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Taxact sign 12. Taxact sign   Other Income Table of Contents Introduction Useful Items - You may want to see: Bartering Canceled DebtsInterest included in canceled debt. Taxact sign Exceptions Host or Hostess Life Insurance ProceedsSurviving spouse. Taxact sign Endowment Contract Proceeds Accelerated Death Benefits Public Safety Officer Killed in the Line of Duty Partnership Income S Corporation Income RecoveriesItemized Deduction Recoveries Rents from Personal Property RepaymentsMethod 1. Taxact sign Method 2. Taxact sign RoyaltiesDepletion. Taxact sign Coal and iron ore. Taxact sign Sale of property interest. Taxact sign Part of future production sold. Taxact sign Unemployment BenefitsTypes of unemployment compensation. Taxact sign Governmental program. Taxact sign Repayment of unemployment compensation. Taxact sign Tax withholding. Taxact sign Repayment of benefits. Taxact sign Welfare and Other Public Assistance Benefits Other IncomeEmotional distress. Taxact sign Deduction for costs involved in unlawful discrimination suits. Taxact sign Energy conservation measure. Taxact sign Dwelling unit. Taxact sign Current income required to be distributed. Taxact sign Current income not required to be distributed. Taxact sign How to report. Taxact sign Losses. Taxact sign Grantor trust. Taxact sign Nonemployee compensation. Taxact sign Corporate director. Taxact sign Personal representatives. Taxact sign Manager of trade or business for bankruptcy estate. Taxact sign Notary public. Taxact sign Election precinct official. Taxact sign Difficulty-of-care payments. Taxact sign Maintaining space in home. Taxact sign Reporting taxable payments. Taxact sign Lotteries and raffles. Taxact sign Form W-2G. Taxact sign Reporting winnings and recordkeeping. Taxact sign Inherited pension or IRA. Taxact sign Employee awards or bonuses. Taxact sign Pulitzer, Nobel, and similar prizes. Taxact sign Payment for services. Taxact sign VA payments. Taxact sign Prizes. Taxact sign Strike and lockout benefits. Taxact sign Introduction You must include on your return all items of income you receive in the form of money, property, and services unless the tax law states that you do not include them. Taxact sign Some items, however, are only partly excluded from income. Taxact sign This chapter discusses many kinds of income and explains whether they are taxable or nontaxable. Taxact sign Income that is taxable must be reported on your tax return and is subject to tax. Taxact sign Income that is nontaxable may have to be shown on your tax return but is not taxable. Taxact sign This chapter begins with discussions of the following income items. Taxact sign Bartering. Taxact sign Canceled debts. Taxact sign Sales parties at which you are the host or hostess. Taxact sign Life insurance proceeds. Taxact sign Partnership income. Taxact sign S Corporation income. Taxact sign Recoveries (including state income tax refunds). Taxact sign Rents from personal property. Taxact sign Repayments. Taxact sign Royalties. Taxact sign Unemployment benefits. Taxact sign Welfare and other public assistance benefits. Taxact sign These discussions are followed by brief discussions of other income items. Taxact sign Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 544 Sales and Other Dispositions of Assets 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Bartering Bartering is an exchange of property or services. Taxact sign You must include in your income, at the time received, the fair market value of property or services you receive in bartering. Taxact sign If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as fair market value unless the value can be shown to be otherwise. Taxact sign Generally, you report this income on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Taxact sign However, if the barter involves an exchange of something other than services, such as in Example 3 below, you may have to use another form or schedule instead. Taxact sign Example 1. Taxact sign You are a self-employed attorney who performs legal services for a client, a small corporation. Taxact sign The corporation gives you shares of its stock as payment for your services. Taxact sign You must include the fair market value of the shares in your income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) in the year you receive them. Taxact sign Example 2. Taxact sign You are self-employed and a member of a barter club. Taxact sign The club uses “credit units” as a means of exchange. Taxact sign It adds credit units to your account for goods or services you provide to members, which you can use to purchase goods or services offered by other members of the barter club. Taxact sign The club subtracts credit units from your account when you receive goods or services from other members. Taxact sign You must include in your income the value of the credit units that are added to your account, even though you may not actually receive goods or services from other members until a later tax year. Taxact sign Example 3. Taxact sign You own a small apartment building. Taxact sign In return for 6 months rent-free use of an apartment, an artist gives you a work of art she created. Taxact sign You must report as rental income on Schedule E (Form 1040), Supplemental Income and Loss, the fair market value of the artwork, and the artist must report as income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) the fair rental value of the apartment. Taxact sign Form 1099-B from barter exchange. Taxact sign   If you exchanged property or services through a barter exchange, Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or a similar statement from the barter exchange should be sent to you by February 18, 2014. Taxact sign It should show the value of cash, property, services, credits, or scrip you received from exchanges during 2013. Taxact sign The IRS also will receive a copy of Form 1099-B. Taxact sign Canceled Debts In most cases, if a debt you owe is canceled or forgiven, other than as a gift or bequest, you must include the canceled amount in your income. Taxact sign You have no income from the canceled debt if it is intended as a gift to you. Taxact sign A debt includes any indebtedness for which you are liable or which attaches to property you hold. Taxact sign If the debt is a nonbusiness debt, report the canceled amount on Form 1040, line 21. Taxact sign If it is a business debt, report the amount on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) (or on Schedule F (Form 1040), Profit or Loss From Farming, if the debt is farm debt and you are a farmer). Taxact sign Form 1099-C. Taxact sign   If a Federal Government agency, financial institution, or credit union cancels or forgives a debt you owe of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. Taxact sign The amount of the canceled debt is shown in box 2. Taxact sign Interest included in canceled debt. Taxact sign   If any interest is forgiven and included in the amount of canceled debt in box 2, the amount of interest also will be shown in box 3. Taxact sign Whether or not you must include the interest portion of the canceled debt in your income depends on whether the interest would be deductible when you paid it. Taxact sign See Deductible debt under Exceptions, later. Taxact sign   If the interest would not be deductible (such as interest on a personal loan), include in your income the amount from Form 1099-C, box 2. Taxact sign If the interest would be deductible (such as on a business loan), include in your income the net amount of the canceled debt (the amount shown in box 2 less the interest amount shown in box 3). Taxact sign Discounted mortgage loan. Taxact sign   If your financial institution offers a discount for the early payment of your mortgage loan, the amount of the discount is canceled debt. Taxact sign You must include the canceled amount in your income. Taxact sign Mortgage relief upon sale or other disposition. Taxact sign   If you are personally liable for a mortgage (recourse debt), and you are relieved of the mortgage when you dispose of the property, you may realize gain or loss up to the fair market value of the property. Taxact sign To the extent the mortgage discharge exceeds the fair market value of the property, it is income from discharge of indebtedness unless it qualifies for exclusion under Excluded debt , later. Taxact sign Report any income from discharge of indebtedness on nonbusiness debt that does not qualify for exclusion as other income on Form 1040, line 21. Taxact sign    You may be able to exclude part of the mortgage relief on your principal residence. Taxact sign See Excluded debt, later. Taxact sign   If you are not personally liable for a mortgage (nonrecourse debt), and you are relieved of the mortgage when you dispose of the property (such as through foreclosure), that relief is included in the amount you realize. Taxact sign You may have a taxable gain if the amount you realize exceeds your adjusted basis in the property. Taxact sign Report any gain on nonbusiness property as a capital gain. Taxact