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1040nr Instructions 2012

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1040nr Instructions 2012

1040nr instructions 2012 21. 1040nr instructions 2012   Medical and Dental Expenses Table of Contents What's New Introduction Useful Items - You may want to see: What Are Medical Expenses? What Expenses Can You Include This Year?Community property states. 1040nr instructions 2012 How Much of the Expenses Can You Deduct? Whose Medical Expenses Can You Include?Yourself Spouse Dependent Decedent What Medical Expenses Are Includible?Insurance Premiums Meals and Lodging Transportation Disabled Dependent Care Expenses How Do You Treat Reimbursements?Insurance Reimbursement Damages for Personal Injuries How Do You Figure and Report the Deduction on Your Tax Return?What Tax Form Do You Use? Impairment-Related Work Expenses Health Insurance Costs for Self-Employed Persons What's New Medical and dental expenses. 1040nr instructions 2012  Beginning January 1, 2013, you can deduct only the part of your medical and dental expenses that exceed 10% of your adjusted gross income (AGI) (7. 1040nr instructions 2012 5% if either you or your spouse is age 65 or older). 1040nr instructions 2012 Standard mileage rate. 1040nr instructions 2012  The standard mileage rate allowed for operating expenses for a car when you use it for medical reasons is 24 cents per mile. 1040nr instructions 2012 See Transportation under What Medical Expenses Are Includible. 1040nr instructions 2012 Introduction This chapter will help you determine the following. 1040nr instructions 2012 What medical expenses are. 1040nr instructions 2012 What expenses you can include this year. 1040nr instructions 2012 How much of the expenses you can deduct. 1040nr instructions 2012 Whose medical expenses you can include. 1040nr instructions 2012 What medical expenses are includible. 1040nr instructions 2012 How to treat reimbursements. 1040nr instructions 2012 How to report the deduction on your tax return. 1040nr instructions 2012 How to report impairment-related work expenses. 1040nr instructions 2012 How to report health insurance costs if you are self-employed. 1040nr instructions 2012 Useful Items - You may want to see: Publications 502 Medical and Dental Expenses 969 Health Savings Accounts and Other Tax-Favored Health Plans Form (and Instructions) Schedule A (Form 1040) Itemized Deductions What Are Medical Expenses? Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. 1040nr instructions 2012 These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. 1040nr instructions 2012 They include the costs of equipment, supplies, and diagnostic devices needed for these purposes. 1040nr instructions 2012 Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. 1040nr instructions 2012 They do not include expenses that are merely beneficial to general health, such as vitamins or a vacation. 1040nr instructions 2012 Medical expenses include the premiums you pay for insurance that covers the expenses of medical care, and the amounts you pay for transportation to get medical care. 1040nr instructions 2012 Medical expenses also include amounts paid for qualified long-term care services and limited amounts paid for any qualified long-term care insurance contract. 1040nr instructions 2012 What Expenses Can You Include This Year? You can include only the medical and dental expenses you paid this year, regardless of when the services were provided. 1040nr instructions 2012 If you pay medical expenses by check, the day you mail or deliver the check generally is the date of payment. 1040nr instructions 2012 If you use a “pay-by-phone” or “online” account to pay your medical expenses, the date reported on the statement of the financial institution showing when payment was made is the date of payment. 1040nr instructions 2012 If you use a credit card, include medical expenses you charge to your credit card in the year the charge is made, not when you actually pay the amount charged. 1040nr instructions 2012 Separate returns. 1040nr instructions 2012   If you and your spouse live in a noncommunity property state and file separate returns, each of you can include only the medical expenses each actually paid. 1040nr instructions 2012 Any medical expenses paid out of a joint checking account in which you and your spouse have the same interest are considered to have been paid equally by each of you, unless you can show otherwise. 1040nr instructions 2012 Community property states. 1040nr instructions 2012   If you and your spouse live in a community property state and file separate returns, or are registered domestic partners in Nevada, Washington, or California, any medical expenses paid out of community funds are divided equally. 1040nr instructions 2012 Each of you should include half the expenses. 1040nr instructions 2012 If medical expenses are paid out of the separate funds of one individual, only the individual who paid the medical expenses can include them. 1040nr instructions 2012 If you live in a community property state, and are not filing a joint return, see Publication 555, Community Property. 1040nr instructions 2012 How Much of the Expenses Can You Deduct? Generally, you can deduct on Schedule A (Form 1040) only the amount of your medical and dental expenses that is more than 10% of your AGI (7. 1040nr instructions 2012 5% of your AGI if either you or your spouse is age 65 or older)(Form 1040, line 38). 1040nr instructions 2012 Example. 1040nr instructions 2012 You are unmarried and under age 65 and your AGI is $40,000, 10% of which is $4,000. 1040nr instructions 2012 You paid medical expenses of $2,500. 1040nr instructions 2012 You cannot deduct any of your medical expenses because they are not more than 10% of your AGI. 1040nr instructions 2012 Whose Medical Expenses Can You Include? You can generally include medical expenses you pay for yourself, as well as those you pay for someone who was your spouse or your dependent either when the services were provided or when you paid for them. 1040nr instructions 2012 There are different rules for decedents and for individuals who are the subject of multiple support agreements. 1040nr instructions 2012 See Support claimed under a multiple support agreement , later. 1040nr instructions 2012 Yourself You can include medical expenses you paid for yourself. 1040nr instructions 2012 Spouse You can include medical expenses you paid for your spouse. 1040nr instructions 2012 To include these expenses, you must have been married either at the time your spouse received the medical services or at the time you paid the medical expenses. 1040nr instructions 2012 Example 1. 1040nr instructions 2012 Mary received medical treatment before she married Bill. 1040nr instructions 2012 Bill paid for the treatment after they married. 1040nr instructions 2012 Bill can include these expenses in figuring his medical expense deduction even if Bill and Mary file separate returns. 1040nr instructions 2012 If Mary had paid the expenses, Bill could not include Mary's expenses in his separate return. 1040nr instructions 2012 Mary would include the amounts she paid during the year in her separate return. 1040nr instructions 2012 If they filed a joint return, the medical expenses both paid during the year would be used to figure their medical expense deduction. 1040nr instructions 2012 Example 2. 1040nr instructions 2012 This year, John paid medical expenses for his wife Louise, who died last year. 1040nr instructions 2012 John married Belle this year and they file a joint return. 1040nr instructions 2012 Because John was married to Louise when she received the medical services, he can include those expenses in figuring his medical expense deduction for this year. 1040nr instructions 2012 Dependent You can include medical expenses you paid for your dependent. 1040nr instructions 2012 For you to include these expenses, the person must have been your dependent either at the time the medical services were provided or at the time you paid the expenses. 1040nr instructions 2012 A person generally qualifies as your dependent for purposes of the medical expense deduction if both of the following requirements are met. 1040nr instructions 2012 The person was a qualifying child (defined later) or a qualifying relative (defined later), and The person was a U. 1040nr instructions 2012 S. 1040nr instructions 2012 citizen or national, or a resident of the United States, Canada, or Mexico. 1040nr instructions 2012 If your qualifying child was adopted, see Exception for adopted child , next. 1040nr instructions 2012 You can include medical expenses you paid for an individual that would have been your dependent except that: He or she received gross income of $3,900 or more in 2013, He or she filed a joint return for 2013, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. 1040nr instructions 2012 Exception for adopted child. 1040nr instructions 2012   If you are a U. 1040nr instructions 2012 S. 1040nr instructions 2012 citizen or U. 1040nr instructions 2012 S. 1040nr instructions 2012 national and your adopted child lived with you as a member of your household for 2013, that child does not have to be a U. 1040nr instructions 2012 S. 1040nr instructions 2012 citizen or national or a resident of the United States, Canada, or Mexico. 1040nr instructions 2012 Qualifying Child A qualifying child is a child who: Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew), Was: Under age 19 at the end of 2013 and younger than you (or your spouse, if filing jointly), Under age 24 at the end of 2013, a full-time student, and younger than you (or your spouse, if filing jointly), or Any age and permanently and totally disabled, Lived with you for more than half of 2013, Did not provide over half of his or her own support for 2013, and Did not file a joint return, or, if he or she did, it was only to claim a refund. 1040nr instructions 2012 Adopted child. 1040nr instructions 2012   A legally adopted child is treated as your own child. 1040nr instructions 2012 This includes a child lawfully placed with you for legal adoption. 1040nr instructions 2012   You can include medical expenses that you paid for a child before adoption if the child qualified as your dependent when the medical services were provided or when the expenses were paid. 1040nr instructions 2012   If you pay back an adoption agency or other persons for medical expenses they paid under an agreement with you, you are treated as having paid those expenses provided you clearly substantiate that the payment is directly attributable to the medical care of the child. 1040nr instructions 2012   But if you pay the agency or other person for medical care that was provided and paid for before adoption negotiations began, you cannot include them as medical expenses. 1040nr instructions 2012    You may be able to take an adoption credit for other expenses related to an adoption. 1040nr instructions 2012 See the Instructions for Form 8839, Qualified Adoption Expenses, for more information. 1040nr instructions 2012 Child of divorced or separated parents. 