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1040 easy 9. 1040 easy   Depletion Table of Contents Introduction Topics - This chapter discusses: Who Can Claim Depletion? Mineral PropertyCost Depletion Percentage Depletion Oil and Gas Wells Mines and Geothermal Deposits Lessor's Gross Income TimberTimber units. 1040 easy Depletion unit. 1040 easy Introduction Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. 1040 easy The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. 1040 easy There are two ways of figuring depletion: cost depletion and percentage depletion. 1040 easy For mineral property, you generally must use the method that gives you the larger deduction. 1040 easy For standing timber, you must use cost depletion. 1040 easy Topics - This chapter discusses: Who can claim depletion Mineral property Timber Who Can Claim Depletion? If you have an economic interest in mineral property or standing timber, you can take a deduction for depletion. 1040 easy More than one person can have an economic interest in the same mineral deposit or timber. 1040 easy In the case of leased property, the depletion deduction is divided between the lessor and the lessee. 1040 easy You have an economic interest if both the following apply. 1040 easy You have acquired by investment any interest in mineral deposits or standing timber. 1040 easy You have a legal right to income from the extraction of the mineral or cutting of the timber to which you must look for a return of your capital investment. 1040 easy A contractual relationship that allows you an economic or monetary advantage from products of the mineral deposit or standing timber is not, in itself, an economic interest. 1040 easy A production payment carved out of, or retained on the sale of, mineral property is not an economic interest. 1040 easy Individuals, corporations, estates, and trusts who claim depletion deductions may be liable for alternative minimum tax. 1040 easy Basis adjustment for depletion. 1040 easy   You must reduce the basis of your property by the depletion allowed or allowable, whichever is greater. 1040 easy Mineral Property Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits). 1040 easy For this purpose, the term “property” means each separate interest you own in each mineral deposit in each separate tract or parcel of land. 1040 easy You can treat two or more separate interests as one property or as separate properties. 1040 easy See section 614 of the Internal Revenue Code and the related regulations for rules on how to treat separate mineral interests. 1040 easy There are two ways of figuring depletion on mineral property. 1040 easy Cost depletion. 1040 easy Percentage depletion. 1040 easy Generally, you must use the method that gives you the larger deduction. 1040 easy However, unless you are an independent producer or royalty owner, you generally cannot use percentage depletion for oil and gas wells. 1040 easy See Oil and Gas Wells , later. 1040 easy Cost Depletion To figure cost depletion you must first determine the following. 1040 easy The property's basis for depletion. 1040 easy The total recoverable units of mineral in the property's natural deposit. 1040 easy The number of units of mineral sold during the tax year. 1040 easy Basis for depletion. 1040 easy   To figure the property's basis for depletion, subtract all the following from the property's adjusted basis. 1040 easy Amounts recoverable through: Depreciation deductions, Deferred expenses (including deferred exploration and development costs), and Deductions other than depletion. 1040 easy The residual value of land and improvements at the end of operations. 1040 easy The cost or value of land acquired for purposes other than mineral production. 1040 easy Adjusted basis. 1040 easy   The adjusted basis of your property is your original cost or other basis, plus certain additions and improvements, and minus certain deductions such as depletion allowed or allowable and casualty losses. 1040 easy Your adjusted basis can never be less than zero. 1040 easy See Publication 551, Basis of Assets, for more information on adjusted basis. 1040 easy Total recoverable units. 1040 easy   The total recoverable units is the sum of the following. 1040 easy The number of units of mineral remaining at the end of the year (including units recovered but not sold). 1040 easy The number of units of mineral sold during the tax year (determined under your method of accounting, as explained next). 1040 easy   You must estimate or determine recoverable units (tons, pounds, ounces, barrels, thousands of cubic feet, or other measure) of mineral products using the current industry method and the most accurate and reliable information you can obtain. 1040 easy You must include ores and minerals that are developed, in sight, blocked out, or assured. 1040 easy You must also include probable or prospective ores or minerals that are believed to exist based on good evidence. 1040 easy But see Elective safe harbor for owners of oil and gas property , later. 1040 easy Number of units sold. 1040 easy   You determine the number of units sold during the tax year based on your method of accounting. 1040 easy Use the following table to make this determination. 1040 easy    IF you  use . 1040 easy . 1040 easy . 1040 easy THEN the units sold during the year are . 1040 easy . 1040 easy . 1040 easy The cash method of accounting The units sold for which you receive payment during the tax year (regardless of the year of sale). 1040 easy An accrual method of accounting The units sold based on your inventories and method of accounting for inventory. 1040 easy   The number of units sold during the tax year does not include any for which depletion deductions were allowed or allowable in earlier years. 1040 easy Figuring the cost depletion deduction. 1040 easy   Once you have figured your property's basis for depletion, the total recoverable units, and the number of units sold during the tax year, you can figure your cost depletion deduction by taking the following steps. 1040 easy Step Action Result 1 Divide your property's basis for depletion by total recoverable units. 1040 easy Rate per unit. 1040 easy 2 Multiply the rate per unit by units sold during the tax year. 1040 easy Cost depletion deduction. 1040 easy You must keep accounts for the depletion of each property and adjust these accounts each year for units sold and depletion claimed. 1040 easy Elective safe harbor for owners of oil and gas property. 1040 easy   Instead of using the method described earlier to determine the total recoverable units, you can use an elective safe harbor. 1040 easy If you choose the elective safe harbor, the total recoverable units equal 105% of a property's proven reserves (both developed and undeveloped). 1040 easy For details, see Revenue Procedure 2004-19 on page 563 of Internal Revenue Bulletin 2004-10, available at www. 1040 easy irs. 1040 easy gov/pub/irs-irbs/irb04-10. 1040 easy pdf. 1040 easy   To make the election, attach a statement to your timely filed (including extensions) original return for the first tax year for which the safe harbor is elected. 1040 easy The statement must indicate that you are electing the safe harbor provided by Revenue Procedure 2004-19. 1040 easy The election, if made, is effective for the tax year in which it is made and all later years. 1040 easy It cannot be revoked for the tax year in which it is elected, but may be revoked in a later year. 1040 easy Once revoked, it cannot be re-elected for the next 5 years. 1040 easy Percentage Depletion To figure percentage depletion, you multiply a certain percentage, specified for each mineral, by your gross income from the property during the tax year. 1040 easy The rates to be used and other rules for oil and gas wells are discussed later under Independent Producers and Royalty Owners and under Natural Gas Wells . 1040 easy Rates and other rules for percentage depletion of other specific minerals are found later in Mines and Geothermal Deposits . 1040 easy Gross income. 1040 easy   When figuring percentage depletion, subtract from your gross income from the property the following amounts. 1040 easy Any rents or royalties you paid or incurred for the property. 1040 easy The part of any bonus you paid for a lease on the property allocable to the product sold (or that otherwise gives rise to gross income) for the tax year. 1040 easy A bonus payment includes amounts you paid as a lessee to satisfy a production payment retained by the lessor. 1040 easy   Use the following fraction to figure the part of the bonus you must subtract. 1040 easy No. 1040 easy of units sold in the tax year Recoverable units from the property × Bonus Payments For oil and gas wells and geothermal deposits, more information about the definition of gross income from the property is under Oil and Gas Wells , later. 1040 easy For other property, more information about the definition of gross income from the property is under Mines and Geothermal Deposits , later. 1040 easy Taxable income limit. 1040 easy   The percentage depletion deduction generally cannot be more than 50% (100% for oil and gas property) of your taxable income from the property figured without the depletion deduction and the domestic production activities deduction. 1040 easy   Taxable income from the property means gross income from the property minus all allowable deductions (except any deduction for depletion or domestic production activities) attributable to mining processes, including mining transportation. 1040 easy These deductible items include, but are not limited to, the following. 1040 easy Operating expenses. 1040 easy Certain selling expenses. 1040 easy Administrative and financial overhead. 1040 easy Depreciation. 1040 easy Intangible drilling and development costs. 1040 easy Exploration and development expenditures. 1040 easy Deductible taxes (see chapter 5), but not taxes that you capitalize or take as a credit. 1040 easy Losses sustained. 1040 easy   The following rules apply when figuring your taxable income from the property for purposes of the taxable income limit. 1040 easy Do not deduct any net operating loss deduction from the gross income from the property. 1040 easy Corporations do not deduct charitable contributions from the gross income from the property. 1040 easy If, during the year, you dispose of an item of section 1245 property that was used in connection with mineral property, reduce any allowable deduction for mining expenses by the part of any gain you must report as ordinary income that is allocable to the mineral property. 1040 easy See section 1. 1040 easy 613-5(b)(1) of the regulations for information on how to figure the ordinary gain allocable to the property. 1040 easy Oil and Gas Wells You cannot claim percentage depletion for an oil or gas well unless at least one of the following applies. 1040 easy You are either an independent producer or a royalty owner. 1040 easy The well produces natural gas that is either sold under a fixed contract or produced from geopressured brine. 1040 easy If you are an independent producer or royalty owner, see Independent Producers and Royalty Owners , next. 1040 easy For information on the depletion deduction for wells that produce natural gas that is either sold under a fixed contract or produced from geopressured brine, see Natural Gas Wells , later. 1040 easy Independent Producers and Royalty Owners If you are an independent producer or royalty owner, you figure percentage depletion using a rate of 15% of the gross income from the property based on your average daily production of domestic crude oil or domestic natural gas up to your depletable oil or natural gas quantity. 1040 easy However, certain refiners, as explained next, and certain retailers and transferees of proven oil and gas properties, as explained next, cannot claim percentage depletion. 1040 easy For information on figuring the deduction, see Figuring percentage depletion , later. 1040 easy Refiners who cannot claim percentage depletion. 1040 easy   You cannot claim percentage depletion if you or a related person refine crude oil and you and the related person refined more than 75,000 barrels on any day during the tax year based on average (rather than actual) daily refinery runs for the tax year. 1040 easy The average daily refinery run is computed by dividing total refinery runs for the tax year by the total number of days in the tax year. 1040 easy Related person. 1040 easy   You and another person are related persons if either of you holds a significant ownership interest in the other person or if a third person holds a significant ownership interest in both of you. 1040 easy For example, a corporation, partnership, estate, or trust and anyone who holds a significant ownership interest in it are related persons. 1040 easy A partnership and a trust are related persons if one person holds a significant ownership interest in each of them. 1040 easy For purposes of the related person rules, significant ownership interest means direct or indirect ownership of 5% or more in any one of the following. 1040 easy The value of the outstanding stock of a corporation. 1040 easy The interest in the profits or capital of a partnership. 1040 easy The beneficial interests in an estate or trust. 1040 easy Any interest owned by or for a corporation, partnership, trust, or estate is considered to be owned directly both by itself and proportionately by its shareholders, partners, or beneficiaries. 1040 easy Retailers who cannot claim percentage depletion. 1040 easy   You cannot claim percentage depletion if both the following apply. 1040 easy You sell oil or natural gas or their by-products directly or through a related person in any of the following situations. 1040 easy Through a retail outlet operated by you or a related person. 1040 easy To any person who is required under an agreement with you or a related person to use a trademark, trade name, or service mark or name owned by you or a related person in marketing or distributing oil, natural gas, or their by-products. 1040 easy To any person given authority under an agreement with you or a related person to occupy any retail outlet owned, leased, or controlled by you or a related person. 1040 easy The combined gross receipts from sales (not counting resales) of oil, natural gas, or their by-products by all retail outlets taken into account in (1) are more than $5 million for the tax year. 1040 easy   For the purpose of determining if this rule applies, do not count the following. 