sign   See Publication 4681 for more information. Taxact sign Stockholder debt. Taxact sign   If you are a stockholder in a corporation and the corporation cancels or forgives your debt to it, the canceled debt is a constructive distribution that is generally dividend income to you. Taxact sign For more information, see Publication 542, Corporations. Taxact sign   If you are a stockholder in a corporation and you cancel a debt owed to you by the corporation, you generally do not realize income. Taxact sign This is because the canceled debt is considered as a contribution to the capital of the corporation equal to the amount of debt principal that you canceled. Taxact sign Repayment of canceled debt. Taxact sign   If you included a canceled amount in your income and later pay the debt, you may be able to file a claim for refund for the year the amount was included in income. Taxact sign You can file a claim on Form 1040X if the statute of limitations for filing a claim is still open. Taxact sign The statute of limitations generally does not end until 3 years after the due date of your original return. Taxact sign Exceptions There are several exceptions to the inclusion of canceled debt in income. Taxact sign These are explained next. Taxact sign Student loans. Taxact sign   Certain student loans contain a provision that all or part of the debt incurred to attend the qualified educational institution will be canceled if you work for a certain period of time in certain professions for any of a broad class of employers. Taxact sign   You do not have income if your student loan is canceled after you agreed to this provision and then performed the services required. Taxact sign To qualify, the loan must have been made by: The Federal Government, a state or local government, or an instrumentality, agency, or subdivision thereof, A tax-exempt public benefit corporation that has assumed control of a state, county, or municipal hospital, and whose employees are considered public employees under state law, or An educational institution: Under an agreement with an entity described in (1) or (2) that provided the funds to the institution to make the loan, or As part of a program of the institution designed to encourage its students to serve in occupations with unmet needs or in areas with unmet needs and under which the services provided by the students (or former students) are for or under the direction of a governmental unit or a tax-exempt organization described in section 501(c)(3). Taxact sign   A loan to refinance a qualified student loan also will qualify if it was made by an educational institution or a qualified tax-exempt organization under its program designed as described in (3)(b) above. Taxact sign Education loan repayment assistance. Taxact sign   Education loan repayments made to you by the National Health Service Corps Loan Repayment Program (NHSC Loan Repayment Program), a state education loan repayment program eligible for funds under the Public Health Service Act, or any other state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health services in underserved or health professional shortage areas are not taxable. Taxact sign    The provision relating to the “other state loan repayment or loan forgiveness program” was added to this exclusion for amounts received in tax years beginning after December 31, 2008. Taxact sign If you included these amounts in income in 2010, 2011, or 2012, you should file an amended tax return to exclude this income. Taxact sign See Form 1040X and its instructions for details on filing. Taxact sign Deductible debt. Taxact sign   You do not have income from the cancellation of a debt if your payment of the debt would be deductible. Taxact sign This exception applies only if you use the cash method of accounting. Taxact sign For more information, see chapter 5 of Publication 334, Tax Guide for Small Business. Taxact sign Price reduced after purchase. Taxact sign   In most cases, if the seller reduces the amount of debt you owe for property you purchased, you do not have income from the reduction. Taxact sign The reduction of the debt is treated as a purchase price adjustment and reduces your basis in the property. Taxact sign Excluded debt. Taxact sign   Do not include a canceled debt in your gross income in the following situations. Taxact sign The debt is canceled in a bankruptcy case under title 11 of the U. Taxact sign S. Taxact sign Code. Taxact sign See Publication 908, Bankruptcy Tax Guide. Taxact sign The debt is canceled when you are insolvent. Taxact sign However, you cannot exclude any amount of canceled debt that is more than the amount by which you are insolvent. Taxact sign See Publication 908. Taxact sign The debt is qualified farm debt and is canceled by a qualified person. Taxact sign See chapter 3 of Publication 225, Farmer's Tax Guide. Taxact sign The debt is qualified real property business debt. Taxact sign See chapter 5 of Publication 334. Taxact sign The cancellation is intended as a gift. Taxact sign The debt is qualified principal residence indebtedness. Taxact sign See Publication 525 for additional information. Taxact sign Host or Hostess If you host a party or event at which sales are made, any gift or gratuity you receive for giving the event is a payment for helping a direct seller make sales. Taxact sign You must report this item as income at its fair market value. Taxact sign Your out-of-pocket party expenses are subject to the 50% limit for meal and entertainment expenses. Taxact sign These expenses are deductible as miscellaneous itemized deductions subject to the 2%-of-AGI limit on Schedule A (Form 1040), but only up to the amount of income you receive for giving the party. Taxact sign For more information about the 50% limit for meal and entertainment expenses, see chapter 26. Taxact sign Life Insurance Proceeds Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. Taxact sign This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. Taxact sign However, interest income received as a result of life insurance proceeds may be taxable. Taxact sign Proceeds not received in installments. Taxact sign   If death benefits are paid to you in a lump sum or other than at regular intervals, include in your income only the benefits that are more than the amount payable to you at the time of the insured person's death. Taxact sign If the benefit payable at death is not specified, you include in your income the benefit payments that are more than the present value of the payments at the time of death. Taxact sign Proceeds received in installments. Taxact sign   If you receive life insurance proceeds in installments, you can exclude part of each installment from your income. Taxact sign   To determine the excluded part, divide the amount held by the insurance company (generally the total lump sum payable at the death of the insured person) by the number of installments to be paid. Taxact sign Include anything over this excluded part in your income as interest. Taxact sign Surviving spouse. Taxact sign   If your spouse died before October 23, 1986, and insurance proceeds paid to you because of the death of your spouse are received in installments, you can exclude up to $1,000 a year of the interest included in the installments. Taxact sign If you remarry, you can continue to take the exclusion. Taxact sign Surrender of policy for cash. Taxact sign   If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Taxact sign In most cases, your cost (or investment in the contract) is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income. Taxact sign    You should receive a Form 1099-R showing the total proceeds and the taxable part. Taxact sign Report these amounts on lines 16a and 16b of Form 1040 or lines 12a and 12b of Form 1040A. Taxact sign More information. Taxact sign   For more information, see Life Insurance Proceeds in Publication 525. Taxact sign Endowment Contract Proceeds An endowment contract is a policy under which you are paid a specified amount of money on a certain date unless you die before that date, in which case, the money is paid to your designated beneficiary. Taxact sign Endowment proceeds paid in a lump sum to you at maturity are taxable only if the proceeds are more than the cost of the policy. Taxact sign To determine your cost, subtract any amount that you previously received under the contract and excluded from your income from the total premiums (or other consideration) paid for the contract. Taxact sign Include the part of the lump sum payment that is more than your cost in your income. Taxact sign Accelerated Death Benefits Certain amounts paid as accelerated death benefits under a life insurance contract or viatical settlement before the insured's death are excluded from income if the insured is terminally or chronically ill. Taxact sign Viatical settlement. Taxact sign   This is the sale or assignment of any part of the death benefit under a life insurance contract to a viatical settlement provider. Taxact sign A viatical settlement provider is a person who regularly engages in the business of buying or taking assignment