1040nr instructions 2012   For purposes of the medical and dental expenses deduction, a child of divorced or separated parents can be treated as a dependent of both parents. 1040nr instructions 2012 Each parent can include the medical expenses he or she pays for the child, even if the other parent claims the child's dependency exemption, if: The child is in the custody of one or both parents for more than half the year, The child receives over half of his or her support during the year from his or her parents, and The child's parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Live apart at all times during the last 6 months of the year. 1040nr instructions 2012 This does not apply if the child's exemption is being claimed under a multiple support agreement (discussed later). 1040nr instructions 2012 Qualifying Relative A qualifying relative is a person: Who is your: Son, daughter, stepchild, foster child, or a descendant of any of them (for example, your grandchild), Brother, sister, half brother, half sister, or a son or daughter of either of them, Father, mother, or an ancestor or sibling of either of them (for example, your grandmother, grandfather, aunt, or uncle), Stepbrother, stepsister, stepfather, stepmother, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law, or Any other person (other than your spouse) who lived with you all year as a member of your household if your relationship did not violate local law, Who was not a qualifying child (see Qualifying Child earlier) of any other person for 2013, and For whom you provided over half of the support in 2013. 1040nr instructions 2012 But see Child of divorced or separated parents , earlier, and Support claimed under a multiple support agreement, next. 1040nr instructions 2012 Support claimed under a multiple support agreement. 1040nr instructions 2012   If you are considered to have provided more than half of a qualifying relative's support under a multiple support agreement, you can include medical expenses you pay for that person. 1040nr instructions 2012 A multiple support agreement is used when two or more people provide more than half of a person's support, but no one alone provides more than half. 1040nr instructions 2012   Any medical expenses paid by others who joined you in the agreement cannot be included as medical expenses by anyone. 1040nr instructions 2012 However, you can include the entire unreimbursed amount you paid for medical expenses. 1040nr instructions 2012 Example. 1040nr instructions 2012 You and your three brothers each provide one-fourth of your mother's total support. 1040nr instructions 2012 Under a multiple support agreement, you treat your mother as your dependent. 1040nr instructions 2012 You paid all of her medical expenses. 1040nr instructions 2012 Your brothers reimbursed you for three-fourths of these expenses. 1040nr instructions 2012 In figuring your medical expense deduction, you can include only one-fourth of your mother's medical expenses. 1040nr instructions 2012 Your brothers cannot include any part of the expenses. 1040nr instructions 2012 However, if you and your brothers share the nonmedical support items and you separately pay all of your mother's medical expenses, you can include the unreimbursed amount you paid for her medical expenses in your medical expenses. 1040nr instructions 2012 Decedent Medical expenses paid before death by the decedent are included in figuring any deduction for medical and dental expenses on the decedent's final income tax return. 1040nr instructions 2012 This includes expenses for the decedent's spouse and dependents as well as for the decedent. 1040nr instructions 2012 The survivor or personal representative of a decedent can choose to treat certain expenses paid by the decedent's estate for the decedent's medical care as paid by the decedent at the time the medical services were provided. 1040nr instructions 2012 The expenses must be paid within the 1-year period beginning with the day after the date of death. 1040nr instructions 2012 If you are the survivor or personal representative making this choice, you must attach a statement to the decedent's Form 1040 (or the decedent's amended return, Form 1040X) saying that the expenses have not been and will not be claimed on the estate tax return. 1040nr instructions 2012 Qualified medical expenses paid before death by the decedent are not deductible if paid with a tax-free distribution from any Archer MSA, Medicare Advantage MSA, or health savings account. 1040nr instructions 2012 Amended returns and claims for refund are discussed in chapter 1. 1040nr instructions 2012 What if you pay medical expenses of a deceased spouse or dependent?   If you paid medical expenses for your deceased spouse or dependent, include them as medical expenses on your Form 1040 in the year paid, whether they are paid before or after the decedent's death. 1040nr instructions 2012 The expenses can be included if the person was your spouse or dependent either at the time the medical services were provided or at the time you paid the expenses. 1040nr instructions 2012 What Medical Expenses Are Includible? Use Table 21-1, later, as a guide to determine which medical and dental expenses you can include on Schedule A (Form 1040). 1040nr instructions 2012 This table does not include all possible medical expenses. 1040nr instructions 2012 To determine if an expense not listed can be included in figuring your medical expense deduction, see What Are Medical Expenses , earlier. 1040nr instructions 2012 Insurance Premiums You can include in medical expenses insurance premiums you pay for policies that cover medical care. 1040nr instructions 2012 Medical care policies can provide payment for treatment that includes: Hospitalization, surgical services, X-rays, Prescription drugs and insulin, Dental care, Replacement of lost or damaged contact lenses, and Long-term care (subject to additional limitations). 1040nr instructions 2012 See Qualified Long-Term Care Insurance Contracts in Publication 502. 1040nr instructions 2012 If you have a policy that provides payments for other than medical care, you can include the premiums for the medical care part of the policy if the charge for the medical part is reasonable. 1040nr instructions 2012 The cost of the medical part must be separately stated in the insurance contract or given to you in a separate statement. 1040nr instructions 2012 Note. 1040nr instructions 2012 When figuring the amount of insurance premiums you can include in medical expenses on Schedule A, do not include any health coverage tax credit advance payments shown in box 1 of Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. 1040nr instructions 2012 Also, do not include insurance premiums attributable to a nondependent child under age 27 if your premiums increased as a result of adding this child to your policy. 1040nr instructions 2012 Employer-sponsored health insurance plan. 1040nr instructions 2012   Do not include in your medical and dental expenses any insurance premiums paid by an employer-sponsored health insurance plan unless the premiums are included in box 1 of your Form W-2. 1040nr instructions 2012 Also, do not include any other medical and dental expenses paid by the plan unless the amount paid is included in box 1 of your Form W-2. 1040nr instructions 2012 Example. 1040nr instructions 2012 You are a federal employee participating in the premium conversion plan of the Federal Employee Health Benefits (FEHB) program. 1040nr instructions 2012 Your share of the FEHB premium is paid by making a pre-tax reduction in your salary. 1040nr instructions 2012 Because you are an employee whose insurance premiums are paid with money that is never included in your gross income, you cannot deduct the premiums paid with that money. 1040nr instructions 2012 Long-term care services. 1040nr instructions 2012   Contributions made by your employer to provide coverage for qualified long-term care services under a flexible spending or similar arrangement must be included in your income. 1040nr instructions 2012 This amount will be reported as wages in box 1 of your Form W-2. 1040nr instructions 2012 Health reimbursement arrangement (HRA). 1040nr instructions 2012   If you have medical expenses that are reimbursed by a health reimbursement arrangement, you cannot include those expenses in your medical expenses. 1040nr instructions 2012 This is because an HRA is funded solely by the employer. 1040nr instructions 2012 Retired public safety officers. 1040nr instructions 2012   If you are a retired public safety officer, do not include as medical expenses any health or long-term care premiums that you elected to have paid with tax-free distributions from your retirement plan. 1040nr instructions 2012 This applies only to distributions that would otherwise be included in income. 1040nr instructions 2012 Medicare A. 1040nr instructions 2012   If you are covered under social security (or if you are a government employee who paid Medicare tax), you are enrolled in Medicare A. 1040nr instructions 2012 The payroll tax paid for Medicare A is not a medical expense. 1040nr instructions 2012   If you are not covered under social security (or were not a government employee who paid Medicare tax), you can voluntarily enroll in Medicare A. 1040nr instructions 2012 In this situation you can include the premiums you paid for Medicare A as a medical expense. 1040nr instructions 2012 Medicare B. 1040nr instructions 2012   Medicare B is supplemental medical insurance. 1040nr instructions 2012 Premiums you pay for Medicare B are a medical expense. 1040nr instructions 2012 Check the information you received from the Social Security Administration to find out your premium. 1040nr instructions 2012 Medicare D. 1040nr instructions 2012    Medicare D is a voluntary prescription drug insurance program for persons with Medicare A or B. 1040nr instructions 2012 You can include as a medical expense premiums you pay for Medicare D. 1040nr instructions 2012 Prepaid insurance premiums. 1040nr instructions 2012   Premiums you pay before you are age 65 for insurance for medical care for yourself, your spouse, or your dependents after you reach age 65 are medical care expenses in the year paid if they are: Payable in equal yearly installments, or more often, and Payable for at least 10 years, or until you reach age 65 (but not for less than 5 years). 1040nr instructions 2012 Unused sick leave used to pay premiums. 1040nr instructions 2012   You must include in gross income cash payments you receive at the time of retirement for unused sick leave. 1040nr instructions 2012 You also must include in gross income the value of unused sick leave that, at your option, your employer applies to the cost of your continuing participation in your employer's health plan after you retire. 1040nr instructions 2012 You can include this cost of continuing participation in the health plan as a medical expense. 1040nr instructions 2012   If you participate in a health plan where your employer automatically applies the value of unused sick leave to the cost of your continuing participation in the health plan (and you do not have the option to receive cash), do not include the value of the unused sick leave in gross income. 