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Income Taxes 2012

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Income Taxes 2012

Income taxes 2012 23. Income taxes 2012   Interest Expense Table of Contents Introduction Useful Items - You may want to see: Home Mortgage InterestAmount Deductible Points Mortgage Insurance Premiums Form 1098, Mortgage Interest Statement Investment InterestInvestment Property Allocation of Interest Expense Limit on Deduction Items You Cannot DeductPersonal Interest Allocation of Interest How To ReportMore than one borrower. Income taxes 2012 Mortgage proceeds used for business or investment. Income taxes 2012 Introduction This chapter discusses what interest expenses you can deduct. Income taxes 2012 Interest is the amount you pay for the use of borrowed money. Income taxes 2012 The following are types of interest you can deduct as itemized deductions on Schedule A (Form 1040). Income taxes 2012 Home mortgage interest, including certain points and mortgage insurance premiums. Income taxes 2012 Investment interest. Income taxes 2012 This chapter explains these deductions. Income taxes 2012 It also explains where to deduct other types of interest and lists some types of interest you cannot deduct. Income taxes 2012 Use Table 23-1 to find out where to get more information on various types of interest, including investment interest. Income taxes 2012 Useful Items - You may want to see: Publication 936 Home Mortgage Interest Deduction 550 Investment Income and Expenses Home Mortgage Interest Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). Income taxes 2012 The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. Income taxes 2012 You can deduct home mortgage interest if all the following conditions are met. Income taxes 2012 You file Form 1040 and itemize deductions on Schedule A (Form 1040). Income taxes 2012 The mortgage is a secured debt on a qualified home in which you have an ownership interest. Income taxes 2012 (Generally, your mortgage is a secured debt if you put your home up as collateral to protect the interest of the lender. Income taxes 2012 The term “qualified home” means your main home or second home. Income taxes 2012 For details, see Publication 936. Income taxes 2012 )  Both you and the lender must intend that the loan be repaid. Income taxes 2012 Amount Deductible In most cases, you can deduct all of your home mortgage interest. Income taxes 2012 How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. Income taxes 2012 Fully deductible interest. Income taxes 2012   If all of your mortgages fit into one or more of the following three categories at all times during the year, you can deduct all of the interest on those mortgages. Income taxes 2012 (If any one mortgage fits into more than one category, add the debt that fits in each category to your other debt in the same category. Income taxes 2012 )   The three categories are as follows: Mortgages you took out on or before October 13, 1987 (called grandfathered debt). Income taxes 2012 Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2013 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately). Income taxes 2012 Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2013 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2). Income taxes 2012 The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home. Income taxes 2012   See Part II of Publication 936 for more detailed definitions of grandfathered, home acquisition, and home equity debt. Income taxes 2012    You can use Figure 23-A to check whether your home mortgage interest is fully deductible. Income taxes 2012 Figure 23-A. Income taxes 2012 Is My Home Mortgage Interest Fully Deductible? Please click here for the text description of the image. Income taxes 2012 Figure 23-A. Income taxes 2012 Is My Interest Fully Deductible? Limits on deduction. Income taxes 2012   You cannot fully deduct interest on a mortgage that does not fit into any of the three categories listed earlier. Income taxes 2012 If this applies to you, see Part II of Publication 936 to figure the amount of interest you can deduct. Income taxes 2012 Special Situations This section describes certain items that can be included as home mortgage interest and others that cannot. Income taxes 2012 It also describes certain special situations that may affect your deduction. Income taxes 2012 Late payment charge on mortgage payment. Income taxes 2012   You can deduct as home mortgage interest a late payment charge if it was not for a specific service performed in connection with your mortgage loan. Income taxes 2012 Mortgage prepayment penalty. Income taxes 2012   If you pay off your home mortgage early, you may have to pay a penalty. Income taxes 2012 You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan. Income taxes 2012 Sale of home. Income taxes 2012   If you sell your home, you can deduct your home mortgage interest (subject to any limits that apply) paid up to, but not including, the date of sale. Income taxes 2012 Example. Income taxes 2012 John and Peggy Harris sold their home on May 7. Income taxes 2012 Through April 30, they made home mortgage interest payments of $1,220. Income taxes 2012 The settlement sheet for the sale of the home showed $50 interest for the 6-day period in May up to, but not including, the date of sale. Income taxes 2012 Their mortgage interest deduction is $1,270 ($1,220 + $50). Income taxes 2012 Prepaid interest. Income taxes 2012   If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. Income taxes 2012 You can deduct in each year only the interest that qualifies as home mortgage interest for that year. Income taxes 2012 However, there is an exception that applies to points, discussed later. Income taxes 2012 Mortgage interest credit. Income taxes 2012   You may be able to claim a mortgage interest credit if you were issued a mortgage credit certificate (MCC) by a state or local government. Income taxes 2012 Figure the credit on Form 8396, Mortgage Interest Credit. Income taxes 2012 If you take this credit, you must reduce your mortgage interest deduction by the amount of the credit. Income taxes 2012   For more information on the credit, see chapter 37. Income taxes 2012 Ministers' and military housing allowance. Income taxes 2012   If you are a minister or a member of the uniformed services and receive a housing allowance that is not taxable, you can still deduct your home mortgage interest. Income taxes 2012 Hardest Hit Fund and Emergency Homeowners' Loan Programs. Income taxes 2012   You can use a special method to compute your deduction for mortgage interest and real estate taxes on your main home if you meet the following two conditions. Income taxes 2012 You received assistance under: A State Housing Finance Agency (State HFA) Hardest Hit Fund program in which program payments could be used to pay mortgage interest, or An Emergency Homeowners' Loan Program administered by the Department of Housing and Urban Development (HUD) or a state. Income taxes 2012 You meet the rules to deduct all of the mortgage interest on your loan and all of the real estate taxes on your main home. Income taxes 2012 If you meet these tests, then you can deduct all of the payments you actually made during the year to your mortgage servicer, the State HFA, or HUD on the home mortgage (including the amount shown on box 3 of Form 1098-MA, Mortgage Assistance Payments), but not more than the sum of the amounts shown on Form 1098, Mortgage Interest Statement, in box 1 (mortgage interest received from payer(s) / borrower(s)), box 4 (mortgage insurance premiums) and box 5 (real property taxes). Income taxes 2012 However, you are not required to use this special method to compute your deduction for mortgage interest and real estate taxes on your main home. Income taxes 2012 Mortgage assistance payments under section 235 of the National Housing Act. Income taxes 2012   If you qualify for mortgage assistance payments for lower-income families under section 235 of the National Housing Act, part or all of the interest on your mortgage may be paid for you. Income taxes 2012 You cannot deduct the interest that is paid for you. Income taxes 2012 No other effect on taxes. Income taxes 2012   Do not include these mortgage assistance payments in your income. Income taxes 2012 Also, do not use these payments to reduce other deductions, such as real estate taxes. Income taxes 2012 Divorced or separated individuals. Income taxes 2012   If a divorce or separation agreement requires you or your spouse or former spouse to pay home mortgage interest on a home owned by both of you, the payment of interest may be alimony. Income taxes 2012 See the discussion of Payments for jointly-owned home in chapter 18. Income taxes 2012 Redeemable ground rents. Income taxes 2012   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct them as mortgage interest. Income taxes 2012   Payments made to end the lease and to buy the lessor's entire interest in the land are not deductible as mortgage interest. Income taxes 2012 For more information, see Publication 936. Income taxes 2012 Nonredeemable ground rents. Income taxes 2012   Payments on a nonredeemable ground rent are not mortgage interest. Income taxes 2012 You can deduct them as rent if they are a business expense or if they are for rental property. Income taxes 2012 Reverse mortgages. Income taxes 2012   A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. Income taxes 2012 With a reverse mortgage, you retain title to your home. Income taxes 2012 Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. Income taxes 2012 Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. Income taxes 2012 Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until the loan is paid in full. Income taxes 2012 Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Publication 936. Income taxes 2012 Rental payments. Income taxes 2012   If you live in a house before final settlement on the purchase, any payments you make for that period are rent and not interest. Income taxes 2012 This is true even if the settlement papers call them interest. Income taxes 2012 You cannot deduct these payments as home mortgage interest. Income taxes 2012 Mortgage proceeds invested in tax-exempt securities. Income taxes 2012   You cannot deduct the home mortgage interest on grandfathered debt or home equity debt if you used the proceeds of the mortgage to buy securities or certificates that produce tax-free income. Income taxes 2012 “Grandfathered debt” and “home equity debt” are defined earlier under Amount Deductible. Income taxes 2012 Refunds of interest. Income