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Federal1040x Amendment

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Federal1040x Amendment

Federal1040x amendment 13. Federal1040x amendment   Basis of Property Table of Contents Introduction Useful Items - You may want to see: Cost BasisReal Property Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostProperty Received for Services Taxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed From Personal to Business or Rental Use Stocks and Bonds Introduction This chapter discusses how to figure your basis in property. Federal1040x amendment It is divided into the following sections. Federal1040x amendment Cost basis. Federal1040x amendment Adjusted basis. Federal1040x amendment Basis other than cost. Federal1040x amendment Your basis is the amount of your investment in property for tax purposes. Federal1040x amendment Use the basis to figure gain or loss on the sale, exchange, or other disposition of property. Federal1040x amendment Also use it to figure deductions for depreciation, amortization, depletion, and casualty losses. Federal1040x amendment If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. Federal1040x amendment Only the basis allocated to the business or investment use of the property can be depreciated. Federal1040x amendment Your original basis in property is adjusted (increased or decreased) by certain events. Federal1040x amendment For example, if you make improvements to the property, increase your basis. Federal1040x amendment If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis. Federal1040x amendment Keep accurate records of all items that affect the basis of your property. Federal1040x amendment For more information on keeping records, see chapter 1. Federal1040x amendment Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 535 Business Expenses 537 Installment Sales 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 551 Basis of Assets 946 How To Depreciate Property Cost Basis The basis of property you buy is usually its cost. Federal1040x amendment The cost is the amount you pay in cash, debt obligations, other property, or services. Federal1040x amendment Your cost also includes amounts you pay for the following items: Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if you assume liability for the seller). Federal1040x amendment In addition, the basis of real estate and business assets may include other items. Federal1040x amendment Loans with low or no interest. Federal1040x amendment    If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price minus any amount considered to be unstated interest. Federal1040x amendment You generally have unstated interest if your interest rate is less than the applicable federal rate. Federal1040x amendment   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. Federal1040x amendment Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. Federal1040x amendment If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. Federal1040x amendment Lump sum purchase. Federal1040x amendment   If you buy buildings and the land on which they stand for a lump sum, allocate the cost basis among the land and the buildings. Federal1040x amendment Allocate the cost basis according to the respective fair market values (FMVs) of the land and buildings at the time of purchase. Federal1040x amendment Figure the basis of each asset by multiplying the lump sum by a fraction. Federal1040x amendment The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Federal1040x amendment    If you are not certain of the FMVs of the land and buildings, you can allocate the basis according to their assessed values for real estate tax purposes. Federal1040x amendment Fair market value (FMV). Federal1040x amendment   FMV is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the necessary facts. Federal1040x amendment Sales of similar property on or about the same date may be helpful in figuring the FMV of the property. Federal1040x amendment Assumption of mortgage. Federal1040x amendment   If you buy property and assume (or buy the property subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. Federal1040x amendment Settlement costs. Federal1040x amendment   Your basis includes the settlement fees and closing costs you paid for buying the property. Federal1040x amendment (A fee for buying property is a cost that must be paid even if you buy the property for cash. Federal1040x amendment ) Do not include fees and costs for getting a loan on the property in your basis. Federal1040x amendment   The following are some of the settlement fees or closing costs you can include in the basis of your property. Federal1040x amendment Abstract fees (abstract of title fees). Federal1040x amendment Charges for installing utility services. Federal1040x amendment Legal fees (including fees for the title search and preparation of the sales contract and deed). Federal1040x amendment Recording fees. Federal1040x amendment Survey fees. Federal1040x amendment Transfer taxes. Federal1040x amendment Owner's title insurance. Federal1040x amendment Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Federal1040x amendment   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Federal1040x amendment   The following are some of the settlement fees and closing costs you cannot include in the basis of property. Federal1040x amendment Casualty insurance premiums. Federal1040x amendment Rent for occupancy of the property before closing. Federal1040x amendment Charges for utilities or other services related to occupancy of the property before closing. Federal1040x amendment Charges connected with getting a loan, such as points (discount points, loan origination fees), mortgage insurance premiums, loan assumption fees, cost of a credit report, and fees for an appraisal required by a lender. Federal1040x amendment Fees for refinancing a mortgage. Federal1040x amendment Real estate taxes. Federal1040x amendment   If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. Federal1040x amendment You cannot deduct them as an expense. Federal1040x amendment    If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. Federal1040x amendment Do not include that amount in the basis of your property. Federal1040x amendment If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Federal1040x amendment Points. Federal1040x amendment   If you pay points to get a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. Federal1040x amendment Generally, you deduct the points over the term of the loan. Federal1040x amendment For more information on how to deduct points, see chapter 23. Federal1040x amendment Points on home mortgage. Federal1040x amendment   Special rules may apply to points you and the seller pay when you get a mortgage to buy your main home. Federal1040x amendment If certain requirements are met, you can deduct the points in full for the year in which they are paid. Federal1040x amendment Reduce the basis of your home by any seller-paid points. Federal1040x amendment Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments (increases and decreases) to the cost basis or basis other than cost (discussed later) of the property. Federal1040x amendment The result is the adjusted basis. Federal1040x amendment Increases to Basis Increase the basis of any property by all items properly added to a capital account. Federal1040x amendment Examples of items that increase basis are shown in Table 13-1. Federal1040x amendment These include the items discussed below. Federal1040x amendment Improvements. Federal1040x amendment   Add to your basis in property the cost of improvements having a useful life of more than 1 year, that increase the value of the property, lengthen its life, or adapt it to a different use. Federal1040x amendment For example, improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, or paving your driveway. Federal1040x amendment Assessments for local improvements. Federal1040x amendment   Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. Federal1040x amendment Do not deduct them as taxes. Federal1040x amendment However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements. Federal1040x amendment Example. Federal1040x amendment Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected property owners for the cost of the conversion. Federal1040x amendment Add the assessment to your property's basis. Federal1040x amendment In this example, the assessment is a depreciable asset. Federal1040x amendment Decreases to Basis Decrease the basis of any property by all items that represent a return of capital for the period during which you held the property. Federal1040x amendment Examples of items that decrease basis are shown in Table 13-1. Federal1040x amendment These include the items discussed below. Federal1040x amendment Table 13-1. Federal1040x amendment Examples of Adjustments to Basis Increases to Basis Decreases to Basis • Capital improvements: • Exclusion from income of   Putting an addition on your home subsidies for energy conservation   Replacing an entire roof measures   Paving your driveway     Installing central air conditioning • Casualty or theft loss deductions   Rewiring your home and insurance reimbursements       • Assessments for local improvements:     Water connections     Extending utility service lines to the property • Postponed gain from the sale of a home   Sidewalks • Alternative motor vehicle credit  (Form 8910)   Roads       • Alternative fuel vehicle refueling     property credit (Form 8911)           • Residential energy credits (Form 5695)       • Casualty losses: • Depreciation and section 179 deduction   Restoring damaged property     • Nontaxable corporate distributions • Legal fees:     Cost of defending and perfecting a title • Certain canceled debt excluded from   Fees for getting a reduction of an assessment income     • Zoning costs • Easements           • Adoption tax benefits Casualty and theft losses. Federal1040x amendment   If you have a casualty or theft loss, decrease the basis in your property by any insurance proceeds or other reimbursement and by any deductible loss not covered by insurance. Federal1040x amendment    You must increase your basis in the property by the amount you spend on repairs that restore the property to its pre-casualty condition. Federal1040x amendment   For more information on casualty and theft losses, see chapter 25. Federal1040x amendment Depreciation and section 179 deduction. Federal1040x amendment   Decrease the basis of your qualifying business property by any section 179 deduction you take and the depreciation you deducted, or could have deducted (including any special depreciation allowance), on your tax returns under the method of depreciation you selected. Federal1040x amendment   For more information about depreciation and the section 179 deduction, see Publication 946 and the Instructions for Form 4562. Federal1040x amendment Example. Federal1040x amendment You owned a duplex used as rental property that cost you $40,000, of which $35,000 was allocated to the building and $5,000 to the land. Federal1040x amendment You added an improvement to the duplex that cost $10,000. Federal1040x amendment In February last year, the duplex was damaged by fire. Federal1040x amendment Up to that time, you had been allowed depreciation of $23,000. Federal1040x amendment You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. Federal1040x amendment You deducted a casualty loss of $1,000 on your income tax return for last year. Federal1040x amendment You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. Federal1040x amendment You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. Federal1040x amendment Figure the adjusted basis of the duplex as follows: Original cost of duplex $35,000 Addition to duplex 10,000 Total cost of duplex $45,000 Minus: Depreciation 23,000 Adjusted basis before casualty $22,000 Minus: Insurance proceeds $19,700     Deducted casualty loss 1,000     Salvage proceeds 1,300 22,000 Adjusted basis after casualty $-0- Add: Cost of restoring duplex 19,000 Adjusted basis after restoration $19,000 Note. Federal1040x amendment Your basis in the land is its original cost of $5,000. Federal1040x amendment Easements. Federal1040x amendment   The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. Federal1040x amendment It reduces the basis of the affected part of the property. Federal1040x amendment If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. Federal1040x amendment   If the gain is on a capital asset, see chapter 16 for information about how to report it. Federal1040x amendment If the gain is on property used in a trade or business, see Publication 544 for information about how to report it. Federal1040x amendment Exclusion of subsidies for energy conservation measures. Federal1040x amendment   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. Federal1040x amendment Reduce the basis of the property for which you received the subsidy by the excluded amount. Federal1040x amendment For more information about this subsidy, see chapter 12. Federal1040x amendment Postponed gain from sale of home. Federal1040x amendment    If you postponed gain from the sale of your main home under rules in effect before May 7, 1997, you must reduce the basis of the home you acquired as a replacement by the amount of the postponed gain. Federal1040x amendment For more information on the rules for the sale of a home, see chapter 15. Federal1040x amendment Basis Other Than Cost There are many times when you cannot use cost as basis. Federal1040x amendment In these cases, the fair market value or the adjusted basis of the property can be used. Federal1040x amendment Fair market value (FMV) and adjusted basis were discussed earlier. Federal1040x amendment Property Received for Services If you receive property for your services, include the FMV of the property in income. Federal1040x amendment The amount you include in income becomes your basis. Federal1040x amendment If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. Federal1040x amendment Restricted property. Federal1040x amendment   If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested. Federal1040x amendment However, this rule does not apply if you make an election to include in income the FMV of the property at the time it is transferred to you, less any amount you paid for it. Federal1040x amendment Property is substantially vested when it is transferable or when it is not subject to a substantial risk of forfeiture (you do not have a good chance of losing it). Federal1040x amendment For more information, see Restricted Property in Publication 525. Federal1040x amendment Bargain purchases. Federal1040x amendment   A bargain purchase is a purchase of an item for less than its FMV. Federal1040x amendment If, as compensation for services, you buy goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. Federal1040x amendment Your basis in the property is its FMV (your purchase price plus the amount you include in income). Federal1040x amendment   If the difference between your purchase price and the FMV is a qualified employee discount, do not include the difference in income. Federal1040x amendment However, your basis in the property is still its FMV. Federal1040x amendment See Employee Discounts in Publication 15-B. Federal1040x amendment Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. Federal1040x amendment A taxable gain or deductible loss also is known as a recognized gain or loss. Federal1040x amendment If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. Federal1040x amendment Involuntary Conversions If you receive replacement property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property using the basis of the converted property. Federal1040x amendment Similar or related property. Federal1040x amendment   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the same as the converted property's basis on the date of the conversion, with the following adjustments. Federal1040x amendment Decrease the basis by the following. Federal1040x amendment Any loss you recognize on the involuntary conversion. Federal1040x amendment Any money you receive that you do not spend on similar property. Federal1040x amendment Increase the basis by the following. Federal1040x amendment Any gain you recognize on the involuntary conversion. Federal1040x amendment Any cost of acquiring the replacement property. Federal1040x amendment Money or property not similar or related. Federal1040x amendment    