclosure or repossession. How do you amend your tax return * Subtract line 2 from line 1. How do you amend your tax return If less than zero, enter zero. How do you amend your tax return Next, go to Part 2 $0. How do you amend your tax return 00 Part 2. How do you amend your tax return Gain or loss from foreclosure or repossession. How do you amend your tax return   4. How do you amend your tax return Enter the smaller of line 1 or line 2. How do you amend your tax return If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property. How do you amend your tax return $1,750,000. How do you amend your tax return 00 5. How do you amend your tax return Enter any proceeds you received from the foreclosure sale   6. How do you amend your tax return Add line 4 and line 5 $1,750,000. How do you amend your tax return 00 7. How do you amend your tax return Enter the adjusted basis of the transferred property $3,000,000. How do you amend your tax return 00 8. How do you amend your tax return Gain or loss from foreclosure or repossession. How do you amend your tax return Subtract line 7 from line 6 ($1,250,000. How do you amend your tax return 00) * The income may not be taxable. How do you amend your tax return See chapter 1 for more details. How do you amend your tax return    Insolvency Worksheet—Frank and Kathy Willow Date debt was canceled (mm/dd/yy) 12/26/13 Part I. How do you amend your tax return Total liabilities immediately before the cancellation (do not include the same liability in more than one category) Liabilities (debts) Amount Owed Immediately Before the Cancellation 1. How do you amend your tax return Credit card debt $ 18,000 2. How do you amend your tax return Mortgage(s) on real property (including first and second mortgages and home equity loans) (mortgage(s) can be on personal residence, any additional residence, or property held for investment or used in a trade or business) $ 750,000 3. How do you amend your tax return Car and other vehicle loans $ 4. How do you amend your tax return Medical bills owed $ 5. How do you amend your tax return Student loans $ 6. How do you amend your tax return Accrued or past-due mortgage interest $ 7. How do you amend your tax return Accrued or past-due real estate taxes $ 8. How do you amend your tax return Accrued or past-due utilities (water, gas, electric) $ 9. How do you amend your tax return Accrued or past-due child care costs $ 10. How do you amend your tax return Federal or state income taxes remaining due (for prior tax years) $ 11. How do you amend your tax return Judgments $ 12. How do you amend your tax return Business debts (including those owed as a sole proprietor or partner) $ 13. How do you amend your tax return Margin debt on stocks and other debt to purchase or secured by investment assets other than real property $ 14. How do you amend your tax return Other liabilities (debts) not included above $ 15. How do you amend your tax return Total liabilities immediately before the cancellation. How do you amend your tax return Add lines 1 through 14. How do you amend your tax return $ 768,000 Part II. How do you amend your tax return Fair market value (FMV) of assets owned immediately before the cancellation (do not include the FMV of the same asset in more than one category) Assets FMV Immediately Before  the Cancellation 16. How do you amend your tax return Cash and bank account balances $ 15,000 17. How do you amend your tax return Real property, including the value of land (can be main home, any additional home, or property held for investment or used in a trade or business) $ 18. How do you amend your tax return Cars and other vehicles $ 10,000 19. How do you amend your tax return Computers $ 20. How do you amend your tax return Household goods and furnishings (for example, appliances, electronics, furniture, etc. How do you amend your tax return ) $ 17,000 21. How do you amend your tax return Tools $ 22. How do you amend your tax return Jewelry $ 23. How do you amend your tax return Clothing $ 24. How do you amend your tax return Books $ 25. How do you amend your tax return Stocks and bonds $ 26. How do you amend your tax return Investments in coins, stamps, paintings, or other collectibles $ 27. How do you amend your tax return Firearms, sports, photographic, and other hobby equipment $ 28. How do you amend your tax return Interest in retirement accounts (IRA accounts, 401(k) accounts, and other retirement accounts) $ 29. How do you amend your tax return Interest in a pension plan $ 30. How do you amend your tax return Interest in education accounts $ 31. How do you amend your tax return Cash value of life insurance $ 32. How do you amend your tax return Security deposits with landlords, utilities, and others $ 33. How do you amend your tax return Interests in partnerships $ 34. How do you amend your tax return Value of investment in a business $ 35. How do you amend your tax return Other investments (for example, annuity contracts, guaranteed investment contracts, mutual funds, commodity accounts, interests in hedge funds, and options) $ 36. How do you amend your tax return Other assets not included above $ 37. How do you amend your tax return FMV of total assets immediately before the cancellation. How do you amend your tax return Add lines 16 through 36. How do you amend your tax return $ 42,000 Part III. How do you amend your tax return Insolvency 38. How do you amend your tax return Amount of Insolvency. How do you amend your tax return Subtract line 37 from line 15. How do you amend your tax return If zero or less, you are not insolvent. How do you amend your tax return $ 726,000    Frank and Kathy's Form 982 This image is too large to be displayed in the current screen. How do you amend your tax return Please click the link to view the image. 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Understanding Your CP285 Notice

CP285 notifies BMF taxpayers the reason their Form 1128, Application To Adopt, Change, or Retain a Tax Year, was denied.


