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Federal Form 1040x

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Federal Form 1040x

Federal form 1040x Publication 575 - Main Content Table of Contents General InformationPension. Federal form 1040x Annuity. Federal form 1040x Qualified employee plan. Federal form 1040x Qualified employee annuity. Federal form 1040x Designated Roth account. Federal form 1040x Tax-sheltered annuity plan. Federal form 1040x Fixed-period annuities. Federal form 1040x Annuities for a single life. Federal form 1040x Joint and survivor annuities. Federal form 1040x Variable annuities. Federal form 1040x Disability pensions. Federal form 1040x Variable Annuities Section 457 Deferred Compensation Plans Disability Pensions Insurance Premiums for Retired Public Safety Officers Railroad Retirement Benefits Withholding Tax and Estimated Tax Cost (Investment in the Contract)Foreign employment contributions while a nonresident alien. Federal form 1040x Taxation of Periodic PaymentsPeriod of participation. Federal form 1040x Fully Taxable Payments Partly Taxable Payments Taxation of Nonperiodic PaymentsFiguring the Taxable Amount Loans Treated as Distributions Transfers of Annuity Contracts Lump-Sum Distributions RolloversExceptions. Federal form 1040x No tax withheld. Federal form 1040x Partial rollovers. Federal form 1040x Frozen deposits. Federal form 1040x Reasonable period of time. Federal form 1040x 20% Mandatory withholding. Federal form 1040x How to report. Federal form 1040x How to report. Federal form 1040x Special rule for Roth IRAs and designated Roth accounts. Federal form 1040x Special Additional TaxesTax on Early Distributions Tax on Excess Accumulation Survivors and BeneficiariesGuaranteed payments. Federal form 1040x How To Get Tax HelpLow Income Taxpayer Clinics General Information Definitions. Federal form 1040x   Some of the terms used in this publication are defined in the following paragraphs. Federal form 1040x Pension. Federal form 1040x   A pension is generally a series of definitely determinable payments made to you after you retire from work. Federal form 1040x Pension payments are made regularly and are based on such factors as years of service and prior compensation. Federal form 1040x Annuity. Federal form 1040x   An annuity is a series of payments under a contract made at regular intervals over a period of more than one full year. Federal form 1040x They can be either fixed (under which you receive a definite amount) or variable (not fixed). Federal form 1040x You can buy the contract alone or with the help of your employer. Federal form 1040x Qualified employee plan. Federal form 1040x   A qualified employee plan is an employer's stock bonus, pension, or profit-sharing plan that is for the exclusive benefit of employees or their beneficiaries and that meets Internal Revenue Code requirements. Federal form 1040x It qualifies for special tax benefits, such as tax deferral for employer contributions and capital gain treatment or the 10-year tax option for lump-sum distributions (if participants qualify). Federal form 1040x To determine whether your plan is a qualified plan, check with your employer or the plan administrator. Federal form 1040x Qualified employee annuity. Federal form 1040x   A qualified employee annuity is a retirement annuity purchased by an employer for an employee under a plan that meets Internal Revenue Code requirements. Federal form 1040x Designated Roth account. Federal form 1040x   A designated Roth account is a separate account created under a qualified Roth contribution program to which participants may elect to have part or all of their elective deferrals to a 401(k), 403(b), or 457(b) plan designated as Roth contributions. Federal form 1040x Elective deferrals that are designated as Roth contributions are included in your income. Federal form 1040x However, qualified distributions (explained later) are not included in your income. Federal form 1040x You should check with your plan administrator to determine if your plan will accept designated Roth contributions. Federal form 1040x Tax-sheltered annuity plan. Federal form 1040x   A tax-sheltered annuity plan (often referred to as a 403(b) plan or a tax-deferred annuity plan) is a retirement plan for employees of public schools and certain tax-exempt organizations. Federal form 1040x Generally, a tax-sheltered annuity plan provides retirement benefits by purchasing annuity contracts for its participants. Federal form 1040x Types of pensions and annuities. Federal form 1040x   Pensions and annuities include the following types. Federal form 1040x Fixed-period annuities. Federal form 1040x   You receive definite amounts at regular intervals for a specified length of time. Federal form 1040x Annuities for a single life. Federal form 1040x   You receive definite amounts at regular intervals for life. Federal form 1040x The payments end at death. Federal form 1040x Joint and survivor annuities. Federal form 1040x   The first annuitant receives a definite amount at regular intervals for life. Federal form 1040x After he or she dies, a second annuitant receives a definite amount at regular intervals for life. Federal form 1040x The amount paid to the second annuitant may or may not differ from the amount paid to the first annuitant. Federal form 1040x Variable annuities. Federal form 1040x   You receive payments that may vary in amount for a specified length of time or for life. Federal form 1040x The amounts you receive may depend upon such variables as profits earned by the pension or annuity funds, cost-of-living indexes, or earnings from a mutual fund. Federal form 1040x Disability pensions. Federal form 1040x   You receive disability payments because you retired on disability and have not reached minimum retirement age. Federal form 1040x More than one program. Federal form 1040x   You may receive employee plan benefits from more than one program under a single trust or plan of your employer. Federal form 1040x If you participate in more than one program, you may have to treat each as a separate pension or annuity contract, depending upon the facts in each case. Federal form 1040x Also, you may be considered to have received more than one pension or annuity. Federal form 1040x Your former employer or the plan administrator should be able to tell you if you have more than one contract. Federal form 1040x Example. Federal form 1040x Your employer set up a noncontributory profit-sharing plan for its employees. Federal form 1040x The plan provides that the amount held in the account of each participant will be paid when that participant retires. Federal form 1040x Your employer also set up a contributory defined benefit pension plan for its employees providing for the payment of a lifetime pension to each participant after retirement. Federal form 1040x The amount of any distribution from the profit-sharing plan depends on the contributions (including allocated forfeitures) made for the participant and the earnings from those contributions. Federal form 1040x Under the pension plan, however, a formula determines the amount of the pension benefits. Federal form 1040x The amount of contributions is the amount necessary to provide that pension. Federal form 1040x Each plan is a separate program and a separate contract. Federal form 1040x If you get benefits from these plans, you must account for each separately, even though the benefits from both may be included in the same check. Federal form 1040x Distributions from a designated Roth account are treated separately from other distributions from the plan. Federal form 1040x Qualified domestic relations order (QDRO). Federal form 1040x   A QDRO is a judgment, decree, or order relating to payment of child support, alimony, or marital property rights to a spouse, former spouse, child, or other dependent of a participant in a retirement plan. Federal form 1040x The QDRO must contain certain specific information, such as the name and last known mailing address of the participant and each alternate payee, and the amount or percentage of the participant's benefits to be paid to each alternate payee. Federal form 1040x A QDRO may not award an amount or form of benefit that is not available under the plan. Federal form 1040x   A spouse or former spouse who receives part of the benefits from a retirement plan under a QDRO reports the payments received as if he or she were a plan participant. Federal form 1040x The spouse or former spouse is allocated a share of the participant's cost (investment in the contract) equal to the cost times a fraction. Federal form 1040x The numerator of the fraction is the present value of the benefits payable to the spouse or former spouse. Federal form 1040x The denominator is the present value of all benefits payable to the participant. Federal form 1040x   A distribution that is paid to a child or other dependent under a QDRO is taxed to the plan participant. Federal form 1040x Variable Annuities The tax rules in this publication apply both to annuities that provide fixed payments and to annuities that provide payments that vary in amount based on investment results or other factors. Federal form 1040x For example, they apply to commercial variable annuity contracts, whether bought by an employee retirement plan for its participants or bought directly from the issuer by an individual investor. Federal form 1040x Under these contracts, the owner can generally allocate the purchase payments among several types of investment portfolios or mutual funds and the contract value is determined by the performance of those investments. Federal form 1040x The earnings are not taxed until distributed either in a withdrawal or in annuity payments. Federal form 1040x The taxable part of a distribution is treated as ordinary income. Federal form 1040x Net investment income tax. Federal form 1040x   Beginning in 2013, annuities under a nonqualified plan are included in calculating your net investment income for the net investment income tax (NIIT). Federal form 1040x For information see the Instructions for Form 8960, Net Investment Income Tax — Individuals, Estates and Trusts. Federal form 1040x For information on the tax treatment of a transfer or exchange of a variable annuity contract, see Transfers of Annuity Contracts under Taxation of Nonperiodic Payments, later. Federal form 1040x Withdrawals. Federal form 1040x   If you withdraw funds before your annuity starting date and your annuity is under a qualified retirement plan, a ratable part of the amount withdrawn is tax free. Federal form 1040x The tax-free part is based on the ratio of your cost (investment in the contract) to your account balance under the plan. Federal form 1040x   If your annuity is under a nonqualified plan (including a contract you bought directly from the issuer), the amount withdrawn is allocated first to earnings (the taxable part) and then to your cost (the tax-free part). Federal form 1040x However, if you bought your annuity contract before August 14, 1982, a different allocation applies to the investment before that date and the earnings on that investment. Federal form 1040x To the extent the amount withdrawn does not exceed that investment and earnings, it is allocated first to your cost (the tax-free part) and then to earnings (the taxable part). Federal form 1040x   If you withdraw funds (other than as an annuity) on or after your annuity starting date, the entire amount withdrawn is generally taxable. Federal form 1040x   The amount you receive in a full surrender of your annuity contract at any time is tax free to the extent of any cost that you have not previously recovered tax free. Federal form 1040x The rest is taxable. Federal form 1040x   For more information on the tax treatment of withdrawals, see Taxation of Nonperiodic Payments , later. Federal form 1040x If you withdraw funds from your annuity before you reach age 59½, also see Tax on Early Distributions under Special Additional Taxes, later. Federal form 1040x Annuity payments. Federal form 1040x   If you receive annuity payments under a variable annuity plan or contract, you recover your cost tax free under either the Simplified Method or the General Rule, as explained under Taxation of Periodic Payments , later. Federal form 1040x For a variable annuity paid under a qualified plan, you generally must use the Simplified Method. Federal form 1040x For a variable annuity paid under a nonqualified plan (including a contract you bought directly from the issuer), you must use a special computation