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Tax Slayer 2011

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Tax Slayer 2011

Tax slayer 2011 37. Tax slayer 2011   Other Credits Table of Contents What's New Introduction Useful Items - You may want to see: Nonrefundable CreditsAdoption Credit Alternative Motor Vehicle Credit Alternative Fuel Vehicle Refueling Property Credit Credit to Holders of Tax Credit Bonds Foreign Tax Credit Mortgage Interest Credit Nonrefundable Credit for Prior Year Minimum Tax Plug-in Electric Drive Motor Vehicle Credit Residential Energy Credits Retirement Savings Contributions Credit (Saver's Credit) Refundable CreditsCredit for Tax on Undistributed Capital Gain Health Coverage Tax Credit Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld What's New Adoption credit. Tax slayer 2011  The maximum adoption credit is $12,970 for 2013. Tax slayer 2011 See Adoption Credit . Tax slayer 2011 Plug-in electric vehicle credit. Tax slayer 2011  This credit has expired. Tax slayer 2011 Credit for prior year minimum tax. Tax slayer 2011  The refundable portion of the credit for prior year minimum tax has expired. Tax slayer 2011 Excess withholding of social security and railroad retirement tax. Tax slayer 2011  Social security tax and tier 1 railroad retirement (RRTA) tax were both withheld during 2013 at a rate of 6. Tax slayer 2011 2% of wages up to $113,700. Tax slayer 2011 If you worked for more than one employer and had too much social security or RRTA tax withheld during 2013, you may be entitled to a credit for the excess withholding. Tax slayer 2011 See Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld . Tax slayer 2011 Introduction This chapter discusses the following nonrefundable credits. Tax slayer 2011 Adoption credit. Tax slayer 2011 Alternative motor vehicle credit. Tax slayer 2011 Alternative fuel vehicle refueling property credit. Tax slayer 2011 Credit to holders of tax credit bonds. Tax slayer 2011 Foreign tax credit. Tax slayer 2011 Mortgage interest credit. Tax slayer 2011 Nonrefundable credit for prior year minimum tax. Tax slayer 2011 Plug-in electric drive motor vehicle credit. Tax slayer 2011 Residential energy credits. Tax slayer 2011 Retirement savings contributions credit. Tax slayer 2011 This chapter also discusses the following refundable credits. Tax slayer 2011 Credit for tax on undistributed capital gain. Tax slayer 2011 Health coverage tax credit. Tax slayer 2011 Credit for excess social security tax or railroad retirement tax withheld. Tax slayer 2011 Several other credits are discussed in other chapters in this publication. Tax slayer 2011 Child and dependent care credit (chapter 32). Tax slayer 2011 Credit for the elderly or the disabled (chapter 33). Tax slayer 2011 Child tax credit (chapter 34). Tax slayer 2011 Education credits (chapter 35). Tax slayer 2011 Earned income credit (chapter 36). Tax slayer 2011 Nonrefundable credits. Tax slayer 2011   The first part of this chapter, Nonrefundable Credits , covers ten credits that you subtract from your tax. Tax slayer 2011 These credits may reduce your tax to zero. Tax slayer 2011 If these credits are more than your tax, the excess is not refunded to you. Tax slayer 2011 Refundable credits. Tax slayer 2011   The second part of this chapter, Refundable Credits , covers three credits that are treated as payments and are refundable to you. Tax slayer 2011 These credits are added to the federal income tax withheld and any estimated tax payments you made. Tax slayer 2011 If this total is more than your total tax, the excess will be refunded to you. Tax slayer 2011 Useful Items - You may want to see: Publication 502 Medical and Dental Expenses 514 Foreign Tax Credit for  Individuals 530 Tax Information for Homeowners 590 Individual Retirement Arrangements (IRAs) Form (and Instructions) 1116 Foreign Tax Credit 2439 Notice to Shareholder of Undistributed Long-Term Capital Gains 5695 Residential Energy Credits 8396 Mortgage Interest Credit 8801 Credit For Prior Year Minimum Tax — Individuals, Estates, and Trusts 8828 Recapture of Federal Mortgage Subsidy 8839 Qualified Adoption Expenses 8880 Credit for Qualified Retirement Savings Contributions 8885 Health Coverage Tax Credit 8910 Alternative Motor Vehicle Credit 8911 Alternative Fuel Vehicle Refueling Property Credit 8912 Credit to Holders of Tax Credit Bonds 8936 Qualified Plug-in Electric Drive Motor Vehicle Credit Nonrefundable Credits The credits discussed in this part of the chapter can reduce your tax. Tax slayer 2011 However, if the total of these credits is more than your tax, the excess is not refunded to you. Tax slayer 2011 Adoption Credit You may be able to take a tax credit of up to $12,970 for qualified expenses paid to adopt an eligible child. Tax slayer 2011 The credit may be allowed for the adoption of a child with special needs even if you do not have any qualified expenses. Tax slayer 2011 If your modified adjusted gross income (AGI) is more than $194,580, your credit is reduced. Tax slayer 2011 If your modified AGI is $234,580 or more, you cannot take the credit. Tax slayer 2011 Qualified adoption expenses. Tax slayer 2011   Qualified adoption expenses are reasonable and necessary expenses directly related to, and whose principal purpose is for, the legal adoption of an eligible child. Tax slayer 2011 These expenses include: Adoption fees, Court costs, Attorney fees, Travel expenses (including amounts spent for meals and lodging) while away from home, and Re-adoption expenses to adopt a foreign child. Tax slayer 2011 Nonqualified expenses. Tax slayer 2011   Qualified adoption expenses do not include expenses: That violate state or federal law, For carrying out any surrogate parenting arrangement, For the adoption of your spouse's child, For which you received funds under any federal, state, or local program, Allowed as a credit or deduction under any other federal income tax rule, or Paid or reimbursed by your employer or any other person or organization. Tax slayer 2011 Eligible child. Tax slayer 2011   The term “eligible child” means any individual: Under 18 years old, or Physically or mentally incapable of caring for himself or herself. Tax slayer 2011 Child with special needs. Tax slayer 2011   An eligible child is a child with special needs if all three of the following apply. Tax slayer 2011 The child was a citizen or resident of the United States (including U. Tax slayer 2011 S. Tax slayer 2011 possessions) at the time the adoption process began. Tax slayer 2011 A state (including the District of Columbia) has determined that the child cannot or should not be returned to his or her parents' home. Tax slayer 2011 The state has determined that the child will not be adopted unless assistance is provided to the adoptive parents. Tax slayer 2011 Factors used by states to make this determination include: The child's ethnic background, The child's age, Whether the child is a member of a minority or sibling group, and Whether the child has a medical condition or a physical, mental, or emotional handicap. Tax slayer 2011 When to take the credit. Tax slayer 2011   Generally, until the adoption becomes final, you take the credit in the year after your qualified expenses were paid or incurred. Tax slayer 2011 If the adoption becomes final, you take the credit in the year your expenses were paid or incurred. Tax slayer 2011 See the Instructions for Form 8839 for more specific information on when to take the credit. Tax slayer 2011 Foreign child. Tax slayer 2011   If the child is not a U. Tax slayer 2011 S. Tax slayer 2011 citizen or resident at the time the adoption process began, you cannot take the credit unless the adoption becomes final. Tax slayer 2011 You treat all adoption expenses paid or incurred in years before the adoption becomes final as paid or incurred in the year it becomes final. Tax slayer 2011 How to take the credit. Tax slayer 2011   Figure your 2013 nonrefundable credit and any carryforward to 2014 on Form 8839 and attach it to your Form 1040. Tax slayer 2011 Include the credit in your total for Form 1040, line 53. Tax slayer 2011 Check box c and enter “8839” on the line next to that box. Tax slayer 2011 More information. Tax slayer 2011   For more information, see the Instructions for Form 8839. Tax slayer 2011 Alternative Motor Vehicle Credit You may be able to take this credit if you place a qualified fuel cell vehicle in service in 2013. Tax slayer 2011 Amount of credit. Tax slayer 2011   Generally, you can rely on the manufacturer's certification to the IRS that a specific make, model, and model year vehicle qualifies for the credit and the amount of the credit for which it qualifies. Tax slayer 2011 In the case of a foreign manufacturer, you generally can rely on its domestic distributor's certification to the IRS. Tax slayer 2011   Ordinarily the amount of the credit is 100% of the manufacturer's (or domestic distributor's) certification to the IRS of the maximum credit allowable. Tax slayer 2011 How to take the credit. Tax slayer 2011   To take the credit, you must complete Form 8910 and attach it to your Form 1040. Tax slayer 2011 Include the credit in your total for Form 1040, line 53. Tax slayer 2011 Check box c and enter “8910” on the line next to that box. Tax slayer 2011 More information. Tax slayer 2011   For more information on the credit, see the Instructions for Form 8910. Tax slayer 2011 Alternative Fuel Vehicle Refueling Property Credit You may be able to take a credit if you place qualified alternative fuel vehicle refueling property in service in 2013. Tax slayer 2011 Qualified alternative fuel vehicle refueling property. Tax slayer 2011   Qualified alternative fuel vehicle refueling property is any property (other than a building or its structural components) used for either of the following. Tax slayer 2011 To store or dispense alternative fuel into the fuel tank of a motor vehicle propelled by the fuel, but only if the storage or dispensing is at the point where the fuel is delivered into that tank. Tax slayer 2011 To recharge an electric vehicle, but only if the recharging property is located at the point where the vehicle is recharged. Tax slayer 2011   The following are alternative fuels. Tax slayer 2011 Any fuel at least 85% of the volume of which consists of one or more of the following: ethanol, natural gas, compressed natural gas, liquefied natural gas, liquefied petroleum gas, or hydrogen. Tax slayer 2011 Any mixture which consists of two or more of the following: biodiesel, diesel fuel, or kerosene, and at least 20% of the volume of which consists of biodiesel determined without regard to any kerosene. Tax slayer 2011 Electricity. Tax slayer 2011 Amount of the credit. Tax slayer 2011   For personal use property, the credit is generally the smaller of 30% of the property's cost or $1,000. Tax slayer 2011 For business use property, the credit is generally the smaller of 30% of the property's cost or $30,000. Tax slayer 2011 How to take the credit. Tax slayer 2011   To take the credit, you must complete Form 8911 and attach it to your Form 1040. Tax slayer 2011 Include the credit in your total for Form 1040, line 53. Tax slayer 2011 Check box c and enter “8911” on the line next to that box. Tax slayer 2011 More information. Tax slayer 2011   For more information on the credit, see the Form 8911 instructions. Tax slayer 2011 Credit to Holders of Tax Credit Bonds Tax credit bonds are bonds in which the holder receives a tax credit in lieu of some or all of the interest on the bond. Tax slayer 2011 You may be able to take a credit if you are a holder of one of the following bonds. Tax slayer 2011 Clean renewable energy bonds (issued before 2010). Tax slayer 2011 New clean renewable energy bonds. Tax slayer 2011 Qualified energy conservation bonds. Tax slayer 2011 Qualified school construction bonds. Tax slayer 2011 Qualified zone academy bonds. Tax slayer 2011 Build America bonds. Tax slayer 2011 In some instances, an issuer may elect to receive a credit for interest paid on the bond. Tax slayer 2011 If the issuer makes this