taxes 2012   If you receive a refund of interest in the same tax year you paid it, you must reduce your interest expense by the amount refunded to you. Income taxes 2012 If you receive a refund of interest you deducted in an earlier year, you generally must include the refund in income in the year you receive it. Income taxes 2012 However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year. Income taxes 2012 This is true whether the interest overcharge was refunded to you or was used to reduce the outstanding principal on your mortgage. Income taxes 2012    If you received a refund of interest you overpaid in an earlier year, you generally will receive a Form 1098, Mortgage Interest Statement, showing the refund in box 3. Income taxes 2012 For information about Form 1098, see Form 1098, Mortgage Interest Statement , later. Income taxes 2012   For more information on how to treat refunds of interest deducted in earlier years, see Recoveries in chapter 12. Income taxes 2012 Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Income taxes 2012 Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. Income taxes 2012 A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. Income taxes 2012 See Points paid by the seller , later. Income taxes 2012 General Rule You generally cannot deduct the full amount of points in the year paid. Income taxes 2012 Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. Income taxes 2012 See Deduction Allowed Ratably , next. Income taxes 2012 For exceptions to the general rule, see Deduction Allowed in Year Paid , later. Income taxes 2012 Deduction Allowed Ratably If you do not meet the tests listed under Deduction Allowed in Year Paid , later, the loan is not a home improvement loan, or you choose not to deduct your points in full in the year paid, you can deduct the points ratably (equally) over the life of the loan if you meet all the following tests. Income taxes 2012 You use the cash method of accounting. Income taxes 2012 This means you report income in the year you receive it and deduct expenses in the year you pay them. Income taxes 2012 Most individuals use this method. Income taxes 2012 Your loan is secured by a home. Income taxes 2012 (The home does not need to be your main home. Income taxes 2012 ) Your loan period is not more than 30 years. Income taxes 2012 If your loan period is more than 10 years, the terms of your loan are the same as other loans offered in your area for the same or longer period. Income taxes 2012 Either your loan amount is $250,000 or less, or the number of points is not more than: 4, if your loan period is 15 years or less, or 6, if your loan period is more than 15 years. Income taxes 2012 Deduction Allowed in Year Paid You can fully deduct points in the year paid if you meet all the following tests. Income taxes 2012 (You can use Figure 23-B as a quick guide to see whether your points are fully deductible in the year paid. Income taxes 2012 ) Your loan is secured by your main home. Income taxes 2012 (Your main home is the one you ordinarily live in most of the time. Income taxes 2012 ) Paying points is an established business practice in the area where the loan was made. Income taxes 2012 The points paid were not more than the points generally charged in that area. Income taxes 2012 You use the cash method of accounting. Income taxes 2012 This means you report income in the year you receive it and deduct expenses in the year you pay them. Income taxes 2012 (If you want more information about this method, see Accounting Methods in chapter 1. Income taxes 2012 ) The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes. Income taxes 2012 The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. Income taxes 2012 The funds you provided are not required to have been applied to the points. Income taxes 2012 They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. Income taxes 2012 You cannot have borrowed these funds from your lender or mortgage broker. Income taxes 2012 You use your loan to buy or build your main home. Income taxes 2012 The points were computed as a percentage of the principal amount of the mortgage. Income taxes 2012 The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. Income taxes 2012 The points may be shown as paid from either your funds or the seller's. Income taxes 2012 Figure 23-B. Income taxes 2012 Are My Points Fully Deductible This Year? Please click here for the text description of the image. Income taxes 2012 Figure 23-B. Income taxes 2012 Are My Points Fully Deductible This Year? Note. Income taxes 2012 If you meet all of these tests, you can choose to either fully deduct the points in the year paid, or deduct them over the life of the loan. Income taxes 2012 Home improvement loan. Income taxes 2012   You can also fully deduct in the year paid points paid on a loan to improve your main home, if tests (1) through (6) are met. Income taxes 2012 Second home. Income taxes 2012 You cannot fully deduct in the year paid points you pay on loans secured by your second home. Income taxes 2012 You can deduct these points only over the life of the loan. Income taxes 2012 Refinancing. Income taxes 2012   Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. Income taxes 2012 This is true even if the new mortgage is secured by your main home. Income taxes 2012   However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first 6 tests listed under Deduction Allowed in Year Paid , earlier, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. Income taxes 2012 You can deduct the rest of the points over the life of the loan. Income taxes 2012 Example 1. Income taxes 2012 In 1998, Bill Fields got a mortgage to buy a home. Income taxes 2012 In 2013, Bill refinanced that mortgage with a 15-year $100,000 mortgage loan. Income taxes 2012 The mortgage is secured by his home. Income taxes 2012 To get the new loan, he had to pay three points ($3,000). Income taxes 2012 Two points ($2,000) were for prepaid interest, and one point ($1,000) was charged for services, in place of amounts that ordinarily are stated separately on the settlement statement. Income taxes 2012 Bill paid the points out of his private funds, rather than out of the proceeds of the new loan. Income taxes 2012 The payment of points is an established practice in the area, and the points charged are not more than the amount generally charged there. Income taxes 2012 Bill's first payment on the new loan was due July 1. Income taxes 2012 He made six payments on the loan in 2013 and is a cash basis taxpayer. Income taxes 2012 Bill used the funds from the new mortgage to repay his existing mortgage. Income taxes 2012 Although the new mortgage loan was for Bill's continued ownership of his main home, it was not for the purchase or improvement of that home. Income taxes 2012 He cannot deduct all of the points in 2013. Income taxes 2012 He can deduct two points ($2,000) ratably over the life of the loan. Income taxes 2012 He deducts $67 [($2,000 ÷ 180 months) × 6 payments] of the points in 2013. Income taxes 2012 The other point ($1,000) was a fee for services and is not deductible. Income taxes 2012 Example 2. Income taxes 2012 The facts are the same as in Example 1, except that Bill used $25,000 of the loan proceeds to improve his home and $75,000 to repay his existing mortgage. Income taxes 2012 Bill deducts 25% ($25,000 ÷ $100,000) of the points ($2,000) in 2013. Income taxes 2012 His deduction is $500 ($2,000 × 25%). Income taxes 2012 Bill also deducts the ratable part of the remaining $1,500 ($2,000 − $500) that must be spread over the life of the loan. Income taxes 2012 This is $50 [($1,500 ÷ 180 months) × 6 payments] in 2013. Income taxes 2012 The total amount Bill deducts in 2013 is $550 ($500 + $50). Income taxes 2012 Special Situations This section describes certain special situations that may affect your deduction of points. Income taxes 2012 Original issue discount. Income taxes 2012   If you do not qualify to either deduct the points in the year paid or deduct them ratably over the life of the loan, or if you choose not to use either of these methods, the points reduce the issue price of the loan. Income taxes 2012 This reduction results in original issue discount, which is discussed in chapter 4 of Publication 535. Income taxes 2012 Amounts charged for services. Income taxes 2012   Amounts charged by the lender for specific services connected to the loan are not interest. Income taxes 2012 Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. Income taxes 2012 You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. Income taxes 2012 Points paid by the seller. Income taxes 2012   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. Income taxes 2012 Treatment by seller. Income taxes 2012   The seller cannot deduct these fees as interest. Income taxes 2012 But they are a selling expense that reduces the amount realized by the seller. Income taxes 2012 See chapter 15 for information on selling your home. Income taxes 2012 Treatment by buyer. Income taxes 2012    The buyer reduces the basis of the home by the amount of the seller-paid points and treats the points as if he or she had paid them. Income taxes 2012 If all the tests under Deduction Allowed in Year Paid , earlier, are met, the buyer can deduct the points in the year paid. Income taxes 2012 If any of those tests are not met, the buyer deducts the points over the life of the loan. Income taxes 2012   For information about basis, see chapter 13. Income taxes 2012 Funds provided are less than points. Income taxes 2012   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the funds you provided were less than the points charged to you (test (6)), you can deduct the points in the year paid, up to the amount of funds you provided. Income taxes 2012 In addition, you can deduct any points paid by the seller. Income taxes 2012 Example 1. Income taxes 2012 When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). Income taxes 2012 You meet all the tests for deducting points in the year paid, except the only funds you provided were a $750 down payment. Income taxes 2012 Of the $1,000 charged for points, you can deduct $750 in the year paid. Income taxes 2012 You spread the remaining $250 over the life of the mortgage. Income taxes 2012 Example 2. Income taxes 2012 The facts are the same as in Example 1, except that the person who sold you your home also paid one point ($1,000) to help you get your mortgage. Income taxes 2012 In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). Income taxes 2012 You spread the remaining $250 over the life of the mortgage. Income taxes 2012 You must reduce