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Hrblock Publication 523 - Introductory Material Table of Contents Future Developments Reminders IntroductionOrdering forms and publications. Hrblock Tax questions. Hrblock Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 523, such as legislation enacted after it was published, go to www. Hrblock irs. Hrblock gov/pub523. Hrblock Reminders Change of address. Hrblock If you change your mailing address, be sure to notify the Internal Revenue Service (IRS) using Form 8822, Change of Address. Hrblock Mail it to the Internal Revenue Service Center for your old address. Hrblock (Addresses for the Service Centers are on the back of the form. Hrblock ) Home sold with undeducted points. Hrblock If you have not deducted all the points you paid to secure a mortgage on your old home, you may be able to deduct the remaining points in the year of sale. Hrblock See Points in Publication 936, Home Mortgage Interest Deduction. Hrblock Photographs of missing children. Hrblock The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Hrblock Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Hrblock You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Hrblock Introduction This publication explains the tax rules that apply when you sell your main home. Hrblock In most cases, your main home is the one in which you live most of the time. Hrblock If you sold your main home in 2013, you may be able to exclude from income any gain up to a limit of $250,000 ($500,000 on a joint return in most cases). Hrblock See Excluding the Gain , later. Hrblock Generally, if you can exclude all the gain, you do not need to report the sale on your tax return. Hrblock If you have gain that cannot be excluded, you generally must report it on Form 8949, Sales and Other Dispositions of Capital Assets, and Schedule D (Form 1040), Capital Gains and Losses. Hrblock You may also have to complete Form 4797, Sales of Business Property. Hrblock See Reporting the Sale , later. Hrblock If you have a loss on the sale, you generally cannot deduct it on your return. Hrblock However, you may need to report it. Hrblock See Reporting the Sale , later. Hrblock The main topics in this publication are: Figuring gain or loss, Basis, Excluding the gain, Ownership and use tests, and Reporting the sale. Hrblock Other topics include: Business use or rental of home, Deducting taxes in the year of sale, and Recapturing a federal mortgage subsidy. Hrblock Net Investment Income Tax (NIIT). Hrblock If any part of the gain on the sale of a home is not excluded under the rules discussed in this publication, it may be subject to the NIIT. Hrblock For more details, see Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts, and its instructions. Hrblock Worksheets. Hrblock Near the end of this publication you will find worksheets you can use to figure your gain (or loss) and your exclusion. Hrblock Use Worksheet 1 to figure the adjusted basis of the home you sold. Hrblock Use Worksheet 2 to figure the gain (or loss), the exclusion, and the taxable gain (if any) on the sale. Hrblock If you do not qualify for the maximum exclusion, use Worksheet 3 to figure your reduced maximum exclusion. Hrblock Date of sale. Hrblock If you received a Form 1099-S, Proceeds From Real Estate Transactions, the date of sale should be shown in box 1. Hrblock If you did not receive this form, the date of sale is the earlier of (a) the date title transferred or (b) the date the economic burdens and benefits of ownership shifted to the buyer. Hrblock In most cases, these dates are the same. Hrblock What is not covered in this publication. Hrblock This publication does not cover the sale of rental property, second homes, or vacation homes. Hrblock For information on how to report any gain or loss from those sales, see Publication 544, Sales and Other Dispositions of Assets. Hrblock Comments and suggestions. Hrblock We welcome your comments about this publication and your suggestions for future editions. Hrblock You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Hrblock NW, IR-6526 Washington, DC 20224 We respond to many letters by telephone. Hrblock Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Hrblock You can send your comments from www. Hrblock irs. Hrblock gov/formspubs/. Hrblock Click on “More Information” and then on “Comment on Tax Forms and Publications”. Hrblock Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Hrblock Ordering forms and publications. Hrblock Visit www. Hrblock irs. Hrblock gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Hrblock Internal Revenue Service 1201 N. Hrblock Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Hrblock If you have a tax question, check the information available on IRS. Hrblock gov or call 1-800-829-1040. Hrblock We cannot answer tax questions sent to either of the above addresses. Hrblock Useful Items - You may want to see: Publication 527 Residential Rental Property 530 Tax Information for Homeowners 544 Sales and Other Dispositions of Assets 547 Casualties, Disasters, and Thefts 551 Basis of Assets 587 Business Use of Your Home 936 Home Mortgage Interest Deduction 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule D (Form 1040) Capital Gains and Losses 982 Reduction of Tax Attributes Due to Discharge of Indebtedness 1040 U. Hrblock S. Hrblock Individual Income Tax Return 1040NR U. Hrblock S. Hrblock Nonresident Alien Income Tax Return 1040X Amended U. Hrblock S. Hrblock Individual Income Tax Return 1099-S Proceeds From Real Estate Transactions 4797 Sales of Business Property 5405 Repayment of the First-Time Homebuyer Credit 8822 Change of Address 8828 Recapture of Federal Mortgage Subsidy 8939 Allocation of Increase in Basis for Property Acquired From a Decedent 8949 Sales and Other Dispositions of Capital Assets W-2 Wage and Tax Statement See How To Get Tax Help , near the end of this publication, for information about getting these publications and forms. Hrblock Prev Up Next Home More Online Publications
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Hrblock 12. Hrblock Other Income Table of Contents Introduction Useful Items - You may want to see: Bartering Canceled DebtsInterest included in canceled debt. Hrblock Exceptions Host or Hostess Life Insurance ProceedsSurviving spouse. Hrblock Endowment Contract Proceeds Accelerated Death Benefits Public Safety Officer Killed in the Line of Duty Partnership Income S Corporation Income RecoveriesItemized Deduction Recoveries Rents from Personal Property RepaymentsMethod 1. Hrblock Method 2. Hrblock RoyaltiesDepletion. Hrblock Coal and iron ore. Hrblock Sale of property interest. Hrblock Part of future production sold. Hrblock Unemployment BenefitsTypes of unemployment compensation. Hrblock Governmental program. Hrblock Repayment of unemployment compensation. Hrblock Tax withholding. Hrblock Repayment of benefits. Hrblock Welfare and Other Public Assistance Benefits Other IncomeEmotional distress. Hrblock Deduction for costs involved in unlawful discrimination suits. Hrblock Energy conservation measure. Hrblock Dwelling unit. Hrblock Current income required to be distributed. Hrblock Current income not required to be distributed. Hrblock How to report. Hrblock Losses. Hrblock Grantor trust. Hrblock Nonemployee compensation. Hrblock Corporate director. Hrblock Personal representatives. Hrblock Manager of trade or business for bankruptcy estate. Hrblock Notary public. Hrblock Election precinct official. Hrblock Difficulty-of-care payments. Hrblock Maintaining space in home. Hrblock Reporting taxable payments. Hrblock Lotteries and raffles. Hrblock Form W-2G. Hrblock Reporting winnings and recordkeeping. Hrblock Inherited pension or IRA. Hrblock Employee awards or bonuses. Hrblock Pulitzer, Nobel, and similar prizes. Hrblock Payment for services. Hrblock VA payments. Hrblock Prizes. Hrblock Strike and lockout benefits. Hrblock Introduction You must include on your return all items of income you receive in the form of money, property, and services unless the tax law states that you do not include them. Hrblock Some items, however, are only partly excluded from income. Hrblock This chapter discusses many kinds of income and explains whether they are taxable or nontaxable. Hrblock Income that is taxable must be reported on your tax return and is subject to tax. Hrblock Income that is nontaxable may have to be shown on your tax return but is not taxable. Hrblock This chapter begins with discussions of the following income items. Hrblock Bartering. Hrblock Canceled debts. Hrblock Sales parties at which you are the host or hostess. Hrblock Life insurance proceeds. Hrblock Partnership income. Hrblock S Corporation income. Hrblock Recoveries (including state income tax refunds). Hrblock Rents from personal property. Hrblock Repayments. Hrblock Royalties. Hrblock Unemployment benefits. Hrblock Welfare and other public assistance benefits. Hrblock These discussions are followed by brief discussions of other income items. Hrblock Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 544 Sales and Other Dispositions of Assets 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Bartering Bartering is an exchange of property