election, you cannot also claim a credit. Tax slayer 2011 Interest income. Tax slayer 2011   The amount of any tax credit allowed (figured before applying tax liability limits) must be included as interest income on your tax return. Tax slayer 2011 How to take the credit. Tax slayer 2011   Complete Form 8912 and attach it to your Form 1040. Tax slayer 2011 Include the credit in your total for Form 1040, line 53. Tax slayer 2011 Check box c and enter “8912” on the line next to that box. Tax slayer 2011 More information. Tax slayer 2011   For more information, see the Instructions for Form 8912. Tax slayer 2011 Foreign Tax Credit You generally can choose to take income taxes you paid or accrued during the year to a foreign country or U. Tax slayer 2011 S. Tax slayer 2011 possession as a credit against your U. Tax slayer 2011 S. Tax slayer 2011 income tax. Tax slayer 2011 Or, you can deduct them as an itemized deduction (see chapter 22). Tax slayer 2011 You cannot take a credit (or deduction) for foreign income taxes paid on income that you exclude from U. Tax slayer 2011 S. Tax slayer 2011 tax under any of the following. Tax slayer 2011 Foreign earned income exclusion. Tax slayer 2011 Foreign housing exclusion. Tax slayer 2011 Income from Puerto Rico exempt from U. Tax slayer 2011 S. Tax slayer 2011 tax. Tax slayer 2011 Possession exclusion. Tax slayer 2011 Limit on the credit. Tax slayer 2011   Unless you can elect not to file Form 1116 (see Exception , later), your foreign tax credit cannot be more than your U. Tax slayer 2011 S. Tax slayer 2011 tax liability (Form 1040, line 44), multiplied by a fraction. Tax slayer 2011 The numerator of the fraction is your taxable income from sources outside the United States. Tax slayer 2011 The denominator is your total taxable income from U. Tax slayer 2011 S. Tax slayer 2011 and foreign sources. Tax slayer 2011 See Publication 514 for more information. Tax slayer 2011 How to take the credit. Tax slayer 2011   Complete Form 1116 and attach it to your Form 1040. Tax slayer 2011 Enter the credit on Form 1040, line 47. Tax slayer 2011 Exception. Tax slayer 2011   You do not have to complete Form 1116 to take the credit if all of the following apply. Tax slayer 2011 All of your gross foreign source income was from interest and dividends and all of that income and the foreign tax paid on it were reported to you on Form 1099-INT, Form 1099-DIV, or Schedule K-1 (or substitute statement). Tax slayer 2011 If you had dividend income from shares of stock, you held those shares for at least 16 days. Tax slayer 2011 You are not filing Form 4563 or excluding income from sources within Puerto Rico. Tax slayer 2011 The total of your foreign taxes was not more than $300 (not more than $600 if married filing jointly). Tax slayer 2011 All of your foreign taxes were: Legally owed and not eligible for a refund, and Paid to countries that are recognized by the United States and do not support terrorism. Tax slayer 2011 More information. Tax slayer 2011   For more information on the credit and these requirements, see the Instructions for Form 1116. Tax slayer 2011 Mortgage Interest Credit The mortgage interest credit is intended to help lower-income individuals own a home. Tax slayer 2011 If you qualify, you can take the credit each year for part of the home mortgage interest you pay. Tax slayer 2011 Who qualifies. Tax slayer 2011   You may be eligible for the credit if you were issued a qualified mortgage credit certificate (MCC) from your state or local government. Tax slayer 2011 Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home. Tax slayer 2011 Amount of credit. Tax slayer 2011   Figure your credit on Form 8396. Tax slayer 2011 If your mortgage loan amount is equal to (or smaller than) the certified indebtedness (loan) amount shown on your MCC, enter on Form 8396, line 1, all the interest you paid on your mortgage during the year. Tax slayer 2011   If your mortgage loan amount is larger than the certified indebtedness amount shown on your MCC, you can figure the credit on only part of the interest you paid. Tax slayer 2011 To find the amount to enter on line 1, multiply the total interest you paid during the year on your mortgage by the following fraction. Tax slayer 2011      Certified indebtedness amount on your MCC     Original amount of your mortgage   Limit based on credit rate. Tax slayer 2011   If the certificate credit rate is more than 20%, the credit you are allowed cannot be more than $2,000. Tax slayer 2011 If two or more persons (other than a married couple filing a joint return) hold an interest in the home to which the MCC relates, this $2,000 limit must be divided based on the interest held by each person. Tax slayer 2011 See Publication 530 for more information. Tax slayer 2011 Carryforward. Tax slayer 2011   Your credit (after applying the limit based on the credit rate) is also subject to a limit based on your tax that is figured using Form 8396. Tax slayer 2011 If your allowable credit is reduced because of this tax liability limit, you can carry forward the unused portion of the credit to the next 3 years or until used, whichever comes first. Tax slayer 2011   If you are subject to the $2,000 limit because your certificate credit rate is more than 20%, you cannot carry forward any amount more than $2,000 (or your share of the $2,000 if you must divide the credit). Tax slayer 2011 How to take the credit. Tax slayer 2011    Figure your 2013 credit and any carryforward to 2014 on Form 8396, and attach it to your Form 1040. Tax slayer 2011 Be sure to include any credit carryforward from 2010, 2011, and 2012. Tax slayer 2011   Include the credit in your total for Form 1040, line 53. Tax slayer 2011 Check box c and enter “8396” on the line next to that box. Tax slayer 2011 Reduced home mortgage interest deduction. Tax slayer 2011   If you itemize your deductions on Schedule A (Form 1040), you must reduce your home mortgage interest deduction by the amount of the mortgage interest credit shown on Form 8396, line 3. Tax slayer 2011 You must do this even if part of that amount is to be carried forward to 2014. Tax slayer 2011 For more information about the home mortgage interest deduction, see chapter 23. Tax slayer 2011 Recapture of federal mortgage subsidy. Tax slayer 2011   If you received an MCC with your mortgage loan, you may have to recapture (pay back) all or part of the benefit you received from that program. Tax slayer 2011 The recapture may be required if you sell or dispose of your home at a gain during the first 9 years after the date you closed your mortgage loan. Tax slayer 2011 See the Instructions for Form 8828 and chapter 15 for more information. Tax slayer 2011 More information. Tax slayer 2011   For more information on the credit, see the Form 8396 instructions. Tax slayer 2011 Nonrefundable Credit for Prior Year Minimum Tax The tax laws give special treatment to some kinds of income and allow special deductions and credits for some kinds of expenses. Tax slayer 2011 If you benefit from these laws, you may have to pay at least a minimum amount of tax in addition to any other tax on these items. Tax slayer 2011 This is called the alternative minimum tax. Tax slayer 2011 The special treatment of some items of income and expenses only allows you to postpone paying tax until a later year. Tax slayer 2011 If in prior years you paid alternative minimum tax because of these tax postponement items, you may be able to take a credit for prior year minimum tax against your current year's regular tax. Tax slayer 2011 You may be able to take a credit against your regular tax if for 2012 you had: An alternative minimum tax liability and adjustments or preferences other than exclusion items, A minimum tax credit that you are carrying forward to 2013, or An unallowed qualified electric vehicle credit. Tax slayer 2011 How to take the credit. Tax slayer 2011    Figure your 2013 nonrefundable credit (if any), and any carryforward to 2014 on Form 8801, and attach it to your Form 1040. Tax slayer 2011 Include the credit in your total for Form 1040, line 53, and check box b. Tax slayer 2011 You can carry forward any unused credit for prior year minimum tax to later years until it is completely used. Tax slayer 2011 More information. Tax slayer 2011   For more information on the credit, see the Instructions for Form 8801. Tax slayer 2011 Plug-in Electric Drive Motor Vehicle Credit You may be able to take this credit if you placed in service for business or personal use a qualified plug-in electric drive motor vehicle or a qualified two- or three-wheeled plug-in electric vehicle in 2013 and you meet some other requirements. Tax slayer 2011 Qualified plug-in electric drive motor vehicle. Tax slayer 2011   This is a new vehicle with at least four wheels that: Is propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of not less than 4 kilowatt hours and is capable of being recharged from an external source of electricity, and Has a gross vehicle weight of less than 14,000 pounds. Tax slayer 2011 Qualified two- or three-wheeled plug-in electric vehicle. Tax slayer 2011   This is a new vehicle with two or three wheels that: Is capable of achieving a speed of 45 miles per hour or greater, Is propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of not less than 2. Tax slayer 2011 5 kilowatt hours and is capable of being recharged from an external source of electricity, and Has a gross vehicle weight of less than 14,000 pounds. Tax slayer 2011 Certification and other requirements. Tax slayer 2011   Generally, you can rely on the manufacturer's (or, in the case of a foreign manufacturer, its domestic distributor's) certification to the IRS that a specific make, model, and model year vehicle qualifies for the credit and, if applicable, the amount of the credit for which it qualifies. Tax slayer 2011 However, if the IRS publishes an announcement that the certification for any specific make, model, and model year vehicle has been withdrawn, you cannot rely on the certification for such a vehicle purchased after the date of publication of the withdrawal announcement. Tax slayer 2011   The following requirements must also be met to qualify for the credit. Tax slayer 2011 You are the owner of the vehicle. Tax slayer 2011 If the vehicle is leased, only the lessor, and not the lessee, is entitled to the credit. Tax slayer 2011 You placed the vehicle in service during 2013. Tax slayer 2011 The vehicle is manufactured primarily for use on public streets, roads, and highways. Tax slayer 2011 The original use of the vehicle began with you. Tax slayer 2011 You acquired the vehicle for your use or to lease to others, and not for resale. Tax slayer 2011 In the case of the qualified two- or three-wheeled plug-in electric vehicle, the vehicle is acquired after 2011 and before 2014. Tax slayer 2011 You use the vehicle primarily in the United States. Tax slayer 2011 How to take the credit. Tax slayer 2011   To take the credit, you must complete Form 8936 and attach it to your Form 1040. Tax slayer 2011 Include the credit in your total for Form 1040, line 53. Tax slayer 2011 Check box c and enter “8936” on the line next to that box. Tax slayer 2011 More information. Tax slayer 2011   For more information on the credit, see the Form 8936 instructions. Tax slayer 2011 Residential Energy Credits You may be able to take one or both of the following credits if you made energy saving improvements to your home located in the United States in 2013. Tax slayer 2011 Nonbusiness energy property credit. Tax slayer 2011 Residential energy efficient property credit. Tax slayer 2011 If you are a member of a condominium management association for a condominium you own or a tenant-stockholder in a cooperative housing corporation, you are treated as having paid your proportionate share of any costs of the association or corporation for purposes of these credits. Tax slayer 2011 Nonbusiness energy property credit. Tax slayer 2011   You may be able to take a credit equal to the sum of: 10% of the amount paid or incurred for qualified energy efficiency improvements