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Amended Tax Return 2012

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Amended Tax Return 2012

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

City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

Nevada Department of Business and Industry

Website: Nevada Department of Business and Industry

Address: Nevada Department of Business and Industry
Fight Fraud Task Force
555 E. Washington Ave., Suite 4900
Las Vegas, NV 89101

Phone Number: 702-486-2750

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

Department of Business and Industry

Website: Department of Business and Industry

Address: Department of Business and Industry
Financial Institutions Division
2785 E. Desert Inn Rd., Suite 180
Las Vegas, NV 89121

Phone Number: 702-486-4120

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Department of Business and Industry

Website: Department of Business and Industry

Address: Department of Business and Industry
Division of Insurance
2501 E. Sahara Ave., Suite 302
Las Vegas, NV 89104

Phone Number: 702-486-4009

Toll-free: 1-888-872-3234 (NV)

Department of Business and Industry

Website: Department of Business and Industry

Address: Department of Business and Industry
Division of Insurance
Consumer Services Section

1818 E. College Pkwy., Suite 103
Carson City, NV 89706

Phone Number: 775-687-0700

Toll-free: 1-888-872-3234 (NV)

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Office of the Secretary of State

Website: Office of the Secretary of State

Address: Office of the Secretary of State
Securities Division
555 E. Washington Ave.,
Suite 5200
Las Vegas, NV 89101

Phone Number: 702-486-2440

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Public Utilities Commission - Northern NV

Website: Public Utilities Commission - Northern NV

Address: Public Utilities Commission - Northern NV
Consumer Complaint Resolution Division
1150 E. William St.
Carson City, NV 89701-3109

Phone Number: 775-684-6100

Public Utilities Commission - Southern NV

Website: Public Utilities Commission - Southern NV

Address: Public Utilities Commission - Southern NV
Consumer Complaint Resolution Division
9075 W. Diablo Dr., Suite 250
Las Vegas, NV 89148