or services. Hrblock You must include in your income, at the time received, the fair market value of property or services you receive in bartering. Hrblock If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as fair market value unless the value can be shown to be otherwise. Hrblock Generally, you report this income on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Hrblock However, if the barter involves an exchange of something other than services, such as in Example 3 below, you may have to use another form or schedule instead. Hrblock Example 1. Hrblock You are a self-employed attorney who performs legal services for a client, a small corporation. Hrblock The corporation gives you shares of its stock as payment for your services. Hrblock You must include the fair market value of the shares in your income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) in the year you receive them. Hrblock Example 2. Hrblock You are self-employed and a member of a barter club. Hrblock The club uses “credit units” as a means of exchange. Hrblock It adds credit units to your account for goods or services you provide to members, which you can use to purchase goods or services offered by other members of the barter club. Hrblock The club subtracts credit units from your account when you receive goods or services from other members. Hrblock You must include in your income the value of the credit units that are added to your account, even though you may not actually receive goods or services from other members until a later tax year. Hrblock Example 3. Hrblock You own a small apartment building. Hrblock In return for 6 months rent-free use of an apartment, an artist gives you a work of art she created. Hrblock You must report as rental income on Schedule E (Form 1040), Supplemental Income and Loss, the fair market value of the artwork, and the artist must report as income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) the fair rental value of the apartment. Hrblock Form 1099-B from barter exchange. Hrblock If you exchanged property or services through a barter exchange, Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or a similar statement from the barter exchange should be sent to you by February 18, 2014. Hrblock It should show the value of cash, property, services, credits, or scrip you received from exchanges during 2013. Hrblock The IRS also will receive a copy of Form 1099-B. Hrblock Canceled Debts In most cases, if a debt you owe is canceled or forgiven, other than as a gift or bequest, you must include the canceled amount in your income. Hrblock You have no income from the canceled debt if it is intended as a gift to you. Hrblock A debt includes any indebtedness for which you are liable or which attaches to property you hold. Hrblock If the debt is a nonbusiness debt, report the canceled amount on Form 1040, line 21. Hrblock If it is a business debt, report the amount on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) (or on Schedule F (Form 1040), Profit or Loss From Farming, if the debt is farm debt and you are a farmer). Hrblock Form 1099-C. Hrblock If a Federal Government agency, financial institution, or credit union cancels or forgives a debt you owe of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. Hrblock The amount of the canceled debt is shown in box 2. Hrblock Interest included in canceled debt. Hrblock If any interest is forgiven and included in the amount of canceled debt in box 2, the amount of interest also will be shown in box 3. Hrblock Whether or not you must include the interest portion of the canceled debt in your income depends on whether the interest would be deductible when you paid it. Hrblock See Deductible debt under Exceptions, later. Hrblock If the interest would not be deductible (such as interest on a personal loan), include in your income the amount from Form 1099-C, box 2. Hrblock If the interest would be deductible (such as on a business loan), include in your income the net amount of the canceled debt (the amount shown in box 2 less the interest amount shown in box 3). Hrblock Discounted mortgage loan. Hrblock If your financial institution offers a discount for the early payment of your mortgage loan, the amount of the discount is canceled debt. Hrblock You must include the canceled amount in your income. Hrblock Mortgage relief upon sale or other disposition. Hrblock If you are personally liable for a mortgage (recourse debt), and you are relieved of the mortgage when you dispose of the property, you may realize gain or loss up to the fair market value of the property. Hrblock To the extent the mortgage discharge exceeds the fair market value of the property, it is income from discharge of indebtedness unless it qualifies for exclusion under Excluded debt , later. Hrblock Report any income from discharge of indebtedness on nonbusiness debt that does not qualify for exclusion as other income on Form 1040, line 21. Hrblock You may be able to exclude part of the mortgage relief on your principal residence. Hrblock See Excluded debt, later. Hrblock If you are not personally liable for a mortgage (nonrecourse debt), and you are relieved of the mortgage when you dispose of the property (such as through foreclosure), that relief is included in the amount you realize. Hrblock You may have a taxable gain if the amount you realize exceeds your adjusted basis in the property. Hrblock Report any gain on nonbusiness property as a capital gain. Hrblock See Publication 4681 for more information. Hrblock Stockholder debt. Hrblock If you are a stockholder in a corporation and the corporation cancels or forgives your debt to it, the canceled debt is a constructive distribution that is generally dividend income to you. Hrblock For more information, see Publication 542, Corporations. Hrblock If you are a stockholder in a corporation and you cancel a debt owed to you by the corporation, you generally do not realize income. Hrblock This is because the canceled debt is considered as a contribution to the capital of the corporation equal to the amount of debt principal that you canceled. Hrblock Repayment of canceled debt. Hrblock If you included a canceled amount in your income and later pay the debt, you may be able to file a claim for refund for the year the amount was included in income. Hrblock You can file a claim on Form 1040X if the statute of limitations for filing a claim is still open. Hrblock The statute of limitations generally does not end until 3 years after the due date of your original return. Hrblock Exceptions There are several exceptions to the inclusion of canceled debt in income. Hrblock These are explained next. Hrblock Student loans. Hrblock Certain student loans contain a provision that all or part of the debt incurred to attend the qualified educational institution will be canceled if you work for a certain period of time in certain professions for any of a broad class of employers. Hrblock You do not have income if your student loan is canceled after you agreed to this provision and then performed the services required. Hrblock To qualify, the loan must have been made by: The Federal Government, a state or local government, or an instrumentality, agency, or subdivision thereof, A tax-exempt public benefit corporation that has assumed control of a state, county, or municipal hospital, and whose employees are considered public employees under state law, or An educational institution: Under an agreement with an entity described in (1) or (2) that provided the funds to the institution to make the loan, or As part of a program of the institution designed to encourage its students to serve in occupations with unmet needs or in areas with unmet needs and under which the services provided by the students (or former students) are for or under the direction of a governmental unit or a tax-exempt organization described in section 501(c)(3). Hrblock A loan to refinance a qualified student loan also will qualify if it was made by an educational institution or a qualified tax-exempt organization under its program designed as described in (3)(b) above. Hrblock Education loan repayment assistance. Hrblock Education loan repayments made to you by the National Health Service Corps Loan Repayment Program (NHSC Loan Repayment Program), a state education loan repayment program eligible for funds under the Public Health Service Act, or any other state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health services in underserved or health professional shortage areas are not taxable. Hrblock The provision relating to the “other state loan repayment or loan forgiveness program” was added to this exclusion for amounts received in tax years beginning after December 31, 2008. Hrblock If you included these amounts in income in 2010, 2011, or 2012, you should file an amended tax return to exclude this income. Hrblock See Form 1040X and its instructions for details on filing. Hrblock Deductible debt. Hrblock You do not have income from the cancellation of a debt if your payment of the debt would be deductible. Hrblock This exception applies only if you use the cash method of accounting. Hrblock For more information, see chapter 5 of Publication 334, Tax