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State Returns

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State Returns

State returns 3. State returns   Claiming the Special Depreciation Allowance Table of Contents Introduction What Is Qualified Property?Qualified Reuse and Recycling Property Qualified Cellulosic Biofuel Plant Property Qualified Disaster Assistance Property Certain Qualified Property Acquired After December 31, 2007 Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance How Much Can You Deduct? How Can You Elect Not To Claim an Allowance? When Must You Recapture an Allowance? Introduction You can take a special depreciation allowance to recover part of the cost of qualified property (defined next), placed in service during the tax year. State returns The allowance applies only for the first year you place the property in service. State returns For qualified property placed in service in 2013, you can take an additional 50% special allowance. State returns The allowance is an additional deduction you can take after any section 179 deduction and before you figure regular depreciation under MACRS for the year you place the property in service. State returns This chapter explains what is qualified property. State returns It also includes rules regarding how to figure an allowance, how to elect not to claim an allowance, and when you must recapture an allowance. State returns Corporations can elect to accelerate certain minimum tax credits in lieu of claiming the special depreciation allowance for eligible qualified property. State returns See Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance , later. State returns See chapter 6 for information about getting publications and forms. State returns What Is Qualified Property? Your property is qualified property if it is one of the following. State returns Qualified reuse and recycling property. State returns Qualified cellulosic biofuel plant property. State returns Qualified disaster assistance property. State returns Certain qualified property acquired after December 31, 2007. State returns The following discussions provide information about the types of qualified property listed above for which you can take the special depreciation allowance. State returns Qualified Reuse and Recycling Property You can take a 50% special depreciation allowance for qualified reuse and recycling property. State returns Qualified reuse and recycling property is any machinery or equipment (not including buildings or real estate), along with any appurtenance, that is used exclusively to collect, distribute, or recycle qualified reuse and recyclable materials (as defined in section 168(m)(3)(B) of the Internal Revenue Code). State returns Qualified reuse and recycling property also includes software necessary to operate such equipment. State returns The property must meet the following requirements. State returns The property must be depreciated under MACRS. State returns The property must have a useful life of at least 5 years. State returns The original use of the property must begin with you after August 31, 2008. State returns You must have acquired the property by purchase (as discussed under Property Acquired by Purchase in chapter 2 ) after August 31, 2008, with no binding written contract for the acquisition in effect before September 1, 2008. State returns The property must be placed in service for use in your trade or business after August 31, 2008. State returns Excepted Property Qualified reuse and recycling property does not include any of the following. State returns Any rolling stock or other equipment used to transport reuse or recyclable materials. State returns Property required to be depreciated using the Alternative Depreciation System (ADS). State returns For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . State returns Other bonus depreciation property to which section 168(k) of the Internal Revenue Code applies. State returns Property for which you elected not to claim any special depreciation allowance (discussed later). State returns Property placed in service and disposed of in the same tax year. State returns Property converted from business use to personal use in the same tax year acquired. State returns Property converted from personal use to business use in the same or later tax year may be qualified reuse and recycling property. State returns Qualified Cellulosic Biofuel Plant Property You can take a 50% special depreciation allowance for qualified cellulosic biofuel plant property. State returns Cellulosic biofuel is any liquid fuel which is produced from any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis. State returns Examples include bagasse (from sugar cane), corn stalks, and switchgrass. State returns The property must meet the following requirements. State returns The property is used in the United States solely to produce cellulosic biofuel. State returns The original use of the property must begin with you after December 20, 2006. State returns You must have acquired the property by purchase (as discussed under Property Acquired by Purchase in chapter 2 ) after December 20, 2006, with no binding written contract for acquisition in effect before December 21, 2006. State returns The property must be placed in service for use in your trade or business or for the production of income after October 3, 2008, and before January 3, 2013. State returns Note. State returns For property placed in service after January 2, 2013, and before January 1, 2014, you can take a 50% special depreciation allowance for qualified second generation biofuel plant property that is used solely in the United States to produce second generation biofuel (as defined in section 40(b)(6)(E)). State returns The other requirements for qualified second generation biofuel plant property to be eligible for the special depreciation allowance are identical to the requirements discussed for Qualified Cellulosic Biofuel Plant Property above. State returns Special Rules Sale-leaseback. State returns   If you sold qualified cellulosic biofuel plant property you placed in service after October 3, 2008, and leased it back within 3 months after you originally placed it in service, the property is treated as originally placed in service no earlier than the date it is used by you under the leaseback. State returns   The property will not qualify for the special allowance if the lessee or a related person to the lessee or lessor had a written binding contract in effect for the acquisition of the property before December 21, 2006. State returns Syndicated leasing