Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Irs Free Tax Preparation Online

File Old Tax Returns FreeFree Tax Preparation 2012Hr Block Free EfileMichigan Tax Forms 1040ezAmend Your Taxes1040 AmendmentWhere To File Taxes For FreeAmended Utah State Tax ReturnFree Online Federal And State Tax FilingBack Taxes HelpH&r Block Tax FilingTurbo Tax Filing 2012Free State Return OnlyTaxact ComTurbotax 1040xEztaxformFree Online State Tax PreparationIrs Form 1040x 2012Hr Block 1040nr1040ez Tax Table2009 1040xWww Myfreetaxes Com Sandiego1040ez FormCan I Amend My Taxes OnlineInstructions For 1040ez2011 Income TaxesState Tax For FreeIrs AmendmentWww.irs.gov/form1040xLate Filing 2011 Taxes1040ez Form 20132009 Form 1040 EzFile Extension OnlineHow To File Taxes For 20122011 1040 Tax FormIrs 1040x FormCan I File My State Taxes Online For Free2012 Federal 1040 Tax Forms2012 Irs Tax Forms 1040aSenior Tax Stimulus Check

Irs Free Tax Preparation Online

Irs free tax preparation online Publication 1212 - Main Content Table of Contents Definitions Debt Instruments on the OID List Debt Instruments Not on the OID List Information for Brokers and Other MiddlemenShort-Term Obligations Redeemed at Maturity Long-Term Debt Instruments Certificates of Deposit Bearer Bonds and Coupons Backup Withholding Information for Owners of OID Debt InstrumentsExceptions. Irs free tax preparation online Adjustment for premium. Irs free tax preparation online Adjustment for acquisition premium. Irs free tax preparation online Adjustment for market discount. Irs free tax preparation online Form 1099-OID How To Report OID Figuring OID on Long-Term Debt Instruments Figuring OID on Stripped Bonds and Coupons How To Get Tax HelpLow Income Taxpayer Clinics Definitions The following terms are used throughout this publication. Irs free tax preparation online “Original issue discount” is defined first. Irs free tax preparation online The other terms are listed alphabetically. Irs free tax preparation online Original issue discount (OID). Irs free tax preparation online   OID is a form of interest. Irs free tax preparation online It is the excess of a debt instrument's stated redemption price at maturity over its issue price (acquisition price for a stripped bond or coupon). Irs free tax preparation online Zero coupon bonds and debt instruments that pay no stated interest until maturity are examples of debt instruments that have OID. Irs free tax preparation online Accrual period. Irs free tax preparation online   An accrual period is an interval of time used to measure OID. Irs free tax preparation online The length of an accrual period can be 6 months, a year, or some other period, depending on when the debt instrument was issued. Irs free tax preparation online Acquisition premium. Irs free tax preparation online   Acquisition premium is the excess of a debt instrument's adjusted basis immediately after purchase, including purchase at original issue, over the debt instrument's adjusted issue price at that time. Irs free tax preparation online A debt instrument does not have acquisition premium, however, if the debt instrument was purchased at a premium. Irs free tax preparation online See Premium, later. Irs free tax preparation online Adjusted issue price. Irs free tax preparation online   The adjusted issue price of a debt instrument at the beginning of an accrual period is used to figure the OID allocable to that period. Irs free tax preparation online In general, the adjusted issue price at the beginning of the debt instrument's first accrual period is its issue price. Irs free tax preparation online The adjusted issue price at the beginning of any subsequent accrual period is the sum of the issue price and all the OID includible in income before that accrual period minus any payment previously made on the debt instrument, other than a payment of qualified stated interest. Irs free tax preparation online Debt instrument. Irs free tax preparation online   The term “debt instrument” means any instrument or contractual arrangement that constitutes indebtedness under general principles of federal income tax law (including, for example, a bond, debenture, note, certificate, or other evidence of indebtedness). Irs free tax preparation online It generally does not include an annuity contract. Irs free tax preparation online Issue price. Irs free tax preparation online   For debt instruments listed in Section I-A and Section I-B, the issue price generally is the initial offering price to the public (excluding bond houses and brokers) at which a substantial amount of these instruments was sold. Irs free tax preparation online Market discount. Irs free tax preparation online   Market discount arises when a debt instrument purchased in the secondary market has decreased in value since its issue date, generally because of an increase in interest rates. Irs free tax preparation online An OID debt instrument has market discount if your adjusted basis in the debt instrument immediately after you acquired it (usually its purchase price) was less than the debt instrument's issue price plus the total OID that accrued before you acquired it. Irs free tax preparation online The market discount is the difference between the issue price plus accrued OID and your adjusted basis. Irs free tax preparation online Premium. Irs free tax preparation online   A debt instrument is purchased at a premium if its adjusted basis immediately after purchase is greater than the total of all amounts payable on the debt instrument after the purchase date, other than qualified stated interest. Irs free tax preparation online The premium is the excess of the adjusted basis over the payable amounts. Irs free tax preparation online See Publication 550 for information on the tax treatment of bond premium. Irs free tax preparation online Qualified stated interest. Irs free tax preparation online   In general, qualified stated interest is stated interest that is unconditionally payable in cash or property (other than debt instruments of the issuer) at least annually over the term of the debt instrument at a single fixed rate. Irs free tax preparation online Stated redemption price at maturity. Irs free tax preparation online   A debt instrument's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on the debt instrument other than qualified stated interest. Irs free tax preparation online Yield to maturity (YTM). Irs free tax preparation online   In general, the YTM is the discount rate that, when used in figuring the present value of all principal and interest payments, produces an amount equal to the issue price of the debt instrument. Irs free tax preparation online The YTM is generally shown on the face of the debt instrument or in the literature you receive from your broker. Irs free tax preparation online If you do not have this information, consult your broker, tax advisor, or the issuer. Irs free tax preparation online Debt Instruments on the OID List The OID list on the IRS website can be used by brokers and other middlemen to prepare information returns. Irs free tax preparation online If you own a listed debt instrument, you generally should not rely on the information in the OID list to determine (or compare) the OID to be reported on your tax return. Irs free tax preparation online The OID amounts listed are figured without reference to the price or date at which you acquired the debt instrument. Irs free tax preparation online For information about determining the OID to be reported on your tax return, see the instructions for figuring OID under Information for Owners of OID Debt Instruments, later. Irs free tax preparation online The following discussions explain what information is contained in each section of the list. Irs free tax preparation online Section I. Irs free tax preparation online   This section contains publicly offered, long-term debt instruments. Irs free tax preparation online Section I-A: Corporate Debt Instruments Issued Before 1985. Irs free tax preparation online Section I-B: Corporate Debt Instruments Issued After 1984. Irs free tax preparation online Section I-C: Inflation-Indexed Debt Instruments. Irs free tax preparation online For each publicly offered debt instrument in Section I, the list contains the following information. Irs free tax preparation online The name of the issuer. Irs free tax preparation online The Committee on Uniform Security Identification Procedures (CUSIP) number. Irs free tax preparation online The issue date. Irs free tax preparation online The maturity date. Irs free tax preparation online The issue price expressed as a percent of principal or of stated redemption price at maturity. Irs free tax preparation online The annual stated or coupon interest rate. Irs free tax preparation online (This rate is shown as 0. Irs free tax preparation online 00 if no annual interest payments are provided. Irs free tax preparation online ) The yield to maturity will be added to Section I-B for bonds issued after December 31, 2006. Irs free tax preparation online The total OID accrued up to January 1 of a calendar year. Irs free tax preparation online (This information is not available for every instrument. Irs free tax preparation online ) For long-term debt instruments issued after July 1, 1982, the daily OID for the accrual periods falling in a calendar year and a subsequent year. Irs free tax preparation online The total OID per $1,000 of principal or maturity value for a calendar year and a subsequent year. Irs free tax preparation online Section II. Irs free tax preparation online   This section contains stripped coupons and principal components of U. Irs free tax preparation online S. Irs free tax preparation online Treasury and Government-Sponsored Enterprise debt instruments. Irs free tax preparation online These stripped components are available through the Department of the Treasury's Separate Trading of Registered Interest and Principal of Securities (STRIPS) program and government-sponsored enterprises such as the Resolution Funding Corporation. Irs free tax preparation online This section also includes debt instruments backed by U. Irs free tax preparation online S. Irs free tax preparation online Treasury securities that represent ownership interests in those securities. Irs free tax preparation online   The obligations listed in Section II are arranged by maturity date. Irs free tax preparation online The amounts listed are the total OID for a calendar year per $1,000 of redemption price. Irs free tax preparation online Section III. Irs free tax preparation online   This section contains short-term discount obligations. Irs free tax preparation online Section III-A: Short-Term U. Irs free tax preparation online S. Irs free tax preparation online Treasury Bills. Irs free tax preparation online Section III-B: Federal Home Loan Banks. Irs free tax preparation online Section III-C: Federal National Mortgage Association. Irs free tax preparation online Section III-D: Federal Farm Credit Banks. Irs free tax preparation online Section III-E: Federal Home Loan Mortgage Corporation. Irs free tax preparation online Section III-F: Federal Agricultural Mortgage Corporation. Irs free tax preparation online    Information that supplements Section III-A is available on the Internet at http://www. Irs free tax preparation online treasurydirect. Irs free tax preparation online gov/tdhome. Irs free tax preparation online htm. Irs free tax preparation online   The short-term obligations listed in this section are arranged by maturity date. Irs free tax preparation online For each obligation, the list contains the CUSIP number, maturity date, issue date, issue price (expressed as a percent of principal), and discount to be reported as interest for a calendar year per $1,000 of redemption price. Irs free tax preparation online Brokers and other middlemen should rely on the issue price information in Section III only if they are unable to determine the price actually paid by the owner. Irs free tax preparation online Debt Instruments Not on the OID List The list of debt instruments discussed earlier does not contain the following items. Irs free tax preparation online U. Irs free tax preparation online S. Irs free tax preparation online savings bonds. Irs free tax preparation online Certificates of deposit and other face-amount certificates issued at a discount, including syndicated certificates of deposit. Irs free tax preparation online Obligations issued by tax-exempt organizations. Irs free tax preparation online OID debt instruments that matured or were entirely called by the issuer before the tables were posted on the IRS website. Irs free tax preparation online Mortgage-backed securities and mortgage participation certificates. Irs free tax preparation online Long-term OID debt instruments issued before May 28, 1969. Irs free tax preparation online Short-term obligations, other than the obligations listed in Section III. Irs free tax preparation online Debt instruments issued at a discount by states or their political subdivisions. Irs free tax preparation online REMIC regular interests and CDOs. Irs free tax preparation online Commercial paper and banker's acceptances issued at a discount. Irs free tax preparation online Obligations issued at a discount by individuals. Irs free tax preparation online Foreign obligations not traded in the United States and obligations not issued in the United States. Irs free tax preparation online Information for Brokers and Other Middlemen The following discussions contain specific instructions for brokers and middlemen who hold or redeem a debt instrument for the owner. Irs free tax preparation online In general, you must file a Form 1099 for the debt instrument if the interest or OID to be included in the owner's income for a calendar year totals $10 or more. Irs free tax preparation online You also must file a Form 1099 if you were required to deduct and withhold tax, even if the interest or OID is less than $10. Irs free tax preparation online See Backup Withholding, later. Irs free tax preparation online If you must file a Form 1099, furnish a copy to the owner of the debt instrument by January 31 in the year it is due. Irs free tax preparation online File all your Forms 1099 with the IRS, accompanied by Form 1096, by February 28 in the year it is due (March 31 if you file electronically). Irs free tax preparation online Electronic payee statements. Irs free tax preparation online   You