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Complete 1040x Online

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Complete 1040x Online

Complete 1040x online 1. Complete 1040x online   Canceled Debts Table of Contents General RulesForm 1099-C Discounts and loan modifications Sales or other dispositions (such as foreclosures and repossessions) Abandonments Stockholder debt This chapter discusses the tax treatment of canceled debts. Complete 1040x online General Rules Generally, if a debt for which you are personally liable is forgiven or discharged for less than the full amount owed, the debt is considered canceled in whatever amount it remained unpaid. Complete 1040x online There are exceptions to this rule, discussed under Exceptions , later. Complete 1040x online Generally, you must include the canceled debt in your income. Complete 1040x online However, you may be able to exclude the canceled debt. Complete 1040x online See Exclusions , later. Complete 1040x online Example. Complete 1040x online John owed $1,000 to Mary. Complete 1040x online Mary agreed to accept and John paid $400 in satisfaction of the entire debt. Complete 1040x online John has canceled debt of $600. Complete 1040x online Example. Complete 1040x online Margaret owed $1,000 to Henry. Complete 1040x online Henry and Margaret agreed that Margaret would provide Henry with services (instead of money) in full satisfaction of the debt. Complete 1040x online Margaret does not have canceled debt. Complete 1040x online Instead, she has income from services. Complete 1040x online A debt includes any indebtedness: For which you are liable, or Subject to which you hold property. Complete 1040x online Debt for which you are personally liable is recourse debt. Complete 1040x online All other debt is nonrecourse debt. Complete 1040x online If you are not personally liable for the debt, you do not have ordinary income from the cancellation of debt unless you retain the collateral and either: The lender offers a discount for the early payment of the debt, or The lender agrees to a loan modification that results in the reduction of the principal balance of the debt. Complete 1040x online See Discounts and loan modifications , later. Complete 1040x online However, upon the disposition of the property securing a nonrecourse debt, the amount realized includes the entire unpaid amount of the debt, not just the FMV of the property. Complete 1040x online As a result, you may realize a gain or loss if the outstanding debt immediately before the disposition is more or less than your adjusted basis in the property. Complete 1040x online For more details on figuring your gain or loss, see chapter 2 of this publication or see Publication 544. Complete 1040x online There are several exceptions and exclusions that may result in part or all of a canceled debt being nontaxable. Complete 1040x online See Exceptions and Exclusions, later. Complete 1040x online You must report any taxable canceled debt as ordinary income on: Form 1040 or Form 1040NR, line 21, if the debt is a nonbusiness debt; Schedule C (Form 1040), line 6 (or Schedule C-EZ (Form 1040), line 1), if the debt is related to a nonfarm sole proprietorship; Schedule E (Form 1040), line 3, if the debt is related to nonfarm rental of real property; Form 4835, line 6, if the debt is related to a farm rental activity for which you use Form 4835 to report farm rental income based on crops or livestock produced by a tenant; or Schedule F (Form 1040), line 8, if the debt is farm debt and you are a farmer. Complete 1040x online Form 1099-C If you receive a Form 1099-C, that means an applicable entity has reported an identifiable event to the IRS regarding a debt you owe. Complete 1040x online The identifiable event may be an actual cancellation of the debt or it may be an event the applicable entity is required, solely for purposes of reporting to the IRS, to treat as a cancellation of debt. Complete 1040x online For information on the reasons an applicable entity files Form 1099-C, see Identifiable event codes, later. Complete 1040x online Unless you meet one of the exceptions or exclusions discussed later, this canceled debt is ordinary income and must be reported on the appropriate form discussed above. Complete 1040x online An applicable entity includes: A federal government agency, A financial institution, A credit union, and Any organization a significant trade or business of which is lending money. Complete 1040x online Identifiable event codes. Complete 1040x online    Box 6 of Form 1099-C should indicate the reason the creditor filed this form. Complete 1040x online The codes shown in box 6 are explained below. Complete 1040x online Also see the chart after the explanation for a quick reference guide for the codes used in Box 6. Complete 1040x online Note. Complete 1040x online Codes A through G and I identify specific occurrences resulting from an actual discharge of indebtedness. Complete 1040x online However, Code H, Expiration of nonpayment testing period, does not necessarily identify