Phone Number: 702-486-2600

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The Amended Tax Return 2012

Amended tax return 2012 Other Methods of Depreciation Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: How To Figure the DeductionBasis Useful Life Salvage Value Methods To UseStraight Line Method Declining Balance Method Income Forecast Method How To Change Methods DispositionsSale or exchange. Amended tax return 2012 Property not disposed of or abandoned. Amended tax return 2012 Special rule for normal retirements from item accounts. Amended tax return 2012 Abandoned property. Amended tax return 2012 Single item accounts. Amended tax return 2012 Multiple property account. Amended tax return 2012 Topics - This chapter discusses: How to figure the deduction Methods to use How to change methods Dispositions Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 551 Basis of Assets 583 Starting a Business and Keeping Records 946 How To Depreciate Property Form (and Instructions) 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization Schedule C (Form 1040) Profit or Loss From Business If your property is being depreciated under ACRS, you must continue to use rules for depreciation that applied when you placed the property in service. Amended tax return 2012 If your property qualified for MACRS, you must depreciate it under MACRS. Amended tax return 2012 See Publication 946. Amended tax return 2012 However, you cannot use MACRS for certain property because of special rules that exclude it from MACRS. Amended tax return 2012 Also, you can elect to exclude certain property from being depreciated under MACRS. Amended tax return 2012 Property that you cannot depreciate using MACRS includes: Intangible property, Property you can elect to exclude from MACRS that you properly depreciate under a method that is not based on a term of years, Certain public utility property, Any motion picture film or video tape, Any sound recording, and Certain real and personal property placed in service before 1987. Amended tax return 2012 Intangible property. Amended tax return 2012   You cannot depreciate intangible property under ACRS or MACRS. Amended tax return 2012 You depreciate intangible property using any other reasonable method, usually, the straight line method. Amended tax return 2012 Note. Amended tax return 2012 The cost of certain intangible property that you acquire after August 10, 1993, must be amortized over a 15-year period. Amended tax return 2012 For more information, see chapter 12 of Publication 535. Amended tax return 2012 Public utility property. Amended tax return 2012   The law excludes from MACRS any public utility property for which the taxpayer does not use a normalization method of accounting. Amended tax return 2012 This type of property is subject to depreciation under a special rule. Amended tax return 2012 Videocassettes. Amended tax return 2012   If you are in the videocassette rental business, you can depreciate those videocassettes purchased for rental. Amended tax return 2012 You can depreciate the cost less salvage value of those videocassettes that have a useful life over one year using either: The straight line method, or The income forecast method. Amended tax return 2012 The straight line method, salvage value, and useful life are discussed later under Methods To Use. Amended tax return 2012 You can deduct in the year of purchase as a business expense the cost of any cassette that has a useful life of one year or less. Amended tax return 2012 How To Figure the Deduction Two other reasonable methods can be used to figure your deduction for property not covered under ACRS or MACRS. Amended tax return 2012 These methods are straight line and declining balance. Amended tax return 2012 To figure depreciation using these methods, you must generally determine three things about the property you intend to depreciate. Amended tax return 2012 They are: The basis, The useful life, and The estimated salvage value at the end of its useful life. Amended tax return 2012 The amount of the deduction in any year also depends on which method of depreciation you choose. Amended tax return 2012 Basis To deduct the proper amount of depreciation each year, first determine your basis in the property you intend to depreciate. Amended tax return 2012 The basis used for figuring depreciation is the same as the basis that would be used for figuring the gain on a sale. Amended tax return 2012 Your original basis is usually the purchase price. Amended tax return 2012 However, if you acquire property in some other way, such as inheriting it, getting it as a gift, or building it yourself, you have to figure your original basis in a different way. Amended tax return 2012 Adjusted basis. Amended tax return 2012   Events will often change the basis of property. Amended tax return 2012 When this occurs, the changed basis is called the adjusted basis. Amended tax return 2012 Some events, such as improvements you make, increase basis. Amended tax return 2012 Events such as deducting casualty losses and depreciation decrease basis. Amended tax return 2012 If basis is adjusted, the depreciation deduction may also have to be changed, depending on the reason for the adjustment and the method of depreciation you are using. Amended tax return 2012   Publication 551 explains how to figure basis for property acquired in different ways. Amended tax return 2012 It also discusses what items increase and decrease basis, how to figure adjusted basis, and how to allocate cost if you buy several pieces of property at one time. Amended tax return 2012 Useful Life The useful life of a piece of property is an estimate of how long you can expect to use it in your trade or business, or to produce income. Amended tax return 2012 It is the length of time over which you will make yearly depreciation deductions of your basis in the property. Amended tax return 2012 It is how long it will continue to be useful to you, not how long the property will last. Amended tax return 2012 Many things affect the useful life of property, such as: Frequency of use, Age when acquired, Your repair policy, and Environmental conditions. Amended tax return 2012 The useful life can also be affected by technological improvements, progress in the arts, reasonably foreseeable economic changes, shifting of business centers, prohibitory laws, and other causes. Amended tax return 2012 Consider all these factors before you arrive at a useful life for your property. Amended tax return 2012 The useful life of the same type of property varies from user to user. Amended tax return 2012 When you determine the useful life of your property, keep in mind your own experience with similar property. Amended tax return 2012 