1040 easy Bulk sales (sales in very large quantities) of oil or natural gas to commercial or industrial users. 1040 easy Bulk sales of aviation fuels to the Department of Defense. 1040 easy Sales of oil or natural gas or their by-products outside the United States if none of your domestic production or that of a related person is exported during the tax year or the prior tax year. 1040 easy Related person. 1040 easy   To determine if you and another person are related persons, see Related person under Refiners who cannot claim percentage depletion, earlier. 1040 easy Sales through a related person. 1040 easy   You are considered to be selling through a related person if any sale by the related person produces gross income from which you may benefit because of your direct or indirect ownership interest in the person. 1040 easy   You are not considered to be selling through a related person who is a retailer if all the following apply. 1040 easy You do not have a significant ownership interest in the retailer. 1040 easy You sell your production to persons who are not related to either you or the retailer. 1040 easy The retailer does not buy oil or natural gas from your customers or persons related to your customers. 1040 easy There are no arrangements for the retailer to acquire oil or natural gas you produced for resale or made available for purchase by the retailer. 1040 easy Neither you nor the retailer knows of or controls the final disposition of the oil or natural gas you sold or the original source of the petroleum products the retailer acquired for resale. 1040 easy Transferees who cannot claim percentage depletion. 1040 easy   You cannot claim percentage depletion if you received your interest in a proven oil or gas property by transfer after 1974 and before October 12, 1990. 1040 easy For a definition of the term “transfer,” see section 1. 1040 easy 613A-7(n) of the regulations. 1040 easy For a definition of the term “interest in proven oil or gas property,” see section 1. 1040 easy 613A-7(p) of the regulations. 1040 easy Figuring percentage depletion. 1040 easy   Generally, as an independent producer or royalty owner, you figure your percentage depletion by computing your average daily production of domestic oil or gas and comparing it to your depletable oil or gas quantity. 1040 easy If your average daily production does not exceed your depletable oil or gas quantity, you figure your percentage depletion by multiplying the gross income from the oil or gas property (defined later) by 15%. 1040 easy If your average daily production of domestic oil or gas exceeds your depletable oil or gas quantity, you must make an allocation as explained later under Average daily production. 1040 easy   In addition, there is a limit on the percentage depletion deduction. 1040 easy See Taxable income limit , later. 1040 easy Average daily production. 1040 easy   Figure your average daily production by dividing your total domestic production of oil or gas for the tax year by the number of days in your tax year. 1040 easy Partial interest. 1040 easy   If you have a partial interest in the production from a property, figure your share of the production by multiplying total production from the property by your percentage of interest in the revenues from the property. 1040 easy   You have a partial interest in the production from a property if you have a net profits interest in the property. 1040 easy To figure the share of production for your net profits interest, you must first determine your percentage participation (as measured by the net profits) in the gross revenue from the property. 1040 easy To figure this percentage, you divide the income you receive for your net profits interest by the gross revenue from the property. 1040 easy Then multiply the total production from the property by your percentage participation to figure your share of the production. 1040 easy Example. 1040 easy Javier Robles owns oil property in which Pablo Olmos owns a 20% net profits interest. 1040 easy During the year, the property produced 10,000 barrels of oil, which Javier sold for $200,000. 1040 easy Javier had expenses of $90,000 attributable to the property. 1040 easy The property generated a net profit of $110,000 ($200,000 − $90,000). 1040 easy Pablo received income of $22,000 ($110,000 × . 1040 easy 20) for his net profits interest. 1040 easy Pablo determined his percentage participation to be 11% by dividing $22,000 (the income he received) by $200,000 (the gross revenue from the property). 1040 easy Pablo determined his share of the oil production to be 1,100 barrels (10,000 barrels × 11%). 1040 easy Depletable oil or natural gas quantity. 1040 easy   Generally, your depletable oil quantity is 1,000 barrels. 1040 easy Your depletable natural gas quantity is 6,000 cubic feet multiplied by the number of barrels of your depletable oil quantity that you choose to apply. 1040 easy If you claim depletion on both oil and natural gas, you must reduce your depletable oil quantity (1,000 barrels) by the number of barrels you use to figure your depletable natural gas quantity. 1040 easy Example. 1040 easy You have both oil and natural gas production. 1040 easy To figure your depletable natural gas quantity, you choose to apply 360 barrels of your 1000-barrel depletable oil quantity. 1040 easy Your depletable natural gas quantity is 2. 1040 easy 16 million cubic feet of gas (360 × 6000). 1040 easy You must reduce your depletable oil quantity to 640 barrels (1000 − 360). 1040 easy If you have production from marginal wells, see section 613A(c)(6) of the Internal Revenue Code to figure your depletable oil or natural gas quantity. 1040 easy Also, see Notice 2012-50, available at www. 1040 easy irs. 1040 easy gov/irb/2012–31_IRB/index. 1040 easy html. 1040 easy Business entities and family members. 1040 easy   You must allocate the depletable oil or gas quantity among the following related persons in proportion to each entity's or family member's production of domestic oil or gas for the year. 1040 easy Corporations, trusts, and estates if 50% or more of the beneficial interest is owned by the same or related persons (considering only persons that own at least 5% of the beneficial interest). 1040 easy You and your spouse and minor children. 1040 easy A related person is anyone mentioned in the related persons discussion under Nondeductible loss in chapter 2 of Publication 544, except that for purposes of this allocation, item (1) in that discussion includes only an individual, his or her spouse, and minor children. 1040 easy Controlled group of corporations. 1040 easy   Members of the same controlled group of corporations are treated as one taxpayer when figuring the depletable oil or natural gas quantity. 1040 easy They share the depletable quantity. 1040 easy A controlled group of corporations is defined in section 1563(a) of the Internal Revenue Code, except that, for this purpose, the stock ownership requirement in that definition is “more than 50%” rather than “at least 80%. 1040 easy ” Gross income from the property. 1040 easy   For purposes of percentage depletion, gross income from the property (in the case of oil and gas wells) is the amount you receive from the sale of the oil or gas in the immediate vicinity of the well. 1040 easy If you do not sell the oil or gas on the property, but manufacture or convert it into a refined product before sale or transport it before sale, the gross income from the property is the representative market or field price (RMFP) of the oil or gas, before conversion or transportation. 1040 easy   If you sold gas after you removed it from the premises for a price that is lower than the RMFP, determine gross income from the property for percentage depletion purposes without regard to the RMFP. 1040 easy   Gross income from the property does not include lease bonuses, advance royalties, or other amounts payable without regard to production from the property. 1040 easy Average daily production exceeds depletable quantities. 1040 easy   If your average daily production for the year is more than your depletable oil or natural gas quantity, figure your allowance for depletion for each domestic oil or natural gas property as follows. 1040 easy Figure your average daily production of oil or natural gas for the year. 1040 easy Figure your depletable oil or natural gas quantity for the year. 1040 easy Figure depletion for all oil or natural gas produced from the property using a percentage depletion rate of 15%. 1040 easy Multiply the result figured in (3) by a fraction, the numerator of which is the result figured in (2) and the denominator of which is the result figured in (1). 1040 easy This is your depletion allowance for that property for the year. 1040 easy Taxable income limit. 1040 easy   If you are an independent producer or royalty owner of oil and gas, your deduction for percentage depletion is limited to the smaller of the following. 1040 easy 100% of your taxable income from the property figured without the deduction for depletion and the deduction for domestic production activities under section 199 of the Internal Revenue Code. 1040 easy For a definition of taxable income from the property, see Taxable income limit , earlier, under Mineral Property. 1040 easy 65% of your taxable income from all sources, figured without the depletion allowance, the deduction for domestic production activities, any net operating loss carryback, and any capital loss carryback. 1040 easy You can carry over to the following year any amount you cannot deduct because of the 65%-of-taxable-income limit. 1040 easy Add it to your depletion allowance (before applying any limits) for the following year. 1040 easy Partnerships and S Corporations Generally, each partner or S corporation shareholder, and not the partnership or S corporation, figures the depletion allowance separately. 1040 easy (However, see Electing large partnerships must figure depletion allowance , later. 1040 easy ) Each partner or shareholder must decide whether to use cost or percentage depletion. 1040 easy If a partner or shareholder uses percentage depletion, he or she must apply the 65%-of-taxable-income limit using his or her taxable income from all sources. 1040 easy Partner's or shareholder's adjusted basis. 1040 easy   The partnership or S corporation must allocate to each partner or shareholder his or her share of the adjusted basis of each oil or gas property held by the partnership or S corporation. 1040 easy The partnership or S corporation makes the allocation as of the date it acquires the oil or gas property. 1040 easy   Each partner's share of the adjusted basis of the oil or gas property generally is figured according to that partner's interest in partnership capital. 1040 easy However, in some cases, it is figured according to the partner's interest in partnership income. 1040 easy   The partnership or S corporation adjusts the partner's or shareholder's share of the adjusted basis of the oil and gas property for any capital expenditures made for the property and for any change in partnership or S corporation interests. 1040 easy Recordkeeping. 1040 easy Each partner or shareholder must separately keep records of his or her share of the adjusted basis in each oil and gas property of the partnership or S corporation. 1040 easy The partner or shareholder must reduce his or her adjusted basis by the depletion allowed or allowable on the property each year. 1040 easy The partner or shareholder must use that reduced adjusted basis to figure cost depletion or his or her gain or loss if the partnership or S corporation disposes of the property. 1040 easy Reporting the deduction. 1040 easy   Information that you, as a partner or shareholder, use to figure your depletion deduction on oil and gas properties is reported by the partnership or S corporation on Schedule K-1 (Form 1065) or on Schedule K-1 (Form 1120S). 1040 easy Deduct oil and gas depletion for your partnership or S corporation interest on Schedule E (Form 1040). 1040 easy The depletion deducted on Schedule E is included in figuring income or loss from rental real estate or royalty properties. 1040 easy The instructions for Schedule E explain where to report this income or loss and whether you need to file either of the following forms. 1040 easy Form 6198, At-Risk Limitations. 1040 easy Form 8582, Passive Activity Loss Limitations. 1040 easy Electing large partnerships must figure depletion allowance. 1040 easy   An electing large partnership, rather than each partner, generally must figure the depletion allowance. 1040 easy The partnership figures the depletion allowance without taking into account the 65-percent-of-taxable-income limit and the depletable oil or natural gas quantity. 1040 easy Also, the adjusted basis of a partner's interest in the partnership is not affected by the depletion allowance. 1040 easy   An electing large partnership is one that meets both the following requirements. 1040 easy The partnership had 100 or more partners in the preceding year. 1040 easy The partnership chooses to be an electing large partnership. 1040 easy Disqualified persons. 1040 easy   An electing large partnership does not figure the depletion allowance of its partners that are disqualified persons. 1040 easy Disqualified persons must figure it themselves, as explained earlier. 1040 easy   All the following are disqualified persons. 1040 easy Refiners who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). 1040 easy Retailers who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). 1040 easy Any partner whose average daily production of domestic crude oil and natural gas is more than 500 barrels during the tax year in which the partnership tax year ends. 1040 easy Average daily production is discussed earlier. 1040 easy Natural Gas Wells You can use percentage depletion for a well that produces natural gas that is either Sold under a fixed contract, or Produced from geopressured brine. 1040 easy Natural gas sold under a fixed contract. 1040 easy   Natural gas sold under a fixed contract qualifies for a percentage depletion rate of 22%. 1040 easy This is domestic natural gas sold by the producer under a contract that does not provide for a price increase to reflect any increase in the seller's tax liability because of the repeal of percentage depletion for gas. 1040 easy The contract must have been in effect from February 1, 1975, until the date of sale of the gas. 1040 easy Price increases after February 1, 1975, are presumed to take the increase in tax liability into account unless demonstrated otherwise by clear and convincing evidence. 