the basis of your home by the $1,000 paid by the seller. Income taxes 2012 Excess points. Income taxes 2012   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the points paid were more than generally paid in your area (test (3)), you deduct in the year paid only the points that are generally charged. Income taxes 2012 You must spread any additional points over the life of the mortgage. Income taxes 2012 Mortgage ending early. Income taxes 2012   If you spread your deduction for points over the life of the mortgage, you can deduct any remaining balance in the year the mortgage ends. Income taxes 2012 However, if you refinance the mortgage with the same lender, you cannot deduct any remaining balance of spread points. Income taxes 2012 Instead, deduct the remaining balance over the term of the new loan. Income taxes 2012    A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. Income taxes 2012 Example. Income taxes 2012 Dan paid $3,000 in points in 2002 that he had to spread out over the 15-year life of the mortgage. Income taxes 2012 He deducts $200 points per year. Income taxes 2012 Through 2012, Dan has deducted $2,200 of the points. Income taxes 2012 Dan prepaid his mortgage in full in 2013. Income taxes 2012 He can deduct the remaining $800 of points in 2013. Income taxes 2012 Limits on deduction. Income taxes 2012   You cannot fully deduct points paid on a mortgage unless the mortgage fits into one of the categories listed earlier under Fully deductible interest . Income taxes 2012 See Publication 936 for details. Income taxes 2012 Mortgage Insurance Premiums You can treat amounts you paid during 2013 for qualified mortgage insurance as home mortgage interest. Income taxes 2012 The insurance must be in connection with home acquisition debt and the insurance contract must have been issued after 2006. Income taxes 2012 Qualified mortgage insurance. Income taxes 2012   Qualified mortgage insurance is mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). Income taxes 2012   Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. Income taxes 2012 If provided by the Rural Housing Service, it is commonly known as a guarantee fee. Income taxes 2012 These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013. Income taxes 2012 Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098. Income taxes 2012 Special rules for prepaid mortgage insurance. Income taxes 2012   Generally, if you paid premiums for qualified mortgage insurance that are allocable to periods after the close of the tax year, such premiums are treated as paid in the period to which they are allocated. Income taxes 2012 You must allocate the premiums over the shorter of the stated term of the mortgage or 84 months, beginning with the month the insurance was obtained. Income taxes 2012 No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term. Income taxes 2012 This paragraph does not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. Income taxes 2012 See the Example below. Income taxes 2012 Example. Income taxes 2012 Ryan purchased a home in May of 2012 and financed the home with a 15-year mortgage. Income taxes 2012 Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May. Income taxes 2012 Since the $9,240 in private mortgage insurance is allocable to periods after 2012, Ryan must allocate the $9,240 over the shorter of the life of the mortgage or 84 months. Income taxes 2012 Ryan's adjusted gross income (AGI) for 2012 is $76,000. Income taxes 2012 Ryan can deduct $880 ($9,240 ÷ 84 × 8 months) for qualified mortgage insurance premiums in 2012. Income taxes 2012 For 2013, Ryan can deduct $1,320 ($9,240 ÷ 84 × 12 months) if his AGI is $100,000 or less. Income taxes 2012 In this example, the mortgage insurance premiums are allocated over 84 months, which is shorter than the life of the mortgage of 15 years (180 months). Income taxes 2012 Limit on deduction. Income taxes 2012   If your adjusted gross income on Form 1040, line 38, is more than $100,000 ($50,000 if your filing status is married filing separately), the amount of your mortgage insurance premiums that are otherwise deductible is reduced and may be eliminated. Income taxes 2012 See Line 13 in the instructions for Schedule A (Form 1040) and complete the Mortgage Insurance Premiums Deduction Worksheet to figure the amount you can deduct. Income taxes 2012 If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. Income taxes 2012 Form 1098, Mortgage Interest Statement If you paid $600 or more of mortgage interest (including certain points and mortgage insurance premiums) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement from the mortgage holder. Income taxes 2012 You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. Income taxes 2012 A governmental unit is a person for purposes of furnishing the statement. Income taxes 2012 The statement for each year should be sent to you by January 31 of the following year. Income taxes 2012 A copy of this form will also be sent to the IRS. Income taxes 2012 The statement will show the total interest you paid during the year, any mortgage insurance premiums you paid, and if you purchased a main home during the year, it also will show the deductible points paid during the year, including seller-paid points. Income taxes 2012 However, it should not show any interest that was paid for you by a government agency. Income taxes 2012 As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. Income taxes 2012 However, certain points not included on Form 1098 also may be deductible, either in the year paid or over the life of the loan. Income taxes 2012 See Points , earlier, to determine whether you can deduct points not shown on Form 1098. Income taxes 2012 Prepaid interest on Form 1098. Income taxes 2012   If you prepaid interest in 2013 that accrued in full by January 15, 2014, this prepaid interest may be included in box 1 of Form 1098. Income taxes 2012 However, you cannot deduct the prepaid amount for January 2014 in 2013. Income taxes 2012 (See Prepaid interest , earlier. Income taxes 2012 ) You will have to figure the interest that accrued for 2014 and subtract it from the amount in box 1. Income taxes 2012 You will include the interest for January 2014 with the other interest you pay for 2014. Income taxes 2012 See How To Report , later. Income taxes 2012 Refunded interest. Income taxes 2012   If you received a refund of mortgage interest you overpaid in an earlier year, you generally will receive a Form 1098 showing the refund in box 3. Income taxes 2012 See Refunds of interest , earlier. Income taxes 2012 Mortgage insurance premiums. Income taxes 2012   The amount of mortgage insurance premiums you paid during 2013 may be shown in box 4 of Form 1098. Income taxes 2012 See Mortgage Insurance Premiums, earlier. Income taxes 2012 Investment Interest This section discusses interest expenses you may be able to deduct as an investor. Income taxes 2012 If you borrow money to buy property you hold for investment, the interest you pay is investment interest. Income taxes 2012 You can deduct investment interest subject to the limit discussed later. Income taxes 2012 However, you cannot deduct interest you incurred to produce tax-exempt income. Income taxes 2012 Nor can you deduct interest expenses on straddles. Income taxes 2012 Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. Income taxes 2012 Investment Property Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. Income taxes 2012 It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). Income taxes 2012 Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity). Income taxes 2012 Partners, shareholders, and beneficiaries. Income taxes 2012   To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest. Income taxes 2012 Allocation of Interest Expense If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. Income taxes 2012 Only the interest expense on the part of the debt used for investment purposes is treated as investment interest. Income taxes 2012 The allocation is not affected by the use of property that secures the debt. Income taxes 2012 Limit on Deduction Generally, your deduction for investment interest expense is limited to the amount of your net investment income. Income taxes 2012 You can carry over the amount of investment interest that you could not deduct because of this limit to the next tax year. Income taxes 2012 The interest carried over is treated as investment interest paid or accrued in that next year. Income taxes 2012 You can carry over disallowed investment interest to the next tax year even if it is more than your taxable income in the year the interest was paid or accrued. Income taxes 2012 Net Investment Income Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income. Income taxes 2012 Investment income. Income taxes 2012    This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). Income taxes 2012 Investment income does not include Alaska Permanent Fund dividends. Income taxes 2012 It also does not include qualified dividends or net capital gain unless you choose to include them. Income taxes 2012 Choosing to include qualified dividends. Income taxes 2012   Investment income generally does not include qualified dividends, discussed in chapter 8. Income taxes 2012 However, you can choose to include all or part of your qualified dividends in investment income. Income taxes 2012   You make this choice by completing Form 4952, line 4g, according to its instructions. Income taxes 2012   If you choose to include any amount of your qualified dividends in investment income, you must reduce your qualified dividends that are eligible for the lower capital gains tax rates by the same amount. Income taxes 2012 Choosing to include net capital gain. Income taxes 2012   Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). Income taxes 2012 However, you can choose to include all or part of your net capital gain in investment income. Income taxes 2012    You make this choice by completing Form 4952, line 4g, according to its instructions. Income taxes 2012   If you choose to include any amount of your net capital gain in investment income, you must reduce your net capital gain that is eligible for the lower capital gains tax rates by the same amount. Income taxes 2012    Before making either choice, consider the overall effect on your tax liability. Income taxes 2012 Compare your tax if you make one or both of these choices with your tax if you do not. Income taxes 2012 Investment income of child reported on parent's return. Income taxes 2012    Investment income includes the part of your child's interest and dividend income that you choose to report