an actual discharge of indebtedness. Complete 1040x online Code A — Bankruptcy. Complete 1040x online Code A is used to identify cancellation of debt as a result of a title 11 bankruptcy case. Complete 1040x online See Bankruptcy , later. Complete 1040x online Code B — Other judicial debt relief. Complete 1040x online Code B is used to identify cancellation of debt as a result of a receivership, foreclosure, or similar federal or state court proceeding other than bankruptcy. Complete 1040x online Code C — Statute of limitations or expiration of deficiency period. Complete 1040x online Code C is used to identify cancellation of debt either when the statute of limitations for collecting the debt expires or when the statutory period for filing a claim or beginning a deficiency judgment proceeding expires. Complete 1040x online In the case of the expiration of a statute of limitations, an identifiable event occurs only if and when your affirmative defense of the statute of limitations is upheld in a final judgment or decision in a judicial proceeding, and the period for appealing the judgment or decision has expired. Complete 1040x online Code D — Foreclosure election. Complete 1040x online Code D is used to identify cancellation of debt when the creditor elects foreclosure remedies that statutorily end or bar the creditor's right to pursue collection of the debt. Complete 1040x online This event applies to a mortgage lender or holder who is barred from pursuing debt collection after a power of sale in the mortgage or deed of trust is exercised. Complete 1040x online Code E — Debt relief from probate or similar proceeding. Complete 1040x online Code E is used to identify cancellation of debt as a result of a probate court or similar legal proceeding. Complete 1040x online Code F — By agreement. Complete 1040x online Code F is used to identify cancellation of debt as a result of an agreement between the creditor and the debtor to cancel the debt at less than full consideration. Complete 1040x online Code G — Decision or policy to discontinue collection. Complete 1040x online Code G is used to identify cancellation of debt as a result of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. Complete 1040x online For purposes of this identifiable event, a defined policy includes both a written policy and the creditor's established business practice. Complete 1040x online Code H — Expiration of nonpayment testing period. Complete 1040x online Code H is used to indicate that the creditor has not received a payment on the debt during a testing period ending on December 31, 2013. Complete 1040x online The testing period is a 36-month period increased by the number of months the creditor was prevented from engaging in collection activity by a stay in bankruptcy or similar bar under state or local law. Complete 1040x online This identifiable event applies only for a creditor that is a financial institution or credit union (and certain of their subsidiaries), the Federal Deposit Insurance Corporation (FDIC), Resolution Trust Corporation (RTC), National Credit Union Administration (NCUA), and other Federal executive agencies. Complete 1040x online Expiration of the nonpayment testing period does not necessarily result from an actual discharge of indebtedness. Complete 1040x online Code I — Other actual discharge before identifiable event. Complete 1040x online Code I is used to identify an actual cancellation of debt that occurs before any of the identifiable events described in codes A through H. Complete 1040x online Form 1099-C Reference Guide for Box 6 Identifiable Event Codes A Bankruptcy B Other judicial debt relief C Statute of limitations or expiration of deficiency period D Foreclosure election E Debt relief from probate or similar proceeding F By agreement G Decision or policy to discontinue collection H Expiration of nonpayment testing period I Other actual discharge before identifiable event Even if you did not receive a Form 1099-C, you must report canceled debt as gross income on your tax return unless one of the exceptions or exclusions described later applies. Complete 1040x online Amount of canceled debt. Complete 1040x online    The amount in box 2 of Form 1099-C may represent some or all of the debt that has been canceled or treated as canceled. Complete 1040x online The amount in box 2 will include principal and may include interest and other nonprincipal amounts (such as fees or penalties). Complete 1040x online Unless you meet one of the exceptions or exclusions discussed later, the amount of the debt that has been canceled is ordinary income and must be reported on the appropriate form as discussed earlier. Complete 1040x online Interest included in canceled debt. Complete 1040x online    If any interest is included in the amount of canceled debt in box 2, it will be shown in box 3. Complete 1040x online Whether the interest portion of the canceled debt must be included in your income depends on whether the interest would be deductible if you paid it. Complete 1040x online See Deductible Debt