transactions. State returns   If qualified cellulosic biofuel plant property is originally placed in service by a lessor after October 3, 2008, the property is sold within 3 months of the date it was placed in service, and the user of the property does not change, then the property is treated as originally placed in service by the taxpayer no earlier than the date of the last sale. State returns   Multiple units of property subject to the same lease will be treated as originally placed in service no earlier than the date of sale if the property is sold within 3 months after the final unit is placed in service and the period between the times the first and last units are placed in service does not exceed 12 months. State returns Excepted Property Qualified cellulosic biofuel plant property does not include any of the following. State returns Property placed in service and disposed of in the same tax year. State returns Property converted from business use to personal use in the same tax year it is acquired. State returns Property converted from personal use to business use in the same or later tax year may be qualified cellulosic biomass ethanol plant property. State returns Property required to be depreciated using the Alternative Depreciation System (ADS). State returns For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . State returns Property any portion of which is financed with the proceeds of any obligation the interest on which is exempt from tax under section 103 of the Internal Revenue Code. State returns Property for which you elected not to claim any special depreciation allowance (discussed later). State returns Property for which a deduction was taken under section 179C for certain qualified refinery property. State returns Other bonus depreciation property to which section 168(k) of the Internal Revenue Code applies. State returns Qualified Disaster Assistance Property You can take a 50% special depreciation allowance for qualified disaster assistance property placed in service in federally declared disaster areas in which the disaster occurred in 2009. State returns A list of the federally declared disaster areas is available at the FEMA website at www. State returns fema. State returns gov. State returns Your property is qualified disaster assistance property if it meets the following requirements. State returns The property is nonresidential real property or residential real property placed in service before January 1, 2014, in a federally declared disaster area in which the disaster occurred in 2009. State returns You must have acquired the property by purchase (as discussed under Property Acquired by Purchase in chapter 2 ) on or after the applicable disaster date, with no binding written contract for the acquisition in effect before the applicable disaster date. State returns The property must rehabilitate property damaged, or replace property destroyed or condemned, as a result of the applicable federally declared disaster. State returns The property must be similar in nature to, and located in the same county as, the rehabilitated or replaced property. State returns The original use of the property within the applicable disaster area must have begun with you on or after the applicable disaster date. State returns The property is placed in service by you on or before the date which is the last day of the fourth calendar year. State returns Substantially all (80% or more) of the use of the property must be in the active conduct of your trade or business in a federally declared disaster area, occurring in 2009. State returns It is not excepted property (explained later in Excepted Property ). State returns Special Rules Sale-leaseback. State returns   If you sold qualified disaster assistance property you placed in service after the applicable disaster date and leased it back within 3 months after you originally placed it in service, the property is treated as originally placed in service no earlier than the date it is used by you under the leaseback. State returns   The property will not qualify for the special allowance if the lessee or a related person to the lessee or lessor had a written binding contract in effect for the acquisition of the property before the applicable disaster date. State returns Syndicated leasing transactions. State returns   If qualified disaster assistance property is originally placed in service by a lessor after the applicable disaster date, the property is sold within 3 months of the date it was placed in service, and the user of the property does not change, then the property is treated as originally placed in service by the taxpayer no earlier than the date of the last sale. State returns   Multiple units of property subject to the same lease will be treated as originally placed in service no earlier than the date of sale if the property is sold within 3 months after the final unit is placed in service and the period between the times the first and last units are placed in service does not exceed 12 months. State returns Excepted Property Qualified disaster assistance property does not include any of the following. State returns Property required to be depreciated using the Alternative Depreciation System (ADS). State returns For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . State returns Property any portion of which is financed with the proceeds of a tax-exempt obligation under section 103 of the Internal Revenue Code. State returns Any qualified revitalization building (defined later) placed in service before January 1, 2010, for which you have elected to claim a commercial revitalization deduction for qualified revitalization expenditures. State returns Any property used in connection with any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, or any store, the principal business of which is the sale of alcoholic beverages for consumption off premises. State returns Any property for which the special allowance under section 168(k) or section 1400N(d) of the Internal Revenue Code applies. State returns Property for which you elected not to claim any special depreciation allowance (discussed later). State returns Property placed in service and disposed of in the same tax year. State returns Property converted from business use to personal use in the same tax year acquired. State returns Property converted from personal use to business use in the same or later tax year may be qualified disaster assistance property. State returns Any gambling or animal racing property (defined later). State returns Qualified revitalization building. State returns   This is a commercial building