1040nr instructions 2012 You cannot include this cost of continuing participation in that health plan as a medical expense. 1040nr instructions 2012 Table 21-1. 1040nr instructions 2012 Medical and Dental Expenses Checklist. 1040nr instructions 2012 See Publication 502 for more information about these and other expenses. 1040nr instructions 2012 You can include: You cannot include: Bandages Birth control pills prescribed by your doctor Body scan Braille books Breast pump and supplies Capital expenses for equipment or improvements to your home needed for medical care (see the worksheet in Publication 502) Diagnostic devices Expenses of an organ donor Eye surgery—to promote the correct function of the eye Fertility enhancement, certain procedures Guide dogs or other animals aiding the blind, deaf, and disabled Hospital services fees (lab work, therapy, nursing services, surgery, etc. 1040nr instructions 2012 ) Lead-based paint removal Legal abortion Legal operation to prevent having children such as a vasectomy or tubal ligation Long-term care contracts, qualified Meals and lodging provided by a hospital during medical treatment Medical services fees (from doctors, dentists, surgeons, specialists, and other medical practitioners) Medicare Part D premiums Medical and hospital insurance premiums Nursing services Oxygen equipment and oxygen Part of life-care fee paid to retirement home designated for medical care Physical examination Pregnancy test kit Prescription medicines (prescribed by a doctor) and insulin Psychiatric and psychological treatment Social security tax, Medicare tax, FUTA, and state employment tax for worker providing medical care (see Wages for nursing services, below) Special items (artificial limbs, false teeth, eye-glasses, contact lenses, hearing aids, crutches, wheelchair, etc. 1040nr instructions 2012 ) Special education for mentally or physically disabled persons Stop-smoking programs Transportation for needed medical care Treatment at a drug or alcohol center (includes meals and lodging provided by the center) Wages for nursing services Weight-loss, certain expenses for obesity Baby sitting and childcare Bottled water Contributions to Archer MSAs (see Publication 969) Diaper service Expenses for your general health (even if following your doctor's advice) such as— —Health club dues —Household help (even if recommended by a doctor) —Social activities, such as dancing or swimming lessons —Trip for general health improvement Flexible spending account reimbursements for medical expenses (if contributions were on a pre-tax basis) Funeral, burial, or cremation expenses Health savings account payments for medical expenses Illegal operation, treatment, or medicine Life insurance or income protection policies, or policies providing payment for loss of life, limb, sight, etc. 1040nr instructions 2012 Maternity clothes Medical insurance included in a car insurance policy covering all persons injured in or by your car Medicine you buy without a prescription Nursing care for a healthy baby Prescription drugs you brought in (or ordered shipped) from another country, in most cases Nutritional supplements, vitamins, herbal supplements, “natural medicines,” etc. 1040nr instructions 2012 , unless recommended by a medical practitioner as a treatment for a specific medical condition diagnosed by a physician Surgery for purely cosmetic reasons Toothpaste, toiletries, cosmetics, etc. 1040nr instructions 2012 Teeth whitening Weight-loss expenses not for the treatment of obesity or other disease Meals and Lodging You can include in medical expenses the cost of meals and lodging at a hospital or similar institution if a principal reason for being there is to get medical care. 1040nr instructions 2012 See Nursing home , later. 1040nr instructions 2012 You may be able to include in medical expenses the cost of lodging not provided in a hospital or similar institution. 1040nr instructions 2012 You can include the cost of such lodging while away from home if all of the following requirements are met. 1040nr instructions 2012 The lodging is primarily for and essential to medical care. 1040nr instructions 2012 The medical care is provided by a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital. 1040nr instructions 2012 The lodging is not lavish or extravagant under the circumstances. 1040nr instructions 2012 There is no significant element of personal pleasure, recreation, or vacation in the travel away from home. 1040nr instructions 2012 The amount you include in medical expenses for lodging cannot be more than $50 for each night for each person. 1040nr instructions 2012 You can include lodging for a person traveling with the person receiving the medical care. 1040nr instructions 2012 For example, if a parent is traveling with a sick child, up to $100 per night can be included as a medical expense for lodging. 1040nr instructions 2012 Meals are not included. 1040nr instructions 2012 Nursing home. 1040nr instructions 2012   You can include in medical expenses the cost of medical care in a nursing home, home for the aged, or similar institution, for yourself, your spouse, or your dependents. 1040nr instructions 2012 This includes the cost of meals and lodging in the home if a principal reason for being there is to get medical care. 1040nr instructions 2012   Do not include the cost of meals and lodging if the reason for being in the home is personal. 1040nr instructions 2012 You can, however, include in medical expenses the part of the cost that is for medical or nursing care. 1040nr instructions 2012 Transportation Include in medical expenses amounts paid for transportation primarily for, and essential to, medical care. 1040nr instructions 2012 You can include: Bus, taxi, train, or plane fares, or ambulance service, Transportation expenses of a parent who must go with a child who needs medical care, Transportation expenses of a nurse or other person who can give injections, medications, or other treatment required by a patient who is traveling to get medical care and is unable to travel alone, and Transportation expenses for regular visits to see a mentally ill dependent, if these visits are recommended as a part of treatment. 1040nr instructions 2012 Car expenses. 1040nr instructions 2012   You can include out-of-pocket expenses, such as the cost of gas and oil, when you use your car for medical reasons. 1040nr instructions 2012 You cannot include depreciation, insurance, general repair, or maintenance expenses. 1040nr instructions 2012   If you do not want to use your actual expenses for 2013, you can use the standard medical mileage rate of 24 cents per mile. 1040nr instructions 2012    You can also include parking fees and tolls. 1040nr instructions 2012 You can add these fees and tolls to your medical expenses whether you use actual expenses or use the standard mileage rate. 1040nr instructions 2012 Example. 1040nr instructions 2012 In 2013, Bill Jones drove 2,800 miles for medical reasons. 1040nr instructions 2012 He spent $500 for gas, $30 for oil, and $100 for tolls and parking. 1040nr instructions 2012 He wants to figure the amount he can include in medical expenses both ways to see which gives him the greater deduction. 1040nr instructions 2012 He figures the actual expenses first. 1040nr instructions 2012 He adds the $500 for gas, the $30 for oil, and the $100 for tolls and parking for a total of $630. 1040nr instructions 2012 He then figures the standard mileage amount. 1040nr instructions 2012 He multiplies 2,800 miles by 24 cents a mile for a total of $672. 1040nr instructions 2012 He then adds the $100 tolls and parking for a total of $772. 1040nr instructions 2012 Bill includes the $772 of car expenses with his other medical expenses for the year because the $772 is more than the $630 he figured using actual expenses. 1040nr instructions 2012 Transportation expenses you cannot include. 1040nr instructions 2012   You cannot include in medical expenses the cost of transportation in the following situations. 1040nr instructions 2012 Going to and from work, even if your condition requires an unusual means of transportation. 1040nr instructions 2012 Travel for purely personal reasons to another city for an operation or other medical care. 1040nr instructions 2012 Travel that is merely for the general improvement of one's health. 1040nr instructions 2012 The costs of operating a specially equipped car for other than medical reasons. 1040nr instructions 2012 Disabled Dependent Care Expenses Some disabled dependent care expenses may qualify as either: Medical expenses, or Work-related expenses for purposes of taking a credit for dependent care. 1040nr instructions 2012 (See chapter 32 and Publication 503, Child and Dependent Care Expenses. 1040nr instructions 2012 ) You can choose to apply them either way as long as you do not use the same expenses to claim both a credit and a medical expense deduction. 1040nr instructions 2012 How Do You Treat Reimbursements? You can include in medical expenses only those amounts paid during the taxable year for which you received no insurance or other reimbursement. 1040nr instructions 2012 Insurance Reimbursement You must reduce your total medical expenses for the year by all reimbursements for medical expenses that you receive from insurance or other sources during the year. 1040nr instructions 2012 This includes payments from Medicare. 1040nr instructions 2012 Even if a policy provides reimbursement for only certain specific medical expenses, you must use amounts you receive from that policy to reduce your total medical expenses, including those it does not reimburse. 1040nr instructions 2012 Example. 1040nr instructions 2012 You have insurance policies that cover your hospital and doctors' bills but not your nursing bills. 1040nr instructions 2012 The insurance you receive for the hospital and doctors' bills is more than their charges. 1040nr instructions 2012 In figuring your medical deduction, you must reduce the total amount you spent for medical care by the total amount of insurance you received, even if the policies do not cover some of your medical expenses. 1040nr instructions 2012 Health reimbursement arrangement (HRA). 1040nr instructions 2012   A health reimbursement arrangement is an employer-funded plan that reimburses employees for medical care expenses and allows unused amounts to be carried forward. 1040nr instructions 2012 An HRA is funded solely by the employer and the reimbursements for medical expenses, up to a maximum dollar amount for a coverage period, are not included in your income. 1040nr instructions 2012 Other reimbursements. 1040nr instructions 2012   Generally, you do not reduce medical expenses by payments you receive for: Permanent loss or loss of use of a member or function of the body (loss of limb, sight, hearing, etc. 1040nr instructions 2012 ) or disfigurement to the extent the payment is based on the nature of the injury without regard to the amount of time lost from work, or Loss of earnings. 1040nr instructions 2012   You must, however, reduce your medical expenses by any part of these payments that is designated for medical costs. 