can issue Form 1099-OID electronically with the consent of the recipient. Irs free tax preparation online More information. Irs free tax preparation online   For more information, including penalties for failure to file (or furnish) required information returns or statements, see the General Instructions for Certain Information Returns (Forms 1098, 1099, 3921, 3922, 5498, and W-2G) for the appropriate calendar year. Irs free tax preparation online Short-Term Obligations Redeemed at Maturity If you redeem a short-term discount obligation for the owner at maturity, you must report the discount as interest on Form 1099-INT. Irs free tax preparation online To figure the discount, use the purchase price shown on the owner's copy of the purchase confirmation receipt or similar record, or the price shown in your transaction records. Irs free tax preparation online If you sell the obligation for the owner before maturity, you must file Form 1099-B to reflect the gross proceeds to the seller. Irs free tax preparation online Do not report the accrued discount to the date of sale on either Form 1099-INT or Form 1099-OID. Irs free tax preparation online If the owner's purchase price cannot be determined, figure the discount as if the owner had purchased the obligation at its original issue price. Irs free tax preparation online A special rule is used to determine the original issue price for information reporting on U. Irs free tax preparation online S. Irs free tax preparation online Treasury bills (T-bills) listed in Section III-A. Irs free tax preparation online Under this rule, you treat as the original issue price of the T-bill the noncompetitive (weighted average of accepted auction bids) discount price for the longest-maturity T-bill maturing on the same date as the T-bill being redeemed. Irs free tax preparation online This noncompetitive discount price is the issue price (expressed as a percent of principal) shown in Section III-A. Irs free tax preparation online A similar rule is used to figure the discount on short-term discount obligations issued by the organizations listed in Section III-B through Section III-F. Irs free tax preparation online Example 1. Irs free tax preparation online There are 13-week and 26-week T-bills maturing on the same date as the T-bill being redeemed. Irs free tax preparation online The price actually paid by the owner cannot be established by owner or middleman records. Irs free tax preparation online You treat as the issue price of the T-bill the noncompetitive discount price (expressed as a percent of principal) shown in Section III-A for a 26-week bill maturing on the same date as the T-bill redeemed. Irs free tax preparation online The interest you report on Form 1099-INT is the OID (per $1,000 of principal) shown in Section III-A for that obligation. Irs free tax preparation online Long-Term Debt Instruments If you hold a long-term OID debt instrument as a nominee for the true owner, you generally must file Form 1099-OID. Irs free tax preparation online For this purpose, you can rely on Section I of the OID list to determine the following information. Irs free tax preparation online Whether a debt instrument has OID. Irs free tax preparation online The OID to be reported on the Form 1099-OID. Irs free tax preparation online In general, you must report OID on publicly offered, long-term debt instruments listed in Section I. Irs free tax preparation online You also can report OID on other long-term debt instruments. Irs free tax preparation online Form 1099-OID. Irs free tax preparation online   On Form 1099-OID for a calendar year show the following information. Irs free tax preparation online Box 1. Irs free tax preparation online The OID for the actual dates the owner held the debt instruments during a calendar year. Irs free tax preparation online To determine this amount, see Figuring OID, next. Irs free tax preparation online Box 2. Irs free tax preparation online The qualified stated interest paid or credited during the calendar year. Irs free tax preparation online Interest reported here is not reported on Form 1099-INT. Irs free tax preparation online The qualified stated interest on Treasury inflation-protected securities may be reported on Form 1099-INT in box 3 instead. Irs free tax preparation online Box 3. Irs free tax preparation online Any interest or principal forfeited because of an early withdrawal that the owner can deduct from gross income. Irs free tax preparation online Do not reduce the amounts in boxes 1 and 2 by the forfeiture. Irs free tax preparation online Box 4. Irs free tax preparation online Any backup withholding for this debt instrument. Irs free tax preparation online Box 7. Irs free tax preparation online The CUSIP number, if any. Irs free tax preparation online If there is no CUSIP number, give a description of the debt instrument, including the abbreviation for the stock exchange, the abbreviation used by the stock exchange for the issuer, the coupon rate, and the year of maturity (for example, NYSE XYZ 12. Irs free tax preparation online 50 2006). Irs free tax preparation online If the issuer of the debt instrument is other than the payer, show the name of the issuer in this box. Irs free tax preparation online Box 8. Irs free tax preparation online The OID on a U. Irs free tax preparation online S. Irs free tax preparation online Treasury obligation for the part of the year the owner held the debt instrument. Irs free tax preparation online Box 9. Irs free tax preparation online Investment expenses passed on to holders of a single-class REMIC. Irs free tax preparation online Boxes 10-12. Irs free tax preparation online Use to report any state income tax withheld for this debt instrument. Irs free tax preparation online Figuring OID. Irs free tax preparation online   You can determine the OID on a long-term debt instrument by using either of the following. Irs free tax preparation online Section I of the OID list. Irs free tax preparation online The income tax regulations. Irs free tax preparation online Using Section I. Irs free tax preparation online   If the owner held the debt instrument for the entire calendar year, report the OID shown in Section I for the calendar year. Irs free tax preparation online Because OID is listed for each $1,000 of stated redemption price at maturity, you must adjust the listed amount to reflect the debt instrument's actual stated redemption price at maturity. Irs free tax preparation online For example, if the debt instrument's stated redemption price at maturity is $500, report one-half the listed OID. Irs free tax preparation online   If the owner held the debt instrument for less than the entire calendar year, figure the OID to report as follows. Irs free tax preparation online Look up the daily OID for the first accrual period in the calendar year during which the owner held the debt instrument. Irs free tax preparation online Multiply the daily OID by the number of days the owner held the debt instrument during that accrual period. Irs free tax preparation online Repeat steps (1) and (2) for any remaining accrual periods for the year during which the owner held the debt instrument. Irs free tax preparation online Add the results in steps (2) and (3) to determine the owner's OID per $1,000 of stated redemption price at maturity. Irs free tax preparation online If necessary, adjust the OID in (4) to reflect the debt instrument's stated redemption price at maturity. Irs free tax preparation online Report the result on Form 1099-OID in box 1. Irs free tax preparation online Using the income tax regulations. Irs free tax preparation online   Instead of using Section I to figure OID, you can use the regulations under sections 1272 through 1275 of the Internal Revenue Code. Irs free tax preparation online For example, under the regulations, you can use monthly accrual periods in figuring OID for a debt instrument issued after April 3, 1994, that provides for monthly payments. Irs free tax preparation online (If you use Section I-B, the OID is figured using 6-month accrual periods. Irs free tax preparation online )   For a general explanation of the rules for figuring OID under the regulations, see Figuring OID on Long-Term Debt Instruments under Information for Owners of OID Debt Instruments, later. Irs free tax preparation online Certificates of Deposit If you hold a bank certificate of deposit (CD) as a nominee, you must determine whether the CD has OID and any OID includible in the income of the owner. Irs free tax preparation online You must file an information return showing the reportable interest and OID, if any, on the CD. Irs free tax preparation online These rules apply whether or not you sold the CD to the owner. Irs free tax preparation online Report OID on a CD in the same way as OID on other debt instruments. Irs free tax preparation online See Short-Term Obligations Redeemed at Maturity and Long-Term Debt Instruments, earlier. Irs free tax preparation online Bearer Bonds and Coupons If a coupon from a bearer bond is presented to you for collection before the bond matures, you generally must report the interest on Form 1099-INT. Irs free tax preparation online However, do not report the interest if either of the following apply. Irs free tax preparation online You hold the bond as a nominee for the true owner. Irs free tax preparation online The payee is a foreign person. Irs free tax preparation online See Payments to foreign person under Backup Withholding, later. Irs free tax preparation online Because you cannot assume the presenter of the coupon also owns the bond, you should not report OID on the bond on Form 1099-OID. Irs free tax preparation online The coupon may have been “stripped” (separated) from the bond and separately purchased. Irs free tax preparation online However, if a long-term bearer bond on the OID list is presented to you for redemption upon call or maturity, you should prepare a Form 1099-OID showing the OID for that calendar year, as well as any coupon interest payments collected at the time of redemption. Irs free tax preparation online Backup Withholding If you report OID on Form 1099-OID or interest on Form 1099-INT for a calendar year, you may be required to apply backup withholding to the reportable payment at a rate of 28%. Irs free tax preparation online The backup withholding is deducted at the time a cash payment is made. Irs free tax preparation online See Pub. Irs free tax preparation online 1281, Backup Withholding for Missing and Incorrect Name/TIN(s), for more information. Irs free tax preparation online Backup withholding generally applies in the following situations. Irs free tax preparation online The payee does not give you a taxpayer identification number (TIN). Irs free tax preparation online The IRS notifies you that the payee gave an incorrect TIN. Irs free tax preparation online The IRS notifies you that the payee is subject to backup withholding due to payee underreporting. Irs free tax preparation online For debt instruments acquired after 1983: The payee does not certify, under penalties of perjury, that he or she is not subject to backup withholding under (3), or The payee does not certify, under penalties of perjury, that the TIN given is correct. Irs free tax preparation online However, for short-term discount obligations (other than government obligations), bearer bonds and coupons, and U. Irs free tax preparation online S. Irs free tax preparation online savings bonds, backup withholding applies only if the payee does not give you a TIN or gives you an obviously incorrect number for a TIN. Irs free tax preparation online Short-term obligations. Irs free tax preparation online   Backup withholding applies to OID on a short-term obligation only when the OID is paid at maturity. Irs free tax preparation online However, backup withholding applies to any interest payable before maturity when the interest is paid or credited. Irs free tax preparation online   If the owner of a short-term obligation at maturity is not the original owner and can establish the purchase price of the obligation, the amount subject to backup withholding must be determined by treating the purchase price as the issue price. Irs free tax preparation online However, you can choose to disregard that price if it would require significant manual intervention in the computer or recordkeeping system used for the obligation. Irs free tax preparation online If the purchase price of a listed obligation is not established or is disregarded, you must use the issue price shown in Section III. Irs free tax preparation online Long-term obligations. Irs free tax preparation online   If no cash payments are made on a long-term obligation before maturity, backup withholding applies only at maturity. Irs free tax preparation online The amount subject to backup withholding is the OID includible in the owner's gross income for the calendar year when the obligation matures. Irs free tax preparation online The amount to be withheld is limited to the cash paid. Irs free tax preparation online Registered long-term obligations with cash payments. Irs free tax preparation online   If a registered long-term obligation has cash payments before maturity, backup withholding applies when a cash payment is made. Irs free tax preparation online The amount subject to backup withholding is the total of the qualified stated interest (defined earlier under Definitions) and OID includible in the owner's gross income for the calendar year when the payment is made. Irs free tax preparation online If more than one cash payment is made during the year, the OID subject to withholding for the year must be allocated among the expected cash payments in the ratio that each bears to the total of the expected cash payments. Irs free tax preparation online For any payment, the required withholding is limited to the cash paid. Irs free tax preparation online Payee not the original owner. Irs free tax preparation online   If the payee is not the original owner of the obligation, the OID subject to backup withholding is the OID includible in the gross income of all owners during the calendar year (without regard to any amount paid by the new owner at the time of transfer). Irs free tax preparation online The amount subject to backup withholding at maturity of a listed obligation must be determined using the issue price shown in Section I. Irs free tax preparation online Bearer long-term obligations with