What you need to do

Continue filing your annual income tax return on the tax year you have historically used. If you are a new entity, use the tax year assigned when you received the notice of EIN assignment (CP575, 576, etc.).


You may want to

Submit a newly completed, timely Form 1128 for next tax year.

 

 

Page Last Reviewed or Updated: 12-Feb-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The How Do You Amend Your Tax Return

How do you amend your tax return 2. How do you amend your tax return   Source of Income Table of Contents Introduction Topics - This chapter discusses: Resident Aliens Nonresident AliensInterest Income Dividends Guarantee of Indebtedness Personal Services Transportation Income Scholarships, Grants, Prizes, and Awards Pensions and Annuities Rents or Royalties Real Property Personal Property Community Income Introduction After you have determined your alien status, you must determine the source of your income. How do you amend your tax return This chapter will help you determine the source of different types of income you may receive during the tax year. How do you amend your tax return This chapter also discusses special rules for married individuals who are domiciled in a country with community property laws. How do you amend your tax return Topics - This chapter discusses: Income source rules, and Community income. How do you amend your tax return Resident Aliens A resident alien's income is generally subject to tax in the same manner as a U. How do you amend your tax return S. How do you amend your tax return citizen. How do you amend your tax return If you are a resident alien, you must report all interest, dividends, wages, or other compensation for services, income from rental property or royalties, and other types of income on your U. How do you amend your tax return S. How do you amend your tax return tax return. How do you amend your tax return You must report these amounts from sources within and outside the United States. How do you amend your tax return Nonresident Aliens A nonresident alien usually is subject to U. How do you amend your tax return S. How do you amend your tax return income tax only on U. How do you amend your tax return S. How do you amend your tax return source income. How do you amend your tax return Under limited circumstances, certain foreign source income is subject to U. How do you amend your tax return S. How do you amend your tax return tax. How do you amend your tax return See Foreign Income in chapter 4. How do you amend your tax return The general rules for determining U. How do you amend your tax return S. How do you amend your tax return source income that apply to most nonresident aliens are shown in Table 2-1. How do you amend your tax return The following discussions cover the general rules as well as the exceptions to these rules. How do you amend your tax return Not all items of U. How do you amend your tax return S. How do you amend your tax return source income are taxable. How do you amend your tax return See chapter 3. How do you amend your tax return Interest Income Generally, U. How do you amend your tax return S. How do you amend your tax return source interest income includes the following items. How do you amend your tax return Interest on bonds, notes, or other interest-bearing obligations of U. How do you amend your tax return S. How do you amend your tax return residents or domestic corporations. How do you amend your tax return Interest paid by a domestic or foreign partnership or foreign corporation engaged in a U. How do you amend your tax return S. How do you amend your tax return trade or business at any time during the tax year. How do you amend your tax return Original issue discount. How do you amend your tax return Interest from a state, the District of Columbia, or the U. How do you amend your tax return S. How do you amend your tax return Government. How do you amend your tax return The place or manner of payment is immaterial in determining the source of the income. How do you amend your tax return A substitute interest payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced in the same manner as the interest on the transferred security. How do you amend your tax return Exceptions. How do you amend your tax return   U. How do you amend your tax return S. How do you amend your tax return source interest income does not include the following items. How do you amend your tax return Interest paid by a resident alien or a domestic corporation on obligations issued before August 10, 2010, if for the 3-year period ending with the close of the payer's tax year preceding the interest payment, at least 80% of the payer's total gross income: Is from sources outside the United States, and Is attributable to the active conduct of a trade or business by the individual or corporation in a foreign country or a U. How do you amend your tax return S. How do you amend your tax return possession. How do you amend your tax return However, the interest will be considered U. How do you amend your tax return S. How do you amend your tax return source interest income if either of the following apply. How do you amend your tax return The recipient of the interest is related to the resident alien or domestic corporation. How do you amend your tax return See section 954(d)(3) for the definition of related person. How do you amend your tax return The terms of the obligation are significantly modified after August 9, 2010. How do you amend your tax return Any extension of the term of the obligation is considered a significant modification. How do you amend your tax return Interest paid by a foreign branch of a domestic corporation or a domestic partnership on deposits or withdrawable accounts with mutual savings banks, cooperative banks, credit unions, domestic building and loan associations, and other savings institutions chartered and supervised as savings and loan or similar associations under federal or state law if the interest paid or credited can be deducted by the association. How do you amend your tax return Interest on deposits with a foreign branch of a domestic corporation or domestic partnership, but only if the branch is