and its structural components that you placed in service in a renewal community before January 1, 2010. State returns If the building is new, the original use of the building must begin with you. State returns If the building is not new, you must substantially rehabilitate the building and then place it in service. State returns For more information, including definitions of substantially rehabilitated building and qualified revitalization expenditure, see section 1400I(b) of the Internal Revenue Code. State returns Gambling or animal racing property. State returns   Gambling or animal racing property includes the following personal and real property. State returns Any equipment, furniture, software, or other property used directly in connection with gambling, the racing of animals, or the on-site viewing of such racing. State returns Any real property determined by square footage (other than any portion that is less than 100 square feet) that is dedicated to gambling, the racing of animals, or the on-site viewing of such racing. State returns Certain Qualified Property Acquired After December 31, 2007 You can take a 50% special depreciation deduction allowance for certain qualified property acquired after December 31, 2007. State returns Your property is qualified property if it meets the following requirements. State returns It is one of the following types of property. State returns Tangible property depreciated under MACRS with a recovery period of 20 years or less. State returns Water utility property. State returns Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. State returns (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. State returns ) Qualified leasehold improvement property (defined under Qualified leasehold improvement property later). State returns You must have acquired the property after December 31, 2007, with no binding written contract for the acquisition in effect before January 1, 2008. State returns The property must be placed in service for use in your trade or business or for the production of income before January 1, 2014 (before January 1, 2015, for certain property with a long production period and certain aircraft (defined next)). State returns The original use of the property must begin with you after December 31, 2007. State returns It is not excepted property (explained later in Excepted property). State returns Qualified leasehold improvement property. State returns    Generally, this is any improvement to an interior part of a building that is nonresidential real property, if all the following requirements are met. State returns The improvement is made under or according to a lease by the lessee (or any sublessee) or the lessor of that part of the building. State returns That part of the building is to be occupied exclusively by the lessee (or any sublessee) of that part. State returns The improvement is placed in service more than 3 years after the date the building was first placed in service by any person. State returns The improvement is section 1250 property. State returns See chapter 3 in Publication 544, Sales and Other Dispositions of Assets, for the definition of section 1250 property. State returns   However, a qualified leasehold improvement does not include any improvement for which the expenditure is attributable to any of the following. State returns The enlargement of the building. State returns Any elevator or escalator. State returns Any structural component benefiting a common area. State returns The internal structural framework of the building. State returns   Generally, a binding commitment to enter into a lease is treated as a lease and the parties to the commitment are treated as the lessor and lessee. State returns However, a lease between related persons is not treated as a lease. State returns Related persons. State returns   For this purpose, the following are related persons. State returns Members of an affiliated group. State returns An individual and a member of his or her family, including only a spouse, child, parent, brother, sister, half-brother, half-sister, ancestor, and lineal descendant. State returns A corporation and an individual who directly or indirectly owns 80% or more of the value of the outstanding stock of that corporation. State returns Two corporations that are members of the same controlled group. State returns A trust fiduciary and a corporation if 80% or more of the value of the outstanding stock is directly or indirectly owned by or for the trust or grantor of the trust. State returns The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. State returns The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. State returns A tax-exempt educational or charitable organization and any person (or, if that person is an individual, a member of that person's family) who directly or indirectly controls the organization. State returns Two S corporations, and an S corporation and a regular corporation, if the same persons own 80% or more of the value of the outstanding stock of each corporation. State returns A corporation and a partnership if the same persons own both of the following. State returns 80% or more of the value of the outstanding stock of the corporation. State returns 80% or more of the capital or profits interest in the partnership. State returns The executor and beneficiary of any estate. State returns Long Production Period Property To be qualified property, long production period property must meet the following requirements. State returns It must meet the requirements in (2)-(5), above. State returns The property has a recovery period of at least 10 years or is transportation property. State returns Transportation property is tangible personal property used in the trade or business of transporting persons or property. State returns The property is subject to section 263A of the Internal Revenue Code. State returns The property has an estimated production period exceeding 1 year and an estimated production cost exceeding $1,000,000. State returns Noncommercial Aircraft To be qualified property, noncommercial aircraft must meet the following requirements. State returns It must meet the requirements in (2)-(5), above. State returns The aircraft must not be tangible personal property used in the trade or business of transporting persons or property (except for agricultural or firefighting purposes). State returns The aircraft must be purchased (as discussed under Property Acquired by Purchase in chapter 2 ) by a purchaser who at the time of the contract for purchase, makes a nonrefundable deposit of the lesser of 10% of the