under the General Rule. Federal form 1040x For more information, see Variable annuities in Publication 939 under Computation Under the General Rule. Federal form 1040x Death benefits. Federal form 1040x    If you receive a single-sum distribution from a variable annuity contract because of the death of the owner or annuitant, the distribution is generally taxable only to the extent it is more than the unrecovered cost of the contract. Federal form 1040x If you choose to receive an annuity, the payments are subject to tax as described above. Federal form 1040x If the contract provides a joint and survivor annuity and the primary annuitant had received annuity payments before death, you figure the tax-free part of annuity payments you receive as the survivor in the same way the primary annuitant did. Federal form 1040x See Survivors and Beneficiaries , later. Federal form 1040x Section 457 Deferred Compensation Plans If you work for a state or local government or for a tax-exempt organization, you may be able to participate in a section 457 deferred compensation plan. Federal form 1040x If your plan is an eligible plan, you are not taxed currently on pay that is deferred under the plan or on any earnings from the plan's investment of the deferred pay. Federal form 1040x You are generally taxed on amounts deferred in an eligible state or local government plan only when they are distributed from the plan. Federal form 1040x You are taxed on amounts deferred in an eligible tax-exempt organization plan when they are distributed or otherwise made available to you. Federal form 1040x Your 457(b) plan may have a designated Roth account option. Federal form 1040x If so, you may be able to roll over amounts to the designated Roth account or make contributions. Federal form 1040x Elective deferrals to a designated Roth account are included in your income. Federal form 1040x Qualified distributions (explained later) are not included in your income. Federal form 1040x See the Designated Roth accounts discussion under Taxation of Periodic Payments, later. Federal form 1040x This publication covers the tax treatment of benefits under eligible section 457 plans, but it does not cover the treatment of deferrals. Federal form 1040x For information on deferrals under section 457 plans, see Retirement Plan Contributions under Employee Compensation in Publication 525. Federal form 1040x Is your plan eligible?   To find out if your plan is an eligible plan, check with your employer. Federal form 1040x Plans that are not eligible section 457 plans include the following: Bona fide vacation leave, sick leave, compensatory time, severance pay, disability pay, or death benefit plans. Federal form 1040x Nonelective deferred compensation plans for nonemployees (independent contractors). Federal form 1040x Deferred compensation plans maintained by churches. Federal form 1040x Length of service award plans for bona fide volunteer firefighters and emergency medical personnel. Federal form 1040x An exception applies if the total amount paid to a volunteer exceeds $3,000 for any year of service. Federal form 1040x Disability Pensions If you retired on disability, you generally must include in income any disability pension you receive under a plan that is paid for by your employer. Federal form 1040x You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A or on line 8 of Form 1040NR until you reach minimum retirement age. Federal form 1040x Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Federal form 1040x You may be entitled to a tax credit if you were permanently and totally disabled when you retired. Federal form 1040x For information on this credit, see Publication 524. Federal form 1040x Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Federal form 1040x Report the payments on Form 1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or on Form 1040NR, lines 17a and 17b. Federal form 1040x Disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States (or its allies) are not included in income. Federal form 1040x For more information about payments to survivors of terrorist attacks, see Publication 3920, Tax Relief for Victims of Terrorist Attacks. Federal form 1040x Insurance Premiums for Retired Public Safety Officers If you are an eligible retired public safety officer (law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew), you can elect to exclude from income distributions made from your eligible retirement plan that are used to pay the premiums for accident or health insurance or long-term care insurance. Federal form 1040x The premiums can be for coverage for you, your spouse, or dependents. Federal form 1040x The distribution must be made directly from the plan to the insurance provider. Federal form 1040x You can exclude from income the smaller of the amount of the insurance premiums or $3,000. Federal form 1040x You can only make this election for amounts that would otherwise be included in your income. Federal form 1040x The amount excluded from your income cannot be used to claim a medical expense deduction. Federal form 1040x An eligible retirement plan is a governmental plan that is: a qualified trust, a section 403(a) plan, a section 403(b) annuity, or a section 457(b) plan. Federal form 1040x If you make this election, reduce the otherwise taxable amount of your pension or annuity by the amount excluded. Federal form 1040x The amount shown in box 2a of Form 1099-R does not reflect this exclusion. Federal form 1040x Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Federal form 1040x Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Federal form 1040x Enter “PSO” next to the appropriate line on which you report the taxable amount. Federal form 1040x If you are retired on disability and reporting your disability pension on line 7 of Form 1040 or Form 1040A, or line 8 of Form 1040NR, include only the taxable amount on that line and enter “PSO” and the amount excluded on the dotted line next to the applicable line. Federal form 1040x Railroad Retirement Benefits Benefits paid under the Railroad Retirement Act fall into two categories. Federal form 1040x These categories are treated differently for income tax purposes. Federal form 1040x The first category is the amount of tier 1 railroad retirement benefits that equals the social security benefit that a railroad employee or beneficiary would have been entitled to receive under the social security system. Federal form 1040x This part of the tier 1 benefit is the social security equivalent benefit (SSEB) and you treat it for tax purposes like social security benefits. Federal form 1040x If you received, repaid, or had tax withheld from the SSEB portion of tier 1 benefits during 2013, you will receive Form RRB-1099, Payments by the Railroad Retirement Board (or Form RRB-1042S, Statement for Nonresident Alien Recipients of Payments by the Railroad Retirement Board, if you are a nonresident alien) from the U. Federal form 1040x S. Federal form 1040x Railroad Retirement Board (RRB). Federal form 1040x For more information about the tax treatment of the SSEB portion of tier 1 benefits and Forms RRB-1099 and RRB-1042S, see Publication 915. Federal form 1040x The second category contains the rest of the tier 1 railroad retirement benefits, called the non-social security equivalent benefit (NSSEB). Federal form 1040x It also contains any tier 2 benefit, vested dual benefit (VDB), and supplemental annuity benefit. Federal form 1040x Treat this category of benefits, shown on Form RRB-1099-R, as an amount received from a qualified employee plan. Federal form 1040x This allows for the tax-free (nontaxable) recovery of employee contributions from the tier 2 benefits and the NSSEB part of the tier 1 benefits. Federal form 1040x (The NSSEB and tier 2 benefits, less certain repayments, are combined into one amount called the Contributory Amount Paid on Form RRB-1099-R. Federal form 1040x ) Vested dual benefits and supplemental annuity benefits are non-contributory pensions and are fully taxable. Federal form 1040x See Taxation of Periodic Payments , later, for information on how to report your benefits and how to recover the employee contributions tax free. Federal form 1040x Form RRB-1099-R is used for U. Federal form 1040x S. Federal form 1040x citizens, resident aliens, and nonresident aliens. Federal form 1040x Nonresident aliens. Federal form 1040x   A nonresident alien is an individual who is not a citizen or a resident alien of the United States. Federal form 1040x Nonresident aliens are subject to mandatory U. Federal form 1040x S. Federal form 1040x tax withholding unless exempt under a tax treaty between the United States and their country of legal residency. Federal form 1040x A tax treaty exemption may reduce or eliminate tax withholding from railroad retirement benefits. Federal form 1040x See Tax withholding next for more information. Federal form 1040x   If you are a nonresident alien and your tax withholding rate changed or your country of legal residence changed during the year, you may receive more than one Form RRB-1042S or Form RRB-1099-R. Federal form 1040x To determine your total benefits paid or repaid and total tax withheld for the year, you should add the amounts shown on all forms you received for that year. Federal form 1040x For information on filing requirements for aliens, see Publication 519, U. Federal form 1040x S. Federal form 1040x Tax Guide for Aliens. Federal form 1040x For information on tax treaties between the United States and other countries that may reduce or eliminate U. Federal form 1040x S. Federal form 1040x tax on your benefits, see Publication 901, U. Federal form 1040x S. Federal form 1040x Tax Treaties. Federal form 1040x Tax withholding. Federal form 1040x   To request or change your income tax withholding from SSEB payments, U. Federal form 1040x S. Federal form 1040x citizens should contact the IRS for Form W-4V, Voluntary Withholding Request, and file it with the RRB. Federal form 1040x To elect, revoke, or change your income tax withholding from NSSEB, tier 2, VDB, and supplemental annuity payments received, use Form RRB W-4P, Withholding Certificate for Railroad Retirement Payments. Federal form 1040x If you are a nonresident alien or a U. Federal form 1040x S. Federal form 1040x citizen living abroad, you should provide Form RRB-1001, Nonresident Questionnaire, to the RRB to furnish citizenship and residency information and to claim any treaty exemption from U. Federal form 1040x S. Federal form 1040x tax withholding. Federal form 1040x Nonresident U. Federal form 1040x S. Federal form 1040x citizens cannot elect to be exempt from withholding on payments delivered outside of the U. Federal form 1040x S. Federal form 1040x Help from the RRB. Federal form 1040x   To request an RRB form or to get help with questions about an RRB benefit, you should contact your nearest RRB field office if you reside in the United States (call 1-877-772-5772 for the nearest field office) or U. Federal form 1040x S. Federal form 1040x consulate/Embassy if you reside outside the United States. Federal form 1040x You can visit the RRB on the Internet at www. Federal form 1040x rrb. Federal form 1040x gov. Federal form 1040x Form RRB-1099-R. Federal form 1040x   The following discussion explains the items shown on Form RRB-1099-R. Federal form 1040x The amounts shown on this form are before any deduction for: Federal income tax withholding, Medicare premiums, Legal process garnishment payments, Recovery of a prior year overpayment of an NSSEB, tier 2 benefit, VDB, or supplemental annuity benefit, or Recovery of Railroad Unemployment Insurance Act benefits received while awaiting payment of your railroad retirement annuity. Federal form 1040x   The amounts shown on this form are after any offset for: Social Security benefits, Age reduction, Public Service pensions or public disability benefits, Dual railroad retirement entitlement under another RRB claim number, Work deductions, Legal process partition deductions, Actuarial adjustment, Annuity waiver, or Recovery of a current-year overpayment of NSSEB, tier 2, VDB, or supplemental annuity benefits. Federal form 1040x   The amounts shown on Form RRB-1099-R do not reflect any special rules, such as capital gain treatment or the special 10-year tax option for lump-sum payments, or tax-free rollovers. Federal form 1040x To determine if any of these rules apply to your benefits, see the discussions about them later. Federal form 1040x   Generally, amounts shown on your Form RRB-1099-R are considered a normal