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Ez Tax Form

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Ez Tax Form

Ez tax form 4. Ez tax form   Unrelated Business Taxable Income Table of Contents IncomeExclusions Dues of Agricultural Organizations and Business Leagues DeductionsDirectly Connected Exploitation of Exempt Activity—Advertising Sales Modifications Partnership Income or Loss S Corporation Income or Loss Special Rules for Foreign Organizations Special Rules for Social Clubs, VEBAs, SUBs, and GLSOsIncome that is set aside. Ez tax form Special Rules for Veterans' Organizations Income From Controlled OrganizationsAddition to tax for valuation misstatements. Ez tax form Net unrelated income. Ez tax form Net unrelated loss. Ez tax form Control. Ez tax form Income from property financed with qualified 501(c)(3) bonds. Ez tax form Disposition of property received from taxable subsidiary and used in unrelated business. Ez tax form Income From Debt-Financed Property Debt-Financed PropertyAcquisition Indebtedness Computation of Debt-Financed Income Deductions for Debt-Financed Property Allocation Rules How to Get Tax Help The term “unrelated business taxable income” generally means the gross income derived from any unrelated trade or business regularly conducted by the exempt organization, less the deductions directly connected with carrying on the trade or business. Ez tax form If an organization regularly carries on two or more unrelated business activities, its unrelated business taxable income is the total of gross income from all such activities less the total allowable deductions attributable to all the activities. Ez tax form In computing unrelated business taxable income, gross income and deductions are subject to the modifications and special rules explained in this chapter. Ez tax form Whether a particular item of income or expense falls within any of these modifications or special rules must be determined by all the facts and circumstances in each specific case. Ez tax form For example, if the organization received a payment termed rent that is in fact a return of profits by a person operating the property for the benefit of the organization, or that is a share of the profits retained by the organization as a partner or joint venturer, the payment is not within the income exclusion for rents, discussed later under Exclusions. Ez tax form Income Generally, unrelated business income is taxable, but there are exclusions and special rules that must be considered when figuring the income. Ez tax form Exclusions The following types of income (and deductions directly connected with the income) are generally excluded when figuring unrelated business taxable income. Ez tax form Dividends, interest, annuities and other investment income. Ez tax form   All dividends, interest, annuities, payments with respect to securities loans, income from notional principal contracts, and other income from an exempt organization's ordinary and routine investments that the IRS determines are substantially similar to these types of income are excluded in computing unrelated business taxable income. Ez tax form Exception for insurance activity income of a controlled foreign corporation. Ez tax form   This exclusion does not apply to income from certain insurance activities of an exempt organization's controlled foreign corporation. Ez tax form The income is not excludable dividend income, but instead is unrelated business taxable income to the extent it would be so treated if the exempt organization had earned it directly. Ez tax form Certain exceptions to this rule apply. Ez tax form For more information, see section 512(b)(17). Ez tax form Other exceptions. Ez tax form   This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later), to interest or annuities received from a controlled corporation (discussed under Income From Controlled Organizations, later). Ez tax form Income from lending securities. Ez tax form   Payments received with respect to a security loan are excluded in computing unrelated business taxable income only if the loan is made under an agreement that:    Provides for the return to the exempt organization of securities identical to the securities loaned, Requires payments to the organization of amounts equivalent to all interest, dividends, and other distributions that the owner of the securities is entitled to receive during the period of the loan, Does not reduce the organization's risk of loss or opportunity for gain on the securities, Contains reasonable procedures to implement the obligation of the borrower to furnish collateral to the organization with a fair market value each business day during the period of the loan in an amount not less than the fair market value of the securities at the close of the preceding business day, and Permits the organization to terminate the loan upon notice of not more than 5 business days. Ez tax form   Payments with respect to securities loans include: Amounts in respect of dividends, interest, and other distributions, Fees based on the period of time the loan is in effect and the fair market value of the security during that period, Income from collateral security for the loan, and Income from the investment of collateral security. Ez tax form The payments are considered to be from the securities loaned and not from collateral security or the investment of collateral security from the loans. Ez tax form Any deductions that are directly connected with collateral security for the loan, or with the investment of collateral security, are considered deductions that are directly connected with the securities loaned. Ez tax form Royalties. Ez tax form   Royalties, including overriding royalties, are excluded in computing unrelated business taxable income. Ez tax form   To be considered a royalty, a payment must relate to the use of a valuable right. Ez tax form Payments for trademarks, trade names, or copyrights are ordinarily considered royalties. Ez tax form Similarly, payments for the use of a professional athlete's name, photograph, likeness, or facsimile signature are ordinarily considered royalties. Ez tax form However, royalties do not include payments for personal services. Ez tax form Therefore, payments for personal appearances and interviews are not excluded as royalties and must be included in figuring unrelated business taxable income. Ez tax form   Unrelated business taxable income does not include royalty income received from licensees by an exempt organization that is the legal and beneficial owner of patents assigned to it by inventors for specified percentages of future royalties. Ez tax form   Mineral royalties are excluded whether measured by production or by gross or taxable income from the mineral property. Ez tax form However, the exclusion does not apply to royalties that stem from an arrangement whereby the organization owns a working interest in a mineral property and is liable for its share of the development and operating costs under the terms of its agreement with the operator of the property. Ez tax form To the extent they are not treated as loans under section 636 (relating to income tax treatment of mineral production payments), payments for mineral production are treated in the same manner as royalty payments for the purpose of computing unrelated business taxable income. Ez tax form To the extent they are treated as loans, any payments for production that are the equivalent of interest are treated as interest and are excluded. Ez tax form Exceptions. Ez tax form   This exclusion does not apply to debt-financed income (discussed under Income From Debt-Financed Property, later) or to royalties received from a controlled corporation (discussed under Income From Controlled Organizations, later). Ez tax form Rents. Ez tax form   Rents from real property, including elevators and escalators, are excluded in computing unrelated business taxable income. Ez tax form Rents from personal property are not excluded. Ez tax form However, special rules apply to “mixed leases” of both real and personal property. Ez tax form Mixed leases. Ez tax form   In a mixed lease, all of the rents are excluded if the rents attributable to the personal property are not more than 10% of the total rents under the lease, as determined when the personal property is first placed in service by the lessee. Ez tax form If the rents attributable to personal property are more than 10% but not more than 50% of the total rents, only the rents attributable to the real property are excluded. Ez tax form If the rents attributable to the personal property are more than 50% of the total rents, none of the rents are excludable. Ez tax form   Property is placed in service when the lessee first may use it under the terms of a lease. Ez tax form For example, property subject to a lease entered into on November 1, for a term starting on January 1 of the next year, is considered placed in service on January 1, regardless of when the lessee first actually uses it. Ez tax form   If separate leases are entered into for real and personal property and the properties have an integrated use (for example, one or more leases for real property and another lease or leases for personal property to be used on the real property), all the leases will be considered as one lease. Ez tax form   The rent attributable to the personal property must be recomputed, and the treatment of the rents must be redetermined, if: The rent attributable to all the leased personal property increases by 100% or more because additional or substitute personal property is placed in service, or The lease is modified to change the rent charged (whether or not the amount of rented personal property changes). Ez tax form Any change in the treatment of rents resulting from the recomputation is effective only for the period beginning with the event that caused the recomputation. Ez tax form Exception for rents based on net profit. Ez tax form   The exclusion for rents does not apply if the amount of the rent depends on the income or profits derived by any person from the leased property, other than an amount based on a fixed percentage of the gross receipts or sales. Ez tax form Exception for income from personal services. Ez tax form   Payment for occupying space when personal services are also rendered to the occupant does not constitute rent from real property. Ez tax form Therefore, the exclusion does not apply to transactions such as renting hotel rooms, rooms in boarding houses or tourist homes, and space in parking lots or warehouses. Ez tax form Other exceptions. Ez tax form   This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later), or to interest, annuities, royalties and rents received from a controlled corporation (discussed under Income From Controlled Organizations, later), investment income (dividends, interest, rents, etc. Ez tax form ) received by organizations described in sections 501(c)(7), 501(c)(9), 501(c)(17), and 501(c)(20). Ez tax form See Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs, discussed later for more information. Ez tax form Income from research. Ez tax form   A tax-exempt organization may exclude income from research grants or contracts from unrelated business taxable income. Ez tax form However, the extent of the exclusion depends on the nature of the organization and the type of research. Ez tax form   Income from research for the United States, any of its agencies or instrumentalities, or a state or any of its political subdivisions is excluded when computing unrelated business taxable income. Ez tax form   For a college, university, or hospital, all income from research, whether fundamental or applied, is excluded in computing unrelated business taxable income. Ez tax form   When an organization is operated primarily to conduct fundamental research (as distinguished from applied research) and the results are freely available to the general public, all income from research performed for any person is excluded in computing unrelated business taxable income. Ez tax form   The term research, for this purpose, does not include activities of a type normally conducted as an incident to commercial or industrial operations, such as testing or inspecting materials or products, or designing or constructing equipment, buildings, etc. Ez tax form In addition, the term fundamental research does not include research conducted for the primary purpose of commercial or industrial application. Ez tax form Gains and losses from disposition of property. Ez tax form   Also excluded from unrelated business taxable income are gains or losses from the sale, exchange, or other disposition of property other than: Stock in trade or other property of a kind that would properly be includable in inventory if on hand at the close of the tax year, Property held primarily for sale to customers in the ordinary course of a trade or business, or Cutting of timber that an organization has elected to consider as a sale or exchange of the timber. Ez tax form   It should be noted that the last exception relates only to cut timber. Ez tax form The sale, exchange, or other disposition of standing timber is excluded from the computation of unrelated business income, unless it constitutes property held for sale to customers in the ordinary course of business. Ez tax form Lapse or termination of options. Ez tax form   Any gain from the lapse or termination of options to buy or sell securities is excluded from unrelated business taxable income. Ez tax form The exclusion applies only if the option is written in connection with the exempt organization's