If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the conversion. Federal1040x amendment Example. Federal1040x amendment The state condemned your property. Federal1040x amendment The adjusted basis of the property was $26,000 and the state paid you $31,000 for it. Federal1040x amendment You realized a gain of $5,000 ($31,000 − $26,000). Federal1040x amendment You bought replacement property similar in use to the converted property for $29,000. Federal1040x amendment You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. Federal1040x amendment Your unrecognized gain is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. Federal1040x amendment The basis of the replacement property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of replacement property $26,000 Allocating the basis. Federal1040x amendment   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Federal1040x amendment Basis for depreciation. Federal1040x amendment   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. Federal1040x amendment For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. Federal1040x amendment Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Federal1040x amendment If you receive property in a nontaxable exchange, its basis is generally the same as the basis of the property you transferred. Federal1040x amendment See Nontaxable Trades in chapter 14. Federal1040x amendment Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Federal1040x amendment To qualify as a like-kind exchange, the property traded and the property received must be both of the following. Federal1040x amendment Qualifying property. Federal1040x amendment Like-kind property. Federal1040x amendment The basis of the property you receive is generally the same as the adjusted basis of the property you gave up. Federal1040x amendment If you trade property in a like-kind exchange and also pay money, the basis of the property received is the adjusted basis of the property you gave up increased by the money you paid. Federal1040x amendment Qualifying property. Federal1040x amendment   In a like-kind exchange, you must hold for investment or for productive use in your trade or business both the property you give up and the property you receive. Federal1040x amendment Like-kind property. Federal1040x amendment   There must be an exchange of like-kind property. Federal1040x amendment Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Federal1040x amendment The exchange of real estate for real estate and personal property for similar personal property are exchanges of like-kind property. Federal1040x amendment Example. Federal1040x amendment You trade in an old truck used in your business with an adjusted basis of $1,700 for a new one costing $6,800. Federal1040x amendment The dealer allows you $2,000 on the old truck, and you pay $4,800. Federal1040x amendment This is a like-kind exchange. Federal1040x amendment The basis of the new truck is $6,500 (the adjusted basis of the old one, $1,700, plus the amount you paid, $4,800). Federal1040x amendment If you sell your old truck to a third party for $2,000 instead of trading it in and then buy a new one from the dealer, you have a taxable gain of $300 on the sale (the $2,000 sale price minus the $1,700 adjusted basis). Federal1040x amendment The basis of the new truck is the price you pay the dealer. Federal1040x amendment Partially nontaxable exchanges. Federal1040x amendment   A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. Federal1040x amendment The basis of the property you receive is the same as the adjusted basis of the property you gave up, with the following adjustments. Federal1040x amendment Decrease the basis by the following amounts. Federal1040x amendment Any money you receive. Federal1040x amendment Any loss you recognize on the exchange. Federal1040x amendment Increase the basis by the following amounts. Federal1040x amendment Any additional costs you incur. Federal1040x amendment Any gain you recognize on the exchange. Federal1040x amendment If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Federal1040x amendment Allocation of basis. Federal1040x amendment   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. Federal1040x amendment The rest is the basis of the like-kind property. Federal1040x amendment More information. Federal1040x amendment   See Like-Kind Exchanges in chapter 1 of Publication 544 for more information. Federal1040x amendment Basis for depreciation. Federal1040x amendment   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind exchange. Federal1040x amendment For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. Federal1040x amendment Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. Federal1040x amendment The same rule applies to a transfer by your former spouse that is incident to divorce. Federal1040x amendment However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. Federal1040x amendment If the property transferred to you is a series E, series EE, or series I U. Federal1040x amendment S. Federal1040x amendment savings bond, the transferor must include in income the interest accrued to the date of transfer. Federal1040x amendment Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. Federal1040x amendment For more information on these bonds, see chapter 7. Federal1040x amendment At the time of the transfer, the transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. Federal1040x amendment For more information about the transfer of property from a spouse, see chapter 14. Federal1040x amendment Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. Federal1040x amendment FMV less than donor's adjusted basis. Federal1040x amendment   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. Federal1040x amendment Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. Federal1040x amendment Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. Federal1040x amendment See Adjusted Basis , earlier. Federal1040x amendment Example. Federal1040x amendment You received an acre of land as a gift. Federal1040x amendment At the time of the gift, the land had an FMV of $8,000. Federal1040x amendment The donor's adjusted basis was $10,000. Federal1040x amendment After you received the property, no events occurred to increase or decrease your basis. Federal1040x amendment If you later sell the property for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis at the time of the gift ($10,000) as your basis to figure gain. Federal1040x amendment If you sell the property for $7,000, you will have a $1,000 loss because you must use the FMV at the time of the gift ($8,000) as your basis to figure loss. Federal1040x amendment If the sales price is between $8,000 and $10,000, you have neither gain nor loss. Federal1040x amendment Business property. Federal1040x amendment   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. Federal1040x amendment FMV equal to or greater than donor's adjusted basis. Federal1040x amendment   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. Federal1040x amendment Increase your basis by all or part of any gift tax paid, depending on the date of the gift, explained later. Federal1040x amendment   Also, for figuring gain or loss from a sale or other disposition or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. Federal1040x amendment See Adjusted Basis , earlier. Federal1040x amendment   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. Federal1040x amendment Figure the increase by multiplying the gift tax paid by a fraction. Federal1040x amendment The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. Federal1040x amendment   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. Federal1040x amendment The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. Federal1040x amendment Example. Federal1040x amendment In 2013, you received a gift of property from your mother that had an FMV of $50,000. Federal1040x amendment Her adjusted basis was $20,000. Federal1040x amendment The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). Federal1040x amendment She paid a gift tax of $7,320 on the property. Federal1040x amendment Your basis is $26,076, figured as follows: Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000     Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . Federal1040x amendment 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. Federal1040x amendment If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. Federal1040x amendment However, your basis cannot exceed the FMV of the gift at the time it was given to you. Federal1040x amendment Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. Federal1040x amendment The FMV on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. Federal1040x amendment The value under the special-use valuation method for real property used in farming or a closely held business if elected for estate tax purposes. Federal1040x amendment The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. Federal1040x amendment If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. Federal1040x amendment For more information, see the instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Federal1040x amendment Property inherited from a decedent who died in 2010. Federal1040x amendment   If you inherited property from a decedent who died in 2010, special rules may apply. Federal1040x amendment For more information, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. Federal1040x amendment Community property. Federal1040x amendment   In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. Federal1040x amendment When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. Federal1040x amendment For this rule to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return. Federal1040x amendment Example. Federal1040x amendment You and your spouse owned community property that had a basis of $80,000. Federal1040x amendment When your spouse died, half the FMV of the community interest was includible in your spouse's estate. Federal1040x amendment The FMV of the community interest was $100,000. Federal1040x amendment The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). Federal1040x amendment The basis of the other half to your spouse's heirs is also $50,000. Federal1040x amendment For more information about community property, see Publication 555, Community Property. Federal1040x amendment Property Changed From Personal to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you can begin to depreciate the property at the time of the change. Federal1040x amendment To do so, you must figure its basis for depreciation at the time of the change. Federal1040x amendment An example of changing property held for personal use to business or rental use would be renting out your former personal residence. Federal1040x amendment Basis for depreciation. Federal1040x amendment   The basis for depreciation is the lesser of the following amounts. Federal1040x amendment The FMV of the property on the date of the change. Federal1040x amendment Your adjusted basis on the date of the change. Federal1040x amendment Example. Federal1040x amendment Several years ago, you paid $160,000 to have your house built on a lot that cost $25,000. Federal1040x amendment You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. Federal1040x amendment Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. Federal1040x amendment Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). Federal1040x amendment On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. Federal1040x amendment The basis for figuring depreciation on the house is its FMV on the date of the change ($165,000) because it is less than your adjusted basis ($178,000). Federal1040x amendment Sale of property. Federal1040x amendment   If you later sell or dispose of property changed to business or rental use, the basis you use will depend on whether you are figuring gain or loss. Federal1040x amendment Gain. Federal1040x amendment   The basis for figuring a gain is your adjusted basis in the property when you sell the property. Federal1040x amendment Example. Federal1040x amendment Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. Federal1040x amendment Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). Federal1040x amendment Loss. Federal1040x amendment   Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. Federal1040x amendment Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . Federal1040x amendment Example. Federal1040x amendment Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. Federal1040x amendment In this case, you would start with the FMV on the date of the change to rental use ($180,000), because it is less than the adjusted basis of $203,000 ($178,000 + $25,000 (land)) on that date. Federal1040x amendment Reduce that amount ($180,000) by the depreciation deductions ($37,500). Federal1040x amendment The basis for loss is $142,500 ($180,000 − $37,500). Federal1040x amendment Stocks and Bonds The basis of stocks or bonds you buy generally is the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. Federal1040x amendment If you get stocks or bonds other than by purchase, your basis is usually determined by the FMV or the previous owner's adjusted basis, as discussed earlier. Federal1040x amendment You must adjust the basis of stocks for certain events that occur after purchase. Federal1040x amendment For example, if you receive additional stock from nontaxable stock dividends or stock splits, reduce your basis for each share of stock by dividing the adjusted basis of the old stock by the number of shares of old and new stock. Federal1040x amendment This rule applies only when the additional stock received is identical to the stock held. Federal1040x amendment Also reduce your basis when you receive nontaxable distributions. Federal1040x amendment They are a return of capital. Federal1040x amendment Example. Federal1040x amendment In 2011 you bought 100 shares of XYZ stock for $1,000 or $10 a share. Federal1040x amendment In 2012 you bought 100 shares of XYZ stock for $1,600 or $16 a share. Federal1040x amendment In 2013 XYZ declared a 2-for-1 stock split. Federal1040x amendment You now have 200 shares of stock with a basis of $5 a share and 200 shares with a basis of $8 a share. Federal1040x amendment Other basis. Federal1040x amendment   There are other ways to figure the basis of stocks or bonds depending on how you acquired them. Federal1040x amendment For detailed information, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Federal1040x amendment Identifying stocks or bonds sold. Federal1040x amendment   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stocks or bonds. Federal1040x amendment If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. Federal1040x amendment For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Federal1040x amendment Mutual fund shares. Federal1040x amendment   If you sell mutual fund shares you acquired at various times and prices and left on deposit in an account kept by a custodian or agent, you can elect to use an average basis. Federal1040x amendment For more information, see Publication 550. Federal1040x amendment Bond premium. Federal1040x amendment   If you buy a taxable bond at a premium and elect to amortize the premium, reduce the basis of the bond by the amortized premium you deduct each year. Federal1040x amendment See Bond Premium Amortization in chapter 3 of Publication 550 for more information. Federal1040x amendment Although you cannot deduct the premium on a tax-exempt bond, you must amortize the premium each year and reduce your basis in the bond by the amortized amount. Federal1040x amendment Original issue discount (OID) on debt instruments. Federal1040x amendment   You must increase your basis in an OID debt instrument by the OID you include in income for that instrument. Federal1040x amendment See Original Issue Discount (OID) in chapter 7 and Publication 1212, Guide To Original Issue Discount (OID) Instruments. Federal1040x amendment Tax-exempt obligations. Federal1040x amendment    OID on tax-exempt obligations is generally not taxable. Federal1040x amendment However, when you dispose of a tax-exempt obligation issued after September 3, 1982, and acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. Federal1040x amendment The accrued OID is added to the basis of the obligation to determine your gain or loss. Federal1040x amendment See chapter 4 of Publication 550. Federal1040x amendment Prev  Up  Next   Home   More Online Publications
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Understanding your CP12M Notice