distribution. Federal form 1040x Use distribution code “7” if you are asked for a distribution code. Federal form 1040x Distribution codes are not shown on Form RRB-1099-R. Federal form 1040x   There are three copies of this form. Federal form 1040x Copy B is to be included with your income tax return if federal income tax is withheld. Federal form 1040x Copy C is for your own records. Federal form 1040x Copy 2 is filed with your state, city, or local income tax return, when required. Federal form 1040x See the illustrated Copy B (Form RRB-1099-R) above. Federal form 1040x       Each beneficiary will receive his or her own Form RRB-1099-R. Federal form 1040x If you receive benefits on more than one railroad retirement record, you may get more than one Form RRB-1099-R. Federal form 1040x So that you get your form timely, make sure the RRB always has your current mailing address. Federal form 1040x Please click here for the text description of the image. Federal form 1040x Form RRB-1099-R Box 1—Claim Number and Payee Code. Federal form 1040x   Your claim number is a six- or nine-digit number preceded by an alphabetical prefix. Federal form 1040x This is the number under which the RRB paid your benefits. Federal form 1040x Your payee code follows your claim number and is the last number in this box. Federal form 1040x It is used by the RRB to identify you under your claim number. Federal form 1040x In all your correspondence with the RRB, be sure to use the claim number and payee code shown in this box. Federal form 1040x Box 2—Recipient's Identification Number. Federal form 1040x   This is the recipient's U. Federal form 1040x S. Federal form 1040x taxpayer identification number. Federal form 1040x It is the social security number (SSN), individual taxpayer identification number (ITIN), or employer identification number (EIN), if known, for the person or estate listed as the recipient. Federal form 1040x If you are a resident or nonresident alien who must furnish a taxpayer identification number to the IRS and are not eligible to obtain an SSN, use Form W-7, Application for IRS Individual Taxpayer Identification Number, to apply for an ITIN. Federal form 1040x The Instructions for Form W-7 explain how and when to apply. Federal form 1040x Box 3—Employee Contributions. Federal form 1040x   This is the amount of taxes withheld from the railroad employee's earnings that exceeds the amount of taxes that would have been withheld had the earnings been covered under the social security system. Federal form 1040x This amount is the employee's cost that you use to figure the tax-free part of the NSSEB and tier 2 benefit you received (the amount shown in box 4). Federal form 1040x (For information on how to figure the tax-free part, see Partly Taxable Payments under Taxation of Periodic Payments, later. Federal form 1040x ) The amount shown is the total employee contribution amount, not reduced by any amounts that the RRB calculated as previously recovered. Federal form 1040x It is the latest amount reported for 2013 and may have increased or decreased from a previous Form RRB-1099-R. Federal form 1040x If this amount has changed, the change is retroactive. Federal form 1040x You may need to refigure the tax-free part of your NSSEB/tier 2 benefit for 2013 and prior tax years. Federal form 1040x If this box is blank, it means that the amount of your NSSEB and tier 2 payments shown in box 4 is fully taxable. Federal form 1040x    If you had a previous annuity entitlement that ended and you are figuring the tax-free part of your NSSEB/tier 2 benefit for your current annuity entitlement, you should contact the RRB for confirmation of your correct employee contribution amount. Federal form 1040x Box 4—Contributory Amount Paid. Federal form 1040x   This is the gross amount of the NSSEB and tier 2 benefit you received in 2013, less any 2013 benefits you repaid in 2013. Federal form 1040x (Any benefits you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Federal form 1040x ) This amount is the total contributory pension paid in 2013. Federal form 1040x It may be partly taxable and partly tax free or fully taxable. Federal form 1040x If you determine you are eligible to compute a tax-free part as explained later in Partly Taxable Payments under Taxation of Periodic Payments, use the latest reported employee contribution amount shown in box 3 as the cost. Federal form 1040x Box 5—Vested Dual Benefit. Federal form 1040x   This is the gross amount of vested dual benefit (VDB) payments paid in 2013, less any 2013 VDB payments you repaid in 2013. Federal form 1040x It is fully taxable. Federal form 1040x VDB payments you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Federal form 1040x Note. Federal form 1040x The amounts shown in boxes 4 and 5 may represent payments for 2013 and/or other years after 1983. Federal form 1040x Box 6—Supplemental Annuity. Federal form 1040x   This is the gross amount of supplemental annuity benefits paid in 2013, less any 2013 supplemental annuity benefits you repaid in 2013. Federal form 1040x It is fully taxable. Federal form 1040x Supplemental annuity benefits you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Federal form 1040x Box 7—Total Gross Paid. Federal form 1040x   This is the sum of boxes 4, 5, and 6. Federal form 1040x The amount represents the total pension paid in 2013. Federal form 1040x Include this amount on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Federal form 1040x Box 8—Repayments. Federal form 1040x   This amount represents any NSSEB, tier 2 benefit, VDB, and supplemental annuity benefit you repaid to the RRB in 2013 for years before 2013 or for unknown years. Federal form 1040x The amount shown in this box has not been deducted from the amounts shown in boxes 4, 5, and 6. Federal form 1040x It only includes repayments of benefits that were taxable to you. Federal form 1040x This means it only includes repayments in 2013 of NSSEB benefits paid after 1985, tier 2 and VDB benefits paid after 1983, and supplemental annuity benefits paid in any year. Federal form 1040x If you included the benefits in your income in the year you received them, you may be able to deduct the repaid amount. Federal form 1040x For more information about repayments, see Repayment of benefits received in an earlier year , later. Federal form 1040x    You may have repaid an overpayment of benefits by returning a payment, by making a payment, or by having an amount withheld from your railroad retirement annuity payment. Federal form 1040x Box 9—Federal Income Tax Withheld. Federal form 1040x   This is the total federal income tax withheld from your NSSEB, tier 2 benefit, VDB, and supplemental annuity benefit. Federal form 1040x Include this on your income tax return as tax withheld. Federal form 1040x If you are a nonresident alien and your tax withholding rate and/or country of legal residence changed during 2013, you will receive more than one Form RRB-1099-R for 2013. Federal form 1040x Determine the total amount of U. Federal form 1040x S. Federal form 1040x federal income tax withheld from your 2013 RRB NSSEB, tier 2, VDB, and supplemental annuity payments by adding the amounts in box 9 of all original 2013 Forms RRB-1099-R, or the latest corrected or duplicate Forms RRB-1099-R you receive. Federal form 1040x Box 10—Rate of Tax. Federal form 1040x   If you are taxed as a U. Federal form 1040x S. Federal form 1040x citizen or resident alien, this box does not apply to you. Federal form 1040x If you are a nonresident alien, an entry in this box indicates the rate at which tax was withheld on the NSSEB, tier 2, VDB, and supplemental annuity payments that were paid to you in 2013. Federal form 1040x If you are a nonresident alien whose tax was withheld at more than one rate during 2013, you will receive a separate Form RRB-1099-R for each rate change during 2013. Federal form 1040x Box 11—Country. Federal form 1040x   If you are taxed as a U. Federal form 1040x S. Federal form 1040x citizen or resident alien, this box does not apply to you. Federal form 1040x If you are a nonresident alien, an entry in this box indicates the country of which you were a resident for tax purposes at the time you received railroad retirement payments in 2013. Federal form 1040x If you are a nonresident alien who was a resident of more than one country during 2013, you will receive a separate Form RRB-1099-R for each country of residence during 2013. Federal form 1040x Box 12—Medicare Premium Total. Federal form 1040x   This is for information purposes only. Federal form 1040x The amount shown in this box represents the total amount of Part B Medicare premiums deducted from your railroad retirement annuity payments in 2013. Federal form 1040x Medicare premium refunds are not included in the Medicare total. Federal form 1040x The Medicare total is normally shown on Form RRB-1099 (if you are a citizen or resident alien of the United States) or Form RRB-1042S (if you are a nonresident alien). Federal form 1040x However, if Form RRB-1099 or Form RRB-1042S is not required for 2013, then this total will be shown on Form RRB-1099-R. Federal form 1040x If your Medicare premiums were deducted from your social security benefits, paid by a third party, refunded to you, and/or you paid the premiums by direct billing, your Medicare total will not be shown in this box. Federal form 1040x Repayment of benefits received in an earlier year. Federal form 1040x   If you had to repay any railroad retirement benefits that you had included in your income in an earlier year because at that time you thought you had an unrestricted right to it, you can deduct the amount you repaid in the year in which you repaid it. Federal form 1040x   If you repaid $3,000 or less in 2013, deduct it on Schedule A (Form 1040), line 23. Federal form 1040x The 2%-of-adjusted-gross-income limit applies to this deduction. Federal form 1040x You cannot take this deduction if you file Form 1040A. Federal form 1040x    If you repaid more than $3,000 in 2013, you can either take a deduction for the amount repaid on Schedule A (Form 1040), line 28 or you can take a credit against your tax. Federal form 1040x For more information, see Repayments in Publication 525. Federal form 1040x Withholding Tax and Estimated Tax Your retirement plan distributions are subject to federal income tax withholding. Federal form 1040x However, you can choose not to have tax withheld on payments you receive unless they are eligible rollover distributions. Federal form 1040x (These are distributions, described later under Rollovers, that are eligible for rollover treatment but are not paid directly to another qualified retirement plan or to a traditional IRA. Federal form 1040x ) If you choose not to have tax withheld or if you do not have enough tax withheld, you may have to make estimated tax payments. Federal form 1040x See Estimated tax , later. Federal form 1040x The withholding rules apply to the taxable part of payments you receive from: An employer pension, annuity, profit-sharing, or stock bonus plan, Any other deferred compensation plan, A traditional individual retirement arrangement (IRA), or A commercial annuity. Federal form 1040x For this purpose, a commercial annuity means an annuity, endowment, or life insurance contract issued by an insurance company. Federal form 1040x There will be no withholding on any part of a distribution where it is reasonable to believe that it will not be includible in gross income. Federal form 1040x Choosing no withholding. Federal form 1040x   You can choose not to have income tax withheld from retirement plan payments unless they are eligible rollover distributions. Federal form 1040x You can make this choice on Form W-4P for periodic and nonperiodic payments. Federal form 1040x This choice generally remains in effect until you revoke it. Federal form 1040x   The payer will ignore your choice not to have tax withheld if: You do not give the payer your social security number (in the required manner), or The IRS notifies the payer, before the payment is made, that you gave an incorrect social security number. Federal form 1040x   To choose not to have tax withheld, a U. Federal form 1040x S. Federal form 1040x citizen or resident alien must give the payer a home address in the United States or its possessions. Federal form 1040x Without that address, the payer must withhold tax. Federal form 1040x For example, the payer has to withhold tax if the recipient has provided a U. Federal form 1040x S. Federal form 1040x address for a nominee, trustee, or agent to