installed during 2013, and Any residential energy property costs paid or incurred in 2013. Tax slayer 2011   There is a lifetime limit of $500 for all years after 2005, of which only $200 can be for windows; $50 for any advanced main air circulating fan; $150 for any qualified natural gas, propane, or oil furnace or hot water boiler; and $300 for any item of energy efficient building property. Tax slayer 2011    If the total of nonbusiness energy property credits you have taken in previous years (after 2005) is more than $500, you cannot take this credit in 2013. Tax slayer 2011   Qualified energy efficiency improvements are the following improvements that are new, can be expected to remain in use at least 5 years, and meet certain requirements for energy efficiency. Tax slayer 2011 Any insulation material or system that is specifically and primarily designed to reduce heat loss or gain of a home. Tax slayer 2011 Exterior window (including skylights). Tax slayer 2011 Exterior doors. Tax slayer 2011 Any metal or asphalt roof that has appropriate pigmented coatings or cooling granules specifically and primarily designed to reduce heat gain of the home. Tax slayer 2011   Residential energy property is any of the following. Tax slayer 2011 Certain electric heat pump water heaters; electric heat pumps; central air conditioners; natural gas, propane, or oil water heater; and stoves that use biomass fuel. Tax slayer 2011 Qualified natural gas, propane, or oil furnaces; and qualified natural gas, propane, or oil hot water boilers. Tax slayer 2011 Certain advanced main air circulating fans used in natural gas, propane, or oil furnaces. Tax slayer 2011 Residential energy efficient property credit. Tax slayer 2011   You may be able to take a credit of 30% of your costs of qualified solar electric property, solar water heating property, fuel cell property, small wind energy property, and geothermal heat pump property. Tax slayer 2011 The credit amount for costs paid for qualified fuel cell property is limited to $500 for each one-half kilowatt of capacity of the property. Tax slayer 2011 Basis reduction. Tax slayer 2011   You must reduce the basis of your home by the amount of any credit allowed. Tax slayer 2011 How to take the credit. Tax slayer 2011   Complete Form 5695 and attach it to your Form 1040. Tax slayer 2011 Enter the credit on Form 1040, line 52. Tax slayer 2011 More information. Tax slayer 2011   For more information on these credits, see the Form 5695 instructions. Tax slayer 2011 Retirement Savings Contributions Credit (Saver's Credit) You may be able to take this credit if you, or your spouse if filing jointly, made: Contributions (other than rollover contributions) to a traditional or Roth IRA, Elective deferrals to a 401(k) or 403(b) plan (including designated Roth contributions) or to a governmental 457, SEP, or SIMPLE plan, Voluntary employee contributions to a qualified retirement plan (including the federal Thrift Savings Plan), or Contributions to a 501(c)(18)(D) plan. Tax slayer 2011 However, you cannot take the credit if either of the following applies. Tax slayer 2011 The amount on Form 1040, line 38, or Form 1040A, line 22, is more than $29,500 ($44,250 if head of household; $59,000 if married filing jointly). Tax slayer 2011 The person(s) who made the qualified contribution or elective deferral (a) was born after January 1, 1996, (b) is claimed as a dependent on someone else's 2013 tax return, or (c) was a student (defined next). Tax slayer 2011 Student. Tax slayer 2011   You were a student if during any part of 5 calendar months of 2013 you: Were enrolled as a full-time student at a school, or Took a full-time, on-farm training course given by a school or a state, county, or local government agency. Tax slayer 2011 School. Tax slayer 2011   A school includes a technical, trade, or mechanical school. Tax slayer 2011 It does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet. Tax slayer 2011 How to take the credit. Tax slayer 2011   Figure the credit on Form 8880. Tax slayer 2011 Enter the credit on your Form 1040, line 50, or your Form 1040A, line 32, and attach Form 8880 to your return. Tax slayer 2011 More information. Tax slayer 2011   For more information on the credit, see the Form 8880 instructions. Tax slayer 2011 Refundable Credits The credits discussed in this part of the chapter are treated as payments of tax. Tax slayer 2011 If the total of these credits, withheld federal income tax, and estimated tax payments is more than your total tax, the excess can be refunded to you. Tax slayer 2011 Credit for Tax on Undistributed Capital Gain You must include in your income any amounts that regulated investment companies (commonly called mutual funds) or real estate investment trusts (REITs) allocated to you as capital gain distributions, even if you did not actually receive them. Tax slayer 2011 If the mutual fund or REIT paid a tax on the capital gain, you are allowed a credit for the tax since it is considered paid by you. Tax slayer 2011 The mutual fund or REIT will send you Form 2439 showing your share of the undistributed capital gains and the tax paid, if any. Tax slayer 2011 How to take the credit. Tax slayer 2011   To take the credit, attach Copy B of Form 2439 to your Form 1040. Tax slayer 2011 Include the amount from box 2 of your Form 2439 in the total for Form 1040, line 71, and check box a. Tax slayer 2011 More information. Tax slayer 2011   See Capital Gain Distributions in chapter 8 for more information on undistributed capital gains. Tax slayer 2011 Health Coverage Tax Credit You may be able to take this credit for any month in which all the following statements were true on the first day of the month. Tax slayer 2011 You were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment TAA (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient (defined later); or you were a qualified family member of one of these individuals when the individual died or you finalized a divorce with one of these individuals. Tax slayer 2011 You and/or your family members were covered by a qualified health insurance plan for which you paid the entire premiums, or your portion of the premiums, directly to your health plan or to “U. Tax slayer 2011 S. Tax slayer 2011 Treasury–HCTC. Tax slayer 2011 ” You were not enrolled in Medicare Part A, B, or C, or you were enrolled in Medicare but your family member(s) qualified for the HCTC. Tax slayer 2011 You were not enrolled in Medicaid or the Children's Health Insurance Program (CHIP). Tax slayer 2011 You were not enrolled in the Federal Employees Health Benefits program (FEHBP) or eligible to receive benefits under the U. Tax slayer 2011 S. Tax slayer 2011 military health system (TRICARE). Tax slayer 2011 You were not imprisoned under federal, state, or local authority. Tax slayer 2011 Your employer did not pay 50% or more of the cost of coverage. Tax slayer 2011 You did not receive a 65% COBRA premium reduction from your former employer or COBRA administrator. Tax slayer 2011 But, you cannot take the credit if you can be claimed as a dependent on someone else's 2013 tax return. Tax slayer 2011 If you meet all of these conditions, you may be able to take a credit of up to 72. Tax slayer 2011 5% of the amount you paid directly to a qualified health plan for you and any qualifying family members. Tax slayer 2011 You cannot take the credit for insurance premiums on coverage that was actually paid for with a National Emergency Grant. Tax slayer 2011 The amount you paid for qualified health insurance coverage must be reduced by any Archer MSA and health savings account distributions used to pay for the coverage. Tax slayer 2011 You can take this credit on your tax return or have it paid on your behalf in advance to your insurance company. Tax slayer 2011 If the credit is paid on your behalf in advance, that amount will reduce the amount of the credit you can take on your tax return. Tax slayer 2011 TAA recipient. Tax slayer 2011   You were an eligible TAA recipient on the first day of the month if, for any day in that month or the prior month, you: Received a trade readjustment allowance, or Would have been entitled to receive such an allowance except that you had not exhausted all rights to any unemployment insurance (except additional compensation that is funded by a state and is not reimbursed from any federal funds) to which you were entitled (or would be entitled if you applied). Tax slayer 2011 Example. Tax slayer 2011 You received a trade adjustment allowance for January 2013. Tax slayer 2011 You were an eligible TAA recipient on the first day of January and February. Tax slayer 2011 Alternative TAA recipient. Tax slayer 2011   You were an eligible alternative TAA recipient on the first day of the month if, for that month or the prior month, you received benefits under an alternative trade adjustment assistance program for older workers established by the Department of Labor. Tax slayer 2011 Example. Tax slayer 2011 You received benefits under an alternative trade adjustment assistance program for older workers for October 2013. Tax slayer 2011 The program was established by the Department of Labor. Tax slayer 2011 You were an eligible alternative TAA recipient on the first day of October and November. Tax slayer 2011 RTAA recipient. Tax slayer 2011   You were an eligible RTAA recipient on the first day of the month if, for that month or the prior month, you received benefits under a reemployment trade adjustment assistance program for older workers established by the Department of Labor. Tax slayer 2011 PBGC pension recipient. Tax slayer 2011   You were an eligible PBGC pension recipient on the first day of the month, if both of the following apply. Tax slayer 2011 You were age 55 or older on the first day of the month. Tax slayer 2011 You received a benefit for that month paid by the PBGC under title IV of the Employee Retirement Income Security Act of 1974 (ERISA). Tax slayer 2011 If you received a lump-sum payment from the PBGC after August 5, 2002, you meet item (2) above for any month that you would have received a PBGC benefit if you had not received the lump-sum payment. Tax slayer 2011 How to take the credit. Tax slayer 2011   To take the credit, complete Form 8885 and attach it to your Form 1040. Tax slayer 2011 Include your credit in the total for Form 1040, line 71, and check box c. Tax slayer 2011   You must attach health insurance bills (or COBRA payment coupons) and proof of payment for any amounts you include on Form 8885, line 2. Tax slayer 2011 For details, see Publication 502 or Form 8885. Tax slayer 2011 More information. Tax slayer 2011   For definitions and special rules, including those relating to qualified health insurance plans, qualifying family members, the effect of certain life events, and employer-sponsored health insurance plans, see Publication 502 and the Form 8885 instructions. Tax slayer 2011 Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld Most employers must withhold social security tax from your wages. Tax slayer 2011 If you work for a railroad employer, that employer must withhold tier 1 railroad retirement (RRTA) tax and tier 2 RRTA tax. Tax slayer 2011 If you worked for two or more employers in 2013, you may have had too much social security tax withheld from your pay. Tax slayer 2011 If one or more of those employers was a railroad employer, too much tier 1 RRTA tax may also have been withheld at the 6. Tax slayer 2011 2% rate. Tax slayer 2011 You can claim the excess social security or tier 1 RRTA tax as a credit against your income tax when you file your return. Tax slayer 2011 For the tier 1 RRTA tax, only use the portion of the tier 1 RRTA tax that was taxed at the 6. Tax slayer 2011 2% rate when figuring if excess tier 1 RRTA tax was withheld; do not include any portion of the tier 1 RRTA tax that was withheld at the Medicare tax rate (1. Tax slayer 2011 45%) or the Additional Medicare Tax rate (. Tax slayer 2011 9%). Tax slayer 2011 The following table shows the maximum amount of wages subject to tax and the maximum amount of tax that