1040nr instructions 2012 See How Do You Figure and Report the Deduction on Your Tax Return , later. 1040nr instructions 2012   For how to treat damages received for personal injury or sickness, see Damages for Personal Injuries , later. 1040nr instructions 2012 You do not have a medical deduction if you are reimbursed for all of your medical expenses for the year. 1040nr instructions 2012 Excess reimbursement. 1040nr instructions 2012   If you are reimbursed more than your medical expenses, you may have to include the excess in income. 1040nr instructions 2012 You may want to use Figure 21-A to help you decide if any of your reimbursement is taxable. 1040nr instructions 2012 Premiums paid by you. 1040nr instructions 2012   If you pay either the entire premium for your medical insurance or all of the costs of a plan similar to medical insurance and your insurance payments or other reimbursements are more than your total medical expenses for the year, you have an excess reimbursement. 1040nr instructions 2012 Generally, you do not include the excess reimbursement in your gross income. 1040nr instructions 2012 Premiums paid by you and your employer. 1040nr instructions 2012   If both you and your employer contribute to your medical insurance plan and your employer's contributions are not included in your gross income, you must include in your gross income the part of your excess reimbursement that is from your employer's contribution. 1040nr instructions 2012   See Publication 502 to figure the amount of the excess reimbursement you must include in gross income. 1040nr instructions 2012 Reimbursement in a later year. 1040nr instructions 2012   If you are reimbursed in a later year for medical expenses you deducted in an earlier year, you generally must report the reimbursement as income up to the amount you previously deducted as medical expenses. 1040nr instructions 2012   However, do not report as income the amount of reimbursement you received up to the amount of your medical deductions that did not reduce your tax for the earlier year. 1040nr instructions 2012 For more information about the recovery of an amount that you claimed as an itemized deduction in an earlier year, see Itemized Deduction Recoveries in chapter 12. 1040nr instructions 2012 Figure 21-A. 1040nr instructions 2012 Is Your Excess Medical Reimbursement Taxable? Please click here for the text description of the image. 1040nr instructions 2012 Figure 21-A. 1040nr instructions 2012 Is Your Excess Medical Reimbursement Taxable? Medical expenses not deducted. 1040nr instructions 2012   If you did not deduct a medical expense in the year you paid it because your medical expenses were not more than 10% of your AGI (7. 1040nr instructions 2012 5% of your AGI if either you or your spouse was age 65 or older), or because you did not itemize deductions, do not include the reimbursement up to the amount of the expense in income. 1040nr instructions 2012 However, if the reimbursement is more than the expense, see Excess reimbursement , earlier. 1040nr instructions 2012 Example. 1040nr instructions 2012 For 2013, you were unmarried and under age 65 and you had medical expenses of $500. 1040nr instructions 2012 You cannot deduct the $500 because it is less than 10% of your AGI. 1040nr instructions 2012 If, in a later year, you are reimbursed for any of the $500 in medical expenses, you do not include the amount reimbursed in your gross income. 1040nr instructions 2012 Damages for Personal Injuries If you receive an amount in settlement of a personal injury suit, part of that award may be for medical expenses that you deducted in an earlier year. 1040nr instructions 2012 If it is, you must include that part in your income in the year you receive it to the extent it reduced your taxable income in the earlier year. 1040nr instructions 2012 See Reimbursement in a Later Year , discussed under How Do You Treat Reimbursements, earlier. 1040nr instructions 2012 Future medical expenses. 1040nr instructions 2012   If you receive an amount in settlement of a damage suit for personal injuries, part of that award may be for future medical expenses. 1040nr instructions 2012 If it is, you must reduce any future medical expenses for these injuries until the amount you received has been completely used. 1040nr instructions 2012 How Do You Figure and Report the Deduction on Your Tax Return? Once you have determined which medical expenses you can include, you figure and report the deduction on your tax return. 1040nr instructions 2012 What Tax Form Do You Use? You figure your medical expense deduction on Schedule A (Form 1040). 1040nr instructions 2012 You cannot claim medical expenses on Form 1040A or Form 1040EZ. 1040nr instructions 2012 If you need more information on itemized deductions or you are not sure if you can itemize, see chapter 20. 1040nr instructions 2012 Enter the amount you paid for medical and dental expenses on Schedule A (Form 1040). 1040nr instructions 2012 This should be your expenses that were not reimbursed by insurance or any other sources. 1040nr instructions 2012 Generally, you can deduct only the amount of your medical and dental expenses that is more than 10% of your AGI (7. 1040nr instructions 2012 5% if either you or your spouse was age 65 or older) shown on line 38, Form 1040. 1040nr instructions 2012 Impairment-Related Work Expenses If you are a person with a disability, you can take a business deduction for expenses that are necessary for you to be able to work. 1040nr instructions 2012 If you take a business deduction for impairment-related work expenses, do not take a medical deduction for the same expenses. 1040nr instructions 2012 You have a disability if you have: A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed, or A physical or mental impairment (for example, a sight or hearing impairment) that substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, or working. 1040nr instructions 2012 Impairment-related expenses defined. 1040nr instructions 2012   Impairment-related expenses are those ordinary and necessary business expenses that are: Necessary for you to do your work satisfactorily, For goods and services not required or used, other than incidentally, in your personal activities, and Not specifically covered under other income tax laws. 1040nr instructions 2012 Where to report. 1040nr instructions 2012   If you are self-employed, deduct the business expenses on the appropriate form (Schedule C, C-EZ, E, or F) used to report your business income and expenses. 1040nr instructions 2012   If you are an employee, complete Form 2106, Employee Business Expenses, or Form 2106-EZ, Unreimbursed Employee Business Expenses. 1040nr instructions 2012 Enter on Schedule A (Form 1040), that part of the amount on Form 2106, or Form 2106-EZ, that is related to your impairment. 1040nr instructions 2012 Enter the amount that is unrelated to your impairment also on Schedule A (Form 1040). 1040nr instructions 2012 Your impairment-related work expenses are not subject to the 2%-of-adjusted-gross-income limit that applies to other employee business expenses. 1040nr instructions 2012 Example. 1040nr instructions 2012 You are blind. 1040nr instructions 2012 You must use a reader to do your work. 1040nr instructions 2012 You use the reader both during your regular working hours at your place of work and outside your regular working hours away from your place of work. 1040nr instructions 2012 The reader's services are only for your work. 1040nr instructions 2012 You can deduct your expenses for the reader as business expenses. 1040nr instructions 2012 Health Insurance Costs for Self-Employed Persons If you were self-employed and had a net profit for the year, you may be able to deduct, as an adjustment to income, amounts paid for medical and qualified long-term care insurance on behalf of yourself, your spouse, your dependents, and, your children who were under age 27 at the end of 2013. 1040nr instructions 2012 For this purpose, you were self-employed if you were a general partner (or a limited partner receiving guaranteed payments) or you received wages from an S corporation in which you were more than a 2% shareholder. 1040nr instructions 2012 The insurance plan must be established under your trade or business and the deduction cannot be more than your earned income from that trade or business. 1040nr instructions 2012 You cannot deduct payments for medical insurance for any month in which you were eligible to participate in a health plan subsidized by your employer, your spouse's employer, or, an employer of your dependent or your child under age 27 at the end of 2013. 1040nr instructions 2012 You cannot deduct payments for a qualified long-term care insurance contract for any month in which you were eligible to participate in a long-term care insurance plan subsidized by your employer or your spouse's employer. 1040nr instructions 2012 If you qualify to take the deduction, use the Self-Employed Health Insurance Deduction Worksheet in the Form 1040 instructions to figure the amount you can deduct. 1040nr instructions 2012 But if any of the following applies, do not use that worksheet. 1040nr instructions 2012 You had more than one source of income subject to self-employment tax. 1040nr instructions 2012 You file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. 1040nr instructions 2012 You are using amounts paid for qualified long-term care insurance to figure the deduction. 1040nr instructions 2012 If you cannot use the worksheet in the Form 1040 instructions, use the worksheet in Publication 535, Business Expenses, to figure your deduction. 1040nr instructions 2012 Note. 1040nr instructions 2012 When figuring the amount you can deduct for insurance premiums, do not include any advance payments shown on Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. 1040nr instructions 2012 If you are claiming the health coverage tax credit, subtract the amount shown on Form 8885, from the total insurance premiums you paid. 1040nr instructions 2012 Do not include amounts paid for health insurance coverage with retirement plan distributions that were tax-free because you are a retired public safety officer. 1040nr instructions 2012 Where to report. 1040nr instructions 2012    You take this deduction on Form 1040. 1040nr instructions 2012 If you itemize your deductions and do not claim 100% of your self-employed health insurance on Form 1040, you can generally include any remaining premiums with all other medical expenses on Schedule A (Form 1040), subject to the 10% limit (7. 1040nr instructions 2012 5% if either you or your spouse was age 65 or older). 1040nr instructions 2012 See Self-Employed Health Insurance Deduction in chapter 6 of Publication 535, Business Expenses, and Medical and Dental Expenses in the Instructions for Schedule A (Form 1040), for more information. 1040nr instructions 2012 Prev  Up  Next   Home   More Online Publications
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Reminder To Home-Based Businesses: Simplified Option for Claiming Home Office Deduction Now Available; May Deduct up to $1,500; Saves 1.6 Million Hours A Year