1040 easy Natural gas from geopressured brine. 1040 easy   Qualified natural gas from geopressured brine is eligible for a percentage depletion rate of 10%. 1040 easy This is natural gas that is both the following. 1040 easy Produced from a well you began to drill after September 1978 and before 1984. 1040 easy Determined in accordance with section 503 of the Natural Gas Policy Act of 1978 to be produced from geopressured brine. 1040 easy Mines and Geothermal Deposits Certain mines, wells, and other natural deposits, including geothermal deposits, qualify for percentage depletion. 1040 easy Mines and other natural deposits. 1040 easy   For a natural deposit, the percentage of your gross income from the property that you can deduct as depletion depends on the type of deposit. 1040 easy   The following is a list of the percentage depletion rates for the more common minerals. 1040 easy DEPOSITS RATE Sulphur, uranium, and, if from deposits in the United States, asbestos, lead ore, zinc ore, nickel ore, and mica 22% Gold, silver, copper, iron ore, and certain oil shale, if from deposits in the United States 15% Borax, granite, limestone, marble, mollusk shells, potash, slate, soapstone, and carbon dioxide produced from a well 14% Coal, lignite, and sodium chloride 10% Clay and shale used or sold for use in making sewer pipe or bricks or used or sold for use as sintered or burned lightweight aggregates 7½% Clay used or sold for use in making drainage and roofing tile, flower pots, and kindred products, and gravel, sand, and stone (other than stone used or sold for use by a mine owner or operator as dimension or ornamental stone) 5%   You can find a complete list of minerals and their percentage depletion rates in section 613(b) of the Internal Revenue Code. 1040 easy Corporate deduction for iron ore and coal. 1040 easy   The percentage depletion deduction of a corporation for iron ore and coal (including lignite) is reduced by 20% of: The percentage depletion deduction for the tax year (figured without this reduction), minus The adjusted basis of the property at the close of the tax year (figured without the depletion deduction for the tax year). 1040 easy Gross income from the property. 1040 easy   For property other than a geothermal deposit or an oil or gas well, gross income from the property means the gross income from mining. 1040 easy Mining includes all the following. 1040 easy Extracting ores or minerals from the ground. 1040 easy Applying certain treatment processes described later. 1040 easy Transporting ores or minerals (generally, not more than 50 miles) from the point of extraction to the plants or mills in which the treatment processes are applied. 1040 easy Excise tax. 1040 easy   Gross income from mining includes the separately stated excise tax received by a mine operator from the sale of coal to compensate the operator for the excise tax the mine operator must pay to finance black lung benefits. 1040 easy Extraction. 1040 easy   Extracting ores or minerals from the ground includes extraction by mine owners or operators of ores or minerals from the waste or residue of prior mining. 1040 easy This does not apply to extraction from waste or residue of prior mining by the purchaser of the waste or residue or the purchaser of the rights to extract ores or minerals from the waste or residue. 1040 easy Treatment processes. 1040 easy   The processes included as mining depend on the ore or mineral mined. 1040 easy To qualify as mining, the treatment processes must be applied by the mine owner or operator. 1040 easy For a listing of treatment processes considered as mining, see section 613(c)(4) of the Internal Revenue Code and the related regulations. 1040 easy Transportation of more than 50 miles. 1040 easy   If the IRS finds that the ore or mineral must be transported more than 50 miles to plants or mills to be treated because of physical and other requirements, the additional authorized transportation is considered mining and included in the computation of gross income from mining. 1040 easy    If you wish to include transportation of more than 50 miles in the computation of gross income from mining, request an advance ruling from the IRS. 1040 easy Include in the request the facts about the physical and other requirements that prevented the construction and operation of the plant within 50 miles of the point of extraction. 1040 easy For more information about requesting an advance ruling, see Revenue Procedure 2013-1, available at www. 1040 easy irs. 1040 easy gov/irb/2013-01_IRB/ar11. 1040 easy html. 1040 easy Disposal of coal or iron ore. 1040 easy   You cannot take a depletion deduction for coal (including lignite) or iron ore mined in the United States if both the following apply. 1040 easy You disposed of it after holding it for more than 1 year. 1040 easy You disposed of it under a contract under which you retain an economic interest in the coal or iron ore. 1040 easy Treat any gain on the disposition as a capital gain. 1040 easy Disposal to related person. 1040 easy   This rule does not apply if you dispose of the coal or iron ore to one of the following persons. 1040 easy A related person (as listed in chapter 2 of Publication 544). 1040 easy A person owned or controlled by the same interests that own or control you. 1040 easy Geothermal deposits. 1040 easy   Geothermal deposits located in the United States or its possessions qualify for a percentage depletion rate of 15%. 1040 easy A geothermal deposit is a geothermal reservoir of natural heat stored in rocks or in a watery liquid or vapor. 1040 easy For percentage depletion purposes, a geothermal deposit is not considered a gas well. 1040 easy   Figure gross income from the property for a geothermal steam well in the same way as for oil and gas wells. 1040 easy See Gross income from the property , earlier, under Oil and Gas Wells. 1040 easy Percentage depletion on a geothermal deposit cannot be more than 50% of your taxable income from the property. 1040 easy Lessor's Gross Income In the case of leased property, the depletion deduction is divided between the lessor and the lessee. 1040 easy A lessor's gross income from the property that qualifies for percentage depletion usually is the total of the royalties received from the lease. 1040 easy Bonuses and advanced royalties. 1040 easy   Bonuses and advanced royalties are payments a lessee makes before production to a lessor for the grant of rights in a lease or for minerals, gas, or oil to be extracted from leased property. 1040 easy If you are the lessor, your income from bonuses and advanced royalties received is subject to an allowance for depletion, as explained in the next two paragraphs. 1040 easy Figuring cost depletion. 1040 easy   To figure cost depletion on a bonus, multiply your adjusted basis in the property by a fraction, the numerator of which is the bonus and the denominator of which is the total bonus and royalties expected to be received. 1040 easy To figure cost depletion on advanced royalties, use the computation explained earlier under Cost Depletion , treating the number of units for which the advanced royalty is received as the number of units sold. 1040 easy Figuring percentage depletion. 1040 easy   In the case of mines, wells, and other natural deposits other than gas, oil, or geothermal property, you may use the percentage rates discussed earlier under Mines and Geothermal Deposits . 1040 easy Any bonus or advanced royalty payments are generally part of the gross income from the property to which the rates are applied in making the calculation. 1040 easy However, for oil, gas, or geothermal property, gross income does not include lease bonuses, advanced royalties, or other amounts payable without regard to production from the property. 1040 easy Ending the lease. 1040 easy   If you receive a bonus on a lease that ends or is abandoned before you derive any income from mineral extraction, include in income the depletion deduction you took. 1040 easy Do this for the year the lease ends or is abandoned. 1040 easy Also increase your adjusted basis in the property to restore the depletion deduction you previously subtracted. 1040 easy   For advanced royalties, include in income the depletion claimed on minerals for which the advanced royalties were paid if the minerals were not produced before the lease ended. 1040 easy Include this amount in income for the year the lease ends. 1040 easy Increase your adjusted basis in the property by the amount you include in income. 1040 easy Delay rentals. 1040 easy   These are payments for deferring development of the property. 1040 easy Since delay rentals are ordinary rent, they are ordinary income that is not subject to depletion. 1040 easy These rentals can be avoided by either abandoning the lease, beginning development operations, or obtaining production. 1040 easy Timber You can figure timber depletion only by the cost method. 1040 easy Percentage depletion does not apply to timber. 1040 easy Base your depletion on your cost or other basis in the timber. 1040 easy Your cost does not include the cost of land or any amounts recoverable through depreciation. 1040 easy Depletion takes place when you cut standing timber. 1040 easy You can figure your depletion deduction when the quantity of cut timber is first accurately measured in the process of exploitation. 1040 easy Figuring cost depletion. 1040 easy   To figure your cost depletion allowance, you multiply the number of timber units cut by your depletion unit. 1040 easy Timber units. 1040 easy   When you acquire timber property, you must make an estimate of the quantity of marketable timber that exists on the property. 1040 easy You measure the timber using board feet, log scale, cords, or other units. 1040 easy If you later determine that you have more or less units of timber, you must adjust the original estimate. 1040 easy   The term “timber property” means your economic interest in standing timber in each tract or block representing a separate timber account. 1040 easy Depletion unit. 1040 easy   You figure your depletion unit each year by taking the following steps. 1040 easy Determine your cost or adjusted basis of the timber on hand at the beginning of the year. 1040 easy Adjusted basis is defined under Cost Depletion in the discussion on Mineral Property. 1040 easy Add to the amount determined in (1) the cost of any timber units acquired during the year and any additions to capital. 1040 easy Figure the number of timber units to take into account by adding the number of timber units acquired during the year to the number of timber units on hand in the account at the beginning of the year and then adding (or subtracting) any correction to the estimate of the number of timber units remaining in the account. 1040 easy Divide the result of (2) by the result of (3). 1040 easy This is your depletion unit. 1040 easy Example. 1040 easy You bought a timber tract for $160,000 and the land was worth as much as the timber. 1040 easy Your basis for the timber is $80,000. 1040 easy Based on an estimated one million board feet (1,000 MBF) of standing timber, you figure your depletion unit to be $80 per MBF ($80,000 ÷ 1,000). 1040 easy If you cut 500 MBF of timber, your depletion allowance would be $40,000 (500 MBF × $80). 1040 easy When to claim depletion. 1040 easy   Claim your depletion allowance as a deduction in the year of sale or other disposition of the products cut from the timber, unless you choose to treat the cutting of timber as a sale or exchange (explained below). 1040 easy Include allowable depletion for timber products not sold during the tax year the timber is cut as a cost item in the closing inventory of timber products for the year. 1040 easy The inventory is your basis for determining gain or loss in the tax year you sell the timber products. 1040 easy Example. 1040 easy The facts are the same as in the previous example except that you sold only half of the timber products in the cutting year. 1040 easy You would deduct $20,000 of the $40,000 depletion that year. 1040 easy You would add the remaining $20,000 depletion to your closing inventory of timber products. 1040 easy Electing to treat the cutting of timber as a sale or exchange. 1040 easy   You can elect, under certain circumstances, to treat the cutting of timber held for more than 1 year as a sale or exchange. 1040 easy You must make the election on your income tax return for the tax year to which it applies. 1040 easy If you make this election, subtract the adjusted basis for depletion from the fair market value of the timber on the first day of the tax year in which you cut it to figure the gain or loss on the cutting. 1040 easy You generally report the gain as long-term capital gain. 1040 easy The fair market value then becomes your basis for figuring your ordinary gain or loss on the sale or other disposition of the products cut from the timber. 1040 easy For more information, see Timber in chapter 2 of Publication 544, Sales and Other Dispositions of Assets. 1040 easy   You may revoke an election to treat the cutting of timber as a sale or exchange without IRS's consent. 1040 easy The prior election (and revocation) is disregarded for purposes of making a subsequent election. 1040 easy See Form T (Timber), Forest Activities Schedule, for more information. 1040 easy Form T. 1040 easy   Complete and attach Form T (Timber) to your income tax return if you claim a deduction for timber depletion, choose to treat the cutting of timber as a sale or exchange, or make an outright sale of timber. 1040 easy Prev  Up  Next   Home   More Online Publications
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Know Your Rights

The Federal Deposit Insurance Corporation and other federal regulators require banks, insurance companies, brokerage firms and certain businesses who share financial information to tell you their privacy policies. They must give you this information when you open an account, and at least once every year after. They must include:

  • the kinds of information being collected;
  • how the confidentiality and security of this information will be protected; and
  • what types of businesses may be provided this information.