of life insurance contracts on the lives of insured individuals who are terminally or chronically ill and who meets the requirements of section 101(g)(2)(B) of the Internal Revenue Code. Taxact sign Exclusion for terminal illness. Taxact sign    Accelerated death benefits are fully excludable if the insured is a terminally ill individual. Taxact sign This is a person who has been certified by a physician as having an illness or physical condition that can reasonably be expected to result in death within 24 months from the date of the certification. Taxact sign Exclusion for chronic illness. Taxact sign    If the insured is a chronically ill individual who is not terminally ill, accelerated death benefits paid on the basis of costs incurred for qualified long-term care services are fully excludable. Taxact sign Accelerated death benefits paid on a per diem or other periodic basis are excludable up to a limit. Taxact sign This limit applies to the total of the accelerated death benefits and any periodic payments received from long-term care insurance contracts. Taxact sign For information on the limit and the definitions of chronically ill individual, qualified long-term care services, and long-term care insurance contracts, see Long-Term Care Insurance Contracts under Sickness and Injury Benefits in Publication 525. Taxact sign Exception. Taxact sign   The exclusion does not apply to any amount paid to a person (other than the insured) who has an insurable interest in the life of the insured because the insured: Is a director, officer, or employee of the person, or Has a financial interest in the person's business. Taxact sign Form 8853. Taxact sign   To claim an exclusion for accelerated death benefits made on a per diem or other periodic basis, you must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your return. Taxact sign You do not have to file Form 8853 to exclude accelerated death benefits paid on the basis of actual expenses incurred. Taxact sign Public Safety Officer Killed in the Line of Duty If you are a survivor of a public safety officer who was killed in the line of duty, you may be able to exclude from income certain amounts you receive. Taxact sign For this purpose, the term public safety officer includes law enforcement officers, firefighters, chaplains, and rescue squad and ambulance crew members. Taxact sign For more information, see Publication 559, Survivors, Executors, and Administrators. Taxact sign Partnership Income A partnership generally is not a taxable entity. Taxact sign The income, gains, losses, deductions, and credits of a partnership are passed through to the partners based on each partner's distributive share of these items. Taxact sign Schedule K-1 (Form 1065). Taxact sign    Although a partnership generally pays no tax, it must file an information return on Form 1065, U. Taxact sign S. Taxact sign Return of Partnership Income, and send Schedule K-1 (Form 1065) to each partner. Taxact sign In addition, the partnership will send each partner a copy of the Partner's Instructions for Schedule K-1 (Form 1065) to help each partner report his or her share of the partnership's income, deductions, credits, and tax preference items. Taxact sign Keep Schedule K-1 (Form 1065) for your records. Taxact sign Do not attach it to your Form 1040, unless you are specifically required to do so. Taxact sign For more information on partnerships, see Publication 541, Partnerships. Taxact sign Qualified joint venture. Taxact sign   If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership. Taxact sign To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. Taxact sign For further information on how to make the election and which schedule(s) to file, see the instructions for your individual tax return. Taxact sign S Corporation Income In most cases, an S corporation does not pay tax on its income. Taxact sign Instead, the income, losses, deductions, and credits of the corporation are passed through to the shareholders based on each shareholder's pro rata share. Taxact sign Schedule K-1 (Form 1120S). Taxact sign   An S corporation must file a return on Form 1120S, U. Taxact sign S. Taxact sign Income Tax Return for an S Corporation, and send Schedule K-1 (Form 1120S) to each shareholder. Taxact sign In addition, the S corporation will send each shareholder a copy of the Shareholder's Instructions for Schedule K-1 (Form 1120S) to help each shareholder report his or her share of the S corporation's income, losses, credits, and deductions. Taxact sign Keep Schedule K-1 (Form 1120S) for your records. Taxact sign Do not attach it to your Form 1040, unless you are specifically required to do so. Taxact sign For more information on S corporations and their shareholders, see the Instructions for Form 1120S. Taxact sign Recoveries A recovery is a return of an amount you deducted or took a credit for in an earlier year. Taxact sign The most common recoveries are refunds, reimbursements, and rebates of deductions itemized on Schedule A (Form 1040). Taxact sign You also may have recoveries of non-itemized deductions (such as payments on previously deducted bad debts) and recoveries of items for which you previously claimed a tax credit. Taxact sign Tax benefit rule. Taxact sign   You must include a recovery in your income in the year you receive it up to the amount by which the deduction or credit you took for the recovered amount reduced your tax in the earlier year. Taxact sign For this purpose, any increase to an amount carried over to the current year that resulted from the deduction or credit is considered to have reduced your tax in the earlier year. Taxact sign For more information, see Publication 525. Taxact sign Federal income tax refund. Taxact sign   Refunds of federal income taxes are not included in your income because they are never allowed as a deduction from income. Taxact sign State tax refund. Taxact sign   If you received a state or local income tax refund (or credit or offset) in 2013, you generally must include it in income if you deducted the tax in an earlier year. Taxact sign The payer should send Form 1099-G, Certain Government Payments, to you by January 31, 2014. Taxact sign The IRS also will receive a copy of the Form 1099-G. Taxact sign If you file Form 1040, use the State and Local Income Tax Refund Worksheet in the 2013 Form 1040 instructions for line 10 to figure the amount (if any) to include in your income. Taxact sign See Publication 525 for when you must use another worksheet. Taxact sign   If you could choose to deduct for a tax year either: State and local income taxes, or State and local general sales taxes, then the maximum refund that you may have to include in income is limited to the excess of the tax you chose to deduct for that year over the tax you did not choose to deduct for that year. Taxact sign For examples, see Publication 525. Taxact sign Mortgage interest refund. Taxact sign    If you received a refund or credit in 2013 of mortgage interest paid in an earlier year, the amount should be shown in box 3 of your Form 1098, Mortgage Interest Statement. Taxact sign Do not subtract the refund amount from the interest you paid in 2013. Taxact sign You may have to include it in your income under the rules explained in the following discussions. Taxact sign Interest on recovery. Taxact sign   Interest on any of the amounts you recover must be reported as interest income in the year received. Taxact sign For example, report any interest you received on state or local income tax refunds on Form 1040, line 8a. Taxact sign Recovery and expense in same year. Taxact sign   If the refund or other recovery and the expense occur in the same year, the recovery reduces the deduction or credit and is not reported as income. Taxact sign Recovery for 2 or more years. Taxact sign   If you receive a refund or other recovery that is for amounts you paid in 2 or more separate years, you must allocate, on a pro rata basis, the recovered amount between the years in which you paid it. Taxact sign This allocation is necessary to determine the amount of recovery from any earlier years and to determine the amount, if any, of your allowable deduction for this item for the current year. Taxact sign For information on how to compute the allocation, see Recoveries in Publication 525. Taxact sign Itemized Deduction Recoveries If you recover any amount that you deducted in an earlier year on Schedule A (Form 1040), you generally must include the full amount of the recovery in your income in the year you receive it. Taxact sign Where to report. Taxact sign   Enter your state or local income tax refund on Form 1040, line 10, and the total of all other recoveries as other income on Form 1040, line 21. Taxact sign You cannot use Form 1040A or Form 1040EZ. Taxact sign Standard deduction limit. Taxact sign   You generally are allowed to claim the standard deduction if you do not itemize your deductions. Taxact sign Only your itemized deductions that are more than your standard deduction are subject to the recovery rule (unless you are required to itemize your deductions). Taxact sign If