on your return. Income taxes 2012 If the child does not have qualified dividends, Alaska Permanent Fund dividends, or capital gain distributions, this is the amount on line 6 of Form 8814, Parents' Election To Report Child's Interest and Dividends. Income taxes 2012 Child's qualified dividends. Income taxes 2012   If part of the amount you report is your child's qualified dividends, that part (which is reported on Form 1040, line 9b) generally does not count as investment income. Income taxes 2012 However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. Income taxes 2012   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends). Income taxes 2012 Child's Alaska Permanent Fund dividends. Income taxes 2012   If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. Income taxes 2012 To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. Income taxes 2012 Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. Income taxes 2012 Subtract the result from the amount on Form 8814, line 12. Income taxes 2012 Child's capital gain distributions. Income taxes 2012    If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D, line 13, or Form 1040, line 13) generally does not count as investment income. Income taxes 2012 However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. Income taxes 2012   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends , earlier). Income taxes 2012 Investment expenses. Income taxes 2012   Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. Income taxes 2012 Investment expenses that are included as a miscellaneous itemized deduction on Schedule A (Form 1040) are allowable deductions after applying the 2% limit that applies to miscellaneous itemized deductions. Income taxes 2012 Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A, line 27. Income taxes 2012 Losses from passive activities. Income taxes 2012   Income or expenses that you used in computing income or loss from a passive activity are not included in determining your investment income or investment expenses (including investment interest expense). Income taxes 2012 See Publication 925, Passive Activity and At-Risk Rules, for information about passive activities. Income taxes 2012 Form 4952 Use Form 4952, Investment Interest Expense Deduction, to figure your deduction for investment interest. Income taxes 2012 Exception to use of Form 4952. Income taxes 2012   You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. Income taxes 2012 Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. Income taxes 2012 You do not have any other deductible investment expenses. Income taxes 2012 You have no carryover of investment interest expense from 2012. Income taxes 2012 If you meet all of these tests, you can deduct all of your investment interest. Income taxes 2012 More Information For more information on investment interest, see Interest Expenses in chapter 3 of Publication 550. Income taxes 2012 Items You Cannot Deduct Some interest payments are not deductible. Income taxes 2012 Certain expenses similar to interest also are not deductible. Income taxes 2012 Nondeductible expenses include the following items. Income taxes 2012 Personal interest (discussed later). Income taxes 2012 Service charges (however, see Other Expenses (Line 23) in chapter 28). Income taxes 2012 Annual fees for credit cards. Income taxes 2012 Loan fees. Income taxes 2012 Credit investigation fees. Income taxes 2012 Interest to purchase or carry tax-exempt securities. Income taxes 2012 Penalties. Income taxes 2012   You cannot deduct fines and penalties paid to a government for violations of law, regardless of their nature. Income taxes 2012 Personal Interest Personal interest is not deductible. Income taxes 2012 Personal interest is any interest that is not home mortgage interest, investment interest, business interest, or other deductible interest. Income taxes 2012 It includes the following items. Income taxes 2012 Interest on car loans (unless you use the car for business). Income taxes 2012 Interest on federal, state, or local income tax. Income taxes 2012 Finance charges on credit cards, retail installment contracts, and revolving charge accounts incurred for personal expenses. Income taxes 2012 Late payment charges by a public utility. Income taxes 2012 You may be able to deduct interest you pay on a qualified student loan. Income taxes 2012 For details, see Publication 970, Tax Benefits for Education. Income taxes 2012 Allocation of Interest If you use the proceeds of a loan for more than one purpose (for example, personal and business), you must allocate the interest on the loan to each use. Income taxes 2012 However, you do not have to allocate home mortgage interest if it is fully deductible, regardless of how the funds are used. Income taxes 2012 You allocate interest (other than fully deductible home mortgage interest) on a loan in the same way as the loan itself is allocated. Income taxes 2012 You do this by tracing disbursements of the debt proceeds to specific uses. Income taxes 2012 For details on how to do this, see chapter 4 of Publication 535. Income taxes 2012 How To Report You must file Form 1040 to deduct any home mortgage interest expense on your tax return. Income taxes 2012 Where you deduct your interest expense generally depends on how you use the loan proceeds. Income taxes 2012 See Table 23-1 for a summary of where to deduct your interest expense. Income taxes 2012 Home mortgage interest and points. Income taxes 2012   Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. Income taxes 2012 If you paid more deductible interest to the financial institution than the amount shown on Form 1098, show the larger deductible amount on line 10. Income taxes 2012 Attach a statement explaining the difference and print “See attached” next to line 10. Income taxes 2012    Deduct home mortgage interest that was not reported to you on Form 1098 on Schedule A (Form 1040), line 11. Income taxes 2012 If you paid home mortgage interest to the person from whom you bought your home, show that person's name, address, and taxpayer identification number (TIN) on the dotted lines next to line 11. Income taxes 2012 The seller must give you this number and you must give the seller your TIN. Income taxes 2012 A Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. Income taxes 2012 Failure to meet any of these requirements may result in a $50 penalty for each failure. Income taxes 2012 The TIN can be either a social security number, an individual taxpayer identification number (issued by the Internal Revenue Service), or an employer identification number. Income taxes 2012 See Social Security Number (SSN) in chapter 1 for more information about TINs. Income taxes 2012    If you can take a deduction for points that were not reported to you on Form 1098, deduct those points on Schedule A (Form 1040), line 12. Income taxes 2012   Deduct mortgage insurance premiums on Schedule A (Form 1040), line 13. Income taxes 2012 More than one borrower. Income taxes 2012   If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return explaining this. Income taxes 2012 Show how much of the interest each of you paid, and give the name and address of the person who received the form. Income taxes 2012 Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. Income taxes 2012 Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13. Income taxes 2012   Similarly, if you are the payer of record on a mortgage on which there are other borrowers entitled to a deduction for the interest shown on the Form 1098 you received, deduct only your share of the interest on Schedule A (Form 1040), line 10. Income taxes 2012 You should let each of the other borrowers know what his or her share is. Income taxes 2012 Mortgage proceeds used for business or investment. Income taxes 2012    If your home mortgage interest deduction is limited, but all or part of the mortgage proceeds were used for business, investment, or other deductible activities, see Table 23-1. Income taxes 2012 It shows where to deduct the part of your excess interest that is for those activities. Income taxes 2012 Investment interest. Income taxes 2012    Deduct investment interest, subject to certain limits discussed in Publication 550, on Schedule A (Form 1040), line 14. Income taxes 2012 Amortization of bond premium. Income taxes 2012   There are various ways to treat the premium you pay to buy taxable bonds. Income taxes 2012 See Bond Premium Amortization in Publication 550. Income taxes 2012 Income-producing rental or royalty interest. Income taxes 2012   Deduct interest on a loan for income-producing rental or royalty property that is not used in your business in Part I of Schedule E (Form 1040). Income taxes 2012 Example. Income taxes 2012 You rent out part of your home and borrow money to make repairs. Income taxes 2012 You can deduct only the interest payment for the rented part in Part I of Schedule E (Form 1040). Income taxes 2012 Deduct the rest of the interest payment on Schedule A (Form 1040) if it is deductible home mortgage interest. Income taxes 2012 Table 23-1. Income taxes 2012 Where To Deduct Your Interest Expense IF you have . Income taxes 2012 . Income taxes 2012 . Income taxes 2012 THEN deduct it on . Income taxes 2012 . Income taxes 2012 . Income taxes 2012 AND for more information go to . Income taxes 2012 . Income taxes 2012 . Income taxes 2012 deductible student loan interest Form 1040, line 33, or Form 1040A, line 18 Publication 970. Income taxes 2012 deductible home mortgage interest and points reported on Form 1098 Schedule A (Form 1040), line 10 Publication 936. Income taxes 2012 deductible home mortgage interest not reported on Form 1098 Schedule A (Form 1040), line 11 Publication 936. Income taxes 2012 deductible points not reported on Form 1098 Schedule A (Form 1040), line 12 Publication 936. Income taxes 2012 deductible mortgage insurance premiums Schedule A (Form 1040), line 13 Publication 936. Income taxes 2012 deductible investment interest (other than incurred to produce rents or royalties) Schedule A (Form 1040), line 14 Publication 550. Income taxes 2012 deductible business interest (non-farm) Schedule C or C-EZ (Form 1040) Publication 535. Income taxes 2012 deductible farm business interest Schedule F (Form 1040) Publications 225 and 535. Income taxes 2012 deductible interest incurred to produce rents or royalties Schedule E (Form 1040) Publications 527 and 535. Income taxes 2012 personal interest not deductible. Income taxes 2012 Prev  Up  Next   Home   More Online Publications
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SOI Tax Stats - SOI Working Papers