should have been withheld for 2013. Tax slayer 2011 Type of tax Maximum  wages subject to tax Maximum tax that should have been withheld Social security or RRTA tier 1 $113,700 $7,049. Tax slayer 2011 40 RRTA tier 2 $84,300 $3,709. Tax slayer 2011 20 All wages are subject to Medicare tax withholding. Tax slayer 2011   Use Form 843, Claim for Refund and Request for Abatement, to claim a refund of excess tier 2 RRTA tax. Tax slayer 2011 Be sure to attach a copy of all of your W-2 forms. Tax slayer 2011 Use Worksheet 3-3 in Publication 505, Tax Withholding and Estimated Tax, to help you figure the excess amount. Tax slayer 2011 Employer's error. Tax slayer 2011   If any one employer withheld too much social security or tier 1 RRTA tax, you cannot take the excess as a credit against your income tax. Tax slayer 2011 The employer should adjust the tax for you. Tax slayer 2011 If the employer does not adjust the overcollection, you can file a claim for refund using Form 843. Tax slayer 2011 Joint return. Tax slayer 2011   If you are filing a joint return, you cannot add the social security or tier 1 RRTA tax withheld from your spouse's wages to the amount withheld from your wages. Tax slayer 2011 Figure the withholding separately for you and your spouse to determine if either of you has excess withholding. Tax slayer 2011 How to figure the credit if you did not work for a railroad. Tax slayer 2011   If you did not work for a railroad during 2013, figure the credit as follows: 1. Tax slayer 2011 Add all social security tax withheld (but not more than $7,049. Tax slayer 2011 40 for each employer). Tax slayer 2011 Enter the total here   2. Tax slayer 2011 Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 60, identified by “UT”   3. Tax slayer 2011 Add lines 1 and 2. Tax slayer 2011 If $7,049. Tax slayer 2011 40 or less, stop here. Tax slayer 2011 You cannot take  the credit   4. Tax slayer 2011 Social security tax limit 7,049. Tax slayer 2011 40 5. Tax slayer 2011 Credit. Tax slayer 2011 Subtract line 4 from line 3. Tax slayer 2011 Enter the result here and on Form 1040, line 69 (or Form 1040A, line 41) $ Example. Tax slayer 2011 You are married and file a joint return with your spouse who had no gross income in 2013. Tax slayer 2011 During 2013, you worked for the Brown Technology Company and earned $60,000 in wages. Tax slayer 2011 Social security tax of $3,720 was withheld. Tax slayer 2011 You also worked for another employer in 2013 and earned $55,000 in wages. Tax slayer 2011 $3,410 of social security tax was withheld from these wages. Tax slayer 2011 Because you worked for more than one employer and your total wages were more than $113,700, you can take a credit of $80. Tax slayer 2011 60 for the excess social security tax withheld. Tax slayer 2011 1. Tax slayer 2011 Add all social security tax withheld (but not more than $7,049. Tax slayer 2011 40 for each employer). Tax slayer 2011 Enter the total here $7,130. Tax slayer 2011 00 2. Tax slayer 2011 Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 60, identified by “UT” -0- 3. Tax slayer 2011 Add lines 1 and 2. Tax slayer 2011 If $7,049. Tax slayer 2011 40 or less, stop here. Tax slayer 2011 You cannot take the credit 7,130. Tax slayer 2011 00 4. Tax slayer 2011 Social security tax limit 7,049. Tax slayer 2011 40 5. Tax slayer 2011 Credit. Tax slayer 2011 Subtract line 4 from line 3. Tax slayer 2011 Enter the result here and on Form 1040, line 69 (or Form 1040A, line 41) $80. Tax slayer 2011 60 How to figure the credit if you worked for a railroad. Tax slayer 2011   If you were a railroad employee at any time during 2013, figure the credit as follows: 1. Tax slayer 2011 Add all social security and tier 1 RRTA tax withheld at the 6. Tax slayer 2011 2% rate (but not more than $7,049. Tax slayer 2011 40 for each employer). Tax slayer 2011 Enter the total here   2. Tax slayer 2011 Enter any uncollected social security and tier 1 RRTA tax on tips or group-term life insurance included in the total on Form 1040, line 60, identified by “UT”   3. Tax slayer 2011 Add lines 1 and 2. Tax slayer 2011 If $7,049. Tax slayer 2011 40 or less, stop here. Tax slayer 2011 You cannot take  the credit   4. Tax slayer 2011 Social security and tier 1 RRTA  tax limit 7,049. Tax slayer 2011 40 5. Tax slayer 2011 Credit. Tax slayer 2011 Subtract line 4 from line 3. Tax slayer 2011 Enter the result here and on Form 1040, line 69 (or Form 1040A, line 41) $ How to take the credit. Tax slayer 2011   Enter the credit on Form 1040, line 69, or include it in the total for Form 1040A, line 41. Tax slayer 2011 More information. Tax slayer 2011   For more information on the credit, see Publication 505. Tax slayer 2011 Prev  Up  Next   Home   More Online Publications
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Security Forms

IRS Contractor Investigation Risk Assessment Checklist (RAC)

IRS contractors who require a background investigation prior to starting work on an IRS contract must complete the RAC xls spreadsheet. The spreadsheet is completed by the vendor and individual contractor, and should be forwarded to both the COTR of record and the Contractor Security Lifecycle Program (CSLP) office.

All fields on Tab 1 of the RAC must be completed. Tab 2 contains instructions for each field. The spreadsheet contains a variety of information required for entry into various IRS systems to initiate and/or update the contractor investigation. These systems include but are not limited to:

• PBIP (PIV Background Investigation Process) – the contractor lifecycle tracking system, which tracks personal, investigation, training, badge, and separation information.
• USAccess – government-wide system used to submit fingerprints to OPM for a criminal check.
• ABIS (Automated Background Investigation System) – the system used to initiate the actual IRS investigation.
• e-QIP – the OPM  system used to complete the SF85 or SF85P (Questionnaire for Public Trust Positions)

Other forms that may be required prior to the investigation initiation may include the Fair Credit Reporting Act (Form 13440), Tax Check Notice (Form 1379), and the Declaration for Federal Employment (OF 0306).  You will be notified regarding which forms are required when you are contacted about initiating investigations for a specific contract with the IRS.  

If you have questions or concerns please contact Contractor Security Lifecycle Program office.  Be sure to include the Contracting Officer’s Technical Representative (COTR) on any questions or communications with CSLP.

Risk Assessment Spreadsheet
13340 - Fair Credit Reporting Act
1379 - Tax Record Check Notice
OF-306 - Declaration for Federal Employment
Page Last Reviewed or Updated: 03-Feb-2014

The Tax Slayer 2011

Tax slayer 2011 3. Tax slayer 2011   Investment Expenses Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Limits on DeductionsPassive activity. Tax slayer 2011 Other income (nonpassive income). Tax slayer 2011 Expenses. Tax slayer 2011 Additional information. Tax slayer 2011 Interest ExpensesInvestment Interest Limit on Deduction Bond Premium AmortizationSpecial rules to determine amounts payable on a bond. Tax slayer 2011 Basis. Tax slayer 2011 How To Figure Amortization Choosing To Amortize How To Report Amortization Expenses of Producing IncomeFees to buy or sell. Tax slayer 2011 Including mutual fund or REMIC expenses in income. Tax slayer 2011 Nondeductible ExpensesUsed as collateral. Tax slayer 2011 Short-sale expenses. Tax slayer 2011 Expenses for both tax-exempt and taxable income. Tax slayer 2011 State income taxes. Tax slayer 2011 Nondeductible amount. Tax slayer 2011 Basis adjustment. Tax slayer 2011 How To Report Investment Expenses When To Report Investment Expenses Topics - This chapter discusses: Limits on Deductions , Interest Expenses , Bond Premium Amortization , Expenses of Producing Income , Nondeductible Expenses , How To Report Investment Expenses , and When To Report Investment Expenses . Tax slayer 2011 Useful Items - You may want to see: Publication 535 Business Expenses 925 Passive Activity and At-Risk Rules 929 Tax Rules for Children and Dependents Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 4952 Investment Interest Expense Deduction See chapter 5, How To Get Tax Help , for information about getting these publications and forms. Tax slayer 2011 Limits on Deductions Your deductions for investment expenses may be limited by: The at-risk rules, The passive activity loss limits, The limit on investment interest, or The 2% limit on certain miscellaneous itemized deductions. Tax slayer 2011 The at-risk rules and passive activity rules are explained briefly in this section. Tax slayer 2011 The limit on investment interest is explained later in this chapter under Interest Expenses . Tax slayer 2011 The 2% limit is explained later in this chapter under Expenses of Producing Income . Tax slayer 2011 At-risk rules. Tax slayer 2011   Special at-risk rules apply to most income-producing activities. Tax slayer 2011 These rules limit the amount of loss you can deduct to the amount you risk losing in the activity. Tax slayer 2011 Generally, this is the cash and the adjusted basis of property you contribute to the activity. Tax slayer 2011 It also includes money you borrow for use in the activity if you are personally liable for repayment or if you use property not used in the activity as security for the loan. Tax slayer 2011 For more information, see Publication 925. Tax slayer 2011 Passive activity losses and credits. Tax slayer 2011   The amount of losses and tax credits you can claim from passive activities is limited. Tax slayer 2011 Generally, you are allowed to deduct passive activity losses only up to the amount of your passive activity income. Tax slayer 2011 Also, you can use credits from passive activities only against tax on the income from passive activities. Tax slayer 2011 There are exceptions for certain activities, such as rental real estate activities. Tax slayer 2011 Passive activity. Tax slayer 2011   A passive activity generally is any activity involving the conduct of any trade or business in which you do not materially participate and any rental activity. Tax slayer 2011 However, if you are involved in renting real estate, the activity is not a passive activity if both of the following are true. Tax slayer 2011 More than one-half of the personal services you perform during the year in all trades or businesses are performed in real property trades or businesses in which you materially participate. Tax slayer 2011 You perform more than 750 hours of services during the year in real property trades or businesses in which you materially participate. Tax slayer 2011  The term “trade or business” generally means any activity that involves the conduct of a trade or business, is conducted in anticipation of starting a trade or business, or involves certain research or experimental expenditures. Tax slayer 2011 However, it does not include rental activities or certain activities treated as incidental to holding property for investment. Tax slayer 2011   You are considered to materially participate in an activity if you are involved on a regular, continuous, and substantial basis in the operations of the activity. Tax slayer 2011 Other income (nonpassive income). Tax slayer 2011    Generally, you can use losses from passive activities only to offset income from passive activities. Tax slayer 2011 You cannot use passive activity losses to offset your other income, such as your wages or your portfolio income. Tax slayer 2011 Portfolio income includes gross income from interest, dividends, annuities, or royalties that is not derived in the ordinary course of a trade or business. Tax slayer 2011 It also includes gains or losses (not derived in the ordinary course of a trade or business) from the sale or trade of property (other than an interest in a passive activity) producing portfolio income or held for investment. Tax slayer 2011 This includes capital gain distributions from mutual funds (and other regulated investment companies) and real estate investment trusts. Tax slayer 