your total deductions on the earlier year return were not more than your income for that year, include in your income this year the lesser of: Your recoveries, or The amount by which your itemized deductions exceeded the standard deduction. Taxact sign Example. Taxact sign For 2012, you filed a joint return. Taxact sign Your taxable income was $60,000 and you were not entitled to any tax credits. Taxact sign Your standard deduction was $11,900, and you had itemized deductions of $14,000. Taxact sign In 2013, you received the following recoveries for amounts deducted on your 2012 return: Medical expenses $200 State and local income tax refund 400 Refund of mortgage interest 325 Total recoveries $925 None of the recoveries were more than the deductions taken for 2012. Taxact sign The difference between the state and local income tax you deducted and your local general sales tax was more than $400. Taxact sign Your total recoveries are less than the amount by which your itemized deductions exceeded the standard deduction ($14,000 − 11,900 = $2,100), so you must include your total recoveries in your income for 2013. Taxact sign Report the state and local income tax refund of $400 on Form 1040, line 10, and the balance of your recoveries, $525, on Form 1040, line 21. Taxact sign Standard deduction for earlier years. Taxact sign   To determine if amounts recovered in 2013 must be included in your income, you must know the standard deduction for your filing status for the year the deduction was claimed. Taxact sign Look in the instructions for your tax return from prior years to locate the standard deduction for the filing status for that prior year. Taxact sign Example. Taxact sign You filed a joint return on Form 1040 for 2012 with taxable income of $45,000. Taxact sign Your itemized deductions were $12,350. Taxact sign The standard deduction that you could have claimed was $11,900. Taxact sign In 2013, you recovered $2,100 of your 2012 itemized deductions. Taxact sign None of the recoveries were more than the actual deductions for 2012. Taxact sign Include $450 of the recoveries in your 2013 income. Taxact sign This is the smaller of your recoveries ($2,100) or the amount by which your itemized deductions were more than the standard deduction ($12,350 − $11,900 = $450). Taxact sign Recovery limited to deduction. Taxact sign   You do not include in your income any amount of your recovery that is more than the amount you deducted in the earlier year. Taxact sign The amount you include in your income is limited to the smaller of: The amount deducted on Schedule A (Form 1040), or The amount recovered. Taxact sign Example. Taxact sign During 2012 you paid $1,700 for medical expenses. Taxact sign From this amount you subtracted $1,500, which was 7. Taxact sign 5% of your adjusted gross income. Taxact sign Your actual medical expense deduction was $200. Taxact sign In 2013, you received a $500 reimbursement from your medical insurance for your 2012 expenses. Taxact sign The only amount of the $500 reimbursement that must be included in your income for 2013 is $200—the amount actually deducted. Taxact sign Other recoveries. Taxact sign   See Recoveries in Publication 525 if: You have recoveries of items other than itemized deductions, or You received a recovery for an item for which you claimed a tax credit (other than investment credit or foreign tax credit) in a prior year. Taxact sign Rents from Personal Property If you rent out personal property, such as equipment or vehicles, how you report your income and expenses is in most cases determined by: Whether or not the rental activity is a business, and Whether or not the rental activity is conducted for profit. Taxact sign In most cases, if your primary purpose is income or profit and you are involved in the rental activity with continuity and regularity, your rental activity is a business. Taxact sign See Publication 535, Business Expenses, for details on deducting expenses for both business and not-for-profit activities. Taxact sign Reporting business income and expenses. Taxact sign    If you are in the business of renting personal property, report your income and expenses on Schedule C or Schedule C-EZ (Form 1040). Taxact sign The form instructions have information on how to complete them. Taxact sign Reporting nonbusiness income. Taxact sign   If you are not in the business of renting personal property, report your rental income on Form 1040, line 21. Taxact sign List the type and amount of the income on the dotted line next to line 21. Taxact sign Reporting nonbusiness expenses. Taxact sign   If you rent personal property for profit, include your rental expenses in the total amount you enter on Form 1040, line 36. Taxact sign Also enter the amount and “PPR” on the dotted line next to line 36. Taxact sign   If you do not rent personal property for profit, your deductions are limited and you cannot report a loss to offset other income. Taxact sign See Activity not for profit , under Other Income, later. Taxact sign Repayments If you had to repay an amount that you included in your income in an earlier year, you may be able to deduct the amount repaid from your income for the year in which you repaid it. Taxact sign Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it. Taxact sign Generally, you can claim a deduction or credit only if the repayment qualifies as an expense or loss incurred in your trade or business or in a for-profit transaction. Taxact sign Type of deduction. Taxact sign   The type of deduction you are allowed in the year of repayment depends on the type of income you included in the earlier year. Taxact sign You generally deduct the repayment on the same form or schedule on which you previously reported it as income. Taxact sign For example, if you reported it as self-employment income, deduct it as a business expense on Schedule C or Schedule C-EZ (Form 1040) or Schedule F (Form 1040). Taxact sign If you reported it as a capital gain, deduct it as a capital loss as explained in the Instructions for Schedule D (Form 1040). Taxact sign If you reported it as wages, unemployment compensation, or other nonbusiness income, deduct it as a miscellaneous itemized deduction on Schedule A (Form 1040). Taxact sign Repaid social security benefits. Taxact sign   If you repaid social security benefits or equivalent railroad retirement benefits, see Repayment of benefits in chapter 11. Taxact sign Repayment of $3,000 or less. Taxact sign   If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. Taxact sign If you must deduct it as a miscellaneous itemized deduction, enter it on Schedule A (Form 1040), line 23. Taxact sign Repayment over $3,000. Taxact sign   If the amount you repaid was more than $3,000, you can deduct the repayment (as explained under Type of deduction , earlier). Taxact sign However, you can choose instead to take a tax credit for the year of repayment if you included the income under a claim of right. Taxact sign This means that at the time you included the income, it appeared that you had an unrestricted right to it. Taxact sign If you qualify for this choice, figure your tax under both methods and compare the results. Taxact sign Use the method (deduction or credit) that results in less tax. Taxact sign When determining whether the amount you repaid was more or less than $3,000, consider the total amount being repaid on the return. Taxact sign Each instance of repayment is not considered separately. Taxact sign Method 1. Taxact sign   Figure your tax for 2013 claiming a deduction for the repaid amount. Taxact sign If you must deduct it as a miscellaneous itemized deduction, enter it on Schedule A (Form 1040), line 28. Taxact sign Method 2. Taxact sign   Figure your tax for 2013 claiming a credit for the repaid amount. Taxact sign Follow these steps. Taxact sign Figure your tax for 2013 without deducting the repaid amount. Taxact sign Refigure your tax from the earlier year without including in income the amount you repaid in 2013. Taxact sign Subtract the tax in (2) from the tax shown on your return for the earlier year. Taxact sign This is the credit. Taxact sign Subtract the answer in (3) from the tax for 2013 figured without the deduction (Step 1). Taxact sign   If method 1 results in less tax, deduct the amount repaid. Taxact sign If method 2 results in less tax, claim the credit figured in (3) above on Form 1040, line 71, by adding the amount of the credit to any other credits on this line, and entering “I. Taxact sign R. Taxact sign C. Taxact sign 1341” in the column to the right of line 71. Taxact sign   An example of this computation can be found in Publication 525. Taxact sign Repaid wages subject to social security and Medicare taxes. Taxact sign   If you had to repay an amount that you included in your wages or compensation in an earlier year on which social security, Medicare, or tier 1 RRTA taxes were paid, ask your employer to refund the excess amount to you. Taxact sign If the employer refuses to refund the taxes, ask for a statement indicating the amount of the overcollection to support your claim. Taxact sign File a