in the commercial banking business. How do you amend your tax return Dividends In most cases, dividend income received from domestic corporations is U. How do you amend your tax return S. How do you amend your tax return source income. How do you amend your tax return Dividend income from foreign corporations is usually foreign source income. How do you amend your tax return Exceptions to both of these rules are discussed below. How do you amend your tax return A substitute dividend payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced in the same manner as a distribution on the transferred security. How do you amend your tax return Dividend equivalent payments. How do you amend your tax return   U. How do you amend your tax return S. How do you amend your tax return source dividends also include all dividend equivalent payments. How do you amend your tax return Dividend equivalent payments include substitute dividends, payments made pursuant to a specified notional principal contract, and all similar payments that, directly or indirectly, are contingent on or determined by reference to, the payment of a dividend from U. How do you amend your tax return S. How do you amend your tax return sources. How do you amend your tax return    The Internal Revenue Service has issued final regulations that would affect the treatment of dividend equivalent payments and specified notional principal contracts. How do you amend your tax return You can view this regulation at www. How do you amend your tax return irs. How do you amend your tax return gov/irb/2013-52_IRB/ar08. How do you amend your tax return html. How do you amend your tax return First exception. How do you amend your tax return   Dividends received from a domestic corporation are not U. How do you amend your tax return S. How do you amend your tax return source income if the corporation elects to take the American Samoa economic development credit. How do you amend your tax return Second exception. How do you amend your tax return   Part of the dividends received from a foreign corporation is U. How do you amend your tax return S. How do you amend your tax return source income if 25% or more of its total gross income for the 3-year period ending with the close of its tax year preceding the declaration of dividends was effectively connected with a trade or business in the United States. How do you amend your tax return If the corporation was formed less than 3 years before the declaration, use its total gross income from the time it was formed. How do you amend your tax return Determine the part that is U. How do you amend your tax return S. How do you amend your tax return source income by multiplying the dividend by the following fraction. How do you amend your tax return   Foreign corporation's gross income connected with a U. How do you amend your tax return S. How do you amend your tax return trade or business for the 3-year period     Foreign corporation's gross income from all sources for that period   Guarantee of Indebtedness Certain amounts received directly or indirectly, for the provision of a guarantee of indebtedness issued after September 27, 2010, are U. How do you amend your tax return S. How do you amend your tax return source income. How do you amend your tax return They must be paid by a noncorporate resident or U. How do you amend your tax return S. How do you amend your tax return corporation or by any foreign person if the amounts are effectively connected with the conduct of a U. How do you amend your tax return S. How do you amend your tax return trade or business. How do you amend your tax return For more information, see Internal Revenue Code sections 861(a)(9) and 862(a)(9). How do you amend your tax return Personal Services All wages and any other compensation for services performed in the United States are considered to be from sources in the United States. How do you amend your tax return The only exceptions to this rule are discussed in chapter 3 under Employees of foreign persons, organizations, or offices, and under Crew members. How do you amend your tax return If you are an employee and receive compensation for labor or personal services performed both inside and outside the United States, special rules apply in determining the source of the compensation. How do you amend your tax return Compensation (other than certain fringe benefits) is sourced on a time basis. How do you amend your tax return Certain fringe benefits (such as housing and education) are sourced on a geographical basis. How do you amend your tax return Or, you may be permitted to use an alternative basis to determine the source of compensation. How do you amend your tax return See Alternative Basis , later. How do you amend your tax return Multi-level marketing. How do you amend your tax return   Certain companies sell products through a multi-level marketing arrangement, such that an upper-tier distributor, who has sponsored a lower-tier distributor, is entitled to a payment from the company based on certain activities of that lower-tier distributor. How do you amend your tax return Generally, depending on the facts, payments from such multi-level marketing companies to independent (non-employee) distributors (upper-tier distributors) that are based on the sales or purchases of persons whom they have sponsored (lower-tier distributors) constitute income for the performance of personal services in recruiting, training, and supporting the lower-tier distributors. How do you amend your tax return The source of such income is generally based on where the services of the upper-tier distributor are performed, and may, depending on the facts, be considered multi-year compensation, with the source of income determined over the period to which such compensation is attributable. How do you amend your tax return Self-employed individuals. How do you amend your tax return   If you are self-employed, you determine the source of compensation for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. How do you amend your tax return In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. How do you amend your tax return Time Basis Use a time basis to figure your U. How do