2011   You cannot use passive activity losses to offset Alaska Permanent Fund dividends. Tax slayer 2011 Expenses. Tax slayer 2011   Do not include in the computation of your passive activity income or loss: Expenses (other than interest) that are clearly and directly allocable to your portfolio income, or Interest expense properly allocable to portfolio income. Tax slayer 2011 However, this interest and other expenses may be subject to other limits. Tax slayer 2011 These limits are explained in the rest of this chapter. Tax slayer 2011 Additional information. Tax slayer 2011   For more information about determining and reporting income and losses from passive activities, see Publication 925. Tax slayer 2011 Interest Expenses This section discusses interest expenses you may be able to deduct as an investor. Tax slayer 2011 For information on business interest, see chapter 4 of Publication 535. Tax slayer 2011 You cannot deduct personal interest expenses other than qualified home mortgage interest, as explained in Publication 936, Home Mortgage Interest Deduction, and interest on certain student loans, as explained in Publication 970. Tax slayer 2011 Investment Interest If you borrow money to buy property you hold for investment, the interest you pay is investment interest. Tax slayer 2011 You can deduct investment interest subject to the limit discussed later. Tax slayer 2011 However, you cannot deduct interest you incurred to produce tax-exempt income. Tax slayer 2011 See Tax-exempt income under Nondeductible Expenses, later. Tax slayer 2011 You also cannot deduct interest expenses on straddles discussed under Interest expense and carrying charges on straddles , later. Tax slayer 2011 Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. Tax slayer 2011 Investment property. Tax slayer 2011   Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. Tax slayer 2011 It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). Tax slayer 2011 Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity). Tax slayer 2011 Partners, shareholders, and beneficiaries. Tax slayer 2011   To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest. Tax slayer 2011 Allocation of Interest Expense If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. Tax slayer 2011 Only the interest expense on the part of the debt used for investment purposes is treated as investment interest. Tax slayer 2011 The allocation is not affected by the use of property that secures the debt. Tax slayer 2011 Example 1. Tax slayer 2011 You borrow $10,000 and use $8,000 to buy stock. Tax slayer 2011 You use the other $2,000 to buy items for your home. Tax slayer 2011 Since 80% of the debt is used for, and allocated to, investment purposes, 80% of the interest on that debt is investment interest. Tax slayer 2011 The other 20% is nondeductible personal interest. Tax slayer 2011 Debt proceeds received in cash. Tax slayer 2011   If you receive debt proceeds in cash, the proceeds are generally not treated as investment property. Tax slayer 2011 Debt proceeds deposited in account. Tax slayer 2011   If you deposit debt proceeds in an account, that deposit is treated as investment property, regardless of whether the account bears interest. Tax slayer 2011 But, if you withdraw the funds and use them for another purpose, you must reallocate the debt to determine the amount considered to be for investment purposes. Tax slayer 2011 Example 2. Tax slayer 2011 Assume in Example 1 that you borrowed the money on March 1 and immediately bought the stock for $8,000. Tax slayer 2011 You did not buy the household items until June 1. Tax slayer 2011 You had deposited the $2,000 in the bank. Tax slayer 2011 You had no other transactions on the bank account until June. Tax slayer 2011 You did not sell the stock, and you made no principal payments on the debt. Tax slayer 2011 You paid interest from another account. Tax slayer 2011 The $8,000 is treated as being used for an investment purpose. Tax slayer 2011 The $2,000 is treated as being used for an investment purpose for the 3-month period. Tax slayer 2011 Your total interest expense for 3 months on this debt is investment interest. Tax slayer 2011 In June, when you spend the $2,000 for household items, you must begin to allocate 80% of the debt and the interest expense to investment purposes and 20% to personal purposes. Tax slayer 2011 Amounts paid within 30 days. Tax slayer 2011   If you receive loan proceeds in cash or if the loan proceeds are deposited in an account, you can treat any payment (up to the amount of the proceeds) made from any account you own, or from cash, as made from those proceeds. Tax slayer 2011 This applies to any payment made within 30 days before or after the proceeds are received in cash or deposited in your account. Tax slayer 2011   If you received the loan proceeds in cash, you can treat the payment as made on the date you received the cash instead of the date you actually made the payment. Tax slayer 2011 Payments on debt may require new allocation. Tax slayer 2011   As you repay a debt used for more than one purpose, you must reallocate the balance. Tax slayer 2011 You must first reduce the amount allocated to personal purposes by the repayment. Tax slayer 2011 You then reallocate the rest of the debt to find what part is for investment purposes. Tax slayer 2011 Example 3. Tax slayer 2011 If, in Example 2 , you repay $500 on November 1, the entire repayment is applied against the amount allocated to personal purposes. Tax slayer 2011 The debt balance is now allocated as $8,000 for investment purposes and $1,500 for personal purposes. Tax slayer 2011 Until the next reallocation is necessary, 84% ($8,000 ÷ $9,500) of the debt and the interest expense is allocated to investment. Tax slayer 2011 Pass-through entities. Tax slayer 2011   If you use borrowed funds to buy an interest in a partnership or S corporation, then the interest on those funds must be allocated based on the assets of the entity. Tax slayer 2011 If you contribute to the capital of the entity, you can make the allocation using any reasonable method. Tax slayer 2011 Additional allocation rules. Tax slayer 2011   For more information about allocating interest expense, see chapter 4 of Publication 535. Tax slayer 2011 When To Deduct Investment Interest If you use the cash method of accounting, you must pay the interest before you can deduct it. Tax slayer 2011 If you use an accrual method of accounting, you can deduct interest over the period it accrues, regardless of when you pay it. Tax slayer 2011 For an exception, see Unpaid expenses owed to related party under When To Report Investment Expenses, later in this chapter. Tax slayer 2011 Example. Tax slayer 2011 You borrowed $1,000 on August 26, 2013, payable in 90 days at 12% interest. Tax slayer 2011 On November 26, 2013, you paid this with a new note for $1,030, due on February 26, 2014. Tax slayer 2011 If you use the cash method of accounting, you cannot deduct any part of the $30 interest on your return for 2013 because you did not actually pay it. Tax slayer 2011 If you use an accrual method, you may be able to deduct a portion of the interest on the loans through December 31, 2013, on your return for 2013. Tax slayer 2011 Interest paid in advance. Tax slayer 2011   Generally, if you pay interest in advance for a period that goes beyond the end of the tax year, you must spread the interest over the tax years to which it belongs under the OID rules discussed in chapter 1. Tax slayer 2011 You can deduct in each year only the interest for that year. Tax slayer 2011 Interest on margin accounts. Tax slayer 2011   If you are a cash method taxpayer, you can deduct interest on margin accounts to buy taxable securities as investment interest in the year you paid it. Tax slayer 2011 You are considered to have paid interest on these accounts only when you actually pay the broker or when payment becomes available to the broker through your account. Tax slayer 2011 Payment may become available to the broker through your account when the broker collects dividends or interest for your account, or sells securities held for you or received from you. Tax slayer 2011   You cannot deduct any interest on money borrowed for personal reasons. Tax slayer 2011 Limit on interest deduction for market discount bonds. Tax slayer 2011   The amount you can deduct for interest expense you paid or accrued during the year to buy or carry a market discount bond may be limited. Tax slayer 2011 This limit does not apply if you accrue the market discount and include it in your income currently. Tax slayer 2011   Under this limit, the interest is deductible only to the extent it is more than: The total interest and OID includible in gross income for the bond for the year, plus The market discount for the number of days you held the bond during the year. Tax slayer 2011 Figure the amount in (2) above using the rules for figuring accrued market discount in chapter 1 under Market Discount Bonds . Tax slayer 2011 Interest not deducted due to limit. Tax slayer 2011   In the year you dispose of the bond, you can deduct any interest expense you were not allowed to deduct in earlier years because of the limit. Tax slayer 2011 Choosing to deduct disallowed interest expense before the year of disposition. Tax slayer 2011   You can choose to deduct disallowed interest expense in any year before the year you dispose of the bond, up to your net interest income from the bond during the year. Tax slayer 2011 The rest of the disallowed interest expense remains deductible in the year you dispose of the bond. Tax slayer 2011 Net interest income. Tax slayer 2011   This is the interest income (including OID) from the bond that you include in income for the year, minus the interest expense paid or accrued during the year to purchase or carry the bond. Tax slayer 2011 Limit on interest deduction for short-term obligations. Tax slayer 2011   If the current income inclusion rules discussed in chapter 1 under Discount on Short-Term Obligations do not apply to you, the amount you can deduct for interest expense you paid or accrued during the year to buy or carry a short-term obligation is limited. Tax slayer 2011   The interest is deductible only to the extent it is more than: The amount of acquisition discount or OID on the obligation for the tax year, plus The amount of any interest payable on the obligation for the year that is not included in income because of your accounting method (other than interest taken into account in determining the amount of acquisition discount or OID). Tax slayer 2011 The method of determining acquisition discount and OID for short-term obligations is discussed in chapter 1 under Discount on Short-Term Obligations . Tax slayer 2011 Interest not deducted due to limit. Tax slayer 2011   In the year you dispose of the obligation, or, if you choose, in another year in which you have net interest income from the obligation, you can deduct any interest expense you were not allowed to deduct for an earlier year because of the limit. Tax slayer 2011 Follow the same rules provided in the earlier discussion under Limit on interest deduction for market discount bonds , earlier. Tax slayer 2011 Limit on Deduction Generally, your deduction for investment interest expense is limited to your net investment income. Tax slayer 2011 You can carry over the amount of investment interest you could not deduct because of this limit to the next tax year. Tax slayer 2011 The interest carried over is treated as investment interest paid or accrued in that next year. Tax slayer 2011 You can carry over disallowed investment interest to the next tax year even if it is more than your taxable income in the year the interest was paid or accrued. Tax slayer 2011 Net Investment Income Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income. Tax slayer 2011 Investment income. Tax slayer 2011   This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). Tax slayer 2011 Investment income does not include Alaska Permanent Fund dividends. Tax slayer 2011 It also does not include qualified