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Online 1040ez 6. Online 1040ez   Tuition and Fees Deduction Table of Contents IntroductionWhat is the tax benefit of the tuition and fees deduction. Online 1040ez Can You Claim the DeductionWho Can Claim the Deduction Who Cannot Claim the Deduction What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible Student Who Can Claim a Dependent's Expenses Figuring the DeductionEffect of the Amount of Your Income on the Amount of Your Deduction Claiming the Deduction Illustrated Example Introduction You may be able to deduct qualified education expenses paid during the year for yourself, your spouse, or your dependent(s). Online 1040ez You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. Online 1040ez The qualified expenses must be for higher education, as explained later under Qualified Education Expenses . Online 1040ez What is the tax benefit of the tuition and fees deduction. Online 1040ez   The tuition and fees deduction can reduce the amount of your income subject to tax by up to $4,000. Online 1040ez   This deduction is taken as an adjustment to income. Online 1040ez This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). Online 1040ez This deduction may be beneficial to you if you do not qualify for the American opportunity or lifetime learning credits. Online 1040ez You can choose the education benefit that will give you the lowest tax. Online 1040ez You may want to compare the tuition and fees deduction to the education credits. Online 1040ez See chapter 2, American Opportunity Credit and chapter 3, Lifetime Learning Credit for more information on the education credits. Online 1040ez Table 6-1. Online 1040ez Tuition and Fees Deduction at a Glance summarizes the features of the tuition and fees deduction. Online 1040ez Can You Claim the Deduction The following rules will help you determine if you can claim the tuition and fees deduction. Online 1040ez Who Can Claim the Deduction Generally, you can claim the tuition and fees deduction if all three of the following requirements are met. Online 1040ez You pay qualified education expenses of higher education. Online 1040ez You pay the education expenses for an eligible student. Online 1040ez The eligible student is yourself, your spouse, or your dependent for whom you claim an exemption on your tax return. Online 1040ez The term “qualified education expenses” is defined later under Qualified Education Expenses . Online 1040ez “Eligible student” is defined later under Who Is an Eligible Student . Online 1040ez For more information on claiming the deduction for a dependent, see Who Can Claim a Dependent's Expenses , later. Online 1040ez Table 6-1. Online 1040ez Tuition and Fees Deduction at a Glance Do not rely on this table alone. Online 1040ez Refer to the text for complete details. Online 1040ez Question Answer What is the maximum benefit? You can reduce your income subject to tax by up to $4,000. Online 1040ez What is the limit on modified adjusted gross income (MAGI)? $160,000 if married filing a joint return; $80,000 if single, head of household, or qualifying widow(er). Online 1040ez Where is the deduction taken? As an adjustment to income on  Form 1040 or Form 1040A. Online 1040ez For whom must the expenses be paid? A student enrolled in an eligible educational institution who is either: •you,  •your spouse, or  •your dependent for whom you claim an exemption. Online 1040ez What tuition and fees are deductible? Tuition and fees required for enrollment or attendance at an eligible postsecondary educational institution, but not including personal, living, or family expenses, such as room and board. Online 1040ez Who Cannot Claim the Deduction You cannot claim the tuition and fees deduction if any of the following apply. Online 1040ez Your filing status is married filing separately. Online 1040ez Another person can claim an exemption for you as a dependent on his or her tax return. Online 1040ez You cannot take the deduction even if the other person does not actually claim that exemption. Online 1040ez Your modified adjusted gross income (MAGI) is more than $80,000 ($160,000 if filing a joint return). Online 1040ez You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. Online 1040ez More information on nonresident aliens can be found in Publication 519. Online 1040ez What Expenses Qualify The tuition and fees deduction is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Online 1040ez Generally, the deduction is allowed for qualified education expenses paid in 2013 in connection with enrollment at an institution of higher education during 2013 or for an academic period beginning in 2013 or in the first 3 months of 2014. Online 1040ez For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 deduction. Online 1040ez Academic period. Online 1040ez   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Online 1040ez In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Online 1040ez Paid with borrowed funds. Online 1040ez   You can claim a tuition and fees deduction for qualified education expenses paid with the proceeds of a loan. Online 1040ez Use the expenses to figure the deduction for the year in which the expenses are paid, not the year in which the loan is repaid. Online 1040ez Treat loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's account. Online 1040ez Student withdraws from class(es). Online 1040ez   You can claim a tuition and fees deduction for qualified education expenses not refunded when a student withdraws. Online 1040ez Qualified Education Expenses For purposes of the tuition and fees deduction, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Online 1040ez Eligible educational institution. Online 1040ez   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Online 1040ez S. Online 1040ez Department of Education. Online 1040ez It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Online 1040ez The educational institution should be able to tell you if it is an eligible educational institution. Online 1040ez   Certain educational institutions located outside the United States also participate in the U. Online 1040ez S. Online 1040ez Department of Education's Federal Student Aid (FSA) programs. Online 1040ez Related expenses. Online 1040ez   Student-activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. Online 1040ez Prepaid expenses. Online 1040ez   Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring an education credit for 2013 only. Online 1040ez See Academic period , earlier. Online 1040ez For example, you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). Online 1040ez You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). Online 1040ez In the following examples, assume that each student is an eligible student and each college or university an eligible educational institution. Online 1040ez Example 1. Online 1040ez Jackson is a sophomore in University V's degree program in dentistry. Online 1040ez This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. Online 1040ez Because the equipment rental fee must be paid to University V for enrollment and attendance, Jackson's equipment rental fee is a qualified education expense. Online 1040ez Example 2. Online 1040ez Donna and Charles, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. Online 1040ez The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. Online 1040ez Charles bought his books from a friend, so what he paid for them is not a qualified education expense. Online 1040ez Donna bought hers at College W's bookstore. Online 1040ez Although Donna paid College W directly for her first-year books and materials, her payment is not a qualified education expense because the books and materials are not required to be purchased from College W for enrollment or attendance at the institution. Online 1040ez Example 3. Online 1040ez When Marci enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. Online 1040ez This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and the student government. Online 1040ez No portion of the fee covers personal expenses. Online 1040ez Although labeled as a student activity fee, the fee is required for Marci's enrollment and attendance at College X. Online 1040ez Therefore, it is a qualified expense. Online 1040ez No Double Benefit Allowed You cannot do any of the following. Online 1040ez Deduct qualified education expenses you deduct under any other provision of the law, for example, as a business expense. Online 1040ez Deduct qualified education expenses for a student on your income tax return if you or anyone else claims an American opportunity or lifetime learning credit for that same student in the same year. Online 1040ez Deduct qualified education expenses that have been used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or a qualified tuition program (QTP). Online 1040ez For a QTP, this applies only to the amount of tax-free earnings that were distributed, not to the recovery of contributions to the program. Online 1040ez See Coordination With Tuition and Fees Deduction in chapter 8, Qualified Tuition Program, later. Online 1040ez Deduct qualified education expenses that