you amend your tax return S. How do you amend your tax return source compensation (other than the fringe benefits discussed later). How do you amend your tax return Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed services in the United States during the year     Total number of days you performed services during the year   You can use a unit of time less than a day in the above fraction, if appropriate. How do you amend your tax return The time period for which the compensation is made does not have to be a year. How do you amend your tax return Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. How do you amend your tax return Example 1. How do you amend your tax return Christina Brooks, a resident of the Netherlands, worked 240 days for a U. How do you amend your tax return S. How do you amend your tax return company during the tax year. How do you amend your tax return She received $80,000 in compensation. How do you amend your tax return None of it was for fringe benefits. How do you amend your tax return Christina performed services in the United States for 60 days and performed services in the Netherlands for 180 days. How do you amend your tax return Using the time basis for determining the source of compensation, $20,000 ($80,000 × 60/240) is her U. How do you amend your tax return S. How do you amend your tax return source income. How do you amend your tax return Example 2. How do you amend your tax return Rob Waters, a resident of South Africa, is employed by a corporation. How do you amend your tax return His annual salary is $100,000. How do you amend your tax return None of it is for fringe benefits. How do you amend your tax return During the first quarter of the year he worked entirely within the United States. How do you amend your tax return On April 1, Rob was transferred to Singapore for the remainder of the year. How do you amend your tax return Rob is able to establish that the first quarter of the year and the last 3 quarters of the year are two separate, distinct, and continuous periods of time. How do you amend your tax return Accordingly, $25,000 of Rob's annual salary is attributable to the first quarter of the year (. How do you amend your tax return 25 × $100,000). How do you amend your tax return All of it is U. How do you amend your tax return S. How do you amend your tax return source income because he worked entirely within the United States during that quarter. How do you amend your tax return The remaining $75,000 is attributable to the last three quarters of the year. How do you amend your tax return During those quarters, he worked 150 days in Singapore and 30 days in the United States. How do you amend your tax return His periodic performance of services in the United States did not result in distinct, separate, and continuous periods of time. How do you amend your tax return Of this $75,000, $12,500 ($75,000 × 30/180) is U. How do you amend your tax return S. How do you amend your tax return source income. How do you amend your tax return Multi-year compensation. How do you amend your tax return   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. How do you amend your tax return Multi-year compensation is compensation that is included in your income in one tax year but that is attributable to a period that includes two or more tax years. How do you amend your tax return   You determine the period to which the compensation is attributable based on the facts and circumstances of your case. How do you amend your tax return For example, an amount of compensation that specifically relates to a period of time that includes several calendar years is attributable to the entire multi-year period. How do you amend your tax return   The amount of compensation treated as from U. How do you amend your tax return S. How do you amend your tax return sources is figured by multiplying the total multi-year compensation by a fraction. How do you amend your tax return The numerator of the fraction is the number of days (or unit of time less than a day, if appropriate) that you performed labor or personal services in the United States in connection with the project. How do you amend your tax return The denominator of the fraction is the total number of days (or unit of time less than a day, if appropriate) that you performed labor or personal services in connection with the project. How do you amend your tax return Geographical Basis Compensation you receive as an employee in the form of the following fringe benefits is sourced on a geographical basis. How do you amend your tax return Housing. How do you amend your tax return Education. How do you amend your tax return Local transportation. How do you amend your tax return Tax reimbursement. How do you amend your tax return Hazardous or hardship duty pay as defined in Regulations section 1. How do you amend your tax return 861-4(b)(2)(ii)(D)(5). How do you amend your tax return Moving expense reimbursement. How do you amend your tax return The amount of fringe benefits must be reasonable and you must substantiate them by adequate records or by sufficient evidence. How do you amend your tax return Principal place of work. How do you amend your tax return   The above fringe benefits, except for tax reimbursement and hazardous or hardship duty pay, are sourced based on your principal place of work. How do you amend your tax return Your principal place of work is usually the place where you spend most of your working time. How do you amend your tax return This could be your office, plant, store, shop, or other location. How do you amend your tax return If there is no one place where you spend most of your working time, your main job location is the place where your work is centered, such as where you report for work or are otherwise required to “base” your work. How do you amend your tax return   If you have more than one job at any time, your main job location depends on the facts in each case. How do you amend your tax return The more important factors to be considered are: The total time you spend at each place, The amount of work you do at each place, and How much money you earn at each place. How do you amend your tax return Housing. How