claim for refund using Form 843, Claim for Refund and Request for Abatement. Taxact sign Repaid wages subject to Additional Medicare Tax. Taxact sign   Employers cannot make an adjustment or file a claim for refund for Additional Medicare Tax withholding when there is a repayment of wages received by an employee in a prior year because the employee determines liability for Additional Medicare Tax on the employee's income tax return for the prior year. Taxact sign If you had to repay an amount that you included in your wages or compensation in an earlier year, and on which Additional Medicare Tax was paid, you may be able to recover the Additional Medicare Tax paid on the amount. Taxact sign To recover Additional Medicare Tax on the repaid wages or compensation, you must file Form 1040X, Amended U. Taxact sign S. Taxact sign Individual Income Tax Return, for the prior year in which the wages or compensation were originally received. Taxact sign See the Instructions for Form 1040X. Taxact sign Royalties Royalties from copyrights, patents, and oil, gas, and mineral properties are taxable as ordinary income. Taxact sign In most cases you report royalties in Part I of Schedule E (Form 1040). Taxact sign However, if you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventor, artist, etc. Taxact sign , report your income and expenses on Schedule C or Schedule C-EZ (Form 1040). Taxact sign Copyrights and patents. Taxact sign   Royalties from copyrights on literary, musical, or artistic works, and similar property, or from patents on inventions, are amounts paid to you for the right to use your work over a specified period of time. Taxact sign Royalties generally are based on the number of units sold, such as the number of books, tickets to a performance, or machines sold. Taxact sign Oil, gas, and minerals. Taxact sign   Royalty income from oil, gas, and mineral properties is the amount you receive when natural resources are extracted from your property. Taxact sign The royalties are based on units, such as barrels, tons, etc. Taxact sign , and are paid to you by a person or company who leases the property from you. Taxact sign Depletion. Taxact sign   If you are the owner of an economic interest in mineral deposits or oil and gas wells, you can recover your investment through the depletion allowance. Taxact sign For information on this subject, see chapter 9 of Publication 535. Taxact sign Coal and iron ore. Taxact sign   Under certain circumstances, you can treat amounts you receive from the disposal of coal and iron ore as payments from the sale of a capital asset, rather than as royalty income. Taxact sign For information about gain or loss from the sale of coal and iron ore, see Publication 544. Taxact sign Sale of property interest. Taxact sign   If you sell your complete interest in oil, gas, or mineral rights, the amount you receive is considered payment for the sale of property used in a trade or business under section 1231, not royalty income. Taxact sign Under certain circumstances, the sale is subject to capital gain or loss treatment as explained in the Instructions for Schedule D (Form 1040). Taxact sign For more information on selling section 1231 property, see chapter 3 of Publication 544. Taxact sign   If you retain a royalty, an overriding royalty, or a net profit interest in a mineral property for the life of the property, you have made a lease or a sublease, and any cash you receive for the assignment of other interests in the property is ordinary income subject to a depletion allowance. Taxact sign Part of future production sold. Taxact sign   If you own mineral property but sell part of the future production, in most cases you treat the money you receive from the buyer at the time of the sale as a loan from the buyer. Taxact sign Do not include it in your income or take depletion based on it. Taxact sign   When production begins, you include all the proceeds in your income, deduct all the production expenses, and deduct depletion from that amount to arrive at your taxable income from the property. Taxact sign Unemployment Benefits The tax treatment of unemployment benefits you receive depends on the type of program paying the benefits. Taxact sign Unemployment compensation. Taxact sign   You must include in income all unemployment compensation you receive. Taxact sign You should receive a Form 1099-G showing in box 1 the total unemployment compensation paid to you. Taxact sign In most cases, you enter unemployment compensation on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. Taxact sign Types of unemployment compensation. Taxact sign   Unemployment compensation generally includes any amount received under an unemployment compensation law of the United States or of a state. Taxact sign It includes the following benefits. Taxact sign Benefits paid by a state or the District of Columbia from the Federal Unemployment Trust Fund. Taxact sign State unemployment insurance benefits. Taxact sign Railroad unemployment compensation benefits. Taxact sign Disability payments from a government program paid as a substitute for unemployment compensation. Taxact sign (Amounts received as workers' compensation for injuries or illness are not unemployment compensation. Taxact sign See chapter 5 for more information. Taxact sign ) Trade readjustment allowances under the Trade Act of 1974. Taxact sign Unemployment assistance under the Disaster Relief and Emergency Assistance Act. Taxact sign Unemployment assistance under the Airline Deregulation Act of 1974 Program. Taxact sign Governmental program. Taxact sign   If you contribute to a governmental unemployment compensation program and your contributions are not deductible, amounts you receive under the program are not included as unemployment compensation until you recover your contributions. Taxact sign If you deducted all of your contributions to the program, the entire amount you receive under the program is included in your income. Taxact sign Repayment of unemployment compensation. Taxact sign   If you repaid in 2013 unemployment compensation you received in 2013, subtract the amount you repaid from the total amount you received and enter the difference on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. Taxact sign On the dotted line next to your entry enter “Repaid” and the amount you repaid. Taxact sign If you repaid unemployment compensation in 2013 that you included in income in an earlier year, you can deduct the amount repaid on Schedule A (Form 1040), line 23, if you itemize deductions. Taxact sign If the amount is more than $3,000, see Repayments , earlier. Taxact sign Tax withholding. Taxact sign   You can choose to have federal income tax withheld from your unemployment compensation. Taxact sign To make this choice, complete Form W-4V, Voluntary Withholding Request, and give it to the paying office. Taxact sign Tax will be withheld at 10% of your payment. Taxact sign    If you do not choose to have tax withheld from your unemployment compensation, you may be liable for estimated tax. Taxact sign If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. Taxact sign For more information on estimated tax, see chapter 4. Taxact sign Supplemental unemployment benefits. Taxact sign   Benefits received from an employer-financed fund (to which the employees did not contribute) are not unemployment compensation. Taxact sign They are taxable as wages and are subject to withholding for income tax. Taxact sign They may be subject to social security and Medicare taxes. Taxact sign For more information, see Supplemental Unemployment Benefits in section 5 of Publication 15-A, Employer's Supplemental Tax Guide. Taxact sign Report these payments on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ. Taxact sign Repayment of benefits. Taxact sign   You may have to repay some of your supplemental unemployment benefits to qualify for trade readjustment allowances under the Trade Act of 1974. Taxact sign If you repay supplemental unemployment benefits in the same year you receive them, reduce the total benefits by the amount you repay. Taxact sign If you repay the benefits in a later year, you must include the full amount of the benefits received in your income for the year you received them. Taxact sign   Deduct the repayment in the later year as an adjustment to gross income on Form 1040. Taxact sign (You cannot use Form 1040A or Form 1040EZ. Taxact sign ) Include the repayment on Form 1040, line 36, and enter “Sub-Pay TRA” and the amount on the dotted line next to line 36. Taxact sign If the amount you repay in a later year is more than $3,000, you may be able to take a credit against your tax for the later year instead of deducting the amount repaid. Taxact sign For more information on this, see Repayments , earlier. Taxact sign Private unemployment fund. Taxact sign   Unemployment benefit payments from a private (nonunion) fund to which you voluntarily contribute are taxable only if the amounts you receive are more than your total payments into the fund. Taxact sign Report the taxable amount on Form 1040, line 21. Taxact sign Payments by a