have been paid with tax-free interest on U. Online 1040ez S. Online 1040ez savings bonds (Form 8815). Online 1040ez See Figuring the Tax-Free Amount in chapter 10, Education Savings Bond Program, later. Online 1040ez Deduct qualified education expenses that have been paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. Online 1040ez See the following section on Adjustments to Qualified Education Expenses. Online 1040ez Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. Online 1040ez The result is the amount of adjusted qualified education expenses for each student. Online 1040ez You must also reduce qualified education expenses by the other amounts referred to in No Double Benefit Allowed , earlier. Online 1040ez Tax-free educational assistance. Online 1040ez   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. Online 1040ez See Academic period , earlier. Online 1040ez   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Online 1040ez This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). Online 1040ez   If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed , later. Online 1040ez If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed , later. Online 1040ez   This tax-free education assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Online 1040ez Generally, any scholarship or fellowship is treated as tax free. Online 1040ez However, a scholarship or fellowship is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship is received) and either of the following is true. Online 1040ez The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Online 1040ez The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Online 1040ez You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. Online 1040ez For details, see Adjustments to Qualified Education Expenses in chapters 2 and 3. Online 1040ez Refunds. Online 1040ez   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. Online 1040ez Some tax-free educational assistance received after 2013 may be treated as a refund. Online 1040ez See Tax-free educational assistance , earlier. Online 1040ez Refunds received in 2013. Online 1040ez   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses for 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. Online 1040ez Refunds received after 2013 but before your income tax return is filed. Online 1040ez   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid before you file an income tax return for 2013, the amount of qualified education expenses for 2013 is reduced by the amount of the refund. Online 1040ez Refunds received after 2013 and after your income tax return is filed. Online 1040ez   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid after you file an income tax return for 2013, you may need to repay some or all of the credit. Online 1040ez See Credit recapture , later. Online 1040ez Coordination with Coverdell education savings accounts and qualified tuition programs. Online 1040ez   Reduce your qualified education expenses by any qualified education expenses used to figure the exclusion from gross income of (a) interest received under an education savings bond program, or (b) any distribution from a Coverdell education savings account or qualified tuition program (QTP). Online 1040ez For a QTP, this applies only to the amount of tax-free earnings that were distributed, not to the recovery of contributions to the program. Online 1040ez Credit recapture. Online 1040ez    If any tax-free educational assistance for the qualified education expenses paid in 2013 or any refund of your qualified education expenses paid in 2013 is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. Online 1040ez You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing that amount by the amount of the refund or tax-free educational assistance. Online 1040ez You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). Online 1040ez Include that amount as an additional tax for the year the refund or tax-free assistance was received. Online 1040ez Example. Online 1040ez   You paid $3,500 of qualified education expenses in December 2013, and your child began college in January 2014. Online 1040ez You claimed $3,500 as the tuition and fees deduction on your 2013 income tax return. Online 1040ez The reduction reduced your taxable income by $3,500. Online 1040ez Also, you claimed no tax credits in 2013. Online 1040ez Your child withdrew from two classes and you received a refund of $2,000 in 2014 after you filed your 2013 tax return. Online 1040ez Refigure your 2013 tuition and fees deduction using $1,500 of qualified education expense instead of the $3,500. Online 1040ez The refigured tuition and fees deduction is $1,500. Online 1040ez Do not file an amended 2013 tax return to account for this adjustment. Online 1040ez Instead, include the difference of $2,000 (but only to the extent this difference would have increased your 2013 tax) on the “Other income” line of your 2014 Form 1040. Online 1040ez You cannot file Form 1040A for 2014. Online 1040ez Amounts that do not reduce qualified education expenses. Online 1040ez   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Online 1040ez   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. Online 1040ez The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Restrictions. Online 1040ez The use of the money is not restricted. Online 1040ez Example 1. Online 1040ez In 2013, Jackie paid $3,000 for tuition and $5,000 for room and board at University X. Online 1040ez The university did not require her to pay any fees in addition to her tuition in order to enroll in or attend classes. Online 1040ez To help pay these costs, she was awarded a $2,000 scholarship and a $4,000 student loan. Online 1040ez The terms of the scholarship state that it can be used to pay any of Jackie's college expenses. Online 1040ez University X applies the $2,000 scholarship against Jackie's $8,000 total bill, and Jackie pays the $6,000 balance of her bill from University X with a combination of her student loan and her savings. Online 1040ez Jackie does not report any portion of the scholarship as income on her tax return. Online 1040ez In figuring the tuition and fees deduction, Jackie must reduce her qualified education expenses by the amount of the scholarship ($2,000) because she excluded the entire scholarship from her income. Online 1040ez The student loan is not tax-free educational assistance, so she does not need to reduce her qualified expenses by any part of the loan proceeds. Online 1040ez Jackie is treated as having paid $1,000 in qualified education expenses ($3,000 tuition – $2,000 scholarship) in 2013. Online 1040ez Example 2. Online 1040ez The facts are the same as in Example 1, except that Jackie reports her entire scholarship as income on her tax return. Online 1040ez Because Jackie reported the entire $2,000 scholarship in her income, she does not need to reduce her qualified education expenses. Online 1040ez Jackie is treated as having paid $3,000 in qualified education expenses. Online 1040ez Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. Online 1040ez This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. Online 1040ez Sports, games, hobbies, and noncredit courses. Online 1040ez   Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. Online 1040ez However, if the course of instruction or other education is part of the student's degree program, these expenses can qualify. Online 1040ez Comprehensive or bundled fees. Online 1040ez   Some eligible educational institutions combine all of their fees for an academic period into one amount. Online 1040ez If you do not receive, or do not have access to, an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed above, contact the institution. Online 1040ez The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T. Online 1040ez See Figuring the Deduction , later, for more information about Form 1098-T. Online 1040ez Who Is an Eligible Student For purposes of the tuition and fees deduction, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution (as defined under Qualified Education Expenses , earlier). Online 1040ez Who Can Claim a Dependent's Expenses Generally, in order to claim the tuition and fees deduction for qualified education expenses for a dependent, you must: Have paid the expenses, and Claim an exemption for the student as a dependent. Online 1040ez For you to be able to deduct qualified education expenses for your dependent, you must claim an exemption for that individual. Online 1040ez You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. Online 1040ez IF your dependent is an eligible student and you. Online 1040ez . Online 1040ez . Online 1040ez AND. Online 1040ez . Online 1040ez . Online 1040ez THEN. Online 1040ez . Online 1040ez . Online 1040ez claim an exemption for your dependent you paid all qualified education expenses for your dependent only you can deduct the qualified education expenses that you paid. Online 1040ez Your dependent cannot take a deduction. Online 1040ez claim an exemption for your dependent your dependent paid all qualified education expenses no one is allowed to take a deduction. Online 1040ez do