dividends or net capital gain unless you choose to include them. Tax slayer 2011 Choosing to include qualified dividends. Tax slayer 2011   Investment income generally does not include qualified dividends, discussed in chapter 1. Tax slayer 2011 However, you can choose to include all or part of your qualified dividends in investment income. Tax slayer 2011   You make this choice by completing Form 4952, line 4g, according to its instructions. Tax slayer 2011   If you choose to include any of your qualified dividends in investment income, you must reduce your qualified dividends that are eligible for the lower capital gains tax rates by the same amount. Tax slayer 2011 Choosing to include net capital gain. Tax slayer 2011    Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). Tax slayer 2011 However, you can choose to include all or part of your net capital gain in investment income. Tax slayer 2011   You make this choice by completing Form 4952, line 4g, according to its instructions. Tax slayer 2011   If you choose to include any of your net capital gain in investment income, you must reduce your net capital gain that is eligible for the lower capital gains tax rates by the same amount. Tax slayer 2011   For more information about the capital gains rates, see Capital Gain Tax Rates in chapter 4. Tax slayer 2011    Before making either choice, consider the overall effect on your tax liability. Tax slayer 2011 Compare your tax if you make one or both of these choices with your tax if you do not. Tax slayer 2011 Investment income of child reported on parent's return. Tax slayer 2011   Investment income includes the part of your child's interest and dividend income you choose to report on your return. Tax slayer 2011 If the child does not have qualified dividends, Alaska Permanent Fund dividends, or capital gain distributions, this is the amount on line 6 of Form 8814. Tax slayer 2011 Include it on line 4a of Form 4952. Tax slayer 2011 Example. Tax slayer 2011 Your 8-year-old son has interest income of $2,200, which you choose to report on your own return. Tax slayer 2011 You enter $2,200 on Form 8814, lines 1a and 4, and $200 on lines 6 and 12 and complete Part II. Tax slayer 2011 Also enter $200 on Form 1040, line 21. Tax slayer 2011 Your investment income includes this $200. Tax slayer 2011 Child's qualified dividends. Tax slayer 2011   If part of the amount you report is your child's qualified dividends, that part (which is reported on Form 1040, line 9b) generally does not count as investment income. Tax slayer 2011 However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. Tax slayer 2011   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends). Tax slayer 2011 Child's Alaska Permanent Fund dividends. Tax slayer 2011   If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. Tax slayer 2011 To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. Tax slayer 2011 Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. Tax slayer 2011 Subtract the result from the amount on Form 8814, line 12. Tax slayer 2011 Example. Tax slayer 2011 Your 10-year-old child has taxable interest income of $4,000 and Alaska Permanent Fund dividends of $2,000. Tax slayer 2011 You choose to report this on your return. Tax slayer 2011 You enter $4,000 on Form 8814, line 1a, $2,000 on line 2a, and $6,000 on line 4. Tax slayer 2011 You then enter $4,000 on Form 8814, lines 6 and 12, and Form 1040, line 21. Tax slayer 2011 You figure the amount of your child's income that you can consider your investment income as follows: $4,000 − ($4,000 × ($2,000 ÷ $6,000)) = $2,667 You include the result, $2,667, on Form 4952, line 4a. Tax slayer 2011 Child's capital gain distributions. Tax slayer 2011   If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D (Form 1040), line 13, or Form 1040, line 13) generally does not count as investment income. Tax slayer 2011 However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. Tax slayer 2011   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends , earlier). Tax slayer 2011 Investment expenses. Tax slayer 2011   Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. Tax slayer 2011 Investment expenses that are included as a miscellaneous itemized deduction on Schedule A (Form 1040) are allowable deductions after applying the 2% limit that applies to miscellaneous itemized deductions. Tax slayer 2011 Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A (Form 1040), line 27. Tax slayer 2011 See Expenses of Producing Income , later, for a discussion of the 2% limit. Tax slayer 2011 Losses from passive activities. Tax slayer 2011   Income or expenses that you used in computing income or loss from a passive activity are not included in determining your investment income or investment expenses (including investment interest expense). Tax slayer 2011 See Publication 925 for information about passive activities. Tax slayer 2011 Example. Tax slayer 2011 Ted is a partner in a partnership that operates a business. Tax slayer 2011 However, he does not materially participate in the partnership's business. Tax slayer 2011 Ted's interest in the partnership is considered a passive activity. Tax slayer 2011 Ted's investment income from interest and dividends (other than qualified dividends) is $10,000. Tax slayer 2011 His investment expenses (other than interest) are $3,200 after taking into account the 2% limit on miscellaneous itemized deductions. Tax slayer 2011 His investment interest expense is $8,000. Tax slayer 2011 Ted also has income from the partnership of $2,000. Tax slayer 2011 Ted figures his net investment income and the limit on his investment interest expense deduction in the following way: Total investment income $10,000 Minus: Investment expenses (other than interest) 3,200 Net investment income $6,800 Deductible investment interest expense for the year $6,800 The $2,000 of income from the passive activity is not used in determining Ted's net investment income. Tax slayer 2011 His investment interest deduction for the year is limited to $6,800, the amount of his net investment income. Tax slayer 2011 Form 4952 Use Form 4952 to figure your deduction for investment interest. Tax slayer 2011 See Form 4952 for more information. Tax slayer 2011 Exception to use of Form 4952. Tax slayer 2011   You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. Tax slayer 2011 Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. Tax slayer 2011 You do not have any other deductible investment expenses. Tax slayer 2011 You have no carryover of investment interest expense from 2012. Tax slayer 2011   If you meet all of these tests, you can deduct all of your investment interest. Tax slayer 2011    Bond Premium Amortization If you pay a premium to buy a bond, the premium is part of your basis in the bond. Tax slayer 2011 If the bond yields taxable interest, you can choose to amortize the premium. Tax slayer 2011 This generally means that each year, over the life of the bond, you use a part of the premium to reduce the amount of interest includible in your income. Tax slayer 2011 If you make this choice, you must reduce your basis in the bond by the amortization for the year. Tax slayer 2011 If the bond yields tax-exempt interest, you must amortize the premium. Tax slayer 2011 This amortized amount is not deductible in determining taxable income. Tax slayer 2011 However, each year you must reduce your basis in the bond (and tax-exempt interest otherwise reportable on Form 1040, line 8b) by the amortization for the year. Tax slayer 2011 Bond premium. Tax slayer 2011   Bond premium is the amount by which your basis in the bond right after you get it is more than the total of all amounts payable on the bond after you get it (other than payments of qualified stated interest). Tax slayer 2011 For example, a bond with a maturity value of $1,000 generally would have a $50 premium if you buy it for $1,050. Tax slayer 2011 Special rules to determine amounts payable on a bond. Tax slayer 2011   For special rules that apply to determine the amounts payable on a variable rate bond, an inflation-indexed debt instrument, a bond that provides for certain alternative payment schedules (for example, a bond callable prior to the stated maturity date of the bond), or a bond that provides for remote or incidental contingencies, see Regulations section 1. Tax slayer 2011 171-3. Tax slayer 2011 Basis. Tax slayer 2011   In general, your basis for figuring bond premium amortization is the same as your basis for figuring any loss on the sale of the bond. Tax slayer 2011 However, you may need to use a different basis for: Convertible bonds, Bonds you got in a trade, and Bonds whose basis has to be determined using the basis of the person who transferred the bond to you. Tax slayer 2011 See Regulations section 1. Tax slayer 2011 171-1(e). Tax slayer 2011 Dealers. Tax slayer 2011   A dealer in taxable bonds (or anyone who holds them mainly for sale to customers in the ordinary course of a trade or business or who would properly include bonds in inventory at the close of the tax year) cannot claim a deduction for amortizable bond premium. Tax slayer 2011   See section 75 of the Internal Revenue Code for the treatment of bond premium by a dealer in tax-exempt bonds. Tax slayer 2011 How To Figure Amortization For bonds issued after September 27, 1985, you must amortize bond premium using a constant yield method on the basis of the bond's yield to maturity, determined by using the bond's basis and compounding at the close of each accrual period. Tax slayer 2011 Constant yield method. Tax slayer 2011   Figure the bond premium amortization for each accrual period as follows. Tax slayer 2011 Step 1: Determine your yield. Tax slayer 2011   Your yield is the discount rate that, when used in figuring the present value of all remaining payments to be made on the bond (including payments of qualified stated interest), produces an amount equal to your basis in the bond. Tax slayer 2011 Figure the yield as of the date you got the bond. Tax slayer 2011 It must be constant over the term of the bond and must be figured to at least two decimal places when expressed as a percentage. Tax slayer 2011   If you do not know the yield, consult your broker or tax advisor. Tax slayer 2011 Databases available to them are likely to show the yield at the date of purchase. Tax slayer 2011 Step 2: Determine the accrual periods. Tax slayer 2011   You can choose the accrual periods to use. Tax slayer 2011 They may be of any length and may vary in length over the term of the bond, but each accrual period can be no longer than 1 year and each scheduled payment of principal or interest must occur either on the first or the final day of an accrual period. Tax slayer 2011 The computation is simplest if accrual periods are the same as the intervals between interest payment dates. Tax slayer 2011 Step 3: Determine the bond premium for the accrual period. Tax slayer 2011   To do this, multiply your adjusted acquisition price at the beginning of the accrual period by your yield. Tax slayer 2011 Then subtract the result from the qualified stated interest for the period. Tax slayer 2011   Your adjusted acquisition price at the beginning of the first accrual period is the same as your basis. Tax slayer 2011 After that, it is your basis decreased by the amount of bond premium amortized for earlier periods and the amount of any payment previously made on the bond other than a payment of qualified stated interest. Tax slayer 2011 Example. Tax slayer 2011 On February 1, 2012, you bought a taxable bond for $110,000. Tax slayer 2011 The bond has a stated principal amount of $100,000, payable at maturity on February 1, 2019, making your premium $10,000 ($110,000 − $100,000). Tax slayer 2011 The bond pays qualified stated interest of $10,000 on February 1 of each year. Tax slayer 2011 Your yield is 8. Tax slayer 2011 07439% compounded annually. Tax slayer 2011 You choose to use annual accrual periods ending on February 1 of each year. Tax slayer 2011 To find your bond premium amortization for the accrual period ending on February 