union. Taxact sign   Benefits paid to you as an unemployed member of a union from regular union dues are included in your income on Form 1040, line 21. Taxact sign However, if you contribute to a special union fund and your payments to the fund are not deductible, the unemployment benefits you receive from the fund are includible in your income only to the extent they are more than your contributions. Taxact sign Guaranteed annual wage. Taxact sign   Payments you receive from your employer during periods of unemployment, under a union agreement that guarantees you full pay during the year, are taxable as wages. Taxact sign Include them on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ. Taxact sign State employees. Taxact sign   Payments similar to a state's unemployment compensation may be made by the state to its employees who are not covered by the state's unemployment compensation law. Taxact sign Although the payments are fully taxable, do not report them as unemployment compensation. Taxact sign Report these payments on Form 1040, line 21. Taxact sign Welfare and Other Public Assistance Benefits Do not include in your income governmental benefit payments from a public welfare fund based upon need, such as payments to blind individuals under a state public assistance law. Taxact sign Payments from a state fund for the victims of crime should not be included in the victims' incomes if they are in the nature of welfare payments. Taxact sign Do not deduct medical expenses that are reimbursed by such a fund. Taxact sign You must include in your income any welfare payments that are compensation for services or that are obtained fraudulently. Taxact sign Reemployment Trade Adjustment Assistance (RTAA) payments. Taxact sign   RTAA payments received from a state must be included in your income. Taxact sign The state must send you Form 1099-G to advise you of the amount you should include in income. Taxact sign The amount should be reported on Form 1040, line 21. Taxact sign Persons with disabilities. Taxact sign   If you have a disability, you must include in income compensation you receive for services you perform unless the compensation is otherwise excluded. Taxact sign However, you do not include in income the value of goods, services, and cash that you receive, not in return for your services, but for your training and rehabilitation because you have a disability. Taxact sign Excludable amounts include payments for transportation and attendant care, such as interpreter services for the deaf, reader services for the blind, and services to help individuals with an intellectual disability do their work. Taxact sign Disaster relief grants. Taxact sign    Do not include post-disaster grants received under the Robert T. Taxact sign Stafford Disaster Relief and Emergency Assistance Act in your income if the grant payments are made to help you meet necessary expenses or serious needs for medical, dental, housing, personal property, transportation, child care, or funeral expenses. Taxact sign Do not deduct casualty losses or medical expenses that are specifically reimbursed by these disaster relief grants. Taxact sign If you have deducted a casualty loss for the loss of your personal residence and you later receive a disaster relief grant for the loss of the same residence, you may have to include part or all of the grant in your taxable income. Taxact sign See Recoveries , earlier. Taxact sign Unemployment assistance payments under the Act are taxable unemployment compensation. Taxact sign See Unemployment compensation under Unemployment Benefits, earlier. Taxact sign Disaster relief payments. Taxact sign   You can exclude from income any amount you receive that is a qualified disaster relief payment. Taxact sign A qualified disaster relief payment is an amount paid to you: To reimburse or pay reasonable and necessary personal, family, living, or funeral expenses that result from a qualified disaster; To reimburse or pay reasonable and necessary expenses incurred for the repair or rehabilitation of your home or repair or replacement of its contents to the extent it is due to a qualified disaster; By a person engaged in the furnishing or sale of transportation as a common carrier because of the death or personal physical injuries incurred as a result of a qualified disaster; or By a federal, state, or local government, or agency, or instrumentality in connection with a qualified disaster in order to promote the general welfare. Taxact sign You can exclude this amount only to the extent any expense it pays for is not paid for by insurance or otherwise. Taxact sign The exclusion does not apply if you were a participant or conspirator in a terrorist action or a representative of one. Taxact sign   A qualified disaster is: A disaster which results from a terrorist or military action; A federally declared disaster; or A disaster which results from an accident involving a common carrier, or from any other event, which is determined to be catastrophic by the Secretary of the Treasury or his or her delegate. Taxact sign   For amounts paid under item (4), a disaster is qualified if it is determined by an applicable federal, state, or local authority to warrant assistance from the federal, state, or local government, agency, or instrumentality. Taxact sign Disaster mitigation payments. Taxact sign   You also can exclude from income any amount you receive that is a qualified disaster mitigation payment. Taxact sign Qualified disaster mitigation payments are also most commonly paid to you in the period immediately following damage to property as a result of a natural disaster. Taxact sign However, disaster mitigation payments are used to mitigate (reduce the severity of) potential damage from future natural disasters. Taxact sign They are paid to you through state and local governments based on the provisions of the Robert T. Taxact sign Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act. Taxact sign   You cannot increase the basis or adjusted basis of your property for improvements made with nontaxable disaster mitigation payments. Taxact sign Home Affordable Modification Program (HAMP). Taxact sign   If you benefit from Pay-for-Performance Success Payments under HAMP, the payments are not taxable. Taxact sign Mortgage assistance payments under section 235 of the National Housing Act. Taxact sign   Payments made under section 235 of the National Housing Act for mortgage assistance are not included in the homeowner's income. Taxact sign Interest paid for the homeowner under the mortgage assistance program cannot be deducted. Taxact sign Medicare. Taxact sign   Medicare benefits received under title XVIII of the Social Security Act are not includible in the gross income of the individuals for whom they are paid. Taxact sign This includes basic (part A (Hospital Insurance Benefits for the Aged)) and supplementary (part B (Supplementary Medical Insurance Benefits for the Aged)). Taxact sign Old-age, survivors, and disability insurance benefits (OASDI). Taxact sign   Generally, OASDI payments under section 202 of title II of the Social Security Act are not includible in the gross income of the individuals to whom they are paid. Taxact sign This applies to old-age insurance benefits, and insurance benefits for wives, husbands, children, widows, widowers, mothers and fathers, and parents, as well as the lump-sum death payment. Taxact sign Nutrition Program for the Elderly. Taxact sign    Food benefits you receive under the Nutrition Program for the Elderly are not taxable. Taxact sign If you prepare and serve free meals for the program, include in your income as wages the cash pay you receive, even if you are also eligible for food benefits. Taxact sign Payments to reduce cost of winter energy. Taxact sign   Payments made by a state to qualified people to reduce their cost of winter energy use are not taxable. Taxact sign Other Income The following brief discussions are arranged in alphabetical order. Taxact sign Other income items briefly discussed below are referenced to publications which provide more topical information. Taxact sign Activity not for profit. Taxact sign   You must include on your return income from an activity from which you do not expect to make a profit. Taxact sign An example of this type of activity is a hobby or a farm you operate mostly for recreation and pleasure. Taxact sign Enter this income on Form 1040, line 21. Taxact sign Deductions for expenses related to the activity are limited. Taxact sign They cannot total more than the income you report and can be taken only if you itemize deductions on Schedule A (Form 1040). Taxact sign See Not-for-Profit Activities in chapter 1 of Publication 535 for information on whether an activity is considered carried on for a profit. Taxact sign Alaska Permanent Fund dividend. Taxact sign   If you received a payment from Alaska's mineral income fund (Alaska Permanent Fund dividend), report it as income on line 21 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. Taxact sign The state of Alaska sends each recipient a document that shows the amount of