Guide for Small Business. Hrblock Price reduced after purchase. Hrblock In most cases, if the seller reduces the amount of debt you owe for property you purchased, you do not have income from the reduction. Hrblock The reduction of the debt is treated as a purchase price adjustment and reduces your basis in the property. Hrblock Excluded debt. Hrblock Do not include a canceled debt in your gross income in the following situations. Hrblock The debt is canceled in a bankruptcy case under title 11 of the U. Hrblock S. Hrblock Code. Hrblock See Publication 908, Bankruptcy Tax Guide. Hrblock The debt is canceled when you are insolvent. Hrblock However, you cannot exclude any amount of canceled debt that is more than the amount by which you are insolvent. Hrblock See Publication 908. Hrblock The debt is qualified farm debt and is canceled by a qualified person. Hrblock See chapter 3 of Publication 225, Farmer's Tax Guide. Hrblock The debt is qualified real property business debt. Hrblock See chapter 5 of Publication 334. Hrblock The cancellation is intended as a gift. Hrblock The debt is qualified principal residence indebtedness. Hrblock See Publication 525 for additional information. Hrblock Host or Hostess If you host a party or event at which sales are made, any gift or gratuity you receive for giving the event is a payment for helping a direct seller make sales. Hrblock You must report this item as income at its fair market value. Hrblock Your out-of-pocket party expenses are subject to the 50% limit for meal and entertainment expenses. Hrblock These expenses are deductible as miscellaneous itemized deductions subject to the 2%-of-AGI limit on Schedule A (Form 1040), but only up to the amount of income you receive for giving the party. Hrblock For more information about the 50% limit for meal and entertainment expenses, see chapter 26. Hrblock Life Insurance Proceeds Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. Hrblock This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. Hrblock However, interest income received as a result of life insurance proceeds may be taxable. Hrblock Proceeds not received in installments. Hrblock If death benefits are paid to you in a lump sum or other than at regular intervals, include in your income only the benefits that are more than the amount payable to you at the time of the insured person's death. Hrblock If the benefit payable at death is not specified, you include in your income the benefit payments that are more than the present value of the payments at the time of death. Hrblock Proceeds received in installments. Hrblock If you receive life insurance proceeds in installments, you can exclude part of each installment from your income. Hrblock To determine the excluded part, divide the amount held by the insurance company (generally the total lump sum payable at the death of the insured person) by the number of installments to be paid. Hrblock Include anything over this excluded part in your income as interest. Hrblock Surviving spouse. Hrblock If your spouse died before October 23, 1986, and insurance proceeds paid to you because of the death of your spouse are received in installments, you can exclude up to $1,000 a year of the interest included in the installments. Hrblock If you remarry, you can continue to take the exclusion. Hrblock Surrender of policy for cash. Hrblock If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Hrblock In most cases, your cost (or investment in the contract) is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income. Hrblock You should receive a Form 1099-R showing the total proceeds and the taxable part. Hrblock Report these amounts on lines 16a and 16b of Form 1040 or lines 12a and 12b of Form 1040A. Hrblock More information. Hrblock For more information, see Life Insurance Proceeds in Publication 525. Hrblock Endowment Contract Proceeds An endowment contract is a policy under which you are paid a specified amount of money on a certain date unless you die before that date, in which case, the money is paid to your designated beneficiary. Hrblock Endowment proceeds paid in a lump sum to you at maturity are taxable only if the proceeds are more than the cost of the policy. Hrblock To determine your cost, subtract any amount that you previously received under the contract and excluded from your income from the total premiums (or other consideration) paid for the contract. Hrblock Include the part of the lump sum payment that is more than your cost in your income. Hrblock Accelerated Death Benefits Certain amounts paid as accelerated death benefits under a life insurance contract or viatical settlement before the insured's death are excluded from income if the insured is terminally or chronically ill. Hrblock Viatical settlement. Hrblock This is the sale or assignment of any part of the death benefit under a life insurance contract to a viatical settlement provider. Hrblock A viatical settlement provider is a person who regularly engages in the business of buying or taking assignment of life insurance contracts on the lives of insured individuals who are terminally or chronically ill and who meets the requirements of section 101(g)(2)(B) of the Internal Revenue Code. Hrblock Exclusion for terminal illness. Hrblock Accelerated death benefits are fully excludable if the insured is a terminally ill individual. Hrblock This is a person who has been certified by a physician as having an illness or physical condition that can reasonably be expected to result in death within 24 months from the date of the certification. Hrblock Exclusion for chronic illness. Hrblock If the insured is a chronically ill individual who is not terminally ill, accelerated death benefits paid on the basis of costs incurred for qualified long-term care services are fully excludable. Hrblock Accelerated death benefits paid on a per diem or other periodic basis are excludable up to a limit. Hrblock This limit applies to the total of the accelerated death benefits and any periodic payments received from long-term care insurance contracts. Hrblock For information on the limit and the definitions of chronically ill individual, qualified long-term care services, and long-term care insurance contracts, see Long-Term Care Insurance Contracts under Sickness and Injury Benefits in Publication 525. Hrblock Exception. Hrblock The exclusion does not apply to any amount paid to a person (other than the insured) who has an insurable interest in the life of the insured because the insured: Is a director, officer, or employee of the person, or Has a financial interest in the person's business. Hrblock Form 8853. Hrblock To claim an exclusion for accelerated death benefits made on a per diem or other periodic basis, you must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your return. Hrblock You do not have to file Form 8853 to exclude accelerated death benefits paid on the basis of actual expenses incurred. Hrblock Public Safety Officer Killed in the Line of Duty If you are a survivor of a public safety officer who was killed in the line of duty, you may be able to exclude from income certain amounts you receive. Hrblock For this purpose, the term public safety officer includes law enforcement officers, firefighters, chaplains, and rescue squad and ambulance crew members. Hrblock For more information, see Publication 559, Survivors, Executors, and Administrators. Hrblock Partnership Income A partnership generally is not a taxable entity. Hrblock The income, gains, losses, deductions, and credits of a partnership are passed through to the partners based on each partner's distributive share of these items. Hrblock Schedule K-1 (Form 1065). Hrblock Although a partnership generally pays no tax, it must file an information return on Form 1065, U. Hrblock S. Hrblock Return of Partnership Income, and send Schedule K-1 (Form 1065) to each partner. Hrblock In addition, the partnership will send each partner a copy of the Partner's Instructions for Schedule K-1 (Form 1065) to help each partner report his or her share of the partnership's income, deductions, credits, and tax preference items. Hrblock Keep Schedule K-1 (Form 1065) for your records. Hrblock Do not attach it to your Form 1040, unless you are specifically required to do so. Hrblock For more information on partnerships, see Publication 541, Partnerships. Hrblock Qualified joint venture. Hrblock If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership. Hrblock To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. Hrblock For further information on how to make the election and which schedule(s) to file, see the instructions for your individual tax return. Hrblock S Corporation Income In most cases, an S corporation does not pay tax on its income. Hrblock Instead, the income, losses, deductions, and credits of the corporation are passed through to the shareholders based on each shareholder's pro rata share. Hrblock Schedule K-1 (Form 1120S). Hrblock An S corporation must file a return on Form 1120S, U. Hrblock S. Hrblock Income Tax Return for an S Corporation, and send Schedule K-1 (Form 1120S) to each shareholder. Hrblock In addition, the S corporation will send each shareholder a copy of the