investment activities. Ez tax form Therefore, this exclusion is not available if the organization is engaged in the trade or business of writing options or the options are held by the organization as inventory or for sale to customers in the ordinary course of a trade or business. Ez tax form Exception. Ez tax form   This exclusion does not apply to unrelated debt-financed income, discussed later under Income From Debt-Financed Property. Ez tax form Gain or loss on disposition of certain brownfield property. Ez tax form   Gain or loss from the qualifying sale, exchange, or other disposition of a qualifying brownfield property (as defined in section 512(b)(19)(C)), which was acquired by the organization after December 31, 2005 and before January 1, 2011, is excluded from unrelated business taxable income and is excepted from the debt-financed rules for such property. Ez tax form See sections 512(b)(19) and 514(b)(1)(E). Ez tax form Income from services provided under federal license. Ez tax form   There is a further exclusion from unrelated business taxable income of income from a trade or business conducted by a religious order or by an educational organization maintained by the order. Ez tax form   This exclusion applies only if the following requirements are met. Ez tax form The trade or business must have been operated by the order or by the institution before May 27, 1959. Ez tax form The trade or business must provide services under a license issued by a federal regulatory agency. Ez tax form More than 90% of the net income from the business for the tax year must be devoted to religious, charitable, or educational purposes that constitute the basis for the religious order's exemption. Ez tax form The rates or other charges for these services must be fully competitive with the rates or other charges of similar taxable businesses. Ez tax form Rates or other charges for these services will be considered as fully competitive if they are neither materially higher nor materially lower than the rates charged by similar businesses operating in the same general area. Ez tax form Exception. Ez tax form    This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later). Ez tax form Member income of mutual or cooperative electric companies. Ez tax form   Income of a mutual or cooperative electric company described in section 501(c)(12) which is treated as member income under subparagraph (H) of that section is excluded from unrelated business taxable income. Ez tax form Dues of Agricultural Organizations and Business Leagues Dues received from associate members by organizations exempt under section 501(c)(5) or section 501(c)(6) may be treated as gross income from an unrelated trade or business if the associate member category exists for the principal purpose of producing unrelated business income. Ez tax form For example, if an organization creates an associate member category solely to allow associate members to purchase insurance through the organization, the associate member dues may be unrelated business income. Ez tax form Exception. Ez tax form   Associate member dues received by an agricultural or horticultural organization are not treated as gross income from an unrelated trade or business, regardless of their purpose, if they are not more than the annual limit. Ez tax form The limit on dues paid by an associate member is $148 for 2011. Ez tax form   If the required annual dues are more than the limit, the entire amount is treated as income from an unrelated business unless the associate member category was formed or availed of for the principal purpose of furthering the organization's exempt purposes. Ez tax form Deductions To qualify as allowable deductions in computing unrelated business taxable income, the expenses, depreciation, and similar items generally must be allowable income tax deductions that are directly connected with carrying on an unrelated trade or business. Ez tax form They cannot be directly connected with excluded income. Ez tax form For an exception to the “directly connected” requirement, see Charitable contributions deduction, under Modifications, later. Ez tax form Directly Connected To be directly connected with the conduct of an unrelated business, deductions must have a proximate and primary relationship to carrying on that business. Ez tax form For an exception, see Expenses attributable to exploitation of exempt activities, later. Ez tax form Expenses attributable solely to unrelated business. Ez tax form   Expenses, depreciation, and similar items attributable solely to the conduct of an unrelated business are proximately and primarily related to that business and qualify for deduction to the extent that they are otherwise allowable income tax deductions. Ez tax form   For example, salaries of personnel employed full-time to conduct the unrelated business and depreciation of a building used entirely in the conduct of that business are deductible to the extent otherwise allowable. Ez tax form Expenses attributable to dual use of facilities or personnel. Ez tax form   When facilities or personnel are used both to conduct exempt functions and to conduct an unrelated trade or business, expenses, depreciation, and similar items attributable to the facilities or personnel must be allocated between the two uses on a reasonable basis. Ez tax form The part of an item allocated to the unrelated trade or business is proximately and primarily related to that business and is allowable as a deduction in computing unrelated business taxable income if the expense is otherwise an allowable income tax deduction. Ez tax form Example 1. Ez tax form A school recognized as a tax-exempt organization contracts with an individual to conduct a summer tennis camp. Ez tax form The school provides the tennis courts, housing, and dining facilities. Ez tax form The contracted individual hires the instructors, recruits campers, and provides supervision. Ez tax form The income the school receives from this activity is from a dual use of the facilities and personnel. Ez tax form The school, in computing its unrelated business taxable income, may deduct an allocable part of the expenses attributable to the facilities and personnel. Ez tax form Example 2. Ez tax form An exempt organization with gross income from an unrelated trade or business pays its president $90,000 a year. Ez tax form The president devotes approximately 10% of his time to the unrelated business. Ez tax form To figure the organization's unrelated business taxable income, a deduction of $9,000 ($90,000 × 10%) is allowed for the salary paid to its president. Ez tax form Expenses attributable to exploitation of exempt activities. Ez tax form   Generally, expenses, depreciation, and similar items attributable to the conduct of an exempt activity are not deductible in computing unrelated business taxable income from an unrelated trade or business that exploits the exempt activity. Ez tax form (See Exploitation of exempt functions under Not substantially related in chapter 3. Ez tax form ) This is because they do not have a proximate and primary relationship to the unrelated trade or business, and therefore, they do not qualify as directly connected with that business. Ez tax form Exception. Ez tax form   Expenses, depreciation, and similar items may be treated as directly connected with the conduct of the unrelated business if all the following statements are true. Ez tax form The unrelated business exploits the exempt activity. Ez tax form The unrelated business is a type normally conducted for profit by taxable organizations. Ez tax form The exempt activity is a type normally conducted by taxable organizations in carrying on that type of business. Ez tax form The amount treated as directly connected is the smaller of: The excess of these expenses, depreciation, and similar items over the income from, or attributable to, the exempt activity; or The gross unrelated business income reduced by all other expenses, depreciation, and other items that are actually directly connected. Ez tax form   The application of these rules to an advertising activity that exploits an exempt publishing activity is explained next. Ez tax form Exploitation of Exempt Activity—Advertising Sales The sale of advertising in a periodical of an exempt organization that contains editorial material related to the accomplishment of the organization's exempt purpose is an unrelated business that exploits an exempt activity, the circulation and readership of the periodical. Ez tax form Therefore, in addition to direct advertising costs, exempt activity costs (expenses, depreciation, and similar expenses attributable to the production and distribution of the editorial or readership content) can be treated as directly connected with the conduct of the advertising activity. Ez tax form (See Expenses attributable to exploitation of exempt activities under Directly Connected, earlier. Ez tax form ) Figuring unrelated business taxable income (UBTI). Ez tax form   The UBTI of an advertising activity is the amount shown in the following chart. Ez tax form IF gross advertising income is . Ez tax form . Ez tax form . Ez tax form THEN UBTI is . Ez tax form . Ez tax form . Ez tax form More than direct advertising costs The excess advertising income, reduced (but not below zero) by the excess, if any, of readership costs over circulation income. Ez tax form Equal to or less than direct advertising costs Zero. Ez tax form   • Circulation income and readership costs are not taken into account. Ez tax form   • Any excess advertising costs reduce (but not below zero) UBTI from any other unrelated business activity. Ez tax form   The terms used in the chart are explained in the following discussions. Ez tax form Periodical Income Gross advertising income. Ez tax form   This is all the income from the unrelated advertising activities of an exempt organization periodical. Ez tax form Circulation income. Ez tax form   This is all the income from the production, distribution, or circulation of an exempt organization's periodical (other than gross advertising income). Ez tax form It includes all amounts from the sale or distribution of the readership content of the periodical, such as income from subscriptions. Ez tax form It also includes allocable membership receipts if the right to receive the periodical is associated with a membership or similar status in the organization. Ez tax form Allocable membership receipts. Ez tax form   This is the part of membership receipts (dues, fees, or other charges associated with membership) equal to the amount that would have been charged and paid for the periodical if: The periodical was published by a taxable organization, The periodical was published for profit, and The member was an unrelated party dealing with the taxable organization at arm's length. Ez tax form   The amount used to allocate membership receipts is the amount shown in the following chart. Ez tax form   For this purpose, the total periodical costs are the sum of the direct advertising costs and the readership costs, explained under Periodical Costs, later. Ez tax form The cost of other exempt activities means the total expenses incurred by the organization in connection with its other exempt activities, not offset by any income earned by the organization from those activities. Ez tax form IF . Ez tax form . Ez tax form . Ez tax form THEN the amount used to allocate membership receipts is . Ez tax form . Ez tax form . Ez tax form 20% or more of the total circulation consists of sales to nonmembers The subscription price charged nonmembers. Ez tax form The above condition does not apply, and 20% or more of the members pay reduced dues because they do not receive the periodical The reduction in dues for a member not receiving the periodical. Ez tax form Neither of the above conditions applies The membership receipts multiplied by this fraction:   Total periodical costs Total periodical costs Plus Cost of other exempt activities Example 1. Ez tax form U is an exempt scientific organization with 10,000 members who pay annual dues of $15. Ez tax form One of U's activities is publishing a monthly periodical distributed to all of its members. Ez tax form U also distributes 5,000 additional copies of its periodical to nonmembers, who subscribe for $10 a year. Ez tax form Since the nonmember circulation of U's periodical represents one-third (more than 20%) of its total circulation, the subscription price charged to nonmembers is used to determine the part of U's membership receipts allocable to the periodical. Ez tax form Thus, U's allocable membership receipts are $100,000 ($10 times 10,000 members), and U's total circulation income for the periodical is $150,000 ($100,000 from members plus $50,000 from sales to nonmembers). Ez tax form Example 2. Ez tax form Assume the same facts except that U sells only 500 copies of its periodical to nonmembers, at a price of $10 a year. Ez tax form Assume also that U's members may elect not to receive the periodical, in which case their dues are reduced from $15 a year to $6 a year, and that only 3,000 members elect to receive the periodical and pay the full dues of $15 a year. Ez tax form U's stated subscription price of $9 to members consistently results in an excess of total income (including gross advertising income) attributable to the periodical over total costs of the periodical. Ez tax form Since the 500 copies of the periodical distributed to nonmembers represent only 14% of the 3,500 copies distributed, the $10 subscription price charged to nonmembers is not used to determine the part of