cost or $100,000. State returns The aircraft must have an estimated production period exceeding four months and a cost exceeding $200,000. State returns Special Rules Sale-leaseback. State returns   If you sold qualified property you placed in service after December 31, 2007, and leased it back within 3 months after you originally placed in service, the property is treated as originally placed in service no earlier than the date it is used by you under the leaseback. State returns   The property will not qualify for the special depreciation allowance if the lessee or a related person to the lessee or lessor had a written binding contract in effect for the acquisition of the property before January 1, 2008. State returns Syndicated leasing transactions. State returns   If qualified property is originally placed in service by a lessor after December 31, 2007, the property is sold within 3 months of the date it was placed in service, and the user of the property does not change, then the property is treated as originally placed in service by the taxpayer no earlier than the date of the last sale. State returns   Multiple units of property subject to the same lease will be treated as originally placed in service no earlier than the date of the last sale if the property is sold within 3 months after the final unit is placed in service and the period between the time the first and last units are placed in service does not exceed 12 months. State returns Excepted Property Qualified property does not include any of the following. State returns Property placed in service and disposed of in the same tax year. State returns Property converted from business use to personal use in the same tax year acquired. State returns Property converted from personal use to business use in the same or later tax year may be qualified property. State returns Property required to be depreciated under the Alternative Depreciation System (ADS). State returns This includes listed property used 50% or less in a qualified business use. State returns For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . State returns Qualified restaurant property (as defined in section 168(e)(7) of the Internal Revenue Code). State returns Qualified retail improvement property (as defined in section 168(e)(8) of the Internal Revenue Code). State returns Property for which you elected not to claim any special depreciation allowance (discussed later). State returns Property for which you elected to accelerate certain credits in lieu of the special depreciation allowance (discussed next). State returns Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance An election made by a corporation to claim pre-2006 unused minimum tax credits in lieu of claiming the special depreciation allowance for either its first tax year ending after March 31, 2008, its first tax year ending after December 31, 2008, or its first tax year ending after December 31, 2010, continues to apply to round 2 extension property (as defined in section 168(k)(4)(I)(iv)), unless the corporation made an election not to apply the section 168(k)(4) election to round 2 extension property for its first tax year ending after December 31, 2010. State returns For 2013, round 2 extension property generally is long production period and noncommercial aircraft if acquired after March 31, 2008, and placed in service after December 31, 2012, but before January 1, 2014. State returns An election made by a corporation to claim pre-2006 unused minimum tax credits in lieu of claiming the special depreciation allowance for either its first tax year ending after March 31, 2008, its first tax year ending after December 31, 2008, or its first tax year ending after December 31, 2010, continues to apply to round 3 extension property (as defined in section 168(k)(4)(J)(iv)), unless the corporation makes an election not to apply the section 168(k)(4) election to round 3 extension property. State returns If a corporation did not make a section 168(k)(4) election for either its first tax year ending after March 31, 2008, its first tax year ending after December 31, 2008, or its first tax year ending after December 31, 2010, the corporation may elect for its first tax year ending after December 31, 2012, to claim pre-2006 unused minimum tax credits in lieu of claiming the special depreciation allowance for only round 3 extension property. State returns If you make an election to accelerate these credits in lieu of claiming the special depreciation allowance for eligible property, you must not take the 50% special depreciation allowance for the property and must depreciate the basis in the property under MACRS using the straight line method. State returns See Which Depreciation Method Applies in chapter 4 . State returns Once made, the election cannot be revoked without IRS consent. State returns Additional guidance. State returns   For additional guidance on the election to accelerate the research or minimum tax credit in lieu of claiming the special depreciation allowance, see Rev. State returns Proc. State returns 2008-65 on page 1082 of Internal Revenue Bulletin 2008-44, available at www. State returns irs. State returns gov/pub/irs-irbs/irb08-44. State returns pdf, Rev. State returns Proc. State returns 2009-16 on page 449 of Internal Revenue Bulletin 2009-06, available at www. State returns irs. State returns gov/pub/irs-irbs/irb09-06. State returns pdf, and Rev. State returns Proc. State returns 2009-33 on page 150 of Internal Revenue Bulletin 2009-29, available at www. State returns irs. State returns gov/pub/irs-irbs/irb09-29. State returns pdf. State returns Also, see Form 3800, General Business Credit; Form 8827, Credit for Prior Year Minimum Tax — Corporations; and related instructions. State returns   Additional guidance regarding the election to accelerate the minimum tax credit in lieu of claiming the special depreciation allowance for round 2 extension property and round 3 extension property may also be available in later Internal Revenue Bulletins available at www. State returns irs. State returns gov/irb. State returns How Much Can You Deduct? Figure the special depreciation allowance by multiplying the depreciable basis of qualified reuse and recycling property, qualified cellulosic biofuel plant property, qualified disaster assistance property, and certain qualified property acquired after December 31, 2007, by 50%. State returns For qualified property other than listed property, enter the special allowance on line 14 in Part II of Form 4562. State returns For qualified property that is listed property, enter the special allowance