We made changes to the computation of the Making Work Pay and/or Government Retiree Credits on your return.

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

  • Review the notice, and compare our changes to the information on your tax return.
  • If you agree with the changes we made, do nothing; you should receive a refund check in 4-6 weeks, as long as you don't owe other tax or debts we're required to collect.
  • If you don't agree, call 1-800-829-8374 to review your account or contact us by mail. Include any correspondence or documentation.

You may want to...

  • Download copies of the following materials (if they weren't included with your notice):
  • Call 1-800-TAX-FORM (1-800-829-3676) to have forms and publications mailed to you.

Answers to Common Questions

What is the Making Work Pay Credit?
The Making Work Pay Credit is a refundable tax credit that can go up to $400 for individuals and to $800 for married taxpayers.

How can taxpayers get this credit?
Even if your federal income tax withholding was reduced because of the credit, you must complete a Schedule M, Making Work Pay, and claim the credit on your income tax return to benefit from it.

What happens if I don't receive a paycheck from an employer?
You can claim the credit on your 2010 income tax return by filing a Schedule M, Making Work Pay.

What is the Government Retiree Credit?
Taxpayers can take a credit of $250 ($500 if married and both spouses qualify) if you or your spouse received a pension or annuity payment in 2010 for service performed for the U.S. Government or any U.S. state or local government, and the service was not covered by social security. But you cannot take the credit if you and your spouse both received a $250 economic recovery payment.


Tips for next year

  • In 2011, when you file your taxes for tax year 2010, complete Schedule M to see if you are eligible for the Making Work Pay and Government Retiree Credits.
  • 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: 19-Feb-2014