under Exceptions, later. Complete 1040x online Persons who each receive a Form 1099-C showing the full amount of debt. Complete 1040x online    If you and another person were jointly and severally liable for a canceled debt, each of you may get a Form 1099-C showing the entire amount of the canceled debt. Complete 1040x online However, you may not have to report that entire amount as income. Complete 1040x online The amount, if any, you must report depends on all the facts and circumstances, including: State law, The amount of debt proceeds each person received, How much of any interest deduction from the debt was claimed by each person, How much of the basis of any co-owned property bought with the debt proceeds was allocated to each co-owner, and Whether the canceled debt qualifies for any of the exceptions or exclusions described in this publication. Complete 1040x online See Example 3 under Insolvency, later. Complete 1040x online Discounts and loan modifications If a lender discounts (reduces) the principal balance of a loan because you pay it off early, or agrees to a loan modification (a “workout”) that includes a reduction in the principal balance of a loan, the amount of the discount or the amount of principal reduction is canceled debt. Complete 1040x online However, if the debt is nonrecourse and you did not retain the collateral, you do not have cancellation of the debt income. Complete 1040x online The amount of the canceled debt must be included in income unless one of the exceptions or exclusions described later applies. Complete 1040x online For more details, see Exceptions and Exclusions, later. Complete 1040x online Sales or other dispositions (such as foreclosures and repossessions) Recourse debt. Complete 1040x online   If you owned property that was subject to a recourse debt in excess of the FMV of the property, the lender's foreclosure or repossession of the property is treated as a sale or disposition of the property by you and may result in your realization of gain or loss. Complete 1040x online The gain or loss on the disposition of the property is measured by the difference between the FMV of the property at the time of the disposition and your adjusted basis (usually your cost) in the property. Complete 1040x online The character of the gain or loss (such as ordinary or capital) is determined by the character of the property. Complete 1040x online If the lender forgives all or part of the amount of the debt in excess of the FMV of the property, the cancellation of the excess debt may result in ordinary income. Complete 1040x online The ordinary income from the cancellation of debt (the excess of the canceled debt over the FMV of the property) must be included in your gross income reported on your tax return unless one of the exceptions or exclusions described later applies. Complete 1040x online For more details, see Exceptions and Exclusions, later. Complete 1040x online Nonrecourse debt. Complete 1040x online   If you owned property that was subject to a nonrecourse debt in excess of the FMV of the property, the lender's foreclosure on the property does not result in ordinary income from the cancellation of debt. Complete 1040x online The entire amount of the nonrecourse debt is treated as an amount realized on the disposition of the property. Complete 1040x online The gain or loss on the disposition of the property is measured by the difference between the total amount realized (the entire amount of the nonrecourse debt plus the amount of cash and the FMV of any property received) and your adjusted basis in the property. Complete 1040x online The character of the gain or loss is determined by the character of the property. Complete 1040x online More information. Complete 1040x online    See Publications 523, 544, and 551, and chapter 2 of this publication for more details. Complete 1040x online Abandonments Recourse debt. Complete 1040x online   If you abandon property that secures a debt for which you are personally liable (recourse debt) and the debt is canceled, you will realize ordinary income equal to the canceled debt. Complete 1040x online You must report this income on your tax return unless one of the exceptions or exclusions described later applies. Complete 1040x online For more details, see Exceptions and Exclusions, later. Complete 1040x online This income is separate from any amount realized from the abandonment of the property. Complete 1040x online For more details, see chapter 3. Complete 1040x online Nonrecourse debt. Complete 1040x online   If you abandon property that secures a debt for which you are not personally liable (nonrecourse debt), you may realize gain or loss but will not have cancellation of indebtedness income. Complete 1040x online Stockholder debt 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. Complete 1040x online For more information, see Publication 542, Corporations. Complete 1040x online Prev  Up  Next   Home   More Online Publications
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Contact My Local Office in Tennessee