If a business is going to share the information with anyone outside its corporate family, it must also give you the chance to "opt-out" or say no to information sharing. Even if you don't opt out, your actual account numbers may not be shared with third parties for marketing purposes.

You cannot prevent certain types of information from being shared, including information needed to conduct normal business or protect against fraud, or information that is already publicly available. Also, a bank can share your information with a partner company to market products.

Your credit information has additional privacy protections under the Fair Credit Reporting Act. Only people with a legitimate business need can get a copy of your report. An employer can only get your report with your written consent. For more information on your rights under this federal law and to find out how you can get a copy of your credit report, visit the Credit Bureaus and Credit Scores section.

If Your Wallet is Lost or Stolen

Your wallet contains some of your most important personal items, from hard-earned money to credit cards and driver’s license. For an identity thief, your wallet offers a treasure trove of personal information. If your wallet is lost or stolen:

  • File a report with the police immediately.
  • Cancel your credit and debit cards and request new cards and account numbers.
  • Report the missing cards to the major credit reporting agencies.
  • Report your missing license to the department of motor vehicles.

Check with the Federal Trade Commission for more information on protecting your privacy

The 1040 Easy

1040 easy Publication 504 - Main Content Table of Contents Filing StatusUnmarried persons. 1040 easy Married persons. 1040 easy Same-sex marriage. 1040 easy Exception. 1040 easy Married Filing Jointly Married Filing Separately Head of Household ExemptionsPersonal Exemptions Exemptions for Dependents Phaseout of Exemptions AlimonyInvalid decree. 1040 easy Amended instrument. 1040 easy General Rules Instruments Executed After 1984 Instruments Executed Before 1985 Qualified Domestic Relations OrderRollovers. 1040 easy Individual Retirement Arrangements Property SettlementsTransfer Between Spouses Gift Tax on Property Settlements Sale of Jointly-Owned Property Costs of Getting a Divorce Tax Withholding and Estimated Tax Community PropertyCommunity Income Alimony (Community Income) How To Get Tax Help Filing Status Your filing status is used in determining whether you must file a return, your standard deduction, and the correct tax. 1040 easy It may also be used in determining whether you can claim certain other deductions and credits. 1040 easy The filing status you can choose depends partly on your marital status on the last day of your tax year. 1040 easy Marital status. 1040 easy   If you are unmarried, your filing status is single or, if you meet certain requirements, head of household or qualifying widow(er). 1040 easy If you are married, your filing status is either married filing a joint return or married filing a separate return. 1040 easy For information about the single and qualifying widow(er) filing statuses, see Publication 501. 1040 easy Unmarried persons. 1040 easy   You are unmarried for the whole year if either of the following applies. 1040 easy You have obtained a final decree of divorce or separate maintenance by the last day of your tax year. 1040 easy You must follow your state law to determine if you are divorced or legally separated. 1040 easy Exception. 1040 easy If you and your spouse obtain a divorce in one year for the sole purpose of filing tax returns as unmarried individuals, and at the time of divorce you intend to remarry each other and do so in the next tax year, you and your spouse must file as married individuals. 1040 easy You have obtained a decree of annulment, which holds that no valid marriage ever existed. 1040 easy You must file amended returns (Form 1040X, Amended U. 1040 easy S. 1040 easy Individual Income Tax Return) for all tax years affected by the annulment that are not closed by the statute of limitations. 1040 easy The statute of limitations generally does not end until 3 years (including extensions) after the date you file your original return or within 2 years after the date you pay the tax. 1040 easy On the amended return you will change your filing status to single or, if you meet certain requirements, head of household. 1040 easy Married persons. 1040 easy   You are married for the whole year if you are separated but you have not obtained a final decree of divorce or separate maintenance by the last day of your tax year. 1040 easy An interlocutory decree is not a final decree. 1040 easy Same-sex marriage. 1040 easy   For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. 1040 easy The term "spouse" includes an individual married to a person of the same sex if the couple is lawfully married under state (or foreign) law. 1040 easy However, individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that is not considered a marriage under state (or foreign) law are not considered married for federal tax purposes. 1040 easy For more details, see Publication 501. 1040 easy Exception. 1040 easy   If you live apart from your spouse, under certain circumstances, you may be considered unmarried and can file as head of household. 1040 easy See Head of Household , later. 1040 easy Married Filing Jointly If you are married, you and your spouse can choose to file a joint return. 1040 easy If you file jointly, you both must include all your income, exemptions, deductions, and credits on that return. 1040 easy You can file a joint return even if one of you had no income or deductions. 1040 easy If both you and your spouse have income, you should usually figure your tax on both a joint return and separate returns (using the filing status of married filing separately) to see which gives the two of you the lower combined tax. 1040 easy Nonresident alien. 1040 easy   To file a joint return, at least one of you must be a U. 1040 easy S. 1040 easy citizen or resident alien at the end of the tax year. 1040 easy If either of you was a nonresident alien at any time during the tax year, you can file a joint return only if you agree to treat the nonresident spouse as a resident of the United States. 1040 easy This means that your combined worldwide incomes are subject to U. 1040 easy S. 1040 easy income tax. 1040 easy These rules are explained in Publication 519, U. 1040 easy S. 1040 easy Tax Guide for Aliens. 1040 easy Signing a joint return. 1040 easy   Both you and your spouse generally must sign the return, or it will not be considered a joint return. 1040 easy Joint and individual liability. 1040 easy   Both you and your spouse may be held responsible, jointly and individually, for the tax and any interest or penalty due on your joint return. 1040 easy This means that one spouse may be held liable for all the tax due even if all the income was earned by the other spouse. 1040 easy Divorced taxpayers. 1040 easy   If you are divorced, you are jointly and individually responsible for any tax, interest, and penalties due on a joint return for a tax year ending before your divorce. 1040 easy This responsibility applies even if your divorce decree states that your former spouse will be responsible for any amounts due on previously filed joint returns. 1040 easy Relief from joint liability. 1040 easy   In some cases, a spouse may be relieved of the tax, interest, and penalties on a joint return. 1040 easy You can ask for relief no matter how small the liability. 1040 easy   There are three types of relief available. 1040 easy Innocent spouse relief. 1040 easy Separation of liability, which applies to joint filers who are divorced, widowed, legally separated, or who have not lived together for the 12 months ending on the date election of this relief is filed. 1040 easy Equitable relief. 1040 easy   Married persons who live in community property states, but who did not file joint returns, may also qualify for relief from liability arising from community property law or for equitable relief. 1040 easy See Relief from liability arising from community property law , later, under Community Property. 1040 easy    Each kind of relief has different requirements. 1040 easy You must file Form 8857 to request relief under any of these categories. 1040 easy Publication 971 explains these kinds of relief and who may qualify for them. 1040 easy You can also find information on our website at IRS. 1040 easy gov. 1040 easy Tax refund applied to spouse's debts. 1040 easy   The overpayment shown on your joint return may be used to pay the past-due amount of your spouse's debts. 1040 easy This includes your spouse's federal tax, state income tax, child or spousal support payments, or a federal nontax debt, such as a student loan. 1040 easy You can get a refund of your share of the overpayment if you qualify as an injured spouse. 1040 easy Injured spouse. 1040 easy   You are an injured spouse if you file a joint return and all or part of your share of the overpayment was, or is expected to be, applied against your spouse's past-due debts. 1040 easy An injured spouse can get a refund for his or her share of the overpayment that would otherwise be used to pay the past-due amount. 1040 easy   To be considered an injured spouse, you must: Have made and reported tax payments (such as federal income tax withheld from wages or estimated tax payments), or claimed a refundable tax credit, such as the earned income credit or additional child tax credit on the joint return, and Not be legally obligated to pay the past-due amount. 1040 easy Note. 1040 easy If the injured spouse's permanent home is in a community property state, then the injured spouse must only meet (2). 1040 easy For more information, see Publication 555. 1040 easy    Refunds that involve community property states must be divided according to local law. 1040 easy If you live in a community property state in which all community property is subject to the debts of either spouse, your entire refund is generally used to pay those debts. 1040 easy   If you are an injured spouse, you must file Form 8379 to have your portion of the overpayment refunded to you. 1040 easy Follow the instructions for the form. 1040 easy   If you have not filed your joint return and you know that your joint refund will be offset, file Form 8379 with your return. 1040 easy You should receive your refund within 14 weeks from the date the paper return is filed or within 11 weeks from the date the return is filed electronically. 1040 easy   If you filed your joint return and your joint refund was offset, file Form 8379 by itself. 1040 easy When filed after offset, it can take up to 8 weeks to receive your refund. 1040 easy Do not attach the previously filed tax return, but do include copies of all Forms W-2, Wage and Tax Statement, and W-2G, Certain Gambling Winnings, for both spouses and any Forms 1099 that show income tax withheld. 1040 easy    An injured spouse claim is different from an innocent spouse relief request. 1040 easy An injured spouse uses Form 8379 to request an allocation of the tax overpayment attributed to each spouse. 1040 easy An innocent spouse uses Form 8857 to request relief from joint liability for tax, interest, and penalties on a joint return for items of the other spouse (or former spouse) that were incorrectly reported on or omitted from the joint return. 1040 easy For information on innocent spouses, see Relief from joint liability, earlier. 1040 easy Married Filing Separately If you and your spouse file separate returns, you should each report only your own income, exemptions, deductions, and credits on your individual return. 1040 easy You can file a separate return even if only one of you had income. 1040 easy For information on exemptions you can claim on your separate return, see Exemptions , later. 1040 easy Community or separate income. 1040 easy   If you live in a community property state and file a separate return, your income may be separate income or community income for income tax purposes. 1040 easy For more information, see Community Income under Community Property, later. 1040 easy Separate liability. 1040 easy   If you and your spouse file separately, you each are responsible only for the tax due on your own return. 1040 easy Itemized deductions. 1040 easy   If you and your spouse file separate returns and one of you itemizes deductions, the other spouse cannot use the standard deduction and should also itemize deductions. 1040 easy Table 1. 1040 easy Itemized Deductions on Separate Returns This table shows itemized deductions you can claim on your married filing separate return whether you paid the expenses separately with your own funds or jointly with your spouse. 1040 easy  Caution: If you live in a community property state, these rules do not apply. 1040 easy See Community Property. 1040 easy IF you paid . 1040 easy . 1040 easy . 1040 easy AND you . 1040 easy . 1040 easy . 1040 easy THEN you can deduct on your separate federal return. 1040 easy . 1040 easy . 1040 easy   medical expenses   paid with funds deposited in a joint checking account in which you and your spouse have an equal interest     half of the total medical expenses, subject to certain limits, unless you can show that you alone paid the expenses. 1040 easy     state income tax   file a separate state income tax return     the state income tax you alone paid during the year. 1040 easy         file a joint state income tax return and you and your spouse are jointly and individually liable for the full amount of the state income tax     the state income tax you alone paid during the year. 1040 easy         file a joint state income tax return and you  are liable for only your own share of state  income tax     the smaller of: the state income tax you alone paid during the year, or the total state income tax you and your spouse paid during the year multiplied by the following fraction. 1040 easy The numerator is your gross income and the denominator  is your combined gross income. 