You can use the general experience of the industry you are in until you are able to determine a useful life of your property from your own experience. Amended tax return 2012 Change in useful life. Amended tax return 2012   You base your estimate of useful life on certain facts. Amended tax return 2012 If these facts change significantly, you can adjust your estimate of the remaining useful life. Amended tax return 2012 However, you redetermine the estimated useful life only when the change is substantial and there is a clear reason for making the change. Amended tax return 2012 Salvage Value It is important for you to accurately determine the correct salvage value of the property you want to depreciate. Amended tax return 2012 You generally cannot depreciate property below a reasonable salvage value. Amended tax return 2012 Determining salvage value. Amended tax return 2012   Salvage value is the estimated value of property at the end of its useful life. Amended tax return 2012 It is what you expect to get for the property if you sell it after you can no longer use it productively. Amended tax return 2012 You must estimate the salvage value of a piece of property when you first acquire it. Amended tax return 2012   Salvage value is affected both by how you use the property and how long you use it. Amended tax return 2012 If it is your policy to dispose of property that is still in good operating condition, the salvage value can be relatively large. Amended tax return 2012 However, if your policy is to use property until it is no longer usable, its salvage value can be its junk value. Amended tax return 2012 Changing salvage value. Amended tax return 2012   Once you determine the salvage value for property, you should not change it merely because prices have changed. Amended tax return 2012 However, if you redetermine the useful life of property, as discussed earlier under Change in useful life, you can also redetermine the salvage value. Amended tax return 2012 When you redetermine the salvage value, take into account the facts that exist at the time. Amended tax return 2012 Net salvage. Amended tax return 2012   Net salvage is the salvage value of property minus what it costs to remove it when you dispose of it. Amended tax return 2012 You can choose either salvage value or net salvage when you figure depreciation. Amended tax return 2012 You must consistently use the one you choose and the treatment of the costs of removal must be consistent with the practice adopted. Amended tax return 2012 However, if the cost to remove the property is more than the estimated salvage value, then net salvage is zero. Amended tax return 2012 Your salvage value can never be less than zero. Amended tax return 2012 Ten percent rule. Amended tax return 2012   If you acquire personal property that has a useful life of 3 years or more, you can use an amount for salvage value that is less than your actual estimate. Amended tax return 2012 You can subtract from your estimate of salvage value an amount equal to 10% of your basis in the property. Amended tax return 2012 If salvage value is less than 10% of basis, you can ignore salvage value when you figure depreciation. Amended tax return 2012 Methods To Use Two methods of depreciation are the straight line and declining balance methods. Amended tax return 2012 If ACRS or MACRS does not apply, you can use one of these methods. Amended tax return 2012 The straight line and declining balance methods discussed in this section are not figured in the same way as straight line or declining balance methods under MACRS. Amended tax return 2012 Straight Line Method Before 1981, you could use any reasonable method for every kind of depreciable property. Amended tax return 2012 One of these methods was the straight line method. Amended tax return 2012 This method was also used for intangible property. Amended tax return 2012 It lets you deduct the same amount of depreciation each year. Amended tax return 2012 To figure your deduction, determine the adjusted basis of your property, its salvage value, and its estimated useful life. Amended tax return 2012 Subtract the salvage value, if any, from the adjusted basis. Amended tax return 2012 The balance is the total amount of depreciation you can take over the useful life of the property. Amended tax return 2012 Divide the balance by the number of years remaining in the useful life. Amended tax return 2012 This gives you the amount of your yearly depreciation deduction. Amended tax return 2012 Unless there is a big change in adjusted basis, or useful life, this amount will stay the same throughout the time you depreciate the property. Amended tax return 2012 If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. Amended tax return 2012 Example. Amended tax return 2012 In April 1994, Frank bought a franchise for $5,600. Amended tax return 2012 It expires in 10 years. Amended tax return 2012 This property is intangible property that cannot be depreciated under MACRS. Amended tax return 2012 Frank depreciates the franchise under the straight line method, using a 10-year useful life and no salvage value. Amended tax return 2012 He takes the $5,600 basis and divides that amount by 10 years ($5,600 ÷ 10 = $560, a full year's use). Amended tax return 2012 He must prorate the $560 for his 9 months of use in 1994. Amended tax return 2012 This gives him a deduction of $420 ($560 ÷ 9/12). Amended tax return 2012 In 1995, Frank can deduct $560 for the full year. Amended tax return 2012 Declining Balance Method The declining balance method allows you to recover a larger amount of the cost of the property in the early years of your use of the property. Amended tax return 2012 The rate cannot be more than twice the straight line rate. Amended tax return 2012 Rate of depreciation. Amended tax return 2012   Under this method, you must determine your declining balance rate of depreciation. Amended tax return 2012 The initial step is to: Divide the number 1 by the useful life of your property to get a straight line rate. Amended tax return 2012 (For example, if property has a useful life of 5 years, its normal straight line rate of depreciation is ⅕, or 20%. Amended tax return 2012 ) Multiply this straight line rate by a number that is more than 1 but not more than 2 to determine the declining balance rate. Amended tax return 2012 Unless there is a change in the useful life during the time you depreciate the property, the rate of depreciation generally will not change. Amended tax return 2012 Depreciation deductions. Amended tax return 2012   After you determine the rate of depreciation, multiply the adjusted basis of the property by it. Amended tax return 2012 This gives you the amount of your deduction. Amended