cash payments. Irs free tax preparation online   If a bearer long-term obligation has cash payments before maturity, backup withholding applies when the cash payments are made. Irs free tax preparation online For payments before maturity, the amount subject to withholding is the qualified stated interest (defined earlier under Definitions) includible in the owner's gross income for the calendar year. Irs free tax preparation online For a payment at maturity, the amount subject to withholding is only the total of any qualified stated interest paid at maturity and the OID includible in the owner's gross income for the calendar year when the obligation matures. Irs free tax preparation online The required withholding at maturity is limited to the cash paid. Irs free tax preparation online Sales and redemptions. Irs free tax preparation online   If you report the gross proceeds from a sale, exchange, or redemption of a debt instrument on Form 1099-B for a calendar year, you may be required to withhold 28% of the amount reported. Irs free tax preparation online Backup withholding applies in the following situations. Irs free tax preparation online The payee does not give you a TIN. Irs free tax preparation online The IRS notifies you that the payee gave an incorrect TIN. Irs free tax preparation online For debt instruments held in an account opened after 1983, the payee does not certify, under penalties of perjury, that the TIN given is correct. Irs free tax preparation online Payments outside the United States to U. Irs free tax preparation online S. Irs free tax preparation online person. Irs free tax preparation online   The requirements for backup withholding and information reporting apply to payments of OID and interest made outside the United States to a U. Irs free tax preparation online S. Irs free tax preparation online person, a controlled foreign corporation, or a foreign person at least 50% of whose income for the preceding 3-year period is effectively connected with the conduct of a U. Irs free tax preparation online S. Irs free tax preparation online trade or business. Irs free tax preparation online Payments to foreign person. Irs free tax preparation online   The following discussions explain the rules for backup withholding and information reporting on payments to foreign persons. Irs free tax preparation online U. Irs free tax preparation online S. Irs free tax preparation online -source amount. Irs free tax preparation online   Backup withholding and information reporting are not required for payments of U. Irs free tax preparation online S. Irs free tax preparation online -source OID, interest, or proceeds from a sale or redemption of an OID instrument if the payee has given you proof (generally the appropriate Form W-8 or an acceptable substitute) that the payee is a foreign person. Irs free tax preparation online A U. Irs free tax preparation online S. Irs free tax preparation online resident is not a foreign person. Irs free tax preparation online For proof of the payee's foreign status, you can rely on the appropriate Form W-8 or on documentary evidence for payments made outside the United States to an offshore account or, in case of broker proceeds, a sale effected outside the United States. Irs free tax preparation online Receipt of the appropriate Form W-8 does not relieve you from information reporting and backup withholding if you actually know the payee is a U. Irs free tax preparation online S. Irs free tax preparation online person. Irs free tax preparation online   For information about the 28% withholding tax that may apply to payments of U. Irs free tax preparation online S. Irs free tax preparation online -source OID or interest to foreign persons, see Publication 515. Irs free tax preparation online Foreign-source amount. Irs free tax preparation online   Backup withholding and information reporting are not required for payments of foreign-source OID and interest made outside the United States. Irs free tax preparation online However, if the payments are made inside the United States, the requirements for backup withholding and information reporting will apply unless the payee has given you the appropriate Form W-8 or acceptable substitute as proof that the payee is a foreign person. Irs free tax preparation online More information. Irs free tax preparation online   For more information about backup withholding and information reporting on foreign-source amounts or payments to foreign persons, see Regulations section 1. Irs free tax preparation online 6049-5. Irs free tax preparation online Information for Owners of OID Debt Instruments This section is for persons who prepare their own tax returns. Irs free tax preparation online It discusses the income tax rules for figuring and reporting OID on long-term debt instruments. Irs free tax preparation online It also includes a similar discussion for stripped bonds and coupons, such as zero coupon bonds available through the Department of the Treasury's STRIPS program and government-sponsored enterprises such as the Resolution Funding Corporation. Irs free tax preparation online However, the information provided does not cover every situation. Irs free tax preparation online More information can be found in the regulations under sections 1271 through 1275 of the Internal Revenue Code. Irs free tax preparation online Including OID in income. Irs free tax preparation online   Generally, you include OID in income as it accrues each year, whether or not you receive any payments from the debt instrument issuer. Irs free tax preparation online Exceptions. Irs free tax preparation online   The rules for including OID in income as it accrues generally do not apply to the following debt instruments. Irs free tax preparation online U. Irs free tax preparation online S. Irs free tax preparation online savings bonds. Irs free tax preparation online Tax-exempt obligations. Irs free tax preparation online (However, see Tax-Exempt Bonds and Coupons, later. Irs free tax preparation online ) Obligations issued by individuals before March 2, 1984. Irs free tax preparation online Loans of $10,000 or less between individuals who are not in the business of lending money. Irs free tax preparation online (The dollar limit includes outstanding prior loans by the lender to the borrower. Irs free tax preparation online ) This exception does not apply if a principal purpose of the loan is to avoid any federal tax. Irs free tax preparation online   See chapter 1 of Publication 550 for information about the rules for these and other types of discounted debt instruments, such as short-term and market discount obligations. Irs free tax preparation online Publication 550 also discusses rules for holders of REMIC interests and CDOs. Irs free tax preparation online De minimis rule. Irs free tax preparation online   You can treat OID as zero if the total OID on a debt instrument is less than one-fourth of 1% (. Irs free tax preparation online 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. Irs free tax preparation online Debt instruments with de minimis OID are not listed in this publication. Irs free tax preparation online There are special rules to determine the de minimis amount in the case of debt instruments that provide for more than one payment of principal. Irs free tax preparation online Also, the de minimis rules generally do not apply to tax-exempt obligations. Irs free tax preparation online Example 2. Irs free tax preparation online You bought at issuance a 10-year debt instrument with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. Irs free tax preparation online One-fourth of 1% of $1,000 (the stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. Irs free tax preparation online Under the de minimis rule, you can treat the OID as zero because the $20 discount is less than $25. Irs free tax preparation online Example 3. Irs free tax preparation online Assume the same facts as Example 2, except the debt instrument was issued at $950. Irs free tax preparation online You must report part of the $50 OID each year because it is more than $25. Irs free tax preparation online Choice to report all interest as OID. Irs free tax preparation online   Generally, you can choose to treat all interest on a debt instrument acquired after April 3, 1994, as OID and include it in gross income by using the constant yield method. Irs free tax preparation online See Constant yield method under Debt Instruments Issued After 1984, later, for more information. Irs free tax preparation online   For this choice, interest includes stated interest, acquisition discount, OID, de minimis OID, market discount, de minimis market discount, and unstated interest, as adjusted by any amortizable bond premium or acquisition premium. Irs free tax preparation online For more information, see Regulations section 1. Irs free tax preparation online 1272-3. Irs free tax preparation online Purchase after date of original issue. Irs free tax preparation online   A debt instrument you purchased after the date of original issue may have premium, acquisition premium, or market discount. Irs free tax preparation online If so, the OID reported to you on Form 1099-OID may have to be adjusted. Irs free tax preparation online For more information, see Showing an OID adjustment under How To Report OID, later. Irs free tax preparation online The following rules generally do not apply to contingent payment debt instruments. Irs free tax preparation online Adjustment for premium. Irs free tax preparation online   If your debt instrument (other than an inflation-indexed debt instrument) has premium, do not report any OID as ordinary income. Irs free tax preparation online Your adjustment is the total OID shown on your Form 1099-OID. Irs free tax preparation online Adjustment for acquisition premium. Irs free tax preparation online   If your debt instrument has acquisition premium, reduce the OID you report. Irs free tax preparation online Your adjustment is the difference between the OID shown on your Form 1099-OID and the reduced OID amount figured using the rules explained later under Figuring OID on Long-Term Debt Instruments. Irs free tax preparation online Adjustment for market discount. Irs free tax preparation online   If your debt instrument has market discount that you choose to include in income currently, increase the OID you report. Irs free tax preparation online Your adjustment is the accrued market discount for the year. Irs free tax preparation online See Market Discount Bonds in chapter 1 of Publication 550 for information on how to figure accrued market discount and include it in your income currently and for other information about market discount bonds. Irs free tax preparation online If you choose to use the constant yield method to figure accrued market discount, also see Figuring OID on Long-Term Debt Instruments, later. Irs free tax preparation online The constant yield method of figuring accrued OID, explained in those discussions under Constant yield method, is also used to figure accrued market discount. Irs free tax preparation online For more information concerning premium or market discount on an inflation-indexed debt instrument, see Regulations section 1. Irs free tax preparation online 1275-7. Irs free tax preparation online Sale, exchange, or redemption. Irs free tax preparation online   Generally, you treat your gain or loss from the sale, exchange, or redemption of a discounted debt instrument as a capital gain or loss if you held the debt instrument as a capital asset. Irs free tax preparation online If you sold the debt instrument through a broker, you should receive Form 1099-B or an equivalent statement from the broker. Irs free tax preparation online Use the Form 1099-B or other statement and your brokerage statements to complete Form 8949, and Schedule D (Form 1040). Irs free tax preparation online   Your gain or loss is the difference between the amount you realized on the sale, exchange, or redemption and your basis in the debt instrument. Irs free tax preparation online Your basis, generally, is your cost increased by the OID you have included in income each year you held it. Irs free tax preparation online In general, to determine your gain or loss on a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. Irs free tax preparation online   See chapter 4 of Publication 550 for more information about the tax treatment of the sale or redemption of discounted debt instruments. Irs free tax preparation online Example 4. Irs free tax preparation online Larry, a calendar year taxpayer, bought a corporate debt instrument at original issue for $86,235. Irs free tax preparation online 00 on November 1 of Year 1. Irs free tax preparation online The 15-year debt instrument matures on October 31 of Year 16 at a stated redemption price of $100,000. Irs free tax preparation online The debt instrument provides for semiannual payments of interest at 10%. Irs free tax preparation online Assume the debt instrument is a capital asset in Larry's hands. Irs free tax preparation online The debt instrument has $13,765. Irs free tax preparation online 00 of OID ($100,000 stated redemption price at maturity minus $86,235. Irs free tax preparation online 00 issue price). Irs free tax preparation online Larry sold the debt instrument for $90,000 on November 1 of Year 4. Irs free tax preparation online Including the OID he will report for the period he held the debt instrument in Year 4, Larry has included $4,556. Irs free tax preparation online 00 of OID in income and has increased his basis by that amount to $90,791. Irs free tax preparation online 00. Irs free tax preparation online Larry has realized a loss of $791. Irs free tax preparation online 00. Irs free tax preparation online All of Larry's loss is capital loss. Irs free tax preparation online Form 1099-OID The issuer of the debt instrument (or your broker, if you purchased or held the debt instrument through a broker) should give you a copy of Form 1099-OID or a similar statement if the accrued OID for the calendar year is $10 or more and the term of the debt instrument is more than 1 year. Irs free tax preparation online Form 1099-OID shows all OID income in box 1 except OID on a U. Irs free tax preparation online S. Irs free tax preparation online Treasury obligation, which is shown in box 8. Irs free tax preparation online It also shows, in box 2, any qualified stated interest you must include in