on line 25 in Part V of Form 4562. State returns If you place qualified property in service in a short tax year, you can take the full amount of a special depreciation allowance. State returns Depreciable basis. State returns   This is the property's cost or other basis multiplied by the percentage of business/investment use, reduced by the total amount of any credits and deductions allocable to the property. State returns   The following are examples of some credits and deductions that reduce depreciable basis. State returns Any section 179 deduction. State returns Any deduction for removal of barriers to the disabled and the elderly. State returns Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. State returns Basis adjustment to investment credit property under section 50(c) of the Internal Revenue Code. State returns   For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. State returns   For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property in chapter 1 . State returns For a discussion of business/investment use, see Partial business or investment use under Property Used in Your Business or Income-Producing Activity in chapter 1 . State returns Depreciating the remaining cost. State returns   After you figure your special depreciation allowance for your qualified property, you can use the remaining cost to figure your regular MACRS depreciation deduction (discussed in chapter 4 . State returns Therefore, you must reduce the depreciable basis of the property by the special depreciation allowance before figuring your regular MACRS depreciation deduction. State returns Example. State returns On November 1, 2013, Tom Brown bought and placed in service in his business qualified property that cost $450,000. State returns He did not elect to claim a section 179 deduction. State returns He deducts 50% of the cost ($225,000) as a special depreciation allowance for 2013. State returns He uses the remaining $225,000 of cost to figure his regular MACRS depreciation deduction for 2013 and later years. State returns Like-kind exchanges and involuntary conversions. State returns   If you acquire qualified property in a like-kind exchange or involuntary conversion, the carryover basis of the acquired property is eligible for a special depreciation allowance. State returns After you figure your special allowance, you can use the remaining carryover basis to figure your regular MACRS depreciation deduction. State returns In the year you claim the allowance (the year you place in service the property received in the exchange or dispose of involuntarily converted property), you must reduce the carryover basis of the property by the allowance before figuring your regular MACRS depreciation deduction. State returns See Figuring the Deduction for Property Acquired in a Nontaxable Exchange , in chapter 4 under How Is the Depreciation Deduction Figured . State returns The excess basis (the part of the acquired property's basis that exceeds its carryover basis) is also eligible for a special depreciation allowance. State returns How Can You Elect Not To Claim an Allowance? You can elect, for any class of property, not to deduct any special allowances for all property in such class placed in service during the tax year. State returns To make an election, attach a statement to your return indicating what election you are making and the class of property for which you are making the election. State returns When to make election. State returns   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. State returns   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). State returns Attach the election statement to the amended return. State returns On the amended return, write “Filed pursuant to section 301. State returns 9100-2. State returns ” Revoking an election. State returns   Once you elect not to deduct a special depreciation allowance for a class of property, you cannot revoke the election without IRS consent. State returns A request to revoke the election is a request for a letter ruling. State returns If you elect not to have any special allowance apply, the property may be subject to an alternative minimum tax adjustment for depreciation. State returns When Must You Recapture an Allowance? When you dispose of property for which you claimed a special depreciation allowance, any gain on the disposition is generally recaptured (included in income) as ordinary income up to the amount of the special depreciation allowance previously allowed or allowable. State returns See When Do You Recapture MACRS Depreciation in chapter 4 or more information. State returns Recapture of allowance deducted for qualified GO Zone property. State returns   If, in any year after the year you claim the special depreciation allowance for qualified GO Zone property (including specified GO Zone extension property), the property ceases to be used in the GO Zone, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. State returns For additional guidance, see Notice 2008-25 on page 484 of Internal Revenue Bulletin 2008-9. State returns Qualified cellulosic biomass ethanol plant property and qualified cellulosic biofuel plant property. State returns   If, in any year after the year you claim the special depreciation allowance for any qualified cellulosic biomass ethanol plant property or qualified biofuel plant property, the property ceases to be qualified cellulosic biomass ethanol plant property or qualified biofuel plant property, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. State returns Recapture of allowance for qualified Recovery Assistance property. State returns   If, in any year after the year you claim the special depreciation allowance for qualified Recovery Assistance property, the property ceases to be used in the Kansas disaster area, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. State returns For additional guidance, see Notice 2008-67 on page 307 of Internal Revenue Bulletin 2008-32. State returns Recapture of allowance for qualified disaster assistance property. State returns   If, in any year after the year you claim the special depreciation allowance for qualified disaster assistance property, the property ceases to be used in the applicable disaster area, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. State returns   For additional guidance, see Notice 2008-67 on page 307 of Internal Revenue Bulletin 2008-32. State returns Prev  Up  Next   Home   More Online Publications
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Did you know life events like marriage, birth and divorce may have a significant tax impact?