whom the benefits are delivered, but has not provided his or her own U. Federal form 1040x S. Federal form 1040x home address. Federal form 1040x   If you do not give the payer a home address in the United States or its possessions, you can choose not to have tax withheld only if you certify to the payer that you are not a U. Federal form 1040x S. Federal form 1040x citizen, a U. Federal form 1040x S. Federal form 1040x resident alien, or someone who left the country to avoid tax. Federal form 1040x But if you so certify, you may be subject to the 30% flat rate withholding that applies to nonresident aliens. Federal form 1040x This 30% rate will not apply if you are exempt or subject to a reduced rate by treaty. Federal form 1040x For details, get Publication 519. Federal form 1040x Periodic payments. Federal form 1040x   Unless you choose no withholding, your annuity or similar periodic payments (other than eligible rollover distributions) will be treated like wages for withholding purposes. Federal form 1040x Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for a period of time greater than one year (such as for 15 years or for life). Federal form 1040x You should give the payer a completed withholding certificate (Form W-4P or a similar form provided by the payer). Federal form 1040x If you do not, tax will be withheld as if you were married and claiming three withholding allowances. Federal form 1040x   Tax will be withheld as if you were single and were claiming no withholding allowances if: You do not give the payer your social security number (in the required manner), or The IRS notifies the payer (before any payment is made) that you gave an incorrect social security number. Federal form 1040x   You must file a new withholding certificate to change the amount of withholding. Federal form 1040x Nonperiodic distributions. Federal form 1040x    Unless you choose no withholding, the withholding rate for a nonperiodic distribution (a payment other than a periodic payment) that is not an eligible rollover distribution is 10% of the distribution. Federal form 1040x You can also ask the payer to withhold an additional amount using Form W-4P. Federal form 1040x The part of any loan treated as a distribution (except an offset amount to repay the loan), explained later, is subject to withholding under this rule. Federal form 1040x Eligible rollover distribution. Federal form 1040x    If you receive an eligible rollover distribution, 20% of it generally will be withheld for income tax. Federal form 1040x You cannot choose not to have tax withheld from an eligible rollover distribution. Federal form 1040x However, tax will not be withheld if you have the plan administrator pay the eligible rollover distribution directly to another qualified plan or an IRA in a direct rollover. Federal form 1040x For more information about eligible rollover distributions, see Rollovers , later. Federal form 1040x Estimated tax. Federal form 1040x   Your estimated tax is the total of your expected income tax, self-employment tax, and certain other taxes for the year, minus your expected credits and withheld tax. Federal form 1040x Generally, you must make estimated tax payments for 2014 if you expect to owe at least $1,000 in tax (after subtracting your withholding and credits) and you expect your withholding and credits to be less than the smaller of: 90% of the tax to be shown on your 2014 return, or 100% of the tax shown on your 2013 return. Federal form 1040x If your adjusted gross income for 2013 was more than $150,000 ($75,000 if your filing status for 2014 is married filing separately), substitute 110% for 100% in (2) above. Federal form 1040x For more information, get Publication 505, Tax Withholding and Estimated Tax. Federal form 1040x In figuring your withholding or estimated tax, remember that a part of your monthly social security or equivalent tier 1 railroad retirement benefits may be taxable. Federal form 1040x See Publication 915. Federal form 1040x You can choose to have income tax withheld from those benefits. Federal form 1040x Use Form W-4V to make this choice. Federal form 1040x Cost (Investment in the Contract) Distributions from your pension or annuity plan may include amounts treated as a recovery of your cost (investment in the contract). Federal form 1040x If any part of a distribution is treated as a recovery of your cost under the rules explained in this publication, that part is tax free. Federal form 1040x Therefore, the first step in figuring how much of a distribution is taxable is to determine the cost of your pension or annuity. Federal form 1040x In general, your cost is your net investment in the contract as of the annuity starting date (or the date of the distribution, if earlier). Federal form 1040x To find this amount, you must first figure the total premiums, contributions, or other amounts you paid. Federal form 1040x This includes the amounts your employer contributed that were taxable to you when paid. Federal form 1040x (However, see Foreign employment contributions , later. Federal form 1040x ) It does not include amounts withheld from your pay on a tax-deferred basis (money that was taken out of your gross pay before taxes were deducted). Federal form 1040x It also does not include amounts you contributed for health and accident benefits (including any additional premiums paid for double indemnity or disability benefits). Federal form 1040x From this total cost you must subtract the following amounts. Federal form 1040x Any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income and that you received by the later of the annuity starting date or the date on which you received your first payment. Federal form 1040x Any other tax-free amounts you received under the contract or plan by the later of the dates in (1). Federal form 1040x If you must use the Simplified Method for your annuity payments, the tax-free part of any single-sum payment received in connection with the start of the annuity payments, regardless of when you received it. Federal form 1040x (See Simplified Method , later, for information on its required use. Federal form 1040x ) If you use the General Rule for your annuity payments, the value of the refund feature in your annuity contract. Federal form 1040x (See General Rule , later, for information on its use. Federal form 1040x ) Your annuity contract has a refund feature if the annuity payments are for your life (or the lives of you and your survivor) and payments in the nature of a refund of the annuity's cost will be made to your beneficiary or estate if all annuitants die before a stated amount or a stated number of payments are made. Federal form 1040x For more information, see Publication 939. Federal form 1040x The tax treatment of the items described in (1) through (3) is discussed later under Taxation of Nonperiodic Payments . Federal form 1040x Form 1099-R. Federal form 1040x If you began receiving periodic payments of a life annuity in 2013, the payer should show your total contributions to the plan in box 9b of your 2013 Form 1099-R. Federal form 1040x Annuity starting date defined. Federal form 1040x   Your annuity starting date is the later of the first day of the first period for which you received a payment or the date the plan's obligations became fixed. Federal form 1040x Example. Federal form 1040x On January 1, you completed all your payments required under an annuity contract providing for monthly payments starting on August 1 for the period beginning July 1. Federal form 1040x The annuity starting date is July 1. Federal form 1040x This is the date you use in figuring the cost of the contract and selecting the appropriate number from Table 1 for line 3 of the Simplified Method Worksheet. Federal form 1040x Designated Roth accounts. Federal form 1040x   Your cost in these accounts is your designated Roth contributions that were included in your income as wages subject to applicable withholding requirements. Federal form 1040x Your cost will also include any in-plan Roth rollovers you included in income. Federal form 1040x Foreign employment contributions. Federal form 1040x   If you worked abroad, your cost may include contributions by your employer to the retirement plan, but only if those contributions would be excludible from your gross income had they been paid directly to you as compensation. Federal form 1040x The contributions that apply are: Contributions before 1963 by your employer, Contributions after 1962 by your employer if the contributions would be excludible from your gross income (not including the foreign earned income exclusion) had they been paid directly to you, or Contributions after 1996 by your employer if you performed the services of a foreign missionary (a duly ordained, commissioned, or licensed minister of a church or a lay person) but only if the contributions would be excludible from your gross income had they been paid directly to you. Federal form 1040x Foreign employment contributions while a nonresident alien. Federal form 1040x   In determining your cost, special rules apply if you are a U. Federal form 1040x S. Federal form 1040x citizen or resident alien who received distributions in 2013 from a plan to which contributions were made while you were a nonresident alien. Federal form 1040x Your contributions and your employer's contributions are not included in your cost if the contribution: Was made based on compensation which was for services performed outside the United States while you were a nonresident alien, and Was not subject to income tax under the laws of the United States or any foreign country, but only if the contribution would have been subject to income tax if paid as cash compensation when the services were performed. Federal form 1040x Taxation of Periodic Payments This section explains how the periodic payments you receive from a pension or annuity plan are taxed. Federal form 1040x Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for a period of time greater than one year (such as for 15 years or for life). Federal form 1040x These payments are also known as amounts received as an annuity. Federal form 1040x If you receive an amount from your plan that is not a periodic payment, see Taxation of Nonperiodic Payments , later. Federal form 1040x In general, you can recover the cost of your pension or annuity tax free over the period you are to receive the payments. Federal form 1040x The amount of each payment that is more than the part that represents your cost is taxable (however, see Insurance Premiums for Retired Public Safety Officers , earlier). Federal form 1040x Designated Roth accounts. Federal form 1040x   If you receive a qualified distribution from a designated Roth account, the distribution is not included in your gross income. Federal form 1040x This applies to both your cost in the account and income earned on that account. Federal form 1040x A qualified distribution is generally a distribution that is: Made after a 5-tax-year period of participation, and Made on or after the date you reach age 59½, made to a beneficiary or your estate on or after your death, or attributable to your being disabled. Federal form 1040x   If the distribution is not a qualified distribution, the rules discussed in this section apply. Federal form 1040x The designated Roth account is treated as a separate contract. Federal form 1040x Period of participation. Federal form 1040x   The 5-tax-year period of participation is the 5-tax-year period beginning with the first tax year for which the participant made a designated Roth contribution to the plan. Federal form 1040x Therefore, for designated Roth contributions made for 2013, the first year for which a qualified distribution can be made is 2018. Federal form 1040x   However, if a direct rollover is made to the plan from a designated Roth account under another plan, the 5-tax-year period for the recipient plan begins with the first tax year for which the participant first had designated Roth contributions made to the other plan. Federal form 1040x   Your 401(k), 403(b), or 457(b) plan may permit you to roll over amounts from those plans to a designated Roth account within the same plan. Federal form 1040x This is known as an in-plan Roth rollover. Federal form 1040x For more details, see In-plan Roth rollovers , later. Federal form 1040x Fully Taxable Payments The pension or annuity payments that you receive are fully taxable if you have no cost in the contract because any of the following situations applies to you (however, see Insurance Premiums for Retired Public