do you amend your tax return   The source of a housing fringe benefit is determined based on the location of your principal place of work. How do you amend your tax return A housing fringe benefit includes payments to you or on your behalf (and your family's if your family resides with you) only for the following. How do you amend your tax return Rent. How do you amend your tax return Utilities (except telephone charges). How do you amend your tax return Real and personal property insurance. How do you amend your tax return Occupancy taxes not deductible under section 164 or 216(a). How do you amend your tax return Nonrefundable fees for securing a leasehold. How do you amend your tax return Rental of furniture and accessories. How do you amend your tax return Household repairs. How do you amend your tax return Residential parking. How do you amend your tax return Fair rental value of housing provided in kind by your employer. How do you amend your tax return   A housing fringe benefit does not include: Deductible interest and taxes (including deductible interest and taxes of a tenant-stockholder in a cooperative housing corporation), The cost of buying property, including principal payments on a mortgage, The cost of domestic labor (maids, gardeners, etc. How do you amend your tax return ), Pay television subscriptions, Improvements and other expenses that increase the value or appreciably prolong the life of property, Purchased furniture or accessories, Depreciation or amortization of property or improvements, The value of meals or lodging that you exclude from gross income, or The value of meals or lodging that you deduct as moving expenses. How do you amend your tax return Education. How do you amend your tax return   The source of an education fringe benefit for the education expenses of your dependents is determined based on the location of your principal place of work. How do you amend your tax return An education fringe benefit includes payments only for the following expenses for education at an elementary or secondary school. How do you amend your tax return Tuition, fees, academic tutoring, special needs services for a special needs student, books, supplies, and other equipment. How do you amend your tax return Room and board and uniforms that are required or provided by the school in connection with enrollment or attendance. How do you amend your tax return Local transportation. How do you amend your tax return   The source of a local transportation fringe benefit is determined based on the location of your principal place of work. How do you amend your tax return Your local transportation fringe benefit is the amount that you receive as compensation for local transportation for you or your spouse or dependents at the location of your principal place of work. How do you amend your tax return The amount treated as a local transportation fringe benefit is limited to actual expenses incurred for local transportation and the fair rental value of any employer-provided vehicle used predominantly by you, your spouse, or your dependents for local transportation. How do you amend your tax return Actual expenses do not include the cost (including interest) of any vehicle purchased by you or on your behalf. How do you amend your tax return Tax reimbursement. How do you amend your tax return   The source of a tax reimbursement fringe benefit is determined based on the location of the jurisdiction that imposed the tax for which you are reimbursed. How do you amend your tax return Moving expense reimbursement. How do you amend your tax return   The source of a moving expense reimbursement is generally based on the location of your new principal place of work. How do you amend your tax return However, the source is determined based on the location of your former principal place of work if you provide sufficient evidence that such determination of source is more appropriate under the facts and circumstances of your case. How do you amend your tax return Sufficient evidence generally requires an agreement between you and your employer, or a written statement of company policy, which is reduced to writing before the move and which is entered into or established to induce you or other employees to move to another country. How do you amend your tax return The written statement or agreement must state that your employer will reimburse you for moving expenses that you incur to return to your former principal place of work regardless of whether you continue to work for your employer after returning to that location. How do you amend your tax return It may contain certain conditions upon which the right to reimbursement is determined as long as those conditions set forth standards that are definitely ascertainable and can only be fulfilled prior to, or through completion of, your return move to your former principal place of work. How do you amend your tax return Alternative Basis If you are an employee, you can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your compensation than the time or geographical basis. How do you amend your tax return If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your compensation. How do you amend your tax return Also, if your total compensation from all sources is $250,000 or more, check “Yes” to both questions on line K on page 5 of Form 1040NR, and attach a written statement to your tax return that sets forth all of the following. How do you amend your tax return Your name and social security number (written across the top of the statement). How do you amend your tax return The specific compensation income, or the specific fringe benefit, for which you are using the alternative basis. How do you amend your tax return For each item in (2), the alternative basis of allocation of source used. How do you amend your tax return For each item in (2), a computation showing how the alternative allocation was computed. How do you amend your tax return A comparison of the dollar amount of the U. How do you amend your tax return S. How do you amend your tax return compensation and foreign compensation sourced under both the alternative basis and the time or geographical basis discussed earlier. How