tax return 2012 For example, if your adjusted basis at the beginning of the first year is $10,000, and your declining balance rate is 20%, your depreciation deduction for the first year is $2,000 ($10,000 ÷ 20%). Amended tax return 2012 To figure your depreciation deduction in the second year, you must first adjust the basis for the amount of depreciation you deducted in the first year. Amended tax return 2012 Subtract the previous year's depreciation from your basis ($10,000 - $2,000 = $8,000). Amended tax return 2012 Multiply this amount by the rate of depreciation ($8,000 ÷ 20% = $1,600). Amended tax return 2012 Your depreciation deduction for the second year is $1,600. Amended tax return 2012   As you can see from this example, your adjusted basis in the property gets smaller each year. Amended tax return 2012 Also, under this method, deductions are larger in the earlier years and smaller in the later years. Amended tax return 2012 You can make a change to the straight line method without consent. Amended tax return 2012 Salvage value. Amended tax return 2012   Do not subtract salvage value when you figure your yearly depreciation deductions under the declining balance method. Amended tax return 2012 However, you cannot depreciate the property below its reasonable salvage value. Amended tax return 2012 Determine salvage value using the rules discussed earlier, including the special 10% rule. Amended tax return 2012 Example. Amended tax return 2012 If your adjusted basis has been decreased to $1,000 and the rate of depreciation is 20%, your depreciation deduction should be $200. Amended tax return 2012 But if your estimate of salvage value was $900, you can only deduct $100. Amended tax return 2012 This is because $100 is the amount that would lower your adjusted basis to equal salvage value. Amended tax return 2012 Income Forecast Method The income forecast method requires income projections for each videocassette or group of videocassettes. Amended tax return 2012 You can group the videocassettes by title for making this projection. Amended tax return 2012 You determine the depreciation by applying a fraction to the cost less salvage value of the cassette. Amended tax return 2012 The numerator is the income from the videocassette for the tax year and the denominator is the total projected income for the cassette. Amended tax return 2012 For more information on the income forecast method, see Revenue Ruling 60-358 in Cumulative Bulletin 1960, Volume 2, on page 68. Amended tax return 2012 How To Change Methods In some cases, you may change your method of depreciation for property depreciated under a reasonable method. Amended tax return 2012 If you change your method of depreciation, it is generally a change in your method of accounting. Amended tax return 2012 You must get IRS consent before making the change. Amended tax return 2012 However, you do not need permission for certain changes in your method of depreciation. Amended tax return 2012 The rules discussed in this section do not apply to property depreciated under ACRS or MACRS. Amended tax return 2012 For information on ACRS elections,see Revocation of election, in chapter 1 under Alternate ACRS Method. Amended tax return 2012 Change to the straight line method. Amended tax return 2012   You can change from the declining balance method to the straight line method at any time during the useful life of your property without IRS consent. Amended tax return 2012 However, if you have a written agreement with the IRS that prohibits a change, you must first get IRS permission. Amended tax return 2012 When the change is made, figure depreciation based on your adjusted basis in the property at that time. Amended tax return 2012 Your adjusted basis takes into account all previous depreciation deductions. Amended tax return 2012 Use the estimated remaining useful life of your property at the time of change and its estimated salvage value. Amended tax return 2012   You can change from the declining balance method to straight line only on the original tax return for the year you first use the straight line method. Amended tax return 2012 You cannot make the change on an amended return filed after the due date of the original return (including extensions). Amended tax return 2012   When you make the change, attach a statement to your tax return showing: When you acquired the property, Its original cost or other original basis, The total amount claimed for depreciation and other allowances since you acquired it, Its salvage value and remaining useful life, and A description of the property and its use. Amended tax return 2012   After you change to straight line, you cannot change back to the declining balance method or to any other method for a period of 10 years without written permission from the IRS. Amended tax return 2012 Changes that require permission. Amended tax return 2012   For most other changes in method of depreciation, you must get permission from the IRS. Amended tax return 2012 To request a change in method of depreciation, file Form 3115. Amended tax return 2012 File the application within the first 180 days of the tax year the change is to become effective. Amended tax return 2012 In most cases, there is a user fee that must accompany Form 3115. Amended tax return 2012 See the instructions for Form 3115 to determine if a fee is required. Amended tax return 2012 Changes granted automatically. Amended tax return 2012   The IRS automatically approves certain changes of a method of depreciation. Amended tax return 2012 But, you must file Form 3115 for these automatic changes. Amended tax return 2012   However, IRS can deny permission if Form 3115 is not filed on time. Amended tax return 2012 For more information on automatic changes, see Revenue Procedure 74-11, 1974-1 C. Amended tax return 2012 B. Amended tax return 2012 420. Amended tax return 2012 Changes for which approval is not automatic. Amended tax return 2012   The automatic change procedures do not apply to: Property or an account where you made a change in depreciation within the last 10 tax years (unless the change was made under the Class Life System), Class Life Asset Depreciation Range System, and Public utility property. Amended tax return 2012   You must request and receive permission for these changes. Amended tax return 2012 To make the request, file Form 3115 during the first 180 days of the tax year for which you want the change to be effective. Amended tax return 2012 Change from an improper method. Amended tax return 2012   If the IRS disallows the method you are using, you do not need permission to change to a proper method. Amended tax return 2012 You can adopt the straight line method, or any other method that would have