membership receipts allocable to the periodical. Ez tax form Instead, since 70% of the members elect not to receive the periodical and pay $9 less per year in dues, the $9 price is used to determine the subscription price charged to members. Ez tax form Thus, the allocable membership receipts will be $9 a member, or $27,000 ($9 times 3,000 copies). Ez tax form U's total circulation income is $32,000 ($27,000 plus the $5,000 from nonmember subscriptions). Ez tax form Periodical Costs Direct advertising costs. Ez tax form   These are expenses, depreciation, and similar items of deduction directly connected with selling and publishing advertising in the periodical. Ez tax form   Examples of allowable deductions under this classification include agency commissions and other direct selling costs, such as transportation and travel expenses, office salaries, promotion and research expenses, and office overhead directly connected with the sale of advertising lineage in the periodical. Ez tax form Also included are other deductions commonly classified as advertising costs under standard account classifications, such as artwork and copy preparation, telephone, telegraph, postage, and similar costs directly connected with advertising. Ez tax form   In addition, direct advertising costs include the part of mechanical and distribution costs attributable to advertising lineage. Ez tax form For this purpose, the general account classifications of items includable in mechanical and distribution costs ordinarily employed in business-paper and consumer-publication accounting provide a guide for the computation. Ez tax form Accordingly, the mechanical and distribution costs include the part of the costs and other expenses of composition, press work, binding, mailing (including paper and wrappers used for mailing), and bulk postage attributable to the advertising lineage of the publication. Ez tax form   In the absence of specific and detailed records, the part of mechanical and distribution costs attributable to the periodical's advertising lineage can be based on the ratio of advertising lineage to total lineage in the periodical, if this allocation is reasonable. Ez tax form Readership costs. Ez tax form   These are all expenses, depreciation, and similar items that are directly connected with the production and distribution of the readership content of the periodical. Ez tax form Costs partly attributable to other activities. Ez tax form   Deductions properly attributable to exempt activities other than publishing the periodical may not be allocated to the periodical. Ez tax form When expenses are attributable both to the periodical and to the organization's other activities, an allocation must be made on a reasonable basis. Ez tax form The method of allocation will vary with the nature of the item, but once adopted, should be used consistently. Ez tax form Allocations based on dollar receipts from various exempt activities generally are not reasonable since receipts usually do not accurately reflect the costs associated with specific activities that an exempt organization conducts. Ez tax form Consolidated Periodicals If an exempt organization publishes more than one periodical to produce income, it may treat all of them (but not less than all) as one in determining unrelated business taxable income from selling advertising. Ez tax form It treats the gross income from all the periodicals, and the deductions directly connected with them, on a consolidated basis. Ez tax form Consolidated treatment, once adopted, must be followed consistently and is binding. Ez tax form This treatment can be changed only with the consent of the Internal Revenue Service. Ez tax form An exempt organization's periodical is published to produce income if: The periodical generates gross advertising income to the organization equal to at least 25% of its readership costs, and Publishing the periodical is an activity engaged in for profit. Ez tax form Whether the publication of a periodical is an activity engaged in for profit can be determined only by all the facts and circumstances in each case. Ez tax form The facts and circumstances must show that the organization carries on the activity for economic profit, although there may not be a profit in a particular year. Ez tax form For example, if an organization begins publishing a new periodical whose total costs exceed total income in the start-up years because of lack of advertising sales, that does not mean that the organization did not have as its objective an economic profit. Ez tax form The organization may establish that it had this objective by showing it can reasonably expect advertising sales to increase, so that total income will exceed costs within a reasonable time. Ez tax form Example. Ez tax form Y, an exempt trade association, publishes three periodicals that it distributes to its members: a weekly newsletter, a monthly magazine, and a quarterly journal. Ez tax form Both the monthly magazine and the quarterly journal contain advertising that accounts for gross advertising income equal to more than 25% of their respective readership costs. Ez tax form Similarly, the total income attributable to each periodical has exceeded the total deductions attributable to each periodical for substantially all the years they have been published. Ez tax form The newsletter carries no advertising and its annual subscription price is not intended to cover the cost of publication. Ez tax form The newsletter is a service that Y distributes to all of its members in an effort to keep them informed of changes occurring in the business world. Ez tax form It is not engaged in for profit. Ez tax form Under these circumstances, Y may consolidate the income and deductions from the monthly and quarterly journals in computing its unrelated business taxable income. Ez tax form It may not consolidate the income and deductions from the newsletter with the income and deductions of its other periodicals, since the newsletter is not published for the production of income. Ez tax form Modifications Net operating loss deduction. Ez tax form   The net operating loss (NOL) deduction (as provided in section 172) is allowed in computing unrelated business taxable income. Ez tax form However, the NOL for any tax year, the carrybacks and carryovers of NOLs, and the NOL deduction are determined without taking into account any amount of income or deduction that has been specifically excluded in computing unrelated business taxable income. Ez tax form For example, a loss from an unrelated trade or business is not diminished because dividend income was received. Ez tax form   If this were not done, organizations would, in effect, be taxed on their exempt income, since unrelated business losses then would be offset by dividends, interest, and other excluded income. Ez tax form This would reduce the loss that could be applied against unrelated business income of prior or future tax years. Ez tax form Therefore, to preserve the immunity of exempt income, all NOL computations are limited to those items of income and deductions that affect the unrelated business taxable income. Ez tax form   In line with this concept, an NOL carryback or carryover is allowed only from a tax year for which the organization is subject to tax on unrelated business income. Ez tax form   For example, if an organization just became subject to the tax last year, its NOL for that year is not a carryback to a prior year when it had no unrelated business taxable income, nor is its NOL carryover to succeeding years reduced by the related income of those prior years. Ez tax form   However, in determining the span of years for which an NOL may be carried back or forward, the tax years for which the organization is not subject to the tax on unrelated business income are counted. Ez tax form For example, if an organization was subject to the tax for 2009 and had an NOL for that year, the last tax year to which any part of that loss may be carried over is 2029, regardless of whether the organization was subject to the unrelated business income tax in any of the intervening years. Ez tax form   For more details on the NOL deduction, including property eligible for an extended carryback period, see sections 172 and 1400N, Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts, and Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. Ez tax form Charitable contributions deduction. Ez tax form   An exempt organization is allowed to deduct its charitable contributions in computing its unrelated business taxable income whether or not the contributions are directly connected with the unrelated business. Ez tax form   To be deductible, the contribution must be paid to another qualified organization. Ez tax form For example, an exempt university that operates an unrelated business may deduct a contribution made to another university for educational work, but may not claim a deduction for contributions of amounts spent for carrying out its own educational program. Ez tax form   For purposes of the deduction, a distribution by a trust made under the trust instrument to a beneficiary, which itself is a qualified organization, is treated the same as a contribution. Ez tax form Deduction limits. Ez tax form   An exempt organization that is subject to the unrelated business income tax at corporate rates is allowed a deduction for charitable contributions up to 10% of its unrelated business taxable income computed without regard to the deduction for contributions. Ez tax form See the Instructions for Form 990-T for more information. Ez tax form    An exempt trust that is subject to the unrelated business income tax at trust rates generally is allowed a deduction for charitable contributions in the same amounts as allowed for individuals. Ez tax form However, the limit on the deduction is determined in relation to the trust's unrelated business taxable income computed without regard to the deduction, rather than in relation to adjusted gross income. Ez tax form   Contributions in excess of the limits just described may be carried over to the next 5 tax years. Ez tax form A contribution carryover is not allowed, however, to the extent that it increases an NOL carryover. Ez tax form Suspension of deduction limits for farmers and ranchers. Ez tax form   The limitations discussed above are temporarily suspended for certain qualified conservation contributions of property used in agriculture or livestock production. Ez tax form See the Instructions for Form 990-T for details. Ez tax form Specific deduction. Ez tax form   In computing unrelated business taxable income, a specific deduction of $1,000 is allowed. Ez tax form However, the specific deduction is not allowed in computing an NOL or the NOL deduction. Ez tax form   Generally, the deduction is limited to $1,000 regardless of the number of unrelated businesses in which the organization is engaged. Ez tax form Exception. Ez tax form   An exception is provided in the case of a diocese, province of a religious order, or a convention or association of churches that may claim a specific deduction for each parish, individual church, district, or other local unit. Ez tax form In these cases, the specific deduction for each local unit is limited to the lower of: $1,000, or Gross income derived from an unrelated trade or business regularly conducted by the local unit. Ez tax form   This exception applies only to parishes, districts, or other local units that are not separate legal entities, but are components of a larger entity (diocese, province, convention, or association) filing Form 990-T. Ez tax form The parent organization must file a return reporting the unrelated business gross income and related deductions of all units that are not separate legal entities. Ez tax form The local units cannot file separate returns. Ez tax form However, each local unit that is separately incorporated must file its own return and cannot include, or be included with, any other entity. Ez tax form See Title-holding corporations in chapter 1 for a discussion of the only situation in which more than one legal entity may be included on the same Form 990-T. Ez tax form Example. Ez tax form X is an association of churches and is divided into local units A, B, C, and D. Ez tax form Last year, A, B, C, and D derived gross income of, respectively, $1,200, $800, $1,500, and $700 from unrelated businesses that they regularly conduct. Ez tax form X may claim a specific deduction of $1,000 with respect to A, $800 with respect to B, $1,000 with respect to C, and $700 with respect to D. Ez tax form Partnership Income or Loss An organization may have unrelated business income or loss as a member of a partnership, rather than through direct business dealings with the public. Ez tax form If so, it must treat its share of the partnership income or loss as if it had conducted the business activity in its own capacity as a corporation or trust. Ez tax form No distinction is made between limited and general partners. Ez tax form The organization is required to notify the partnership of its tax-exempt status. Ez tax form Thus, if an organization is a member of a partnership regularly engaged in a trade or business that is an unrelated trade or business with respect to the organization, the organization must include in its unrelated business taxable income its share of the partnership's gross income from the unrelated trade or business (whether or not distributed), and the deductions attributable to it. Ez tax form The partnership income and deductions to be included in the organization's unrelated business taxable