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Statistics of Income Working Papers

The Statistics of Income (SOI) working papers present new and exciting research on the U.S. Federal tax system and the methods used to produce tax statistics. Papers are presented at professional conferences, such as the Joint Statistical Meeting of the American Statistical Association and the National Tax Association’s annual conference on taxation, and are often published in professional journals. Below you will find a selection of papers organized by presentation year.

Papers in this series generally do not undergo the extensive review and editorial process accorded official SOI publications. Instead, these working papers are intended to make results of research available to others and to encourage discussion on a variety of topics. As a result, papers may be occasionally revised or updated.

Jump to a year:

1997  1998  1999  2000  2001  2002  2003  2004  2005  2006  2007  2008  2009  2011  2013  2014


2014

Older Taxpayers’ Response to Taxation of Social Security Benefits
Leonard Burman, Syracuse University and the Tax Policy Center, Norma B. Coe, University of Washington and the National Bureau of Economic Research, Kevin Pierce, Internal Revenue Service, Liu Tian, Syracuse University

Over the Top: How Tax Returns Show that the Very Rich Are Different from You and Me
Jenny Bourne and Lisa Rosenmerkel

The Economic Impact of Tax Expenditures: Evidence from Spatial Variation Across the U.S.
Associated Tables (.xls format)
Raj Chetty and Nathaniel Hendren, Harvard University and the National Bureau of Economic Research, and, Patrick Kline and Emmanuel Saez, University of California, Berkeley and the National Bureau of Economic Research

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2013

The Home Mortgage Interest Deduction and Migratory Insurance Over the Great Recession
Danny Yagan, University of California, Berkeley

Do Financial Frictions Amplify Fiscal Policy? Evidence from Business Investment Stimulus
Eric Zwick and James Mahon, Harvard University

A New Look at the Income-Wealth Connection for America’s Wealthiest Decedents
Barry Johnson, Brian Raub, and Joseph Newcomb, Statistics of Income, IRS

A Comparison of Wealth Estimates For America’s Wealthiest Decedents Using Tax Data and Data From The Forbes 400
Barry Johnson, Brian Raub, and Joseph Newcomb, Statistics of Income, IRS

Capital Tax Reform and the Real Economy: The Effects of the 2003 Dividend Tax Cut
Danny Yagan, University of California, Berkeley

Do Tax Credits for Parents Affect Child College Enrollment?
Nathaniel G. Hilger, Brown University

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2011

New Evidence on the Long-Term Impacts of Tax Credits
Raj Chetty and JohnFriedman, Harvard University and the National Bureau of Economic Research, and Jonah Rockoff, Columbia University and the National Bureau of Economic Research