Safety Officers , earlier). Federal form 1040x You did not pay anything or are not considered to have paid anything for your pension or annuity. Federal form 1040x Amounts withheld from your pay on a tax-deferred basis are not considered part of the cost of the pension or annuity payment. Federal form 1040x Your employer did not withhold contributions from your salary. Federal form 1040x You got back all of your contributions tax free in prior years (however, see Exclusion not limited to cost under Partly Taxable Payments, later). Federal form 1040x Report the total amount you got on Form 1040, line 16b; Form 1040A, line 12b; or on Form 1040NR, line 17b. Federal form 1040x You should make no entry on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Federal form 1040x Deductible voluntary employee contributions. Federal form 1040x   Distributions you receive that are based on your accumulated deductible voluntary employee contributions are generally fully taxable in the year distributed to you. Federal form 1040x Accumulated deductible voluntary employee contributions include net earnings on the contributions. Federal form 1040x If distributed as part of a lump sum, they do not qualify for the 10-year tax option or capital gain treatment, explained later. Federal form 1040x Partly Taxable Payments If you have a cost to recover from your pension or annuity plan (see Cost (Investment in the Contract) , earlier), you can exclude part of each annuity payment from income as a recovery of your cost. Federal form 1040x This tax-free part of the payment is figured when your annuity starts and remains the same each year, even if the amount of the payment changes. Federal form 1040x The rest of each payment is taxable (however, see Insurance Premiums for Retired Public Safety Officers , earlier). Federal form 1040x You figure the tax-free part of the payment using one of the following methods. Federal form 1040x Simplified Method. Federal form 1040x You generally must use this method if your annuity is paid under a qualified plan (a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity plan or contract). Federal form 1040x You cannot use this method if your annuity is paid under a nonqualified plan. Federal form 1040x General Rule. Federal form 1040x You must use this method if your annuity is paid under a nonqualified plan. Federal form 1040x You generally cannot use this method if your annuity is paid under a qualified plan. Federal form 1040x You determine which method to use when you first begin receiving your annuity, and you continue using it each year that you recover part of your cost. Federal form 1040x If you had more than one partly taxable pension or annuity, figure the tax-free part and the taxable part of each separately. Federal form 1040x Qualified plan annuity starting before November 19, 1996. Federal form 1040x   If your annuity is paid under a qualified plan and your annuity starting date (defined earlier under Cost (Investment in the Contract) ) is after July 1, 1986, and before November 19, 1996, you could have chosen to use either the Simplified Method or the General Rule. Federal form 1040x If your annuity starting date is before July 2, 1986, you use the General Rule unless your annuity qualified for the Three-Year Rule. Federal form 1040x If you used the Three-Year Rule (which was repealed for annuities starting after July 1, 1986), your annuity payments are generally now fully taxable. Federal form 1040x Exclusion limit. Federal form 1040x   Your annuity starting date determines the total amount of annuity payments that you can exclude from income over the years. Federal form 1040x Once your annuity starting date is determined, it does not change. Federal form 1040x If you calculate the taxable portion of your annuity payments using the simplified method worksheet, the annuity starting date determines the recovery period for your cost. Federal form 1040x That recovery period begins on your annuity starting date and is not affected by the date you first complete the worksheet. Federal form 1040x Exclusion limited to cost. Federal form 1040x   If your annuity starting date is after 1986, the total amount of annuity income that you can exclude over the years as a recovery of the cost cannot exceed your total cost. Federal form 1040x Any unrecovered cost at your (or the last annuitant's) death is allowed as a miscellaneous itemized deduction on the final return of the decedent. Federal form 1040x This deduction is not subject to the 2%-of-adjusted-gross-income limit. Federal form 1040x Example 1. Federal form 1040x Your annuity starting date is after 1986, and you exclude $100 a month ($1,200 a year) under the Simplified Method. Federal form 1040x The total cost of your annuity is $12,000. Federal form 1040x Your exclusion ends when you have recovered your cost tax free, that is, after 10 years (120 months). Federal form 1040x After that, your annuity payments are generally fully taxable. Federal form 1040x Example 2. Federal form 1040x The facts are the same as in Example 1, except you die (with no surviving annuitant) after the eighth year of retirement. Federal form 1040x You have recovered tax free only $9,600 (8 × $1,200) of your cost. Federal form 1040x An itemized deduction for your unrecovered cost of $2,400 ($12,000 – $9,600) can be taken on your final return. Federal form 1040x Exclusion not limited to cost. Federal form 1040x   If your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. Federal form 1040x If you chose a joint and survivor annuity, your survivor can continue to take the survivor's exclusion figured as of the annuity starting date. Federal form 1040x The total exclusion may be more than your cost. Federal form 1040x Simplified Method Under the Simplified Method, you figure the tax-free part of each annuity payment by dividing your cost by the total number of anticipated monthly payments. Federal form 1040x For an annuity that is payable for the lives of the annuitants, this number is based on the annuitants' ages on the annuity starting date and is determined from a table. Federal form 1040x For any other annuity, this number is the number of monthly annuity payments under the contract. Federal form 1040x Who must use the Simplified Method. Federal form 1040x   You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you meet both of the following conditions. Federal form 1040x You receive your pension or annuity payments from any of the following plans. Federal form 1040x A qualified employee plan. Federal form 1040x A qualified employee annuity. Federal form 1040x A tax-sheltered annuity plan (403(b) plan). Federal form 1040x On your annuity starting date, at least one of the following conditions applies to you. Federal form 1040x You are under age 75. Federal form 1040x You are entitled to less than 5 years of guaranteed payments. Federal form 1040x Guaranteed payments. Federal form 1040x   Your annuity contract provides guaranteed payments if a minimum number of payments or a minimum amount (for example, the amount of your investment) is payable even if you and any survivor annuitant do not live to receive the minimum. Federal form 1040x If the minimum amount is less than the total amount of the payments you are to receive, barring death, during the first 5 years after payments begin (figured by ignoring any payment increases), you are entitled to less than 5 years of guaranteed payments. Federal form 1040x Annuity starting before November 19, 1996. Federal form 1040x   If your annuity starting date is after July 1, 1986, and before November 19, 1996, and you chose to use the Simplified Method, you must continue to use it each year that you recover part of your cost. Federal form 1040x You could have chosen to use the Simplified Method if your annuity is payable for your life (or the lives of you and your survivor annuitant) and you met both of the conditions listed earlier under Who must use the Simplified Method . Federal form 1040x Who cannot use the Simplified Method. Federal form 1040x   You cannot use the Simplified Method if you receive your pension or annuity from a nonqualified plan or otherwise do not meet the conditions described in the preceding discussion. Federal form 1040x See General Rule , later. Federal form 1040x How to use the Simplified Method. Federal form 1040x    Complete Worksheet A in the back of this publication to figure your taxable annuity for 2013. Federal form 1040x Be sure to keep the completed worksheet; it will help you figure your taxable annuity next year. Federal form 1040x   To complete line 3 of the worksheet, you must determine the total number of expected monthly payments for your annuity. Federal form 1040x How you do this depends on whether the annuity is for a single life, multiple lives, or a fixed period. Federal form 1040x For this purpose, treat an annuity that is payable over the life of an annuitant as payable for that annuitant's life even if the annuity has a fixed-period feature or also provides a temporary annuity payable to the annuitant's child under age 25. Federal form 1040x    You do not need to complete line 3 of the worksheet or make the computation on line 4 if you received annuity payments last year and used last year's worksheet to figure your taxable annuity. Federal form 1040x Instead, enter the amount from line 4 of last year's worksheet on line 4 of this year's worksheet. Federal form 1040x Single-life annuity. Federal form 1040x   If your annuity is payable for your life alone, use Table 1 at the bottom of the worksheet to determine the total number of expected monthly payments. Federal form 1040x Enter on line 3 the number shown for your age on your annuity starting date. Federal form 1040x This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Federal form 1040x Multiple-lives annuity. Federal form 1040x   If your annuity is payable for the lives of more than one annuitant, use Table 2 at the bottom of the worksheet to determine the total number of expected monthly payments. Federal form 1040x Enter on line 3 the number shown for the annuitants' combined ages on the annuity starting date. Federal form 1040x For an annuity payable to you as the primary annuitant and to more than one survivor annuitant, combine your age and the age of the youngest survivor annuitant. Federal form 1040x For an annuity that has no primary annuitant and is payable to you and others as survivor annuitants, combine the ages of the oldest and youngest annuitants. Federal form 1040x Do not treat as a survivor annuitant anyone whose entitlement to payments depends on an event other than the primary annuitant's death. Federal form 1040x   However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages. Federal form 1040x Instead, you must use Table 1 at the bottom of the worksheet and enter on line 3 the number shown for the primary annuitant's age on the annuity starting date. Federal form 1040x This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Federal form 1040x Fixed-period annuity. Federal form 1040x   If your annuity does not depend in whole or in part on anyone's life expectancy, the total number of expected monthly payments to enter on line 3 of the worksheet is the number of monthly annuity payments under the contract. Federal form 1040x Line 6. Federal form 1040x   The amount on line 6 should include all amounts that could have been recovered in prior years. Federal form 1040x If you did not recover an amount in a prior year, you may be able to amend your returns for the affected years. Federal form 1040x Example. Federal form 1040x Bill Smith, age 65, began receiving retirement benefits in 2013 under a joint and survivor annuity. Federal form 1040x Bill's annuity starting date is January 1, 2013. Federal form 1040x The benefits are to be paid for the joint lives of Bill and his wife, Kathy, age 65. Federal form 1040x Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. Federal form 1040x Bill is to receive a retirement benefit of $1,200 a month, and Kathy is to receive a monthly survivor benefit of $600 upon Bill's death. Federal form 1040x Bill must use the Simplified Method to figure his taxable annuity because his payments are from a qualified plan and he is under age 75. Federal form 1040x Because his annuity is payable over the lives of more than one annuitant, he uses his and Kathy's combined ages and Table 2 at the bottom of Worksheet A in completing line 3 of the worksheet. Federal form 1040x His completed worksheet is shown later. Federal form 1040x Bill's tax-free monthly amount is $100 ($31,000 ÷ 310) as