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Simplified Home Office Deduction: English / Spanish / ASL

IR-2014-24, March 7, 2014

WASHINGTON — The Internal Revenue Service today reminded people with home-based businesses that this year for the first time they can choose a new simplified option for claiming the deduction for business use of a home.

In tax year 2011, the most recent year for which figures are available, some 3.3 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction) totaling nearly $10 billion.

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

The new option is available starting with the 2013 return taxpayers are filing now.  Normally, home-based businesses are required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions.  Instead, taxpayers claiming the optional deduction need only complete a short worksheet in the tax instructions and enter the result on their return. Self-employed individuals claim the home office deduction on Schedule C Line 30, farmers claim it on Schedule F  Line 32 and eligible employees claim it on Schedule A Line 21. 

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees, are still fully deductible.

Long-standing restrictions on the home office deduction, such as the requirement that a home office be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.

Further details on the home office deduction and the new option can be found in Publication 587, posted on IRS.gov.

 

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Page Last Reviewed or Updated: 07-Mar-2014

The 1040nr Instructions 2012

1040nr instructions 2012 Internal Revenue Bulletin:  2013-7  February 11, 2013  Rev. 1040nr instructions 2012 Proc. 1040nr instructions 2012 2013-16 Table of Contents SECTION 1. 1040nr instructions 2012 PURPOSE SECTION 2. 1040nr instructions 2012 BACKGROUND—HAMP AND THE HAMP PRINCIPAL REDUCTION ALTERNATIVE SECTION 3. 1040nr instructions 2012 BACKGROUND—APPLICABLE PROVISIONS OF LAW SECTION 4. 1040nr instructions 2012 FEDERAL INCOME TAX TREATMENT SECTION 5. 1040nr instructions 2012 INFORMATION-REPORTING OBLIGATIONS SECTION 6. 1040nr instructions 2012 HAMP-PRA BORROWERS’ REPORTING OF DISCHARGES OF INDEBTEDNESS UNDER HAMP-PRA SECTION 7. 1040nr instructions 2012 PENALTY RELIEF FOR 2012 SECTION 8. 1040nr instructions 2012 SCOPE AND EFFECTIVE DATE SECTION 9. 1040nr instructions 2012 DRAFTING INFORMATION SECTION 1. 1040nr instructions 2012 PURPOSE This revenue procedure provides guidance to mortgage loan holders, loan servicers, and borrowers who are participating in the Department of the Treasury’s (Treasury) and Department of Housing and Urban Development’s (HUD) Home Affordable Modification Program® (HAMP®). 1040nr instructions 2012 Under HAMP, a borrower may be eligible for principal reduction of the outstanding balance of a qualifying mortgage pursuant to the program’s Principal Reduction AlternativeSM (PRA). 1040nr instructions 2012 In appropriate cases, HAMP has been offering the PRA as part of a HAMP loan modification since the last quarter of 2010. 1040nr instructions 2012 Current plans call for HAMP to continue accepting new borrowers through the end of 2013. 1040nr instructions 2012 The Internal Revenue Service (Service) is providing this guidance to address the tax consequences for borrowers (HAMP-PRA borrowers) who are participating in the PRA and the reporting obligations for participating mortgage loan holders and servicers. 1040nr instructions 2012 SECTION 2. 1040nr instructions 2012 BACKGROUND—HAMP AND THE HAMP PRINCIPAL REDUCTION ALTERNATIVE . 1040nr instructions 2012 01 To help distressed borrowers lower their monthly mortgage payments, Treasury and HUD established HAMP for mortgage loans that are not owned or guaranteed by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). 1040nr instructions 2012 A description of the program can be found at www. 1040nr instructions 2012 makinghomeaffordable. 1040nr instructions 2012 gov. 1040nr instructions 2012 . 1040nr instructions 2012 02 Under HAMP, a participating loan servicer, acting on behalf of the mortgage loan holder, must consider a sequence of modification steps for each eligible borrower’s mortgage loan until the borrower’s monthly payment is reduced to a monthly payment amount determined under the HAMP guidelines. 1040nr instructions 2012 These steps include a reduction in the mortgage loan’s interest rate, an extension of the mortgage loan’s term, and a reduction in the mortgage loan’s principal balance. 1040nr instructions 2012 . 1040nr instructions 2012 03 In some cases, the unpaid principal balance of the modified mortgage loan is divided into (1) an amount that bears stated interest and that is used to calculate the borrower’s new monthly mortgage payment (the “Non-forbearance Portion”), and (2) a forbearance amount, which does not bear stated interest and on which periodic payments of stated principal are not required. 1040nr instructions 2012 The stated principal of the forbearance amount is due upon the earliest of the borrower’s transfer of the property, payoff of the balance on the Non-forbearance Portion of the mortgage loan, or maturity of the mortgage loan. 1040nr instructions 2012 However, as noted in section 2. 1040nr instructions 2012 06 of this revenue procedure, a HAMP-PRA borrower sometimes may not have to pay all or a portion of the forbearance amount. 1040nr instructions 2012 (The forbearance amount associated with a HAMP-PRA principal reduction is called the “PRA Forbearance Amount. 1040nr instructions 2012 ”) . 1040nr instructions 2012 04 If a mortgage loan is being considered for a HAMP modification and the amount owed on the mortgage loan is greater than 115 percent of the value of the property, then the servicer must consider whether principal reduction under PRA should be used as part of the HAMP modification. 1040nr instructions 2012 . 1040nr instructions 2012 05 The first step toward a HAMP modification is a trial period plan, in which the borrower’s monthly mortgage payment is set at a monthly payment amount determined under the HAMP guidelines. 1040nr instructions 2012 The trial period plan effective date is the due date for the first of the reduced payments that are to be made under the trial period plan. 1040nr instructions 2012 (It is the first day of either the first or the second month after the servicer transmits the trial period notice to the borrower. 1040nr instructions 2012 ) In general, the trial period is three months, and, during this period, the borrower must satisfy certain conditions before the changes to the terms of the mortgage loan become permanent (the “Trial Period Conditions”). 1040nr instructions 2012 Specifically, depending on the borrower’s trial period payment history, the borrower’s compliance with HAMP and servicer guidelines, and his or her satisfaction of all other Trial Period Conditions, the borrower will be offered a permanent modification of the terms of the mortgage loan, including monthly mortgage payments that are lower than those under the old mortgage loan. 1040nr instructions 2012 Until the effective date of a permanent modification, the terms of the existing mortgage loan continue to apply. 1040nr instructions 2012 . 1040nr instructions 2012 06 After the mortgage loan is permanently modified under HAMP, if the modified mortgage loan is in good standing on the first, second, or third annual anniversary of the trial period plan effective date (the “Three-year Period”), the servicer must reduce the unpaid principal balance of the mortgage loan on the respective anniversary date by one-third of the initial PRA Forbearance Amount. 1040nr instructions 2012 (The servicer allocates the entire reduction to the remaining PRA Forbearance Amount. 1040nr instructions 2012 ) In general, if a HAMP-PRA borrower’s mortgage loan is in good standing and if the HAMP-PRA borrower pays in full the Non-forbearance Portion of the mortgage loan prior to the reduction of the entire PRA Forbearance Amount, the servicer must reduce the remaining outstanding principal balance of the mortgage loan by the remaining PRA Forbearance Amount. 1040nr instructions 2012 . 1040nr instructions 2012 07 In connection with every HAMP loan modification, the HAMP program administrator (acting on behalf of the federal government) provides incentives to the borrower, the servicer, and the investor (that is, the holder of the mortgage loan). 1040nr instructions 2012 If a HAMP loan modification includes a PRA principal reduction, the HAMP program administrator makes additional incentive payments to the investor. 1040nr instructions 2012 These additional incentives are called “PRA Investor Incentive Payments” and are generally spread over three years. 1040nr instructions 2012 The size of the PRA Investor Incentive Payments depends on the amount of principal reduced, the loan-to-value ratio at the time of the HAMP modification, and the loan’s payment history before the modification. 1040nr instructions 2012 The PRA Investor Incentive Payments range from 18 to 63 percent of the principal amounts reduced. 1040nr instructions 2012 For purposes of this revenue procedure, the excess of the initial PRA Forbearance Amount of a mortgage loan over the aggregate PRA Investor Incentive Payments scheduled to be paid with respect to that loan is called the “PRA Adjusted Forbearance Amount. 1040nr instructions 2012 ” . 1040nr instructions 2012 08 A PRA Investor Incentive Payment is earned by the investor on each date on which the servicer reduces the unpaid principal balance of the mortgage loan by a portion of the PRA Forbearance Amount (generally, on the first three annual anniversaries of the trial period plan effective date). 1040nr instructions 2012 . 1040nr instructions 2012 09 If a HAMP-PRA borrower’s early payment in full of the Non-forbearance Portion of the mortgage loan accelerates the reduction of the remaining PRA Forbearance Amount (described above in section 2. 1040nr instructions 2012 06 of this revenue procedure), the remaining PRA Investor Incentive Payments from the HAMP program administrator are also accelerated. 1040nr instructions 2012 . 1040nr instructions 2012 10 If, prior to completion of the Three-year Period, a mortgage loan ceases to be in good standing because of the HAMP-PRA borrower’s payment history, then the remaining PRA Forbearance Amount is not further reduced and is due when the HAMP-PRA borrower transfers the property, the HAMP-PRA borrower refinances, or otherwise pays off the Non-forbearance Portion of the mortgage loan, or the mortgage loan matures. 1040nr instructions 2012 SECTION 3. 1040nr instructions 2012 BACKGROUND—APPLICABLE PROVISIONS OF LAW . 1040nr instructions 2012 01 Under § 61 of the Internal Revenue Code, except as otherwise provided in subtitle A, gross income means all income from whatever source derived, including income from discharge of indebtedness. 1040nr instructions 2012 See § 61(a)(12). 1040nr instructions 2012 . 1040nr instructions 2012 02 Under § 1. 1040nr instructions 2012 1001-3 of the Income Tax Regulations, if a debt instrument undergoes a significant modification, then the modification results in an exchange of the original debt instrument for the modified debt instrument. 1040nr instructions 2012 In general, an agreement to change a term of a debt instrument is a modification at the time the borrower and holder enter into the agreement, even if the change in term is not immediately effective. 