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2009

Variance Estimation for Estimators of Between-Year Change in Totals from Two Stratified Bernoulli Samples
Henry, Kimberly; Testa, Valerie; Valliant, Richard

The Effect of Late-Filed Returns on Population Estimates: A Comparative Analysis
Raub, Brian; Belmonte, Cynthia; Arnsberger, Paul; Ludlum, Melissa

Variance Estimation for Estimators of Between-Year Change in Totals from Two Stratified Bernoulli Samples
Kimberly Henry and Valerie Testa, Internal Revenue Service and Richard Valliant, University of Michigan

The Effect of Late-Filed Returns on Population Estimates: A Comparative Analysis
Brian Raub, Cynthia Belmonte, Paul Arnsberger, and Melissa Ludlum, Internal Revenue Service

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2008

Dissemination Of Statistical Products: The IRS’s Journey
Gangi, Martha Eller

Attrition in the Individual Income Tax Return Panel, Tax Years 1999–2005
Bryant, Victoria

Statistics of Income Sales of Capital Assets Sample Redesign for Tax Year 2007
Liu, Yan; Scali, Jana; Strudler, Michael; Wilson, Janette

90 Years of SOI: A Collection of Historical Articles
Multiple Authors

Using Audit Data To Estimate Taxpayer Reporting Error in the Statistics of Income Division's Individual Tax Return Sample
Henry, Kimberly

Differences in Income Estimates Derived from Survey and Tax Data
Johnson, Barry; Moore, Kevin

Old Tabulations, Old Files, and a Brief History of Individual Tax Return Sampling
Weber, Michael; Paris, David; Sailer, Peter

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2007

Measuring Disclosure Risk and an Examination of the Possibilities of Using Synthetic Data in the Individual Income Tax Return Public Use File
Vartivarian, Sonya; Czajka, John; Weber, Michael

Measuring the Quality of Service to Taxpayers in Volunteer Sites
Cecco, Kevin; Walsh, Ronald; Hooker, Rachael

SOI Develops Better Survey Questions Through Pretesting
Milleville, Diane; Wells, Tara

Using the Statistics of Income Division's Sample Data To Reduce Measurement and Processing Error in Small-Area Estimates Produced from Administrative Tax Records
Henry, Kimberly; Lahiri, Partha; Fisher, Robin

An Empirical Evaluation of Various Direct, Synthetic, and Traditional Composite Small-Area Estimators
Henry, Kimberly; Strudler, Michael; Chen, William

Evaluating Alternative One-Sided Coverage Intervals for an Extreme Binomial Proportion
Liu, Yan; Kott, Phillip

Improving the Quality of U.S. Tax Statistics: Recent Innovations in Editing and Imputation Techniques at the Statistics of Income Division of the U.S. Internal Revenue Service
Scott M. Hollenbeck, Melissa Ludlum, and Barry W. Johnson, Internal Revenue Service

Using an Individual Income Tax Panel File To Measure Changes in Marginal Tax Rates: Opportunities
Diamond, John; Rector, Ralph; Weber, Michael

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2006

Social Security Taxes, Social Security Benefits, and Social Security Benefits Taxation, 2003
Sailer, Peter; Pierce, Kevin; Lomize, Evgenia

Analysis of the Distributions of Income, Taxes, and Payroll Taxes via Cross Section and Panel Data, 1979–2004
Strudler, Michael; Hentz, Lori; Petska, Tom; Petska, Ryan

Performance Measurement within the Statistics of Income Division
Cecco, Kevin

Customer Satisfaction Initiatives at IRS’s Statistics of Income: Using Surveys to Improve Customer Service
Schwartz, Ruth; Kilss, Beth

Tying Website Performance to Mission Achievement in the Federal Government
Milleville, Diane

The Tax Year 1999–2003 Individual Income Tax Return Panel: A First Look at the Data
Weber, Michael

Application of an Evolutionary Algorithm to Multivariate Optimal Allocation in Stratified Sample Designs
Day, Charles

Factors in Estates’ Utilization of Special Tax Provisions for Family-Owned Farms and Closely Held Businesses
Gangi, Martha Eller; Henry, Kimberly; Raub, Brian

Corporation Life Cycles: Examining Attrition Trends and Return Characteristics in Statistics of Income Cross-Sectional 1120 Samples
Matthew L. Scoffic

An Analysis of the Free File Program
Chu, Michelle; Kovalick, Melissa

Comparing Strategies To Estimate a Measure of Heteroscedasticity
Henry, Kimberly; Valliant, Richard

Creativity and Compromise: Constructing a Panel of Income and Estate Tax Data for Wealthy Individuals
Johnson, Barry; Schreiber, Lisa

Monitoring Statistics of Income (SOI) Samples
Koshansky, Joseph

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2005

Trends in 401(k) and IRA Contribution Activity, 1999–2002—Results from a Panel of Matched Tax Returns and Information Documents
Sailer, Peter; Bryant, Victoria Holden, Sarah

The 1999 Individual Income Tax Return Edited Panel
Weber, Michael; Bryant, Victoria

A Cluster Analysis Approach To Describing Tax Data
Raub, Brian; Chen, William

Origins of the Estate and Personal Wealth Sample Design
McMahon, Paul

Corporation Supercritical Cases: How Do Imputed Returns on the Corporate File Compare to the Actual Returns?
Davitian, Lucy

Internal Revenue Service Area-To-Area Migration Data: Strengths, Limitations, and Current Trends
Gross, Emily

A Comparison of Income Concepts: IRS Statistics of Income, Census Current Population Survey, and BLS Consumer Expenditure Survey
Henry, Eric; Day, Charles

Measuring Nonsampling Error in the Statistics of Income Individual Tax Return Study
Scali, Jana; Testa, Valerie; Kahr, Maureen; Strudler, Michael

The Impact of the Followup Process on the 2002 Foreign Tax Credit Study Data
Singmaster, Rob; Redmiles, Lissa

Prelude to Schedule M–3: Schedule M–1 Corporate Book-Tax Difference Data, 1990–2003
Boynton, Charles; DeFilippes, Portia; Legel, Ellen

An Essay on the Effects of Taxation on the Corporate Financial Policy
Contos, George

An Analysis of Business Organizational Structure and Activity from Tax Data
Petska, Tom; Parisi, Michael; Luttrell, Kelly; Davitian, Lucy; Scoffic, Matt

Geographic Variation in Schedule H Filing Rates: Why Should Location Influence the Decision To Report Nanny Taxes?
Bloomquist, Kim; An, Zhiyong

Current Research in the Nonprofit Sector
Arnsberger, Paul; Ludlum, Melissa; Riley, Margaret

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2004

Use of Individual Retirement Arrangements to Save for Retirement—Results From a Matched File of Tax Returns and Information Documents for Tax Year 2001
Sailer, Peter; Holden, Sarah

Further Analysis of the Distribution of Income and Taxes, 1979–2003
Strudler, Michael; Petska, Tom; Petska, Ryan

The Statistics of Income 1979–2002 Continuous Work History Sample Individual Income Tax Return Panel
Weber, Michael

Assessing Industry Codes on the IRS Business Master File
McMahon, Paul

Customer Satisfaction Initiatives within the Statistics of Income Division of the Internal Revenue Service
Cecco, Kevin

The Evolution of IRS Telephone Quality Measures
Rosage, Laura

Some New Tables for Upper Probability Points of the Largest Root of a Determinantal Equation
Chen, William

Editor Judgment Effect: Modeling a Key Component of Nonsampling Error in Administrative Data
Henry, Kimberly; Ahmed, Yahia; Legel, Ellen

The Effect of Content Errors on Bias and Nonsampling Variance in Estimates Derived From Samples
Johnson, Barry; Jacobson,Darien B.