income. Irs free tax preparation online (However, any qualified stated interest on Treasury inflation-protected securities can be reported on Form 1099-INT in box 3. Irs free tax preparation online ) A copy of Form 1099-OID will be sent to the IRS. Irs free tax preparation online Do not attach your copy to your tax return. Irs free tax preparation online Keep it for your records. Irs free tax preparation online If you are required to file a tax return and you receive Form 1099-OID showing taxable amounts, you must report these amounts on your return. Irs free tax preparation online A 20% accuracy-related penalty may be charged for underpayment of tax due to either negligence or disregard of rules and regulations or substantial understatement of tax. Irs free tax preparation online Form 1099-OID not received. Irs free tax preparation online   If you held an OID debt instrument for a calendar year but did not receive a Form 1099-OID, refer to the discussions under Figuring OID on Long-Term Debt Instruments, later, for information on the OID you must report. Irs free tax preparation online Refiguring OID. Irs free tax preparation online   You must refigure the OID shown on Form 1099-OID, in box 1 or box 8, to determine the proper amount to include in income if one of the following applies. Irs free tax preparation online You bought the debt instrument at a premium or at an acquisition premium. Irs free tax preparation online The debt instrument is a stripped bond or coupon (including zero coupon bonds backed by U. Irs free tax preparation online S. Irs free tax preparation online Treasury securities). Irs free tax preparation online The debt instrument is a contingent payment or inflation-indexed debt instrument. Irs free tax preparation online See the discussions under Figuring OID on Long-Term Debt Instruments or Figuring OID on Stripped Bonds and Coupons, later, for the specific computations. Irs free tax preparation online Refiguring interest. Irs free tax preparation online   If you disposed of a debt instrument or acquired it from another holder between interest dates, see the discussion under Bonds Sold Between Interest Dates in chapter 1 of Publication 550 for information about refiguring the interest shown on Form 1099-OID in box 2. Irs free tax preparation online Nominee. Irs free tax preparation online   If you are the holder of an OID debt instrument and you receive a Form 1099-OID that shows your taxpayer identification number and includes amounts belonging to another person, you are considered a “nominee. Irs free tax preparation online ” You must file another Form 1099-OID for each actual owner, showing the OID for the owner. Irs free tax preparation online Show the owner of the debt instrument as the “recipient” and you as the “payer. Irs free tax preparation online ”   Complete Form 1099-OID and Form 1096 and file the forms with the Internal Revenue Service Center for your area. Irs free tax preparation online You must also give a copy of the Form 1099-OID to the actual owner. Irs free tax preparation online However, you are not required to file a nominee return to show amounts belonging to your spouse. Irs free tax preparation online See the Form 1099 instructions for more information. Irs free tax preparation online   When preparing your tax return, follow the instructions under Showing an OID adjustment in the next discussion. Irs free tax preparation online How To Report OID Generally, you report your taxable interest and OID income on the interest line of Form 1040EZ, Form 1040A, or Form 1040. Irs free tax preparation online Form 1040 or Form 1040A required. Irs free tax preparation online   You must use Form 1040 or Form 1040A (you cannot use Form 1040EZ) under either of the following conditions. Irs free tax preparation online You received a Form 1099-OID as a nominee for the actual owner. Irs free tax preparation online Your total interest and OID income for the year was more than $1,500. Irs free tax preparation online Form 1040 required. Irs free tax preparation online   You must use Form 1040 (you cannot use Form 1040A or Form 1040EZ) if you are reporting more or less OID than the amount shown on Form 1099-OID, other than because you are a nominee. Irs free tax preparation online For example, if you paid a premium or an acquisition premium when you purchased the debt instrument, you must use Form 1040 because you will report less OID than shown on Form 1099-OID. Irs free tax preparation online Also, you must use Form 1040 if you were charged an early withdrawal penalty. Irs free tax preparation online Where to report. Irs free tax preparation online   List each payer's name (if a brokerage firm gave you a Form 1099, list the brokerage firm as the payer) and the amount received from each payer on Form 1040A, Schedule B, Part I, line 1, or Form 1040, Schedule B, line 1. Irs free tax preparation online Include all OID and periodic interest shown on any Form 1099-OID, boxes 1, 2, and 8, you received for the tax year. Irs free tax preparation online Also include any other OID and interest income for which you did not receive a Form 1099. Irs free tax preparation online Showing an OID adjustment. Irs free tax preparation online   If you use Form 1040 to report more or less OID than shown on Form 1099-OID, list the full OID on Schedule B, Part I, line 1, and follow the instructions under 1 or 2, next. Irs free tax preparation online   If you use Form 1040A to report the OID shown on a Form 1099-OID you received as a nominee for the actual owner, list the full OID on Schedule B, Part I, line 1 and follow the instructions under 1. Irs free tax preparation online If the OID, as adjusted, is less than the amount shown on Form 1099-OID, show the adjustment as follows. Irs free tax preparation online Under your last entry on line 1, subtotal all interest and OID income listed on line 1. Irs free tax preparation online Below the subtotal, write “Nominee Distribution” or “OID Adjustment” and show the OID you are not required to report. Irs free tax preparation online Subtract that OID from the subtotal and enter the result on line 2. Irs free tax preparation online If the OID, as adjusted, is more than the amount shown on Form 1099-OID, show the adjustment as follows. Irs free tax preparation online Under your last entry on line 1, subtotal all interest and OID income listed on line 1. Irs free tax preparation online Below the subtotal, write “OID Adjustment” and show the additional OID. Irs free tax preparation online Add that OID to the subtotal and enter the result on line 2. Irs free tax preparation online Figuring OID on Long-Term Debt Instruments How you figure the OID on a long-term debt instrument depends on the date it was issued. Irs free tax preparation online It also may depend on the type of the debt instrument. Irs free tax preparation online There are different rules for each of the following debt instruments. Irs free tax preparation online Corporate debt instruments issued after 1954 and before May 28, 1969, and government debt instruments issued after 1954 and before July 2, 1982. Irs free tax preparation online Corporate debt instruments issued after May 27, 1969, and before July 2, 1982. Irs free tax preparation online Debt instruments issued after July 1, 1982, and before 1985. Irs free tax preparation online Debt instruments issued after 1984 (other than debt instruments described in (5) and (6)). Irs free tax preparation online Contingent payment debt instruments issued after August 12, 1996. Irs free tax preparation online Inflation-indexed debt instruments (including Treasury inflation-protected securities) issued after January 5, 1997. Irs free tax preparation online Zero coupon bonds. Irs free tax preparation online   The rules for figuring OID on zero coupon bonds backed by U. Irs free tax preparation online S. Irs free tax preparation online Treasury securities are discussed under Figuring OID on Stripped Bonds and Coupons, later. Irs free tax preparation online Corporate Debt Instruments Issued After 1954 and Before May 28, 1969, and Government Debt Instruments Issued After 1954 and Before July 2, 1982 If you hold these debt instruments as capital assets, you include OID in income only in the year the debt instrument is sold, exchanged, or redeemed, and only if you have a gain. Irs free tax preparation online The OID, which is taxed as ordinary income, generally equals the following amount. Irs free tax preparation online   number of full months you held the debt instrument  number of full months from date of original issue to date of maturity X original issue discount The balance of the gain is capital gain. Irs free tax preparation online If there is a loss on the sale of the debt instrument, the entire loss is a capital loss and no OID is reported. Irs free tax preparation online Corporate Debt Instruments Issued After May 27, 1969, and Before July 2, 1982 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments. Irs free tax preparation online For information about showing the correct OID on your tax return, see the discussion under How To Report OID, earlier. Irs free tax preparation online Your basis in the debt instrument is increased by the OID you include in income. Irs free tax preparation online Form 1099-OID. Irs free tax preparation online   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. Irs free tax preparation online However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Irs free tax preparation online See Reduction for acquisition premium, later. Irs free tax preparation online If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. Irs free tax preparation online irs. Irs free tax preparation online gov/pub1212 by clicking the link under Recent Developments. Irs free tax preparation online Form 1099-OID not received. Irs free tax preparation online    The OID listed is for each $1,000 of redemption price. Irs free tax preparation online You must adjust the listed amount if your debt instrument has a different principal amount. Irs free tax preparation online For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Irs free tax preparation online   If you held the debt instrument the entire year, use the OID shown in Section I-A for a calendar year. Irs free tax preparation online (If your debt instrument is not listed in Section I-A, consult the issuer for information about the issue price and the OID that accrued for that year. Irs free tax preparation online ) If you did not hold the debt instrument the entire year, figure your OID using the following method. Irs free tax preparation online Divide the OID shown by 12. Irs free tax preparation online Multiply the result in (1) by the number of complete and partial months (for example, 6½ months) you held the debt instrument during a calendar year. Irs free tax preparation online This is the OID to include in income unless you paid an acquisition premium. Irs free tax preparation online The reduction for acquisition premium is discussed next. Irs free tax preparation online Reduction for acquisition premium. Irs free tax preparation online   If you bought the debt instrument at an acquisition premium, figure the OID to include in income as follows. Irs free tax preparation online Divide the total OID on the debt instrument by the number of complete months, and any part of a month, from the date of original issue to the maturity date. Irs free tax preparation online This is the monthly OID. Irs free tax preparation online Subtract from your cost the issue price and the accumulated OID from the date of issue to the date of purchase. Irs free tax preparation online (If the result is zero or less, stop here. Irs free tax preparation online You did not pay an acquisition premium. Irs free tax preparation online ) Divide the amount figured in (2) by the number of complete months, and any part of a month, from the date of your purchase to the maturity date. Irs free tax preparation online Subtract the amount figured in (3) from the amount figured in (1). Irs free tax preparation online This is the OID to include in income for each month you hold the debt instrument during the year. Irs free tax preparation online Transfers during the month. Irs free tax preparation online   If you buy or sell a debt instrument on any day other than the same day of the month as the date of original issue, the ratable monthly portion of OID for the month of sale is divided between the seller and the buyer according to the number of days each held the debt instrument. Irs free tax preparation online Your holding period for this purpose begins the day you acquire the debt instrument and ends the day before you dispose of it. Irs free tax preparation online Debt Instruments Issued After July 1, 1982, and Before 1985 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments and increase your basis by the amount included. Irs free tax preparation online For information about showing the correct OID on your tax return, see How To Report OID, earlier. Irs free tax preparation online Form 1099-OID. Irs free tax preparation online   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. Irs free tax preparation online However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Irs free tax preparation online See Constant yield method and the discussions on acquisition premium that follow, later. Irs free tax preparation online If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. Irs free tax preparation online irs. Irs free tax preparation online gov/pub1212 by clicking the link under Recent Developments. Irs free tax preparation online Form 1099-OID not received. Irs free tax preparation online    The OID listed is for each $1,000 of redemption price. Irs free tax preparation online You must adjust the listed amount if your debt instrument has a different principal amount. Irs free tax preparation online For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Irs free tax preparation online   If you held the debt instrument the entire year, use the OID shown in Section I-A. Irs free tax preparation online (If your instrument is not listed in Section I-A, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. Irs free tax preparation online ) If you did not hold the debt instrument the entire year, figure your OID using either of the following methods. Irs free tax preparation online Method 1. Irs free tax preparation online    Divide the total OID for a calendar year by 365 (366 for leap years). Irs