Did you know that life events like marriage, divorce and retirement may have a significant tax impact? Organized by type of event, this page provides resources that explain the tax impact of each. 

Taxpayer Rights
 

From Birth through Childhood

 

Marriage

Divorce or Separations

Job Loss or Starting a new Career or Job

 

Disasters and Casualties

Persons with Disabilities

Planning for Retirement?

Mutual Fund Distributions

First-time Home Owner

Moving?

Bankruptcy

Decedents

  • Publication 559, Survivors, Executors and Administrators
  • Form 56, Notice Concerning Fiduciary Relationship
  • Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer
  • Form 4810, Request For Prompt Assessment Under Internal Revenue Code Section 6501(d)

Did you receive a Notice?

Filing or paying late - Information Taxpayers should know!

Many people today need more time to prepare their federal tax return. They may want to consider an  for time to file. However, extension of time to file a return does not grant any extension of time to pay a tax liability.

Additional Assistance

We want to remind military families that many of you may also qualify for EITC.

News Releases and Tax Tips


 

Page Last Reviewed or Updated: 18-Feb-2014

The State Returns

State returns 3. State returns   Exclusions From Gross Income Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Resident AliensForeign Earned Income and Housing Amount Nonresident AliensInterest Income Dividend Income Services Performed for Foreign Employer Gambling Winnings From Dog or Horse Racing Gain From the Sale of Your Main Home Scholarships and Fellowship GrantsExpenses that do not qualify. State returns Introduction Resident and nonresident aliens are allowed exclusions from gross income if they meet certain conditions. State returns An exclusion from gross income is generally income you receive that is not included in your U. State returns S. State returns income and is not subject to U. State returns S. State returns tax. State returns This chapter covers some of the more common exclusions allowed to resident and nonresident aliens. State returns Topics - This chapter discusses: Nontaxable interest, Nontaxable dividends, Certain compensation paid by a foreign employer, Gain from sale of home, and Scholarships and fellowship grants. State returns Useful Items - You may want to see: Publication 54 Tax Guide for U. State returns S. State returns Citizens and Resident Aliens Abroad 523 Selling Your Home See chapter 12 for information about getting these publications. State returns Resident Aliens Resident aliens may be able to exclude the following items from their gross income. State returns Foreign Earned Income and Housing Amount If you are physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months, you may qualify for the foreign earned income exclusion. State returns The exclusion is $97,600 in 2013. State returns In addition, you may be able to exclude or deduct certain foreign housing amounts. State returns You may also qualify if you are a bona fide resident of a foreign country and you are a citizen or national of a country with which the United States has an income tax treaty. State returns For more information, see Publication 54. State returns Foreign country. State returns    A foreign country is any territory under the sovereignty of a government other than that of the United States. State returns   The term “foreign country” includes the country's territorial waters and airspace, but not international waters and the airspace above them. State returns It also includes the seabed and subsoil of those submarine areas adjacent to the country's territorial waters over which it has exclusive rights under international law to explore and exploit the natural resources. State returns   The term “foreign country” does not include U. State returns S. State returns possessions or territories. State returns It does not include the Antarctic region. State returns Nonresident Aliens Nonresident aliens can exclude the following items from their gross income. State returns Interest Income Interest income that is not connected with a U. State returns S. State returns trade or business is excluded from income if it is from: Deposits (including certificates of deposit) with persons in the banking business, Deposits or withdrawable accounts with mutual savings banks, cooperative banks, credit unions, domestic building and loan associations, and other savings institutions chartered and supervised as savings and loan or similar associations under federal or state law (if the interest paid or credited can be deducted by the association), and Amounts held by an insurance company under an agreement to pay interest on them. State returns State and local government obligations. State returns   Interest on obligations of a state or political subdivision, the District of Columbia, or a U. State returns S. State returns possession, generally is not included in income. State returns However, interest on certain private activity bonds, arbitrage bonds, and certain bonds not in registered form is included in income. State returns Portfolio interest. State returns   Interest and original issue discount that qualifies as portfolio interest is not subject to NRA withholding. State returns To qualify as portfolio interest, the interest must be paid on obligations issued after July 18, 1984, and otherwise subject to NRA withholding. State returns Note. State returns For obligations issued after March 18, 2012, portfolio interest does not include interest paid on debt that is not in registered form. State returns Before March 19, 2012, portfolio interest included interest on certain registered and nonregistered (bearer) bonds if the obligations meet the requirements described below. State returns Obligations in registered form. State returns   Portfolio interest includes interest paid on an obligation that is in registered form, and for which you have received documentation that the beneficial owner of the obligation is not a United States person. State returns   Generally, an obligation is in registered form if: (i) the obligation is registered as to both principal and any stated interest with the issuer (or its agent) and any transfer of the obligation may be effected only by surrender of the old obligation and reissuance to the new holder; (ii) the right to principal and stated interest with respect to the obligation may be transferred only through a book entry system maintained by the issuer or its agent; or (iii) the obligation is registered as to both principal and stated interest with the issuer or its agent and can be transferred both by surrender and reissuance and through a book entry system. State returns   An obligation that would otherwise be considered to be in registered form is not considered to be in registered form as of a particular time if it can be converted at any time in the future into an obligation that is not in registered form. State returns For more information on whether obligations are considered to be in registered form, see Portfolio interest in Publication 515. State returns Obligations not in registered form. State returns    For obligations issued before March 19, 2012, interest on an obligation that is not in registered form (bearer obligation) is portfolio interest if the obligation is foreign-targeted. State returns A bearer obligation is foreign-targeted if: There are arrangements to ensure that the obligation will be sold, or resold in connection with the original issue, only to a person who is not a United States person, Interest on the obligation is payable only outside