not claim an exemption for your dependent you paid all qualified education expenses no one is allowed to take a deduction. Online 1040ez do not claim an exemption for your dependent your dependent paid all qualified education expenses no one is allowed to take a deduction. Online 1040ez Expenses paid by dependent. Online 1040ez   If your dependent pays qualified education expenses, no one can take a tuition and fees deduction for those expenses. Online 1040ez Neither you nor your dependent can deduct the expenses. Online 1040ez For purposes of the tuition and fees deduction, you are not treated as paying any expenses actually paid by a dependent for whom you or anyone other than the dependent can claim an exemption. Online 1040ez This rule applies even if you do not claim an exemption for your dependent on your tax return. Online 1040ez Expenses paid by you. Online 1040ez   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring your tuition and fees deduction. Online 1040ez Expenses paid under divorce decree. Online 1040ez   Qualified education expenses paid directly to an eligible educational institution for a student under a court-approved divorce decree are treated as paid by the student. Online 1040ez Only the student would be eligible to take a tuition and fees deduction for that payment, and then only if no one else could claim an exemption for the student. Online 1040ez Expenses paid by others. Online 1040ez   Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. Online 1040ez In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. Online 1040ez If you claim, or can claim, an exemption on your tax return for the student, you are not considered to have paid the expenses and you cannot deduct them. Online 1040ez If the student is not a dependent, only the student can deduct payments made directly to the institution for his or her expenses. Online 1040ez If the student is your dependent, no one can deduct the payments. Online 1040ez Example. Online 1040ez In 2013, Ms. Online 1040ez Baker makes a payment directly to an eligible educational institution for her grandson Dan's qualified education expenses. Online 1040ez For purposes of deducting tuition and fees, Dan is treated as receiving the money from his grandmother and, in turn, paying his own qualified education expenses. Online 1040ez If an exemption cannot be claimed for Dan on anyone else's tax return, only Dan can claim a tuition and fees deduction for his grandmother's payment. Online 1040ez If someone else can claim an exemption for Dan, no one will be allowed a deduction for Ms. Online 1040ez Baker's payment. Online 1040ez Tuition reduction. Online 1040ez   When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. Online 1040ez If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. Online 1040ez For more information on tuition reductions, see Qualified Tuition Reduction , in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Online 1040ez Figuring the Deduction The maximum tuition and fees deduction in 2013 is $4,000, $2,000, or $0, depending on the amount of your MAGI. Online 1040ez See Effect of the Amount of Your Income on the Amount of Your Deduction , later. Online 1040ez Form 1098-T. Online 1040ez   To help you figure your tuition and fees deduction, the student should receive Form 1098-T (see Appendix A for a completed example of Form 1098-T). Online 1040ez Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. Online 1040ez An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. Online 1040ez However, the amount in boxes 1 and 2 of Form 1098-T might be different than what you paid. Online 1040ez When figuring the deduction, use only the amounts you paid in 2013 for qualified education expenses. Online 1040ez   In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student. Online 1040ez    The eligible educational institution may ask for a completed Form W-9S or similar statement to obtain the student's name, address, and taxpayer identification number. Online 1040ez Effect of the Amount of Your Income on the Amount of Your Deduction If your MAGI is not more than $65,000 ($130,000 if you are married filing jointly), your maximum tuition and fees deduction is $4,000. Online 1040ez If your MAGI is larger than $65,000 ($130,000 if you are married filing jointly), but is not more than $80,000 ($160,000 if you are married filing jointly), your maximum deduction is $2,000. Online 1040ez No tuition and fees deduction is allowed if your MAGI is larger than $80,000 ($160,000 if you are married filing jointly). Online 1040ez Modified adjusted gross income (MAGI). Online 1040ez   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return before subtracting any deduction for tuition and fees. Online 1040ez However, as discussed below, there may be other modifications. Online 1040ez MAGI when using Form 1040A. Online 1040ez   If you file Form 1040A, your MAGI is the AGI on line 22 of that form, figured without taking into account any amount on line 19 (tuition and fees deduction). Online 1040ez MAGI when using Form 1040. Online 1040ez   If you file Form 1040, your MAGI is the AGI on line 38 of that form, figured without taking into account any amount on line 34 (tuition and fees deduction) or line 35 (domestic production activities deduction), and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Online 1040ez   Table 6-2 shows how the amount of your MAGI can affect your tuition and fees deduction. Online 1040ez   You can use Worksheet 6-1. Online 1040ez MAGI for the Tuition and Fees Deduction , later, to figure your MAGI. Online 1040ez Table 6-2. Online 1040ez Effect of MAGI on Maximum Tuition and Fees Deduction IF your filing status is. Online 1040ez . Online 1040ez . Online 1040ez AND your MAGI is. Online 1040ez . Online 1040ez . Online 1040ez THEN your maximum tuition and fees deduction is. Online 1040ez . Online 1040ez . Online 1040ez single,  head of household, or qualifying widow(er) not more than $65,000 $4,000. Online 1040ez more than $65,000  but not more than $80,000 $2,000. Online 1040ez more than $80,000 $0. Online 1040ez married filing joint return not more than $130,000 $4,000. Online 1040ez more than $130,000 but not more than $160,000 $2,000. Online 1040ez more than $160,000 $0. Online 1040ez Claiming the Deduction You claim a tuition and fees deduction by completing Form 8917 and submitting it with your Form 1040 or Form 1040A. Online 1040ez Enter the deduction on Form 1040, line 34, or Form 1040A, line 19. Online 1040ez A filled-in Form 8917 is shown at the end of this chapter. Online 1040ez Illustrated Example Tim Pfister, a single taxpayer, enrolled full-time at a local college to earn a degree in engineering. Online 1040ez This is the first year of his postsecondary education. Online 1040ez During 2013, he paid $3,600 for his qualified 2013 tuition expense. Online 1040ez Both he and the college meet all of the requirements for the tuition and fees deduction. Online 1040ez Tim's total income (Form 1040, line 22) and MAGI are $26,000. Online 1040ez He figures his deduction of $3,600 as shown on Form 8917, later. Online 1040ez Worksheet 6-1. Online 1040ez MAGI for the Tuition and Fees Deduction Use this worksheet if you are filing Form 2555, 2555-EZ, or 4563, or you are excluding income from sources within Puerto Rico. Online 1040ez Before using this worksheet, you must complete Form 1040, lines 7 through 33, and figure any amount to be entered on the dotted line next to line 36. Online 1040ez 1. Online 1040ez Enter the amount from Form 1040, line 22   1. Online 1040ez         2. Online 1040ez Enter the total from Form 1040, lines 23 through 33   2. Online 1040ez               3. Online 1040ez Enter the total of any amounts entered on the dotted line next to Form 1040, line 36   3. Online 1040ez               4. Online 1040ez Add lines 2 and 3   4. Online 1040ez         5. Online 1040ez Subtract line 4 from line 1   5. Online 1040ez         6. Online 1040ez Enter your foreign earned income exclusion and/or housing  exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   6. Online 1040ez         7. Online 1040ez Enter your foreign housing deduction (Form 2555, line 50)   7. Online 1040ez         8. Online 1040ez Enter the amount of income from Puerto Rico you are excluding   8. Online 1040ez         9. Online 1040ez Enter the amount of income from American Samoa you are  excluding (Form 4563, line 15)   9. Online 1040ez         10. Online 1040ez Add lines 5 through 9. Online 1040ez This is your modified adjusted gross income   10. Online 1040ez     Note. Online 1040ez If the amount on line 10 is more than $80,000 ($160,000 if married filing jointly),  you cannot take the deduction for tuition and fees. Online 1040ez       This image is too large to be displayed in the current screen. Online 1040ez Please click the link to view the image. Online 1040ez Form 8917 for Tim Pfister Prev  Up  Next   Home   More Online Publications
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IRS Taxpayer Assistance Centers (TACs) are your source for personal tax help when you believe your tax issue can only be handled face-to-face. No appointment is necessary.