income are figured the same way as any income and deductions from an unrelated trade or business conducted directly by the organization. Ez tax form The partnership is required to provide the organization this information on Schedule K-1. Ez tax form Example. Ez tax form An exempt educational organization is a partner in a partnership that operates a factory. Ez tax form The partnership also holds stock in a corporation. Ez tax form The exempt organization must include its share of the gross income from operating the factory in its unrelated business taxable income but may exclude its share of any dividends the partnership received from the corporation. Ez tax form Different tax years. Ez tax form   If the exempt organization and the partnership of which it is a member have different tax years, the partnership items that enter into the computation of the organization's unrelated business taxable income must be based on the income and deductions of the partnership for the partnership's tax year that ends within or with the organization's tax year. Ez tax form S Corporation Income or Loss An organization that owns S corporation stock must take into account its share of the S corporation's income, deductions, or losses in figuring unrelated business taxable income, regardless of the actual source or nature of the income, deductions, and losses. Ez tax form For example, the organization's share of the S corporation's interest and dividend income will be taxable, even though interest and dividends are normally excluded from unrelated business taxable income. Ez tax form The organization must also take into account its gain or loss on the sale or other disposition of the S corporation stock in figuring unrelated business taxable income. Ez tax form Special Rules for Foreign Organizations The unrelated business taxable income of a foreign organization exempt from tax under section 501(a) consists of the organization's: Unrelated business taxable income derived from sources within the United States but not effectively connected with the conduct of a trade or business within the United States, and Unrelated business taxable income effectively connected with the conduct of a trade or business within the United States, whether or not this income is derived from sources within the United States. Ez tax form To determine whether income realized by a foreign organization is derived from sources within the United States or is effectively connected with the conduct of a trade or business within the United States, see sections 861 through 865 and the related regulations. Ez tax form Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs The following discussion applies to: Social clubs described in section 501(c)(7), Voluntary employees' beneficiary associations (VEBAs) described in section 501(c)(9), Supplemental unemployment compensation benefit trusts (SUBs) described in section 501(c)(17), and Group legal services organizations (GLSOs) described in section 501(c)(20). Ez tax form These organizations must figure unrelated business taxable income under special rules. Ez tax form Unlike other exempt organizations, they cannot exclude their investment income (dividends, interest, rents, etc. Ez tax form ). Ez tax form (See Exclusions under Income, earlier. Ez tax form ) Therefore, they are generally subject to unrelated business income tax on this income. Ez tax form The unrelated business taxable income of these organizations includes all gross income, less deductions directly connected with the production of that income, except that gross income for this purpose does not include exempt function income. Ez tax form The dividends received by a corporation are not allowed in computing unrelated business taxable income because it is not an expense incurred in the production of income. Ez tax form Losses from nonexempt activities. Ez tax form   Losses from nonexempt activities of these organizations cannot be used to offset investment income unless the activities were undertaken with the intent to make a profit. Ez tax form Example. Ez tax form A private golf and country club that is a qualified tax-exempt social club has nonexempt function income from interest and from the sale of food and beverages to nonmembers. Ez tax form The club sells food and beverages as a service to members and their guests rather than for the purpose of making a profit. Ez tax form Therefore, any loss resulting from sales to nonmembers cannot be used to offset the club's interest income. Ez tax form Modifications. Ez tax form   The unrelated business taxable income is modified by any NOL or charitable contributions deduction and by the specific deduction (described earlier under Deductions). Ez tax form Exempt function income. Ez tax form   This is gross income from dues, fees, charges or similar items paid by members for goods, facilities, or services to the members or their dependents or guests, to further the organization's exempt purposes. Ez tax form Exempt function income also includes income set aside for qualified purposes. Ez tax form Income that is set aside. Ez tax form   This is income set aside to be used for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals. Ez tax form In addition, for a VEBA, SUB, or GLSO, it is income set aside to provide for the payment of life, sick, accident, or other benefits. Ez tax form   However, any amounts set aside by a VEBA or SUB that exceed the organization's qualified asset account limit (determined under section 419A) are unrelated business income. Ez tax form Special rules apply to the treatment of existing reserves for post-retirement medical or life insurance benefits. Ez tax form These rules are explained in section 512(a)(3)(E)(ii). Ez tax form   Income derived from an unrelated trade or business may not be set aside and therefore cannot be exempt function income. Ez tax form In addition, any income set aside and later spent for other purposes must be included in unrelated business taxable income. Ez tax form   Set-aside income is generally excluded from gross income only if it is set aside in the tax year in which it is otherwise includible in gross income. Ez tax form However, income set aside on or before the date for filing Form 990-T, including extensions of time, may, at the election of the organization, be treated as having been set aside in the tax year for which the return was filed. Ez tax form The income set aside must have been includible in gross income for that earlier year. Ez tax form Nonrecognition of gain. Ez tax form   If the organization sells property used directly in performing an exempt function and purchases other property used directly in performing an exempt function, any gain on the sale is recognized only to the extent that the sales price of the old property exceeds the cost of the new property. Ez tax form The purchase of the new property must be made within 1 year before the date of sale of the old property or within 3 years after the date of sale. Ez tax form   This rule also applies to gain from an involuntary conversion of the property resulting from its destruction in whole or in part, theft, seizure, requisition, or condemnation. Ez tax form Special Rules for Veterans' Organizations Unrelated business taxable income of a veterans' organization that is exempt under section 501(c)(19) does not include the net income from insurance business that is properly set aside. Ez tax form The organization may set aside income from payments received for life, sick, accident, or health insurance for the organization's members or their dependents for the payment of insurance benefits or reasonable costs of insurance administration, or for use exclusively for religious, charitable, scientific, literary, or educational purposes, or the prevention of cruelty to children or animals. Ez tax form For details, see section 512(a)(4) and the regulations under that section. Ez tax form Income From Controlled Organizations The exclusions for interest, annuities, royalties, and rents, explained earlier in this chapter under Income, may not apply to a payment of these items received by a controlling organization from its controlled organization. Ez tax form The payment is included in the controlling organization's unrelated business taxable income to the extent it reduced the net unrelated income (or increased the net unrelated loss) of the controlled organization. Ez tax form All deductions of the controlling organization directly connected with the amount included in its unrelated business taxable income are allowed. Ez tax form Excess qualifying specified payments. Ez tax form   Excess qualifying specified payments received or accrued from a controlled entity are included in a controlling exempt organization's unrelated business taxable income only on the amount that exceeds that which would have been paid or accrued if the payments had been determined under section 482. Ez tax form Qualifying specified payments means any payments of interest, annuities, royalties, or rents received or accrued from the controlled organization pursuant to a binding written contract in effect on August 17, 2006, or to a contract which is a renewal, under substantially similar terms of a binding written contract in effect on August 17, 2006, and the payments are received or accrued before January 1, 2012. Ez tax form   If a controlled participant is not required to file a U. Ez tax form S. Ez tax form income tax return, the participant must ensure that the copy or copies of the Regulations section 1. Ez tax form 482-7 Cost Sharing Arrangement Statement and any updates are attached to Schedule M of any Form 5471, Information Return of U. Ez tax form S. Ez tax form Persons With Respect To Certain Foreign Corporations, any Form 5472, Information Return of a 25% Foreign-Owned U. Ez tax form S. Ez tax form Corporation or a Foreign Corporation Engaged in a U. Ez tax form S. Ez tax form Trade or Business, or any Form 8865, Return of U. Ez tax form S. Ez tax form Persons With Respect to Certain Foreign Partnerships, filed for that participant. Ez tax form Addition to tax for valuation misstatements. Ez tax form   Under section 512(b)(13)(E)(ii), the tax imposed on a controlling organization will be increased by 20 percent of the excess qualifying specified payments that are determined with or without any amendments or supplements, whichever is larger. Ez tax form See section 512(b)(13)(E)(ii) for more information. Ez tax form Net unrelated income. Ez tax form   This is: For an exempt organization, its unrelated business taxable income, or For a nonexempt organization, the part of its taxable income that would be unrelated business taxable income if it were exempt and had the same exempt purposes as the controlling organization. Ez tax form Net unrelated loss. Ez tax form   This is: For an exempt organization, its NOL, or For a nonexempt organization, the part of its NOL that would be its NOL if it were exempt and had the same exempt purposes as the controlling organization. Ez tax form Control. Ez tax form   An organization is controlled if: For a corporation, the controlling organization owns (by vote or value) more than 50% of the stock, For a partnership, the controlling organization owns more than 50% of the profits or capital interests, or For any other organization, the controlling organization owns more than 50% of the beneficial interest. Ez tax form For this purpose, constructive ownership of stock (determined under section 318) or other interests is taken into account. Ez tax form   As a result, an exempt parent organization is treated as controlling any subsidiary in which it holds more than 50% of the voting power or value, whether directly (as in the case of a first-tier subsidiary) or indirectly (as in the case of a second-tier subsidiary). Ez tax form Income from property financed with qualified 501(c)(3) bonds. Ez tax form If any part of a 501(c)(3) organization's property financed with qualified 501(c)(3) bonds is used in a trade or business of any person other than a section 501(c)(3) organization or a governmental unit, and such use is not consistent with the requirements for qualified 501(c)(3) bonds under section 145, the section 501(c)(3) organization is considered to have received unrelated business income in the amount of the greater of the actual rental income or the fair rental value of the property for the period it is used. Ez tax form No deduction is allowed for interest on the private activity bond. Ez tax form See sections 150(b)(3) and (c) for more information. Ez tax form Disposition of property received from taxable subsidiary and used in unrelated business. Ez tax form A taxable 80%-owned subsidiary corporation of one or more tax-exempt entities is generally subject to tax on a distribution in liquidation of its assets to its exempt parent (or parents). Ez tax form The assets are treated as if sold at fair market value. Ez tax form Tax-exempt entities include organizations described in sections 501(a), 529, and 115, charitable remainder trusts, U. Ez tax form S. Ez tax form and foreign governments, Indian tribal governments, international organizations, and similar non-taxable organizations. Ez tax form A taxable corporation that transfers substantially all of its assets to a tax-exempt entity in a transaction that otherwise qualifies for nonrecognition treatment must recognize gain on the transaction as if it sold the assets at fair market value. Ez tax form However, such a transfer is not taxable if it qualifies as a like-kind exchange under section 1031 or an involuntary conversion under section 1033. Ez tax form