Shareholder's Instructions for Schedule K-1 (Form 1120S) to help each shareholder report his or her share of the S corporation's income, losses, credits, and deductions. Hrblock Keep Schedule K-1 (Form 1120S) for your records. Hrblock Do not attach it to your Form 1040, unless you are specifically required to do so. Hrblock For more information on S corporations and their shareholders, see the Instructions for Form 1120S. Hrblock Recoveries A recovery is a return of an amount you deducted or took a credit for in an earlier year. Hrblock The most common recoveries are refunds, reimbursements, and rebates of deductions itemized on Schedule A (Form 1040). Hrblock You also may have recoveries of non-itemized deductions (such as payments on previously deducted bad debts) and recoveries of items for which you previously claimed a tax credit. Hrblock Tax benefit rule. Hrblock You must include a recovery in your income in the year you receive it up to the amount by which the deduction or credit you took for the recovered amount reduced your tax in the earlier year. Hrblock For this purpose, any increase to an amount carried over to the current year that resulted from the deduction or credit is considered to have reduced your tax in the earlier year. Hrblock For more information, see Publication 525. Hrblock Federal income tax refund. Hrblock Refunds of federal income taxes are not included in your income because they are never allowed as a deduction from income. Hrblock State tax refund. Hrblock If you received a state or local income tax refund (or credit or offset) in 2013, you generally must include it in income if you deducted the tax in an earlier year. Hrblock The payer should send Form 1099-G, Certain Government Payments, to you by January 31, 2014. Hrblock The IRS also will receive a copy of the Form 1099-G. Hrblock If you file Form 1040, use the State and Local Income Tax Refund Worksheet in the 2013 Form 1040 instructions for line 10 to figure the amount (if any) to include in your income. Hrblock See Publication 525 for when you must use another worksheet. Hrblock If you could choose to deduct for a tax year either: State and local income taxes, or State and local general sales taxes, then the maximum refund that you may have to include in income is limited to the excess of the tax you chose to deduct for that year over the tax you did not choose to deduct for that year. Hrblock For examples, see Publication 525. Hrblock Mortgage interest refund. Hrblock If you received a refund or credit in 2013 of mortgage interest paid in an earlier year, the amount should be shown in box 3 of your Form 1098, Mortgage Interest Statement. Hrblock Do not subtract the refund amount from the interest you paid in 2013. Hrblock You may have to include it in your income under the rules explained in the following discussions. Hrblock Interest on recovery. Hrblock Interest on any of the amounts you recover must be reported as interest income in the year received. Hrblock For example, report any interest you received on state or local income tax refunds on Form 1040, line 8a. Hrblock Recovery and expense in same year. Hrblock If the refund or other recovery and the expense occur in the same year, the recovery reduces the deduction or credit and is not reported as income. Hrblock Recovery for 2 or more years. Hrblock If you receive a refund or other recovery that is for amounts you paid in 2 or more separate years, you must allocate, on a pro rata basis, the recovered amount between the years in which you paid it. Hrblock This allocation is necessary to determine the amount of recovery from any earlier years and to determine the amount, if any, of your allowable deduction for this item for the current year. Hrblock For information on how to compute the allocation, see Recoveries in Publication 525. Hrblock Itemized Deduction Recoveries If you recover any amount that you deducted in an earlier year on Schedule A (Form 1040), you generally must include the full amount of the recovery in your income in the year you receive it. Hrblock Where to report. Hrblock Enter your state or local income tax refund on Form 1040, line 10, and the total of all other recoveries as other income on Form 1040, line 21. Hrblock You cannot use Form 1040A or Form 1040EZ. Hrblock Standard deduction limit. Hrblock You generally are allowed to claim the standard deduction if you do not itemize your deductions. Hrblock Only your itemized deductions that are more than your standard deduction are subject to the recovery rule (unless you are required to itemize your deductions). Hrblock If your total deductions on the earlier year return were not more than your income for that year, include in your income this year the lesser of: Your recoveries, or The amount by which your itemized deductions exceeded the standard deduction. Hrblock Example. Hrblock For 2012, you filed a joint return. Hrblock Your taxable income was $60,000 and you were not entitled to any tax credits. Hrblock Your standard deduction was $11,900, and you had itemized deductions of $14,000. Hrblock In 2013, you received the following recoveries for amounts deducted on your 2012 return: Medical expenses $200 State and local income tax refund 400 Refund of mortgage interest 325 Total recoveries $925 None of the recoveries were more than the deductions taken for 2012. Hrblock The difference between the state and local income tax you deducted and your local general sales tax was more than $400. Hrblock Your total recoveries are less than the amount by which your itemized deductions exceeded the standard deduction ($14,000 − 11,900 = $2,100), so you must include your total recoveries in your income for 2013. Hrblock Report the state and local income tax refund of $400 on Form 1040, line 10, and the balance of your recoveries, $525, on Form 1040, line 21. Hrblock Standard deduction for earlier years. Hrblock To determine if amounts recovered in 2013 must be included in your income, you must know the standard deduction for your filing status for the year the deduction was claimed. Hrblock Look in the instructions for your tax return from prior years to locate the standard deduction for the filing status for that prior year. Hrblock Example. Hrblock You filed a joint return on Form 1040 for 2012 with taxable income of $45,000. Hrblock Your itemized deductions were $12,350. Hrblock The standard deduction that you could have claimed was $11,900. Hrblock In 2013, you recovered $2,100 of your 2012 itemized deductions. Hrblock None of the recoveries were more than the actual deductions for 2012. Hrblock Include $450 of the recoveries in your 2013 income. Hrblock This is the smaller of your recoveries ($2,100) or the amount by which your itemized deductions were more than the standard deduction ($12,350 − $11,900 = $450). Hrblock Recovery limited to deduction. Hrblock You do not include in your income any amount of your recovery that is more than the amount you deducted in the earlier year. Hrblock The amount you include in your income is limited to the smaller of: The amount deducted on Schedule A (Form 1040), or The amount recovered. Hrblock Example. Hrblock During 2012 you paid $1,700 for medical expenses. Hrblock From this amount you subtracted $1,500, which was 7. Hrblock 5% of your adjusted gross income. Hrblock Your actual medical expense deduction was $200. Hrblock In 2013, you received a $500 reimbursement from your medical insurance for your 2012 expenses. Hrblock The only amount of the $500 reimbursement that must be included in your income for 2013 is $200—the amount actually deducted. Hrblock Other recoveries. Hrblock See Recoveries in Publication 525 if: You have recoveries of items other than itemized deductions, or You received a recovery for an item for which you claimed a tax credit (other than investment credit or foreign tax credit) in a prior year. Hrblock Rents from Personal Property If you rent out personal property, such as equipment or vehicles, how you report your income and expenses is in most cases determined by: Whether or not the rental activity is a business, and Whether or not the rental activity is conducted for profit. Hrblock In most cases, if your primary purpose is income or profit and you are involved in the rental activity with continuity and regularity, your rental activity is a business. Hrblock See Publication 535, Business Expenses, for details on deducting expenses for both business and not-for-profit activities. Hrblock Reporting business income and expenses. Hrblock If you are in the business of renting personal property, report your income and expenses on Schedule C or Schedule C-EZ (Form 1040). Hrblock The form instructions have information on how to complete them. Hrblock Reporting nonbusiness income. Hrblock If you are not in the business of renting personal property, report your rental income on Form 1040, line 21. Hrblock List the type and amount of the income on the dotted line next to line 21. Hrblock Reporting nonbusiness expenses. Hrblock If you rent personal property for profit, include your rental expenses in the total amount you enter on Form 1040, line 36. Hrblock Also enter the amount and “PPR” on the dotted line next to line 36. Hrblock