1, 2013, you multiply the adjusted acquisition price at the beginning of the period ($110,000) by your yield. Tax slayer 2011 When you subtract the result ($8,881. Tax slayer 2011 83) from the qualified stated interest for the period ($10,000), you find that your bond premium amortization for the period is $1,118. Tax slayer 2011 17. Tax slayer 2011 Special rules to figure amortization. Tax slayer 2011   For special rules to figure the bond premium amortization on a variable rate bond, an inflation-indexed debt instrument, a bond that provides for certain alternative payment schedules (for example, a bond callable prior to the stated maturity date of the bond), or a bond that provides for remote or incidental contingencies, see Regulations section 1. Tax slayer 2011 171-3. Tax slayer 2011 Bonds Issued Before September 28, 1985 For these bonds, you can amortize bond premium using any reasonable method. Tax slayer 2011 Reasonable methods include: The straight-line method, and The Revenue Ruling 82-10 method. Tax slayer 2011 Straight-line method. Tax slayer 2011   Under this method, the amount of your bond premium amortization is the same each month. Tax slayer 2011 Divide the number of months you held the bond during the year by the number of months from the beginning of the tax year (or, if later, the date of acquisition) to the date of maturity or earlier call date. Tax slayer 2011 Then multiply the result by the bond premium (reduced by any bond premium amortization claimed in earlier years). Tax slayer 2011 This gives you your bond premium amortization for the year. Tax slayer 2011 Revenue Ruling 82-10 method. Tax slayer 2011   Under this method, the amount of your bond premium amortization increases each month over the life of the bond. Tax slayer 2011 This method is explained in Revenue Ruling 82-10, 1982-1 C. Tax slayer 2011 B. Tax slayer 2011 46. Tax slayer 2011 Choosing To Amortize You choose to amortize the premium on taxable bonds by reporting the amortization for the year on your income tax return for the first tax year you want the choice to apply. Tax slayer 2011 You should attach a statement to your return that you are making this choice under section 171. Tax slayer 2011 See How To Report Amortization, next. Tax slayer 2011 This choice is binding for the year you make it and for later tax years. Tax slayer 2011 It applies to all taxable bonds you own in the year you make the choice and also to those you acquire in later years. Tax slayer 2011 You can change your decision to amortize bond premium only with the written approval of the IRS. Tax slayer 2011 To request approval, use Form 3115. Tax slayer 2011 For more information on requesting approval, see section 5 of the Appendix to Revenue Procedure 2011-14 in Internal Revenue Bulletin 2011-4. Tax slayer 2011 You can find Revenue Procedure 2011-14 at www. Tax slayer 2011 irs. Tax slayer 2011 gov/irb/2011-04_IRB/ar08. Tax slayer 2011 html. Tax slayer 2011 How To Report Amortization Subtract the bond premium amortization from your interest income from these bonds. Tax slayer 2011 Report the bond's interest on Schedule B (Form 1040A or 1040), line 1. Tax slayer 2011 Under your last entry on line 1, put a subtotal of all interest listed on line 1. Tax slayer 2011 Below this subtotal, print “ABP Adjustment,” and the total interest you received. Tax slayer 2011 Subtract this amount from the subtotal, and enter the result on line 2. Tax slayer 2011 Bond premium amortization more than interest. Tax slayer 2011   If the amount of your bond premium amortization for an accrual period is more than the qualified stated interest for the period, you can deduct the difference as a miscellaneous itemized deduction on Schedule A (Form 1040), line 28. Tax slayer 2011    But your deduction is limited to the amount by which your total interest inclusions on the bond in prior accrual periods is more than your total bond premium deductions on the bond in prior periods. Tax slayer 2011 Any amount you cannot deduct because of this limit can be carried forward to the next accrual period. Tax slayer 2011 Pre-1998 election to amortize bond premium. Tax slayer 2011   Generally, if you first elected to amortize bond premium before 1998, the above treatment of the premium does not apply to bonds you acquired before 1988. Tax slayer 2011 Bonds acquired before October 23, 1986. Tax slayer 2011   The amortization of the premium on these bonds is a miscellaneous itemized deduction not subject to the 2%-of-adjusted-gross-income limit. Tax slayer 2011 Bonds acquired after October 22, 1986, but before 1988. Tax slayer 2011    The amortization of the premium on these bonds is investment interest expense subject to the investment interest limit, unless you choose to treat it as an offset to interest income on the bond. Tax slayer 2011 Expenses of Producing Income You deduct investment expenses (other than interest expenses) as miscellaneous itemized deductions on Schedule A (Form 1040). Tax slayer 2011 To be deductible, these expenses must be ordinary and necessary expenses paid or incurred: To produce or collect income, or To manage property held for producing income. Tax slayer 2011 The expenses must be directly related to the income or income-producing property, and the income must be taxable to you. Tax slayer 2011 The deduction for most income-producing expenses is subject to a 2% limit that also applies to certain other miscellaneous itemized deductions. Tax slayer 2011 The amount deductible is limited to the total of these miscellaneous deductions that is more than 2% of your adjusted gross income. Tax slayer 2011 For information on how to report expenses of producing income, see How To Report Investment Expenses , later. Tax slayer 2011 Attorney or accounting fees. Tax slayer 2011   You can deduct attorney or accounting fees that are necessary to produce or collect taxable income. Tax slayer 2011 However, in some cases, attorney or accounting fees are part of the basis of property. Tax slayer 2011 See Basis of Investment Property in chapter 4. Tax slayer 2011 Automatic investment service and dividend reinvestment plans. Tax slayer 2011   A bank may offer its checking account customers an automatic investment service so that, for a charge, each customer can choose to invest a part of the checking account each month in common stock. Tax slayer 2011 Or a bank that is a dividend disbursing agent for a number of publicly-owned corporations may set up an automatic dividend reinvestment service. Tax slayer 2011 Through that service, cash dividends are reinvested in more shares of stock after the bank deducts a service charge. Tax slayer 2011   A corporation in which you own stock also may have a dividend reinvestment plan. Tax slayer 2011 This plan lets you choose to use your dividends to buy more shares of stock in the corporation instead of receiving the dividends in cash. Tax slayer 2011   You can deduct the monthly service charge you pay to a bank to participate in an automatic investment service. Tax slayer 2011 If you participate in a dividend reinvestment plan, you can deduct any service charge subtracted from your cash dividends before the dividends are used to buy more shares of stock. Tax slayer 2011 Deduct the charges in the year you pay them. Tax slayer 2011 Clerical help and office rent. Tax slayer 2011   You can deduct office expenses, such as rent and clerical help, you incurred in connection with your investments and collecting the taxable income on your investments. Tax slayer 2011 Cost of replacing missing securities. Tax slayer 2011   To replace your taxable securities that are mislaid, lost, stolen, or destroyed, you may have to post an indemnity bond. Tax slayer 2011 You can deduct the premium you pay to buy the indemnity bond and the related incidental expenses. Tax slayer 2011   You may, however, get a refund of part of the bond premium if the missing securities are recovered within a specified time. Tax slayer 2011 Under certain types of insurance policies, you can recover some of the expenses. Tax slayer 2011   If you receive the refund in the tax year you pay the amounts, you can deduct only the difference between the expenses paid and the amount refunded. Tax slayer 2011 If the refund is made in a later tax year, you must include the refund in income in the year you received it, but only to the extent that the expenses decreased your tax in the year you deducted them. Tax slayer 2011 Fees to collect income. Tax slayer 2011   You can deduct fees you pay to a broker, bank, trustee, or similar agent to collect investment income, such as your taxable bond or mortgage interest, or your dividends on shares of stock. Tax slayer 2011 Fees to buy or sell. Tax slayer 2011   You cannot deduct a fee you pay to a broker to acquire investment property, such as stocks or bonds. Tax slayer 2011 You must add the fee to the cost of the property. Tax slayer 2011 See Basis of Investment Property in chapter 4. Tax slayer 2011    You cannot deduct any broker's fees, commissions, or option premiums you pay (or that were netted out) in connection with the sale of investment property. Tax slayer 2011 They can be used only to figure gain or loss from the sale. Tax slayer 2011 See Reporting Capital Gains and Losses , in chapter 4, for more information about the treatment of these sale expenses. Tax slayer 2011 Investment counsel and advice. Tax slayer 2011   You can deduct fees you pay for counsel and advice about investments that produce taxable income. Tax slayer 2011 This includes amounts you pay for investment advisory services. Tax slayer 2011 Safe deposit box rent. Tax slayer 2011   You can deduct rent you pay for a safe deposit box if you use the box to store taxable income-producing stocks, bonds, or other investment-related papers and documents. Tax slayer 2011 If you also use the box to store tax-exempt securities or personal items, you can deduct only part of the rent. Tax slayer 2011 See Tax-exempt income under Nondeductible Expenses, later, to figure what part you can deduct. Tax slayer 2011 State and local transfer taxes. Tax slayer 2011   You cannot deduct the state and local transfer taxes you pay when you buy or sell securities. Tax slayer 2011 If you pay these transfer taxes when you buy securities, you must treat them as part of the cost of the property. Tax slayer 2011 If you pay these transfer taxes when you sell securities, you must treat them as a reduction in the amount realized. Tax slayer 2011 Trustee's commissions for revocable trust. Tax slayer 2011   If you set up a revocable trust and have its income distributed to you, you can deduct the commission you pay the trustee for managing the trust to the extent it is to produce or collect taxable income or to manage property. Tax slayer 2011 However, you cannot deduct any part of the commission used for producing or collecting tax-exempt income or for managing property that produces tax-exempt income. Tax slayer 2011   If you are a cash-basis taxpayer and pay the commissions for several years in advance, you must deduct a part of the commission each year. Tax slayer 2011 You cannot deduct the entire amount in the year you pay it. Tax slayer 2011 Investment expenses from pass-through entities. Tax slayer 2011   If you hold an interest in a partnership, S corporation, real estate mortgage investment conduit (REMIC), or a nonpublicly offered mutual fund, you can deduct your share of that entity's investment expenses. Tax slayer 2011 A partnership or S corporation will show your share of these expenses on your Schedule K-1 (Form 1065) or Schedule K-1 (Form 1120S). Tax slayer 2011 A nonpublicly offered mutual fund will indicate your share of these expenses in box 5 of Form 1099-DIV (or substitute statement). Tax slayer 2011 Publicly-offered mutual funds are discussed later. Tax slayer 2011   If you hold an interest in a REMIC, any expenses relating to your residual interest investment will be shown on Schedule Q (Form 1066), line 3b. Tax slayer 2011 Any expenses relating to your regular interest investment will appear in box 5 of Form 1099-INT (or substitute