In such a case the built-in appreciation is preserved in the replacement property received in the transaction. Ez tax form A corporation that changes status from taxable to tax-exempt is treated generally as if it transferred all of its assets to a tax-exempt entity immediately before the change in status (thus subjecting it to the tax on a deemed sale for fair market value). Ez tax form This rule does not apply where the taxable corporation becomes exempt within 3 years of formation, or had previously been exempt and within several years (generally a period of 3 years) regains exemption, unless the principal purpose of the transactions is to avoid the tax on the change in status. Ez tax form In the transactions described above, the taxable event is deferred for property that the tax-exempt entity immediately uses in an unrelated business. Ez tax form If the parent later disposes of the property, then any gain (not in excess of the amount not recognized) is included in the parent's unrelated business taxable income. Ez tax form If there is partial use of the assets in unrelated business, then there is partial recognition of gain or loss. Ez tax form Property is treated as disposed if the tax-exempt entity no longer uses it in an unrelated business. Ez tax form Losses on the transfer of assets to a tax-exempt entity are disallowed if part of a plan with a principal purpose of recognizing losses. Ez tax form Income From Debt-Financed Property Investment income that would otherwise be excluded from an exempt organization's unrelated business taxable income (see Exclusions under Income earlier) must be included to the extent it is derived from debt-financed property. Ez tax form The amount of income included is proportionate to the debt on the property. Ez tax form Debt-Financed Property In general, the term “debt-financed property” means any property held to produce income (including gain from its disposition) for which there is an acquisition indebtedness at any time during the tax year (or during the 12-month period before the date of the property's disposal, if it was disposed of during the tax year). Ez tax form It includes rental real estate, tangible personal property, and corporate stock. Ez tax form Acquisition Indebtedness For any debt-financed property, acquisition indebtedness is the unpaid amount of debt incurred by an organization: When acquiring or improving the property, Before acquiring or improving the property if the debt would not have been incurred except for the acquisition or improvement, and After acquiring or improving the property if: The debt would not have been incurred except for the acquisition or improvement, and Incurring the debt was reasonably foreseeable when the property was acquired or improved. Ez tax form The facts and circumstances of each situation determine whether incurring a debt was reasonably foreseeable. Ez tax form That an organization may not have foreseen the need to incur a debt before acquiring or improving the property does not necessarily mean that incurring the debt later was not reasonably foreseeable. Ez tax form Example 1. Ez tax form Y, an exempt scientific organization, mortgages its laboratory to replace working capital used in remodeling an office building that Y rents to an insurance company for nonexempt purposes. Ez tax form The debt is acquisition indebtedness since the debt, though incurred after the improvement of the office building, would not have been incurred without the improvement, and the debt was reasonably foreseeable when, to make the improvement, Y reduced its working capital below the amount necessary to continue current operations. Ez tax form Example 2. Ez tax form X, an exempt organization, forms a partnership with A and B. Ez tax form The partnership agreement provides that all three partners will share equally in the profits of the partnership, each will invest $3 million, and X will be a limited partner. Ez tax form X invests $1 million of its own funds in the partnership and $2 million of borrowed funds. Ez tax form The partnership buys as its sole asset an office building that it leases to the public for nonexempt purposes. Ez tax form The office building costs the partnership $24 million, of which $15 million is borrowed from Y bank. Ez tax form The loan is secured by a mortgage on the entire office building. Ez tax form By agreement with Y bank, X is not personally liable for payment of the mortgage. Ez tax form X has acquisition indebtedness of $7 million. Ez tax form This amount is the $2 million debt X incurred in acquiring the partnership interest, plus the $5 million that is X's allocable part of the partnership's debt incurred to buy the office building (one-third of $15 million). Ez tax form Example 3. Ez tax form A labor union advanced funds, from existing resources and without any borrowing, to its tax-exempt subsidiary title-holding company. Ez tax form The subsidiary used the funds to pay a debt owed to a third party that was previously incurred in acquiring two income-producing office buildings. Ez tax form Neither the union nor the subsidiary has incurred any further debt in acquiring or improving the property. Ez tax form The union has no outstanding debt on the property. Ez tax form The subsidiary's debt to the union is represented by a demand note on which the subsidiary makes payments whenever it has the available cash. Ez tax form The books of the union and the subsidiary list the outstanding debt as interorganizational indebtedness. Ez tax form Although the subsidiary's books show a debt to the union, it is not the type subject to the debt-financed property rules. Ez tax form In this situation, the very nature of the title-holding company and the parent-subsidiary relationship shows this debt to be merely a matter of accounting between the two organizations. Ez tax form Accordingly, the debt is not acquisition indebtedness. Ez tax form Change in use of property. Ez tax form   If an organization converts property that is not debt-financed property to a use that results in its treatment as debt-financed property, the outstanding principal debt on the property is thereafter treated as acquisition indebtedness. Ez tax form Example. Ez tax form Four years ago a university borrowed funds to acquire an apartment building as housing for married students. Ez tax form Last year, the university rented the apartment building to the public for nonexempt purposes. Ez tax form The outstanding principal debt becomes acquisition indebtedness as of the time the building was first rented to the public. Ez tax form Continued debt. Ez tax form   If an organization sells property and, without paying off debt that would be acquisition indebtedness if the property were debt-financed property, buys property that is otherwise debt-financed property, the unpaid debt is acquisition indebtedness for the new property. Ez tax form This is true even if the original property was not debt-financed property. Ez tax form Example. Ez tax form To house its administration offices, an exempt organization bought a building using $600,000 of its own funds and $400,000 of borrowed funds secured by a pledge of its securities. Ez tax form The office building was not debt-financed property. Ez tax form The organization later sold the building for $1 million without repaying the $400,000 loan. Ez tax form It used the sale proceeds to buy an apartment building it rents to the general public. Ez tax form The unpaid debt of $400,000 is acquisition indebtedness with respect to the apartment building. Ez tax form Property acquired subject to mortgage or lien. Ez tax form   If property (other than certain gifts, bequests, and devises) is acquired subject to a mortgage, the outstanding principal debt secured by that mortgage is treated as acquisition indebtedness even if the organization did not assume or agree to pay the debt. Ez tax form Example. Ez tax form An exempt organization paid $50,000 for real property valued at $150,000 and subject to a $100,000 mortgage. Ez tax form The $100,000 of outstanding principal debt is acquisition indebtedness, as though the organization had borrowed $100,000 to buy the property. Ez tax form Liens similar to a mortgage. Ez tax form   In determining acquisition indebtedness, a lien similar to a mortgage is treated as a mortgage. Ez tax form A lien is similar to a mortgage if title to property is encumbered by the lien for a creditor's benefit. Ez tax form However, when state law provides that a lien for taxes or assessments attaches to property before the taxes or assessments become due and payable, the lien is not treated as a mortgage until after the taxes or assessments have become due and payable and the organization has had an opportunity to pay the lien in accordance with state law. Ez tax form Liens similar to mortgages include (but are not limited to): Deeds of trust, Conditional sales contracts, Chattel mortgages, Security interests under the Uniform Commercial Code, Pledges, Agreements to hold title in escrow, and Liens for taxes or assessments (other than those discussed earlier in this paragraph). Ez tax form Exception for property acquired by gift, bequest, or devise. Ez tax form   If property subject to a mortgage is acquired by gift, bequest, or devise, the outstanding principal debt secured by the mortgage is not treated as acquisition indebtedness during the 10-year period following the date the organization receives the property. Ez tax form However, this applies to a gift of property only if:    The mortgage was placed on the property more than 5 years before the date the organization received it, and The donor held the property for more than 5 years before the date the organization received it. Ez tax form   This exception does not apply if an organization assumes and agrees to pay all or part of the debt secured by the mortgage or makes any payment for the equity in the property owned by the donor or decedent (other than a payment under an annuity obligation excluded from the definition of acquisition indebtedness, discussed under Debt That Is Not Acquisition Indebtedness, later). Ez tax form   Whether an organization has assumed and agreed to pay all or part of a debt in order to acquire the property is determined by the facts and circumstances of each situation. Ez tax form Modifying existing debt. Ez tax form   Extending, renewing, or refinancing an existing debt is considered a continuation of that debt to the extent its outstanding principal does not increase. Ez tax form When the principal of the modified debt is more than the outstanding principal of the old debt, the excess is treated as a separate debt. Ez tax form Extension or renewal. Ez tax form   In general, any modification or substitution of the terms of a debt by an organization is considered an extension or renewal of the original debt, rather than the start of a new one, to the extent that the outstanding principal of the debt does not increase. Ez tax form   The following are examples of acts resulting in the extension or renewal of a debt: Substituting liens to secure the debt, Substituting obligees whether or not with the organization's consent, Renewing, extending, or accelerating the payment terms of the debt, and Adding, deleting, or substituting sureties or other primary or secondary obligors. Ez tax form Debt increase. Ez tax form   If the outstanding principal of a modified debt is more than that of the unmodified debt, and only part of the refinanced debt is acquisition indebtedness, the payments on the refinanced debt must be allocated between the old debt and the excess. Ez tax form Example. Ez tax form An organization has an outstanding principal debt of $500,000 that is treated as acquisition indebtedness. Ez tax form The organization borrows another $100,000, which is not acquisition indebtedness, from the same lender, resulting in a $600,000 note for the total obligation. Ez tax form A payment of $60,000 on the total obligation would reduce the acquisition indebtedness by $50,000 ($60,000 x $500,000/$600,000) and the excess debt by $10,000. Ez tax form Debt That Is Not Acquisition Indebtedness Certain debt and obligations are not acquisition indebtedness. Ez tax form These include the following. Ez tax form Debts incurred in performing an exempt purpose. Ez tax form Annuity obligations. Ez tax form Securities loans. Ez tax form Real property debts of qualified organizations. Ez tax form Certain Federal financing. Ez tax form Debt incurred in performing exempt purpose. Ez tax form   A debt incurred in performing an exempt purpose is not acquisition indebtedness. Ez tax form For example, acquisition indebtedness does not include the debt an exempt credit union incurs in accepting deposits from its members or the debt an exempt organization incurs in accepting payments from its members to provide them with insurance, retirement, or other benefits. Ez tax form Annuity obligation. Ez tax form   The organization's obligation to pay an annuity is not acquisition indebtedness if the annuity meets all the following requirements. Ez tax form It must be the sole consideration (other than a mortgage on property acquired by gift, bequest, or devise that meets the exception discussed under Property acquired subject to mortgage or lien, earlier in this chapter) issued in exchange for the property received. Ez tax form Its present value, at the time of exchange, must be less than 90% of the value of the prior owner's equity in the property received. Ez tax form It must be payable over the lives of either one or two individuals living when issued. Ez tax form It must be payable under a contract that: Does not guarantee a minimum nor specify a maximum number of payments, and Does not provide for any adjustment of the amount of the annuity payments based on the income received from the transferred property or any other property. Ez tax form Example. Ez tax form X, an exempt organization, receives property valued at $100,000 from donor A, a male age 60. Ez tax form In return X promises to pay A $6,000 a year for the rest of A's life, with neither a minimum nor maximum number of payments specified. Ez tax form The amounts paid under the annuity are not dependent on the income derived from the property transferred to X. Ez tax form The present value of this annuity is $81,156, determined from IRS valuation tables. Ez tax form Since the value of the annuity is less than 90 percent of A's $100,000 equity in the property transferred and the annuity meets all the other requirements just discussed, the obligation to make annuity payments is not acquisition indebtedness. Ez tax form Securities loans. Ez tax form   Acquisition indebtedness does not include an obligation of the exempt organization to return collateral security provided by the borrower of the exempt organization's securities under a securities loan agreement (discussed under Exclusions earlier in this chapter). Ez tax form This transaction is not treated as the borrowing by the exempt organization of the collateral furnished by the borrower (usually a broker) of the securities. Ez tax form   However, if the exempt organization incurred debt to buy the loaned securities, any income from the securities (including income from