1040 easy     property tax   paid the tax on property held as tenants by the entirety     the property tax you alone paid. 1040 easy     mortgage interest   paid the interest on a qualified home1 held  as tenants by the entirety     the mortgage interest you alone paid. 1040 easy     casualty loss   have a casualty loss on a home you own  as tenants by the entirety     half of the loss, subject to the deduction limits. 1040 easy Neither spouse may report the total casualty loss. 1040 easy 1 For more information on a qualified home and deductible mortgage interest, see Publication 936, Home Mortgage Interest Deduction. 1040 easy Dividing itemized deductions. 1040 easy   You may be able to claim itemized deductions on a separate return for certain expenses that you paid separately or jointly with your spouse. 1040 easy See Table 1, later. 1040 easy Separate returns may give you a higher tax. 1040 easy   Some married couples file separate returns because each wants to be responsible only for his or her own tax. 1040 easy There is no joint liability. 1040 easy But in almost all instances, if you file separate returns, you will pay more combined federal tax than you would with a joint return. 1040 easy This is because the following special rules apply if you file a separate return. 1040 easy Your tax rate generally will be higher than it would be on a joint return. 1040 easy Your exemption amount for figuring the alternative minimum tax will be half of that allowed a joint return filer. 1040 easy You cannot take the credit for child and dependent care expenses in most cases. 1040 easy You cannot take the earned income credit. 1040 easy You cannot take the exclusion or credit for adoption expenses in most cases. 1040 easy You cannot take the credit for higher education expenses (American opportunity and lifetime learning credits), the deduction for student loan interest, or the tuition and fees deduction. 1040 easy You cannot exclude the interest from qualified savings bonds that you used for higher education expenses. 1040 easy If you lived with your spouse at any time during the tax year: You cannot claim the credit for the elderly or the disabled, and You will have to include in income more (up to 85%) of any social security or equivalent railroad retirement benefits you received. 1040 easy Your income limits that reduce the child tax credit, the retirement savings contributions credit, itemized deductions, and the deduction for personal exemptions are half of the limits for a joint return filer. 1040 easy Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return). 1040 easy Your basic standard deduction, if allowable, is half of that allowed a joint return filer. 1040 easy See Itemized deductions , earlier. 1040 easy Joint return after separate returns. 1040 easy   If either you or your spouse (or both of you) file a separate return, you generally can change to a joint return within 3 years from the due date (not including extensions) of the separate return or returns. 1040 easy This applies to a return either of you filed claiming married filing separately, single, or head of household filing status. 1040 easy Use Form 1040X to change your filing status. 1040 easy Separate returns after joint return. 1040 easy   After the due date of your return, you and your spouse cannot file separate returns if you previously filed a joint return. 1040 easy Exception. 1040 easy   A personal representative for a decedent can change from a joint return elected by the surviving spouse to a separate return for the decedent. 1040 easy The personal representative has 1 year from the due date (including extensions) of the joint return to make the change. 1040 easy Head of Household Filing as head of household has the following advantages. 1040 easy You can claim the standard deduction even if your spouse files a separate return and itemizes deductions. 1040 easy Your standard deduction is higher than is allowed if you claim a filing status of single or married filing separately. 1040 easy Your tax rate usually will be lower than it is if you claim a filing status of single or married filing separately. 1040 easy You may be able to claim certain credits (such as the dependent care credit and the earned income credit) you cannot claim if your filing status is married filing separately. 1040 easy Income limits that reduce your child tax credit, retirement savings contributions credit, itemized deductions, and the deduction for personal exemptions are higher than the income limits if you claim a filing status of married filing separately. 1040 easy Requirements. 1040 easy   You may be able to file as head of household if you meet all the following requirements. 1040 easy You are unmarried or “considered unmarried” on the last day of the year. 1040 easy You paid more than half the cost of keeping up a home for the year. 1040 easy A “qualifying person” lived with you in the home for more than half the year (except for temporary absences, such as school). 1040 easy However, if the “qualifying person” is your dependent parent, he or she does not have to live with you. 1040 easy See Special rule for parent , later, under Qualifying person. 1040 easy Considered unmarried. 1040 easy   You are considered unmarried on the last day of the tax year if you meet all the following tests. 1040 easy You file a separate return. 1040 easy A separate return includes a return claiming married filing separately, single, or head of household filing status. 1040 easy You paid more than half the cost of keeping up your home for the tax year. 1040 easy Your spouse did not live in your home during the last 6 months of the tax year. 1040 easy Your spouse is considered to live in your home even if he or she is temporarily absent due to special circumstances. 1040 easy See Temporary absences , later. 1040 easy Your home was the main home of your child, stepchild, or foster child for more than half the year. 1040 easy (See Qualifying person , later, for rules applying to a child's birth, death, or temporary absence during the year. 1040 easy ) You must be able to claim an exemption for the child. 1040 easy However, you meet this test if you cannot claim the exemption only because the noncustodial parent can claim the child using the rule described later in Special rule for divorced or separated parents (or parents who live apart) under Exemptions for Dependents. 1040 easy The general rules for claiming an exemption for a dependent are shown later in Table 3. 1040 easy    If you were considered married for part of the year and lived in a community property state (one of the states listed later under Community Property), special rules may apply in determining your income and expenses. 1040 easy See Publication 555 for more information. 1040 easy Nonresident alien spouse. 1040 easy   If your spouse was a nonresident alien at any time during the tax year, and you have not chosen to treat your spouse as a resident alien, you are considered unmarried for head of household purposes. 1040 easy However, your spouse is not a qualifying person for head of household purposes. 1040 easy You must have another qualifying person and meet the other requirements to file as head of household. 1040 easy Keeping up a home. 1040 easy   You are keeping up a home only if you pay more than half the cost of its upkeep for the year. 1040 easy This includes rent, mortgage interest, real estate taxes, insurance on the home, repairs, utilities, and food eaten in the home. 1040 easy This does not include the cost of clothing, education, medical treatment, vacations, life insurance, or transportation for any member of the household. 1040 easy Qualifying person. 1040 easy    Table 2, later, shows who can be a qualifying person. 1040 easy Any person not described in Table 2 is not a qualifying person. 1040 easy   Generally, the qualifying person must live with you for more than half of the year. 1040 easy Table 2. 1040 easy Who Is a Qualifying Person Qualifying You To File as Head of Household?1 Caution. 1040 easy See the text of this publication for the other requirements you must meet to claim head of household filing status. 1040 easy IF the person is your . 1040 easy . 1040 easy . 1040 easy AND . 1040 easy . 1040 easy . 1040 easy THEN that person is . 1040 easy . 1040 easy . 1040 easy   qualifying child (such as a son, daughter, or grandchild who lived with you more than half the year and meets certain other tests)2 he or she is single a qualifying person, whether or not you can claim an exemption for the person. 1040 easy     he or she is married and you can claim an exemption for him or her a qualifying person. 1040 easy     he or she is married and you cannot claim an exemption for him or her not a qualifying person. 1040 easy 3     qualifying relative4 who is your father or mother you can claim an exemption for him or her5 a qualifying person. 1040 easy 6     you cannot claim an exemption for him or her not a qualifying person. 1040 easy     qualifying relative4 other than your father or mother (such as a grandparent, brother, or sister who meets certain tests) he or she lived with you more than half the year, and he or she is related to you in one of the ways listed under Relatives who do not have to live with you in Publication 501 and you can claim an exemption for him or her5 a qualifying person. 1040 easy     he or she did not live with you more than half the year not a qualifying person. 1040 easy     he or she is not related to you in one of the ways listed under Relatives who do not have to live with you in Publication 501 and is your qualifying relative only because he or she lived with you all year as a member of your household not a qualifying person. 1040 easy     you cannot claim an exemption for him or her not a qualifying person. 1040 easy   1 A person cannot qualify more than one taxpayer to use the head of household filing status for the year. 1040 easy 2 See Table 3, later, for the tests that must be met to be a qualifying child. 1040 easy Note. 1040 easy If you are a noncustodial parent, the term “qualifying child” for head of household filing status does not include a child who is your qualifying child for exemption purposes only because of the rules described under Children of Divorced or Separated Parents (or Parents Who Live Apart) under Exemptions for Dependents, later. 1040 easy If you are the custodial parent and those rules apply, the child is generally your qualifying child for head of household filing status even though the child is not a qualifying child for whom you can claim an exemption. 1040 easy 3 This person is a qualifying person if the only reason you cannot claim the exemption is that you can be claimed as a dependent on someone else's return. 1040 easy 4 See Table 3, later, for the tests that must be met to be a qualifying relative. 1040 easy 5 If you can claim an exemption for a person only because of a multiple support agreement, that person is not a qualifying person. 1040 easy See Multiple Support Agreement in Publication 501. 1040 easy 6 See Special rule for parent . 1040 easy Special rule for parent. 1040 easy   If your qualifying person is your father or mother, you may be eligible to file as head of household even if your father or mother does not live with you. 1040 easy However, you must be able to claim an exemption for your father or mother. 1040 easy Also, you must pay more than half the cost of keeping up a home that was the main home for the entire year for your father or mother. 1040 easy You are keeping up a main home for your father or mother if you pay more than half the cost of keeping your parent in a rest home or home for the elderly. 1040 easy Death or birth. 1040 easy   If the person for whom you kept up a home was born or died in 2013, you still may be able to file as head of household. 1040 easy If the person is your qualifying child, the child must have lived with you for more than half the part of the year he or she was alive. 1040 easy If the person is anyone else, see Publication 501. 1040 easy Temporary absences. 1040 easy   You and your qualifying person are considered to live together even if one or both of you are temporarily absent from your home due to special circumstances such as illness, education, business, vacation, or military service. 1040 easy It must be reasonable to assume that the absent person will return to the home after the temporary absence. 1040 easy You must continue to keep up the home during the absence. 1040 easy Kidnapped child. 1040 easy   You may be eligible to file as head of household even if the child who is your qualifying person has been kidnapped. 1040 easy You can claim head of household filing status if all the following statements are true. 1040 easy The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or the child's family. 1040 easy In the year of the kidnapping, the child lived with you for more than half the part of the year before the kidnapping. 1040 easy You would have qualified for head of household filing status if the child had not been kidnapped. 1040 easy   This treatment applies for all years until the earlier of: The year the child is returned, The year there is a determination that the child is dead, or The year the child would have reached age 18. 1040 easy More information. 1040 easy   For more information on filing as head of household, see Publication 501. 1040 easy Exemptions You can deduct $3,900 for each exemption you claim in 2013. 1040 easy However, if your adjusted gross income is more than $150,000, see Phaseout of Exemptions , later. 1040 easy There are two types of exemptions: personal exemptions and exemptions for dependents. 1040 easy If you are entitled to claim an exemption for a dependent (such as your child), that dependent cannot claim his or her personal exemption on his or her own tax return. 1040 easy Personal Exemptions You can claim your own exemption unless someone else can claim it. 1040 easy If you are married, you may be able to take an exemption for your spouse. 1040 easy These are called personal exemptions. 1040 easy Exemption for Your Spouse Your spouse is never considered your dependent. 