Face-to-face Tax Help

IRS Taxpayer Assistance Centers (TACs) are your source for personal tax help when you believe your tax issue can only be handled face-to-face. No appointment is necessary.

Keep in mind, many questions can be resolved online without waiting in line. Through IRS.gov you can:
• Set up a payment plan.
• Get a transcript of your tax return.
• Make a payment.
• Check on your refund.
• Find answers to many of your tax questions.

We are now referring all requests for tax return preparation services to other available resources. You can take advantage of free tax preparation through Free File, Free File Fillable Forms or through a volunteer site in your community. To find the nearest volunteer site location or to get more information about Free File, go to the top of the page and enter “Free Tax Help” in the Search box.

If you have a tax account issues and feel that it requires talking with someone face-to-face, visit your local TAC.

Caution:  Many of our offices are located in Federal Office Buildings. These buildings may not allow visitors to bring in cell phones with camera capabilities.

Multilingual assistance is available in every office. Hours of operation are subject to change.

Before visiting your local office click on "Services Provided" in the chart below to see what services are available. Services are limited and not all services are available at every TAC office and may vary from site to site. You can get these services on a walk-in basis.

City  Street Address  Days/Hours of Service  Telephone* 
Chattanooga  5740 Uptain Rd.
Chattanooga, TN 37411 

Monday-Friday - 8:30 a.m.-4:30 p.m.
 

Services Provided

(423) 855-6460 
Jackson  109 S. Highland
Jackson, TN 38301 

Monday- Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:00 noon - 1:00 p.m.)

 

Services Provided

(731) 423-2441 
Johnson City  2513 Wesley St.
Johnson City, TN 37601 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

Services Provided

(423) 282-5024 
Knoxville  710 Locust St.
Knoxville, TN 37902 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**
 

Services Provided

(865) 545-4794 
Memphis  22 N. Front St.
Memphis, TN 38103 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**


Services Provided

(901) 544-3243 
Nashville  801 Broadway
Nashville, TN 37203 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**


Services Provided

(615) 250-5656 

* Note: The phone numbers in the chart above are not toll-free for all locations. When you call, you will reach a recorded business message with information about office hours, locations and services provided in that office. If face-to-face assistance is not a priority for you, you may also get help with IRS letters or resolve tax account issues by phone, toll free at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses).

For information on where to file your tax return please see Where to File Addresses.

The Taxpayer Advocate Service: Call (615) 250-5000 in Nashville or 1-877-777-4778 elsewhere, or see  Publication 1546, The Taxpayer Advocate Service of the IRS. For further information, see  Tax Topic 104.

Partnerships

IRS and organizations all over the country are partnering to assist taxpayers. Through these partnerships, organizations are also achieving their own goals. These mutually beneficial partnerships are strengthening outreach efforts and bringing education and assistance to millions.

For more information about these programs for individuals families, contact the Stakeholder Partnerships, Education and Communication Office at:

Internal Revenue Service
801 Broadway, MDP-46
Nashville, TN 37203

Internal Revenue Service
22 N. Front Street, Suite 400
Memphis, TN 38103

For more information about these programs for businesses, your local Stakeholder Liaison office establishes relationships with organizations representing small business and self-employed taxpayers. They provide information about the policies, practices and procedures the IRS uses to ensure compliance with the tax laws. To establish a relationship with us, use this list to find a contact in your state:

Stakeholder Liaison (SL) Phone Numbers for Organizations Representing Small Businesses and Self-employed Taxpayers.