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The Ez Tax Form

Ez tax form 2. Ez tax form   Filing Status Table of Contents What's New Introduction Useful Items - You may want to see: Marital StatusDivorced persons. Ez tax form Divorce and remarriage. Ez tax form Annulled marriages. Ez tax form Head of household or qualifying widow(er) with dependent child. Ez tax form Considered married. Ez tax form Same-sex marriage. Ez tax form Spouse died during the year. Ez tax form Married persons living apart. Ez tax form Single Married Filing JointlyFiling a Joint Return Married Filing SeparatelySpecial Rules Head of HouseholdConsidered Unmarried Keeping Up a Home Qualifying Person Qualifying Widow(er) With Dependent Child What's New Filing status for same-sex married couples. Ez tax form  If you have a same-sex spouse whom you legally married in a state (or foreign country) that recognizes same-sex marriage, you and your spouse generally must use the married filing jointly or married filing separately filing status on your 2013 return, even if you and your spouse now live in a state (or foreign country) that does not recognize same-sex marriage. Ez tax form See Same-sex marriage under Marital Status, later. Ez tax form Introduction This chapter helps you determine which filing status to use. Ez tax form There are five filing statuses. Ez tax form Single. Ez tax form Married Filing Jointly. Ez tax form Married Filing Separately. Ez tax form Head of Household. Ez tax form Qualifying Widow(er) With Dependent Child. Ez tax form If more than one filing status applies to you, choose the one that will give you the lowest tax. Ez tax form You must determine your filing status before you can determine whether you must file a tax return (chapter 1), your standard deduction (chapter 20), and your tax (chapter 30). Ez tax form You also use your filing status to determine whether you are eligible to claim certain deductions and credits. Ez tax form Useful Items - You may want to see: Publication 501 Exemptions, Standard Deduction, and Filing Information 519 U. Ez tax form S. Ez tax form Tax Guide for Aliens 555 Community Property Marital Status In general, your filing status depends on whether you are considered unmarried or married. Ez tax form Unmarried persons. Ez tax form   You are considered unmarried for the whole year if, on the last day of your tax year, you are unmarried or legally separated from your spouse under a divorce or separate maintenance decree. Ez tax form State law governs whether you are married or legally separated under a divorce or separate maintenance decree. Ez tax form Divorced persons. Ez tax form   If you are divorced under a final decree by the last day of the year, you are considered unmarried for the whole year. Ez tax form Divorce and remarriage. Ez tax form   If you obtain a divorce for the sole purpose of filing tax returns as unmarried individuals, and at the time of divorce you intend to and do, in fact, remarry each other in the next tax year, you and your spouse must file as married individuals in both years. Ez tax form Annulled marriages. Ez tax form    If you obtain a court decree of annulment, which holds that no valid marriage ever existed, you are considered unmarried even if you filed joint returns for earlier years. Ez tax form You must file Form 1040X, Amended U. Ez tax form S. Ez tax form Individual Income Tax Return, claiming single or head of household status for all tax years that are affected by the annulment and are not closed by the statute of limitations for filing a tax return. Ez tax form Generally, for a credit or refund, you must file Form 1040X within 3 years (including extensions) after the date you filed your original return or within 2 years after the date you paid the tax, whichever is later. Ez tax form If you filed your original return early (for example, March 1), your return is considered filed on the due date (generally April 15). Ez tax form However, if you had an extension to file (for example, until October 15) but you filed earlier and we received it on July 1, your return is considered filed on July 1. Ez tax form Head of household or qualifying widow(er) with dependent child. Ez tax form   If you are considered unmarried, you may be able to file as a head of household or as a qualifying widow(er) with a dependent child. Ez tax form See Head of Household and Qualifying Widow(er) With Dependent Child to see if you qualify. Ez tax form Married persons. Ez tax form   If you are considered married, you and your spouse can file a joint return or separate returns. Ez tax form Considered married. Ez tax form   You are considered married for the whole year if, on the last day of your tax year, you and your spouse meet any one of the following tests. Ez tax form You are married and living together as a married couple. Ez tax form You are living together in a common law marriage recognized in the state where you now live or in the state where the common law marriage began. Ez tax form You are married and living apart, but not legally separated under a decree of divorce or separate maintenance. Ez tax form You are separated under an interlocutory (not final) decree of divorce. Ez tax form Same-sex marriage. Ez tax form   For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. Ez tax form The term “spouse” includes an individual married to a person of the same sex if the couple is lawfully married under state (or foreign) law. Ez tax form However, individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that is not considered a marriage under state (or foreign) law are not considered married for federal tax purposes. Ez tax form For more details, see Publication 501. Ez tax form Spouse died during the year. Ez tax form   If your spouse died during the year, you are considered married for the whole year for filing status purposes. Ez tax form   If you did not remarry before the end of the tax year, you can file a joint return for yourself and your deceased spouse. Ez tax form For the next 2 years, you may be entitled to the special benefits described later under Qualifying Widow(er) With Dependent Child . Ez tax form   If you remarried before the end of the tax year, you can file a joint return with your new spouse. Ez tax form Your deceased spouse's filing status is married filing separately for that year. Ez tax form Married persons living apart. Ez tax form   If you live apart from your spouse and meet certain tests, you may be able to file as head of household even if you are not divorced or legally separated. Ez tax form If you qualify to file as head of household instead of married filing separately, your standard deduction will be higher. Ez tax form Also, your tax may be lower, and you may be able to claim the earned income credit. Ez tax form See Head of Household , later. Ez tax form Single Your filing status is single if you are considered unmarried and you do not qualify for another filing status. Ez tax form To determine your marital status, see Marital Status , earlier. Ez tax form Widow(er). Ez tax form   Your filing status may be single if you were widowed before January 1, 2013, and did not remarry before the end of 2013. Ez tax form You may, however, be able to use another filing status that will give you a lower tax. Ez tax form See Head of Household and Qualifying Widow(er) With Dependent Child , later, to see if you qualify. Ez tax form How to file. Ez tax form   You can file Form 1040. Ez tax form If you have taxable income of less than $100,000, you may be able to file Form 1040A. Ez tax form If, in addition, you have no dependents, and are under 65 and not blind, and meet other requirements, you can file Form 1040EZ. Ez tax form If you file Form 1040A or Form 1040, show your filing status as single by checking the box on line 1. Ez tax form Use the Single column of the Tax Table or Section A of the Tax Computation Worksheet to figure your tax. Ez tax form Married Filing Jointly You can choose married filing jointly as your filing status if you are considered married and both you and your spouse agree to file a joint return. Ez tax form On a joint return, you and your spouse report your combined income and deduct your combined allowable expenses. Ez tax form You can file a joint return even if one of you had no income or deductions. Ez tax form If you and your spouse decide to file a joint return, your tax may be lower than your combined tax for the other filing statuses. Ez tax form Also, your standard deduction (if you do not itemize deductions) may be higher, and you may qualify for tax benefits that do not apply to other filing statuses. Ez tax form If you and your spouse each have income, you may want to figure your tax both on a joint return and on separate returns (using the filing status of married filing separately). Ez tax form You can choose the method that gives the two of you the lower combined tax. Ez tax form How to file. Ez tax form   If you file as married filing jointly, you can use Form 1040. Ez tax form If you and your spouse have taxable income of less than $100,000, you may be able to file Form 1040A. Ez tax form If, in addition, you and your spouse have no dependents, are both under 65 and not blind, and meet other requirements, you can file Form 1040EZ. Ez tax form If you file Form 1040 or Form 1040A, show this filing status by checking the box on line 2. Ez tax form Use the Married filing jointly column of the Tax Table or Section B of the Tax Computation Worksheet to figure your tax. Ez tax form Spouse died. Ez tax form   If your spouse died during the year, you are considered married for the whole year and can choose married filing jointly as your filing status. Ez tax form See Spouse died during the year under Marital Status, earlier, for more information. Ez tax form   If your spouse died in 2014 before filing a 2013 return, you can choose married filing jointly as your filing status on your 2013 return. Ez tax form Divorced persons. Ez tax form   If you are divorced under a final decree by the last day of the year, you are considered unmarried for the whole year and you cannot choose married filing jointly as your filing status. Ez tax form Filing a Joint Return Both you and your spouse must include all of your income, exemptions, and deductions on your joint return. Ez tax form Accounting period. Ez tax form   Both of you must use the same accounting period, but you can use different accounting methods. Ez tax form See Accounting Periods and Accounting Methods in chapter 1. Ez tax form Joint responsibility. Ez tax form   Both of you may be held responsible, jointly and individually, for the tax and any interest or penalty due on your joint return. Ez tax form This means that if one spouse does not pay the tax due, the other may have to. Ez tax form Or, if one spouse does not report the correct tax, both spouses may be responsible for any additional taxes assessed by the IRS. Ez tax form One spouse may be held responsible for all the tax due even if all the income was earned by the other spouse. Ez tax form You may want to file separately if: You believe your spouse is not reporting all of his or her income, or You do not want to be responsible for any taxes due if your spouse does not have enough tax withheld or does not pay enough estimated tax. Ez tax form Divorced taxpayer. Ez tax form   You may be held jointly and individually responsible for any tax, interest, and penalties due on a joint return filed before your divorce. Ez tax form This responsibility may apply even if your divorce decree states that your former spouse will be responsible for any amounts due on previously filed joint returns. Ez tax form Relief from joint responsibility. Ez tax form   In some cases, one spouse may be relieved of joint responsibility for tax, interest, and penalties on a joint return for items of the other spouse that were incorrectly reported on the joint return. Ez tax form You can ask for relief no matter how small the liability. Ez tax form   