the payment with the check. Taxact sign The amount also is reported to IRS. Taxact sign Alimony. Taxact sign   Include in your income on Form 1040, line 11, any alimony payments you receive. Taxact sign Amounts you receive for child support are not income to you. Taxact sign Alimony and child support payments are discussed in chapter 18. Taxact sign Bribes. Taxact sign   If you receive a bribe, include it in your income. Taxact sign Campaign contributions. Taxact sign   These contributions are not income to a candidate unless they are diverted to his or her personal use. Taxact sign To be exempt from tax, the contributions must be spent for campaign purposes or kept in a fund for use in future campaigns. Taxact sign However, interest earned on bank deposits, dividends received on contributed securities, and net gains realized on sales of contributed securities are taxable and must be reported on Form 1120-POL, U. Taxact sign S. Taxact sign Income Tax Return for Certain Political Organizations. Taxact sign Excess campaign funds transferred to an office account must be included in the officeholder's income on Form 1040, line 21, in the year transferred. Taxact sign Car pools. Taxact sign   Do not include in your income amounts you receive from the passengers for driving a car in a car pool to and from work. Taxact sign These amounts are considered reimbursement for your expenses. Taxact sign However, this rule does not apply if you have developed car pool arrangements into a profit-making business of transporting workers for hire. Taxact sign Cash rebates. Taxact sign   A cash rebate you receive from a dealer or manufacturer of an item you buy is not income, but you must reduce your basis by the amount of the rebate. Taxact sign Example. Taxact sign You buy a new car for $24,000 cash and receive a $2,000 rebate check from the manufacturer. Taxact sign The $2,000 is not income to you. Taxact sign Your basis in the car is $22,000. Taxact sign This is the basis on which you figure gain or loss if you sell the car and depreciation if you use it for business. Taxact sign Casualty insurance and other reimbursements. Taxact sign   You generally should not report these reimbursements on your return unless you are figuring gain or loss from the casualty or theft. Taxact sign See chapter 25 for more information. Taxact sign Child support payments. Taxact sign   You should not report these payments on your return. Taxact sign See chapter 18 for more information. Taxact sign Court awards and damages. Taxact sign   To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces. Taxact sign The character of the income as ordinary income or capital gain depends on the nature of the underlying claim. Taxact sign Include the following as ordinary income. Taxact sign Interest on any award. Taxact sign Compensation for lost wages or lost profits in most cases. Taxact sign Punitive damages, in most cases. Taxact sign It does not matter if they relate to a physical injury or physical sickness. Taxact sign Amounts received in settlement of pension rights (if you did not contribute to the plan). Taxact sign Damages for: Patent or copyright infringement, Breach of contract, or Interference with business operations. Taxact sign Back pay and damages for emotional distress received to satisfy a claim under title VII of the Civil Rights Act of 1964. Taxact sign Attorney fees and costs (including contingent fees) where the underlying recovery is included in gross income. Taxact sign   Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments). Taxact sign Emotional distress. Taxact sign   Emotional distress itself is not a physical injury or physical sickness, but damages you receive for emotional distress due to a physical injury or sickness are treated as received for the physical injury or sickness. Taxact sign Do not include them in your income. Taxact sign   If the emotional distress is due to a personal injury that is not due to a physical injury or sickness (for example, employment discrimination or injury to reputation), you must include the damages in your income, except for any damages you receive for medical care due to that emotional distress. Taxact sign Emotional distress includes physical symptoms that result from emotional distress, such as headaches, insomnia, and stomach disorders. Taxact sign Deduction for costs involved in unlawful discrimination suits. Taxact sign   You may be able to deduct attorney fees and court costs paid to recover a judgment or settlement for a claim of unlawful discrimination under various provisions of federal, state, and local law listed in Internal Revenue Code section 62(e), a claim against the United States government, or a claim under section 1862(b)(3)(A) of the Social Security Act. Taxact sign For more information, see Publication 525. Taxact sign Credit card insurance. Taxact sign   In most cases, if you receive benefits under a credit card disability or unemployment insurance plan, the benefits are taxable to you. Taxact sign These plans make the minimum monthly payment on your credit card account if you cannot make the payment due to injury, illness, disability, or unemployment. Taxact sign Report on Form 1040, line 21, the amount of benefits you received during the year that is more than the amount of the premiums you paid during the year. Taxact sign Down payment assistance. Taxact sign   If you purchase a home and receive assistance from a nonprofit corporation to make the down payment, that assistance is not included in your income. Taxact sign If the corporation qualifies as a tax-exempt charitable organization, the assistance is treated as a gift and is included in your basis of the house. Taxact sign If the corporation does not qualify, the assistance is treated as a rebate or reduction of the purchase price and is not included in your basis. Taxact sign Employment agency fees. Taxact sign   If you get a job through an employment agency, and the fee is paid by your employer, the fee is not includible in your income if you are not liable for it. Taxact sign However, if you pay it and your employer reimburses you for it, it is includible in your income. Taxact sign Energy conservation subsidies. Taxact sign   You can exclude from gross income any subsidy provided, either directly or indirectly, by public utilities for the purchase or installation of an energy conservation measure for a dwelling unit. Taxact sign Energy conservation measure. Taxact sign   This includes installations or modifications that are primarily designed to reduce consumption of electricity or natural gas, or improve the management of energy demand. Taxact sign Dwelling unit. Taxact sign   This includes a house, apartment, condominium, mobile home, boat, or similar property. Taxact sign If a building or structure contains both dwelling and other units, any subsidy must be properly allocated. Taxact sign Estate and trust income. Taxact sign    An estate or trust, unlike a partnership, may have to pay federal income tax. Taxact sign If you are a beneficiary of an estate or trust, you may be taxed on your share of its income distributed or required to be distributed to you. Taxact sign However, there is never a double tax. Taxact sign Estates and trusts file their returns on Form 1041, U. Taxact sign S. Taxact sign Income Tax Return for Estates and Trusts, and your share of the income is reported to you on Schedule K-1 (Form 1041). Taxact sign Current income required to be distributed. Taxact sign   If you are the beneficiary of an estate or trust that must distribute all of its current income, you must report your share of the distributable net income, whether or not you actually received it. Taxact sign Current income not required to be distributed. Taxact sign    If you are the beneficiary of an estate or trust and the fiduciary has the choice of whether to distribute all or part of the current income, you must report: All income that is required to be distributed to you, whether or not it is actually distributed, plus All other amounts actually paid or credited to you, up to the amount of your share of distributable net income. Taxact sign How to report. Taxact sign   Treat each item of income the same way that the estate or trust would treat it. Taxact sign For example, if a trust's dividend income is distributed to you, you report the distribution as dividend income on your return. Taxact sign The same rule applies to distributions of tax-exempt interest and capital gains. Taxact sign   The fiduciary of the estate or trust must tell you the type of items making up your share of the estate or trust income and any credits you are allowed on your individual income tax return. Taxact sign Losses. Taxact sign   Losses of estates and trusts generally are not deductible by the beneficiaries. Taxact sign Grantor trust. Taxact sign   Income earned by a grantor trust is taxable to the grantor, not the beneficiary, if the grantor keeps certain control over the trust. Taxact sign (The grantor is the one who transferred property to the trust. Taxact sign ) This rule applies if the property (or income from the property) put