Keep in mind, many questions can be resolved online without waiting in line. Through IRS.gov you can:
• Set up a payment plan.
• Get a transcript of your tax return.
• Make a payment.
• Check on your refund.
• Find answers to many of your tax questions.

We are now referring all requests for tax return preparation services to other available resources. You can take advantage of free tax preparation through Free File, Free File Fillable Forms or through a volunteer site in your community. To find the nearest volunteer site location or to get more information about Free File, go to the top of the page and enter “Free Tax Help” in the Search box.

If you have a tax account issues and feel that it requires talking with someone face-to-face, visit your local TAC.

Caution:  Many of our offices are located in Federal Office Buildings. These buildings may not allow visitors to bring in cell phones with camera capabilities.

Multilingual assistance is available in every office. Hours of operation are subject to change.

Before visiting your local office click on "Services Provided" in the chart below to see what services are available. Services are limited and not all services are available at every TAC office and may vary from site to site. You can get these services on a walk-in basis.

City  Street Address  Days/Hours of Service  Telephone* 
Brattleboro  1222 Putney Rd.
Brattleboro, VT 05301 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 1:00 p.m. - 2:00 p.m.)

 

**This office will close at 3:00 p.m. on 4/3**

 

Services Provided

(802) 257-4825 
Burlington  128 Lakeside Ave., Innovation Center, 2nd Floor
Burlington, VT 05401 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 1:00 p.m. - 2:00 p.m.)


Services Provided

(802) 859-9308 
Montpelier  87 State St.
Montpelier, VT 05602 

Monday-Friday - 8:30 a.m.- 4:30 p.m.
(Closed for lunch 1:00 p.m.-2:00 p.m.)

 

**This office will close on Mondays at 3:00 p.m. from 1/6 through 3/31**

 

Services Provided

(802) 223-7871 
Rutland  1085 U.S. Route 4 East
Rutland, VT 05701 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 1:00 p.m.-2:00 p.m.)

 

**This office will be closed 3/26**

 

**This office will be closed 4/18**

 

Services Provided

(802) 773-6982 

* Note: The phone numbers in the chart above are not toll-free for all locations. When you call, you will reach a recorded business message with information about office hours, locations and services provided in that office. If face-to-face assistance is not a priority for you, you may also get help with IRS letters or resolve tax account issues by phone, toll free at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses).

For information on where to file your tax return please see Where to File Addresses.

The Taxpayer Advocate Service: Call (802) 859-1052 in Burlington or 1-877-777-4778 elsewhere, or see Publication 1546, The Taxpayer Advocate Service of the IRS. For further information, see Tax Topic 104.

Partnerships

IRS and organizations all over the country are partnering to assist taxpayers. Through these partnerships, organizations are also achieving their own goals. These mutually beneficial partnerships are strengthening outreach efforts and bringing education and assistance to millions.

For more information about these programs for individuals and families, contact the Stakeholder Partnerships, Education and Communication Office at:

Internal Revenue Service SPEC
128 Lakeside Avenue, Suite 204
Burlington,VT 05401

 

For more information about these programs for businesses, your local Stakeholder Liaison office establishes relationships with organizations representing small business and self-employed taxpayers. They provide information about the policies, practices and procedures the IRS uses to ensure compliance with the tax laws. To establish a relationship with us, use this list to find a contact in your state:

Stakeholder Liaison (SL) Phone Numbers for Organizations Representing Small Businesses and Self-employed Taxpayers.