There are three types of relief available. Ez tax form Innocent spouse relief. Ez tax form Separation of liability (available only to joint filers who are divorced, widowed, legally separated, or have not lived together for the 12 months ending on the date the election for this relief is filed). Ez tax form Equitable relief. Ez tax form    You must file Form 8857, Request for Innocent Spouse Relief, to request relief from joint responsibility. Ez tax form Publication 971, Innocent Spouse Relief, explains these kinds of relief and who may qualify for them. Ez tax form Signing a joint return. Ez tax form   For a return to be considered a joint return, both spouses generally must sign the return. Ez tax form Spouse died before signing. Ez tax form   If your spouse died before signing the return, the executor or administrator must sign the return for your spouse. Ez tax form If neither you nor anyone else has yet been appointed as executor or administrator, you can sign the return for your spouse and enter “Filing as surviving spouse” in the area where you sign the return. Ez tax form Spouse away from home. Ez tax form   If your spouse is away from home, you should prepare the return, sign it, and send it to your spouse to sign so that it can be filed on time. Ez tax form Injury or disease prevents signing. Ez tax form   If your spouse cannot sign because of disease or injury and tells you to sign for him or her, you can sign your spouse's name in the proper space on the return followed by the words “By (your name), Husband (or Wife). Ez tax form ” Be sure to also sign in the space provided for your signature. Ez tax form Attach a dated statement, signed by you, to the return. Ez tax form The statement should include the form number of the return you are filing, the tax year, and the reason your spouse cannot sign, and should state that your spouse has agreed to your signing for him or her. Ez tax form Signing as guardian of spouse. Ez tax form   If you are the guardian of your spouse who is mentally incompetent, you can sign the return for your spouse as guardian. Ez tax form Spouse in combat zone. Ez tax form   You can sign a joint return for your spouse if your spouse cannot sign because he or she is serving in a combat zone (such as the Persian Gulf Area, Serbia, Montenegro, Albania, or Afghanistan), even if you do not have a power of attorney or other statement. Ez tax form Attach a signed statement to your return explaining that your spouse is serving in a combat zone. Ez tax form For more information on special tax rules for persons who are serving in a combat zone, or who are in missing status as a result of serving in a combat zone, see Publication 3, Armed Forces' Tax Guide. Ez tax form Other reasons spouse cannot sign. Ez tax form    If your spouse cannot sign the joint return for any other reason, you can sign for your spouse only if you are given a valid power of attorney (a legal document giving you permission to act for your spouse). Ez tax form Attach the power of attorney (or a copy of it) to your tax return. Ez tax form You can use Form 2848, Power of Attorney and Declaration of Representative. Ez tax form Nonresident alien or dual-status alien. Ez tax form   Generally, a married couple cannot file a joint return if either one is a nonresident alien at any time during the tax year. Ez tax form However, if one spouse was a nonresident alien or dual-status alien who was married to a U. Ez tax form S. Ez tax form citizen or resident alien at the end of the year, the spouses can choose to file a joint return. Ez tax form If you do file a joint return, you and your spouse are both treated as U. Ez tax form S. Ez tax form residents for the entire tax year. Ez tax form See chapter 1 of Publication 519. Ez tax form Married Filing Separately You can choose married filing separately as your filing status if you are married. Ez tax form This filing status may benefit you if you want to be responsible only for your own tax or if it results in less tax than filing a joint return. Ez tax form If you and your spouse do not agree to file a joint return, you must use this filing status unless you qualify for head of household status, discussed later. Ez tax form You may be able to choose head of household filing status if you are considered unmarried because you live apart from your spouse and meet certain tests (explained later, under Head of Household ). Ez tax form This can apply to you even if you are not divorced or legally separated. Ez tax form If you qualify to file as head of household, instead of as married filing separately, your tax may be lower, you may be able to claim the earned income credit and certain other credits, and your standard deduction will be higher. Ez tax form The head of household filing status allows you to choose the standard deduction even if your spouse chooses to itemize deductions. Ez tax form See Head of Household , later, for more information. Ez tax form You will generally pay more combined tax on separate returns than you would on a joint return for the reasons listed under Special Rules, later. Ez tax form However, unless you are required to file separately, you should figure your tax both ways (on a joint return and on separate returns). Ez tax form This way you can make sure you are using the filing status that results in the lowest combined tax. Ez tax form When figuring the combined tax of a married couple, you may want to consider state taxes as well as federal taxes. Ez tax form How to file. Ez tax form   If you file a separate return, you generally report only your own income, exemptions, credits, and deductions. Ez tax form You can claim an exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another person. Ez tax form You can file Form 1040. Ez tax form If your taxable income is less than $100,000, you may be able to file Form 1040A. Ez tax form Select this filing status by checking the box on line 3 of either form. Ez tax form Enter your spouse's full name and SSN or ITIN in the spaces provided. Ez tax form If your spouse does not have and is not required to have an SSN or ITIN, enter “NRA” in the space for your spouse's SSN. Ez tax form Use the Married filing separately column of the Tax Table or Section C of the Tax Computation Worksheet to figure your tax. Ez tax form Special Rules If you choose married filing separately as your filing status, the following special rules apply. Ez tax form Because of these special rules, you usually pay more tax on a separate return than if you use another filing status you qualify for. Ez tax form   Your tax rate generally is higher than on a joint return. Ez tax form Your exemption amount for figuring the alternative minimum tax is half that allowed on a joint return. Ez tax form You cannot take the credit for child and dependent care expenses in most cases, and the amount you can exclude from income under an employer's dependent care assistance program is limited to $2,500 (instead of $5,000). Ez tax form If you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. Ez tax form For more information about these expenses, the credit, and the exclusion, see chapter 32. Ez tax form You cannot take the earned income credit. Ez tax form You cannot take the exclusion or credit for adoption expenses in most cases. Ez tax form You cannot take the education credits (the American opportunity credit and lifetime learning credit), the deduction for student loan interest, or the tuition and fees deduction. Ez tax form You cannot exclude any interest income from qualified U. Ez tax form S. Ez tax form savings bonds you used for higher education expenses. Ez tax form If you lived with your spouse at any time during the tax year: You cannot claim the credit for the elderly or the disabled, and You must include in income a greater percentage (up to 85%) of any social security or equivalent railroad retirement benefits you received. Ez tax form The following credits and deductions are reduced at income levels half those for a joint return: The child tax credit, The retirement savings contributions credit, The deduction for personal exemptions, and Itemized deductions. Ez tax form Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return). Ez tax form If your spouse itemizes deductions, you cannot claim the standard deduction. Ez tax form If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return. Ez tax form Adjusted gross income (AGI) limits. Ez tax form   If your AGI on a separate return is lower than it would have been on a joint return, you may be able to deduct a larger amount for certain deductions that are limited by AGI, such as medical expenses. Ez tax form Individual retirement arrangements (IRAs). Ez tax form   You may not be able to deduct all or part of your contributions to a traditional IRA if you or your spouse were covered by an employee retirement plan at work during the year. Ez tax form Your deduction is reduced or eliminated if your income is more than a certain amount. Ez tax form This amount is much lower for married individuals who file separately and lived together at any time during the year. Ez tax form For more information, see How Much Can You Deduct in chapter 17. Ez tax form Rental activity losses. Ez tax form   If you actively participated in a passive rental real estate activity that produced a loss, you generally can deduct the loss from your nonpassive income, up to $25,000. Ez tax form This is called a special allowance. Ez tax form However, married persons filing separate returns who lived together at any time during the year cannot claim this special allowance. Ez tax form Married persons filing separate returns who lived apart at all times during the year are each allowed a $12,500 maximum special allowance for losses from passive real estate activities. Ez tax form See Limits on Rental Losses in chapter 9. Ez tax form Community property states. Ez tax form   If you live in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin and file separately, your income may be considered separate income or community income for income tax purposes. Ez tax form See Publication 555. Ez tax form Joint Return After Separate Returns You can change your filing status from a separate return to a joint return by filing an amended return using Form 1040X. Ez tax form You generally can change to a joint return any time within 3 years from the due date of the separate return or returns. Ez tax form This does not include any extensions. Ez tax form A separate return includes a return filed by you or your spouse claiming married filing separately, single, or head of household filing status. Ez tax form Separate Returns After Joint Return Once you file a joint return, you cannot choose to file separate returns for that year after the due date of the return. Ez tax form Exception. Ez tax form   A personal representative for a decedent can change from a joint return elected by the surviving spouse to a separate return for the decedent. Ez tax form The personal representative has 1 year from the due date of the return (including extensions) to make the change. Ez tax form See Publication 559, Survivors, Executors, and Administrators, for more information on filing a return for a decedent. Ez tax form Head of Household You may be able to file as head of household if you meet all the following requirements. Ez tax form You are unmarried or “considered unmarried” on the last day of the year. Ez tax form See Marital Status , earlier, and Considered Unmarried , later. Ez tax form You paid more than half the cost of keeping up a home for the year. Ez tax form A qualifying person lived with you in the home for more than half the year (except for temporary absences, such as school). Ez tax form However, if the qualifying person is your dependent parent, he or she does not have to live with you. Ez tax form See Special rule for parent , later, under Qualifying Person. Ez tax form If you qualify to file as head of household, your tax rate usually will be lower than the rates for single or married filing separately. Ez tax form You will also receive a higher standard deduction than if you file as single or married filing separately. Ez tax form Kidnapped child. Ez tax form   A child may qualify you to file as head of household even if the child has been kidnapped. Ez tax form For more information, see Publication 501. Ez tax form How to file. Ez tax form   If you file as head of household, you can use Form 1040. Ez tax form If your taxable income is less than $100,000, you may be able to file Form 1040A. Ez tax form Indicate your choice of this filing status by checking the box on line 4 of either form. Ez tax form Use the Head of a household column of the Tax Table or Section D of the Tax Computation Worksheet to figure your tax. Ez tax form Considered Unmarried To qualify for head of household status, you must be either unmarried or considered unmarried on the last day of the year. Ez tax form You are considered unmarried on the last day of the tax year if you meet all the following tests. Ez tax form You file a separate return (defined earlier under Joint Return After Separate Returns ). Ez tax form You paid more than half the cost of keeping up your home for the tax year. Ez tax form Your spouse did not live in your home during the last 6 months of the tax year. Ez tax form Your spouse is considered to live in your home even if he or she is temporarily absent due to special circumstances. Ez tax form See Temporary absences , under Qualifying Person, later. Ez tax form Your home was the main home of your child, stepchild, or foster child for more than half the year. Ez tax