Page Last Reviewed or Updated: 28-Mar-2014

The Complete 1040x Online

Complete 1040x online 8. Complete 1040x online   Qualified Tuition Program (QTP) Table of Contents Introduction What Is a Qualified Tuition ProgramDesignated beneficiary. Complete 1040x online Half-time student. Complete 1040x online How Much Can You Contribute Are Distributions TaxableFiguring the Taxable Portion of a Distribution Additional Tax on Taxable Distributions Rollovers and Other TransfersRollovers Changing the Designated Beneficiary Introduction Qualified tuition programs (QTPs) are also called “529 plans. Complete 1040x online ” States may establish and maintain programs that allow you to either prepay or contribute to an account for paying a student's qualified education expenses at a postsecondary institution. Complete 1040x online Eligible educational institutions may establish and maintain programs that allow you to prepay a student's qualified education expenses. Complete 1040x online If you prepay tuition, the student (designated beneficiary) will be entitled to a waiver or a payment of qualified education expenses. Complete 1040x online You cannot deduct either payments or contributions to a QTP. Complete 1040x online For information on a specific QTP, you will need to contact the state agency or eligible educational institution that established and maintains it. Complete 1040x online What is the tax benefit of a QTP. Complete 1040x online   No tax is due on a distribution from a QTP unless the amount distributed is greater than the beneficiary's adjusted qualified education expenses. Complete 1040x online See Are Distributions Taxable , later, for more information. Complete 1040x online    Even if a QTP is used to finance a student's education, the student or the student's parents still may be eligible to claim the American opportunity credit or the lifetime learning credit. Complete 1040x online See Coordination With American Opportunity and Lifetime Learning Credits, later. Complete 1040x online What Is a Qualified Tuition Program A qualified tuition program is a program set up to allow you to either prepay, or contribute to an account established for paying, a student's qualified education expenses at an eligible educational institution. Complete 1040x online QTPs can be established and maintained by states (or agencies or instrumentalities of a state) and eligible educational institutions. Complete 1040x online The program must meet certain requirements. Complete 1040x online Your state government or the eligible educational institution in which you are interested can tell you whether or not they participate in a QTP. Complete 1040x online Qualified education expenses. Complete 1040x online   These are expenses related to enrollment or attendance at an Eligible educational institution (defined later). Complete 1040x online As shown in the following list, to be qualified, some of the expenses must be required by the institution and some must be incurred by students who are enrolled at least half-time. Complete 1040x online See Half-time student , later. Complete 1040x online The following expenses must be required for enrollment or attendance of a Designated beneficiary (defined later) at an eligible educational institution. Complete 1040x online Tuition and fees. Complete 1040x online Books, supplies, and equipment. Complete 1040x online Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible educational institution. Complete 1040x online Expenses for room and board must be incurred by students who are enrolled at least half-time. Complete 1040x online The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts. Complete 1040x online The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. Complete 1040x online The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. Complete 1040x online You will need to contact the eligible educational institution for qualified room and board costs. Complete 1040x online    For tax years after 2010, the purchase of computer technology or equipment is only a qualified education expense if the computer technology or equipment is required for enrollment or attendance at an eligible institution. Complete 1040x online Designated beneficiary. Complete 1040x online   The designated beneficiary is generally the student (or future student) for whom the QTP is intended to provide benefits. Complete 1040x online The designated beneficiary can be changed after participation in the QTP begins. Complete 1040x online If a state or local government or certain tax-exempt organizations purchase an interest in a QTP as part of a scholarship program, the designated beneficiary is the person who receives the interest as a scholarship. Complete 1040x online Half-time student. Complete 1040x online   A student is enrolled “at least half-time” if he or she is enrolled for at least half the full-time academic workload for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. Complete 1040x online Eligible educational institution. Complete 1040x online   For purposes of a QTP, this is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Complete 1040x online S. Complete 1040x online Department of Education. Complete 1040x