Page Last Reviewed or Updated: 28-Mar-2014

The Online 1040ez

Online 1040ez 5. Online 1040ez   Exemptions, Deductions, and Credits Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Items Related to Excluded Income Exemptions Contributions to Foreign Charitable Organizations Moving ExpensesAllocation of Moving Expenses Forms To File Contributions to Individual Retirement Arrangements Taxes of Foreign Countries and U. Online 1040ez S. Online 1040ez PossessionsCredit for Foreign Income Taxes Deduction for Foreign Income Taxes Deduction for Other Foreign Taxes How To Report Deductions Topics - This chapter discusses: The rules concerning items related to excluded income, Exemptions, Contributions to foreign charitable organizations, Moving expenses, Contributions to individual retirement arrangements (IRAs), Taxes of foreign countries and U. Online 1040ez S. Online 1040ez possessions, and How to report deductions. Online 1040ez Useful Items - You may want to see: Publication 501 Exemptions, Standard Deduction, and Filing Information 514 Foreign Tax Credit for Individuals 521 Moving Expenses 523 Selling Your Home 590 Individual Retirement Arrangements (IRAs) 597 Information on the United States—Canada Income Tax Treaty Form (and Instructions) 1116 Foreign Tax Credit 2106 Employee Business Expenses 2555 Foreign Earned Income 2555-EZ Foreign Earned Income Exclusion 3903 Moving Expenses Schedule A (Form 1040) Itemized Deductions Schedule C (Form 1040) Profit or Loss From Business SS-5 Application for a Social Security Card W-7 Application for IRS Individual Taxpayer Identification Number See chapter 7 for information about getting these publications and forms. Online 1040ez Items Related to Excluded Income U. Online 1040ez S. Online 1040ez citizens and resident aliens living outside the United States generally are allowed the same deductions as citizens and residents living in the United States. Online 1040ez If you choose to exclude foreign earned income or housing amounts, you cannot deduct, exclude, or claim a credit for any item that can be allocated to or charged against the excluded amounts. Online 1040ez This includes any expenses, losses, and other normally deductible items that are allocable to the excluded income. Online 1040ez You can deduct only those expenses connected with earning includible income. Online 1040ez These rules apply only to items definitely related to the excluded earned income and they do not apply to other items that are not definitely related to any particular type of gross income. Online 1040ez These rules do not apply to items such as: Personal exemptions, Qualified retirement contributions, Alimony payments, Charitable contributions, Medical expenses, Mortgage interest, or Real estate taxes on your personal residence. Online 1040ez For purposes of these rules, your housing deduction is not treated as allocable to your excluded income, but the deduction for self- employment tax is. Online 1040ez If you receive foreign earned income in a tax year after the year in which you earned it, you may have to file an amended return for the earlier year to properly adjust the amounts of deductions, credits, or exclusions allocable to your foreign earned income and housing exclusions. Online 1040ez Example. Online 1040ez In 2012, you had $90,400 of foreign earned income and $9,500 of deductions allocable to your foreign earned income. Online 1040ez You did not have a housing exclusion. Online 1040ez Because you excluded all of your foreign earned income, you would not have been able to claim any of the deductions on your 2012 return. Online 1040ez In 2013, you received a $12,000 bonus for work you did abroad in 2012. Online 1040ez You can exclude $4,700 of the bonus because the limit on the foreign earned income exclusion for 2012 was $95,100 and you have already excluded $90,400. Online 1040ez Since you must include $7,300 of the bonus ($12,000 − $4,700) for work you did in 2012 in income, you can file an amended return for 2012 to claim $677 of the deductions. Online 1040ez This is the deductions allocable to the foreign earned income ($9,500) multiplied by the includible portion of the foreign earned income ($7,300) and divided by the total foreign earned income for 2012 ($102,400). Online 1040ez Exemptions You can claim an exemption for your nonresident alien spouse on your separate return, provided your spouse has no gross income for U. Online 1040ez S. Online 1040ez tax purposes and is not the dependent of another U. Online 1040ez S. Online 1040ez taxpayer. Online 1040ez You also can claim exemptions for individuals who qualify as your dependents. Online 1040ez To be your dependent, the individual must be a U. Online 1040ez S. Online 1040ez citizen, U. Online 1040ez S. Online 1040ez national, U. Online 1040ez S. Online 1040ez resident alien, or a resident of Canada or Mexico for some part of the calendar year in which your tax year begins. Online 1040ez Children. Online 1040ez   Children usually are citizens or residents of the same country as their parents. Online 1040ez If you were a U. Online 1040ez S. Online 1040ez citizen when your child was born, your child generally is a U. Online 1040ez S. Online 1040ez citizen. Online 1040ez This is true even if the child's other parent is a nonresident alien, the child was born in a foreign country, and the child lives abroad with the other parent. Online 1040ez   If you have a legally adopted child who is not a U. Online 1040ez S. Online 1040ez citizen, U. Online 1040ez S. Online 1040ez resident, or U. Online 1040ez S. Online 1040ez national, the child meets the citizen requirement if you are a U. Online 1040ez S. Online 1040ez citizen or U. Online 1040ez S. Online 1040ez national and the child lived with you as a member of your household all year. Online 1040ez Social security number. Online 1040ez   You must include on your return the social security number (SSN) of each dependent for whom you claim an exemption. Online 1040ez To get a social security number for a dependent, apply at a Social Security office or U. Online 1040ez S. Online 1040ez consulate. Online 1040ez You must provide original or certified copies of documents to verify the dependent's age, identity, and citizenship, and complete Form SS-5. Online 1040ez   If you do not have an SSN for a child who was born in 2013 and died in 2013, attach a copy of the child's birth certificate to your tax return. Online 1040ez Print “Died” in column (2) of line 6c of your Form 1040 or Form 1040A. Online 1040ez   If your dependent is a nonresident alien who is not eligible to get a social security number, you must list the dependent's individual taxpayer identification number (ITIN) instead of an SSN. Online 1040ez To apply for an ITIN, file Form W-7 with the IRS. Online 1040ez It usually takes 6 to 10 weeks to get an ITIN. Online 1040ez Enter your dependent's ITIN wherever an SSN is requested on your tax return. Online 1040ez More information. Online 1040ez   For more information about exemptions, see Publication 501. Online 1040ez Contributions to Foreign Charitable Organizations If you make contributions directly to a foreign church or other foreign charitable organization, you generally cannot deduct them. Online 1040ez Exceptions are explained under Canadian, Mexican, and Israeli charities, later. Online 1040ez You can deduct contributions to a U. Online 1040ez S. Online 1040ez organization that transfers funds to a charitable foreign organization if the U. Online 1040ez S. Online 1040ez organization controls the use of the funds by the foreign organization or if the foreign organization is just an administrative arm of the U. Online 1040ez S. Online 1040ez organization. Online 1040ez Canadian, Mexican, and Israeli charities. Online 1040ez   Under the income tax treaties with Canada, Mexico and Israel, you may be able to deduct contributions to certain Canadian, Mexican, and Israeli charitable organizations. Online 1040ez Generally, you must have income from sources in Canada, Mexico, or Israel, and the organization must meet certain requirements. Online 1040ez See Publication 597, Information on the United States-Canada Income Tax Treaty, and Publication 526, Charitable Contributions, for more information. Online 1040ez Moving Expenses If you moved to a new home in 2013 because of your job or business, you may be able to deduct the expenses of your move. Online 1040ez Generally, to be deductible, the moving expenses must have been paid or incurred in connection with starting work at a new job location. Online 1040ez See Publication 521 for a complete discussion of the deduction for moving expenses and information about moves within the United States. Online 1040ez Foreign moves. Online 1040ez   A foreign move is a move in connection with the start of work at a new job location outside the United States and its possessions. Online 1040ez A foreign move does not include a move back to the United States or its possessions. Online 1040ez Allocation of Moving Expenses When your new place of work is in a foreign country, your moving expenses are directly connected with the income earned in that foreign country. Online 1040ez