If you do not rent personal property for profit, your deductions are limited and you cannot report a loss to offset other income. Hrblock See Activity not for profit , under Other Income, later. Hrblock Repayments If you had to repay an amount that you included in your income in an earlier year, you may be able to deduct the amount repaid from your income for the year in which you repaid it. Hrblock Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it. Hrblock Generally, you can claim a deduction or credit only if the repayment qualifies as an expense or loss incurred in your trade or business or in a for-profit transaction. Hrblock Type of deduction. Hrblock The type of deduction you are allowed in the year of repayment depends on the type of income you included in the earlier year. Hrblock You generally deduct the repayment on the same form or schedule on which you previously reported it as income. Hrblock For example, if you reported it as self-employment income, deduct it as a business expense on Schedule C or Schedule C-EZ (Form 1040) or Schedule F (Form 1040). Hrblock If you reported it as a capital gain, deduct it as a capital loss as explained in the Instructions for Schedule D (Form 1040). Hrblock If you reported it as wages, unemployment compensation, or other nonbusiness income, deduct it as a miscellaneous itemized deduction on Schedule A (Form 1040). Hrblock Repaid social security benefits. Hrblock If you repaid social security benefits or equivalent railroad retirement benefits, see Repayment of benefits in chapter 11. Hrblock Repayment of $3,000 or less. Hrblock If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. Hrblock If you must deduct it as a miscellaneous itemized deduction, enter it on Schedule A (Form 1040), line 23. Hrblock Repayment over $3,000. Hrblock If the amount you repaid was more than $3,000, you can deduct the repayment (as explained under Type of deduction , earlier). Hrblock However, you can choose instead to take a tax credit for the year of repayment if you included the income under a claim of right. Hrblock This means that at the time you included the income, it appeared that you had an unrestricted right to it. Hrblock If you qualify for this choice, figure your tax under both methods and compare the results. Hrblock Use the method (deduction or credit) that results in less tax. Hrblock When determining whether the amount you repaid was more or less than $3,000, consider the total amount being repaid on the return. Hrblock Each instance of repayment is not considered separately. Hrblock Method 1. Hrblock Figure your tax for 2013 claiming a deduction for the repaid amount. Hrblock If you must deduct it as a miscellaneous itemized deduction, enter it on Schedule A (Form 1040), line 28. Hrblock Method 2. Hrblock Figure your tax for 2013 claiming a credit for the repaid amount. Hrblock Follow these steps. Hrblock Figure your tax for 2013 without deducting the repaid amount. Hrblock Refigure your tax from the earlier year without including in income the amount you repaid in 2013. Hrblock Subtract the tax in (2) from the tax shown on your return for the earlier year. Hrblock This is the credit. Hrblock Subtract the answer in (3) from the tax for 2013 figured without the deduction (Step 1). Hrblock If method 1 results in less tax, deduct the amount repaid. Hrblock If method 2 results in less tax, claim the credit figured in (3) above on Form 1040, line 71, by adding the amount of the credit to any other credits on this line, and entering “I. Hrblock R. Hrblock C. Hrblock 1341” in the column to the right of line 71. Hrblock An example of this computation can be found in Publication 525. Hrblock Repaid wages subject to social security and Medicare taxes. Hrblock If you had to repay an amount that you included in your wages or compensation in an earlier year on which social security, Medicare, or tier 1 RRTA taxes were paid, ask your employer to refund the excess amount to you. Hrblock If the employer refuses to refund the taxes, ask for a statement indicating the amount of the overcollection to support your claim. Hrblock File a claim for refund using Form 843, Claim for Refund and Request for Abatement. Hrblock Repaid wages subject to Additional Medicare Tax. Hrblock Employers cannot make an adjustment or file a claim for refund for Additional Medicare Tax withholding when there is a repayment of wages received by an employee in a prior year because the employee determines liability for Additional Medicare Tax on the employee's income tax return for the prior year. Hrblock If you had to repay an amount that you included in your wages or compensation in an earlier year, and on which Additional Medicare Tax was paid, you may be able to recover the Additional Medicare Tax paid on the amount. Hrblock To recover Additional Medicare Tax on the repaid wages or compensation, you must file Form 1040X, Amended U. Hrblock S. Hrblock Individual Income Tax Return, for the prior year in which the wages or compensation were originally received. Hrblock See the Instructions for Form 1040X. Hrblock Royalties Royalties from copyrights, patents, and oil, gas, and mineral properties are taxable as ordinary income. Hrblock In most cases you report royalties in Part I of Schedule E (Form 1040). Hrblock However, if you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventor, artist, etc. Hrblock , report your income and expenses on Schedule C or Schedule C-EZ (Form 1040). Hrblock Copyrights and patents. Hrblock Royalties from copyrights on literary, musical, or artistic works, and similar property, or from patents on inventions, are amounts paid to you for the right to use your work over a specified period of time. Hrblock Royalties generally are based on the number of units sold, such as the number of books, tickets to a performance, or machines sold. Hrblock Oil, gas, and minerals. Hrblock Royalty income from oil, gas, and mineral properties is the amount you receive when natural resources are extracted from your property. Hrblock The royalties are based on units, such as barrels, tons, etc. Hrblock , and are paid to you by a person or company who leases the property from you. Hrblock Depletion. Hrblock If you are the owner of an economic interest in mineral deposits or oil and gas wells, you can recover your investment through the depletion allowance. Hrblock For information on this subject, see chapter 9 of Publication 535. Hrblock Coal and iron ore. Hrblock Under certain circumstances, you can treat amounts you receive from the disposal of coal and iron ore as payments from the sale of a capital asset, rather than as royalty income. Hrblock For information about gain or loss from the sale of coal and iron ore, see Publication 544. Hrblock Sale of property interest. Hrblock If you sell your complete interest in oil, gas, or mineral rights, the amount you receive is considered payment for the sale of property used in a trade or business under section 1231, not royalty income. Hrblock Under certain circumstances, the sale is subject to capital gain or loss treatment as explained in the Instructions for Schedule D (Form 1040). Hrblock For more information on selling section 1231 property, see chapter 3 of Publication 544. Hrblock If you retain a royalty, an overriding royalty, or a net profit interest in a mineral property for the life of the property, you have made a lease or a sublease, and any cash you receive for the assignment of other interests in the property is ordinary income subject to a depletion allowance. Hrblock Part of future production sold. Hrblock If you own mineral property but sell part of the future production, in most cases you treat the money you receive from the buyer at the time of the sale as a loan from the buyer. Hrblock Do not include it in your income or take depletion based on it. Hrblock When production begins, you include all the proceeds in your income, deduct all the production expenses, and deduct depletion from that amount to arrive at your taxable income from the property. Hrblock Unemployment Benefits The tax treatment of unemployment benefits you receive depends on the type of program paying the benefits. Hrblock Unemployment compensation. Hrblock You must include in income all unemployment compensation you receive. Hrblock You should receive a Form 1099-G showing in box 1 the total unemployment compensation paid to you. Hrblock In most cases, you enter unemployment compensation on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. Hrblock Types of unemployment compensation. Hrblock Unemployment compensation generally includes any amount received under an unemployment compensation law of the United States or of a state. Hrblock It includes the following benefits. Hrblock Benefits paid by a state or the District of Columbia from the Federal Unemployment Trust Fund. Hrblock State unemployment insurance benefits. Hrblock Railroad unemployment compensation benefits. Hrblock Disability payments from a government program paid as a substitute for unemployment compensation. Hrblock (Amounts received as workers' compensation for injuries or illness are not unemployment compensation. Hrblock See chapter 5 for more information. Hrblock ) Trade readjustment allowances under the Trade Act of 1974. Hrblock Unemployment assistance under the Disaster Relief and Emergency Assistance Act. Hrblock Unemployment assistance under the Airline Deregulation Act of 1974 Program. Hrblock Governmental program. Hrblock If you contribute to a governmental unemployment compensation program and your contributions are not deductible, amounts you receive under the program are not included as unemployment compensation until you recover your contributions. Hrblock If you deducted all of your contributions to the program, the entire amount you receive under the program is included in your income. Hrblock Repayment of unemployment compensation. Hrblock If you repaid in 2013 unemployment compensation you received in 2013, subtract the amount you repaid from the total amount you received and enter the difference on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. Hrblock On the dotted line next to your entry enter “Repaid” and the amount you repaid. Hrblock If you repaid unemployment compensation in 2013 that you included in income in an earlier year, you can deduct the amount repaid on Schedule A (Form 1040), line 23, if you itemize deductions. Hrblock If the amount is more than $3,000, see Repayments , earlier. Hrblock Tax withholding. Hrblock You can choose to have federal income tax withheld from your unemployment compensation. Hrblock To make this choice, complete Form W-4V, Voluntary Withholding Request, and give it to the paying office. Hrblock Tax will be withheld at 10% of your payment. Hrblock If you do not choose to have tax withheld from your unemployment compensation, you may be liable for estimated tax. Hrblock If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. Hrblock For more information on estimated tax, see chapter 4. Hrblock Supplemental unemployment benefits. Hrblock Benefits received from an employer-financed fund (to which the employees did not contribute) are not unemployment compensation. Hrblock They are taxable as wages and are subject to withholding for income tax. Hrblock They may be subject to social security and Medicare taxes. Hrblock For more information, see Supplemental Unemployment Benefits in section 5 of Publication 15-A, Employer's Supplemental Tax Guide. Hrblock Report these payments on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ. Hrblock Repayment of benefits. Hrblock You may have to repay some of your supplemental unemployment benefits to qualify for trade readjustment allowances under the Trade Act of 1974. Hrblock If you repay supplemental unemployment benefits in the same year you receive them, reduce the total benefits by the amount you repay. Hrblock If you repay the benefits in a later year, you must include the full amount of the benefits received in your income for the year you received them. Hrblock Deduct the repayment in the later year as an adjustment to gross income on Form 1040. Hrblock (You cannot use Form 1040A or Form 1040EZ. Hrblock ) Include the repayment on Form 1040, line 36, and enter “Sub-Pay TRA” and the amount on the dotted line next to line 36. Hrblock If the amount you repay in a later year is more than $3,000, you may be able to take a credit against your tax for the later year instead of deducting the amount repaid. Hrblock For more information on this, see Repayments , earlier. Hrblock Private unemployment fund. Hrblock Unemployment benefit payments from a private (nonunion) fund to which you voluntarily contribute are taxable only if the amounts you receive are more than your total payments into the fund. Hrblock Report the taxable amount on Form 1040, line 21. Hrblock Payments by a union. Hrblock Benefits paid to you as an unemployed member of a union from regular union dues are included in your income on Form 1040, line 21. Hrblock However, if you contribute to a special union fund and your payments to the fund are not deductible, the unemployment benefits you receive from the fund are includible in your income only to the extent they are more than your contributions. Hrblock Guaranteed annual wage. Hrblock Payments you receive from your employer during periods of unemployment, under a union agreement that guarantees you full pay during the year, are taxable as wages. Hrblock Include them on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ. Hrblock State employees. Hrblock Payments similar to a state's unemployment compensation may be made by the state to its employees who are not covered by the state's unemployment compensation law. Hrblock Although the payments are fully taxable, do not report them as unemployment compensation. Hrblock Report these payments on Form 1040, line 21. Hrblock Welfare and Other Public Assistance Benefits Do not include in your income governmental benefit payments from a public welfare fund based upon need, such as payments to blind individuals under a state public assistance law. Hrblock Payments from a state fund for the victims of crime should not be included in the victims' incomes if they are in the nature of welfare payments. Hrblock Do not deduct medical expenses that are reimbursed by such a fund. Hrblock You must include in your income any welfare payments that are compensation for services or that are obtained fraudulently. Hrblock Reemployment Trade Adjustment Assistance (RTAA) payments. Hrblock RTAA payments received from a state must be included in your income. Hrblock The state must send you Form 1099-G to advise you of the amount you should include in income. Hrblock The amount should be reported on Form 1040, line 21. Hrblock Persons with disabilities. Hrblock If you have a disability, you must include in income compensation you receive for services you perform unless the compensation is otherwise excluded. Hrblock However, you do not include in income the value of goods, services, and cash that you receive, not in return for your services, but for your training and rehabilitation because you have a disability. Hrblock Excludable amounts include payments for transportation and attendant care, such as interpreter services for the deaf, reader services for the blind, and services to help individuals with an intellectual disability do their work. Hrblock Disaster relief grants. Hrblock Do not include post-disaster grants received under the Robert T. Hrblock Stafford Disaster Relief and Emergency Assistance Act in your income if the grant payments are made to help you meet necessary expenses or serious needs for medical, dental, housing, personal property, transportation, child care, or funeral expenses. Hrblock Do not deduct casualty losses or medical expenses that are specifically reimbursed by these disaster relief grants. Hrblock If you have deducted a casualty loss for the loss of your personal residence and you later receive a disaster relief grant for the loss of the same residence, you may have to include part or all of the grant in your taxable income. Hrblock See Recoveries , earlier. Hrblock Unemployment assistance payments under the Act are taxable unemployment compensation. Hrblock See Unemployment compensation under Unemployment Benefits, earlier. Hrblock Disaster relief payments. Hrblock You can exclude from income any amount you receive that is a qualified disaster relief payment. Hrblock A qualified disaster relief payment is an amount paid to you: To reimburse or pay reasonable and necessary personal, family, living, or funeral expenses that result from a qualified disaster; To reimburse or pay reasonable and necessary expenses incurred for the repair or rehabilitation of your home or repair or replacement of its contents to the extent it is due to a qualified disaster; By a person engaged in the furnishing or sale of transportation as a common carrier because of the death or personal physical injuries incurred as a result of a qualified disaster; or By a federal, state, or local government, or agency, or instrumentality in connection with a qualified disaster in order to promote the general welfare. Hrblock You can exclude this amount only to the extent any expense it pays for is not paid for by insurance or otherwise. Hrblock The exclusion does not apply if you were a participant or conspirator in a terrorist action or a representative of one. Hrblock A qualified disaster is: A disaster which results from a terrorist or military action; A federally declared disaster; or A disaster which results from an accident involving a common carrier, or from any other event, which is determined to be catastrophic by the Secretary of the Treasury or his or her delegate. Hrblock For amounts paid under item (4), a disaster is qualified if it is determined by an applicable federal, state, or local authority to warrant assistance from the federal, state, or local government, agency, or instrumentality. Hrblock Disaster mitigation payments. Hrblock You also can exclude from income any amount you receive that is a qualified disaster mitigation payment. Hrblock Qualified disaster mitigation payments are also most commonly paid to you in the period immediately following damage to property as a result of a natural disaster. Hrblock However, disaster mitigation payments are used to mitigate (reduce the severity of) potential