1040 easy Joint return. 1040 easy   On a joint return, you can claim one exemption for yourself and one for your spouse. 1040 easy   If your spouse had any gross income, you can claim his or her exemption only if you file a joint return. 1040 easy Separate return. 1040 easy   If you file a separate return, you can take an exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another taxpayer. 1040 easy If your spouse is the dependent of another taxpayer, you cannot claim an exemption for your spouse even if the other taxpayer does not actually claim your spouse's exemption. 1040 easy Alimony paid. 1040 easy   If you paid alimony to your spouse, you cannot take an exemption for your spouse. 1040 easy This is because alimony is gross income to the spouse who received it. 1040 easy Divorced or separated spouse. 1040 easy   If you obtained a final decree of divorce or separate maintenance during the year, you cannot take your former spouse's exemption. 1040 easy This rule applies even if you provided all of your former spouse's support. 1040 easy Exemptions for Dependents You are allowed one exemption for each person you can claim as a dependent. 1040 easy You can claim an exemption for a dependent even if your dependent files a return. 1040 easy The term “dependent” means: A qualifying child, or A qualifying relative. 1040 easy Table 3 shows the tests that must be met to be either a qualifying child or qualifying relative, plus the additional requirements for claiming an exemption for a dependent. 1040 easy For detailed information, see Publication 501. 1040 easy   Dependent not allowed a personal exemption. 1040 easy If you can claim an exemption for your dependent, the dependent cannot claim his or her own exemption on his or her own tax return. 1040 easy This is true even if you do not claim the dependent's exemption on your return. 1040 easy It is also true if the decedent's exemption on your return is reduced or eliminated under the phaseout rule described under Phaseout of Exemptions, later. 1040 easy Table 3. 1040 easy Overview of the Rules for Claiming an Exemption for a Dependent Caution. 1040 easy This table is only an overview of the rules. 1040 easy For details, see Publication 501. 1040 easy • You cannot claim any dependents if you, or your spouse if filing jointly, could be claimed as a dependent by another taxpayer. 1040 easy • You cannot claim a married person who files a joint return as a dependent unless that joint return is only a claim for refund and there would be no tax liability for either spouse on separate returns. 1040 easy • You cannot claim a person as a dependent unless that person is a U. 1040 easy S. 1040 easy citizen, U. 1040 easy S. 1040 easy resident alien, U. 1040 easy S. 1040 easy national, or a resident of Canada or Mexico. 1040 easy 1 • You cannot claim a person as a dependent unless that person is your qualifying child or qualifying relative. 1040 easy   Tests To Be a Qualifying Child   Tests To Be a Qualifying Relative 1. 1040 easy     2. 1040 easy       3. 1040 easy    4. 1040 easy    5. 1040 easy    The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. 1040 easy   The child must be (a) under age 19 at the end of the year and younger than you (or your spouse if filing jointly), (b) under age 24 at the end of the year, a student, and younger than you (or your spouse if filing jointly), or (c) any age if permanently and totally disabled. 1040 easy   The child must have lived with you for more than half of the year. 1040 easy 2   The child must not have provided more than half of his or her own support for the year. 1040 easy   The child is not filing a joint return for the year (unless that joint return is filed only as a claim for refund of withheld income tax or estimated tax paid). 1040 easy   1. 1040 easy    2. 1040 easy       3. 1040 easy    4. 1040 easy The person cannot be your qualifying child or the qualifying child of anyone else. 1040 easy   The person either (a) must be related to you in one of the ways listed under Relatives who do not have to live with you in Publication 501 or (b) must live with you all year as a member of your household 2 (and your relationship must not violate local law). 1040 easy   The person's gross income for the year must be less than $3,900. 1040 easy 3   You must provide more than half of the person's total support for the year. 1040 easy 4 If the child meets the rules to be a qualifying child of more than one person, only one person can actually treat the child as a qualifying child. 1040 easy See Special Rule for Qualifying Child of More Than One Person , later, to find out which person is the person entitled to claim the child as a qualifying child. 1040 easy     1 Exception exists for certain adopted children. 1040 easy 2 Exceptions exist for temporary absences, children who were born or died during the year, children of divorced or separated parents (or parents who live apart), and kidnapped children. 1040 easy 3 Exception exists for persons who are disabled and have income from a sheltered workshop. 1040 easy 4 Exceptions exist for multiple support agreements, children of divorced or separated parents (or parents who live apart), and kidnapped children. 1040 easy See Publication 501. 1040 easy You may be entitled to a child tax credit for each qualifying child who was under age 17 at the end of the year if you claimed an exemption for that child. 1040 easy For more information, see the instructions for your tax return if you file Form 1040A or 1040. 1040 easy Children of Divorced or Separated Parents (or Parents Who Live Apart) In most cases, because of the residency test (see item 3 under Tests To Be a Qualifying Child in Table 3), a child of divorced or separated parents is the qualifying child of the custodial parent. 1040 easy However, the child will be treated as the qualifying child of the noncustodial parent if the special rule (discussed next) applies. 1040 easy Special rule for divorced or separated parents (or parents who live apart). 1040 easy   A child will be treated as the qualifying child of his or her noncustodial parent if all four of the following statements are true. 1040 easy The parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Lived apart at all times during the last 6 months of the year, whether or not they are or were married. 1040 easy The child received over half of his or her support for the year from the parents. 1040 easy The child is in the custody of one or both parents for more than half of the year. 1040 easy Either of the following applies. 1040 easy The custodial parent signs a written declaration, discussed later, that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches this written declaration to his or her return. 1040 easy (If the decree or agreement went into effect after 1984, see Divorce decree or separation agreement that went into effect after 1984 and before 2009 , later. 1040 easy A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2013 states that the noncustodial parent can claim the child as a dependent, the decree or agreement was not changed after 1984 to say the noncustodial parent cannot claim the child as a dependent, and the noncustodial parent provides at least $600 for the child's support during 2013. 1040 easy See Child support under pre-1985 agreement , later. 1040 easy Custodial parent and noncustodial parent. 1040 easy   The custodial parent is the parent with whom the child lived for the greater number of nights during the year. 1040 easy The other parent is the noncustodial parent. 1040 easy   If the parents divorced or separated during the year and the child lived with both parents before the separation, the custodial parent is the one with whom the child lived for the greater number of nights during the rest of the year. 1040 easy   A child is treated as living with a parent for a night if the child sleeps: At that parent's home, whether or not the parent is present, or In the company of the parent, when the child does not sleep at a parent's home (for example, the parent and child are on vacation together). 1040 easy Equal number of nights. 1040 easy   If the child lived with each parent for an equal number of nights during the year, the custodial parent is the parent with the higher adjusted gross income. 1040 easy December 31. 1040 easy   The night of December 31 is treated as part of the year in which it begins. 1040 easy For example, December 31, 2013, is treated as part of 2013. 1040 easy Emancipated child. 1040 easy   If a child is emancipated under state law, the child is treated as not living with either parent. 1040 easy See Examples 5 and 6 . 1040 easy Absences. 1040 easy    If a child was not with either parent on a particular night (because, for example, the child was staying at a friend's house), the child is treated as living with the parent with whom the child normally would have lived for that night, except for the absence. 1040 easy But if it cannot be determined with which parent the child normally would have lived or if the child would not have lived with either parent that night, the child is treated as not living with either parent that night. 1040 easy Parent works at night. 1040 easy   If, due to a parent's nighttime work schedule, a child lives for a greater number of days but not nights with the parent who works at night, that parent is treated as the custodial parent. 1040 easy On a school day, the child is treated as living at the primary residence registered with the school. 1040 easy Example 1 – child lived with one parent greater number of nights. 1040 easy You and your child’s other parent are divorced. 1040 easy In 2013, your child lived with you 210 nights and with the other parent 156 nights. 1040 easy You are the custodial parent. 1040 easy Example 2 – child is away at camp. 1040 easy In 2013, your daughter lives with each parent for alternate weeks. 1040 easy In the summer, she spends 6 weeks at summer camp. 1040 easy During the time she is at camp, she is treated as living with you for 3 weeks and with her other parent, your ex-spouse, for 3 weeks because this is how long she would have lived with each parent if she had not attended summer camp. 1040 easy Example 3 – child lived same number of days with each parent. 1040 easy Your son lived with you 180 nights during the year and lived the same number of nights with his other parent, your ex-spouse. 1040 easy Your adjusted gross income is $40,000. 1040 easy Your ex-spouse's adjusted gross income is $25,000. 1040 easy You are treated as your son's custodial parent because you have the higher adjusted gross income. 1040 easy Example 4 – child is at parent’s home but with other parent. 1040 easy Your son normally lives with you during the week and with his other parent, your ex-spouse, every other weekend. 1040 easy You become ill and are hospitalized. 1040 easy The other parent lives in your home with your son for 10 consecutive days while you are in the hospital. 1040 easy Your son is treated as living with you during this 10-day period because he was living in your home. 1040 easy Example 5 – child emancipated in May. 1040 easy When your son turned age 18 in May 2013, he became emancipated under the law of the state where he lives. 1040 easy As a result, he is not considered in the custody of his parents for more than half of the year. 1040 easy The special rule for children of divorced or separated parents (or parents who live apart) does not apply. 1040 easy Example 6 – child emancipated in August. 1040 easy Your daughter lives with you from January 1, 2013, until May 31, 2013, and lives with her other parent, your ex-spouse, from June 1, 2013, through the end of the year. 1040 easy She turns 18 and is emancipated under state law on August 1, 2013. 1040 easy Because she is treated as not living with either parent beginning on August 1, she is treated as living with you the greater number of nights in 2013. 1040 easy You are the custodial parent. 1040 easy Written declaration. 1040 easy    The custodial parent must use either Form 8332 or a similar statement (containing the same information required by the form) to make the written declaration to release the exemption to the noncustodial parent. 1040 easy The noncustodial parent must attach a copy of the form or statement to his or her tax return. 1040 easy   The exemption can be released for 1 year, for a number of specified years (for example, alternate years), or for all future years, as specified in the declaration. 1040 easy Divorce decree or separation agreement that went into effect after 1984 and before 2009. 1040 easy   If the divorce decree or separation agreement went into effect after 1984 and before 2009, the noncustodial parent may be able to attach certain pages from the decree or agreement instead of Form 8332. 1040 easy To be able to do this, the decree or agreement must state all three of the following. 1040 easy The noncustodial parent can claim the child as a dependent without regard to any condition, such as payment of support. 1040 easy The custodial parent will not claim the child as a dependent for the year. 1040 easy The years for which the noncustodial parent, rather than the custodial parent, can claim the child as a dependent. 1040 easy   The noncustodial parent must attach all of the following pages of the decree or agreement to his or her return. 1040 easy The cover page (write the other parent's social security number on this page). 1040 easy The pages that include all of the information identified in items (1) through (3) above. 1040 easy The signature page with the other parent's signature and the date of the agreement. 1040 easy Post-2008 divorce decree or separation agreement. 1040 easy   If the decree or agreement went into effect after 2008, a noncustodial parent claiming an exemption for a child cannot attach pages from a divorce decree or separation agreement instead of Form 8332. 1040 easy The custodial parent must sign either a Form 8332 or a similar statement. 1040 easy The only purpose of this statement must be to release the custodial parent's claim to the child's exemption. 