The Federal1040x Amendment

Federal1040x amendment Publication 516 - Main Content Table of Contents U. Federal1040x amendment S. Federal1040x amendment Tax ReturnFiling Information Foreign Bank Accounts U. Federal1040x amendment S. Federal1040x amendment Government Payments Foreign Earned Income Exclusion Tax Treaty Benefits Allowances, Differentials, and Special Pay Other Income Deductions and Credits — Business Expenses Deductions and Credits — Nonbusiness Expenses Foreign Taxes Local (Foreign) Tax ReturnTax Treaty Benefits Other Agreements Double Withholding How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Federal1040x amendment U. Federal1040x amendment S. Federal1040x amendment Tax Return Filing Information If you are a U. Federal1040x amendment S. Federal1040x amendment citizen or green card holder living or traveling outside the United States, you are generally required to file income tax returns in the same way as those residing in the United States. Federal1040x amendment However, the special rules explained in the following discussions may apply to you. Federal1040x amendment See also Tax Treaty Benefits, later. Federal1040x amendment When To File and Pay Most individual tax returns cover a calendar year, January through December. Federal1040x amendment The regular due date for these tax returns is April 15 of the following year. Federal1040x amendment If April 15 falls on a Saturday, Sunday, or legal holiday, your tax return is considered timely filed if it is filed by the next business day that is not a Saturday, Sunday, or legal holiday. Federal1040x amendment If you get an extension, you are allowed additional time to file and, in some circumstances, pay your tax. Federal1040x amendment You must pay interest on any tax not paid by the regular due date. Federal1040x amendment Your return is considered filed on time if it is mailed from and officially postmarked in a foreign country on or before the due date (including extensions), or given to a designated international private delivery service before midnight of the last date prescribed for filing. Federal1040x amendment See your tax form instructions for a list of private delivery services that have been designated by the IRS to meet this “timely mailing as timely filing/paying” rule for tax returns and payments. Federal1040x amendment If your return is filed late, the postmark or delivery service date does not determine the date of filing. Federal1040x amendment In that case, your return is considered filed when it is received by the IRS. Federal1040x amendment Extensions You may be able to get an extension of time to file your return and pay your tax. Federal1040x amendment Automatic 2-month extension. Federal1040x amendment   You can get an automatic 2-month extension (to June 15, for a calendar year return) to file your return and pay your tax if you are a U. Federal1040x amendment S. Federal1040x amendment citizen or resident and, on the regular due date of your return, you are living outside the United States and Puerto Rico and your main place of business or post of duty is outside the United States and Puerto Rico. Federal1040x amendment To get this extension, you must attach a statement to your return explaining how you qualified. Federal1040x amendment You will owe interest on any tax not paid by the regular due date of your return. Federal1040x amendment Married taxpayers. Federal1040x amendment   If you file a joint return, either you or your spouse can qualify for the automatic extension. Federal1040x amendment If you and your spouse file separate returns, the extension applies only to the spouse who qualifies. Federal1040x amendment Additional extension. Federal1040x amendment   You can apply for an additional extension of time to file your return by filing Form 4868. Federal1040x amendment You must file Form 4868 by the due date for your income tax return. Federal1040x amendment   Generally, you must file it by April 15. Federal1040x amendment However, if you qualify for the automatic 2-month extension, you generally must file Form 4868 by June 15. Federal1040x amendment Check the box on line 8 of Form 4868. Federal1040x amendment Payment of tax. Federal1040x amendment   You should estimate and pay any additional tax you owe when you file Form 4868 to avoid being charged a late-payment penalty. Federal1040x amendment The late-payment penalty applies if, through withholding, etc. Federal1040x amendment , you paid less than 90% of your actual tax liability by the original due date of your income tax return. Federal1040x amendment Even if the late-payment penalty does not apply, you will be charged interest on any unpaid tax liability from the original due date of the return until the tax is paid. Federal1040x amendment Electronic filing. Federal1040x amendment   You can file for the additional extension by phone, using your home computer, or through a tax professional. Federal1040x amendment See Form 4868 for more information. Federal1040x amendment Limit on additional extensions. Federal1040x amendment   You generally cannot get a total extension of more than 6 months. Federal1040x amendment However, if you are outside the United States and meet certain tests, you may be able to get a longer extension. Federal1040x amendment   For more information, see Publication 54. Federal1040x amendment Foreign Bank Accounts You must file Form TD F 90-22. Federal1040x amendment 1 if at any time during the year you had an interest in, or signature or other authority over, a bank account, securities account, or other financial account in a foreign country. Federal1040x amendment This applies if the combined assets in the account(s) were more than $10,000. Federal1040x amendment Do not include accounts in a U. Federal1040x amendment S. Federal1040x amendment military banking facility operated by a U. Federal1040x amendment S. Federal1040x amendment financial institution. Federal1040x amendment File the completed form by June 30 of the following year with the Department of the Treasury at the address shown on that form. Federal1040x amendment Do not attach it to Form 1040. Federal1040x amendment If you are required to file Form TD F 90-22. Federal1040x amendment 1 but do not do so, you may have to pay a penalty of up to $10,000 (more if the failure to file is willful). Federal1040x amendment You also may be required to file Form 8938 with your U. Federal1040x amendment S. Federal1040x amendment income tax return to report your interest in foreign bank accounts and other specified foreign financial assets. Federal1040x amendment For taxpayers living abroad, you generally do not have to file Form 8938 unless the total value of your specified foreign financial assets is more than $200,000 ($400,000 if married filing jointly) on the last day of the tax year or more than $300,000 ($600,000 if married filing jointly) at any time during the tax year. Federal1040x amendment For more information, see Form 8938 and its instructions. Federal1040x amendment U. Federal1040x amendment S. Federal1040x amendment Government Payments Wages earned for performing services outside the United States is foreign income, regardless of your employer. Federal1040x amendment If you are a U. Federal1040x amendment S. Federal1040x amendment citizen or resident alien, you must report all income from worldwide sources on your tax return unless it is exempt by U. Federal1040x amendment S. Federal1040x amendment law. Federal1040x amendment This applies to earned income (such as wages) as well as unearned income (such as interest, dividends, and capital gains). Federal1040x amendment If you are a nonresident alien, your income from sources outside the United States is not subject to U. Federal1040x amendment S. Federal1040x amendment tax. Federal1040x amendment Foreign Earned Income Exclusion Employees of the U. Federal1040x amendment S. Federal1040x amendment Government are not entitled to the foreign earned income exclusion or the foreign housing exclusion/deduction under section 911 because “foreign earned income ”does not include amounts paid by the U. Federal1040x amendment S. Federal1040x amendment Government as an employee. Federal1040x amendment But see Other Employment, later. Federal1040x amendment Special Situations In the following two situations, your pay is from the U. Federal1040x amendment S. Federal1040x amendment Government and does not qualify for the foreign earned income exclusion. Federal1040x amendment U. Federal1040x amendment S. Federal1040x amendment agency reimbursed by foreign country. Federal1040x amendment   If you are a U. Federal1040x amendment S. Federal1040x amendment Government employee paid by a U. Federal1040x amendment S. Federal1040x amendment agency to perform services in a foreign country, your pay is from the U. Federal1040x amendment S. Federal1040x amendment Government and does not qualify the foreign earned income exclusion or the foreign housing exclusion/deduction. Federal1040x amendment This is true even if the U. Federal1040x amendment S. Federal1040x amendment agency is reimbursed by the foreign government. Federal1040x amendment Employees of post exchanges, etc. Federal1040x amendment   If you are an employee of an Armed Forces post exchange, officers' and enlisted personnel club, Embassy commissary, or similar instrumentality of the U. Federal1040x amendment S. Federal1040x amendment Government, the earnings you receive are paid by the U. Federal1040x amendment S. Federal1040x amendment Government. Federal1040x amendment This is true whether they are paid from appropriated or nonappropriated funds. Federal1040x amendment These earnings are not eligible for the foreign earned income exclusion or the foreign housing exclusion/deduction. Federal1040x amendment Tax Treaty Benefits Most income tax treaties contain an article relating to remuneration from government services. Federal1040x amendment Even if you are working in a foreign country with which the United States has an income tax treaty in force and the treaty article that applies to government services says that your government pay is taxable only in the foreign country, the treaty will likely contain a “saving clause”, which provides that the United States may tax its citizens and its residents as if the treaty had not come into effect. Federal1040x amendment In some treaties, the government service article is an exception to the saving clause, but often only for individuals who are not U. Federal1040x amendment S. Federal1040x amendment citizens or green card holders. Federal1040x amendment Consequently, if you are a U. Federal1040x amendment S. Federal1040x amendment citizen or green card holder, you will generally not be entitled to reduce your U. Federal1040x amendment S. Federal1040x amendment tax on your government pay. Federal1040x amendment If you are neither a U. Federal1040x amendment S. Federal1040x amendment citizen nor green card holder, and you are treated as a resident of the treaty country under the treaty residence article (after application of the so-called “tie-breaker” rule), then you may be entitled to benefits under the government service article. Federal1040x amendment Review the treaty text carefully. Federal1040x amendment U. Federal1040x amendment S. Federal1040x amendment citizens must always file Form 1040. Federal1040x amendment Non-U. Federal1040x amendment S. Federal1040x amendment citizens who are treated as a resident of a treaty country under the treaty residence article (after application of the so-called “tie-breaker” rule) may file Form 1040NR and attach Form 8833. Federal1040x amendment If you pay or accrue taxes to the foreign country on your pay, you may be able to relieve double taxation with a foreign tax credit. Federal1040x amendment Most income tax treaties contain an article providing relief from double taxation. Federal1040x amendment Many treaties contain special foreign tax credit rules for U. Federal1040x amendment S. Federal1040x amendment citizens who are residents of a treaty country. Federal1040x amendment For more information on the mechanics of the foreign tax credit, see Foreign Taxes, later. Federal1040x amendment Allowances, Differentials, and Special Pay Most payments received by U. Federal1040x amendment S. Federal1040x amendment Government civilian employees for working abroad, including pay differentials, are taxable. Federal1040x amendment However, certain foreign areas allowances, cost of living allowances, and travel allowances are tax free. Federal1040x amendment The following discussions explain the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. Federal1040x amendment Pay differentials. Federal1040x amendment   Pay differentials you receive as financial incentives for employment abroad are taxable. Federal1040x amendment Your employer should have included these differentials as wages on your Form W-2, Wage and Tax Statement. Federal1040x amendment   Generally, pay differentials are given for employment under adverse conditions (such as severe climate) or because the post of duty is located in a hazardous or isolated area that may be outside the United States. Federal1040x amendment The area does not have to be a qualified hazardous duty area as discussed in Publication 3. Federal1040x amendment Pay differentials include: Post differentials, Special incentive differentials, and Danger pay. Federal1040x amendment Foreign areas allowances. Federal1040x amendment   Certain foreign areas allowances are tax free. Federal1040x amendment Your employer should not have included these allowances as wages on your Form W-2. Federal1040x amendment   Tax-free foreign areas allowances are allowances (other than post differentials) received under the following laws. Federal1040x amendment Title I, chapter 9, of the Foreign Service Act of 1980. Federal1040x amendment Section 4 of the Central Intelligence Agency Act of 1949, as amended. Federal1040x amendment Title II of the Overseas Differentials and Allowances Act. Federal1040x amendment Subsection (e) or (f) of the first section of the Administrative Expenses Act of 1946, as amended, or section 22 of that Act. Federal1040x amendment These allowances cover such expenses as: Certain repairs to a leased home, Education of dependents in special situations, Motor vehicle shipment, Separate maintenance for dependents, Temporary quarters, Transportation for medical treatment, and Travel, moving, and storage. Federal1040x amendment Allowances received by foreign service employees for representation expenses are also tax free under the above provisions. Federal1040x amendment Cost-of-living allowances. Federal1040x amendment   If you are stationed outside the continental United States or in Alaska, your gross income does not include cost-of-living allowances (other than amounts received under Title II of the Overseas Differentials and Allowances Act) granted by regulations approved by the President of the