damage from future natural disasters. Hrblock They are paid to you through state and local governments based on the provisions of the Robert T. Hrblock Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act. Hrblock You cannot increase the basis or adjusted basis of your property for improvements made with nontaxable disaster mitigation payments. Hrblock Home Affordable Modification Program (HAMP). Hrblock If you benefit from Pay-for-Performance Success Payments under HAMP, the payments are not taxable. Hrblock Mortgage assistance payments under section 235 of the National Housing Act. Hrblock Payments made under section 235 of the National Housing Act for mortgage assistance are not included in the homeowner's income. Hrblock Interest paid for the homeowner under the mortgage assistance program cannot be deducted. Hrblock Medicare. Hrblock Medicare benefits received under title XVIII of the Social Security Act are not includible in the gross income of the individuals for whom they are paid. Hrblock This includes basic (part A (Hospital Insurance Benefits for the Aged)) and supplementary (part B (Supplementary Medical Insurance Benefits for the Aged)). Hrblock Old-age, survivors, and disability insurance benefits (OASDI). Hrblock Generally, OASDI payments under section 202 of title II of the Social Security Act are not includible in the gross income of the individuals to whom they are paid. Hrblock This applies to old-age insurance benefits, and insurance benefits for wives, husbands, children, widows, widowers, mothers and fathers, and parents, as well as the lump-sum death payment. Hrblock Nutrition Program for the Elderly. Hrblock Food benefits you receive under the Nutrition Program for the Elderly are not taxable. Hrblock If you prepare and serve free meals for the program, include in your income as wages the cash pay you receive, even if you are also eligible for food benefits. Hrblock Payments to reduce cost of winter energy. Hrblock Payments made by a state to qualified people to reduce their cost of winter energy use are not taxable. Hrblock Other Income The following brief discussions are arranged in alphabetical order. Hrblock Other income items briefly discussed below are referenced to publications which provide more topical information. Hrblock Activity not for profit. Hrblock You must include on your return income from an activity from which you do not expect to make a profit. Hrblock An example of this type of activity is a hobby or a farm you operate mostly for recreation and pleasure. Hrblock Enter this income on Form 1040, line 21. Hrblock Deductions for expenses related to the activity are limited. Hrblock They cannot total more than the income you report and can be taken only if you itemize deductions on Schedule A (Form 1040). Hrblock See Not-for-Profit Activities in chapter 1 of Publication 535 for information on whether an activity is considered carried on for a profit. Hrblock Alaska Permanent Fund dividend. Hrblock If you received a payment from Alaska's mineral income fund (Alaska Permanent Fund dividend), report it as income on line 21 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. Hrblock The state of Alaska sends each recipient a document that shows the amount of the payment with the check. Hrblock The amount also is reported to IRS. Hrblock Alimony. Hrblock Include in your income on Form 1040, line 11, any alimony payments you receive. Hrblock Amounts you receive for child support are not income to you. Hrblock Alimony and child support payments are discussed in chapter 18. Hrblock Bribes. Hrblock If you receive a bribe, include it in your income. Hrblock Campaign contributions. Hrblock These contributions are not income to a candidate unless they are diverted to his or her personal use. Hrblock To be exempt from tax, the contributions must be spent for campaign purposes or kept in a fund for use in future campaigns. Hrblock However, interest earned on bank deposits, dividends received on contributed securities, and net gains realized on sales of contributed securities are taxable and must be reported on Form 1120-POL, U. Hrblock S. Hrblock Income Tax Return for Certain Political Organizations. Hrblock Excess campaign funds transferred to an office account must be included in the officeholder's income on Form 1040, line 21, in the year transferred. Hrblock Car pools. Hrblock Do not include in your income amounts you receive from the passengers for driving a car in a car pool to and from work. Hrblock These amounts are considered reimbursement for your expenses. Hrblock However, this rule does not apply if you have developed car pool arrangements into a profit-making business of transporting workers for hire. Hrblock Cash rebates. Hrblock A cash rebate you receive from a dealer or manufacturer of an item you buy is not income, but you must reduce your basis by the amount of the rebate. Hrblock Example. Hrblock You buy a new car for $24,000 cash and receive a $2,000 rebate check from the manufacturer. Hrblock The $2,000 is not income to you. Hrblock Your basis in the car is $22,000. Hrblock This is the basis on which you figure gain or loss if you sell the car and depreciation if you use it for business. Hrblock Casualty insurance and other reimbursements. Hrblock You generally should not report these reimbursements on your return unless you are figuring gain or loss from the casualty or theft. Hrblock See chapter 25 for more information. Hrblock Child support payments. Hrblock You should not report these payments on your return. Hrblock See chapter 18 for more information. Hrblock Court awards and damages. Hrblock To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces. Hrblock The character of the income as ordinary income or capital gain depends on the nature of the underlying claim. Hrblock Include the following as ordinary income. Hrblock Interest on any award. Hrblock Compensation for lost wages or lost profits in most cases. Hrblock Punitive damages, in most cases. Hrblock It does not matter if they relate to a physical injury or physical sickness. Hrblock Amounts received in settlement of pension rights (if you did not contribute to the plan). Hrblock Damages for: Patent or copyright infringement, Breach of contract, or Interference with business operations. Hrblock Back pay and damages for emotional distress received to satisfy a claim under title VII of the Civil Rights Act of 1964. Hrblock Attorney fees and costs (including contingent fees) where the underlying recovery is included in gross income. Hrblock Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments). Hrblock Emotional distress. Hrblock Emotional distress itself is not a physical injury or physical sickness, but damages you receive for emotional distress due to a physical injury or sickness are treated as received for the physical injury or sickness. Hrblock Do not include them in your income. Hrblock If the emotional distress is due to a personal injury that is not due to a physical injury or sickness (for example, employment discrimination or injury to reputation), you must include the damages in your income, except for any damages you receive for medical care due to that emotional distress. Hrblock Emotional distress includes physical symptoms that result from emotional distress, such as headaches, insomnia, and stomach disorders. Hrblock Deduction for costs involved in unlawful discrimination suits. Hrblock You may be able to deduct attorney fees and court costs paid to recover a judgment or settlement for a claim of unlawful discrimination under various provisions of federal, state, and local law listed in Internal Revenue Code section 62(e), a claim against the United States government, or a claim under section 1862(b)(3)(A) of the Social Security Act. Hrblock For more information, see Publication 525. Hrblock Credit card insurance. Hrblock In most cases, if you receive benefits under a credit card disability or unemployment insurance plan, the benefits are taxable to you. Hrblock These plans make the minimum monthly payment on your credit card account if you cannot make the payment due to injury, illness, disability, or unemployment. Hrblock Report on Form 1040, line 21, the amount of benefits you received during the year that is more than the amount of the premiums you paid during the year. Hrblock Down payment assistance. Hrblock If you purchase a home and receive assistance from a nonprofit corporation to make the down payment, that assistance is not included in your income. Hrblock If the corporation qualifies as a tax-exempt charitable organization, the assistance is treated as a gift and is included in your basis of the house. Hrblock If the corporation does not qualify, the assistance is treated as a rebate or reduction of the purchase price and is not included in your basis. Hrblock Employment agency fees. Hrblock If you get a job through an employment agency, and the fee is paid by your employer, the fee is not includible in your income if you are not liable for it. Hrblock However, if you pay it and your employer reimburses you for it, it is includible in your income. Hrblock Energy conservation subsidies. Hrblock You can exclude from gross income any