do you amend your tax return Transportation Income Transportation income is income from the use of a vessel or aircraft or for the performance of services directly related to the use of any vessel or aircraft. How do you amend your tax return This is true whether the vessel or aircraft is owned, hired, or leased. How do you amend your tax return The term “vessel or aircraft” includes any container used in connection with a vessel or aircraft. How do you amend your tax return All income from transportation that begins and ends in the United States is treated as derived from sources in the United States. How do you amend your tax return If the transportation begins or ends in the United States, 50% of the transportation income is treated as derived from sources in the United States. How do you amend your tax return For transportation income from personal services, 50% of the income is U. How do you amend your tax return S. How do you amend your tax return source income if the transportation is between the United States and a U. How do you amend your tax return S. How do you amend your tax return possession. How do you amend your tax return For nonresident aliens, this only applies to income derived from, or in connection with, an aircraft. How do you amend your tax return For information on how U. How do you amend your tax return S. How do you amend your tax return source transportation income is taxed, see chapter 4. How do you amend your tax return Scholarships, Grants, Prizes, and Awards Generally, the source of scholarships, fellowship grants, grants, prizes, and awards is the residence of the payer regardless of who actually disburses the funds. How do you amend your tax return However, see Activities to be performed outside the United States , later. How do you amend your tax return For example, payments for research or study in the United States made by the United States, a noncorporate U. How do you amend your tax return S. How do you amend your tax return resident, or a domestic corporation, are from U. How do you amend your tax return S. How do you amend your tax return sources. How do you amend your tax return Similar payments from a foreign government or foreign corporation are foreign source payments even though the funds may be disbursed through a U. How do you amend your tax return S. How do you amend your tax return agent. How do you amend your tax return Payments made by an entity designated as a public international organization under the International Organizations Immunities Act are from foreign sources. How do you amend your tax return Activities to be performed outside the United States. How do you amend your tax return   Scholarships, fellowship grants, targeted grants, and achievement awards received by nonresident aliens for activities performed, or to be performed, outside the United States are not U. How do you amend your tax return S. How do you amend your tax return source income. How do you amend your tax return    These rules do not apply to amounts paid as salary or other compensation for services. How do you amend your tax return See Personal Services, earlier, for the source rules that apply. How do you amend your tax return Pensions and Annuities If you receive a pension from a domestic trust for services performed both in and outside the United States, part of the pension payment is from U. How do you amend your tax return S. How do you amend your tax return sources. How do you amend your tax return That part is the amount attributable to earnings of the pension plan and the employer contributions made for services performed in the United States. How do you amend your tax return This applies whether the distribution is made under a qualified or nonqualified stock bonus, pension, profit-sharing, or annuity plan (whether or not funded). How do you amend your tax return If you performed services as an employee of the United States, you may receive a distribution from the U. How do you amend your tax return S. How do you amend your tax return Government under a plan, such as the Civil Service Retirement System, that is treated as a qualified pension plan. How do you amend your tax return Your U. How do you amend your tax return S. How do you amend your tax return source income is the otherwise taxable amount of the distribution that is attributable to your total U. How do you amend your tax return S. How do you amend your tax return Government basic pay other than tax-exempt pay for services performed outside the United States. How do you amend your tax return Rents or Royalties Your U. How do you amend your tax return S. How do you amend your tax return source income includes rent and royalty income received during the tax year from property located in the United States or from any interest in that property. How do you amend your tax return U. How do you amend your tax return S. How do you amend your tax return source income also includes rents or royalties for the use of, or for the privilege of using, in the United States, intangible property such as patents, copyrights, secret processes and formulas, goodwill, trademarks, franchises, and similar property. How do you amend your tax return Real Property Real property is land and buildings and generally anything built on, growing on, or attached to land. How do you amend your tax return Gross income from sources in the United States includes gains, profits, and income from the sale or other disposition of real property located in the United States. How do you amend your tax return Natural resources. How do you amend your tax return   The income from the sale of products of any farm, mine, oil or gas well, other natural deposit, or timber located in the United States and sold in a foreign country, or located in a foreign country and sold in the United States, is partly from sources in the United States. How do you amend your tax return For information on determining that part, see section 1. How do you amend your tax return 863-1(b) of the regulations. How do you amend your tax return Table 2-1. How do you amend your tax return Summary of Source Rules for Income of Nonresident Aliens Item of income Factor determining source