been permitted if you had used it from the beginning. Amended tax return 2012 If you file your tax return using an improper method, but later file an amended return, you can use a proper method on the amended return without getting IRS permission. Amended tax return 2012 However, you must file the amended return before the filing date for the next tax year. Amended tax return 2012 Dispositions Retirement is the permanent withdrawal of depreciable property from use in your trade or business or for the production of income. Amended tax return 2012 You can do this by selling, exchanging, or abandoning the item of property. Amended tax return 2012 You can also withdraw it from use without disposing of it. Amended tax return 2012 For example, you could place it in a supplies or scrap account. Amended tax return 2012 Retirements can be either normal or abnormal depending on all facts and circumstances. Amended tax return 2012 The rules discussed next do not apply to MACRS and ACRS property. Amended tax return 2012 Normal retirement. Amended tax return 2012   A normal retirement is a permanent withdrawal of depreciable property from use if the following apply: The retirement is made within the useful life you estimated originally, and The property has reached a condition at which you customarily retire or would retire similar property from use. Amended tax return 2012 A retirement is generally considered normal unless you can show that you retired the property because of a reason you did not consider when you originally estimated the useful life of the property. Amended tax return 2012 Abnormal retirement. Amended tax return 2012   A retirement can be abnormal if you withdraw the property early or under other circumstances. Amended tax return 2012 For example, if the property is damaged by a fire or suddenly becomes obsolete and is now useless. Amended tax return 2012 Gain or loss on retirement. Amended tax return 2012   There are special rules for figuring the gain or loss on retirement of property. Amended tax return 2012 The gain or loss will depend on several factors. Amended tax return 2012 These include the type of withdrawal, if the withdrawal was from a single property or multiple property account, and if the retirement was normal or abnormal. Amended tax return 2012 A single property account contains only one item of property. Amended tax return 2012 A multiple property account is one in which several items have been combined with a single rate of depreciation assigned to the entire account. Amended tax return 2012 Sale or exchange. Amended tax return 2012   If property is retired by sale or exchange, you figure gain or loss by the usual rules that apply to sales or other dispositions of property. Amended tax return 2012 See Publication 544. Amended tax return 2012 Property not disposed of or abandoned. Amended tax return 2012   If property is retired permanently, but not disposed of or physically abandoned, you do not recognize gain. Amended tax return 2012 You are allowed a loss in such a case, but only if the retirement is: An abnormal retirement, A normal retirement from a single property account in which you determined the life of each item of property separately, or A normal retirement from a multiple property account in which the depreciation rate is based on the maximum expected life of the longest lived item of property and the loss occurs before the expiration of the full useful life. Amended tax return 2012 However, you are not allowed a loss if the depreciation rate is based on the average useful life of the items of property in the account. Amended tax return 2012   To figure your loss, subtract the estimated salvage or fair market value of the property at the date of retirement, whichever is more, from its adjusted basis. Amended tax return 2012 Special rule for normal retirements from item accounts. Amended tax return 2012   You can generally deduct losses upon retirement of a few depreciable items of property with similar useful lives, if: You account for each one in a separate account, and You use the average useful life to figure depreciation. Amended tax return 2012 However, you cannot deduct losses if you use the average useful life to figure depreciation and they have a wide range of useful lives. Amended tax return 2012   If you have a large number of depreciable property items and use average useful lives to figure depreciation, you cannot deduct the losses upon normal retirements from these accounts. Amended tax return 2012 Abandoned property. Amended tax return 2012   If you physically abandon property, you can deduct as a loss the adjusted basis of the property at the time of its abandonment. Amended tax return 2012 However, your intent must be to discard the property so that you will not use it again or retrieve it for sale, exchange, or other disposition. Amended tax return 2012 Basis of property retired. Amended tax return 2012   The basis for figuring gain or loss on the retirement of property is its adjusted basis at the time of retirement, as determined in the following discussions. Amended tax return 2012 Single item accounts. Amended tax return 2012   If an item of property is accounted for in a single item account, the adjusted basis is the basis you would use to figure gain or loss for a sale or exchange of the property. Amended tax return 2012 This is generally the cost or other basis of the item of property less depreciation. Amended tax return 2012 See Publication 551. Amended tax return 2012 Multiple property account. Amended tax return 2012   For a normal retirement from a multiple property account, if you figured depreciation using the average expected useful life, the adjusted basis is the salvage value estimated for the item of property when it was originally acquired. Amended tax return 2012 If you figured depreciation using the maximum expected useful life of the longest lived item of property in the account, you must use the depreciation method used for the multiple property account and a rate based on the maximum expected useful life of the item of property retired. Amended tax return 2012   You make the adjustment for depreciation for an abnormal retirement from a multiple property account at the rate that would be proper if the item of property was depreciated in a single property account. Amended tax return 2012 The method of depreciation used for the multiple property account is used. Amended tax return 2012 You base the rate on either the average expected useful life or the maximum expected useful life of the retired item of property, depending on the method used to determine the depreciation rate for the multiple property account. Amended tax return 2012 Prev  Up  Next   Home   More Online Publications