the United States and its possessions, and The face of the obligation contains a statement that any United States person who holds the obligation will be subject to limits under the United States income tax laws. State returns   Documentation is not required for interest on bearer obligations to qualify as portfolio interest. State returns In some cases, however, you may need documentation for purposes of Form 1099 reporting and backup withholding. State returns Interest that does not qualify as portfolio interest. State returns   Payments to certain persons and payments of contingent interest do not qualify as portfolio interest. State returns You must withhold at the statutory rate on such payments unless some other exception, such as a treaty provision, applies. State returns Contingent interest. State returns   Portfolio interest does not include contingent interest. State returns Contingent interest is either of the following: Interest that is determined by reference to: Any receipts, sales, or other cash flow of the debtor or related person, Income or profits of the debtor or related person, Any change in value of any property of the debtor or a related person, or Any dividend, partnership distributions, or similar payments made by the debtor or a related person. State returns For exceptions, see Internal Revenue Code section 871(h)(4)(C). State returns Any other type of contingent interest that is identified by the Secretary of the Treasury in regulations. State returns Related persons. State returns   Related persons include the following. State returns Members of a family, including only brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. State returns ), and lineal descendants (children, grandchildren, etc. State returns ). State returns Any person who is a party to any arrangement undertaken for the purpose of avoiding the contingent interest rules. State returns Certain corporations, partnerships, and other entities. State returns For details, see Nondeductible Loss in chapter 2 of Publication 544. State returns Exception for existing debt. State returns   Contingent interest does not include interest paid or accrued on any debt with a fixed term that was issued: On or before April 7, 1993, or After April 7, 1993, pursuant to a written binding contract in effect on that date and at all times thereafter before that debt was issued. State returns Dividend Income The following dividend income is exempt from the 30% tax. State returns Certain dividends paid by foreign corporations. State returns   There is no 30% tax on U. State returns S. State returns source dividends you receive from a foreign corporation. State returns See Second exception under Dividends in chapter 2 for how to figure the amount of U. State returns S. State returns source dividends. State returns Certain interest-related dividends. State returns   There is no 30% tax on interest-related dividends from sources within the United States that you receive from a mutual fund or other regulated investment company in 2013. State returns The mutual fund will designate in writing which dividends are interest-related dividends. State returns Certain short-term capital gain dividends. State returns   There may not be any 30% tax on certain short-term capital gain dividends from sources within the United States that you receive from a mutual fund or other regulated investment company. State returns The mutual fund will designate in writing which dividends are short-term capital gain dividends. State returns This tax relief will not apply to you if you are present in the United States for 183 days or more during your tax year. State returns Services Performed for Foreign Employer If you were paid by a foreign employer, your U. State returns S. State returns source income may be exempt from U. State returns S. State returns tax, but only if you meet one of the situations discussed next. State returns Employees of foreign persons, organizations, or offices. State returns   Income for personal services performed in the United States as a nonresident alien is not considered to be from U. State returns S. State returns sources and is tax exempt if you meet all three of the following conditions. State returns You perform personal services as an employee of or under a contract with a nonresident alien individual, foreign partnership, or foreign corporation, not engaged in a trade or business in the United States; or you work for an office or place of business maintained in a foreign country or possession of the United States by a U. State returns S. State returns corporation, a U. State returns S. State returns partnership, or a U. State returns S. State returns citizen or resident. State returns You perform these services while you are a nonresident alien temporarily present in the United States for a period or periods of not more than a total of 90 days during the tax year. State returns Your pay for these services is not more than $3,000. State returns If you do not meet all three conditions, your income from personal services performed in the United States is U. State returns S. State returns source income and is taxed according to the rules in chapter 4. State returns   If your pay for these services is more than $3,000, the entire amount is income from a trade or business within the United States. State returns To find if your pay is more than $3,000, do not include any amounts you get from your employer for advances or reimbursements of business travel expenses, if you were required to and did account to your employer for those expenses. State returns If the advances or reimbursements are more than your expenses, include the excess in your pay for these services. State returns   A day means a calendar day during any part of which you are physically present in the United States. State returns Example 1. State returns During 2013, Henry Smythe, a nonresident alien from a nontreaty country, worked for an overseas office of a U. State returns S. State returns partnership. State returns Henry, who uses the calendar year as his tax year, was temporarily present in the United States for 60 days during 2013 performing personal services for the overseas office of the partnership. State returns That office paid him a total gross salary of $2,800 for those services. State returns During 2013, he was not engaged in a trade or business in the United States. State returns The salary is not considered U. State returns S. State returns source income and is exempt from U. State returns S. State returns tax. State returns Example 2. State returns The facts are the same as in Example 1, except that Henry's total gross salary for the services performed in the United States during 2013 was $4,500. State returns He received $2,875 in 2013, and $1,625 in 2014. State returns During 2013, he was engaged in a trade or business in the United States because the compensation for his personal services in the United States was more than $3,000. State returns Henry's salary is U. State returns S. State returns source income and is taxed under the rules in chapter 4. State returns Crew members. State returns   Compensation for services performed by a nonresident alien in connection with the individual's temporary presence in the United States as a regular crew member of a foreign vessel (for example, a boat or ship) engaged in transportation between the United States and a foreign country or U. State returns S. State returns possession is not U. State returns S. State returns source income and is exempt from U. State returns S. State returns tax. State returns This exemption does not apply to compensation