shown on line 4 of the worksheet. Federal form 1040x Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. Federal form 1040x The full amount of any annuity payments received after 310 payments are paid must be included in gross income. Federal form 1040x If Bill and Kathy die before 310 payments are made, a miscellaneous itemized deduction will be allowed for the unrecovered cost on the final income tax return of the last to die. Federal form 1040x This deduction is not subject to the 2%-of-adjusted-gross-income limit. Federal form 1040x Worksheet A. Federal form 1040x Simplified Method Worksheet for Bill Smith 1. Federal form 1040x Enter the total pension or annuity payments received this year. Federal form 1040x Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Federal form 1040x $14,400 2. Federal form 1040x Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion. Federal form 1040x * See Cost (Investment in the Contract) , earlier 2. Federal form 1040x 31,000   Note. Federal form 1040x If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if the amount of your pension or annuity has changed). Federal form 1040x Otherwise, go to line 3. Federal form 1040x     3. Federal form 1040x Enter the appropriate number from Table 1 below. Federal form 1040x But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2 below 3. Federal form 1040x 310 4. Federal form 1040x Divide line 2 by the number on line 3 4. Federal form 1040x 100 5. Federal form 1040x Multiply line 4 by the number of months for which this year's payments were made. Federal form 1040x If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Federal form 1040x Otherwise, go to line 6 5. Federal form 1040x 1,200 6. Federal form 1040x Enter any amount previously recovered tax free in years after 1986. Federal form 1040x This is the amount shown on line 10 of your worksheet for last year 6. Federal form 1040x -0- 7. Federal form 1040x Subtract line 6 from line 2 7. Federal form 1040x 31,000 8. Federal form 1040x Enter the smaller of line 5 or line 7 8. Federal form 1040x 1,200 9. Federal form 1040x Taxable amount for year. Federal form 1040x Subtract line 8 from line 1. Federal form 1040x Enter the result, but not less than zero. Federal form 1040x Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Federal form 1040x Note: If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. Federal form 1040x If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers , earlier, before entering an amount on your tax return 9. Federal form 1040x $13,200 10. Federal form 1040x Was your annuity starting date before 1987? □ Yes. Federal form 1040x STOP. Federal form 1040x Do not complete the rest of this worksheet. Federal form 1040x  ☑ No. Federal form 1040x Add lines 6 and 8. Federal form 1040x This is the amount you have recovered tax free through 2013. Federal form 1040x You will need this number if you need to fill out this worksheet next year 10. Federal form 1040x 1,200 11. Federal form 1040x Balance of cost to be recovered. Federal form 1040x Subtract line 10 from line 2. Federal form 1040x If zero, you will not have to complete this worksheet next year. Federal form 1040x The payments you receive next year will generally be fully taxable 11. Federal form 1040x $29,800         * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. Federal form 1040x           Table 1 for Line 3 Above       AND your annuity starting date was—     IF the age at annuity starting date was. Federal form 1040x . Federal form 1040x . Federal form 1040x BEFORE November 19, 1996, enter on line 3. Federal form 1040x . Federal form 1040x . Federal form 1040x AFTER November 18, 1996, enter on line 3. Federal form 1040x . Federal form 1040x . Federal form 1040x     55 or under 300 360     56-60 260 310     61-65 240 260     66-70 170 210     71 or older 120 160     Table 2 for Line 3 Above     IF the combined ages at  annuity starting date were. Federal form 1040x . Federal form 1040x . Federal form 1040x THEN enter on line 3. Federal form 1040x . Federal form 1040x . Federal form 1040x     110 or under   410     111-120   360     121-130   310     131-140   260     141 or older   210   Multiple annuitants. Federal form 1040x   If you and one or more other annuitants receive payments at the same time, you exclude from each annuity payment a pro rata share of the monthly tax-free amount. Federal form 1040x Figure your share by taking the following steps. Federal form 1040x Complete your worksheet through line 4 to figure the monthly tax-free amount. Federal form 1040x Divide the amount of your monthly payment by the total amount of the monthly payments to all annuitants. Federal form 1040x Multiply the amount on line 4 of your worksheet by the amount figured in (2) above. Federal form 1040x The result is your share of the monthly tax-free amount. Federal form 1040x   Replace the amount on line 4 of the worksheet with the result in (3) above. Federal form 1040x Enter that amount on line 4 of your worksheet each year. Federal form 1040x General Rule Under the General Rule, you determine the tax-free part of each annuity payment based on the ratio of the cost of the contract to the total expected return. Federal form 1040x Expected return is the total amount you and other eligible annuitants can expect to receive under the contract. Federal form 1040x To figure it, you must use life expectancy (actuarial) tables prescribed by the IRS. Federal form 1040x Who must use the General Rule. Federal form 1040x   You must use the General Rule if you receive pension or annuity payments from: A nonqualified plan (such as a private annuity, a purchased commercial annuity, or a nonqualified employee plan), or A qualified plan if you are age 75 or older on your annuity starting date and your annuity payments are guaranteed for at least 5 years. Federal form 1040x Annuity starting before November 19, 1996. Federal form 1040x   If your annuity starting date is after July 1, 1986, and before November 19, 1996, you had to use the General Rule for either circumstance just described. Federal form 1040x You also had to use it for any fixed-period annuity. Federal form 1040x If you did not have to use the General Rule, you could have chosen to use it. Federal form 1040x If your annuity starting date is before July 2, 1986, you had to use the General Rule unless you could use the Three-Year Rule. Federal form 1040x   If you had to use the General Rule (or chose to use it), you must continue to use it each year that you recover your cost. Federal form 1040x Who cannot use the General Rule. Federal form 1040x   You cannot use the General Rule if you receive your pension or annuity from a qualified plan and none of the circumstances described in the preceding discussions apply to you. Federal form 1040x See Simplified Method , earlier. Federal form 1040x More information. Federal form 1040x   For complete information on using the General Rule, including the actuarial tables you need, see Publication 939. Federal form 1040x Taxation of Nonperiodic Payments This section of the publication explains how any nonperiodic distributions you receive under a pension or annuity plan are taxed. Federal form 1040x Nonperiodic distributions are also known as amounts not received as an annuity. Federal form 1040x They include all payments other than periodic payments and corrective distributions. Federal form 1040x For example, the following items are treated as nonperiodic distributions. Federal form 1040x Cash withdrawals. Federal form 1040x Distributions of current earnings (dividends) on your investment. Federal form 1040x However, do not include these distributions in your income to the extent the insurer keeps them to pay premiums or other consideration for the contract. Federal form 1040x Certain loans. Federal form 1040x See Loans Treated as Distributions , later. Federal form 1040x The value of annuity contracts transferred without full and adequate consideration. Federal form 1040x See Transfers of Annuity Contracts , later. Federal form 1040x Corrective distributions of excess plan contributions. Federal form 1040x   Generally, if the contributions made for you during the year to certain retirement plans exceed certain limits, the excess is taxable to you. Federal form 1040x To correct an excess, your plan may distribute it to you (along with any income earned on the excess). Federal form 1040x Although the plan reports the corrective distributions on Form 1099-R, the distribution is not treated as a nonperiodic distribution from the plan. Federal form 1040x It is not subject to the allocation rules explained in the following discussion, it cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Federal form 1040x    If your retirement plan made a corrective distribution of excess amounts (excess deferrals, excess contributions, or excess annual additions), your Form 1099-R should have the code “8,” “B,” “P,” or “E” in box 7. Federal form 1040x   For information on plan contribution limits and how to report corrective distributions of excess contributions, see Retirement Plan Contributions under Employee Compensation in Publication 525. Federal form 1040x Figuring the Taxable Amount How you figure the taxable amount of a nonperiodic distribution depends on whether it is made before the annuity starting date, or on or after the annuity starting date. Federal form 1040x If it is made before the annuity starting date, its tax treatment also depends on whether it is made under a qualified or nonqualified plan. Federal form 1040x If it is made under a nonqualified plan, its tax treatment depends on whether it fully discharges the contract, is received under certain life insurance or endowment contracts, or is allocable to an investment you made before August 14, 1982. Federal form 1040x You may be able to roll over the taxable amount of a nonperiodic distribution from a qualified retirement plan into another qualified retirement plan or a traditional IRA tax free. Federal form 1040x See Rollovers, later. Federal form 1040x If you do not make a tax-free rollover and the distribution qualifies as a lump-sum distribution, you may be able to elect an optional method of figuring the tax on the taxable amount. Federal form 1040x See Lump-Sum Distributions, later. Federal form 1040x Annuity starting date. Federal form 1040x   The annuity starting date is either the first day of the first period for which you receive an annuity payment under the contract or the date on which the obligation under the contract becomes fixed, whichever is later. Federal form 1040x Distributions of employer securities. Federal form 1040x    If you receive a distribution of employer securities from a qualified retirement plan, you may be able to defer the tax on the net unrealized appreciation (NUA) in the securities. Federal form 1040x The NUA is the net increase in the securities' value while they were in the trust. Federal form 1040x This tax deferral applies to distributions of the employer corporation's stocks, bonds, registered debentures, and debentures with interest coupons attached. Federal form 1040x   If the distribution is a lump-sum distribution, tax is deferred on all of the NUA unless you choose to include it in your income for the year of the distribution. Federal form 1040x    A lump-sum distribution for this purpose is the distribution or payment of a plan participant's entire balance (within a single tax year) from all of the employer's qualified plans of one kind (pension, profit-sharing, or stock bonus plans), but only if paid: Because of the plan participant's death, After the participant reaches age 59½, Because the participant, if an employee, separates from service, or After the participant, if a self-employed individual, becomes totally and permanently disabled. Federal form 1040x    If you choose to include NUA in your income for the year of the distribution and the participant was born before January 2, 1936, you may be able to figure the tax on the NUA using the optional methods described und
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Understanding your CP166 Notice

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I sent my monthly payment in the mail this month. Why did the IRS attempt to debit my account?
Once you establish a Direct Debit Installment Agreement (DDIA), you have agreed to the IRS debiting the fixed payment on the established date every month. Unless you made other arrangements, your payment plan is by DDIA, so even if you mailed in a payment, we’ll still attempt to withdraw your monthly payment from your account.