United States. Federal1040x amendment The cost-of-living portion of any other allowance (for example, a living and quarters allowance) is not included even if the underlying allowance is included in gross income. Federal1040x amendment Cost-of-living allowances are not included on your Form W-2. Federal1040x amendment Federal court employees. Federal1040x amendment   If you are a federal court employee, the preceding paragraph also applies to you. Federal1040x amendment The cost-of-living allowance must be granted by rules similar to regulations approved by the President. Federal1040x amendment American Institute in Taiwan. Federal1040x amendment   If you are an employee of the American Institute in Taiwan, allowances you receive are exempt from U. Federal1040x amendment S. Federal1040x amendment tax if they are equivalent to tax-exempt allowances received by civilian employees of the U. Federal1040x amendment S. Federal1040x amendment Government. Federal1040x amendment Federal reemployment payments after serving with an international organization. Federal1040x amendment   If you are a federal employee who is reemployed by a federal agency after serving with an international organization, you must include in income any reemployment payments you receive. Federal1040x amendment These payments are equal to the difference between the pay, allowances, post differential, and other monetary benefits paid by the international organization and the pay and other benefits that would have been paid by the federal agency had you been detailed to the international agency. Federal1040x amendment Allowances or reimbursements for travel and transportation expenses. Federal1040x amendment   See How To Report Business Expenses, later, for a discussion on whether a reimbursement or allowance for travel or transportation is included in your income. Federal1040x amendment Lodging furnished to a principal representative of the United States. Federal1040x amendment   If you are a principal representative of the United States stationed in a foreign country, you do not have to include in income the value of lodging (including utilities) provided to you as an official residence. Federal1040x amendment However, amounts paid by the U. Federal1040x amendment S. Federal1040x amendment government for your usual costs of operating and maintaining your household are taxable. Federal1040x amendment If amounts are withheld from your pay to cover these expenses, you cannot exclude or deduct those amounts from your income. Federal1040x amendment Peace Corps. Federal1040x amendment   If you are a Peace Corps volunteer or volunteer leader, some allowances you receive are taxable and others are not. Federal1040x amendment Taxable allowances. Federal1040x amendment   The following allowances must be included on your Form W-2 and reported on your return as wages. Federal1040x amendment If you are a volunteer leader, allowances paid to your spouse and minor children while you are training in the United States. Federal1040x amendment The part of living allowances designated by the Director of the Peace Corps as basic compensation. Federal1040x amendment This is the part for personal items such as domestic help, laundry and clothing maintenance, entertainment and recreation, transportation, and other miscellaneous expenses. Federal1040x amendment Leave allowances. Federal1040x amendment Readjustment allowances or “termination payments. Federal1040x amendment ” Taxable allowances are considered received by you when credited to your account. Federal1040x amendment Example. Federal1040x amendment Gary Carpenter, a Peace Corps volunteer, gets $175 a month during his period of service, to be paid to him in a lump sum at the end of his tour of duty. Federal1040x amendment Although the allowance is not available to him until the end of his service, Gary must include it in his income on a monthly basis as it is credited to his account. Federal1040x amendment Nontaxable allowances. Federal1040x amendment   These generally include travel allowances and the part of living allowances for housing, utilities, food, clothing, and household supplies. Federal1040x amendment These allowances should not be included on your Form W-2. Federal1040x amendment These allowances are tax free whether paid by the U. Federal1040x amendment S. Federal1040x amendment Government or the foreign country in which you are stationed. Federal1040x amendment Other Income Other employment. Federal1040x amendment   If, in addition to your U. Federal1040x amendment S. Federal1040x amendment government pay, you receive income from a private employer or self-employment, you may qualify to claim the foreign earned income exclusion and the foreign housing exclusion and deduction under section 911 based on this other income provided you meet either the bona fide residence test or the physical presence test. Federal1040x amendment In addition, if your spouse is a U. Federal1040x amendment S. Federal1040x amendment citizen or resident alien who earns income in a foreign country that is paid by a private employer or is from self-employment, he or she may also qualify for the exclusion or the deduction. Federal1040x amendment For more information, see Publication 54. Federal1040x amendment The tax treaty rules relating to income from personal services generally apply to income from private employment. Federal1040x amendment As discussed above, the saving clause applies to you if you are a U. Federal1040x amendment S. Federal1040x amendment citizen or if you are a resident of the United States under the treaty residence article (after application of the so-called “tie-breaker” rule). Federal1040x amendment Sale of personal property. Federal1040x amendment   If you have a gain from the sale of your personal property (such as an automobile or a home appliance), whether directly or through a favorable exchange rate in converting the proceeds to U. Federal1040x amendment S. Federal1040x amendment dollars, the excess of the amount received in U. Federal1040x amendment S. Federal1040x amendment dollars over the cost or other basis of the property is a capital gain. Federal1040x amendment Capital gains are reported on Schedule D (Form 1040), Capital Gains and Losses. Federal1040x amendment However, losses from sales of your personal property, whether directly or through an unfavorable exchange rate, are not deductible. Federal1040x amendment Sale of your home. Federal1040x amendment   All or part of the gain on the sale of your main home, within or outside the United States, may be taxable. Federal1040x amendment Losses are not deductible. Federal1040x amendment   You may be able to exclude from income any gain up to $250,000 ($500,000 on a joint return). Federal1040x amendment Generally, you must have owned and used the home as your main residence for two of the five years preceding the date of sale. Federal1040x amendment   You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse is serving on qualified official extended duty as a member of the Foreign Service of the United States, as an employee of the intelligence community, or as an employee or volunteer of the Peace Corps. Federal1040x amendment   For detailed information on selling your home, see Publication 523. Federal1040x amendment Deductions and Credits — Business Expenses You may deduct certain expenses such as travel expenses, transportation expenses, and other expenses connected to your employment. Federal1040x amendment Travel Expenses Subject to certain limits, you can deduct your unreimbursed ordinary and necessary expenses of traveling away from home in connection with the performance of your official duties. Federal1040x amendment These expenses include such items as travel costs, meals, lodging, baggage charges, local transportation costs (such as taxi fares), tips, and dry cleaning and laundry fees. Federal1040x amendment Your home for tax purposes (tax home) is your regular post of duty regardless of where you maintain your family home. Federal1040x amendment Your tax home is not limited to the Embassy, consulate, or duty station. Federal1040x amendment It includes the entire city or general area in which your principal place of employment is located. Federal1040x amendment Traveling away from home. Federal1040x amendment   You are traveling away from home if you meet both of the following requirements. Federal1040x amendment Your duties require you to be away from the general area of your tax home substantially longer than an ordinary day's work. Federal1040x amendment You need to get sleep or rest to meet the demands of your work while away from home. Federal1040x amendment This requirement is not satisfied by merely napping in your car. Federal1040x amendment You do not have to be away from your tax home for a whole day or from dusk to dawn as long as your relief from duty is long enough to get necessary sleep or rest. Federal1040x amendment Temporary assignment. Federal1040x amendment   If your assignment or job away from your tax home is temporary, your tax home does not change. Federal1040x amendment You are considered to be away from home for the whole period, and your travel expenses are deductible. Federal1040x amendment Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for one year or less. Federal1040x amendment   However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home and you cannot deduct your travel expenses while there. Federal1040x amendment An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than one year, whether or not it actually lasts for more than one year. Federal1040x amendment   You must determine whether your assignment is temporary or indefinite when you start work. Federal1040x amendment If you expect employment to last for one year or less, it is temporary unless there are facts and circumstances that indicate otherwise. Federal1040x amendment Employment that is initially temporary may become indefinite due to changed circumstances. Federal1040x amendment A series of assignments to the same location, all for short periods but that together cover a long period, may be considered an indefinite assignment. Federal1040x amendment Exception for federal crime investigations or prosecutions. Federal1040x amendment   If you are a federal employee participating in a federal crime investigation or prosecution, you may be able to deduct travel expenses even if you are away from your tax home for more than one year. Federal1040x amendment This exception to the one-year rule applies if the Attorney General certifies that you are traveling for the federal government in a temporary duty status to prosecute, or provide support services for the investigation or prosecution of, a federal crime. Federal1040x amendment Limit on meals and entertainment. Federal1040x amendment   You can generally deduct only 50% of the cost of your unreimbursed business-related meals and entertainment. Federal1040x amendment However, the limit does not apply to expenses reimbursed under a U. Federal1040x amendment S. Federal1040x amendment Government expense allowance arrangement. Federal1040x amendment Individuals subject to hours of service limits. Federal1040x amendment   You can deduct 80% of your unreimbursed business-related meal expenses if the meals take place during or incident to any period subject to the Department of Transportation's hours of service limits. Federal1040x amendment   Individuals subject to the Department of Transportation's “hours of service” limits include the following. Federal1040x amendment Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations. Federal1040x amendment Interstate truck operators and bus drivers who are under Department of Transportation regulations. Federal1040x amendment Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations. Federal1040x amendment Certain merchant mariners who are under Coast Guard regulations. Federal1040x amendment Primary purpose of trip must be for business. Federal1040x amendment   If your trip was entirely for business, your unreimbursed travel expenses are generally deductible. Federal1040x amendment However, if you spend some of your time on nonbusiness activities, part of your expenses may not be deductible. Federal1040x amendment   If your trip was mainly personal, you cannot deduct your travel expenses to and from your destination. Federal1040x amendment This applies even if you engage in business activities while there. Federal1040x amendment However, you can deduct any expenses while at your destination that are directly related to your business. Federal1040x amendment Expenses paid for others. Federal1040x amendment   You generally cannot deduct travel expenses of your spouse, dependents, or other individuals who go with you on a trip. Federal1040x amendment Home leave. Federal1040x amendment   The Foreign Service Act requires U. Federal1040x amendment S. Federal1040x amendment citizens who are members of the foreign service to take a leave of absence after completing 3 years of continuous service abroad. Federal1040x amendment This period is called “home leave” and can be used to take care of certain personal matters such as medical and dental checkups, buying a new wardrobe, and visiting relatives. Federal1040x amendment   The amounts paid for your travel, meals, and lodging while on home leave are deductible as travel or business expenses subject to the rules and limits discussed earlier. Federal1040x amendment You must be able to verify these amounts in order to claim them. Federal1040x amendment Amounts paid on behalf of your family while on home leave are personal living expenses and are not deductible. Federal1040x amendment More information. Federal1040x amendment   See chapter 1 of Publication 463 for more information on travel expenses. Federal1040x amendment Transportation Expenses You can deduct allowable transportation expenses that are directly related to your official duties. Federal1040x amendment Transportation expenses include the cost of transportation by air, rail, bus, or taxi, and the cost of driving and maintaining your car. Federal1040x amendment They do not include expenses you have when traveling away from home overnight. Federal1040x amendment Those expenses are deductible as travel expenses and are discussed earlier. Federal1040x amendment Commuting. Federal1040x amendment   You cannot deduct your transportation costs of going between your home and your regular business location. Federal1040x amendment These costs are personal commuting expenses. Federal1040x amendment   If you have one or more regular business locations but must work at a temporary location, you can deduct the costs of commuting to that temporary place of work. Federal1040x amendment   If you work at two or more places in the same day, you can deduct your expenses of getting from one place of work to the other. Federal1040x amendment More information. Federal1040x amendment   For more