for services performed on foreign aircraft. State returns Students and exchange visitors. State returns   Nonresident alien students and exchange visitors present in the United States under “F,” “J,” or “Q” visas can exclude from gross income pay received from a foreign employer. State returns   This group includes bona fide students, scholars, trainees, teachers, professors, research assistants, specialists, or leaders in a field of specialized knowledge or skill, or persons of similar description. State returns It also includes the alien's spouse and minor children if they come with the alien or come later to join the alien. State returns   A nonresident alien temporarily present in the United States under a “J” visa includes an alien individual entering the United States as an exchange visitor under the Mutual Educational and Cultural Exchange Act of 1961. State returns Foreign employer. State returns   A foreign employer is: A nonresident alien individual, foreign partnership, or foreign corporation, or An office or place of business maintained in a foreign country or in a U. State returns S. State returns possession by a U. State returns S. State returns corporation, a U. State returns S. State returns partnership, or an individual who is a U. State returns S. State returns citizen or resident. State returns   The term “foreign employer” does not include a foreign government. State returns Pay from a foreign government that is exempt from U. State returns S. State returns income tax is discussed in chapter 10. State returns Income from certain annuities. State returns   Do not include in income any annuity received under a qualified annuity plan or from a qualified trust exempt from U. State returns S. State returns income tax if you meet both of the following conditions. State returns You receive the annuity only because: You performed personal services outside the United States while you were a nonresident alien, or You performed personal services inside the United States while you were a nonresident alien and you met the three conditions, described earlier, under Employees of foreign persons, organizations, or offices . State returns At the time the first amount is paid as an annuity under the plan (or by the trust), 90% or more of the employees for whom contributions or benefits are provided under the annuity plan (or under the plan of which the trust is a part) are U. State returns S. State returns citizens or residents. State returns   If the annuity qualifies under condition (1) but not condition (2) above, you do not have to include the amount in income if: You are a resident of a country that gives a substantially equal exclusion to U. State returns S. State returns citizens and residents, or You are a resident of a beneficiary developing country under Title V of the Trade Act of 1974. State returns   If you are not sure whether the annuity is from a qualified annuity plan or qualified trust, ask the person who made the payment. State returns Income affected by treaties. State returns   Income of any kind that is exempt from U. State returns S. State returns tax under a treaty to which the United States is a party is excluded from your gross income. State returns Income on which the tax is only limited by treaty, however, is included in gross income. State returns See chapter 9. State returns Gambling Winnings From Dog or Horse Racing You can exclude from your gross income winnings from legal wagers initiated outside the United States in a parimutuel pool with respect to a live horse or dog race in the United States. State returns Gain From the Sale of Your Main Home If you sold your main home, you may be able to exclude up to $250,000 of the gain on the sale of your home. State returns If you are married and file a joint return, you may be able to exclude up to $500,000. State returns For information on the requirements for this exclusion, see Publication 523. State returns This exclusion does not apply to nonresident aliens who are subject to the expatriation tax rules discussed in chapter 4. State returns Scholarships and Fellowship Grants If you are a candidate for a degree, you may be able to exclude from your income part or all of the amounts you receive as a qualified scholarship. State returns The rules discussed here apply to both resident and nonresident aliens. State returns If a nonresident alien receives a grant that is not from U. State returns S. State returns sources, it is not subject to U. State returns S. State returns tax. State returns See Scholarships, Grants, Prizes, and Awards in chapter 2 to determine whether your grant is from U. State returns S. State returns sources. State returns A scholarship or fellowship is excludable from income only if: You are a candidate for a degree at an eligible educational institution, and You use the scholarship or fellowship to pay qualified education expenses. State returns Candidate for a degree. State returns   You are a candidate for a degree if you: Attend a primary or secondary school or are pursuing a degree at a college or university, or Attend an accredited educational institution that is authorized to provide: A program that is acceptable for full credit toward a bachelor's or higher degree, or A program of training to prepare students for gainful employment in a recognized occupation. State returns Eligible educational institution. State returns   An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. State returns Qualified education expenses. State returns   These are expenses for: Tuition and fees required to enroll at or attend an eligible educational institution, and Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. State returns These items must be required of all students in your course of instruction. State returns However, in order for these to be qualified education expenses, the terms of the scholarship or fellowship cannot require that it be used for other purposes, such as room and board, or specify that it cannot be used for tuition or course-related expenses. State returns Expenses that do not qualify. State returns   Qualified education expenses do not include the cost of: Room and board, Travel, Research, Clerical help, or Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution. State returns This is true even if the fee must be paid to the institution as a condition of enrollment or attendance. State returns Scholarship or fellowship amounts used to pay these costs are taxable. State returns Amounts used to pay expenses that do not qualify. State returns   A scholarship amount used to pay any expense that does not qualify is taxable, even if the expense is a fee that must be paid to the institution as a condition of enrollment or attendance. State returns Payment for services. State returns   You cannot exclude from income the portion of any scholarship, fellowship, or tuition reduction that represents payment for past, present, or future teaching, research, or other services. State returns This is true even if all candidates for a degree are required to perform the services as a condition for receiving the degree. State returns Example. State returns On January 7, Maria Gomez is notified of a scholarship of $2,500 for the spring semester. State returns As a condition for receiving the scholarship, Maria must serve as a part-time teaching assistant. State returns Of the $2,500 scholarship, $1,000 represents payment for her services. State returns Assuming that Maria meets all other conditions, she can exclude no more than $1,500 from income as a qualified scholarship. State returns Prev  Up  Next   Home   More Online Publications