online It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Complete 1040x online The educational institution should be able to tell you if it is an eligible educational institution. Complete 1040x online   Certain educational institutions located outside the United States also participate in the U. Complete 1040x online S. Complete 1040x online Department of Education's Federal Student Aid (FSA) programs. Complete 1040x online   How Much Can You Contribute Contributions to a QTP on behalf of any beneficiary cannot be more than the amount necessary to provide for the qualified education expenses of the beneficiary. Complete 1040x online There are no income restrictions on the individual contributors. Complete 1040x online You can contribute to both a QTP and a Coverdell ESA in the same year for the same designated beneficiary. Complete 1040x online   Are Distributions Taxable The part of a distribution representing the amount paid or contributed to a QTP does not have to be included in income. Complete 1040x online This is a return of the investment in the plan. Complete 1040x online The designated beneficiary generally does not have to include in income any earnings distributed from a QTP if the total distribution is less than or equal to adjusted qualified education expenses (defined under Figuring the Taxable Portion of a Distribution , later). Complete 1040x online Earnings and return of investment. Complete 1040x online    You will receive a Form 1099-Q, from each of the programs from which you received a QTP distribution in 2013. Complete 1040x online The amount of your gross distribution (box 1) shown on each form will be divided between your earnings (box 2) and your basis, or return of investment (box 3). Complete 1040x online Form 1099-Q should be sent to you by January 31, 2014. Complete 1040x online Figuring the Taxable Portion of a Distribution To determine if total distributions for the year are more or less than the amount of qualified education expenses, you must compare the total of all QTP distributions for the tax year to the adjusted qualified education expenses. Complete 1040x online Adjusted qualified education expenses. Complete 1040x online   This amount is the total qualified education expenses reduced by any tax-free educational assistance. Complete 1040x online Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Complete 1040x online Taxable earnings. Complete 1040x online   Use the following steps to figure the taxable part. Complete 1040x online Multiply the total distributed earnings shown in box 2 of Form 1099-Q by a fraction. Complete 1040x online The numerator is the adjusted qualified education expenses paid during the year and the denominator is the total amount distributed during the year. Complete 1040x online Subtract the amount figured in (1) from the total distributed earnings. Complete 1040x online The result is the amount the beneficiary must include in income. Complete 1040x online Report it on Form 1040 or Form 1040NR, line 21. Complete 1040x online Example 1. Complete 1040x online In 2007, Sara Clarke's parents opened a savings account for her with a QTP maintained by their state government. Complete 1040x online Over the years they contributed $18,000 to the account. Complete 1040x online The total balance in the account was $27,000 on the date the distribution was made. Complete 1040x online In the summer of 2013, Sara enrolled in college and had $8,300 of qualified education expenses for the rest of the year. Complete 1040x online She paid her college expenses from the following sources. Complete 1040x online   Gift from parents $1,600     Partial tuition scholarship (tax-free) 3,100     QTP distribution 5,300           Before Sara can determine the taxable part of her QTP distribution, she must reduce her total qualified education expenses by any tax-free educational assistance. Complete 1040x online   Total qualified education expenses $8,300     Minus: Tax-free educational assistance −3,100     Equals: Adjusted qualified  education expenses (AQEE) $5,200   Since the remaining expenses ($5,200) are less than the QTP distribution, part of the earnings will be taxable. Complete 1040x online Sara's Form 1099-Q shows that $950 of the QTP distribution is earnings. Complete 1040x online Sara figures the taxable part of the distributed earnings as follows. Complete 1040x online   1. Complete 1040x online $950 (earnings) × $5,200 AQEE  $5,300 distribution           =$932 (tax-free earnings)     2. Complete 1040x online $950 (earnings)−$932 (tax-free earnings)     =$18 (taxable earnings)  Sara must include $18 in income (Form 1040, line 21) as distributed QTP earnings not used for adjusted qualified education expenses. Complete 1040x online Coordination With American Opportunity and Lifetime Learning Credits An American opportunity or lifetime learning credit (education credit) can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses are not used for both benefits. Complete 1040x online This means that after the beneficiary reduces qualified education expenses by tax-free educational assistance, he or she must further reduce them by the expenses taken into account in determining