If you exclude all or part of the income that you earn at the new location under the foreign earned income exclusion or the foreign housing exclusion, you cannot deduct the part of your moving expense that is allocable to the excluded income. Online 1040ez Also, you cannot deduct the part of the moving expense related to the excluded income for a move from a foreign country to the United States if you receive a reimbursement that you are able to treat as compensation for services performed in the foreign country. Online 1040ez Year to which expense is connected. Online 1040ez   The moving expense is connected with earning the income (including reimbursements, as discussed in chapter 4 under Reimbursement of moving expenses ) either entirely in the year of the move or in 2 years. Online 1040ez It is connected with earning the income entirely in the year of the move if you qualify for the foreign earned income exclusion under the bona fide residence test or physical presence test for at least 120 days during that tax year. Online 1040ez   If you do not qualify under either the bona fide residence test or the physical presence test for at least 120 days during the year of the move, the expense is connected with earning the income in 2 years. Online 1040ez The moving expense is connected with the year of the move and the following year if the move is from the United States to a foreign country. Online 1040ez The moving expense is connected with the year of the move and the preceding year if the move is from a foreign country to the United States. Online 1040ez Amount allocable to excluded income. Online 1040ez   To figure the amount of your moving expense that is allocable to your excluded foreign earned income (and not deductible), you must multiply your total moving expense deduction by a fraction. Online 1040ez The numerator (top number) of the fraction is the total of your excluded foreign earned income and housing amounts for both years and the denominator (bottom number) of the fraction is your total foreign earned income for both years. Online 1040ez Example. Online 1040ez On November 1, 2012, you transfer to Monaco. Online 1040ez Your tax home is in Monaco, and you are a bona fide resident of Monaco for the entire tax year 2013. Online 1040ez In 2012, you paid $6,000 for allowable moving expenses for your move from the United States to Monaco. Online 1040ez You were fully reimbursed (under a nonaccountable plan) for these expenses in the same year. Online 1040ez The reimbursement is included in your income. Online 1040ez Your only other income consists of $16,000 wages earned in 2012 after the date of your move, and $100,100 wages earned in Monaco for 2013. Online 1040ez Because you did not meet the bona fide residence test for at least 120 days during 2012, the year of the move, the moving expenses are for services you performed in both 2012 and the following year, 2013. Online 1040ez Your total foreign earned income for both years is $122,100, consisting of $16,000 wages for 2012, $100,100 wages for 2013, and $6,000 moving expense reimbursement for both years. Online 1040ez You have no housing exclusion. Online 1040ez The total amount you can exclude is $113,190, consisting of the $97,600 full-year exclusion for 2013 and a $15,590 part-year exclusion for 2012 ($95,100 times the fraction of 60 qualifying bona fide residence days over 366 total days in the year). Online 1040ez To find the part of your moving expenses that is not deductible, multiply your $6,000 total expenses by the fraction $113,190 over $122,100. Online 1040ez The result, $5,562, is your nondeductible amount. Online 1040ez    You must report the full amount of the moving expense reimbursement in the year in which you received the reimbursement. Online 1040ez In the preceding example, this year was 2012. Online 1040ez You attribute the reimbursement to both 2012 and 2013 only to figure the amount of foreign earned income eligible for exclusion for each year. Online 1040ez Move between foreign countries. Online 1040ez   If you move between foreign countries, your moving expense is allocable to income earned in the year of the move if you qualified under either the bona fide residence test or the physical presence test for a period that includes at least 120 days in the year of the move. Online 1040ez New place of work in U. Online 1040ez S. Online 1040ez   If your new place of work is in the United States, the deductible moving expenses are directly connected with the income earned in the United States. Online 1040ez If you treat a reimbursement from your employer as foreign earned income (see the discussion in chapter 4), you must allocate deductible moving expenses to foreign earned income. Online 1040ez Storage expenses. Online 1040ez   These expenses are attributable to work you do during the year in which you incur the storage expenses. Online 1040ez You cannot deduct the amount allocable to excluded income. Online 1040ez Moving Expense Attributable to Foreign Earnings in 2 Years If your moving expense deduction is attributable to your foreign earnings in 2 years (the year of the move and the following year), you should request an extension of time to file your return for the year of the move until after the end of the second year. Online 1040ez By then, you should have all the information needed to properly figure the moving expense deduction. Online 1040ez See Extensions under When To File and Pay in chapter 1. Online 1040ez If you do not request an extension, you should figure the part of the moving expense that you cannot deduct because it is allocable to the foreign earned income you are excluding. Online 1040ez You do this by multiplying the moving expense by a fraction, the numerator (top number) of which is your excluded foreign earned income for the year of the move, and the denominator (bottom number) of which is your total foreign earned income for the year of the move. Online 1040ez Once you know your foreign earnings and exclusion for the following year, you must either: Adjust the moving expense deduction by filing an amended return for the year of the move, or Recapture any additional unallowable amount as income on your return for the following year. Online 1040ez If, after you make the final computation, you have an additional amount of allowable moving expense deduction, you can claim this only on an amended return for the year of the move. Online 1040ez You cannot claim it on the return for the second year. Online 1040ez Forms To File Report your moving expenses on Form 3903. Online 1040ez Report your moving expense deduction on line 26 of Form 1040. Online 1040ez If you must reduce your moving expenses by the amount allocable to excluded income (as explained later under How To Report Deductions ), attach a statement to your return showing how you figured this amount. Online 1040ez For more information about figuring moving expenses, see Publication 521. Online 1040ez Contributions to Individual Retirement Arrangements Contributions to your individual retirement arrangements (IRAs) that are traditional IRAs or Roth IRAs are generally limited to the lesser of $5,500 ($6,500 if 50 or older) or your compensation that is includible in your gross income for the tax year. Online 1040ez In determining compensation for this purpose, do not take into account amounts you exclude under either the foreign earned income exclusion or the foreign housing exclusion. Online 1040ez Do not reduce your compensation by the foreign housing deduction. Online 1040ez If you are covered by an employer retirement plan at work, your deduction for your contributions to your traditional IRAs is generally limited based on your modified adjusted gross income. Online 1040ez This is your adjusted gross income figured without taking into account the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction. Online 1040ez Other modifications are also required. Online 1040ez For more information on IRAs, see Publication 590. Online 1040ez Taxes of Foreign Countries and U. Online 1040ez S. Online 1040ez Possessions You can take either a credit or a deduction for income taxes paid to a foreign country or a U. Online 1040ez S. Online 1040ez possession. Online 1040ez Taken as a deduction, foreign income taxes reduce your taxable income. Online 1040ez Taken as a credit, foreign income taxes reduce your tax liability. Online 1040ez You must treat all foreign income taxes the same way. Online 1040ez If you take a credit for any foreign income taxes, you cannot deduct any foreign income taxes. Online 1040ez However, you may be able to deduct other foreign taxes. Online 1040ez See Deduction for Other Foreign Taxes, later. Online 1040ez There is no rule to determine whether it is to your advantage to take a deduction or a credit for foreign income taxes. Online 1040ez In most cases, it is to your advantage to take foreign income taxes as a tax credit, which you subtract directly from your U. Online 1040ez S. Online 1040ez tax liability, rather than as a deduction in figuring taxable income. Online 1040ez However, if foreign income taxes were imposed at a high rate and the proportion of foreign