Salaries, wages, other compensation Where services performed Business income:   Personal services Where services performed Sale of inventory—purchased Where sold Sale of inventory—produced Allocation Interest Residence of payer Dividends Whether a U. How do you amend your tax return S. How do you amend your tax return or foreign corporation* Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. How do you amend your tax return Where property is used Sale of real property Location of property Sale of personal property Seller's tax home (but see Personal Property , later, for exceptions) Pension distributions attributable to contributions Where services were performed that earned the pension Investment earnings on pension contributions Location of pension trust Sale of natural resources Allocation based on fair market value of product at export terminal. How do you amend your tax return For more information, see section 1. How do you amend your tax return 863-1(b) of the regulations. How do you amend your tax return *Exceptions include: a) Dividends paid by a U. How do you amend your tax return S. How do you amend your tax return corporation are foreign source if the corporation elects the  American Samoa economic development credit. How do you amend your tax return  b) Part of a dividend paid by a foreign corporation is U. How do you amend your tax return S. How do you amend your tax return source if at least 25% of the  corporation's gross income is effectively connected with a U. How do you amend your tax return S. How do you amend your tax return trade or business for the  3 tax years before the year in which the dividends are declared. How do you amend your tax return Personal Property Personal property is property, such as machinery, equipment, or furniture, that is not real property. How do you amend your tax return Gain or loss from the sale or exchange of personal property generally has its source in the United States if you have a tax home in the United States. How do you amend your tax return If you do not have a tax home in the United States, the gain or loss generally is considered to be from sources outside the United States. How do you amend your tax return Tax home. How do you amend your tax return   Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. How do you amend your tax return Your tax home is the place where you permanently or indefinitely work as an employee or a self-employed individual. How do you amend your tax return If you do not have a regular or main place of business because of the nature of your work, then your tax home is the place where you regularly live. How do you amend your tax return If you do not fit either of these categories, you are considered an itinerant and your tax home is wherever you work. How do you amend your tax return Inventory property. How do you amend your tax return   Inventory property is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. How do you amend your tax return Income from the sale of inventory that you purchased is sourced where the property is sold. How do you amend your tax return Generally, this is where title to the property passes to the buyer. How do you amend your tax return For example, income from the sale of inventory in the United States is U. How do you amend your tax return S. How do you amend your tax return source income, whether you purchased it in the United States or in a foreign country. How do you amend your tax return   Income from the sale of inventory property that you produced in the United States and sold outside the United States (or vice versa) is partly from sources in the United States and partly from sources outside the United States. How do you amend your tax return For information on making this allocation, see section 1. How do you amend your tax return 863-3 of the regulations. How do you amend your tax return   These rules apply even if your tax home is not in the United States. How do you amend your tax return Depreciable property. How do you amend your tax return   To determine the source of any gain from the sale of depreciable personal property, you must first figure the part of the gain that is not more than the total depreciation adjustments on the property. How do you amend your tax return You allocate this part of the gain to sources in the United States based on the ratio of U. How do you amend your tax return S. How do you amend your tax return depreciation adjustments to total depreciation adjustments. How do you amend your tax return The rest of this part of the gain is considered to be from sources outside the United States. How do you amend your tax return   For this purpose, “U. How do you amend your tax return S. How do you amend your tax return depreciation adjustments” are the depreciation adjustments to the basis of the property that are allowable in figuring taxable income from U. How do you amend your tax return S. How do you amend your tax return sources. How do you amend your tax return However, if the property is used predominantly in the United States during a tax year, all depreciation deductions allowable for that year are treated as U. How do you amend your tax return S. How do you amend your tax return depreciation adjustments. How do you amend your tax return But there are some exceptions for certain transportation, communications, and other property used internationally. How do you amend your tax return   Gain from the sale of depreciable property that is more than the total depreciation adjustments on the property is sourced as if the property were inventory property, as discussed above. How do you amend your tax return   A loss is sourced in the same way as the depreciation deductions were sourced. How do you amend your tax return However, if the property was used predominantly in the United States, the entire loss reduces U. How do you amend your tax return S. How do you amend your tax return source income. How do you amend your tax return   The basis of property usually means the cost (money plus the fair market value of other property or services) of property you acquire. How do you amend your tax return Depreciation is an amount deducted to recover the cost or other basis of a trade