the credit. Complete 1040x online Example 2. Complete 1040x online Assume the same facts as in Example 1 , except that Sara's parents claimed an American opportunity credit of $2,500 (based on $4,000 expenses). Complete 1040x online   Total qualified education expenses $8,300     Minus: Tax-free educational assistance −3,100     Minus: Expenses taken into account  in figuring American opportunity credit −4,000     Equals: Adjusted qualified  education expenses (AQEE) $1,200           The taxable part of the distribution is figured as follows. Complete 1040x online   1. Complete 1040x online $950 (earnings) × $1,200 AQEE  $5,300 distribution           =$215 (tax-free earnings)     2. Complete 1040x online $950 (earnings)−$215 (tax-free earnings)     =$735 (taxable earnings)       Sara must include $735 in income (Form 1040, line 21). Complete 1040x online This represents distributed earnings not used for adjusted qualified education expenses. Complete 1040x online Coordination With Coverdell ESA Distributions If a designated beneficiary receives distributions from both a QTP and a Coverdell ESA in the same year, and the total of these distributions is more than the beneficiary's adjusted qualified higher education expenses, the expenses must be allocated between the distributions. Complete 1040x online For purposes of this allocation, disregard any qualified elementary and secondary education expenses. Complete 1040x online Example 3. Complete 1040x online Assume the same facts as in Example 2 , except that instead of receiving a $5,300 distribution from her QTP, Sara received $4,600 from that account and $700 from her Coverdell ESA. Complete 1040x online In this case, Sara must allocate her $1,200 of adjusted qualified higher education expenses (AQHEE) between the two distributions. Complete 1040x online   $1,200 AQHEE × $700 ESA distribution  $5,300 total distribution = $158 AQHEE (ESA)     $1,200 AQHEE × $4,600 QTP distribution  $5,300 total distribution = $1,042 AQHEE (QTP)   Sara then figures the taxable portion of her Coverdell ESA distribution based on qualified higher education expenses of $158, and the taxable portion of her QTP distribution based on the other $1,042. Complete 1040x online Note. Complete 1040x online If you are required to allocate your expenses between Coverdell ESA and QTP distributions, and you have adjusted qualified elementary and secondary education expenses, see the examples in chapter 7, Coverdell Education Savings Account under Coordination With Qualified Tuition Program (QTP) Distributions . Complete 1040x online Coordination With Tuition and Fees Deduction. Complete 1040x online   A tuition and fees deduction can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses are not used for both benefits. Complete 1040x online Losses on QTP Investments If you have a loss on your investment in a QTP account, you may be able to take the loss on your income tax return. Complete 1040x online You can take the loss only when all amounts from that account have been distributed and the total distributions are less than your unrecovered basis. Complete 1040x online Your basis is the total amount of contributions to that QTP account. Complete 1040x online You claim the loss as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23 (Schedule A (Form 1040NR), line 9), subject to the 2%-of-adjusted-gross-income limit. Complete 1040x online If you have distributions from more than one QTP account during a year, you must combine the information (amount of distribution, basis, etc. Complete 1040x online ) from all such accounts in order to determine your taxable earnings for the year. Complete 1040x online By doing this, the loss from one QTP account reduces the distributed earnings (if any) from any other QTP accounts. Complete 1040x online Example 1. Complete 1040x online In 2013, Taylor received a final distribution of $1,000 from QTP #1. Complete 1040x online His unrecovered basis in that account before the distribution was $3,000. Complete 1040x online If Taylor itemizes his deductions, he can claim the $2,000 loss on Schedule A (Form 1040). Complete 1040x online Example 2. Complete 1040x online Assume the same facts as in Example 1 , except that Taylor also had a distribution of $9,000 from QTP #2, giving him total distributions for 2013 of $10,000. Complete 1040x online His total basis in these distributions was $4,500 ($3,000 for QTP #1 and $1,500 for QTP #2). Complete 1040x online Taylor's adjusted qualified education expenses for 2013 totaled $6,000. Complete 1040x online In order to figure his taxable earnings, Taylor combines the two accounts and determines his taxable earnings as follows. Complete 1040x online   1. Complete 1040x online $10,000 (total distribution)−$4,500 (basis portion of distribution)     = $5,500 (earnings included in distribution)   2. Complete 1040x online $5,500 (earnings) x $6,000 AQEE  $10,000 distribution           =$3,300 (tax-free earnings)     3. Complete 1040x online $5,500 (earnings)−$3,300 (tax-free earnings)     =$2,200 (taxable earnings)                 Taylor must include $2,200 in income on Form 1040, line 21. Complete 1040x online Because Taylor's accounts must be