1040nr instructions 2012 However, if the change is conditioned on reasonable closing conditions, a modification occurs on the closing date of the agreement. 1040nr instructions 2012 See § 1. 1040nr instructions 2012 1001-3(c)(6). 1040nr instructions 2012 . 1040nr instructions 2012 03 Under § 108(e)(10), in the case of a debt-for-debt exchange (including a deemed exchange under § 1. 1040nr instructions 2012 1001-3), the borrower is treated as having satisfied the original debt instrument with an amount of money equal to the issue price of the new debt instrument. 1040nr instructions 2012 If the amount of debt satisfied in this manner exceeds that issue price, the borrower realizes discharge of indebtedness income on the exchange. 1040nr instructions 2012 See also § 1. 1040nr instructions 2012 61-12(c). 1040nr instructions 2012 . 1040nr instructions 2012 04 The issue price of a non-publicly traded debt instrument issued for non-publicly traded property generally reflects the amount of principal that the borrower is required to pay to the holder of the instrument. 1040nr instructions 2012 If a borrower has the ability to avoid paying certain amounts (including principal) without violating the terms of the instrument, the payment schedule for the instrument is generally determined based on an assumption that the borrower will avoid any requirement to make those payments. 1040nr instructions 2012 See, e. 1040nr instructions 2012 g. 1040nr instructions 2012 , §§ 1. 1040nr instructions 2012 1272-1(c)(5) and 1. 1040nr instructions 2012 1274-2(d). 1040nr instructions 2012 . 1040nr instructions 2012 05 Under § 108(a), gross income does not include any amount that but for § 108(a) would be includible in gross income by reason of the discharge (in whole or in part) of a taxpayer’s indebtedness if (1) the indebtedness discharged is qualified principal residence indebtedness that is discharged before January 1, 2014, or (2) the discharge occurs when the taxpayer is insolvent. 1040nr instructions 2012 Section 108(a)(1)(E) and 108(a)(1)(B). 1040nr instructions 2012 (Although § 108 contains other exclusions as well, this revenue procedure focuses on these two exclusions because they are the most likely to apply to the greatest number of HAMP-PRA borrowers. 1040nr instructions 2012 ) . 1040nr instructions 2012 06 Under §§ 108(h) and 163(h)(3)(B), qualified principal residence indebtedness is any indebtedness that is incurred by a borrower to buy, build, or substantially improve the borrower’s principal residence and is secured by that residence. 1040nr instructions 2012 . 1040nr instructions 2012 07 Qualified principal residence indebtedness also includes a loan secured by the borrower’s principal residence that refinances qualified principal residence indebtedness, but only to the extent of the amount of the refinanced indebtedness. 1040nr instructions 2012 See §§ 108(h) and 163(h)(3)(B)(i). 1040nr instructions 2012 . 1040nr instructions 2012 08 The maximum amount of discharged indebtedness that a borrower may exclude from gross income under the qualified principal residence indebtedness exclusion is $2,000,000 ($1,000,000 for a married individual filing a separate return). 1040nr instructions 2012 Under § 108(h)(4), if only part of the discharged indebtedness is qualified principal residence indebtedness, then the exclusion applies only to the amount of the discharged indebtedness that exceeds the amount of the loan (determined immediately before the discharge) that is not qualified principal residence indebtedness. 1040nr instructions 2012 . 1040nr instructions 2012 09 Under § 108(a)(3), the insolvency exclusion applies to the lesser of the amount of the debt discharged or the amount by which the taxpayer is insolvent immediately before the discharge. 1040nr instructions 2012 . 1040nr instructions 2012 10 Section 108(d)(3) provides that, for purposes of the insolvency exclusion, a taxpayer is insolvent to the extent that the taxpayer’s total liabilities exceed the fair market value of all of the taxpayer’s assets immediately before the discharge of indebtedness. 1040nr instructions 2012 Under § 108(a)(2)(C), the qualified principal residence indebtedness exclusion takes precedence over the insolvency exclusion when both exclusions apply to discharged indebtedness, unless the taxpayer elects to apply the insolvency exclusion. 1040nr instructions 2012 . 1040nr instructions 2012 11 If an amount is excluded from gross income as a discharge of qualified principal residence indebtedness, the taxpayer must reduce the basis of the taxpayer’s principal residence. 1040nr instructions 2012 See § 108(h)(1). 1040nr instructions 2012 If a discharged amount is excluded from gross income because the taxpayer was insolvent when the discharge occurred, the taxpayer must reduce certain tax attributes (possibly including basis). 1040nr instructions 2012 See § 108(b). 1040nr instructions 2012 For further discussion of income from the discharge of indebtedness, the qualified principal residence indebtedness exclusion, the insolvency exclusion, and other exclusions from gross income that may apply, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). 1040nr instructions 2012 . 1040nr instructions 2012 12 Taxpayers who exclude any discharged amounts from gross income report both the exclusion and the resulting reduction in basis or other tax attributes on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). 1040nr instructions 2012 See Form 982 instructions and Publication 4681. 1040nr instructions 2012 This form is to be filed with the tax return for the taxable year in which the amount is discharged but is excluded from gross income. 1040nr instructions 2012 . 1040nr instructions 2012 13 Governmental payments made to or on behalf of individuals or other persons are included within the broad definition of gross income under § 61 unless an exception applies. 1040nr instructions 2012 See Notice 2003-18, 2003-1 C. 1040nr instructions 2012 B. 1040nr instructions 2012 699, and Rev. 1040nr instructions 2012 Rul. 1040nr instructions 2012 79-356, 1979-2 C. 1040nr instructions 2012 B. 1040nr instructions 2012 28. 1040nr instructions 2012 However, if disbursements are made by a governmental unit to individuals in the interest of the general welfare (that is, are generally based on individual or family need) and the disbursements do not represent compensation for services, then the amounts disbursed are excluded from the income of the recipient (general welfare exclusion). 1040nr instructions 2012 See Rev. 1040nr instructions 2012 Rul. 1040nr instructions 2012 2005-46, 2005-2 C. 1040nr instructions 2012 B. 1040nr instructions 2012 120, and Rev. 1040nr instructions 2012 Rul. 1040nr instructions 2012 75-246, 1975-1 C. 1040nr instructions 2012 B. 1040nr instructions 2012 24. 1040nr instructions 2012 . 1040nr instructions 2012 14 Under § 451 and § 1. 1040nr instructions 2012 451-1(a), a taxpayer that uses the cash receipts and disbursements method of accounting includes income in gross income when the taxpayer actually or constructively receives the income. 1040nr instructions 2012 . 1040nr instructions 2012 15 Section 6041 requires every person engaged in a trade or business (including the United States and its agencies) to (1) file an information return (Form 1099-MISC, Miscellaneous Income, is used for this purpose) for each calendar year in which the person makes, in the course of its trade or business, payments to another person of fixed or determinable income aggregating $600 or more, and (2) furnish a copy of the information return to that other person. 1040nr instructions 2012 See § 6041(a) and (d) and § 1. 1040nr instructions 2012 6041-1(a)(1) and (b). 1040nr instructions 2012 . 1040nr instructions 2012 16 Section 6050P requires applicable entities (including the United States and its agencies, financial entities, and any organization a significant trade or business of which is the lending of money) to (1) file an information return (Form 1099-C, Cancellation of Debt, is used for this purpose) for each calendar year in which it discharges indebtedness of another person of $600 or more, and (2) furnish a copy of the information return to that other person. 1040nr instructions 2012 See § 6050P(a)-(c) and §§ 1. 1040nr instructions 2012 6050P-1(a) and 1. 1040nr instructions 2012 6050P-2(a) and (d). 1040nr instructions 2012 . 1040nr instructions 2012 17 Section 6721 imposes penalties with respect to information returns required to be filed with the Service. 1040nr instructions 2012 These penalties apply in the case of a failure to timely file an information return, a failure to include all required information on the return, or the inclusion of incorrect information on the return. 1040nr instructions 2012 Section 6724(d)(1) includes Forms 1099-MISC and 1099-C in the term “information return. 1040nr instructions 2012 ” . 1040nr instructions 2012 18 Section 6722 imposes penalties with respect to payee statements required to be furnished to payees. 1040nr instructions 2012 These penalties apply in the case of a failure to timely furnish a payee statement, a failure to include all required information on the statement, or the inclusion of incorrect information on the payee statement. 1040nr instructions 2012 Section 6724(d)(2) includes in the term “payee statement” copies of Forms 1099-MISC and 1099-C that are required to be furnished to taxpayers. 1040nr instructions 2012 SECTION 4. 1040nr instructions 2012 FEDERAL INCOME TAX TREATMENT . 1040nr instructions 2012 01 Because a HAMP modification with a PRA principal reduction is a significant modification, it results in a deemed debt-for-debt exchange in which the HAMP-PRA borrower satisfies the old mortgage loan by issuing a new one. 1040nr instructions 2012 See § 1. 1040nr instructions 2012 1001-3. 1040nr instructions 2012 At the time of the modification, therefore, under § 108 and this revenue procedure, the HAMP-PRA borrower realizes discharge of indebtedness income equal to any excess of the adjusted issue price of the old mortgage loan (which was satisfied in the deemed exchange) over the issue price of the new (post-modification) mortgage loan. 1040nr instructions 2012 See also § 61(a)(12) and § 1. 1040nr instructions 2012 61-12(c). 1040nr instructions 2012 . 1040nr instructions 2012 02 A HAMP-PRA borrower has the ability to avoid payment of the PRA Adjusted Forbearance Amount. 1040nr instructions 2012 Because the HAMP-PRA borrower has this ability, that amount should not be taken into account in determining the issue price of the new mortgage loan. 1040nr instructions 2012 Because the issue price of the new mortgage loan does not include the PRA Adjusted Forbearance Amount, the PRA Adjusted Forbearance Amount contributes to the excess of the adjusted issue price of the old mortgage loan (which was satisfied in the deemed exchange) over the issue price of the new mortgage loan. 1040nr instructions 2012 . 1040nr instructions 2012 03 On the other hand, the investor has not given up its right to receive the remainder of the PRA Forbearance Amount, because the HAMP program administrator is expected to make those payments on the HAMP-PRA borrower’s behalf by making the PRA Investor Incentive Payments. 1040nr instructions 2012 Because the remainder of the PRA Forbearance Amount is payable in this manner, that remainder is included in the issue price of the new mortgage loan. 1040nr instructions 2012 . 1040nr instructions 2012 04 The Trial Period Conditions are reasonable closing conditions that must be satisfied before the changes to the terms of the mortgage loan become permanent. 