statement) or box 9 of Form 1099-OID (or substitute statement). Tax slayer 2011   Report your share of these investment expenses on Schedule A (Form 1040), subject to the 2% limit, in the same manner as your other investment expenses. Tax slayer 2011 Including mutual fund or REMIC expenses in income. Tax slayer 2011   Your share of the investment expenses of a REMIC or a nonpublicly offered mutual fund, as described above, are considered to be indirect deductions through that pass-through entity. Tax slayer 2011 You must include in your gross income an amount equal to the expenses allocated to you, whether or not you are able to claim a deduction for those expenses. Tax slayer 2011 If you are a shareholder in a nonpublicly offered mutual fund, you must include on your return the full amount of ordinary dividends or other distributions of stock, as shown in box 1a of Form 1099-DIV (or substitute statement). Tax slayer 2011 If you are a residual interest holder in a REMIC, you must report as ordinary income on Schedule E (Form 1040) the total amounts shown on Schedule Q (Form 1066), lines 1b and 3b. Tax slayer 2011 If you are a REMIC regular interest holder, you must include the amount of any expense allocation you received on Form 1040, line 8a. Tax slayer 2011 Publicly-offered mutual funds. Tax slayer 2011   Most mutual funds are publicly offered. Tax slayer 2011 These mutual funds, generally, are traded on an established securities exchange. Tax slayer 2011 These funds do not pass investment expenses through to you. Tax slayer 2011 Instead, the dividend income they report to you in box 1a of Form 1099-DIV (or substitute statement) is already reduced by your share of investment expenses. Tax slayer 2011 As a result, you cannot deduct the expenses on your return. Tax slayer 2011   Include the amount from box 1a of Form 1099-DIV (or substitute statement) in your income. Tax slayer 2011    A publicly offered mutual fund is one that: Is continuously offered pursuant to a public offering, Is regularly traded on an established securities market, and Is held by or for no fewer than 500 persons at any time during the year. Tax slayer 2011 Contact your mutual fund if you are not sure whether it is publicly offered. Tax slayer 2011 Nondeductible Expenses Some expenses that you incur as an investor are not deductible. Tax slayer 2011 Stockholders' meetings. Tax slayer 2011   You cannot deduct transportation and other expenses you pay to attend stockholders' meetings of companies in which you have no interest other than owning stock. Tax slayer 2011 This is true even if your purpose in attending is to get information that would be useful in making further investments. Tax slayer 2011 Investment-related seminar. Tax slayer 2011   You cannot deduct expenses for attending a convention, seminar, or similar meeting for investment purposes. Tax slayer 2011 Single-premium life insurance, endowment, and annuity contracts. Tax slayer 2011   You cannot deduct interest on money you borrow to buy or carry a single-premium life insurance, endowment, or annuity contract. Tax slayer 2011 Used as collateral. Tax slayer 2011   If you use a single premium annuity contract as collateral to obtain or continue a mortgage loan, you cannot deduct any interest on the loan that is collateralized by the annuity contract. Tax slayer 2011 Figure the amount of interest expense disallowed by multiplying the current interest rate on the mortgage loan by the lesser of the amount of the annuity contract used as collateral or the amount of the loan. Tax slayer 2011 Borrowing on insurance. Tax slayer 2011   Generally, you cannot deduct interest on money you borrow to buy or carry a life insurance, endowment, or annuity contract if you plan to systematically borrow part or all of the increases in the cash value of the contract. Tax slayer 2011 This rule applies to the interest on the total amount borrowed to buy or carry the contract, not just the interest on the borrowed increases in the cash value. Tax slayer 2011 Tax-exempt income. Tax slayer 2011   You cannot deduct expenses you incur to produce tax-exempt income. Tax slayer 2011 Nor can you deduct interest on money you borrow to buy tax-exempt securities or shares in a mutual fund or other regulated investment company that distributes only exempt-interest dividends. Tax slayer 2011 Short-sale expenses. Tax slayer 2011   The rule disallowing a deduction for interest expenses on tax-exempt securities applies to amounts you pay in connection with personal property used in a short sale or amounts paid by others for the use of any collateral in connection with the short sale. Tax slayer 2011 However, it does not apply to the expenses you incur if you deposit cash as collateral for the property used in the short sale and the cash does not earn a material return during the period of the sale. Tax slayer 2011 Short sales are discussed in Short Sales in chapter 4. Tax slayer 2011 Expenses for both tax-exempt and taxable income. Tax slayer 2011   You may have expenses that are for both tax-exempt and taxable income. Tax slayer 2011 If you cannot specifically identify what part of the expenses is for each type of income, you can divide the expenses, using reasonable proportions based on facts and circumstances. Tax slayer 2011 You must attach a statement to your return showing how you divided the expenses and stating that each deduction claimed is not based on tax-exempt income. Tax slayer 2011   One accepted method for dividing expenses is to do it in the same proportion that each type of income is to the total income. Tax slayer 2011 If the expenses relate in part to capital gains and losses, include the gains, but not the losses, in figuring this proportion. Tax slayer 2011 To find the part of the expenses that is for the tax-exempt income, divide your tax-exempt income by the total income and multiply your expenses by the result. Tax slayer 2011 Example. Tax slayer 2011 You received $6,000 interest; $4,800 was tax-exempt and $1,200 was taxable. Tax slayer 2011 In earning this income, you had $500 of expenses. Tax slayer 2011 You cannot specifically identify the amount of each expense item that is for each income item, so you must divide your expenses. Tax slayer 2011 80% ($4,800 tax-exempt interest divided by $6,000 total interest) of your expenses is for the tax-exempt income. Tax slayer 2011 You cannot deduct $400 (80% of $500) of the expenses. Tax slayer 2011 You can deduct $100 (the rest of the expenses) because they are for the taxable interest. Tax slayer 2011 State income taxes. Tax slayer 2011   If you itemize your deductions, you can deduct, as taxes, state income taxes on interest income that is exempt from federal income tax. Tax slayer 2011 But you cannot deduct, as either taxes or investment expenses, state income taxes on other exempt income. Tax slayer 2011 Interest expense and carrying charges on straddles. Tax slayer 2011   You cannot deduct interest and carrying charges allocable to personal property that is part of a straddle. Tax slayer 2011 The nondeductible interest and carrying charges are added to the basis of the straddle property. Tax slayer 2011 However, this treatment does not apply if: All the offsetting positions making up the straddle either consist of one or more qualified covered call options and the optioned stock, or consist of section 1256 contracts (and the straddle is not part of a larger straddle); or The straddle is a hedging transaction. Tax slayer 2011  For information about straddles, including definitions of the terms used in this discussion, see Straddles in chapter 4. Tax slayer 2011   Interest includes any amount you pay or incur in connection with personal property used in a short sale. Tax slayer 2011 However, you must first apply the rules discussed in Payments in lieu of dividends under Short Sales in chapter 4. Tax slayer 2011   To determine the interest on market discount bonds and short-term obligations that are part of a straddle, you must first apply the rules discussed under Limit on interest deduction for market discount bonds and Limit on interest deduction for short-term obligations (both under Interest Expenses, earlier). Tax slayer 2011 Nondeductible amount. Tax slayer 2011   Figure the nondeductible interest and carrying charges on straddle property as follows. Tax slayer 2011 Add: Interest on indebtedness incurred or continued to buy or carry the personal property, and All other amounts (including charges to insure, store, or transport the personal property) paid or incurred to carry the personal property. Tax slayer 2011 Subtract from the amount in (1): Interest (including OID) includible in gross income for the year on the personal property, Any income from the personal property treated as ordinary income on the disposition of short-term government obligations or as ordinary income under the market discount and short-term bond provisions — see Discount on Debt Instruments in chapter 1, The dividends includible in gross income for the year from the personal property, and Any payment on a loan of the personal property for use in a short sale that is includible in gross income. Tax slayer 2011 Basis adjustment. Tax slayer 2011   Add the nondeductible amount to the basis of your straddle property. Tax slayer 2011 How To Report Investment Expenses To deduct your investment expenses, you must itemize deductions on Schedule A (Form 1040). Tax slayer 2011 Enter your deductible investment interest expense on Schedule A (Form1040), line 14. Tax slayer 2011 Include any deductible short sale expenses. Tax slayer 2011 (See Short Sales in chapter 4 for information on these expenses. Tax slayer 2011 ) Also attach a completed Form 4952 if you used that form to figure your investment interest expense. Tax slayer 2011 Enter the total amount of your other investment expenses (other than interest expenses) on Schedule A (Form 1040), line 23. Tax slayer 2011 List the type and amount of each expense on the dotted lines next to line 23. Tax slayer 2011 (If necessary, you can show the required information on an attached statement. Tax slayer 2011 ) For information on how to report amortizable bond premium, see Bond Premium Amortization , earlier in this chapter. Tax slayer 2011 When To Report Investment Expenses If you use the cash method to report income and expenses, you generally deduct your expenses, except for certain prepaid interest, in the year you pay them. Tax slayer 2011 If you use an accrual method, you generally deduct your expenses when you incur a liability for them, rather than when you pay them. Tax slayer 2011 Also see When To Deduct Investment Interest , earlier in this chapter. Tax slayer 2011 Unpaid expenses owed to related party. Tax slayer 2011   If you use an accrual method, you cannot deduct interest and other expenses owed to a related cash-basis person until payment is made and the amount is includible in the gross income of that person. Tax slayer 2011 The relationship, for purposes of this rule, is determined as of the end of the tax year for which the interest or expense would otherwise be deductible. Tax slayer 2011 If a deduction is denied under this rule, this rule will continue to apply even if your relationship with the person ceases to exist before the amount is includible in the gross income of that person. Tax slayer 2011   This rule generally applies to those relationships listed in chapter 4 under Related Party Transactions . Tax slayer 2011 It also applies to accruals by partnerships to partners, partners to partnerships, shareholders to S corporations, and S corporations to shareholders. Tax slayer 2011   The postponement of deductions for unpaid expenses and interest under the related party rule does not apply to OID, regardless of when payment is made. Tax slayer 2011 This rule also does not apply to loans with below-market interest rates or to certain payments for the use of property and services when the lender or recipient has to include payments periodically in income, even if a payment has not been made. Tax slayer 2011 Prev  Up  Next   Home   More Online Publications