subsidy provided, either directly or indirectly, by public utilities for the purchase or installation of an energy conservation measure for a dwelling unit. Hrblock Energy conservation measure. Hrblock This includes installations or modifications that are primarily designed to reduce consumption of electricity or natural gas, or improve the management of energy demand. Hrblock Dwelling unit. Hrblock This includes a house, apartment, condominium, mobile home, boat, or similar property. Hrblock If a building or structure contains both dwelling and other units, any subsidy must be properly allocated. Hrblock Estate and trust income. Hrblock An estate or trust, unlike a partnership, may have to pay federal income tax. Hrblock If you are a beneficiary of an estate or trust, you may be taxed on your share of its income distributed or required to be distributed to you. Hrblock However, there is never a double tax. Hrblock Estates and trusts file their returns on Form 1041, U. Hrblock S. Hrblock Income Tax Return for Estates and Trusts, and your share of the income is reported to you on Schedule K-1 (Form 1041). Hrblock Current income required to be distributed. Hrblock If you are the beneficiary of an estate or trust that must distribute all of its current income, you must report your share of the distributable net income, whether or not you actually received it. Hrblock Current income not required to be distributed. Hrblock If you are the beneficiary of an estate or trust and the fiduciary has the choice of whether to distribute all or part of the current income, you must report: All income that is required to be distributed to you, whether or not it is actually distributed, plus All other amounts actually paid or credited to you, up to the amount of your share of distributable net income. Hrblock How to report. Hrblock Treat each item of income the same way that the estate or trust would treat it. Hrblock For example, if a trust's dividend income is distributed to you, you report the distribution as dividend income on your return. Hrblock The same rule applies to distributions of tax-exempt interest and capital gains. Hrblock The fiduciary of the estate or trust must tell you the type of items making up your share of the estate or trust income and any credits you are allowed on your individual income tax return. Hrblock Losses. Hrblock Losses of estates and trusts generally are not deductible by the beneficiaries. Hrblock Grantor trust. Hrblock Income earned by a grantor trust is taxable to the grantor, not the beneficiary, if the grantor keeps certain control over the trust. Hrblock (The grantor is the one who transferred property to the trust. Hrblock ) This rule applies if the property (or income from the property) put into the trust will or may revert (be returned) to the grantor or the grantor's spouse. Hrblock Generally, a trust is a grantor trust if the grantor has a reversionary interest valued (at the date of transfer) at more than 5% of the value of the transferred property. Hrblock Expenses paid by another. Hrblock If your personal expenses are paid for by another person, such as a corporation, the payment may be taxable to you depending upon your relationship with that person and the nature of the payment. Hrblock But if the payment makes up for a loss caused by that person, and only restores you to the position you were in before the loss, the payment is not includible in your income. Hrblock Fees for services. Hrblock Include all fees for your services in your income. Hrblock Examples of these fees are amounts you receive for services you perform as: A corporate director, An executor, administrator, or personal representative of an estate, A manager of a trade or business you operated before declaring Chapter 11 bankruptcy, A notary public, or An election precinct official. Hrblock Nonemployee compensation. Hrblock If you are not an employee and the fees for your services from the same payer total $600 or more for the year, you may receive a Form 1099-MISC. Hrblock You may need to report your fees as self-employment income. Hrblock See Self-Employed Persons , in chapter 1, for a discussion of when you are considered self-employed. Hrblock Corporate director. Hrblock Corporate director fees are self-employment income. Hrblock Report these payments on Schedule C or Schedule C-EZ (Form 1040). Hrblock Personal representatives. Hrblock All personal representatives must include in their gross income fees paid to them from an estate. Hrblock If you are not in the trade or business of being an executor (for instance, you are the executor of a friend's or relative's estate), report these fees on Form 1040, line 21. Hrblock If you are in the trade or business of being an executor, report these fees as self-employment income on Schedule C or Schedule C-EZ (Form 1040). Hrblock The fee is not includible in income if it is waived. Hrblock Manager of trade or business for bankruptcy estate. Hrblock Include in your income all payments received from your bankruptcy estate for managing or operating a trade or business that you operated before you filed for bankruptcy. Hrblock Report this income on Form 1040, line 21. Hrblock Notary public. Hrblock Report payments for these services on Schedule C or Schedule C-EZ (Form 1040). Hrblock These payments are not subject to self-employment tax. Hrblock See the separate instructions for Schedule SE (Form 1040) for details. Hrblock Election precinct official. Hrblock You should receive a Form W-2 showing payments for services performed as an election official or election worker. Hrblock Report these payments on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ. Hrblock Foster care providers. Hrblock Payments you receive from a state, political subdivision, or a qualified foster care placement agency for providing care to qualified foster individuals in your home generally are not included in your income. Hrblock However, you must include in your income payments received for the care of more than 5 individuals age 19 or older and certain difficulty-of-care payments. Hrblock A qualified foster individual is a person who: Is living in a foster family home, and Was placed there by: An agency of a state or one of its political subdivisions, or A qualified foster care placement agency. Hrblock Difficulty-of-care payments. Hrblock These are additional payments that are designated by the payer as compensation for providing the additional care that is required for physically, mentally, or emotionally handicapped qualified foster individuals. Hrblock A state must determine that the additional compensation is needed, and the care for which the payments are made must be provided in your home. Hrblock You must include in your income difficulty-of-care payments received for more than: 10 qualified foster individuals under age 19, or 5 qualified foster individuals age 19 or older. Hrblock Maintaining space in home. Hrblock If you are paid to maintain space in your home for emergency foster care, you must include the payment in your income. Hrblock Reporting taxable payments. Hrblock If you receive payments that you must include in your income, you are in business as a foster care provider and you are self-employed. Hrblock Report the payments on Schedule C or Schedule C-EZ (Form 1040). Hrblock See Publication 587, Business Use of Your Home, to help you determine the amount you can deduct for the use of your home. Hrblock Found property. Hrblock If you find and keep property that does not belong to you that has been lost or abandoned (treasure-trove), it is taxable to you at its fair market value in the first year it is your undisputed possession. Hrblock Free tour. Hrblock If you received a free tour from a travel agency for organizing a group of tourists, you must include its value in your income. Hrblock Report the fair market value of the tour on Form 1040, line 21, if you are not in the trade or business of organizing tours. Hrblock You cannot deduct your expenses in serving as the voluntary leader of the group at the group's request. Hrblock If you organize tours as a trade or business, report the tour's value on Schedule C or Schedule C-EZ (Form 1040). Hrblock Gambling winnings. Hrblock You must include your gambling winnings in income on Form 1040, line 21. Hrblock If you itemize your deductions on Schedule A (Form 1040), you can deduct gambling losses you had during the year, but only up to the amount of your winnings. Hrblock Lotteries and raffles. Hrblock Winnings from lotteries and raffles are gambling winnings. Hrblock In addition to cash winnings, you must include in your income the fair market value of bonds, cars, houses, and other noncash prizes. Hrblock If you win a state lottery prize payable in installments, see Publication 525 for more information. Hrblock Form W-2G. Hrblock You may have received a Form W-2G, Certain Gambling Winnings, showing the amount of your gambling winnings and any tax taken out of them. Hrblock Include the amount from box 1 on Form 1040, line 21. Hrblock Include the amount shown in box 4 on Form 1040, line 62, as federal income tax withheld. Hrblock Reporting winnings and recordkeeping. Hrblock For more information on reporting gam