1040 easy The noncustodial parent must attach a copy to his or her return. 1040 easy The form or statement must release the custodial parent's claim to the child without any conditions. 1040 easy For example, the release must not depend on the noncustodial parent paying support. 1040 easy    The noncustodial parent must attach the required information even if it was filed with a return in an earlier year. 1040 easy Revocation of release of claim to an exemption. 1040 easy   The custodial parent can revoke a release of claim to exemption that he or she previously released to the noncustodial parent on Form 8332 or a similar statement. 1040 easy In order for the revocation to be effective for 2013, the custodial parent must have given (or made reasonable efforts to give) written notice of the revocation to the noncustodial parent in 2012 or earlier. 1040 easy The custodial parent can use Part III of Form 8332 for this purpose and must attach a copy of the revocation to his or her return for each tax year he or she claims the child as a dependent as a result of the revocation. 1040 easy Remarried parent. 1040 easy   If you remarry, the support provided by your new spouse is treated as provided by you. 1040 easy Child support under pre-1985 agreement. 1040 easy   All child support payments actually received from the noncustodial parent under a pre-1985 agreement are considered used for the support of the child, even if such amounts are not actually spent for child support. 1040 easy Example. 1040 easy Under a pre-1985 agreement, the noncustodial parent provides $1,200 for the child's support. 1040 easy This amount is considered support provided by the noncustodial parent even if the $1,200 was actually spent on things other than support. 1040 easy Parents who never married. 1040 easy   The special rule for divorced or separated parents also applies to parents who never married and lived apart at all times during the last 6 months of the year. 1040 easy Alimony. 1040 easy   Payments to your spouse that are includible in his or her gross income as either alimony, separate maintenance payments, or similar payments from an estate or trust, are not treated as a payment for the support of a dependent. 1040 easy Special Rule for Qualifying Child of More Than One Person If your qualifying child is not a qualifying child of anyone else, this special rule does not apply to you and you do not need to read about it. 1040 easy This is also true if your qualifying child is not a qualifying child of anyone else except your spouse with whom you file a joint return. 1040 easy If a child is treated as the qualifying child of the noncustodial parent under the Special rule for divorced or separated parents (or parents who live apart), earlier, see Applying this special rule to divorced or separated parents (or parents who live apart), later. 1040 easy Sometimes, a child meets the relationship, age, residency, support, and joint return tests to be a qualifying child of more than one person. 1040 easy (For a description of these tests, see list items 1 through 5 under Tests To Be a Qualifying Child in Table 3). 1040 easy Although the child meets the conditions to be a qualifying child of each of these persons, only one person can actually use the child as a qualifying child to take all of the following tax benefits (provided the person is eligible for each benefit). 1040 easy The exemption for the child. 1040 easy The child tax credit. 1040 easy Head of household filing status. 1040 easy The credit for child and dependent care expenses. 1040 easy The exclusion from income for dependent care benefits. 1040 easy The earned income credit. 1040 easy The other person cannot take any of these benefits based on this qualifying child. 1040 easy In other words, you and the other person cannot agree to divide these tax benefits between you. 1040 easy The other person cannot take any of these tax benefits unless he or she has a different qualifying child. 1040 easy Tiebreaker rules. 1040 easy   To determine which person can treat the child as a qualifying child to claim these six tax benefits, the following tiebreaker rules apply. 1040 easy If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. 1040 easy If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. 1040 easy If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year. 1040 easy If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year. 1040 easy If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. 1040 easy If the child's parents file a joint return with each other, this rule can be applied by dividing the parents' total AGI evenly between them; see Publication 501 for details. 1040 easy   Subject to these tiebreaker rules, you and the other person may be able to choose which of you claims the child as a qualifying child. 1040 easy Example 1—separated parents. 1040 easy You, your husband, and your 10-year-old son lived together until August 1, 2013, when your husband moved out of the household. 1040 easy In August and September, your son lived with you. 1040 easy For the rest of the year, your son lived with your husband, the boy's father. 1040 easy Your son is a qualifying child of both you and your husband because your son lived with each of you for more than half the year and because he met the relationship, age, support, and joint return tests for both of you. 1040 easy At the end of the year, you and your husband still were not divorced, legally separated, or separated under a written separation agreement, so the special rule for divorced or separated parents (or parents who live apart) does not apply. 1040 easy You and your husband will file separate returns. 1040 easy Your husband agrees to let you treat your son as a qualifying child. 1040 easy This means, if your husband does not claim your son as a qualifying child, you can claim your son as a dependent and treat him as a qualifying child for the child tax credit and exclusion for dependent care benefits, if you qualify for each of those tax benefits. 1040 easy However, you cannot claim head of household filing status because you and your husband did not live apart the last 6 months of the year. 1040 easy And, as a result of your filing status being married filing separately, you cannot claim the earned income credit or the credit for child and dependent care expenses. 1040 easy Example 2—separated parents claim same child. 1040 easy The facts are the same as in Example 1 except that you and your husband both claim your son as a qualifying child. 1040 easy In this case, only your husband will be allowed to treat your son as a qualifying child. 1040 easy This is because, during 2013, the boy lived with him longer than with you. 1040 easy If you claimed an exemption, the child tax credit, or the exclusion for dependent care benefits for your son, the IRS will disallow your claim to all these tax benefits, unless you have another qualifying child. 1040 easy In addition, because you and your husband did not live apart the last 6 months of the year, your husband cannot claim head of household filing status. 1040 easy And, as a result of his filing status being married filing separately, he cannot claim the earned income credit or the credit for child and dependent care expenses. 1040 easy Applying this special rule to divorced or separated parents (or parents who live apart). 1040 easy   If a child is treated as the qualifying child of the noncustodial parent under the special rule for divorced or separated parents (or parents who live apart) described earlier, only the noncustodial parent can claim an exemption and the child tax credit for the child. 1040 easy However, the noncustodial parent cannot claim the child as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, and the earned income credit. 1040 easy Only the custodial parent, if eligible, or another eligible taxpayer can claim the child as a qualifying child for those four tax benefits. 1040 easy If the child is the qualifying child of more than one person for those tax benefits, the tiebreaker rules determine which person can treat the child as a qualifying child. 1040 easy Example 1. 1040 easy You and your 5-year-old son lived all year with your mother, who paid the entire cost of keeping up the home. 1040 easy Your AGI is $10,000. 1040 easy Your mother's AGI is $25,000. 1040 easy Your son's father does not live with you or your son. 1040 easy Under the rules for children of divorced or separated parents (or parents who live apart), your son is treated as the qualifying child of his father, who can claim an exemption and the child tax credit for the child if he meets all the requirements to do so. 1040 easy Because of this, you cannot claim an exemption or the child tax credit for your son. 1040 easy However, your son's father cannot claim your son as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the earned income credit. 1040 easy You and your mother did not have any child care expenses or dependent care benefits, but the boy is a qualifying child of both you and your mother for head of household filing status and the earned income credit because he meets the relationship, age, residency, support, and joint return tests for both you and your mother. 1040 easy (Note: The support test does not apply for the earned income credit. 1040 easy ) However, you agree to let your mother claim your son. 1040 easy This means she can claim him for head of household filing status and the earned income credit if she qualifies for each and if you do not claim him as a qualifying child for the earned income credit. 1040 easy (You cannot claim head of household filing status because your mother paid the entire cost of keeping up the home. 1040 easy ) Example 2. 1040 easy The facts are the same as in Example 1 except that your AGI is $25,000 and your mother's AGI is $21,000. 1040 easy Your mother cannot claim your son as a qualifying child for any purpose because her AGI is not higher than yours. 1040 easy Example 3. 1040 easy The facts are the same as in Example 1 except that you and your mother both claim your son as a qualifying child for the earned income credit. 1040 easy Your mother also claims him as a qualifying child for head of household filing status. 1040 easy You, as the child's parent, will be the only one allowed to claim your son as a qualifying child for the earned income credit. 1040 easy The IRS will disallow your mother's claim to the earned income credit and head of household filing status unless she has another qualifying child. 1040 easy Phaseout of Exemptions The amount you can claim as a deduction for exemptions is reduced once your adjusted gross income (AGI) goes above a certain level for your filing status. 1040 easy These levels are as follows:    Filing Status AGI Level That Reduces Exemption Amount Married filing separately $150,000 Single 250,000 Head of household 275,000 Married filing jointly 300,000 Qualifying widow(er) 300,000 You must reduce the dollar amount of your exemptions by 2% for each $2,500, or part of $2,500 ($1,250 if you are married filing separately), that your AGI exceeds the amount shown above for your filing status. 1040 easy If your AGI exceeds the amount shown above by more than $122,500 ($61,250 if married filing separately), the amount of your deduction for exemptions is reduced to zero. 1040 easy If your AGI exceeds the level for your filing status, use the Deduction for Exemptions Worksheet found in the instructions for Form 1040 or Form 1040NR to figure the amount of your deduction for exemptions. 1040 easy Alimony Alimony is a payment to or for a spouse or former spouse under a divorce or separation instrument. 1040 easy It does not include voluntary payments that are not made under a divorce or separation instrument. 1040 easy Alimony is deductible by the payer and must be included in the spouse's or former spouse's income. 1040 easy Although this discussion is generally written for the payer of the alimony, the recipient can use the information to determine whether an amount received is alimony. 1040 easy To be alimony, a payment must meet certain requirements. 1040 easy There are some differences between the requirements that apply to payments under instruments executed after 1984 and to payments under instruments executed before 1985. 1040 easy The general requirements that apply to payments regardless of when the divorce or separation instrument was executed and the specific requirements that apply to post-1984 instruments (and, in certain cases, some pre-1985 instruments) are discussed in this publication. 1040 easy See, Instruments Executed Before 1985 , later, if you are looking for information on where to find the specific requirements that apply to pre-1985 instruments. 1040 easy Spouse or former spouse. 1040 easy   Unless otherwise stated, the term “spouse” includes former spouse. 1040 easy Divorce or separation instrument. 1040 easy   The term “divorce or separation instrument” means: A decree of divorce or separate maintenance or a written instrument incident to that decree, A written separation agreement, or A decree or any type of court order requiring a spouse to make payments for the support or maintenance of the other spouse. 1040 easy This includes a temporary decree, an interlocutory (not final) decree, and a decree of alimony pendente lite (while awaiting action on the final decree or agreement). 1040 easy Invalid decree. 1040 easy   Payments under a divorce decree can be alimony even if the decree's validity is in question. 1040 easy A divorce decree is valid for tax purposes until a court having proper jurisdiction holds it invalid. 1040 easy Amended instrument. 1040 easy   An amendment to a divorce decree may change the nature of your payments. 1040 easy Amendments are not ordinarily retroactive for federal tax purposes. 1040 easy However, a retroactive amendment to a divorce decree correcting a clerical error to reflect the original intent of the court will generally be effective retroactively for federal tax purposes. 1040 easy Example 1. 