or business asset. How do you amend your tax return The amount you can deduct depends on the property's cost, when you began using the property, how long it will take to recover your cost, and which depreciation method you use. How do you amend your tax return A depreciation deduction is any deduction for depreciation or amortization or any other allowable deduction that treats a capital expenditure as a deductible expense. How do you amend your tax return Intangible property. How do you amend your tax return   Intangible property includes patents, copyrights, secret processes or formulas, goodwill, trademarks, trade names, or other like property. How do you amend your tax return The gain from the sale of amortizable or depreciable intangible property, up to the previously allowable amortization or depreciation deductions, is sourced in the same way as the original deductions were sourced. How do you amend your tax return This is the same as the source rule for gain from the sale of depreciable property. How do you amend your tax return See Depreciable property , earlier, for details on how to apply this rule. How do you amend your tax return   Gain in excess of the amortization or depreciation deductions is sourced in the country where the property is used if the income from the sale is contingent on the productivity, use, or disposition of that property. How do you amend your tax return If the income is not contingent on the productivity, use, or disposition of the property, the income is sourced according to your tax home as discussed earlier. How do you amend your tax return If payments for goodwill do not depend on its productivity, use, or disposition, their source is the country in which the goodwill was generated. How do you amend your tax return Sales through offices or fixed places of business. How do you amend your tax return   Despite any of the earlier rules, if you do not have a tax home in the United States, but you maintain an office or other fixed place of business in the United States, treat the income from any sale of personal property (including inventory property) that is attributable to that office or place of business as U. How do you amend your tax return S. How do you amend your tax return source income. How do you amend your tax return However, this rule does not apply to sales of inventory property for use, disposition, or consumption outside the United States if your office or other fixed place of business outside the United States materially participated in the sale. How do you amend your tax return   If you have a tax home in the United States but maintain an office or other fixed place of business outside the United States, income from sales of personal property, other than inventory, depreciable property, or intangibles, that is attributable to that foreign office or place of business may be treated as U. How do you amend your tax return S. How do you amend your tax return source income. How do you amend your tax return The income is treated as U. How do you amend your tax return S. How do you amend your tax return source income if an income tax of less than 10% of the income from the sale is paid to a foreign country. How do you amend your tax return This rule also applies to losses if the foreign country would have imposed an income tax of less than 10% had the sale resulted in a gain. How do you amend your tax return Community Income If you are married and you or your spouse is subject to the community property laws of a foreign country, a U. How do you amend your tax return S. How do you amend your tax return state, or a U. How do you amend your tax return S. How do you amend your tax return possession, you generally must follow those laws to determine the income of yourself and your spouse for U. How do you amend your tax return S. How do you amend your tax return tax purposes. How do you amend your tax return But you must disregard certain community property laws if: Both you and your spouse are nonresident aliens, or One of you is a nonresident alien and the other is a U. How do you amend your tax return S. How do you amend your tax return citizen or resident and you do not both choose to be treated as U. How do you amend your tax return S. How do you amend your tax return residents as explained in chapter 1. How do you amend your tax return In these cases, you and your spouse must report community income as explained later. How do you amend your tax return Earned income. How do you amend your tax return   Earned income of a spouse, other than trade or business income and a partner's distributive share of partnership income, is treated as the income of the spouse whose services produced the income. How do you amend your tax return That spouse must report all of it on his or her separate return. How do you amend your tax return Trade or business income. How do you amend your tax return   Trade or business income, other than a partner's distributive share of partnership income, is treated as the income of the spouse carrying on the trade or business. How do you amend your tax return That spouse must report all of it on his or her separate return. How do you amend your tax return Partnership income (or loss). How do you amend your tax return   A partner's distributive share of partnership income (or loss) is treated as the income (or loss) of the partner. How do you amend your tax return The partner must report all of it on his or her separate return. How do you amend your tax return Separate property income. How do you amend your tax return   Income derived from the separate property of one spouse (and which is not earned income, trade or business income, or partnership distributive share income) is treated as the income of that spouse. How do you amend your tax return That spouse must report all of it on his or her separate return. How do you amend your tax return Use the appropriate community property law to determine what is separate property. How do you amend your tax return Other community income. How do you amend your tax return   All other community income is treated as provided by the applicable community property laws. 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