information on transportation expenses, see chapter 4 of Publication 463. Federal1040x amendment Other Employee Business Expenses You may be able to deduct other unreimbursed expenses that are connected with your employment. Federal1040x amendment Membership dues. Federal1040x amendment   You can deduct membership dues you pay to professional societies that relate to your business or profession. Federal1040x amendment Subscriptions. Federal1040x amendment   You can deduct subscriptions to professional publications that relate to your business or profession. Federal1040x amendment Educational expenses. Federal1040x amendment   Generally, educational expenses are considered to be personal expenses and are not deductible. Federal1040x amendment However, under some circumstances, educational expenses are deductible as business expenses. Federal1040x amendment   You can deduct educational expenses as business expenses if the education: Maintains or improves skills needed in your present position, or Meets the express requirements of your agency to keep your present position, salary, or status. Federal1040x amendment   You cannot deduct educational expenses as business expenses if the education: Is needed to enable you to meet minimum educational requirements for qualification in your present position, Is a part of a program of study that can qualify you for a new position, or Is for travel as a form of education. Federal1040x amendment These rules apply even if the education is required by your agency or it maintains or improves skills required in your work. Federal1040x amendment   See Publication 970, Tax Benefits for Education, for more information on educational expenses. Federal1040x amendment    Educational expenses that are not work related, such as costs of sending children to college, are personal expenses that you cannot deduct. Federal1040x amendment However, you may be eligible for other tax benefits such as the American opportunity and lifetime learning credits; contributions to a Coverdell education savings account or qualified tuition program; deduction for student loan interest; and exclusion from income of certain savings bond interest. Federal1040x amendment These benefits are explained in Publication 970. Federal1040x amendment Foreign service representation expenses. Federal1040x amendment   If you are an employee of the U. Federal1040x amendment S. Federal1040x amendment Foreign Service and your position requires you to establish and maintain favorable relations in foreign countries, you may receive a nontaxable allowance for representation expenses. Federal1040x amendment If your expenses are more than the allowance you receive, you can deduct the excess expenses as an itemized deduction on Schedule A (Form 1040) if you meet one of the following conditions. Federal1040x amendment You have a certificate from the Secretary of State attesting that the expenses were incurred for the benefit of the United States, and would be reimbursable under appropriate legislation if the agency had sufficient funds for these reimbursements. Federal1040x amendment The expenses, while specifically not reimbursable under State Department regulations, were ordinary and necessary business expenses incurred in the performance of your official duties. Federal1040x amendment    To deduct any expenses for travel, entertainment, and gifts, including those certified by the Secretary of State, you must meet the rules for recordkeeping and accounting to your employer. Federal1040x amendment These rules are explained in Publication 463. Federal1040x amendment Representation expenses. Federal1040x amendment   These are expenses that further the interest of the United States abroad. Federal1040x amendment They include certain entertainment, gifts, costs of official functions, and rental of ceremonial dress. Federal1040x amendment They generally do not include costs of passenger vehicles (such as cars or aircraft), printing or engraving, membership fees, or amounts a principal representative must pay personally to cover the usual costs of operating and maintaining an official residence. Federal1040x amendment   Chapters 300 and 400 of the Standardized Regulations (Government Civilians, Foreign Area) provide more detail on what expenses are allowable as representation expenses. Federal1040x amendment These regulations are available on the Internet at www. Federal1040x amendment state. Federal1040x amendment gov/m/a/als. Federal1040x amendment Look under “Standardized Regulations (DSSR)” and click on “DSSR Table of Contents. Federal1040x amendment ” Publication 463 and Publication 529, Miscellaneous Deductions, provide more detail on what expenses are allowable as ordinary and necessary business expenses. Federal1040x amendment Impairment-related work expenses. Federal1040x amendment   If you are an employee with a physical or mental disability, you can deduct attendant-care services at your place of work and other expenses in connection with work that are necessary for you to be able to work. Federal1040x amendment Attendant care includes a reader for a blind person and a helper for a person with a physical disability. Federal1040x amendment These expenses are reported on Form 2106 or 2106-EZ and carried to Schedule A (Form 1040). Federal1040x amendment They are not subject to the 2%-of-adjusted- gross-income limit on miscellaneous itemized deductions. Federal1040x amendment Loss on conversion of U. Federal1040x amendment S. Federal1040x amendment dollars into foreign currency. Federal1040x amendment   The conversion of U. Federal1040x amendment S. Federal1040x amendment dollars into foreign currency at an official rate of exchange that is not as favorable as the free market rate does not result in a deductible loss. Federal1040x amendment Recordkeeping Rules If you claim a deduction for unreimbursed business expenses, you must keep timely and adequate records of all your business expenses. Federal1040x amendment For example, you must keep records and supporting evidence to prove the following elements about deductions for travel expenses (including meals and lodging while away from home). Federal1040x amendment The amount of each separate expense for travel away from home, such as the cost of your transportation, lodging, or meals. Federal1040x amendment You may total your incidental expenses if you list them in reasonable categories such as daily meals, gasoline and oil, and taxi fares. Federal1040x amendment For each trip away from home, the dates you left and returned and the number of days spent on business. Federal1040x amendment The destination or area of your travel, described by the name of the city, town, or similar designation. Federal1040x amendment The business reason for your travel or the business benefit gained or expected to be gained from your travel. Federal1040x amendment How to record your expenses. Federal1040x amendment   Records for proof of your expenses should be kept in an account book, diary, statement of expense, or similar record. Federal1040x amendment They should be supported by other records, such as receipts or canceled checks, in sufficient detail to establish the elements for these expenses. Federal1040x amendment You do not need to duplicate information in an account book or diary that is shown on a receipt as long as your records and receipts complement each other in an orderly manner. Federal1040x amendment   Each expense should be recorded separately in your records. Federal1040x amendment However, some items can be totaled in reasonable categories. Federal1040x amendment You can make one daily entry for categories such as taxi fares, telephone calls, meals while away from home, gas and oil, and other incidental costs of travel. Federal1040x amendment You may record tips separately or with the cost of the service. Federal1040x amendment    Documentary evidence generally is required to support all lodging expenses while traveling away from home. Federal1040x amendment It is also required for any other expense of $75 or more, except transportation charges if the evidence is not readily available. Federal1040x amendment Documentary evidence is a receipt, paid bill, or similar proof sufficient to support an expense. Federal1040x amendment It ordinarily will be considered adequate if it shows the amount, date, place, and essential business character of the expense. Federal1040x amendment    A canceled check by itself does not prove a business cost. Federal1040x amendment You must have other evidence to show that the check was used for a business purpose. Federal1040x amendment Your records must be timely. Federal1040x amendment   Record the elements for the expense in your account book or other record at or near the time of the expense. Federal1040x amendment A timely-kept record has more value than statements prepared later when, generally, there is a lack of accurate recall. Federal1040x amendment Confidential information. Federal1040x amendment   You do not need to put confidential information relating to an element of a deductible expense (such as the place, business purpose, or business relationship) in your account book, diary, or other record. Federal1040x amendment However, you do have to record the information elsewhere at or near the time of the expense and have it available to fully prove that element of the expense. Federal1040x amendment How To Report Business Expenses As a U. Federal1040x amendment S. Federal1040x amendment Government employee, your business expense reimbursements are generally paid under an accountable plan and are not included in your wages on your Form W-2. Federal1040x amendment If your expenses are not more than the reimbursements, you do not need to show your expenses or reimbursements on your return. Federal1040x amendment However, if you do not account to your employer for a travel advance or if you do not return any excess advance within a reasonable period of time, the advance (or excess) will be included in your wages on your Form W-2. Federal1040x amendment If you are entitled to a reimbursement from your employer but you do not claim it, you cannot deduct the expenses to which that unclaimed reimbursement applies. Federal1040x amendment Form 2106 or Form 2106-EZ. Federal1040x amendment   You must complete Form 2106 or 2106-EZ to deduct your expenses. Federal1040x amendment Also, if your actual expenses are more than your reimbursements, you can complete Form 2106 or 2106-EZ to deduct your excess expenses. Federal1040x amendment Generally, you must include all of your expenses and reimbursements on Form 2106 or 2106-EZ and carry your allowable expense to Schedule A (Form 1040). Federal1040x amendment Your allowable expense is then generally subject to the 2%-of-adjusted-gross-income limit. Federal1040x amendment Form 2106-EZ. Federal1040x amendment   You may be able to use Form 2106-EZ instead of the more complex Form 2106 for reporting unreimbursed employee business expenses. Federal1040x amendment You can use Form 2106-EZ if you meet both of the following conditions. Federal1040x amendment You are not reimbursed by your employer for any expenses. Federal1040x amendment (Amounts your employer included in your wages on your Form W-2 are not considered reimbursements. Federal1040x amendment ) If you claim car expenses, you use the standard mileage rate. Federal1040x amendment Deductions and Credits — Nonbusiness Expenses In addition to deductible business expenses, you may be entitled to deduct certain other expenses. Federal1040x amendment Moving Expenses If you changed job locations or started a new job, you may be able to deduct the reasonable expenses of moving yourself, your family, and your household goods and personal effects to your new home. Federal1040x amendment However, you cannot deduct any expenses for which you received a tax-free allowance as a U. Federal1040x amendment S. Federal1040x amendment Government employee. Federal1040x amendment To deduct moving expenses, your move must be closely related to the start of work and you must meet the distance test and the time test. Federal1040x amendment Closely related to the start of work. Federal1040x amendment   The move must be closely related, both in time and in place, to the start of work at the new location. Federal1040x amendment In general, you must have incurred your moving expenses within one year from the time you first report to your new job or business. Federal1040x amendment   A move generally is not considered closely related in place to the start of work if the distance from your new home to the new job location is more than the distance from your former home to the new job location. Federal1040x amendment A move that does not meet this requirement may qualify if you can show that you must live at the new home as a condition of employment, or you will spend less time or money commuting from the new home to the new job. Federal1040x amendment Distance test. Federal1040x amendment   Your new main job location must be at least 50 miles farther from your former home than your old main job location was. Federal1040x amendment If you did not have an old job location, your new job location must be at least 50 miles from your former home. Federal1040x amendment Time test. Federal1040x amendment   If you are an employee, you must work full time for at least 39 weeks during the first 12 months after you arrive in the general area of your new job location. Federal1040x amendment Deductible moving expenses. Federal1040x amendment   Moving expenses that can be deducted include the reasonable costs of: Moving household goods and personal effects (including packing, crating, in-transit storage, and insurance) of both you and members of your household, and Transportation and lodging for yourself and members of your household for one trip from your former home to your new home (including costs of getting passports). Federal1040x amendment    The cost of your meals is not a deductible moving expense. Federal1040x amendment   The costs of moving household goods include the reasonable expenses of moving household goods and personal effects to and from storage. Federal1040x amendment For a foreign move, the costs also include expenses of storing the goods and effects for part or all of the period that your new job location abroad continues to be your main job location. Federal1040x amendment Expenses must be reasonable. Federal1040x amendment   You can deduct only those expenses that are reasonable for the circumstances of your move. Federal1040x amendment For example, the costs of traveling from your former home to your new one should be by the shortest, most direct route available by conventional transportation. Federal1040x amendment Members of your household. Federal1040x amendment   A member of your household includes anyone who has both your former home and new home as his or her home. Federal1040x amendment It does not include