1040nr instructions 2012 Therefore, for purposes of § 1. 1040nr instructions 2012 1001-3, the date of the modification is the date of the permanent modification. 1040nr instructions 2012 . 1040nr instructions 2012 05 Unless an exclusion applies, the HAMP-PRA borrower includes in gross income the discharge of indebtedness income described in section 4. 1040nr instructions 2012 01 of this revenue procedure for the taxable year in which the permanent modification occurs. 1040nr instructions 2012 Under certain conditions, however, section 6 of this revenue procedure permits a borrower to report the discharge of indebtedness under HAMP-PRA over the Three-year Period. 1040nr instructions 2012 The qualified principal residence indebtedness exclusion under § 108(a)(1)(E) and the insolvency exclusion under § 108(a)(1)(B) are two exclusions that may apply to the discharge. 1040nr instructions 2012 . 1040nr instructions 2012 06 The PRA Investor Incentive Payment is treated as a payment on the mortgage loan by the HAMP program administrator on behalf of the HAMP-PRA borrower. 1040nr instructions 2012 . 1040nr instructions 2012 07 To the extent that the HAMP-PRA borrower uses the property as the HAMP-PRA borrower’s principal residence or the property is occupied by the HAMP-PRA borrower’s legal dependent, parent, or grandparent without rent being charged or collected, the HAMP-PRA borrower excludes from his or her gross income under the general welfare exclusion the PRA Investor Incentive Payments that the HAMP program administrator makes to the investor in the mortgage loan. 1040nr instructions 2012 This is consistent with Rev. 1040nr instructions 2012 Rul. 1040nr instructions 2012 2009-19, 2009-28 I. 1040nr instructions 2012 R. 1040nr instructions 2012 B. 1040nr instructions 2012 111, which addressed the treatment of Pay-for-Performance Success Payments. 1040nr instructions 2012 . 1040nr instructions 2012 08 To the extent that the HAMP-PRA borrower uses the property as a rental property or holds the property vacant and available for rent, the HAMP-PRA borrower includes PRA Investor Incentive Payments in gross income. 1040nr instructions 2012 If the HAMP-PRA borrower uses the cash receipts and disbursements method of accounting, then the HAMP-PRA borrower includes a PRA Investor Incentive Payment in gross income in the taxable year in which it is applied as a payment on the HAMP-PRA borrower’s mortgage loan. 1040nr instructions 2012 . 1040nr instructions 2012 09 As described in section 2. 1040nr instructions 2012 09 of this revenue procedure, if a HAMP-PRA borrower pays in full the Non-forbearance Portion of the mortgage loan while the loan is in good standing and prior to completion of the Three-year Period, that payment accelerates both the reduction in the remaining PRA Forbearance Amount and the PRA Investor Incentive Payments from the HAMP program administrator. 1040nr instructions 2012 To the extent that the HAMP-PRA borrower is described in section 4. 1040nr instructions 2012 07 of this revenue procedure, the HAMP-PRA borrower excludes from his or her gross income under the general welfare exclusion the accelerated PRA Investor Incentive Payments. 1040nr instructions 2012 To the extent that the HAMP-PRA borrower is described in section 4. 1040nr instructions 2012 08 of this revenue procedure, the HAMP-PRA borrower includes in income in the year of the acceleration the remaining amount of the PRA Investor Incentive Payment. 1040nr instructions 2012 SECTION 5. 1040nr instructions 2012 INFORMATION-REPORTING OBLIGATIONS . 1040nr instructions 2012 01 Under § 6050P, the investor is required to file a Form 1099-C with respect to a borrower who realizes discharge of indebtedness of $600 or more. 1040nr instructions 2012 A copy of this form is required to be furnished to the borrower. 1040nr instructions 2012 . 1040nr instructions 2012 02 As stated in sections 4. 1040nr instructions 2012 01 and 4. 1040nr instructions 2012 04 of this revenue procedure, the HAMP-PRA discharge of indebtedness is realized at the time of the permanent modification of the mortgage loan. 1040nr instructions 2012 . 1040nr instructions 2012 03 An investor is an applicable entity that is required under § 1. 1040nr instructions 2012 6050P-1 and this revenue procedure to issue a Form 1099-C for discharge of indebtedness. 1040nr instructions 2012 Under § 1. 1040nr instructions 2012 6050P-1(b)(2)(F), the permanent modification of a mortgage loan is an identifiable event. 1040nr instructions 2012 Identifiable events determine when Forms 1099-C have to be issued. 1040nr instructions 2012 Thus, the Form 1099-C is issued for the calendar year in which the permanent mortgage loan modification occurs. 1040nr instructions 2012 This rule under § 1. 1040nr instructions 2012 6050P-1(b)(2)(F) applies even if, under section 6 of this revenue procedure, the HAMP-PRA borrower chooses to treat the HAMP-PRA discharge as being realized at the times when the unpaid principal balance of the new mortgage loan is reduced. 1040nr instructions 2012 . 1040nr instructions 2012 04 The investor (or the loan servicer acting on behalf of the investor) reports the full amount of the discharge on the Form 1099-C regardless of whether some or all of the amount is excludible from income under the qualified principal residence indebtedness exclusion, the insolvency exclusion, or any other exclusion that may apply. 1040nr instructions 2012 That discharged amount will generally be the PRA Adjusted Forbearance Amount (which does not include the amounts expected to be satisfied by PRA Investor Incentive Payments). 1040nr instructions 2012 . 1040nr instructions 2012 05 To the extent that PRA Investor Incentive Payments are made on behalf of a HAMP-PRA borrower who is described in section 4. 1040nr instructions 2012 07 of this revenue procedure, the PRA Investor Incentive Payments are excluded from the gross income of the HAMP-PRA borrower, and thus they are not fixed or determinable income to the HAMP-PRA borrower. 1040nr instructions 2012 Under § 6041, these payments are not subject to information reporting. 1040nr instructions 2012 See Notice 2011-14, 2011-11 I. 1040nr instructions 2012 R. 1040nr instructions 2012 B. 1040nr instructions 2012 544, 546. 1040nr instructions 2012 . 1040nr instructions 2012 06 To the extent that PRA Investor Incentive Payments are made on behalf of a HAMP-PRA borrower who is described in section 4. 1040nr instructions 2012 08 of this revenue procedure, the PRA Investor Incentive Payments are includible in gross income as fixed or determinable income in the taxable year required by the HAMP-PRA borrower’s method of accounting. 1040nr instructions 2012 The payment is subject to the information reporting requirements of § 6041, as described in section 3. 1040nr instructions 2012 15 of this revenue procedure. 1040nr instructions 2012 Accordingly, the HAMP program administrator is required to issue a Form 1099-MISC reporting the PRA Investor Incentive Payment. 1040nr instructions 2012 SECTION 6. 1040nr instructions 2012 HAMP-PRA BORROWERS’ REPORTING OF DISCHARGES OF INDEBTEDNESS UNDER HAMP-PRA . 1040nr instructions 2012 01 In general. 1040nr instructions 2012 The HAMP-PRA program began in the last quarter of 2010, and since that time there has been uncertainty about whether the amount of the discharge of indebtedness should be reported in the year of the permanent modification or over the Three-year Period (when the unpaid principal balance on the new mortgage loan is reduced). 1040nr instructions 2012 As a result, some HAMP-PRA borrowers have been reporting the discharge of indebtedness under HAMP-PRA over the Three-year Period. 1040nr instructions 2012 Given the temporary nature of the program and the issuance of this guidance after participation in the program has begun, in the interests of equitable and sound tax administration, HAMP-PRA borrowers may report discharges of indebtedness under HAMP-PRA under the rules in this section 6. 1040nr instructions 2012 A HAMP-PRA borrower may choose to report discharges of indebtedness under HAMP-PRA pursuant to the rules in this section 6 only if the borrower applies the same borrower option under section 6. 1040nr instructions 2012 02 of this revenue procedure consistently to the taxable year of the permanent modification and to all subsequent taxable years. 1040nr instructions 2012 Thus, a HAMP-PRA borrower may not choose a borrower option under section 6. 1040nr instructions 2012 02 of this revenue procedure if a statute of limitations has expired for any of the taxable years that are necessary for consistent application of that option. 1040nr instructions 2012 . 1040nr instructions 2012 02 HAMP-PRA borrower options. 1040nr instructions 2012 A HAMP-PRA borrower may treat the HAMP-PRA discharge as being realized in either of the following ways— (1) One hundred percent of the PRA Adjusted Forbearance Amount at the time of the permanent modification; or (2) One third of the PRA Adjusted Forbearance Amount on each of the first three annual anniversaries of the trial period plan effective date (described in section 2. 1040nr instructions 2012 06 of this revenue procedure), when, as required by the terms of the new mortgage loan, the servicer reduces the unpaid principal balance of the new mortgage loan. 1040nr instructions 2012 If some or all of the reduction in the unpaid principal balance is accelerated (as described in section 2. 1040nr instructions 2012 06 of this revenue procedure) because the HAMP-PRA borrower prepays the Non-forbearance Portion of the mortgage loan, then the HAMP-PRA discharge represented by the amount of the reduction that was accelerated is treated as being realized at the time of the accelerated reduction. 1040nr instructions 2012 . 1040nr instructions 2012 03 HAMP-PRA borrowers who choose to realize the HAMP-PRA discharge at the time of the permanent modification. 1040nr instructions 2012 (1) If a HAMP-PRA borrower chooses to treat the HAMP-PRA discharge as being realized at the time of the permanent modification, then for the taxable year in which the permanent modification occurs, the HAMP-PRA borrower reports on Form 982 the amount, if any, of the discharge that is excluded from gross income and includes in gross income any remaining discharge. 1040nr instructions 2012 (2) If a HAMP-PRA borrower’s mortgage loan was permanently modified under HAMP in 2010 or 2011, and if the borrower was reporting the discharge of indebtedness using the method described in section 6. 1040nr instructions 2012 02(2) of this revenue procedure, then the borrower may change to reporting the discharge of indebtedness using the method described in section 6. 1040nr instructions 2012 02(1) of this revenue procedure by filing a 2012 Form 982 with the borrower’s timely filed (with extensions) 2012 income tax return. 1040nr instructions 2012 This section 6. 1040nr instructions 2012 03(2) applies only if the change to reporting the discharge using the method described in section 6. 