1040 easy A court order retroactively corrected a mathematical error under your divorce decree to express the original intent to spread the payments over more than 10 years. 1040 easy This change also is effective retroactively for federal tax purposes. 1040 easy Example 2. 1040 easy Your original divorce decree did not fix any part of the payment as child support. 1040 easy To reflect the true intention of the court, a court order retroactively corrected the error by designating a part of the payment as child support. 1040 easy The amended order is effective retroactively for federal tax purposes. 1040 easy Deducting alimony paid. 1040 easy   You can deduct alimony you paid, whether or not you itemize deductions on your return. 1040 easy You must file Form 1040. 1040 easy You cannot use Form 1040A, 1040EZ, or 1040NR. 1040 easy Enter the amount of alimony you paid on Form 1040, line 31a. 1040 easy In the space provided on line 31b, enter your spouse's social security number (SSN) or IRS individual taxpayer identification number (ITIN). 1040 easy If you paid alimony to more than one person, enter the SSN or ITIN of one of the recipients. 1040 easy Show the SSN or ITIN and amount paid to each other recipient on an attached statement. 1040 easy Enter your total payments on line 31a. 1040 easy If you do not provide your spouse's SSN or ITIN, you may have to pay a $50 penalty and your deduction may be disallowed. 1040 easy Reporting alimony received. 1040 easy   Report alimony you received as income on Form 1040, line 11, or on Schedule NEC (Form 1040NR), line 12. 1040 easy You cannot use Form 1040A, 1040EZ, or 1040NR-EZ. 1040 easy    You must give the person who paid the alimony your SSN or ITIN. 1040 easy If you do not, you may have to pay a $50 penalty. 1040 easy Withholding on nonresident aliens. 1040 easy   If you are a U. 1040 easy S. 1040 easy citizen or resident alien and you pay alimony to a nonresident alien spouse, you may have to withhold income tax at a rate of 30% on each payment. 1040 easy However, many tax treaties provide for an exemption from withholding for alimony payments. 1040 easy For more information, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities. 1040 easy General Rules The following rules apply to alimony regardless of when the divorce or separation instrument was executed. 1040 easy Payments not alimony. 1040 easy   Not all payments under a divorce or separation instrument are alimony. 1040 easy Alimony does not include: Child support, Noncash property settlements, Payments that are your spouse's part of community income, as explained later under Community Property , Payments to keep up the payer's property, or Use of the payer's property. 1040 easy Example. 1040 easy Under your written separation agreement, your spouse lives rent-free in a home you own and you must pay the mortgage, real estate taxes, insurance, repairs, and utilities for the home. 1040 easy Because you own the home and the debts are yours, your payments for the mortgage, real estate taxes, insurance, and repairs are not alimony. 1040 easy Neither is the value of your spouse's use of the home. 1040 easy If they otherwise qualify, you can deduct the payments for utilities as alimony. 1040 easy Your spouse must report them as income. 1040 easy If you itemize deductions, you can deduct the real estate taxes and, if the home is a qualified home, you can also include the interest on the mortgage in figuring your deductible interest. 1040 easy However, if your spouse owned the home, see Example 2 under Payments to a third party, later. 1040 easy If you owned the home jointly with your spouse, see Table 4. 1040 easy For more information on a qualified home and deductible mortgage interest, see Publication 936, Home Mortgage Interest Deduction. 1040 easy Child support. 1040 easy   To determine whether a payment is child support, see the discussion under Instruments Executed After 1984 , later. 1040 easy If your divorce or separation agreement was executed before 1985, see the 2004 revision of Publication 504 available at www. 1040 easy irs. 1040 easy gov/formspubs. 1040 easy Underpayment. 1040 easy   If both alimony and child support payments are called for by your divorce or separation instrument, and you pay less than the total required, the payments apply first to child support and then to alimony. 1040 easy Example. 1040 easy Your divorce decree calls for you to pay your former spouse $200 a month ($2,400 ($200 x 12) a year) as child support and $150 a month ($1,800 ($150 x 12) a year) as alimony. 1040 easy If you pay the full amount of $4,200 ($2,400 + $1,800) during the year, you can deduct $1,800 as alimony and your former spouse must report $1,800 as alimony received. 1040 easy If you pay only $3,600 during the year, $2,400 is child support. 1040 easy You can deduct only $1,200 ($3,600 – $2,400) as alimony and your former spouse must report $1,200 as alimony received. 1040 easy Payments to a third party. 1040 easy   Cash payments, checks, or money orders to a third party on behalf of your spouse under the terms of your divorce or separation instrument can be alimony, if they otherwise qualify. 1040 easy These include payments for your spouse's medical expenses, housing costs (rent, utilities, etc. 1040 easy ), taxes, tuition, etc. 1040 easy The payments are treated as received by your spouse and then paid to the third party. 1040 easy Example 1. 1040 easy Under your divorce decree, you must pay your former spouse's medical and dental expenses. 1040 easy If the payments otherwise qualify, you can deduct them as alimony on your return. 1040 easy Your former spouse must report them as alimony received and can include them in figuring deductible medical expenses. 1040 easy Example 2. 1040 easy Under your separation agreement, you must pay the real estate taxes, mortgage payments, and insurance premiums on a home owned by your spouse. 1040 easy If they otherwise qualify, you can deduct the payments as alimony on your return, and your spouse must report them as alimony received. 1040 easy If itemizing deductions, your spouse can deduct the real estate taxes and, if the home is a qualified home, also include the interest on the mortgage in figuring deductible interest. 1040 easy However, if you owned the home, see the example under Payments not alimony , earlier. 1040 easy If you owned the home jointly with your spouse, see Table 4. 1040 easy Life insurance premiums. 1040 easy   Alimony includes premiums you must pay under your divorce or separation instrument for insurance on your life to the extent your spouse owns the policy. 1040 easy Payments for jointly-owned home. 1040 easy   If your divorce or separation instrument states that you must pay expenses for a home owned by you and your spouse or former spouse, some of your payments may be alimony. 1040 easy See Table 4. 1040 easy   However, if your spouse owned the home, see Example 2 under Payments to a third party, earlier. 1040 easy If you owned the home, see the example under Payments not alimony , earlier. 1040 easy Table 4. 1040 easy Expenses for a Jointly-Owned Home Use the table below to find how much of your payment is alimony and how much you can claim as an itemized deduction. 1040 easy IF you must pay all of the . 1040 easy . 1040 easy . 1040 easy AND your home is . 1040 easy . 1040 easy . 1040 easy THEN you can deduct and your spouse (or former spouse) must include as alimony . 1040 easy . 1040 easy . 1040 easy AND you can claim as an itemized deduction . 1040 easy . 1040 easy . 1040 easy   mortgage payments (principal and interest) jointly owned half of the total payments half of the interest as interest expense (if the home is a qualified home). 1040 easy 1   real estate taxes and home insurance held as tenants in common half of the total payments half of the real estate taxes2 and none of the home insurance. 1040 easy     held as tenants by the entirety or in joint tenancy none of the payments all of the real estate taxes and none of the home insurance. 1040 easy 1 Your spouse (or former spouse) can deduct the other half of the interest if the home is a qualified home. 1040 easy  2 Your spouse (or former spouse) can deduct the other half of the real estate taxes. 1040 easy Instruments Executed After 1984 The following rules for alimony apply to payments under divorce or separation instruments executed after 1984. 1040 easy Exception for instruments executed before 1985. 1040 easy   There are two situations where the rules for instruments executed after 1984 apply to instruments executed before 1985. 1040 easy A divorce or separation instrument executed before 1985 and then modified after 1984 to specify that the after-1984 rules will apply. 1040 easy A temporary divorce or separation instrument executed before 1985 and incorporated into, or adopted by, a final decree executed after 1984 that: Changes the amount or period of payment, or Adds or deletes any contingency or condition. 1040 easy   For the rules for alimony payments under pre-1985 instruments not meeting these exceptions, see the 2004 revision of Publication 504 available at www. 1040 easy irs. 1040 easy gov/formspubs. 1040 easy Example 1. 1040 easy In November 1984, you and your former spouse executed a written separation agreement. 1040 easy In February 1985, a decree of divorce was substituted for the written separation agreement. 1040 easy The decree of divorce did not change the terms for the alimony you pay your former spouse. 1040 easy The decree of divorce is treated as executed before 1985. 1040 easy Alimony payments under this decree are not subject to the rules for payments under instruments executed after 1984. 1040 easy Example 2. 1040 easy The facts are the same as in Example 1 except that the decree of divorce changed the amount of the alimony. 1040 easy In this example, the decree of divorce is not treated as executed before 1985. 1040 easy The alimony payments are subject to the rules for payments under instruments executed after 1984. 1040 easy Alimony Requirements A payment to or for a spouse under a divorce or separation instrument is alimony if the spouses do not file a joint return with each other and all the following requirements are met. 1040 easy The payment is in cash. 1040 easy The instrument does not designate the payment as not alimony. 1040 easy The spouses are not members of the same household at the time the payments are made. 1040 easy This requirement applies only if the spouses are legally separated under a decree of divorce or separate maintenance. 1040 easy There is no liability to make any payment (in cash or property) after the death of the recipient spouse. 1040 easy The payment is not treated as child support. 1040 easy Each of these requirements is discussed next. 1040 easy Cash payment requirement. 1040 easy   Only cash payments, including checks and money orders, qualify as alimony. 1040 easy The following do not qualify as alimony. 1040 easy Transfers of services or property (including a debt instrument of a third party or an annuity contract). 1040 easy Execution of a debt instrument by the payer. 1040 easy The use of the payer's property. 1040 easy Payments to a third party. 1040 easy   Cash payments to a third party under the terms of your divorce or separation instrument can qualify as cash payments to your spouse. 1040 easy See Payments to a third party under General Rules, earlier. 1040 easy   Also, cash payments made to a third party at the written request of your spouse may qualify as alimony if all the following requirements are met. 1040 easy The payments are in lieu of payments of alimony directly to your spouse. 1040 easy The written request states that both spouses intend the payments to be treated as alimony. 1040 easy You receive the written request from your spouse before you file your return for the year you made the payments. 1040 easy Payments designated as not alimony. 1040 easy   You and your spouse can designate that otherwise qualifying payments are not alimony. 1040 easy You do this by including a provision in your divorce or separation instrument that states the payments are not deductible as alimony by you and are excludable from your spouse's income. 1040 easy For this purpose, any instrument (written statement) signed by both of you that makes this designation and that refers to a previous written separation agreement is treated as a written separation agreement (and therefore a divorce or separation instrument). 1040 easy If you are subject to temporary support orders, the designation must be made in the original or a later temporary support order. 1040 easy   Your spouse can exclude the payments from income only if he or she attaches a copy of the instrument designating them as not alimony to his or her return. 1040 easy The copy must be attached each year the designation applies. 1040 easy Spouses cannot be members of the same household. 1040 easy   Payments to your spouse while you are members of the same household are not alimony if you are legally separated under a decree of divorce or separate maintenance. 1040 easy A home you formerly shared is considered one household, even if you physically separate yourselves in the home. 1040 easy   You are not treated as members of the same household if one of you is preparing to leave the household and does leave no later than 1 month after the date of the payment. 1040 easy Exception. 1040 easy   If you are not legally separated under a decree of divorce or separate maintenance, a payment under a written separation agreement, support decree, or other court order may qualify as alimony even if you are members of the same household when the payment is made. 1040 easy Liability for payments after death of recipient spouse. 1040 easy   If any part of payments you make must continue to be made for any period after your spouse's death, that part of your payments is not alimony whether made before or after the death. 1040 easy If all of the payments would continue, then none of the payments made before or after the death are alimony. 1040 easy   The divorce or separation instrument does not have to expressly state that the payments cease upon the