Data Interpretation across Sources: A Study of Form 990–PF Information Collected from Multiple Databases
Ludlum, Melissa

Recent Research on Small Business Compliance Burden
Guyton, John; Kindlon, Audrey; Zhou, Jian

The Mismeasure of Man’s Well-Being: Refining Realized Income Measures with Wealth, Portfolio, and Mortality Information
Johnson, Barry; Wahl, Jenny

Tax Evasion and Entrepreneurship: The Effect of Income Reporting Policies on Evasion. An Experimental Approach
Alm, James; Deskins, John; McKee, Michael

Audit Information Dissemination, Taxpayer Communication and Tax Compliance: An Experimental Investigation of Indirect Audit Effects
Alm, James; Jackson, Betty; McKee, Michael

Multi-Agent Based Simulation of the Deterrent Effects of Taxpayer Audits
Bloomquist, Kim

Developing Adoptable Disclosure Protection Techniques: Lessons Learned From a U.S. Experience
Greenia, Nicholas

Consider the Source: Differences in Income Estimates Derived from Survey and Tax Data
Johnson, Barry; Moore, Kevin

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2003

The Effects of Tax Reform on the Structure of U.S. Business
Legel, Ellen; Bennett, Kelly; Parisi, Michael

Accumulation and Distributions of Retirement Assets, 1996–2000—Results from a Matched File of Tax Returns and Information Returns
Sailer, Peter; Gurka, Kurt; Holden, Sarah

An Analysis of the Distribution of Individual Income and Taxes, 1979–2001
Strudler, Michael; Petska, Tom; Petska, Ryan

IRS Seeks to Develop New Web-Based Measurement Indicators for IRS.gov
Dixon, Diane

Statistical Information Services at IRS: Improving Dissemination of Data and Satisfying the Customer
Kilss, Beth; Jordan, David

Recent Efforts to Maximize Benefits from the Statistics of Income Advisory Panel
Petska, Tom; Kilss, Beth

Regulatory Exemptions and Item Nonresponse
McMahon, Paul

Comparing Scoring Systems From Cluster Analysis and Discriminant Analysis Using Random Samples
Wong, William; Ho, Chih-Chin

Estimating the Compliance Cost of the U.S. Individual Income Tax
Toder, Eric J.; Guyton, John; O'Hare, John; Stavrianos, Michael

Tax Evasion, Income Inequality and Opportunity Costs of Compliance
Bloomquist, Kim

IRS's Comprehensive Approach to Compliance Measurement
Brown, Robert; Mazur, Mark

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2002

Salaries and Wages and Deferred Income, 1989–1999
Sailer, Peter; Yau, Ellen; Gurka, Kurt; Weber, Michael

Proxies in Administrative Records Surveys
McMahon, Paul

Assessing Disclosure Protection for a SOI Public Use File
Winglee, Marianne; Valliant, Richard; Clark, Jay; Lim, Yunhee; Weber, Michael; Strudler, Michael

Electronic Dissemination of Internal Revenue Service Locality Data
Gross, Emily; Kilss, Beth

Analysis of the 1998 Gift Tax Panel Study
Eller, Martha Britton; Rib, Tamara

Evaluating the Effect of Sample Size Changes on Scoring System Performance Using Bootstraps and Random Samples
Wong, William; Ho, Chih-Chin

Using Auxiliary Information to Adjust for Non-Response in Weighting a Linked Sample of Administrative Records
Johnson, Barry: McMahon, Paul

Developing an Econometric Model for Measuring Tax Noncompliance Using Operational Audit Data
Erard, Brian; Ho, Chih-Chin

Some New Tables of the Largest Root of a Matrix in Multivariate Analysis: A Computer Approach from 2 to 6
Chen, William

Are Taxpayers Increasing the Buildup of Retirement Assets? Preliminary Results from a Matched File of Tax Year 1999 Tax Returns and Information Returns
Sailer, Peter; Weber, Michael; Gurka, Kurt

New Estimates of the Distribution of Individual Income and Taxes
Strudler, Michael; Petska, Tom; Petska, Ryan

How the Quality of Responses the IRS Provides to Taxpayer Inquiries is Measured
Cecco, Kevin; Hoopengardner, Rachael

The Impact of the IRS on Voluntary Tax Compliance: Preliminary Empirical Results
Plumley, Alan

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2001

Taxing Charity: Linking Income Tax Returns to Samples of Nonexempt Charitable and Charitable Remainder
Belvedere, Melissa; Mikow, Jacob; Whitten, Melissa

The 1998 Gift Tax Panel Study: Using The IRS Returns Transaction File as a Sample Frame
Eller, Martha Britton; Rib, Tamara

Sample Design Revisions in the Wake of NAICS and Regulatory Changes
McMahon, Paul

Statistical Information from Administrative Records in the Federal Tax System
Petska, Tom

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2000

Exporting a Statistical System: Towards Establishing a Tax Statistics Function in South Africa
Petska, Tom

Beyond Andrew Carnegie: Using a Linked Sample of Federal Income and Estate Tax Returns to Examine the Effects of Bequests on Beneficiary Behavior
Mikow, Jacob; Berkowitz, Darien

Statistical Consulting Within the Internal Revenue Service
Cecco, Kevin; Walsh, Ronald

Attrition in a Panel of Individual Income Tax Returns, 1992–1997
Sailer, Peter; Weber, Michael; Wong, William

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1999

The Distribution of Individual Income and Taxes: A New Look at an Old Issue
Petska, Tom; Strudler, Mike

Personal Wealth, 1995
Johnson, Barry

Further Examination of the Distribution of Individual Income and Taxes Using a Consistent and Comprehensive Measure of Income
Petska, Tom; Strudler, Mike; Petska, Ryan

Customer Service Satisfaction Survey: Cognitive and Prototype Test
Cecco, Kevin; Young, Anthony

On Computing Gaussian Curvature of Some Well Known Distributions
Chen, William

The Feasiblity of State Corporate Data
Francis, Brian

Using a Sample of Federal Estate Tax Returns to Examine the Effects of Audit Revaluation on Pre-Audit Estimates
Eller, Martha Britton; Johnson, Barry

Occupation and Industry Data from Tax Year 1993 Individual Tax Returns
Sailer, Peter; Nuriddin, Terry

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1998

Income, Tax, and Tax Progressivity: An Examination of Recent Trends in the Distribution of Individual Income and Taxes
Petska, Tom; Strudler, Mike

Updating Techniques for Estimating Wealth from Federal Estate Tax Returns
Johnson, Barry

The IRS Population Count: An Update
Sailer, Peter; Weber, Michael

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1997

Taxes and Business Organizational Choice: Deja Vu All Over Again?
Petska, Tom

Partnerships in Data Sharing: The Internal Revenue Service and the Bureau of Economic Analysis
Petska, Tom

Federal Taxation of Inheritance and Wealth Transfers
Johnson, Barry; Eller, Martha Britton

Household and Individual Income Data from Tax Returns
Sailer, Peter; Weber, Michael