into the trust will or may revert (be returned) to the grantor or the grantor's spouse. Taxact sign   Generally, a trust is a grantor trust if the grantor has a reversionary interest valued (at the date of transfer) at more than 5% of the value of the transferred property. Taxact sign Expenses paid by another. Taxact sign   If your personal expenses are paid for by another person, such as a corporation, the payment may be taxable to you depending upon your relationship with that person and the nature of the payment. Taxact sign But if the payment makes up for a loss caused by that person, and only restores you to the position you were in before the loss, the payment is not includible in your income. Taxact sign Fees for services. Taxact sign   Include all fees for your services in your income. Taxact sign Examples of these fees are amounts you receive for services you perform as: A corporate director, An executor, administrator, or personal representative of an estate, A manager of a trade or business you operated before declaring Chapter 11 bankruptcy, A notary public, or An election precinct official. Taxact sign Nonemployee compensation. Taxact sign   If you are not an employee and the fees for your services from the same payer total $600 or more for the year, you may receive a Form 1099-MISC. Taxact sign You may need to report your fees as self-employment income. Taxact sign See Self-Employed Persons , in chapter 1, for a discussion of when you are considered self-employed. Taxact sign Corporate director. Taxact sign   Corporate director fees are self-employment income. Taxact sign Report these payments on Schedule C or Schedule C-EZ (Form 1040). Taxact sign Personal representatives. Taxact sign   All personal representatives must include in their gross income fees paid to them from an estate. Taxact sign If you are not in the trade or business of being an executor (for instance, you are the executor of a friend's or relative's estate), report these fees on Form 1040, line 21. Taxact sign If you are in the trade or business of being an executor, report these fees as self-employment income on Schedule C or Schedule C-EZ (Form 1040). Taxact sign The fee is not includible in income if it is waived. Taxact sign Manager of trade or business for bankruptcy estate. Taxact sign   Include in your income all payments received from your bankruptcy estate for managing or operating a trade or business that you operated before you filed for bankruptcy. Taxact sign Report this income on Form 1040, line 21. Taxact sign Notary public. Taxact sign    Report payments for these services on Schedule C or Schedule C-EZ (Form 1040). Taxact sign These payments are not subject to self-employment tax. Taxact sign See the separate instructions for Schedule SE (Form 1040) for details. Taxact sign Election precinct official. Taxact sign    You should receive a Form W-2 showing payments for services performed as an election official or election worker. Taxact sign Report these payments on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ. Taxact sign Foster care providers. Taxact sign   Payments you receive from a state, political subdivision, or a qualified foster care placement agency for providing care to qualified foster individuals in your home generally are not included in your income. Taxact sign However, you must include in your income payments received for the care of more than 5 individuals age 19 or older and certain difficulty-of-care payments. Taxact sign   A qualified foster individual is a person who: Is living in a foster family home, and Was placed there by: An agency of a state or one of its political subdivisions, or A qualified foster care placement agency. Taxact sign Difficulty-of-care payments. Taxact sign   These are additional payments that are designated by the payer as compensation for providing the additional care that is required for physically, mentally, or emotionally handicapped qualified foster individuals. Taxact sign A state must determine that the additional compensation is needed, and the care for which the payments are made must be provided in your home. Taxact sign   You must include in your income difficulty-of-care payments received for more than: 10 qualified foster individuals under age 19, or 5 qualified foster individuals age 19 or older. Taxact sign Maintaining space in home. Taxact sign   If you are paid to maintain space in your home for emergency foster care, you must include the payment in your income. Taxact sign Reporting taxable payments. Taxact sign    If you receive payments that you must include in your income, you are in business as a foster care provider and you are self-employed. Taxact sign Report the payments on Schedule C or Schedule C-EZ (Form 1040). Taxact sign See Publication 587, Business Use of Your Home, to help you determine the amount you can deduct for the use of your home. Taxact sign Found property. Taxact sign   If you find and keep property that does not belong to you that has been lost or abandoned (treasure-trove), it is taxable to you at its fair market value in the first year it is your undisputed possession. Taxact sign Free tour. Taxact sign   If you received a free tour from a travel agency for organizing a group of tourists, you must include its value in your income. Taxact sign Report the fair market value of the tour on Form 1040, line 21, if you are not in the trade or business of organizing tours. Taxact sign You cannot deduct your expenses in serving as the voluntary leader of the group at the group's request. Taxact sign If you organize tours as a trade or business, report the tour's value on Schedule C or Schedule C-EZ (Form 1040). Taxact sign Gambling winnings. Taxact sign   You must include your gambling winnings in income on Form 1040, line 21. Taxact sign If you itemize your deductions on Schedule A (Form 1040), you can deduct gambling losses you had during the year, but only up to the amount of your winnings. Taxact sign Lotteries and raffles. Taxact sign   Winnings from lotteries and raffles are gambling winnings. Taxact sign In addition to cash winnings, you must include in your income the fair market value of bonds, cars, houses, and other noncash prizes. Taxact sign    If you win a state lottery prize payable in installments, see Publication 525 for more information. Taxact sign Form W-2G. Taxact sign   You may have received a Form W-2G, Certain Gambling Winnings, showing the amount of your gambling winnings and any tax taken out of them. Taxact sign Include the amount from box 1 on Form 1040, line 21. Taxact sign Include the amount shown in box 4 on Form 1040, line 62, as federal income tax withheld. Taxact sign Reporting winnings and recordkeeping. Taxact sign   For more information on reporting gam
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Taxact sign Publication 907 - Introductory Material Table of Contents Future Developments IntroductionOrdering forms and publications. Taxact sign Tax questions. Taxact sign Future Developments For the latest information about developments related to Publication 907, such as legislation enacted after this publication was published, go to www. Taxact sign IRS. Taxact sign gov/pub907. Taxact sign    Introduction This publication gives you a brief introduction to certain parts of the tax law of particular interest to people with disabilities and those who care for people with disabilities. Taxact sign It includes highlights about: Income, Itemized deductions, Tax credits, Household employers, and Business tax incentives. Taxact sign You will find most of the information you need to complete your tax return in your form instruction booklet. Taxact sign If you need additional information, you may want to order a free tax publication. Taxact sign You may also want to take advantage of the other free tax help services that the IRS provides. Taxact sign See How To Get Tax Help , at the end of this publication, for information about getting publications, forms, and free tax services. Taxact sign Comments and suggestions. Taxact sign   We welcome your comments about this publication and your suggestions for future editions. Taxact sign   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Taxact sign NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Taxact sign Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Taxact sign   You can send your comments from www. Taxact sign irs. Taxact sign gov/formspubs/. Taxact sign Click on “More Information” and then on “Comment on Tax Forms and Publications”. Taxact sign   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Taxact sign Ordering forms and publications. Taxact sign   Visit www. Taxact sign irs. Taxact sign gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Taxact sign Internal Revenue Service 1201 N. Taxact sign Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Taxact sign   If you have a tax question, check the information available on IRS. Taxact sign gov or call 1-800-829-1040. Taxact sign We cannot answer tax questions sent to either of the above addresses. Taxact sign Prev  Up  Next   Home   More Online Publications