free tax preparation online Multiply the result in (1) by the number of days you held the debt instrument during that particular year. Irs free tax preparation online  This computation is an approximation and may result in a slightly higher OID than Method 2. Irs free tax preparation online Method 2. Irs free tax preparation online    Look up the daily OID for the first accrual period you held the debt instrument during a calendar year. Irs free tax preparation online (See Accrual period under Constant yield method, next. Irs free tax preparation online ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. Irs free tax preparation online If you held the debt instrument for part of both accrual periods, repeat (1) and (2) for the second accrual period. Irs free tax preparation online Add the results of (2) and (3). Irs free tax preparation online This is the OID to include in income, unless you paid an acquisition premium. Irs free tax preparation online (The reduction for acquisition premium is discussed later. Irs free tax preparation online ) Constant yield method. Irs free tax preparation online   This discussion shows how to figure OID on debt instruments issued after July 1, 1982, and before 1985, using a constant yield method. Irs free tax preparation online OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. Irs free tax preparation online   Figure the OID allocable to any accrual period as follows. Irs free tax preparation online Multiply the adjusted issue price at the beginning of the accrual period by the debt instrument's yield to maturity. Irs free tax preparation online Subtract from the result in (1) any qualified stated interest allocable to the accrual period. Irs free tax preparation online Accrual period. Irs free tax preparation online   An accrual period for any OID debt instrument issued after July 1, 1982, and before 1985 is each 1-year period beginning on the date of the issue of the obligation and each anniversary thereafter, or the shorter period to maturity for the last accrual period. Irs free tax preparation online Your tax year will usually include parts of two accrual periods. Irs free tax preparation online Daily OID. Irs free tax preparation online   The OID for any accrual period is allocated equally to each day in the accrual period. Irs free tax preparation online You must include in income the sum of the OID amounts for each day you hold the debt instrument during the year. Irs free tax preparation online If your tax year includes parts of two or more accrual periods, you must include the proper daily OID amounts for each accrual period. Irs free tax preparation online Figuring daily OID. Irs free tax preparation online   The daily OID for the initial accrual period is figured using the following formula. Irs free tax preparation online   (ip × ytm) − qsi     p   ip = issue price ytm = yield to maturity qsi = qualified stated interest p = number of days in accrual period         The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. Irs free tax preparation online Reduction for acquisition premium on debt instruments purchased before July 19, 1984. Irs free tax preparation online   If you bought the debt instrument at an acquisition premium before July 19, 1984, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Irs free tax preparation online Figure the daily acquisition premium by dividing the total acquisition premium by the number of days in the period beginning on your purchase date and ending on the day before the date of maturity. Irs free tax preparation online Reduction for acquisition premium on debt instruments purchased after July 18, 1984. Irs free tax preparation online   If you bought the debt instrument at an acquisition premium after July 18, 1984, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Irs free tax preparation online However, the method of figuring the daily acquisition premium is different from the method described in the preceding discussion. Irs free tax preparation online To figure the daily acquisition premium under this method, multiply the daily OID by the following fraction. Irs free tax preparation online The numerator is the acquisition premium. Irs free tax preparation online The denominator is the total OID remaining for the debt instrument after your purchase date. Irs free tax preparation online Section I-A is available at www. Irs free tax preparation online irs. Irs free tax preparation online gov/pub1212 and clicking the link under Recent Developments. Irs free tax preparation online Using Section I-A to figure accumulated OID. Irs free tax preparation online   If you bought your corporate debt instrument in a calendar year or the subsequent year, you can figure the accumulated OID to the date of purchase by adding the following amounts. Irs free tax preparation online The amount from the “Total OID to January 1, YYYY” column for your debt instrument. Irs free tax preparation online The OID from January 1 of a calendar year to the date of purchase, figured as follows. Irs free tax preparation online Multiply the daily OID for the first accrual period in the calendar year by the number of days from January 1 to the date of purchase, or the end of the accrual period if the debt instrument was purchased in the second or third accrual period. Irs free tax preparation online Multiply the daily OID for each subsequent accrual period by the number of days in the period to the date of purchase or the end of the accrual period, whichever applies. Irs free tax preparation online Add the amounts figured in (2a) and (2b). Irs free tax preparation online Debt Instruments Issued After 1984 If you hold debt instruments issued after 1984, you must report part of the OID in gross income each year that you own the debt instruments. Irs free tax preparation online You must include the OID in gross income whether or not you hold the debt instrument as a capital asset. Irs free tax preparation online Your basis in the debt instrument is increased by the OID you include in income. Irs free tax preparation online For information about showing the correct OID on your tax return, see How To Report OID, earlier. Irs free tax preparation online Form 1099-OID. Irs free tax preparation online   You should receive a Form 1099-OID showing OID for the part of a calendar year you held the debt instrument. Irs free tax preparation online However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Irs free tax preparation online See Constant yield method and Reduction for acquisition premium, later. Irs free tax preparation online   You may also need to refigure the OID for a contingent payment or inflation-indexed debt instrument on which the amount reported on Form 1099-OID is inaccurate. Irs free tax preparation online See Contingent Payment Debt Instruments or Inflation-Indexed Debt Instruments, later. Irs free tax preparation online If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-B available at www. Irs free tax preparation online irs. Irs free tax preparation online gov/pub1212 by clicking the link under Recent Developments. Irs free tax preparation online Form 1099-OID not received. Irs free tax preparation online   The OID listed is for each $1,000 of redemption price. Irs free tax preparation online You must adjust the listed amount if your debt instrument has a different principal amount. Irs free tax preparation online For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Irs free tax preparation online   Use the OID shown in Section I-B for a calendar year if you held the debt instrument the entire year. Irs free tax preparation online (If your debt instrument is not listed in Section I-B, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. Irs free tax preparation online ) If you did not hold the debt instrument the entire year, figure your OID as follows. Irs free tax preparation online Look up the daily OID for the first accrual period in which you held the debt instrument during a calendar year. Irs free tax preparation online (See Accrual period under Constant yield method, later. Irs free tax preparation online ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. Irs free tax preparation online Repeat (1) and (2) for any remaining accrual periods in which you held the debt instrument. Irs free tax preparation online Add the results of (2) and (3). Irs free tax preparation online This is the OID to include in income for that year, unless you paid an acquisition premium. Irs free tax preparation online (The reduction for acquisition premium is discussed later. Irs free tax preparation online ) Tax-exempt bond. Irs free tax preparation online   If you own a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. Irs free tax preparation online You need to make this adjustment to determine if you have a gain or loss on a later disposition of the bond. Irs free tax preparation online In general, use the rules that follow to determine your OID. Irs free tax preparation online Constant yield method. Irs free tax preparation online   This discussion shows how to figure OID on debt instruments issued after 1984 using a constant yield method. Irs free tax preparation online (The special rules that apply to contingent payment debt instruments and inflation-indexed debt instruments are explained later. Irs free tax preparation online ) OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. Irs free tax preparation online   Figure the OID allocable to any accrual period as follows. Irs free tax preparation online Multiply the adjusted issue price at the beginning of the accrual period by a fraction. Irs free tax preparation online The numerator of the fraction is the debt instrument's yield to maturity and the denominator is the number of accrual periods per year. Irs free tax preparation online The yield must be stated appropriately taking into account the length of the particular accrual period. Irs free tax preparation online Subtract from the result in (1) any qualified stated interest allocable to the accrual period. Irs free tax preparation online Accrual period. Irs free tax preparation online   For debt instruments issued after 1984 and before April 4, 1994, an accrual period is each 6-month period that ends on the day that corresponds to the stated maturity date of the debt instrument or the date 6 months before that date. Irs free tax preparation online For example, a debt instrument maturing on March 31 has accrual periods that end on September 30 and March 31 of each calendar year. Irs free tax preparation online Any short period is included as the first accrual period. Irs free tax preparation online   For debt instruments issued after April 3, 1994, accrual periods may be of any length and may vary in length over the term of the debt instrument, as long as each accrual period is no longer than 1 year and all payments are made on the first or last day of an accrual period. Irs free tax preparation online However, the OID listed for these debt instruments in Section I-B has been figured using 6-month accrual periods. Irs free tax preparation online Daily OID. Irs free tax preparation online   The OID for any accrual period is allocated equally to each day in the accrual period. Irs free tax preparation online Figure the amount to include in income by adding the OID for each day you hold the debt instrument during the year. Irs free tax preparation online Since your tax year will usually include parts of two or more accrual periods, you must include the proper daily OID for each accrual period. Irs free tax preparation online If your debt instrument has 6-month accrual periods, your tax year will usually include one full 6-month accrual period and parts of two other 6-month periods. Irs free tax preparation online Figuring daily OID. Irs free tax preparation online   The daily OID for the initial accrual period is figured using the following formula. Irs free tax preparation online   (ip × ytm/n) − qsi     p   ip = issue price ytm = yield to maturity n = number of accrual periods in 1 year qsi = qualified stated interest p = number of days in accrual period       The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. Irs free tax preparation online Example 5. Irs free tax preparation online On January 1 of Year 1, you bought a 15-year, 10% debt instrument of A Corporation at original issue for $86,235. Irs free tax preparation online 17. Irs free tax preparation online According to the prospectus, the debt instrument matures on December 31 of Year 15 at a stated redemption price of $100,000. Irs free tax preparation online The yield to maturity is 12%, compounded semiannually. Irs free tax preparation online The debt instrument provides for qualified stated interest payments of $5,000 on June 30 and December 31 of each calendar year. Irs free tax preparation online The accrual periods are the 6-month periods ending on each of these dates. Irs free tax preparation online The number of days for the first accrual period (January 1 through June 30) is 181 days (182 for leap years). Irs free tax preparation online The daily OID for the first accrual period is figured as follows. Irs free tax preparation online   ($86,235. Irs free tax preparation online 17 x . Irs free tax preparation online 12/2) – $5,000     181 days     = $174. Irs free tax preparation online 11020 = $. Irs free tax preparation online 96193   181           The adjusted issue price at the beginning of the second accrual period is the issue price plus the OID previously includible in income ($86,235. Irs free tax preparation online 17 + $174. Irs free tax preparation online 11), or $86,409. Irs free tax preparation online 28. Irs free tax preparation online The number of days for the second accrual period (July 1 through December 31) is 184 days. Irs free tax preparation online The daily OID for the second accrual period is figured as follows. Irs free tax preparation online   ($86,409. Irs free tax preparation online 28 x . Irs free tax preparation online 12/2) – $5,000     184 days     = $184. Irs free tax preparation online 55681 = $1. Irs free tax preparation online 00303   184 Since the first and second accrual periods coincide exactly with your tax year, you include in income for Year 1 the OID allocable to the first two accrual periods, $174. Irs free tax preparation online 11 ($. Irs free tax preparation online 95665 × 182 days) plus $184. Irs free tax preparation online 56 ($1. Irs free tax preparation online 00303 × 184 days), or $358. Irs free tax preparation online 67. Irs free tax preparation online Add the OID to the $10,000 interest you report on your income tax return for Year 1. Irs free tax preparation online Example 6. Irs free tax preparation online Assume the same facts as in Example 5, except that you bought the debt instrument at original issue on May 1 of Year 1, with a maturity date of April 30, Year 16. Irs free tax preparation online Also, the interest payment dates are October 31 and April 30 of each calendar year. Irs free tax preparation online The accrual periods are the 6-month periods ending on each of these dates. Irs free tax preparation online The number of days for the first accrual period (May 1 through October 31) is 184 days. Irs free tax preparation online The daily OID for the first accrual period is figured as follows. Irs free tax preparation online   ($86,235. Irs free tax preparation online 17 x . Irs free tax preparation online 12/2) – $5,000     184 days     = $174. Irs free tax preparation online 11020 = $. Irs free tax preparation online 94625   184           The number of days for the second accrual period (November 1 through April 30) is 181 days (182 for leap years). Irs free tax preparation online The daily OID for the second accrual period is figured as follows. Irs free tax preparation online   ($86,409. Irs free tax preparation online 28 x . Irs free tax preparation online 12/2) – $5,000     181 days     = $184. Irs free tax preparation online 55681 = $1. Irs free tax preparation online 01965   181 If you hold the debt instrument through the end of Year 1, you must include $236. Irs free tax preparation online 31 of OID in income. Irs free tax preparation online This is $174. Irs free tax preparation online 11 ($. Irs free tax preparation online 94625 × 184 days) for the period May 1 through October 31 plus $62. Irs free tax preparation online 20 ($1. Irs free tax preparation online 01965 × 61 days) for the period November 1 through December 31. Irs free tax preparation online The OID is added to the $5,000 interest income paid on October 31 of Year 1. Irs free tax preparation online Your basis in the debt instrument is increased by the OID you include in income. Irs free tax preparation online On January 1 of Year 2, your basis in the A Corporation debt instrument is $86,471. Irs free tax preparation online 48 ($86,235. Irs free tax preparation online 17 + $236. Irs free tax preparation online 31). Irs free tax preparation online Short first accrual period. Irs free tax preparation online   You may have to make adjustments if a debt instrument has a short first accrual period. Irs free tax preparation online For example, a debt instrument with 6-month accrual periods that is issued on February 15 and matures on October 31 has a short first accrual period that ends April 30. Irs free tax preparation online (The remaining accrual periods begin on May 1 and November 1. Irs free tax preparation online ) For this short period, figure the daily OID as described earlier, but adjust the yield for the length of the short accrual period. Irs free tax preparation online You may use any reasonable compounding method in determining OID for a short period. Irs free tax preparation online Examples of reasonable compounding methods include continuous compounding and monthly compounding (that is, simple interest within a month). Irs free tax preparation online Consult your tax advisor for more information about making this computation. Irs free tax preparation online   The OID for the final accrual period is the difference between the amount payable at maturity (other than a payment of qualified stated interest) and the adjusted issue price at the beginning of the final accrual period. Irs free tax preparation online Reduction for acquisition premium. Irs free tax preparation online   If you bought the debt instrument at an acquisition premium, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Irs free tax preparation online To figure the daily acquisition premium, multiply the daily OID by the following fraction. Irs free tax preparation online The numerator is the acquisition premium. Irs free tax preparation online The denominator is the total OID remaining for the debt instrument after your purchase date. Irs free tax preparation online Example 7. Irs free tax preparation online Assume the same facts as in Example 6, except that you bought the debt instrument on November 1 of Year 1 for $87,000, after its original issue on May 1 of Year 1. Irs free tax preparation online The adjusted issue price on November 1 of Year 1 is $86,409. Irs free tax preparation online 28 ($86,235. Irs free tax preparation online 17 + $174. Irs free tax preparation online 11). Irs free tax preparation online In this case, you paid an acquisition premium of $590. Irs free tax preparation online 72 ($87,000 − $86,409. Irs free tax preparation online 28). Irs free tax preparation online The daily OID for the accrual period November 1 through April 30, reduced for the acquisition premium, is figured as follows. Irs free tax preparation online 1) Daily OID on date of purchase (2nd accrual period) $1. Irs free tax preparation online 01965*  2)  Acquisition premium $590. Irs free tax preparation online 72    3)  Total OID remaining after purchase date ($13,764. Irs free tax preparation online 83 − $174. Irs free tax preparation online 11) 13,590. Irs free tax preparation online 72   4) Line 2 ÷ line 3 . Irs free tax preparation online 04346  5)  Line 1 × line 4 . Irs free tax preparation online 04432  6)  Daily OID reduced for the acquisition premium. Irs free tax preparation online Line 1 − line 5 $0. Irs free tax preparation online 97533  * As shown in Example 6. Irs free tax preparation online The total OID to include in income for Year 1 is $59. Irs free tax preparation online 50 ($. Irs free tax preparation online 97533 × 61 days). Irs free tax preparation online Contingent Payment Debt Instruments This discussion shows how to figure OID on a contingent payment debt instrument issued after August 12, 1996, that was issued for cash or publicly traded property. Irs free tax preparation online In general, a contingent payment debt instrument provides for one or more payments that are contingent as to timing or amount. Irs free tax preparation online If you hold a contingent payment bond, you must report OID as it accrues each year. Irs free tax preparation online Because the actual payments on a contingent payment debt instrument cannot be known in advance, issuers and holders cannot use the constant yield method (discussed earlier under Debt Instruments Issued After 1984) without making certain assumptions about the payments on the debt instrument. Irs free tax preparation online To figure OID accruals on contingent payment debt instruments, holders and issuers must use the noncontingent bond method. Irs free tax preparation online Noncontingent bond method. Irs free tax preparation online    Under this method, the issuer must compute a comparable yield for the debt instrument and, based on this yield, construct a projected payment schedule for the instrument, which includes a projected fixed amount for each contingent payment. Irs free tax preparation online In general, holders and issuers accrue OID on this projected payment schedule using the constant yield method that applies to fixed payment debt instruments. Irs free tax preparation online When a contingent payment differs from the projected fixed amount, the holders and issuers make adjustments to their OID accruals. Irs free tax preparation online If the actual contingent payment is larger than expected, both the issuer and the holder increase their OID accruals. Irs free tax preparation online If the actual contingent payment is smaller than expected, holders and issuers generally decrease their OID accruals. Irs free tax preparation online Form 1099-OID. Irs free tax preparation online   The amount shown on Form 1099-OID in box 1 you receive for a contingent payment debt instrument may not be the correct amount to include in income. Irs free tax preparation online For example, the amount may not be correct if the contingent payment was different from the projected amount. Irs free tax preparation online If the amount in box 1 is not correct, you must figure the OID to report on your return under the following rules. Irs free tax preparation online For information on showing an OID adjustment on your tax return, see How To Report OID, earlier. Irs free tax preparation online Figuring OID. Irs free tax preparation online   To figure OID on a contingent payment debt instrument, you need to know the “comparable yield” and “projected payment schedule” of the debt instrument. Irs free tax preparation online The issuer must make these available to you. Irs free tax preparation online Comparable yield. Irs free tax preparation online   The comparable yield generally is the yield at which the issuer would issue a fixed rate debt instrument with terms and conditions similar to those of the contingent payment debt instrument. Irs free tax preparation online The comparable yield is determined as of the debt instrument's issue date. Irs free tax preparation online Projected payment schedule. Irs free tax preparation online   The projected payment schedule for a contingent payment debt instrument includes all fixed payments due under the instrument and a projected fixed amount for each contingent payment. Irs free tax preparation online The projected payment schedule is created by the issuer as of the debt instrument's issue date. Irs free tax preparation online It is used to determine the issuer's and holder's interest accruals and adjustments. Irs free tax preparation online Steps for figuring OID. Irs free tax preparation online   Figure the OID on a contingent payment debt instrument in two steps. Irs free tax preparation online Figure the OID using the constant yield method (discussed earlier under Debt Instruments Issued After 1984 ) that applies to fixed payment debt instruments. Irs free tax preparation online Use the comparable yield as the yield to maturity. Irs free tax preparation online In general, use the projected payment schedule to determine the instrument's adjusted issue price at the beginning of each accrual period (other than the initial period). Irs free tax preparation online Do not treat any amount payable as qualified stated interest. Irs free tax preparation online Adjust the OID in (1) to account for actual contingent payments. Irs free tax preparation online If the contingent payment is greater than the projected fixed amount, you have a positive adjustment. Irs free tax preparation online If the contingent payment is less than the projected fixed amount, you have a negative adjustment. Irs free tax preparation online Net positive adjustment. Irs free tax preparation online   A net positive adjustment exists for a tax year when the total of any positive adjustments described in (2) above for the tax year is more than the total of any negative adjustments for the tax year. Irs free tax preparation online Treat a net positive adjustment as additional OID for the tax year. Irs free tax preparation online Net negative adjustment. Irs free tax preparation online   A net negative adjustment exists for a tax year when the total of any negative adjustments described in (2) above for the tax year is more than the total of any positive adjustments for the tax year. Irs free tax preparation online Use a net negative adjustment to offset OID on the debt instrument for the tax year. Irs free tax preparation online If the net negative adjustment is more than the OID on the debt instrument for the tax year, you can claim the difference as an ordinary loss. Irs free tax preparation online However, the amount you can claim as an ordinary loss is limited to the OID on the debt instrument you included in income in prior tax years. Irs free tax preparation online You must carry forward any net negative adjustment that is more than the total OID for the tax year and prior tax years and treat it as a negative adjustment in the next tax year. Irs free tax preparation online Basis adjustments. Irs free tax preparation online   In general, increase your basis in a contingent payment debt instrument by the OID included in income. Irs free tax preparation online Your basis, however, is not affected by any negative or positive adjustments. Irs free tax preparation online Decrease your basis by any noncontingent payment received and the projected contingent payment scheduled to be received. Irs free tax preparation online Treatment of gain or loss on sale or exchange. Irs free tax preparation online   If you sell a contingent payment debt instrument at a gain, your gain is ordinary income (interest income), even if you hold the debt instrument as a capital asset. Irs free tax preparation online If you sell a contingent payment debt instrument at a loss, your loss is an ordinary loss to the extent of your prior OID accruals on the debt instrument. Irs free tax preparation online If the debt instrument is a capital asset, treat any loss that is more than your prior OID accruals as a capital loss. Irs free tax preparation online See Regulations section 1. Irs free tax preparation online 1275-4 for exceptions to these rules. Irs free tax preparation online Premium, acquisition premium, and market discount. Irs free tax preparation online   The rules for accruing premium, acquisition premium, and market discount do not apply to a contingent payment debt instrument. Irs free tax preparation online See Regulations section 1. Irs free tax preparation online 1275-4 to determine how to account for these items. Irs free tax preparation online Inflation-Indexed Debt Instruments This discussion shows how you figure OID on certain inflation-indexed debt instruments issued after January 5, 1997. Irs free tax preparation online An inflation-indexed debt instrument is generally a debt instrument on which the payments are adjusted for inflation and d
Print - Click this link to Print this page

Contact TEB

Subscription to Tax Exempt Bond Community News
Subscribe to the Tax Exempt Bond Community Update, a free e-mail service for tax professionals and representatives of tax-exempt issuers from the IRS. Subscribers receive e-mail updates and alerts from the IRS about developments in the tax law and regulations applicable to tax-exempt bonds, updates to our website, and other information.