a tenant or employee unless you can claim that person as a dependent. Federal1040x amendment Retirees. Federal1040x amendment   You can deduct the costs of moving to the United States when you permanently retire if both your former main job location and former home were outside the United States and its possessions. Federal1040x amendment You do not have to meet the time test described earlier. Federal1040x amendment Survivors. Federal1040x amendment   You can deduct moving expenses for a move to the United States if you are the spouse or dependent of a person whose main job location at the time of death was outside the United States and its possessions. Federal1040x amendment The move must begin within 6 months after the decedent's death. Federal1040x amendment It must be from the decedent's former home outside the United States, and that home must also have been your home. Federal1040x amendment You do not have to meet the time test described earlier. Federal1040x amendment How to report moving expenses. Federal1040x amendment   Use Form 3903 to report your moving expenses and figure your allowable deduction. Federal1040x amendment Claim the deduction as an adjustment to income on Form 1040. Federal1040x amendment (You cannot deduct moving expenses on Form 1040A or Form 1040EZ. Federal1040x amendment ) Reimbursements. Federal1040x amendment   Generally, you must include reimbursements of, or payments for, nondeductible moving expenses in gross income for the year paid. Federal1040x amendment You also must include in gross income reimbursements paid to you under a nonaccountable plan. Federal1040x amendment However, there is an exception for the tax-free foreign areas allowances described earlier under Allowances, Differentials, and Special Pay. Federal1040x amendment Additional information. Federal1040x amendment   For additional information about moving expenses, see Publication 521. Federal1040x amendment Other Itemized Deductions You may be able to claim other itemized deductions not connected to your employment. Federal1040x amendment Contributions. Federal1040x amendment   You can deduct contributions to qualified organizations created or organized in or under the laws of the United States or its possessions. Federal1040x amendment You cannot deduct contributions you make directly to foreign organizations (except for certain Canadian, Israeli, and Mexican charities), churches, and governments. Federal1040x amendment For more information, see Publication 526, Charitable Contributions. Federal1040x amendment Real estate tax and home mortgage interest. Federal1040x amendment   If you receive a tax-free housing allowance, your itemized deductions for real estate taxes and home mortgage interest are limited. Federal1040x amendment You must reduce the amount of each deduction that would otherwise be allowable by the amount of each expense that is related to the tax-free allowance. Federal1040x amendment Example. Federal1040x amendment Adam is an IRS employee working overseas who receives a $6,300 tax-free housing and utility allowance. Federal1040x amendment During the year, Adam used the allowance, with other funds, to provide a home for himself. Federal1040x amendment His expenses for this home totaled $8,400 and consisted of mortgage principal ($500), insurance ($400), real estate taxes ($1,400), mortgage interest ($4,000), and utility costs ($2,100). Federal1040x amendment Adam did not have any other expenses related to providing a home for himself. Federal1040x amendment Adam must reduce his deductions for home mortgage interest and real estate taxes. Federal1040x amendment He figures a reasonable way to reduce them is to multiply them by a fraction: its numerator is $6,300 (the total housing and utility allowance) and its denominator is $8,400 (the total of all payments to which the housing and utility allowance applies). Federal1040x amendment The result is 3/4. Federal1040x amendment Adam reduces his otherwise allowable home mortgage interest deduction by $3,000 (the $4,000 he paid ×3/4) and his otherwise allowable real estate tax deduction by $1,050 (the $1,400 he paid × 3/4). Federal1040x amendment He can deduct $1,000 of his mortgage interest ($4,000 − $3,000) and $350 of his real estate taxes ($1,400 − $1,050) when he itemizes his deductions. Federal1040x amendment Exception to the reduction. Federal1040x amendment   If you receive a tax-free housing allowance as a member of the military or the clergy, you do not have to reduce your deductions for real estate tax and home mortgage interest expenses you are otherwise entitled to deduct. Federal1040x amendment Required statement. Federal1040x amendment   If you receive a tax-free housing allowance and have real estate tax or home mortgage interest expenses, attach a statement to your tax return. Federal1040x amendment The statement must contain all of the following information. Federal1040x amendment The amount of each type of tax-free income you received, such as a tax-free housing allowance or tax-free representation allowance. Federal1040x amendment The amount of otherwise deductible expenses attributable to each type of tax-free income. Federal1040x amendment The amount attributable to each type of tax-free income that was not directly attributable to that type of tax-free income. Federal1040x amendment An explanation of how you determined the amounts not directly attributable to each type of tax-free income. Federal1040x amendment   The statement must also indicate that none of the amounts deducted on your return are in any way attributable to tax-free income. Federal1040x amendment Foreign Taxes If you pay or accrue taxes to a foreign government, you generally can choose to either claim them as a credit against your U. Federal1040x amendment S. Federal1040x amendment income tax liability or deduct them as an itemized deduction when figuring your taxable income. Federal1040x amendment Do not include the foreign taxes paid or accrued as withheld income taxes in the Payments section of Form 1040. Federal1040x amendment Foreign tax credit. Federal1040x amendment   Your foreign tax credit is subject to a limit based on your taxable income from foreign sources. Federal1040x amendment If you choose to figure a credit against your U. Federal1040x amendment S. Federal1040x amendment tax liability for the foreign taxes, you generally must complete Form 1116 and attach it to your U. Federal1040x amendment S. Federal1040x amendment income tax return. Federal1040x amendment    You cannot claim a credit for foreign taxes paid on amounts excluded from gross income under the foreign earned income or housing exclusions. Federal1040x amendment If all your foreign income is exempt from U. Federal1040x amendment S. Federal1040x amendment tax, you will not be able to claim a foreign tax credit. Federal1040x amendment   If, because of the limit on the credit, you cannot use the full amount of qualified foreign taxes paid or accrued in the tax year, you are allowed to carry the excess back 1 year and then forward 10 years. Federal1040x amendment Exemption from limit. Federal1040x amendment   You can elect to not be subject to the foreign tax limit if you meet all the following conditions. Federal1040x amendment Your only foreign income is passive income, such as interest, dividends, and royalties. Federal1040x amendment The total of all your foreign taxes is not more than $300 ($600 for joint tax returns). Federal1040x amendment The foreign income and taxes are reported to you on a payee statement, such as Form 1099-DIV, Dividends and Distributions, or 1099-INT, Interest Income. Federal1040x amendment If you make the election, you can claim a foreign tax credit without filing Form 1116. Federal1040x amendment However, you cannot carry back or carry over any unused foreign tax to or from this year. Federal1040x amendment See the instructions for the appropriate line in the Tax and Credits section of Form 1040. Federal1040x amendment Foreign tax deduction. Federal1040x amendment   If you choose to deduct all foreign income taxes on your U. Federal1040x amendment S. Federal1040x amendment income tax return, itemize the deduction on Schedule A (Form 1040). Federal1040x amendment You cannot deduct foreign taxes paid on income you exclude under the foreign earned income or housing exclusions. Federal1040x amendment Example. Federal1040x amendment Dennis and Christina are married and live and work in Country X. Federal1040x amendment Dennis works for the U. Federal1040x amendment S. Federal1040x amendment Government and Christina is employed by a private company. Federal1040x amendment They pay income tax to Country X on Christina's income only. Federal1040x amendment Dennis and Christina file a joint tax return and exclude all of Christina's income. Federal1040x amendment They cannot claim a foreign tax credit or take a deduction for the taxes paid to Country X. Federal1040x amendment Deduction for other foreign taxes. Federal1040x amendment   The deduction for foreign taxes other than foreign income taxes is not related to the foreign tax credit. Federal1040x amendment You can take deductions for these miscellaneous foreign taxes and also claim the foreign tax credit for income taxes paid to a foreign country. Federal1040x amendment   You can deduct real property taxes you pay that are imposed on you by a foreign country. Federal1040x amendment You take this deduction on Schedule A (Form 1040). Federal1040x amendment You cannot deduct other foreign taxes, such as personal property taxes, unless you incurred the expenses in a trade or business or in the production of income. Federal1040x amendment More information. Federal1040x amendment   The foreign tax credit and deduction, their limits, and carryback and carryover provisions are discussed in detail in Publication 514. Federal1040x amendment Local (Foreign) Tax Return As a U. Federal1040x amendment S. Federal1040x amendment Government employee, you are expected to observe and fulfill all tax obligations imposed by the host country government. Federal1040x amendment Check with local tax authorities to determine whether you are considered a tax resident of your host country, whether you are required to file a host country tax return and whether you owe taxes to the host country. Federal1040x amendment Tax Treaty Benefits As discussed earlier, most income tax treaties contain an article relating to remuneration from government services. Federal1040x amendment Review the treaty text carefully to determine whether your U. Federal1040x amendment S. Federal1040x amendment Government remuneration is taxable in the host country. Federal1040x amendment You will first have to determine whether you are a resident of your host country under the treaty residence article (after application of the so-called “tie-breaker” rule). Federal1040x amendment If you or your spouse receives income from a private employer or self-employment, review the tax treaty rules relating to income from personal services to determine whether that income is taxable in the host country. Federal1040x amendment If you pay or accrue taxes to both the host country and the United States, you may be able to relieve double taxation with a foreign tax credit. Federal1040x amendment Most income tax treaties contain an article providing relief from double taxation. Federal1040x amendment Many treaties contain special foreign tax credit rules for U. Federal1040x amendment S. Federal1040x amendment citizens who are residents of a treaty country. Federal1040x amendment For more information about the foreign tax credit, see Foreign Taxes, earlier. Federal1040x amendment Other Agreements The United States may be a party to agreements other than income tax treaties that may affect your tax obligations to the host country. Federal1040x amendment For example, consular employees may be exempt from host country tax under the Vienna Convention on Consular Relations or bilateral consular agreements. Federal1040x amendment Similarly, certain diplomatic staff may be exempt from host country tax under the Vienna Convention on Diplomatic Relations. Federal1040x amendment Check with the appropriate U. Federal1040x amendment S. Federal1040x amendment Embassy for more information. Federal1040x amendment Double Withholding If your U. Federal1040x amendment S. Federal1040x amendment government pay is subject to withholding in both the United States and the foreign country, you may reduce the amount of U. Federal1040x amendment S. Federal1040x amendment tax that is withheld from your pay if you expect to be entitled to a foreign tax credit on your U. Federal1040x amendment S. Federal1040x amendment income tax return on this income. Federal1040x amendment Complete Worksheet 1-6 in Publication 505, Tax Withholding and Estimated Tax, to determine how to revise Form W-4, Employee’s Withholding Allowance Certificate. Federal1040x amendment How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. Federal1040x amendment By selecting the method that is best for you, you will have quick and easy access to tax help. Federal1040x amendment Free help with your tax return. Federal1040x amendment   Free help in preparing your return is available nationwide from IRS-certified volunteers. Federal1040x amendment The Volunteer Income Tax Assistance (VITA) program is designed to help low-moderate income, elderly, disabled, and limited English proficient taxpayers. Federal1040x amendment The Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 and older with their tax returns. Federal1040x amendment Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Federal1040x amendment Some VITA and TCE sites provide taxpayers the opportunity to prepare their return with the assistance of an IRS-certified volunteer. Federal1040x amendment To find the nearest VITA or TCE site, visit IRS. Federal1040x amendment gov or call 1-800-906-9887 or 1-800-829-1040. Federal1040x amendment   As part of the TCE program, AARP offers the Tax-Aide counseling program. Federal1040x amendment To find the nearest AARP Tax-Aide site, visit AARP's website at www. Federal1040x amendment aarp. Federal1040x amendment org/money/taxaide or call 1-888-227-7669. Federal1040x amendment   For more information on these programs, go to IRS. Federal1040x amendment gov and enter “VITA” in the search box. Federal1040x amendment Internet. Federal1040x amendment You can access the IRS website at IRS. Federal1040x amendment gov 24 hours a day, 7 days a week to: E-file your return. Federal1040x amendment Find out about commercial tax preparation and e-file services available free to eligible taxpayers. Federal1040x amendment Check the status of your 2012 refund. Federal1040x amendment Go to IRS. Federal1040x amendment gov and click on Where’s My Refund. Federal1040x amendment Information about your return will generally be available within 24 hours after the IRS receives your e-filed return, or 