income to U. Online 1040ez S. Online 1040ez income is small, a lower final tax may result from deducting the foreign income taxes. Online 1040ez In any event, you should figure your tax liability both ways and then use the one that is better for you. Online 1040ez You can make or change your choice within 10 years from the due date for filing the tax return on which you are entitled to take either the deduction or the credit. Online 1040ez Foreign income taxes. Online 1040ez   These are generally income taxes you pay to any foreign country or possession of the United States. Online 1040ez Foreign income taxes on U. Online 1040ez S. Online 1040ez return. Online 1040ez   Foreign income taxes can only be taken as a credit on Form 1040, line 47, or as an itemized deduction on Schedule A. Online 1040ez These amounts cannot be included as withheld income taxes on Form 1040, line 62. Online 1040ez Foreign taxes paid on excluded income. Online 1040ez   You cannot take a credit or deduction for foreign income taxes paid on earnings you exclude from tax under any of the following. Online 1040ez Foreign earned income exclusion. Online 1040ez Foreign housing exclusion. Online 1040ez Possession exclusion. Online 1040ez If your wages are completely excluded, you cannot deduct or take a credit for any of the foreign taxes paid on your wages. Online 1040ez   If only part of your wages is excluded, you cannot deduct or take a credit for the foreign income taxes allocable to the excluded part. Online 1040ez You find the taxes allocable to your excluded wages by applying a fraction to the foreign taxes paid on foreign earned income received during the tax year. Online 1040ez The numerator (top number) of the fraction is your excluded foreign earned income received during the tax year minus deductible expenses allocable to that income (not including the foreign housing deduction). Online 1040ez The denominator (bottom number) of the fraction is your total foreign earned income received during the tax year minus all deductible expenses allocable to that income (including the foreign housing deduction). Online 1040ez   If foreign law taxes both earned income and some other type of income and the taxes on the other type cannot be separated, the denominator of the fraction is the total amount of income subject to foreign tax minus deductible expenses allocable to that income. Online 1040ez    If you take a foreign tax credit for tax on income you could have excluded under your choice to exclude foreign earned income or your choice to exclude foreign housing costs, one or both of the choices may be considered revoked. Online 1040ez Credit for Foreign Income Taxes If you take the foreign tax credit, you may have to file Form 1116 with Form 1040. Online 1040ez Form 1116 is used to figure the amount of foreign tax paid or accrued that can be claimed as a foreign tax credit. Online 1040ez Do not include the amount of foreign tax paid or accrued as withheld federal income taxes on Form 1040, line 62. Online 1040ez The foreign income tax for which you can claim a credit is the amount of legal and actual tax liability you pay or accrue during the year. Online 1040ez The amount for which you can claim a credit is not necessarily the amount withheld by the foreign country. Online 1040ez You cannot take a foreign tax credit for income tax you paid to a foreign country that would be refunded by the foreign country if you made a claim for refund. Online 1040ez Subsidies. Online 1040ez   If a foreign country returns your foreign tax payments to you in the form of a subsidy, you cannot claim a foreign tax credit based on these payments. Online 1040ez This rule applies to a subsidy provided by any means that is determined, directly or indirectly, by reference to the amount of tax, or to the base used to figure the tax. Online 1040ez   Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. Online 1040ez A credit is also not allowed if the subsidy is given to a person related to you, or persons who participated in a transaction or a related transaction with you. Online 1040ez Limit The foreign tax credit is limited to the part of your total U. Online 1040ez S. Online 1040ez tax that is in proportion to your taxable income from sources outside the United States compared to your total taxable income. Online 1040ez The allowable foreign tax credit cannot be more than your actual foreign tax liability. Online 1040ez Exemption from limit. Online 1040ez   You will not be subject to this limit and will not have to file Form 1116 if you meet all three of the following requirements. Online 1040ez Your only foreign source income for the year is passive income (dividends, interest, royalties, etc. Online 1040ez ) that is reported to you on a payee statement (such as a Form 1099-DIV or 1099-INT). Online 1040ez Your foreign taxes for the year that qualify for the credit are not more than $300 ($600 if you are filing a joint return) and are reported on a payee statement. Online 1040ez You elect this procedure. Online 1040ez If you make this election, you cannot carry back or carry over any unused foreign tax to or from this year. Online 1040ez Separate limit. Online 1040ez   You must figure the limit on a separate basis with regard to “passive category income” and “general category income” (see the instructions for Form 1116). Online 1040ez Figuring the limit. Online 1040ez   In figuring taxable income in each category, you take into account only the amount that you must include in income on your federal tax return. Online 1040ez Do not take any excluded amount into account. Online 1040ez   To determine your taxable income in each category, deduct expenses and losses that are definitely related to that income. Online 1040ez   Other expenses (such as itemized deductions or the standard deduction) not definitely related to specific items of income must be apportioned to the foreign income in each category by multiplying them by a fraction. Online 1040ez The numerator (top number) of the fraction is your gross foreign income in the separate limit category. Online 1040ez The denominator (bottom number) of the fraction is your gross income from all sources. Online 1040ez For this purpose, gross income includes income that is excluded under the foreign earned income provisions but does not include any other exempt income. Online 1040ez You must use special rules for deducting interest expenses. Online 1040ez For more information on allocating and apportioning your deductions, see Publication 514. Online 1040ez Exemptions. Online 1040ez   Do not take the deduction for exemptions for yourself, your spouse, or your dependents in figuring taxable income for purposes of the limit. Online 1040ez Recapture of foreign losses. Online 1040ez   If you have an overall foreign loss and the loss reduces your U. Online 1040ez S. Online 1040ez source income (resulting in a reduction of your U. Online 1040ez S. Online 1040ez tax liability), you must recapture the loss in later years when you have taxable income from foreign sources. Online 1040ez This is done by treating a part of your taxable income from foreign sources in later years as U. Online 1040ez S. Online 1040ez source income. Online 1040ez This reduces the numerator of the limiting fraction and the resulting foreign tax credit limit. Online 1040ez Recapture of domestic losses. Online 1040ez   If you have an overall domestic loss (resulting in no U. Online 1040ez S. Online 1040ez tax liability), you cannot claim a foreign tax credit for taxes paid during that year. Online 1040ez You must recapture the loss in later years when you have U. Online 1040ez S. Online 1040ez source taxable income. Online 1040ez This is done by treating a part of your taxable income from U. Online 1040ez S. Online 1040ez sources in later years as foreign source income. Online 1040ez This increases the numerator of the limiting fraction and the resulting foreign tax credit limit. Online 1040ez Foreign tax credit carryback and carryover. Online 1040ez   The amount of foreign income tax not allowed as a credit because of the limit can be carried back 1 year and carried forward 10 years. Online 1040ez   More information on figuring the foreign tax credit can be found in Publication 514. Online 1040ez Deduction for Foreign Income Taxes Instead of taking the foreign tax credit, you can deduct foreign income taxes as an itemized deduction on Schedule A (Form 1040). Online 1040ez You can deduct only foreign income taxes paid on income that is subject to U. Online 1040ez S. Online 1040ez tax. Online 1040ez You cannot deduct foreign taxes paid on earnings you exclude from tax under any of the following. Online 1040ez Foreign earned income exclusion. Online 1040ez Foreign housing exclusion. Online 1040ez Possession exclusion. Online 1040ez Example. Online 1040ez You are a U. Online 1040ez S. Online 1040ez citizen and qualify to exclude your foreign earned income. Online 1040ez Your excluded wages in Country X are $70,000 on which you paid income tax of $10,000. Online 1040ez You received dividends from Country X of $2,000 on which you paid income tax of $600. Online 1040ez You can deduct the $600 tax payment because the dividends relating to it are subject to U. Online 1040ez S. Online 1040ez tax. Online 1040ez Because you exclude your wages, you cannot deduct the income tax of $10,000. Online 1040ez If you exclude only a part of your wages, see the earlier discussion under Foreign taxes paid on excluded income. Online 1040ez Deduction for Other Foreign Taxes You can deduct real property taxes you pay that are imposed on you by a foreign country. Online 1040ez You take this deduction on Schedule A (Form 1040). Online 1040ez You cannot deduct other foreign taxes, such as personal property taxes, unless you incurred the expenses in a trade or business or in the production of income. Online 1040ez On the other hand, you generally can deduct personal property taxes when you pay them to U. Online 1040ez S. Online 1040ez possessions. Online 1040ez But if you claim the possession exclusion, see Publication 570. Online 1040ez The deduction for foreign taxes other than foreign income taxes is not related to the foreign tax credit. Online 1040ez You can take deductions for these miscellaneous foreign taxes and also claim the foreign tax credit for income taxes imposed by a foreign country. Online 1040ez How To Report Deductions If you exclude foreign earned income or housing amounts, how you show your deductions on your tax return and how you figure the amount allocable to your excluded income depends on whether the expenses are used in figuring adjusted gross income (Form 1040, line 38) or are itemized deductions. Online 1040ez If you have deductions used in figuring adjusted gross income, enter the total amount for each of these items on the appropriate lines and schedules of Form 1040. Online 1040ez Generally, you figure the amount of a deduction related to the excluded income by multiplying the deduction by a fraction, the numerator of which is your foreign earned income exclusion and the denominator of which is your foreign earned income. Online 1040ez Enter the amount of the deduction(s) related to excluded income on line 44 of Form 2555. Online 1040ez If you have itemized deductions related to excluded income, enter on Schedule A (Form 1040) only the part not related to excluded income. Online 1040ez You figure that amount by subtracting from the total deduction the amount related to excluded income. Online 1040ez Generally, you figure the amount that is related to the excluded income by multiplying the total deduction by a fraction, the numerator of which is your foreign earned income exclusion and the denominator of which is your foreign earned income. Online 1040ez Attach a statement to your return showing how you figured the deductible amount. Online 1040ez Example 1. Online 1040ez You are a U. Online 1040ez S. Online 1040ez citizen employed as an accountant. Online 1040ez Your tax home is in Germany for the entire tax year. Online 1040ez You meet the physical presence test. Online 1040ez Your foreign earned income for the year was $122,000 and your investment income was $10,380. Online 1040ez After excluding $97,600, your AGI is $34,780. Online 1040ez You had unreimbursed business expenses of $2,500 for travel and entertainment in earning your foreign income, of which $500 was for meals and entertainment. Online 1040ez These expenses are deductible only as miscellaneous deductions on Schedule A (Form 1040). Online 1040ez You also have $500 of miscellaneous expenses that are not related to your foreign income that you enter on line 23 of Schedule A. Online 1040ez You must fill out Form 2106. Online 1040ez On that form, reduce your deductible meal and entertainment expenses by 50% ($250). Online 1040ez You must reduce the remaining $2,250 of travel and entertainment expenses by 80% ($1,800) because you excluded 80% ($97,600/$122,000) of your foreign earned income. Online 1040ez You carry the remaining total of $450 to line 21 of Schedule A. Online 1040ez Add the $450 to the $500 that you have on line 23 and enter the total ($950) on line 24. Online 1040ez On line 26 of Schedule A, enter $696, which is 2% of your adjusted gross income of $34,780 (line 38, Form 1040) and subtract it from the amount on line 24. Online 1040ez Enter $254 on line 27 of Schedule A. Online 1040ez Example 2. Online 1040ez You are a U. Online 1040ez S. Online 1040ez citizen, have a tax home in Spain, and meet the physical presence test. Online 1040ez You are self-employed and personal services produce the business income. Online 1040ez Your gross income was $116,931, business expenses $66,895, and net income (profit) $50,036. Online 1040ez You choose the foreign earned income exclusion and exclude $97,600 of your gross income. Online 1040ez Since your excluded income is 83. Online 1040ez 47% of your total income, 83. Online 1040ez 47% of your business expenses are not deductible. Online 1040ez Report your total income and expenses on Schedule C (Form 1040). Online 1040ez On Form 2555 you will show the following: Line 20a, $116,931, gross income, Lines 42 and 43, $97,600, foreign earned income exclusion, and Line 44, $55,837 (83. Online 1040ez 47% × $66,895) business expenses attributable to the exclusion. Online 1040ez In this situation (Example 2), you cannot use Form 2555-EZ since you had self-employment income and business expenses. Online 1040ez Example 3. Online 1040ez Assume in Example 2 that both capital and personal services combine to produce the business income. Online 1040ez No more than 30% of your net income, or $15,011, assuming that this amount is a reasonable allowance for your services, is considered earned and can be excluded. Online 1040ez Your exclusion of $15,011 is 12. Online 1040ez 84% of your gross income ($15,011 ÷ $116,931). Online 1040ez Because you excluded 12. Online 1040ez 84% of your total income, $8,589 (. Online 1040ez 1284 x $66,895) of your business expenses is attributable to the excluded income and is not deductible. Online 1040ez Example 4. Online 1040ez You are a U. Online 1040ez S. Online 1040ez citizen, have a tax home in Brazil, and meet the physical presence test. Online 1040ez You are self-employed and both capital and personal services combine to produce business income. Online 1040ez Your gross income was $146,000, business expenses were $172,000, and your net loss was $26,000. Online 1040ez A reasonable allowance for the services you performed for the business is $77,000. Online 1040ez Because you incurred a net loss, the earned income limit of 30% of your net profit does not apply. Online 1040ez The $77,000 is foreign earned income. Online 1040ez If you choose to exclude the $77,000, you exclude 52. Online 1040ez 74% of your gross income ($77,000 ÷ $146,000), and 52. Online 1040ez 74% of your business expenses ($90,713) is attributable to that income and is not deductible. Online 1040ez Show your total income and expenses on Schedule C (Form 1040). Online 1040ez On Form 2555, exclude $77,000 and show $90,713 on line 44. Online 1040ez Subtract line 44 from line 43, and enter the difference as a negative (in parentheses) on line 45. Online 1040ez Because this amount is negative, enter it as a positive (no parentheses) on line 21, Form 1040, and combine it with your other income to arrive at total income on line 22 of Form 1040. Online 1040ez In this situation (Example 4), you would probably not want to choose the foreign earned income exclusion if this was the first year you were eligible. Online 1040ez If you had chosen the exclusion in an earlier year, you might want to revoke the choice for this year. Online 1040ez To do so would mean that you could not claim the exclusion again for the next 5 tax years without IRS approval. Online 1040ez See Choosing the Exclusion in chapter 4. Online 1040ez Example 5. Online 1040ez You are a U. Online 1040ez S. Online 1040ez citizen, have a tax home in Panama, and meet the bona fide residence test. Online 1040ez You have been performing services for clients as a partner in a firm that provides services exclusively in Panama. Online 1040ez Capital investment is not material in producing the partnership's income. Online 1040ez Under the terms of the partnership agreement, you are to receive 50% of the net profits. Online 1040ez The partnership received gross income of $244,000 and incurred operating expenses of $98,250. Online 1040ez Of the net profits of $145,750, you received $72,875 as your distributive share. Online 1040ez You choose to exclude $97,600 of your share of the gross income. Online 1040ez Because you exclude 80% ($97,600 ÷ $122,000) of your share of the gross income, you cannot deduct $39,300, 80% of your share of the operating expenses (. Online 1040ez 80 × $49,125). Online 1040ez Report $72,875, your distributive share of the partnership net profit, on Schedule E (Form 1040), Supplemental Income and Loss. Online 1040ez On Form 2555, show $97,600 on line 42 and show $39,300 on line 44. Online 1040ez Your exclusion on Form 2555 is $58,300. Online 1040ez In this situation (Example 5), you cannot use Form 2555-EZ since you had earned income other than salaries and wages and you had business expenses. Online 1040ez Prev  Up  Next   Home   More Online Publications