Tax Exempt Bonds Website Needs Your Input!
In our continuing efforts to provide our stakeholders with current information and relevant content, we invite you to submit your comments and suggestions on how we can improve our site.

Tax Exempt Bonds Questions
Email link to submit questions about TEB programs or tax requirements applicable to tax-exempt bonds or tax credit bonds (including direct pay bonds). For any other IRS questions click the link below.

Page Last Reviewed or Updated: 26-Mar-2014

The Irs Free Tax Preparation Online

Irs free tax preparation online 1. Irs free tax preparation online   Rental Income and Expenses (If No Personal Use of Dwelling) Table of Contents Rental IncomeWhen To Report Types of Income Rental ExpensesWhen To Deduct Types of Expenses This chapter discusses the various types of rental income and expenses for a residential rental activity with no personal use of the dwelling. Irs free tax preparation online Generally, each year you will report all income and deduct all out-of-pocket expenses in full. Irs free tax preparation online The deduction to recover the cost of your rental property—depreciation—is taken over a prescribed number of years, and is discussed in chapter 2, Depreciation of Rental Property. Irs free tax preparation online If your rental income is from property you also use personally or rent to someone at less than a fair rental price, first read the information in chapter 5 , Personal Use of Dwelling Unit (Including Vacation Home). Irs free tax preparation online Rental Income In most cases, you must include in your gross income all amounts you receive as rent. Irs free tax preparation online Rental income is any payment you receive for the use or occupation of property. Irs free tax preparation online In addition to amounts you receive as normal rental payments, there are other amounts that may be rental income. Irs free tax preparation online When To Report When you report rental income on your tax return generally depends on whether you are a cash basis taxpayer or use an accrual method. Irs free tax preparation online Most individual taxpayers use the cash method. Irs free tax preparation online Cash method. Irs free tax preparation online   You are a cash basis taxpayer if you report income on your return in the year you actually or constructively receive it, regardless of when it was earned. Irs free tax preparation online You constructively receive income when it is made available to you, for example, by being credited to your bank account. Irs free tax preparation online Accrual method. Irs free tax preparation online    If you are an accrual basis taxpayer, you generally report income when you earn it, rather than when you receive it. Irs free tax preparation online You generally deduct your expenses when you incur them, rather than when you pay them. Irs free tax preparation online More information. Irs free tax preparation online   See Publication 538, Accounting Periods and Methods, for more information about when you constructively receive income and accrual methods of accounting. Irs free tax preparation online Types of Income The following are common types of rental income. Irs free tax preparation online Advance rent. Irs free tax preparation online   Advance rent is any amount you receive before the period that it covers. Irs free tax preparation online Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use. Irs free tax preparation online Example. Irs free tax preparation online On March 18, 2013, you signed a 10-year lease to rent your property. Irs free tax preparation online During 2013, you received $9,600 for the first year's rent and $9,600 as rent for the last year of the lease. Irs free tax preparation online You must include $19,200 in your rental income in the first year. Irs free tax preparation online Canceling a lease. Irs free tax preparation online   If your tenant pays you to cancel a lease, the amount you receive is rent. Irs free tax preparation online Include the payment in your income in the year you receive it regardless of your method of accounting. Irs free tax preparation online Expenses paid by tenant. Irs free tax preparation online   If your tenant pays any of your expenses, those payments are rental income. Irs free tax preparation online Because you must include this amount in income, you can also deduct the expenses if they are deductible rental expenses. Irs free tax preparation online For more information, see Rental Expenses , later. Irs free tax preparation online Example 1. Irs free tax preparation online Your tenant pays the water and sewage bill for your rental property and deducts the amount from the normal rent payment. Irs free tax preparation online Under the terms of the lease, your tenant does not have to pay this bill. Irs free tax preparation online Include the utility bill paid by the tenant and any amount received as a rent payment in your rental income. Irs free tax preparation online You can deduct the utility payment made by your tenant as a rental expense. Irs free tax preparation online Example 2. Irs free tax preparation online While you are out of town, the furnace in your rental property stops working. Irs free tax preparation online Your tenant pays for the necessary repairs and deducts the repair bill from the rent payment. Irs free tax preparation online Include the repair bill paid by the tenant and any amount received as a rent payment in your rental income. Irs free tax preparation online You can deduct the repair payment made by your tenant as a rental expense. Irs free tax preparation online Property or services. Irs free tax preparation online   If you receive property or services as rent, instead of money, include the fair market value of the property or services in your rental income. Irs free tax preparation online   If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary. Irs free tax preparation online Example. Irs free tax preparation online Your tenant is a house painter. Irs free tax preparation online He offers to paint your rental property instead of paying 2 months rent. Irs free tax preparation online You accept his offer. Irs free tax preparation online Include in your rental income the amount the tenant would have paid for 2 months rent. Irs free tax preparation online You can deduct that same amount as a rental expense for painting your property. Irs free tax preparation online Security deposits. Irs free tax preparation online   Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. Irs free tax preparation online But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year. Irs free tax preparation online    If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Irs free tax preparation online Include it in your income when you receive it. Irs free tax preparation online Other Sources of Rental Income Lease with option to buy. Irs free tax preparation online   If the rental agreement gives your tenant the right to buy your rental property, the payments you receive under the agreement are generally rental income. Irs free tax preparation online If your tenant exercises the right to buy the property, the payments you receive for the period after the date of sale are considered part of the selling price. Irs free tax preparation online Part interest. Irs free tax preparation online   If you own a part interest in rental property, you must report your part of the rental income from the property. Irs free tax preparation online Rental of property also used as your home. Irs free tax preparation online   If you rent property that you also use as your home and you rent it less than 15 days during the tax year, do not include the rent you receive in your income and do not deduct rental expenses. Irs free tax preparation online However, you can deduct on Schedule A (Form 1040), Itemized Deductions, the interest, taxes, and casualty and theft losses that are allowed for nonrental property. Irs free tax preparation online See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Irs free tax preparation online Rental Expenses In most cases, the expenses of renting your property, such as maintenance, insurance, taxes, and interest, can be deducted from your rental income. Irs free tax preparation online Personal use of rental property. Irs free tax preparation online   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. Irs free tax preparation online Also, your rental expense deductions may be limited. Irs free tax preparation online See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Irs free tax preparation online Part interest. Irs free tax preparation online   If you own a part interest in rental property, you can deduct expenses you paid according to your percentage of ownership. Irs free tax preparation online Example. Irs free tax preparation online Roger owns a one-half undivided interest in a rental house. Irs free tax preparation online Last year he paid $968 for necessary repairs on the property. Irs free tax preparation online Roger can deduct $484 (50% × $968) as a rental expense. Irs free tax preparation online He is entitled to reimbursement for the remaining half from the co-owner. Irs free tax preparation online When To Deduct You generally deduct your rental expenses in the year you pay them. Irs free tax preparation online If you use the accrual method, see Publication 538 for more information. Irs free tax preparation online Types of Expenses Listed below are the most common rental expenses. Irs free tax preparation online Advertising. Irs free tax preparation online Auto and travel expenses. Irs free tax preparation online Cleaning and maintenance. Irs free tax preparation online Commissions. Irs free tax preparation online Depreciation. Irs free tax preparation online Insurance. Irs free tax preparation online Interest (other). Irs free tax preparation online Legal and other professional fees. Irs free tax preparation online Local transportation expenses. Irs free tax preparation online Management fees. Irs free tax preparation online Mortgage interest paid to banks, etc. Irs free tax preparation online Points. Irs free tax preparation online Rental payments. Irs free tax preparation online Repairs. Irs free tax preparation online Taxes. Irs free tax preparation online Utilities. Irs free tax preparation online Some of these expenses, as well as other less common ones, are discussed below. Irs free tax preparation online Depreciation. Irs free tax preparation online   Depreciation is a capital expense. Irs free tax preparation online It is the mechanism for recovering your cost in an income producing property and must be taken over the expected life of the property. Irs free tax preparation online   You can begin to depreciate rental property when it is ready and available for rent. Irs free tax preparation online See Placed in Service under When Does Depreciation Begin and End in chapter 2. Irs free tax preparation online Insurance premiums paid in advance. Irs free tax preparation online   If you pay an insurance premium for more than one year in advance, for each year of coverage you can deduct the part of the premium payment that will apply to that year. Irs free tax preparation online You cannot deduct the total premium in the year you pay it. Irs free tax preparation online See chapter 6 of Publication 535 for information on deductible premiums. Irs free tax preparation online Interest expense. Irs free tax preparation online   You can deduct mortgage interest you pay on your rental property. Irs free tax preparation online When you refinance a rental property for more than the previous outstanding balance, the portion of the interest allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Irs free tax preparation online Chapter 4 of Publication 535 explains mortgage interest in detail. Irs free tax preparation online Expenses paid to obtain a mortgage. Irs free tax preparation online   Certain expenses you pay to obtain a mortgage on your rental property cannot be deducted as interest. Irs free tax preparation online These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses that are part of your basis in the property. Irs free tax preparation online Form 1098, Mortgage Interest Statement. Irs free tax preparation online   If you paid $600 or more of mortgage interest on your rental property to any one person, you should receive a Form 1098 or similar statement showing the interest you paid for the year. Irs free tax preparation online 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, the mortgage, and the other person received the Form 1098, report your share of the interest on Schedule E (Form 1040), line 13. Irs free tax preparation online Attach a statement to your return showing the name and address of the other person. Irs free tax preparation online On the dotted line next to line 13, enter “See attached. Irs free tax preparation online ” Legal and other professional fees. Irs free tax preparation online   You can deduct, as a rental expense, legal and other professional expenses such as tax return preparation fees you paid to prepare Schedule E, Part I. Irs free tax preparation online For example, on your 2013 Schedule E you can deduct fees paid in 2013 to prepare Part I of your 2012 Schedule E. Irs free tax preparation online You can also deduct, as a rental expense, any expense (other than federal taxes and penalties) you paid to resolve a tax underpayment related to your rental activities. Irs free tax preparation online Local benefit taxes. Irs free tax preparation online   In most cases, you cannot deduct charges for local benefits that increase the value of your property, such as charges for putting in streets, sidewalks, or water and sewer systems. Irs free tax preparation online These charges are nondepreciable capital expenditures and must be added to the basis of your property. Irs