form (See Home of qualifying person , under Qualifying Person, later, for rules applying to a child's birth, death, or temporary absence during the year. Ez tax form ) You must be able to claim an exemption for the child. Ez tax form However, you meet this test if you cannot claim the exemption only because the noncustodial parent can claim the child using the rules described in Children of divorced or separated parents (or parents who live apart) under Qualifying Child in chapter 3, or in Support Test for Children of Divorced or Separated Parents (or Parents Who Live Apart) under Qualifying Relative in chapter 3. Ez tax form The general rules for claiming an exemption for a dependent are explained under Exemptions for Dependents in chapter 3. Ez tax form If you were considered married for part of the year and lived in a community property state (listed earlier under Married Filing Separately), special rules may apply in determining your income and expenses. Ez tax form See Publication 555 for more information. Ez tax form Nonresident alien spouse. Ez tax form   You are considered unmarried for head of household purposes if your spouse was a nonresident alien at any time during the year and you do not choose to treat your nonresident spouse as a resident alien. Ez tax form However, your spouse is not a qualifying person for head of household purposes. Ez tax form You must have another qualifying person and meet the other tests to be eligible to file as a head of household. Ez tax form Choice to treat spouse as resident. Ez tax form   You are considered married if you choose to treat your spouse as a resident alien. Ez tax form See Publication 519. Ez tax form Keeping Up a Home To qualify for head of household status, you must pay more than half of the cost of keeping up a home for the year. Ez tax form You can determine whether you paid more than half of the cost of keeping up a home by using Worksheet 2–1. Ez tax form Worksheet 2-1. Ez tax form Cost of Keeping Up a Home   Amount You Paid Total Cost Property taxes $ $ Mortgage interest expense     Rent     Utility charges     Repairs/maintenance     Property insurance     Food consumed on the premises     Other household expenses     Totals $ $ Minus total amount you paid   () Amount others paid   $ If the total amount you paid is more than the amount others paid, you meet the requirement of paying more than half the cost of keeping up the home. Ez tax form Costs you include. Ez tax form   Include in the cost of keeping up a home expenses such as rent, mortgage interest, real estate taxes, insurance on the home, repairs, utilities, and food eaten in the home. Ez tax form   If you used payments you received under Temporary Assistance for Needy Families (TANF) or other public assistance programs to pay part of the cost of keeping up your home, you cannot count them as money you paid. Ez tax form However, you must include them in the total cost of keeping up your home to figure if you paid over half the cost. Ez tax form Costs you do not include. Ez tax form   Do not include the costs of clothing, education, medical treatment, vacations, life insurance, or transportation. Ez tax form Also, do not include the rental value of a home you own or the value of your services or those of a member of your household. Ez tax form Qualifying Person See Table 2-1 to see who is a qualifying person. Ez tax form Any person not described in Table 2-1 is not a qualifying person. Ez tax form Table 2-1. Ez tax form Who Is a Qualifying Person Qualifying You To File as Head of Household?1 Caution. Ez tax form See the text of this chapter for the other requirements you must meet to claim head of household filing status. Ez tax form IF the person is your . Ez tax form . Ez tax form . Ez tax form   AND . Ez tax form . Ez tax form . Ez tax form   THEN that person is . Ez tax form . Ez tax form . Ez tax form qualifying child (such as a son, daughter, or grandchild who lived with you more than half the year and meets certain other tests)2   he or she is single   a qualifying person, whether or not you can claim an exemption for the person. Ez tax form   he or she is married and you can claim an exemption for him or her   a qualifying person. Ez tax form   he or she is married and you cannot claim an exemption for him or her   not a qualifying person. Ez tax form 3 qualifying relative4 who is your father or mother   you can claim an exemption for him or her5   a qualifying person. Ez tax form 6   you cannot claim an exemption for him or her   not a qualifying person. Ez tax form qualifying relative4 other than your father or mother (such as a grandparent, brother, or sister who meets certain tests)   he or she lived with you more than half the year, and he or she is related to you in one of the ways listed under Relatives who do not have to live with you in chapter 3 and you can claim an exemption for him or her5   a qualifying person. Ez tax form   he or she did not live with you more than half the year   not a qualifying person. Ez tax form   he or she is not related to you in one of the ways listed under Relatives who do not have to live with you in chapter 3 and is your qualifying relative only because he or she lived with you all year as a member of your household   not a qualifying person. Ez tax form   you cannot claim an exemption for him or her   not a qualifying person. Ez tax form 1A person cannot qualify more than one taxpayer to use the head of household filing status for the year. Ez tax form 2The term “qualifying child” is defined in chapter 3. Ez tax form Note. Ez tax form If you are a noncustodial parent, the term “qualifying child” for head of household filing status does not include a child who is your qualifying child for exemption purposes only because of the rules described under Children of divorced or separated parents (or parents who live apart) under Qualifying Child in chapter 3. Ez tax form If you are the custodial parent and those rules apply, the child generally is your qualifying child for head of household filing status even though the child is not a qualifying child for whom you can claim an exemption. Ez tax form 3This person is a qualifying person if the only reason you cannot claim the exemption is that you can be claimed as a dependent on someone else's return. Ez tax form 4The term “ qualifying relative ” is defined in chapter 3. Ez tax form 5If you can claim an exemption for a person only because of a multiple support agreement, that person is not a qualifying person. Ez tax form See Multiple Support Agreement in chapter 3. Ez tax form 6See Special rule for parent . Ez tax form Example 1—child. Ez tax form Your unmarried son lived with you all year and was 18 years old at the end of the year. Ez tax form He did not provide more than half of his own support and does not meet the tests to be a qualifying child of anyone else. Ez tax form As a result, he is your qualifying child (see Qualifying Child in chapter 3) and, because he is single, your qualifying person for you to claim head of household filing status. Ez tax form Example 2—child who is not qualifying person. Ez tax form The facts are the same as in Example 1 except your son was 25 years old at the end of the year and his gross income was $5,000. Ez tax form Because he does not meet the age test (explained under Qualifying Child in chapter 3), your son is not your qualifying child. Ez tax form Because he does not meet the gross income test (explained later under Qualifying Relative in chapter 3), he is not your qualifying relative. Ez tax form As a result, he is not your qualifying person for head of household purposes. Ez tax form Example 3—girlfriend. Ez tax form Your girlfriend lived with you all year. Ez tax form Even though she may be your qualifying relative if the gross income and support tests (explained in chapter 3) are met, she is not your qualifying person for head of household purposes because she is not related to you in one of the ways listed under Relatives who do not have to live with you in chapter 3. Ez tax form See Table 2-1. Ez tax form Example 4—girlfriend's child. Ez tax form The facts are the same as in Example 3 except your girlfriend's 10-year-old son also lived with you all year. Ez tax form He is not your qualifying child and, because he is your girlfriend's qualifying child, he is not your qualifying relative (see Not a Qualifying Child Test in chapter 3). Ez tax form As a result, he is not your qualifying person for head of household purposes. Ez tax form Home of qualifying person. Ez tax form   Generally, the qualifying person must live with you for more than half of the year. Ez tax form Special rule for parent. Ez tax form   If your qualifying person is your father or mother, you may be eligible to file as head of household even if your father or mother does not live with you. Ez tax form However, you must be able to claim an exemption for your father or mother. Ez tax form Also, you must pay more than half the cost of keeping up a home that was the main home for the entire year for your father or mother. Ez tax form   You are keeping up a main home for your father or mother if you pay more than half the cost of keeping your parent in a rest home or home for the elderly. Ez tax form Death or birth. Ez tax form   You may be eligible to file as head of household even if the individual who qualifies you for this filing status is born or dies during the year. Ez tax form If the individual is your qualifying child, the child must have lived with you for more than half the part of the year he or she was alive. Ez tax form If the individual is anyone else, see Publication 501. Ez tax form Temporary absences. Ez tax form   You and your qualifying person are considered to live together even if one or both of you are temporarily absent from your home due to special circumstances such as illness, education, business, vacation, or military service. Ez tax form It must be reasonable to assume the absent person will return to the home after the temporary absence. Ez tax form You must continue to keep up the home during the absence. Ez tax form Qualifying Widow(er) With Dependent Child If your spouse died in 2013, you can use married filing jointly as your filing status for 2013 if you otherwise qualify to use that status. Ez tax form The year of death is the last year for which you can file jointly with your deceased spouse. Ez tax form See Married Filing Jointly , earlier. Ez tax form You may be eligible to use qualifying widow(er) with dependent child as your filing status for 2 years following the year your spouse died. Ez tax form For example, if your spouse died in 2012, and you have not remarried, you may be able to use this filing status for 2013 and 2014. Ez tax form This filing status entitles you to use joint return tax rates and the highest standard deduction amount (if you do not itemize deductions). Ez tax form It does not entitle you to file a joint return. Ez tax form How to file. Ez tax form   If you file as qualifying widow(er) with dependent child, you can use Form 1040. Ez tax form If you also have taxable income of less than $100,000 and meet certain other conditions, you may be able to file Form 1040A. Ez tax form Check the box on line 5 of either form. Ez tax form Use the Married filing jointly column of the Tax Table or Section B of the Tax Computation Worksheet to figure your tax. Ez tax form Eligibility rules. Ez tax form   You are eligible to file your 2013 return as a qualifying widow(er) with dependent child if you meet all of the following tests. Ez tax form You were entitled to file a joint return with your spouse for the year your spouse died. Ez tax form It does not matter whether you actually filed a joint return. Ez tax form Your spouse died in 2011 or 2012 and you did not remarry before the end of 2013. Ez tax form You have a child or stepchild for whom you can claim an exemption. Ez tax form This does not include a foster child. Ez tax form This child lived in your home all year, except for temporary absences. Ez tax form See Temporary absences , earlier, under Head of Household. Ez tax form There are also exceptions, described later, for a child who was born or died during the year and for a kidnapped child. Ez tax form You paid more than half the cost of keeping up a home for the year. Ez tax form See Keeping Up a Home , earlier, under Head of Household. Ez tax form Example. Ez tax form John's wife died in 2011. Ez tax form John has not remarried. Ez tax form During 2012 and 2013, he continued to keep up a home for himself and his child, who lives with him and for whom he can claim an exemption. Ez tax form For 2011 he was entitled to file a joint return for himself and his deceased wife. Ez tax form For 2012 and 2013, he can file as qualifying widower with a dependent child. Ez tax form After 2013 he can file as head of household if he qualifies. Ez tax form Death or birth. Ez tax form    You may be eligible to file as a qualifying widow(er) with dependent child if the child who qualifies you for this filing status is born or dies during the year. Ez tax form You must have provided more than half of the cost of keeping up a home that was the child's main home during the entire part of the year he or she was alive. Ez tax form Kidnapped child. Ez tax form   A child may qualify you for qualifying widow(er) with dependent child, even if the child has been kidnapped. Ez tax form See Publication 501. Ez tax form    As mentioned earlier, this filing status is available for only 2 years following the year your spouse died. Ez tax form Prev  Up  Next   Home   More Online Publications