I mailed the IRS my updated checking account information, but you tried to take the money out of my old account. How do I make sure you have the right account information?
If you think we haven’t updated your account information timely or accurately, please contact us at the toll free number on your notice to verify that we have the correct information on your Direct Debit Installment Agreement (DDIA). If your bank charged you a fee because we attempted to debit your old account, you will have to contact your bank for them to waive any fees they charged. Their fees are independent of any charges from the IRS.

I’m sure I had enough money in my account. Why did the bank tell you there were insufficient funds?
You’ll have to contact your bank to clarify the situation. In addition, if your installment agreement is now in default and you believe you had sufficient funds in your bank account on the payment due date, please write to the address shown on your notice. Be sure to include a signed statement of explanation along with proof you had sufficient funds. The lower portion of your notice must accompany any correspondence you send us.

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The notice I received mentioned that "interest may increase" if there are insufficient funds in my bank account. What’s the current interest, and how much will it increase?
Interest is charged on any unpaid balances on your account, so as long as you owe money, interest is charged and added to your account balance(s). The interest amount you owe on your unpaid balance will increase, but not the interest rate.

The rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.


Tips for next year

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.

Page Last Reviewed or Updated: 26-Mar-2014

The Federal Form 1040x

Federal form 1040x 1. Federal form 1040x   Rental Income and Expenses (If No Personal Use of Dwelling) Table of Contents Rental IncomeWhen To Report Types of Income Rental ExpensesWhen To Deduct Types of Expenses This chapter discusses the various types of rental income and expenses for a residential rental activity with no personal use of the dwelling. Federal form 1040x Generally, each year you will report all income and deduct all out-of-pocket expenses in full. Federal form 1040x The deduction to recover the cost of your rental property—depreciation—is taken over a prescribed number of years, and is discussed in chapter 2, Depreciation of Rental Property. Federal form 1040x If your rental income is from property you also use personally or rent to someone at less than a fair rental price, first read the information in chapter 5 , Personal Use of Dwelling Unit (Including Vacation Home). Federal form 1040x Rental Income In most cases, you must include in your gross income all amounts you receive as rent. Federal form 1040x Rental income is any payment you receive for the use or occupation of property. Federal form 1040x In addition to amounts you receive as normal rental payments, there are other amounts that may be rental income. Federal form 1040x When To Report When you report rental income on your tax return generally depends on whether you are a cash basis taxpayer or use an accrual method. Federal form 1040x Most individual taxpayers use the cash method. Federal form 1040x Cash method. Federal form 1040x   You are a cash basis taxpayer if you report income on your return in the year you actually or constructively receive it, regardless of when it was earned. Federal form 1040x You constructively receive income when it is made available to you, for example, by being credited to your bank account. Federal form 1040x Accrual method. Federal form 1040x    If you are an accrual basis taxpayer, you generally report income when you earn it, rather than when you receive it. Federal form 1040x You generally deduct your expenses when you incur them, rather than when you pay them. Federal form 1040x More information. Federal form 1040x   See Publication 538, Accounting Periods and Methods, for more information about when you constructively receive income and accrual methods of accounting. Federal form 1040x Types of Income The following are common types of rental income. Federal form 1040x Advance rent. Federal form 1040x   Advance rent is any amount you receive before the period that it covers. Federal form 1040x Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use. Federal form 1040x Example. Federal form 1040x On March 18, 2013, you signed a 10-year lease to rent your property. Federal form 1040x During 2013, you received $9,600 for the first year's rent and $9,600 as rent for the last year of the lease. Federal form 1040x You must include $19,200 in your rental income in the first year. Federal form 1040x Canceling a lease. Federal form 1040x   If your tenant pays you to cancel a lease, the amount you receive is rent. Federal form 1040x Include the payment in your income in the year you receive it regardless of your method of accounting. Federal form 1040x Expenses paid by tenant. Federal form 1040x   If your tenant pays any of your expenses, those payments are rental income. Federal form 1040x Because you must include this amount in income, you can also deduct the expenses if they are deductible rental expenses. Federal form 1040x For more information, see Rental Expenses , later. Federal form 1040x Example 1. Federal form 1040x Your tenant pays the water and sewage bill for your rental property and deducts the amount from the normal rent payment. Federal form 1040x Under the terms of the lease, your tenant does not have to pay this bill. Federal form 1040x Include the utility bill paid by the tenant and any amount received as a rent payment in your rental income. Federal form 1040x You can deduct the utility payment made by your tenant as a rental expense. Federal form 1040x Example 2. Federal form 1040x While you are out of town, the furnace in your rental property stops working. Federal form 1040x Your tenant pays for the necessary repairs and deducts the repair bill from the rent payment. Federal form 1040x Include the repair bill paid by the tenant and any amount received as a rent payment in your rental income. Federal form 1040x You can deduct the repair payment made by your tenant as a rental expense. Federal form 1040x Property or services. Federal form 1040x   If you receive property or services as rent, instead of money, include the fair market value of the property or services in your rental income. Federal form 1040x   If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary. Federal form 1040x Example. Federal form 1040x Your tenant is a house painter. Federal form 1040x He offers to paint your rental property instead of paying 2 months rent. Federal form 1040x You accept his offer. Federal form 1040x Include in your rental income the amount the tenant would have paid for 2 months rent. Federal form 1040x You can deduct that same amount as a rental expense for painting your property. Federal form 1040x Security deposits. Federal form 1040x   Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. Federal form 1040x But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year. Federal form 1040x    If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Federal form 1040x Include it in your income when you receive it. Federal form 1040x Other Sources of Rental Income Lease with option to buy. Federal form 1040x   If the rental agreement gives your tenant the right to buy your rental property, the payments you receive under the agreement are generally rental income. Federal form 1040x If your tenant exercises the right to buy the property, the payments you receive for the period after the date of sale are considered part of the selling price. Federal form 1040x Part interest. Federal form 1040x   If you own a part interest in rental property, you must report your part of the rental income from the property. Federal form 1040x Rental of property also used as your home. Federal form 1040x   If you rent property that you also use as your home and you rent it less than 15 days during the tax year, do not include the rent you receive in your income and do not deduct rental expenses. Federal form 1040x However, you can deduct on Schedule A (Form 1040), Itemized Deductions, the interest, taxes, and casualty and theft losses that are allowed for nonrental property. Federal form 1040x See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Federal form 1040x Rental Expenses In most cases, the expenses of renting your property, such as maintenance, insurance, taxes, and interest, can be deducted from your rental income. Federal form 1040x Personal use of rental property. Federal form 1040x   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. Federal form 1040x Also, your rental expense deductions may be limited. Federal form 1040x See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Federal form 1040x Part interest. Federal form 1040x   If you own a part interest in rental property, you can deduct expenses you paid according to your percentage of ownership. Federal form 1040x Example. Federal form 1040x Roger owns a one-half undivided interest in a rental house. Federal form 1040x Last year he paid $968 for necessary repairs on the property. Federal form 1040x Roger can deduct $484 (50% × $968) as a rental expense. Federal form 1040x He is entitled to reimbursement for the remaining half from the co-owner. Federal form 1040x When To Deduct You generally deduct your rental expenses in the year you pay them. Federal form 1040x If you use the accrual method, see Publication 538 for more information. Federal form 1040x Types of Expenses Listed below are the most common rental expenses. Federal form 1040x Advertising. Federal form 1040x Auto and travel expenses. Federal form 1040x Cleaning and maintenance. Federal form 1040x Commissions. Federal form 1040x Depreciation. Federal form 1040x Insurance. Federal form 1040x Interest (other). Federal form 1040x Legal and other professional fees. Federal form 1040x Local transportation expenses. Federal form 1040x Management fees. Federal form 1040x Mortgage interest paid to banks, etc. Federal form 1040x Points. Federal form 1040x Rental payments. Federal form 1040x Repairs. Federal form 1040x Taxes. Federal form 1040x Utilities. Federal form 1040x Some of these expenses, as well as other less common ones, are discussed below. Federal form 1040x Depreciation. Federal form 1040x   Depreciation is a capital expense. Federal form 1040x It is the mechanism for recovering your cost in an income producing property and must be taken over the expected life of the property. Federal form 1040x   You can begin to depreciate rental property when it is ready and available for rent. Federal form 1040x See Placed in Service under When Does Depreciation Begin and End in chapter 2. Federal form 1040x Insurance premiums paid in advance. Federal form 1040x   If you pay an insurance premium for more than one year in advance, for each year of coverage you can deduct the part of the premium payment that will apply to that year. Federal form 1040x You cannot deduct the total premium in the year you pay it. Federal form 1040x See chapter 6 of Publication 535 for information on deductible premiums. Federal form 1040x Interest expense. Federal form 1040x   You can deduct mortgage interest you pay on your rental property. Federal form 1040x When you refinance a rental property for more than the previous outstanding balance, the portion of the interest allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Federal form 1040x Chapter 4 of Publication 535 explains mortgage interest in detail. Federal form 1040x Expenses paid to obtain a mortgage. Federal form 1040x   Certain expenses you pay to obtain a mortgage on your rental property cannot be deducted as interest. Federal form 1040x These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses that are part of your basis in the property. Federal form 1040x Form 1098, Mortgage Interest Statement. Federal form 1040x   If you paid $600 or more of mortgage interest on your rental property to any one person, you should receive a Form 1098 or similar statement showing the interest you paid for the year. Federal form 1040x If you and at least one other person (other than your spouse if you file a joint return) were liable for, and paid interest on, the mortgage, and the other person received the Form 1098, report your share of the interest on Schedule E (Form 1040), line 13. Federal form 1040x Attach a statement to your return showing the name and address of the other person. Federal form 1040x On the dotted line next to line 13, enter “See attached. Federal form 1040x ” Legal and other professional fees. Federal form 1040x   You can deduct, as a rental expense, legal and other professional expenses such as tax return preparation fees you paid to prepare Schedule E, Part I. Federal form 1040x For example, on your 2013 Schedule E you can deduct fees