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Page Last Reviewed or Updated: 10-Mar-2014

The Income Taxes 2012

Income taxes 2012 3. Income taxes 2012   Abandonments Table of Contents You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership but without passing it on to anyone else. Income taxes 2012 Whether an abandonment has occurred is determined in light of all the facts and circumstances. Income taxes 2012 You must both show an intention to abandon the property and affirmatively act to abandon the property. Income taxes 2012 A voluntary conveyance of the property in lieu of foreclosure is not an abandonment and is treated as the exchange of property to satisfy a debt. Income taxes 2012 For more information, see Sales and Exchanges in Publication 544. Income taxes 2012 The tax consequences of abandonment of property that secures a debt depend on whether you were personally liable for the debt (recourse debt) or were not personally liable for the debt (nonrecourse debt). Income taxes 2012 See Publication 544 if you abandoned property that did not secure debt. Income taxes 2012 This publication only discusses the tax consequences of abandoning property that secured a debt. Income taxes 2012 Abandonment of property securing recourse debt. Income taxes 2012    In most cases, if you abandon property that secures debt for which you are personally liable (recourse debt), you do not have gain or loss until the later foreclosure is completed. Income taxes 2012 For details on figuring gain or loss on the foreclosure, see chapter 2. Income taxes 2012 Example 1—abandonment of personal-use property securing recourse debt. Income taxes 2012 In 2009, Anne purchased a home for $200,000. Income taxes 2012 She borrowed the entire purchase price, for which she was personally liable, and gave the bank a mortgage on the home. Income taxes 2012 In 2013, Anne lost her job and was unable to continue making her mortgage loan payments. Income taxes 2012 Because her mortgage loan balance was $185,000 and the FMV of her home was only $150,000, Anne decided to abandon her home by permanently moving out on August 1, 2013. Income taxes 2012 Because Anne was personally liable for the debt and the bank did not complete a foreclosure of the property in 2013, Anne has neither gain nor loss in tax year 2013 from abandoning the home. Income taxes 2012 If the bank sells the house at a foreclosure sale in 2014, Anne will have to figure her gain or nondeductible loss for tax year 2014 as discussed earlier in chapter 2. Income taxes 2012 Example 2—abandonment of business or investment property securing recourse debt. Income taxes 2012 In 2009, Sue purchased business property for $200,000. Income taxes 2012 She borrowed the entire purchase price, for which she was personally liable, and gave the lender a security interest in the property. Income taxes 2012 In 2013, Sue was unable to continue making her loan payments. Income taxes 2012 Because her loan balance was $185,000 and the FMV of the property was only $150,000, Sue abandoned the property on August 1, 2013. Income taxes 2012 Because Sue was personally liable for the debt and the lender did not complete a foreclosure of the property in 2013, Sue has neither gain nor loss in tax year 2013 from abandoning the property. Income taxes 2012 If the lender sells the property at a foreclosure sale in 2014, Sue will have to figure her gain or deductible loss for tax year 2014 as discussed earlier in chapter 2. Income taxes 2012 Abandonment of property securing nonrecourse debt. Income taxes 2012    If you abandon property that secures debt for which you are not personally liable (nonrecourse debt), the abandonment is treated as a sale or exchange. Income taxes 2012   The amount you realize on the abandonment of property that secured nonrecourse debt is the amount of the nonrecourse debt. Income taxes 2012 If the amount you realize is more than your adjusted basis, then you have a gain. Income taxes 2012 If your adjusted basis is more than the amount you realize, then you have a loss. Income taxes 2012 For more information on how to figure gain and loss, see Gain or Loss from Sales or Exchanges in Publication 544. Income taxes 2012   Loss from abandonment of business or investment property is deductible as a loss. Income taxes 2012 The character of the loss depends on the character of the property. Income taxes 2012 The amount of deductible capital loss may be limited. Income taxes 2012 For more information, see Treatment of Capital Losses in Publication 544. Income taxes 2012 You cannot deduct any loss from abandonment of your home or other property held for personal use. Income taxes 2012 Example 1—abandonment of personal-use property securing nonrecourse debt. Income taxes 2012 In 2009, Timothy purchased a home for $200,000. Income taxes 2012 He borrowed the entire purchase price, for which he was not personally liable, and gave the bank a mortgage on the home. Income taxes 2012 In 2013, Timothy lost his job and was unable to continue making his mortgage loan payments. Income taxes 2012 Because his mortgage loan balance was $185,000 and the FMV of his home was only $150,000, Timothy decided to abandon his home by permanently moving out on August 1, 2013. Income taxes 2012 Because Timothy was not personally liable for the debt, the abandonment is treated as a sale or exchange of the home in tax year 2013. Income taxes 2012 Timothy's amount realized is $185,000 and his adjusted basis in the home is $200,000. Income taxes 2012 Timothy has a $15,000 nondeductible loss in tax year 2013. Income taxes 2012 (Had Timothy’s adjusted basis been less than the amount realized, Timothy would have had a gain that he would have to include in gross income. Income taxes 2012 ) The bank sells the house at a foreclosure sale in 2014. Income taxes 2012 Timothy has neither gain nor loss from the foreclosure sale. Income taxes 2012 Because he was not personally liable for the debt, he also has no cancellation of debt income. Income taxes 2012 Example 2—abandonment of business or investment property securing nonrecourse debt. Income taxes 2012 In 2009, Robert purchased business property for $200,000. Income taxes 2012 He borrowed the entire purchase price, for which he was not personally liable, and gave the lender a security interest in the property. Income taxes 2012 In 2013, Robert was unable to continue making his loan payments. Income taxes 2012 Because his loan balance was $185,000 and the FMV of the property was only $150,000, Robert decided to abandon the property on August 1, 2013. Income taxes 2012 Because Robert was not personally liable for the debt, the abandonment is treated as a sale or exchange of the property in tax year 2013. Income taxes 2012 Robert's amount realized is $185,000 and his adjusted basis in the property is $180,000 (as a result of $20,000 of depreciation deductions on the property). Income taxes 2012 Robert has a $5,000 gain in tax year 2013. Income taxes 2012 (Had Robert’s adjusted basis been greater than the amount realized, he would have had a deductible loss. Income taxes 2012 ) The lender sells the property at a foreclosure sale in 2014. Income taxes 2012 Robert has neither gain nor loss from the foreclosure sale. Income taxes 2012 Because he was not personally liable for the debt, he also has no cancellation of debt income. Income taxes 2012 Canceled debt. Income taxes 2012    If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you will realize ordinary income equal to the canceled debt. Income taxes 2012 This income is separate from any amount realized from abandonment of the property. Income taxes 2012 You must report this income on your return unless one of the exceptions or exclusions described in chapter 1 applies. Income taxes 2012 See chapter 1 for more details. Income taxes 2012 Forms 1099-A and 1099-C. Income taxes 2012    In most cases, if you abandon real property (such as a home), intangible property, or tangible personal property held (wholly or partly) for use in a trade or business or for investment, that secures a loan and the lender knows the property has been abandoned, the lender should send you Form 1099-A showing information you need to figure your gain or loss from the abandonment. Income taxes 2012 Also, if your debt is canceled and the lender must file Form 1099-C, the lender can include the information about the abandonment on that form instead of on Form 1099-A. Income taxes 2012 The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Income taxes 2012 For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Income taxes 2012 Prev  Up  Next   Home   More Online Publications