combined, he cannot deduct his $2,000 loss (QTP #1) on Schedule A (Form 1040). Complete 1040x online Instead, the $2,000 loss reduces the total earnings that were distributed, thereby reducing his taxable earnings. Complete 1040x online Additional Tax on Taxable Distributions Generally, if you receive a taxable distribution, you also must pay a 10% additional tax on the amount included in income. Complete 1040x online Exceptions. Complete 1040x online   The 10% additional tax does not apply to distributions: Paid to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary. Complete 1040x online Made because the designated beneficiary is disabled. Complete 1040x online A person is considered to be disabled if he or she shows proof that he or she cannot do any substantial gainful activity because of his or her physical or mental condition. Complete 1040x online A physician must determine that his or her condition can be expected to result in death or to be of long-continued and indefinite duration. Complete 1040x online Included in income because the designated beneficiary received: A tax-free scholarship or fellowship (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), or Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Complete 1040x online Made on account of the attendance of the designated beneficiary at a U. Complete 1040x online S. Complete 1040x online military academy (such as the USNA at Annapolis). Complete 1040x online This exception applies only to the extent that the amount of the distribution does not exceed the costs of advanced education (as defined in section 2005(d)(3) of title 10 of the U. Complete 1040x online S. Complete 1040x online Code) attributable to such attendance. Complete 1040x online Included in income only because the qualified education expenses were taken into account in determining the American opportunity or lifetime learning credit (see Coordination With American Opportunity and Lifetime Learning Credits , earlier. Complete 1040x online ) Exception (3) applies only to the extent the distribution is not more than the scholarship, allowance, or payment. Complete 1040x online Figuring the additional tax. Complete 1040x online    Use Part II of Form 5329, to figure any additional tax. Complete 1040x online Report the amount on Form 1040, line 58, or Form 1040NR, line 56. Complete 1040x online Rollovers and Other Transfers Assets can be rolled over or transferred from one QTP to another. Complete 1040x online In addition, the designated beneficiary can be changed without transferring accounts. Complete 1040x online Rollovers Any amount distributed from a QTP is not taxable if it is rolled over to another QTP for the benefit of the same beneficiary or for the benefit of a member of the beneficiary's family (including the beneficiary's spouse). Complete 1040x online An amount is rolled over if it is paid to another QTP within 60 days after the date of the distribution. Complete 1040x online Do not report qualifying rollovers (those that meet the above criteria) anywhere on Form 1040 or 1040NR. Complete 1040x online These are not taxable distributions. Complete 1040x online Members of the beneficiary's family. Complete 1040x online   For these purposes, the beneficiary's family includes the beneficiary's spouse and the following other relatives of the beneficiary. Complete 1040x online Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them. Complete 1040x online Brother, sister, stepbrother, or stepsister. Complete 1040x online Father or mother or ancestor of either. Complete 1040x online Stepfather or stepmother. Complete 1040x online Son or daughter of a brother or sister. Complete 1040x online Brother or sister of father or mother. Complete 1040x online Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. Complete 1040x online The spouse of any individual listed above. Complete 1040x online First cousin. Complete 1040x online Example. Complete 1040x online When Aaron graduated from college last year he had $5,000 left in his QTP. Complete 1040x online He wanted to give this money to his younger brother, who was in junior high school. Complete 1040x online In order to avoid paying tax on the distribution of the amount remaining in his account, Aaron contributed the same amount to his brother's QTP within 60 days of the distribution. Complete 1040x online If the rollover is to another QTP for the same beneficiary, only one rollover is allowed within 12 months of a previous transfer to any QTP for that designated beneficiary. Complete 1040x online Changing the Designated Beneficiary There are no income tax consequences if the designated beneficiary of an account is changed to a member of the beneficiary's family. Complete 1040x online See Members of the beneficiary's family , earlier. Complete 1040x online Example. Complete 1040x online Assume the same situation as in the last example. Complete 1040x online Instead of closing his QTP and paying the distribution into his brother's QTP, Aaron could have instructed the trustee of his account to simply change the name of the beneficiary on his account to that of his brother. Complete 1040x online Prev  Up  Next   Home   More Online Publications