paid in 2013 to prepare Part I of your 2012 Schedule E. Federal form 1040x You can also deduct, as a rental expense, any expense (other than federal taxes and penalties) you paid to resolve a tax underpayment related to your rental activities. Federal form 1040x Local benefit taxes. Federal form 1040x   In most cases, you cannot deduct charges for local benefits that increase the value of your property, such as charges for putting in streets, sidewalks, or water and sewer systems. Federal form 1040x These charges are nondepreciable capital expenditures and must be added to the basis of your property. Federal form 1040x However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. Federal form 1040x Local transportation expenses. Federal form 1040x   You may be able to deduct your ordinary and necessary local transportation expenses if you incur them to collect rental income or to manage, conserve, or maintain your rental property. Federal form 1040x However, transportation expenses incurred to travel between your home and a rental property generally constitute nondeductible commuting costs unless you use your home as your principal place of business. Federal form 1040x See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Federal form 1040x   Generally, if you use your personal car, pickup truck, or light van for rental activities, you can deduct the expenses using one of two methods: actual expenses or the standard mileage rate. Federal form 1040x For 2013, the standard mileage rate for business use is 56. Federal form 1040x 5 cents per mile. Federal form 1040x For more information, see chapter 4 of Publication 463. Federal form 1040x    To deduct car expenses under either method, you must keep records that follow the rules in chapter 5 of Publication 463. Federal form 1040x In addition, you must complete Form 4562, Part V, and attach it to your tax return. Federal form 1040x Pre-rental expenses. Federal form 1040x   You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. Federal form 1040x Rental of equipment. Federal form 1040x   You can deduct the rent you pay for equipment that you use for rental purposes. Federal form 1040x However, in some cases, lease contracts are actually purchase contracts. Federal form 1040x If so, you cannot deduct these payments. Federal form 1040x You can recover the cost of purchased equipment through depreciation. Federal form 1040x Rental of property. Federal form 1040x   You can deduct the rent you pay for property that you use for rental purposes. Federal form 1040x If you buy a leasehold for rental purposes, you can deduct an equal part of the cost each year over the term of the lease. Federal form 1040x Travel expenses. Federal form 1040x   You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property. Federal form 1040x You must properly allocate your expenses between rental and nonrental activities. Federal form 1040x You cannot deduct the cost of traveling away from home if the primary purpose of the trip is to improve the property. Federal form 1040x The cost of improvements is recovered by taking depreciation. Federal form 1040x For information on travel expenses, see chapter 1 of Publication 463. Federal form 1040x    To deduct travel expenses, you must keep records that follow the rules in chapter 5 of Publication 463. Federal form 1040x Uncollected rent. Federal form 1040x   If you are a cash basis taxpayer, do not deduct uncollected rent. Federal form 1040x Because you have not included it in your income, it is not deductible. Federal form 1040x   If you use an accrual method, report income when you earn it. Federal form 1040x If you are unable to collect the rent, you may be able to deduct it as a business bad debt. Federal form 1040x See chapter 10 of Publication 535 for more information about business bad debts. Federal form 1040x Vacant rental property. Federal form 1040x   If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. Federal form 1040x However, you cannot deduct any loss of rental income for the period the property is vacant. Federal form 1040x Vacant while listed for sale. Federal form 1040x   If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. Federal form 1040x If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. Federal form 1040x Points The term “points” is often used to describe some of the charges paid, or treated as paid, by a borrower to take out a loan or a mortgage. Federal form 1040x These charges are also called loan origination fees, maximum loan charges, or premium charges. Federal form 1040x Any of these charges (points) that are solely for the use of money are interest. Federal form 1040x Because points are prepaid interest, you generally cannot deduct the full amount in the year paid, but must deduct the interest over the term of the loan. Federal form 1040x The method used to figure the amount of points you can deduct each year follows the original issue discount (OID) rules. Federal form 1040x In this case, points are equivalent to OID, which is the difference between: The amount borrowed (redemption price at maturity, or principal) and The proceeds (issue price). Federal form 1040x The first step is to determine whether your total OID (which you may have on bonds or other investments in addition to the mortgage loan), including the OID resulting from the points, is insignificant or de minimis. Federal form 1040x If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct. Federal form 1040x De minimis OID. Federal form 1040x   The OID is de minimis if it is less than one-fourth of 1% (. Federal form 1040x 0025) of the stated redemption price at maturity (principal amount of the loan) multiplied by the number of full years from the date of original issue to maturity (term of the loan). Federal form 1040x   If the OID is de minimis, you can choose one of the following ways to figure the amount of points you can deduct each year. Federal form 1040x On a constant-yield basis over the term of the loan. Federal form 1040x On a straight line basis over the term of the loan. Federal form 1040x In proportion to stated interest payments. Federal form 1040x In its entirety at maturity of the loan. Federal form 1040x You make this choice by deducting the OID (points) in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued. Federal form 1040x Example. Federal form 1040x Carol Madison took out a $100,000 mortgage loan on January 1, 2013, to buy a house she will use as a rental during 2013. Federal form 1040x The loan is to be repaid over 30 years. Federal form 1040x During 2013, Carol paid $10,000 of mortgage interest (stated interest) to the lender. Federal form 1040x When the loan was made, she paid $1,500 in points to the lender. Federal form 1040x The points reduced the principal amount of the loan from $100,000 to $98,500, resulting in $1,500 of OID. Federal form 1040x Carol determines that the points (OID) she paid are de minimis based on the following computation. Federal form 1040x Redemption price at maturity (principal amount of the loan) $100,000 Multiplied by: The term of the  loan in complete years ×30 Multiplied by ×. Federal form 1040x 0025 De minimis amount $7,500 The points (OID) she paid ($1,500) are less than the de minimis amount ($7,500). Federal form 1040x Therefore, Carol has de minimis OID and she can choose one of the four ways discussed earlier to figure the amount she can deduct each year. Federal form 1040x Under the straight line method, she can deduct $50 each year for 30 years. Federal form 1040x Constant-yield method. Federal form 1040x   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. Federal form 1040x   You figure your deduction for the first year in the following manner. Federal form 1040x Determine the issue price of the loan. Federal form 1040x If you paid points on the loan, the issue price generally is the difference between the principal and the points. Federal form 1040x Multiply the result in (1) by the yield to maturity (defined later). Federal form 1040x Subtract any qualified stated interest payments (defined later) from the result in (2). Federal form 1040x This is the OID you can deduct in the first year. Federal form 1040x Yield to maturity (YTM). Federal form 1040x   This rate is generally shown in the literature you receive from your lender. Federal form 1040x If you do not have this information, consult your lender or tax advisor. Federal form 1040x In general, the YTM is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the principal amount of the loan. Federal form 1040x Qualified stated interest (QSI). Federal form 1040x   In general, this is the stated interest that is unconditionally payable in cash or property (other than another loan of the issuer) at least annually over the term of the loan at a fixed rate. Federal form 1040x Example—Year 1. Federal form 1040x The facts are the same as in the previous example. Federal form 1040x The yield to maturity on Carol's loan is 10. Federal form 1040x 2467%, compounded annually. Federal form 1040x She figured the amount of points (OID) she could deduct in 2013 as follows. Federal form 1040x Principal amount of the loan $100,000 Minus: Points (OID) –1,500 Issue price of the loan $98,500 Multiplied by: YTM × . Federal form 1040x 102467 Total 10,093 Minus: QSI –10,000 Points (OID) deductible in 2013 $93 To figure your deduction in any subsequent year, you start with the adjusted issue price. Federal form 1040x To get the adjusted issue price, add to the issue price figured in Year 1 any OID previously deducted. Federal form 1040x Then follow steps (2) and (3), earlier. Federal form 1040x Example—Year 2. Federal form 1040x Carol figured the deduction for 2014 as follows. Federal form 1040x Issue price $98,500 Plus: Points (OID) deducted  in 2013 +93 Adjusted issue price $98,593 Multiplied by: YTM × . Federal form 1040x 102467 Total 10,103 Minus: QSI –10,000 Points (OID) deductible in 2014 $103 Loan or mortgage ends. Federal form 1040x    If your loan or mortgage ends, you may be able to deduct any remaining points (OID) in the tax year in which the loan or mortgage ends. Federal form 1040x A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. Federal form 1040x However, if the refinancing is with the same lender, the remaining points (OID) generally are not deductible in the year in which the refinancing occurs, but may be deductible over the term of the new mortgage or loan. Federal form 1040x Points when loan refinance is more than the previous outstanding balance. Federal form 1040x   When you refinance a rental property for more than the previous outstanding balance, the portion of the points allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Federal form 1040x For example, if an individual refinanced a loan with a balance of $100,000, the amount of the new loan was $120,000, and the taxpayer used $20,000 to purchase a car, points allocable to the $20,000 would be treated as nondeductible personal interest. Federal form 1040x Repairs and Improvements Generally, an expense for repairing or maintaining your rental property may be deducted if you are not required to capitalize the expense. Federal form 1040x Improvements. Federal form 1040x   You must capitalize any expense you pay to improve your rental property. Federal form 1040x An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use. Federal form 1040x Betterments. Federal form 1040x   Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property. Federal form 1040x Restoration. Federal form 1040x   Expenses that may be for restoration include expenses for replacing a substantial structural part of your property, repairing damage to your property after you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a like-new condition. Federal form 1040x Adaptation. Federal form 1040x   Expenses that may be for adaptation include expenses for altering your property to a use that is not consistent with the intended ordinary use of your property when you began renting the property. Federal form 1040x Separate the costs of repairs and improvements, and keep accurate records. Federal form 1040x You will need to know the cost of improvements when you sell or depreciate your property. Federal form 1040x The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. Federal form 1040x Table 1-1. Federal form 1040x Examples of Improvements Additions Bedroom Bathroom Deck Garage Porch Patio  Lawn & Grounds Landscaping Driveway Walkway Fence Retaining wall Sprinkler system Swimming pool Miscellaneous Storm windows, doors New roof Central vacuum Wiring upgrades Satellite dish Security system   Heating & Air Conditioning Heating system Central air conditioning Furnace Duct work Central humidifier Filtration system Plumbing Septic system Water heater Soft water system Filtration system  Interior Improvements Built-in appliances Kitchen modernization Flooring Wall-to-wall carpeting  Insulation Attic Walls, floor Pipes, duct work Prev  Up  Next   Home   More Online Publications