4 weeks after you mail your paper return. Federal1040x amendment If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Federal1040x amendment Have your 2012 tax return handy so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Federal1040x amendment Where's My Refund? has a new look this year! The tool will include a tracker that displays progress through three stages: (1) return received, (2) refund approved, and (3) refund sent. Federal1040x amendment Where's My Refund? will provide an actual personalized refund date as soon as the IRS processes your tax return and approves your refund. Federal1040x amendment So in a change from previous filing seasons, you won't get an estimated refund date right away. Federal1040x amendment Where's My Refund? includes information for the most recent return filed in the current year and does not include information about amended returns. Federal1040x amendment You can obtain a free transcript online at IRS. Federal1040x amendment gov by clicking on Order a Return or Account Transcript under “Tools. Federal1040x amendment ” For a transcript by phone, call 1-800-908-9946 and follow the prompts in the recorded message. Federal1040x amendment You will be prompted to provide your SSN or Individual Taxpayer Identification Number (ITIN), date of birth, street address and ZIP code. Federal1040x amendment Download forms, including talking tax forms, instructions, and publications. Federal1040x amendment Order IRS products. Federal1040x amendment Research your tax questions. Federal1040x amendment Search publications by topic or keyword. Federal1040x amendment Use the Internal Revenue Code, regulations, or other official guidance. Federal1040x amendment View Internal Revenue Bulletins (IRBs) published in the last few years. Federal1040x amendment Figure your withholding allowances using the IRS Withholding Calculator at www. Federal1040x amendment irs. Federal1040x amendment gov/individuals. Federal1040x amendment Determine if Form 6251 (Alternative Minimum Tax— Individuals), must be filed by using our Alternative Minimum Tax (AMT) Assistant available at IRS. Federal1040x amendment gov by typing Alternative Minimum Tax Assistant in the search box. Federal1040x amendment Sign up to receive local and national tax news by email. Federal1040x amendment Get information on starting and operating a small business. Federal1040x amendment Phone. Federal1040x amendment Many services are available by phone. Federal1040x amendment   Ordering forms, instructions, and publications. Federal1040x amendment Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, and publications, and prior-year forms and instructions (limited to 5 years). Federal1040x amendment You should receive your order within 10 days. Federal1040x amendment Asking tax questions. Federal1040x amendment Call the IRS with your tax questions at 1-800-829-1040. Federal1040x amendment Solving problems. Federal1040x amendment You can get face-to-face help solving tax problems most business days in IRS Taxpayer Assistance Centers (TAC). Federal1040x amendment An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Federal1040x amendment Call your local Taxpayer Assistance Center for an appointment. Federal1040x amendment To find the number, go to www. Federal1040x amendment irs. Federal1040x amendment gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Federal1040x amendment TTY/TDD equipment. Federal1040x amendment If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications. Federal1040x amendment The TTY/TDD telephone number is for individuals who are deaf, hard of hearing, or have a speech disability. Federal1040x amendment These individuals can also access the IRS through relay services such as the Federal Relay Service at www. Federal1040x amendment gsa. Federal1040x amendment gov/fedrelay. Federal1040x amendment TeleTax topics. Federal1040x amendment Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics. Federal1040x amendment Checking the status of your 2012 refund. Federal1040x amendment To check the status of your 2012 refund, call 1-800-829-1954 or 1-800-829-4477 (automated Where's My Refund? information 24 hours a day, 7 days a week). Federal1040x amendment Information about your return will generally be available within 24 hours after the IRS receives your e-filed return, or 4 weeks after you mail your paper return. Federal1040x amendment If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Federal1040x amendment Have your 2012 tax return handy so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Federal1040x amendment Where's My Refund? will provide an actual personalized refund date as soon as the IRS processes your tax return and approves your refund. Federal1040x amendment Where's My Refund? includes information for the most recent return filed in the current year and does not include information about amended returns. Federal1040x amendment Outside the U. Federal1040x amendment S. Federal1040x amendment If you are outside the United States, taxpayer assistance is available at the following U. Federal1040x amendment S Embassies or consulate. Federal1040x amendment Beijing, China (86) (10) 8531-3983 Frankfurt, Germany (49) (69) 7535-3834 London, England (44) (20) 7894-0476 Paris, France (33) (1) 4312-2555 Please contact the office for times when assistance will be available. Federal1040x amendment If you cannot get to one of these offices, taxpayer assistance is available at (267) 941-1000 (not a toll free call). Federal1040x amendment If you are in a U. Federal1040x amendment S. Federal1040x amendment territory (American Samoa, Guam, Northern Mariana Islands, Puerto Rico, and U. Federal1040x amendment S. Federal1040x amendment Virgin Islands) and have a tax question, you can call 1-800-829-1040. Federal1040x amendment Evaluating the quality of our telephone services. Federal1040x amendment To ensure IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. Federal1040x amendment One method is for a second IRS representative to listen in on or record random telephone calls. Federal1040x amendment Another is to ask some callers to complete a short survey at the end of the call. Federal1040x amendment Walk-in. Federal1040x amendment Some products and services are available on a walk-in basis. Federal1040x amendment   Products. Federal1040x amendment You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Federal1040x amendment Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. Federal1040x amendment Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes. Federal1040x amendment Services. Federal1040x amendment You can walk in to your local TAC most business days for personal, face-to-face tax help. Federal1040x amendment An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. Federal1040x amendment If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you are more comfortable talking with someone in person, visit your local TAC where you can talk with an IRS representative face-to-face. Federal1040x amendment No appointment is necessary—just walk in. Federal1040x amendment Before visiting, check www. Federal1040x amendment irs. Federal1040x amendment gov/localcontacts for hours of operation and services provided. Federal1040x amendment If you have an ongoing, complex tax account problem or a special need, such as a disability, an appointment can be requested by calling your local TAC. Federal1040x amendment You can leave a message and a representative will call you back within 2 business days. Federal1040x amendment All other issues will be handled without an appointment. Federal1040x amendment To call your local TAC, go to  www. Federal1040x amendment irs. Federal1040x amendment gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Federal1040x amendment Outside the U. Federal1040x amendment S. Federal1040x amendment If you are outside the United States during the filing period (January to mid-June), you can get the necessary federal tax forms and publications from most U. Federal1040x amendment S. Federal1040x amendment Embassies and consulates. Federal1040x amendment Mail. Federal1040x amendment You can send your order for forms, instructions, and publications to the address below. Federal1040x amendment You should receive a response within 10 days after your request is received. Federal1040x amendment  Internal Revenue Service 1201 N. Federal1040x amendment Mitsubishi Motorway Bloomington, IL 61705-6613 Outside the U. Federal1040x amendment S. Federal1040x amendment If you are outside the United States, you can get tax assistance by writing to the address below. Federal1040x amendment  Internal Revenue Service International Accounts Philadelphia, PA 19255-0725 Taxpayer Advocate Service. Federal1040x amendment   The Taxpayer Advocate Service (TAS) is your voice at the IRS. Federal1040x amendment Its job is to ensure that every taxpayer is treated fairly, and that you know and understand your rights. Federal1040x amendment TAS offers free help to guide you through the often-confusing process of resolving tax problems that you haven’t been able to solve on your own. Federal1040x amendment Remember, the worst thing you can do is nothing at all. Federal1040x amendment   TAS can help if you can’t resolve your problem with the IRS and: Your problem is causing financial difficulties for you, your family, or your business. Federal1040x amendment You face (or your business is facing) an immediate threat of adverse action. Federal1040x amendment You have tried repeatedly to contact the IRS but no one has responded, or the IRS has not responded to you by the date promised. Federal1040x amendment   If you qualify for help, they will do everything they can to get your problem resolved. Federal1040x amendment You will be assigned to one advocate who will be with you at every turn. Federal1040x amendment TAS has offices in every state, the District of Columbia, and Puerto Rico. Federal1040x amendment Although TAS is independent within the IRS, their advocates know how to work with the IRS to get your problems resolved. Federal1040x amendment And its services are always free. Federal1040x amendment   As a taxpayer, you have rights that the IRS must abide by in its dealings with you. Federal1040x amendment The TAS tax toolkit at www. Federal1040x amendment TaxpayerAdvocate. Federal1040x amendment irs. Federal1040x amendment gov can help you understand these rights. Federal1040x amendment   If you think TAS might be able to help you, call your local advocate, whose number is in your phone book and on our website at www. Federal1040x amendment irs. Federal1040x amendment gov/advocate. Federal1040x amendment You can also call the toll-free number at 1-877-777-4778. Federal1040x amendment Deaf and hard of hearing individuals who have access to TTY/TDD equipment can call 1-800-829-4059. Federal1040x amendment These individuals can also access the IRS through relay services such as the Federal Relay Service at www. Federal1040x amendment gsa. Federal1040x amendment gov/fedrelay. Federal1040x amendment   TAS also handles large-scale or systemic problems that affect many taxpayers. Federal1040x amendment If you know of one of these broad issues, please report it through the Systemic Advocacy Management System at www. Federal1040x amendment irs. Federal1040x amendment gov/advocate. Federal1040x amendment    Outside the U. Federal1040x amendment S. Federal1040x amendment If you live outside of the United States, you can call the Taxpayer Advocate at (787) 522-8601 in English or (787) 522-8600 in Spanish. Federal1040x amendment You can contact the Taxpayer Advocate at: Internal Revenue Service Taxpayer Advocate Service City View Plaza, 48 Carr 165, Suite 2000 Guaynabo, P. Federal1040x amendment R. Federal1040x amendment 00968-8000 Low Income Taxpayer Clinics (LITCs). Federal1040x amendment   Low Income Taxpayer Clinics (LITCs) are independent from the IRS. Federal1040x amendment Some clinics serve individuals whose income is below a certain level and who need to resolve a tax problem. Federal1040x amendment These clinics provide professional representation before the IRS or in court on audits, appeals, tax collection disputes, and other issues for free or for a small fee. Federal1040x amendment Some clinics can provide information about taxpayer rights and responsibilities in many different languages for individuals who speak English as a second language. Federal1040x amendment For more information and to find a clinic near you, see the LITC page on www. Federal1040x amendment irs. Federal1040x amendment gov/advocate or IRS Publication 4134, Low Income Taxpayer Clinic List. Federal1040x amendment This publication is also available by calling 1-800-TAX-FORM (1-800-829-3676) or at your local IRS office. Federal1040x amendment Free tax services. Federal1040x amendment   Publication 910, IRS Guide to Free Tax Services, is your guide to IRS services and resources. Federal1040x amendment Learn about free tax information from the IRS, including publications, services, and education and assistance programs. Federal1040x amendment The publication also has an index of over 100 TeleTax topics (recorded tax information) you can listen to on the telephone. Federal1040x amendment The majority of the information and services listed in this publication are available to you free of charge. Federal1040x amendment If there is a fee associated with a resource or service, it is listed in the publication. Federal1040x amendment   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with disabilities. Federal1040x amendment DVD for tax products. Federal1040x amendment You can order Publication 1796, IRS Tax Products DVD, and obtain: Current-year forms, instructions, and publications. Federal1040x amendment Prior-year forms, instructions, and publications. Federal1040x amendment Tax Map: an electronic research tool and finding aid. Federal1040x amendment Tax law frequently asked questions. Federal1040x amendment Tax Topics from the IRS telephone response system. Federal1040x amendment Internal Revenue Code—Title 26 of the U. Federal1040x amendment S. Federal1040x amendment Code. Federal1040x amendment Links to other Internet-based tax research materials. Federal1040x amendment Fill-in, print, and save features for most tax forms. Federal1040x amendment Internal Revenue Bulletins. Federal1040x amendment Toll-free and email technical support. Federal1040x amendment Two releases during the year. Federal1040x amendment  – The first release will ship the beginning of January 2013. Federal1040x amendment  – The final release will ship the beginning of March 2013. Federal1040x amendment Purchase the DVD from National Technical Information Service (NTIS) at www. Federal1040x amendment irs. Federal1040x amendment gov/cdorders for $30 (no handling fee) or call 1-877-233-6767 toll free to buy the DVD for $30 (plus a $6 handling fee). Federal1040x amendment Prev  Up  Next   Home   More Online Publications