free tax preparation online However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. Irs free tax preparation online Local transportation expenses. Irs free tax preparation online   You may be able to deduct your ordinary and necessary local transportation expenses if you incur them to collect rental income or to manage, conserve, or maintain your rental property. Irs free tax preparation online However, transportation expenses incurred to travel between your home and a rental property generally constitute nondeductible commuting costs unless you use your home as your principal place of business. Irs free tax preparation online See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Irs free tax preparation online   Generally, if you use your personal car, pickup truck, or light van for rental activities, you can deduct the expenses using one of two methods: actual expenses or the standard mileage rate. Irs free tax preparation online For 2013, the standard mileage rate for business use is 56. Irs free tax preparation online 5 cents per mile. Irs free tax preparation online For more information, see chapter 4 of Publication 463. Irs free tax preparation online    To deduct car expenses under either method, you must keep records that follow the rules in chapter 5 of Publication 463. Irs free tax preparation online In addition, you must complete Form 4562, Part V, and attach it to your tax return. Irs free tax preparation online Pre-rental expenses. Irs free tax preparation online   You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. Irs free tax preparation online Rental of equipment. Irs free tax preparation online   You can deduct the rent you pay for equipment that you use for rental purposes. Irs free tax preparation online However, in some cases, lease contracts are actually purchase contracts. Irs free tax preparation online If so, you cannot deduct these payments. Irs free tax preparation online You can recover the cost of purchased equipment through depreciation. Irs free tax preparation online Rental of property. Irs free tax preparation online   You can deduct the rent you pay for property that you use for rental purposes. Irs free tax preparation online If you buy a leasehold for rental purposes, you can deduct an equal part of the cost each year over the term of the lease. Irs free tax preparation online Travel expenses. Irs free tax preparation online   You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property. Irs free tax preparation online You must properly allocate your expenses between rental and nonrental activities. Irs free tax preparation online You cannot deduct the cost of traveling away from home if the primary purpose of the trip is to improve the property. Irs free tax preparation online The cost of improvements is recovered by taking depreciation. Irs free tax preparation online For information on travel expenses, see chapter 1 of Publication 463. Irs free tax preparation online    To deduct travel expenses, you must keep records that follow the rules in chapter 5 of Publication 463. Irs free tax preparation online Uncollected rent. Irs free tax preparation online   If you are a cash basis taxpayer, do not deduct uncollected rent. Irs free tax preparation online Because you have not included it in your income, it is not deductible. Irs free tax preparation online   If you use an accrual method, report income when you earn it. Irs free tax preparation online If you are unable to collect the rent, you may be able to deduct it as a business bad debt. Irs free tax preparation online See chapter 10 of Publication 535 for more information about business bad debts. Irs free tax preparation online Vacant rental property. Irs free tax preparation online   If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. Irs free tax preparation online However, you cannot deduct any loss of rental income for the period the property is vacant. Irs free tax preparation online Vacant while listed for sale. Irs free tax preparation online   If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. Irs free tax preparation online If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. Irs free tax preparation online Points The term “points” is often used to describe some of the charges paid, or treated as paid, by a borrower to take out a loan or a mortgage. Irs free tax preparation online These charges are also called loan origination fees, maximum loan charges, or premium charges. Irs free tax preparation online Any of these charges (points) that are solely for the use of money are interest. Irs free tax preparation online Because points are prepaid interest, you generally cannot deduct the full amount in the year paid, but must deduct the interest over the term of the loan. Irs free tax preparation online The method used to figure the amount of points you can deduct each year follows the original issue discount (OID) rules. Irs free tax preparation online In this case, points are equivalent to OID, which is the difference between: The amount borrowed (redemption price at maturity, or principal) and The proceeds (issue price). Irs free tax preparation online The first step is to determine whether your total OID (which you may have on bonds or other investments in addition to the mortgage loan), including the OID resulting from the points, is insignificant or de minimis. Irs free tax preparation online If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct. Irs free tax preparation online De minimis OID. Irs free tax preparation online   The OID is de minimis if it is less than one-fourth of 1% (. Irs free tax preparation online 0025) of the stated redemption price at maturity (principal amount of the loan) multiplied by the number of full years from the date of original issue to maturity (term of the loan). Irs free tax preparation online   If the OID is de minimis, you can choose one of the following ways to figure the amount of points you can deduct each year. Irs free tax preparation online On a constant-yield basis over the term of the loan. Irs free tax preparation online On a straight line basis over the term of the loan. Irs free tax preparation online In proportion to stated interest payments. Irs free tax preparation online In its entirety at maturity of the loan. Irs free tax preparation online You make this choice by deducting the OID (points) in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued. Irs free tax preparation online Example. Irs free tax preparation online Carol Madison took out a $100,000 mortgage loan on January 1, 2013, to buy a house she will use as a rental during 2013. Irs free tax preparation online The loan is to be repaid over 30 years. Irs free tax preparation online During 2013, Carol paid $10,000 of mortgage interest (stated interest) to the lender. Irs free tax preparation online When the loan was made, she paid $1,500 in points to the lender. Irs free tax preparation online The points reduced the principal amount of the loan from $100,000 to $98,500, resulting in $1,500 of OID. Irs free tax preparation online Carol determines that the points (OID) she paid are de minimis based on the following computation. Irs free tax preparation online Redemption price at maturity (principal amount of the loan) $100,000 Multiplied by: The term of the  loan in complete years ×30 Multiplied by ×. Irs free tax preparation online 0025 De minimis amount $7,500 The points (OID) she paid ($1,500) are less than the de minimis amount ($7,500). Irs free tax preparation online Therefore, Carol has de minimis OID and she can choose one of the four ways discussed earlier to figure the amount she can deduct each year. Irs free tax preparation online Under the straight line method, she can deduct $50 each year for 30 years. Irs free tax preparation online Constant-yield method. Irs free tax preparation online   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. Irs free tax preparation online   You figure your deduction for the first year in the following manner. Irs free tax preparation online Determine the issue price of the loan. Irs free tax preparation online If you paid points on the loan, the issue price generally is the difference between the principal and the points. Irs free tax preparation online Multiply the result in (1) by the yield to maturity (defined later). Irs free tax preparation online Subtract any qualified stated interest payments (defined later) from the result in (2). Irs free tax preparation online This is the OID you can deduct in the first year. Irs free tax preparation online Yield to maturity (YTM). Irs free tax preparation online   This rate is generally shown in the literature you receive from your lender. Irs free tax preparation online If you do not have this information, consult your lender or tax advisor. Irs free tax preparation online In general, the YTM is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the principal amount of the loan. Irs free tax preparation online Qualified stated interest (QSI). Irs free tax preparation online   In general, this is the stated interest that is unconditionally payable in cash or property (other than another loan of the issuer) at least annually over the term of the loan at a fixed rate. Irs free tax preparation online Example—Year 1. Irs free tax preparation online The facts are the same as in the previous example. Irs free tax preparation online The yield to maturity on Carol's loan is 10. Irs free tax preparation online 2467%, compounded annually. Irs free tax preparation online She figured the amount of points (OID) she could deduct in 2013 as follows. Irs free tax preparation online Principal amount of the loan $100,000 Minus: Points (OID) –1,500 Issue price of the loan $98,500 Multiplied by: YTM × . Irs free tax preparation online 102467 Total 10,093 Minus: QSI –10,000 Points (OID) deductible in 2013 $93 To figure your deduction in any subsequent year, you start with the adjusted issue price. Irs free tax preparation online To get the adjusted issue price, add to the issue price figured in Year 1 any OID previously deducted. Irs free tax preparation online Then follow steps (2) and (3), earlier. Irs free tax preparation online Example—Year 2. Irs free tax preparation online Carol figured the deduction for 2014 as follows. Irs free tax preparation online Issue price $98,500 Plus: Points (OID) deducted  in 2013 +93 Adjusted issue price $98,593 Multiplied by: YTM × . Irs free tax preparation online 102467 Total 10,103 Minus: QSI –10,000 Points (OID) deductible in 2014 $103 Loan or mortgage ends. Irs free tax preparation online    If your loan or mortgage ends, you may be able to deduct any remaining points (OID) in the tax year in which the loan or mortgage ends. Irs free tax preparation online A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. Irs free tax preparation online However, if the refinancing is with the same lender, the remaining points (OID) generally are not deductible in the year in which the refinancing occurs, but may be deductible over the term of the new mortgage or loan. Irs free tax preparation online Points when loan refinance is more than the previous outstanding balance. Irs free tax preparation online   When you refinance a rental property for more than the previous outstanding balance, the portion of the points allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Irs free tax preparation online For example, if an individual refinanced a loan with a balance of $100,000, the amount of the new loan was $120,000, and the taxpayer used $20,000 to purchase a car, points allocable to the $20,000 would be treated as nondeductible personal interest. Irs free tax preparation online Repairs and Improvements Generally, an expense for repairing or maintaining your rental property may be deducted if you are not required to capitalize the expense. Irs free tax preparation online Improvements. Irs free tax preparation online   You must capitalize any expense you pay to improve your rental property. Irs free tax preparation online An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use. Irs free tax preparation online Betterments. Irs free tax preparation online   Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property. Irs free tax preparation online Restoration. Irs free tax preparation online   Expenses that may be for restoration include expenses for replacing a substantial structural part of your property, repairing damage to your property after you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a like-new condition. Irs free tax preparation online Adaptation. Irs free tax preparation online   Expenses that may be for adaptation include expenses for altering your property to a use that is not consistent with the intended ordinary use of your property when you began renting the property. Irs free tax preparation online Separate the costs of repairs and improvements, and keep accurate records. Irs free tax preparation online You will need to know the cost of improvements when you sell or depreciate your property. Irs free tax preparation online The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. Irs free tax preparation online Table 1-1. Irs free tax preparation online Examples of Improvements Additions Bedroom Bathroom Deck Garage Porch Patio  Lawn & Grounds Landscaping Driveway Walkway Fence Retaining wall Sprinkler system Swimming pool Miscellaneous Storm windows, doors New roof Central vacuum Wiring upgrades Satellite dish Security system   Heating & Air Conditioning Heating system Central air conditioning Furnace Duct work Central humidifier Filtration system Plumbing Septic system Water heater Soft water system Filtration system  Interior Improvements Built-in appliances Kitchen modernization Flooring Wall-to-wall carpeting  Insulation Attic Walls, floor Pipes, duct work Prev  Up  Next   Home   More Online Publications