1040nr instructions 2012 02(1) of this revenue procedure does not change the borrower’s federal income tax liability (including any change in federal income tax liability due to a change in basis or tax attributes (under § 108(h)(1) or § 108(b))) for any taxable year prior to the borrower’s 2012 taxable year. 1040nr instructions 2012 To make this change, the borrower must— (i) Compute the amount of discharge of indebtedness that would be included in income under § 61(a)(12) or excluded from gross income under § 108, basing the computation of the discharge on the facts as of the year of the permanent modification; and (ii) Report on a 2012 Form 982 the reduction in basis or tax attributes (under § 108(h)(1) or § 108(b)) due to the permanent modification that the borrower would have reported on the Form 982 for the taxable year of the permanent modification, minus any reductions due to the permanent modification that the borrower actually reported on Forms 982 for taxable years prior to 2012. 1040nr instructions 2012 (3) Example. 1040nr instructions 2012 The following example illustrates the application of section 6. 1040nr instructions 2012 03(2) of this revenue procedure. 1040nr instructions 2012 In 2010, B’s basis in B’s principal residence was $330,000. 1040nr instructions 2012 In 2010, B’s mortgage loan on the principal residence is permanently modified under HAMP-PRA. 1040nr instructions 2012 B realized $30,000 of cancellation of indebtedness from the permanent modification, all of which qualifies for the exclusion from income for qualified principal residence indebtedness under § 108(a)(1)(E). 1040nr instructions 2012 The trial period plan effective date also fell in 2010. 1040nr instructions 2012 B’s federal income tax return for 2010 was consistent with B’s reporting this discharge of indebtedness using the method described in section 6. 1040nr instructions 2012 02(2) of this revenue procedure. 1040nr instructions 2012 That is, B’s 2010 return did not include income from discharge of indebtedness under HAMP-PRA, nor did the return contain a Form 982 reporting exclusion of any such discharge of indebtedness. 1040nr instructions 2012 The next year, B reported on line 10(b) of the 2011 Form 982 that B filed with B’s 2011 federal income tax return a $10,000 reduction in basis in the principal residence. 1040nr instructions 2012 For 2012, B chooses to change to reporting the discharge of indebtedness using the method described in section 6. 1040nr instructions 2012 02(1) of this revenue procedure. 1040nr instructions 2012 Thus, B files a 2012 Form 982 with B’s timely filed (including extensions) 2012 federal income tax return, and on line 10(b) of that form, B reports a $20,000 basis reduction in the principal residence ($30,000 basis reduction that B would have excluded from income in 2010 using the method described in section 6. 1040nr instructions 2012 02(1) of this revenue procedure, minus the $10,000 basis reduction that B reported on B’s 2011 Form 982). 1040nr instructions 2012 (4) If a HAMP-PRA borrower reports the entire HAMP-PRA discharge using the method described in section 6. 1040nr instructions 2012 02(1) of this revenue procedure, and if that HAMP-PRA borrower’s mortgage loan ceases to be in good standing during the Three-year Period as described in section 2. 1040nr instructions 2012 10 of this revenue procedure, then some or all of the anticipated reductions in the PRA Adjusted Forbearance Amount will not take place. 1040nr instructions 2012 Because the amount of these anticipated reductions was not included in determining the issue price of the new mortgage loan that, pursuant to § 1. 1040nr instructions 2012 1001-3, the HAMP-PRA borrower is deemed to issue in satisfaction of the old mortgage loan, the issue price of the new mortgage loan was understated. 1040nr instructions 2012 Under these circumstances, the discharge of indebtedness income determined as of the date of the permanent modification will have been overstated. 1040nr instructions 2012 (5) The Service will not challenge a HAMP-PRA borrower who is described in section 6. 1040nr instructions 2012 03(4) of this revenue procedure and who takes the following corrective measures: (i) If a HAMP-PRA borrower included any of the discharge of indebtedness in gross income, the HAMP-PRA borrower may file an amended return that does not include the amount of the discharge of indebtedness that was previously reported as gross income but that, because of the HAMP-PRA borrower’s failure to keep the new mortgage loan in good standing, was not ultimately discharged. 1040nr instructions 2012 The amended return should be for the taxable year in which the income was included (that is, the year of the permanent modification), provided the applicable statute of limitations remains open for that taxable year. 1040nr instructions 2012 (ii) If the HAMP-PRA borrower did not include any of the discharge of indebtedness in gross income (that is, if the HAMP-PRA borrower excluded all of it), the HAMP-PRA borrower may file a new Form 982 that the Service will treat as superseding the earlier Form 982. 1040nr instructions 2012 The new Form 982 will reflect the revised reduction in basis or in tax attributes (under § 108(h)(1) or § 108(b)). 1040nr instructions 2012 The new Form 982 should be the Form 982 for the year of the permanent modification and should be filed with the return for the taxable year in which the HAMP-PRA borrower’s mortgage loan ceased to be in good standing. 1040nr instructions 2012 . 1040nr instructions 2012 04 HAMP-PRA borrowers who choose to treat the HAMP-PRA discharge as being realized on the dates on which the unpaid principal balance of the mortgage loan is reduced. 1040nr instructions 2012 (1) If a HAMP-PRA borrower chooses to realize the HAMP-PRA discharge at the times that the unpaid principal balance on the new mortgage loan is reduced, instead of at the time of the permanent modification, then the HAMP-PRA borrower’s federal income tax returns for the taxable year that contains the permanent modification and for the subsequent taxable years must not treat any of the discharge as being realized at the time of the permanent modification and must treat the entire HAMP-PRA discharge as being realized in the amounts—and at the times—of the reductions in the unpaid principal balance. 1040nr instructions 2012 Except as described in the last sentence of this paragraph, therefore, the income tax return for the year of the permanent modification must include no gross income from—nor report on Form 982 an exclusion of—any amount of the HAMP-PRA discharge. 1040nr instructions 2012 Instead, the HAMP-PRA discharge is included in gross income (or is reported on Form 982 as excluded from gross income) in the subsequent years in which the unpaid principal balance is reduced. 1040nr instructions 2012 If the first such reduction occurs in the year of the permanent modification, however, then the amount of any such reduction is reflected as an inclusion or exclusion on the federal income tax return for that year. 1040nr instructions 2012 (2) A HAMP-PRA borrower who has been using the method described in section 6. 1040nr instructions 2012 02(1) of this revenue procedure may change to the method described in section 6. 1040nr instructions 2012 02(2) but must comply with the consistency and open-year requirements described in section 6. 1040nr instructions 2012 01 of this revenue procedure. 1040nr instructions 2012 SECTION 7. 1040nr instructions 2012 PENALTY RELIEF FOR 2012 . 1040nr instructions 2012 01 The Service will not assert penalties under § 6721 or § 6722 against an investor for failing to timely file and furnish a 2012 Form 1099-C as required by section 5. 1040nr instructions 2012 03 through 5. 1040nr instructions 2012 04 and section 8. 1040nr instructions 2012 02 of this revenue procedure with respect to discharge of indebtedness resulting from HAMP-PRA permanent modifications that take place during calendar year 2012 if the following requirements are satisfied: (1) Not later than February 28, 2013, a statement is sent to the HAMP-PRA borrower containing the following: (a) The HAMP-PRA borrower’s name, address, and taxpayer identification number; and (b) The date and amount of the discharge of indebtedness (as described in sections 4. 1040nr instructions 2012 01 through 4. 1040nr instructions 2012 04 of this revenue procedure) that is required to be reported for 2012. 1040nr instructions 2012 (2) Not later than March 28, 2013, a statement is sent to the Service. 1040nr instructions 2012 It must be in the form of a single statement that separately lists for each HAMP-PRA borrower the information specified in section 7. 1040nr instructions 2012 01(1) of this revenue procedure. 1040nr instructions 2012 The statement should be sent to the Service at the following address: Internal Revenue Service Center Stop 6728AUSC Austin, TX 73301 . 1040nr instructions 2012 02 The Service will not assert penalties under § 6721 or § 6722 with respect to any Forms 1099-MISC for 2012 that sections 5. 1040nr instructions 2012 06 and 8. 1040nr instructions 2012 02 of this revenue procedure require to be filed with the Service and furnished to taxpayers. 1040nr instructions 2012 . 1040nr instructions 2012 03 Section 8. 1040nr instructions 2012 03 and 8. 1040nr instructions 2012 04 of this revenue procedure, below, describes penalty relief regarding Forms 1099-C and 1099-MISC for 2010 and 2011. 1040nr instructions 2012 SECTION 8. 1040nr instructions 2012 SCOPE AND EFFECTIVE DATE . 1040nr instructions 2012 01 This revenue procedure applies to all borrowers, investors, and servicers who participate, or have participated, in the HAMP-PRA, regardless of when the permanent modification occurs. 1040nr instructions 2012 . 1040nr instructions 2012 02 Section 5 of this revenue procedure is effective for Forms 1099-C and 1099-MISC due or filed after January 24, 2013. 1040nr instructions 2012 . 1040nr instructions 2012 03 Because of the effective date in section 8. 1040nr instructions 2012 02 of this revenue procedure, an investor is not subject to penalties under § 6721 or § 6722 on the grounds that the investor failed to timely file and furnish a 2010 or 2011 Form 1099-C as described in section 5. 1040nr instructions 2012 03 through 5. 1040nr instructions 2012 04 of this revenue procedure (or on the grounds that the investor filed or furnished a 2010 or 2011 Form 1099-C that is inconsistent with section 5. 1040nr instructions 2012 03 through 5. 1040nr instructions 2012 04 of this revenue procedure), provided that the investor demonstrates a good faith attempt to comply with the requirements of § 6050P and that the failure was not due to willful neglect. 1040nr instructions 2012 . 1040nr instructions 2012 04 Because of the effective date in section 8. 1040nr instructions 2012 02 of this revenue procedure, the Service will not assert penalties under § 6721 or § 6722 on the grounds of a failure to timely file and furnish a 2010 or 2011 Form 1099-MISC, as described in section 5. 1040nr instructions 2012 06 of this revenue procedure. 1040nr instructions 2012 SECTION 9. 1040nr instructions 2012 DRAFTING INFORMATION The principal authors of this revenue procedure are Ronald J. 1040nr instructions 2012 Goldstein of the Office of Chief Counsel (Procedure and Administration); Shareen S. 1040nr instructions 2012 Pflanz and Sheldon A. 1040nr instructions 2012 Iskow of the Office of Chief Counsel (Income Tax and Accounting); and Andrea M. 1040nr instructions 2012 Hoffenson of the Office of Chief Counsel (Financial Institutions and Products). 1040nr instructions 2012 For further information regarding this revenue procedure, contact Procedure and Administration branch 1 at (202) 622-4910, Income Tax and Accounting branch 4 at (202) 622-4920, or Financial Institutions and Products branch 1 at (202) 622-3920 (not toll-free calls). 1040nr instructions 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