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File Taxes 2009

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File Taxes 2009

File taxes 2009 2. File taxes 2009   American Opportunity Credit Table of Contents Introduction Can You Claim the CreditWho Can Claim the Credit Who Cannot Claim the Credit What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible StudentException. File taxes 2009 Who Can Claim a Dependent's Expenses Figuring the CreditEffect of the Amount of Your Income on the Amount of Your Credit Refundable Part of Credit Claiming the Credit Introduction For 2013, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. File taxes 2009 They are the American opportunity credit (this chapter) and the lifetime learning credit ( chapter 3 ). File taxes 2009 This chapter explains: Who can claim the American opportunity credit, What expenses qualify for the credit, Who is an eligible student, Who can claim a dependent's expenses, How to figure the credit, How to claim the credit, and When the credit must be repaid. File taxes 2009 What is the tax benefit of the American opportunity credit. File taxes 2009   For the tax year, you may be able to claim an American opportunity credit of up to $2,500 for qualified education expenses paid for each eligible student. File taxes 2009   A tax credit reduces the amount of income tax you may have to pay. File taxes 2009 Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. File taxes 2009 Forty percent of the American opportunity credit may be refundable. File taxes 2009 This means that if the refundable portion of your credit is more than your tax, the excess will be refunded to you. File taxes 2009   Your allowable American opportunity credit may be limited by the amount of your income. File taxes 2009 Also, the nonrefundable part of the credit may be limited by the amount of your tax. File taxes 2009 Overview of the American opportunity credit. File taxes 2009   See Table 2-1, Overview of the American Opportunity Credit , for the basics of this credit. File taxes 2009 The details are discussed in this chapter. File taxes 2009 Can you claim more than one education credit this year. File taxes 2009   For each student, you can elect for any year only one of the credits. File taxes 2009 For example, if you elect to take the American opportunity credit for a child on your 2013 tax return, you cannot use that same child's qualified education expenses to figure the lifetime learning credit for 2013. File taxes 2009   If you pay qualified education expenses for more than one student in the same year, you can choose to take the American opportunity credit on a per-student, per-year basis. File taxes 2009 If you pay qualified education expenses for a student (or students) for whom you do not claim the American opportunity credit, you can use the adjusted qualified education expenses of that student (or those students) in figuring your lifetime learning credit. File taxes 2009 This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. File taxes 2009 Differences between the American opportunity and lifetime learning credits. File taxes 2009   There are several differences between these two credits. File taxes 2009 For example, you can claim the American opportunity credit based on the same student's expenses for no more than 4 tax years, which includes any tax years you claimed the Hope Scholarship Credit for that student. File taxes 2009 However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. File taxes 2009 The differences between these credits are shown in Appendix B, Highlights of Education Tax Benefits for Tax Year 2013 near the end of this publication. File taxes 2009 If you claim the American opportunity credit for any student, you can choose between using that student's adjusted qualified education expenses for the American opportunity credit or the lifetime learning credit. File taxes 2009 If you have the choice, the American opportunity credit will always be greater than the lifetime learning credit. File taxes 2009 Table 2-1. File taxes 2009 Overview of the American Opportunity Credit Maximum credit Up to $2,500 credit per eligible student Limit on modified adjusted gross income (MAGI) $180,000 if married filing jointly; $90,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable 40% of credit may be refundable; the rest is nonrefundable Number of years of postsecondary education Available ONLY if the student had not completed the first 4 years of postsecondary education before 2013 Number of tax years credit available Available ONLY for 4 tax years per eligible student (including any year(s) Hope Scholarship Credit was claimed) Type of program required Student must be pursuing a program leading to a degree or other recognized education credential Number of courses Student must be enrolled at least half time for at least one academic period that begins during the tax year Felony drug conviction As of the end of 2013, the student had not been convicted of a felony for possessing or distributing a controlled substance Qualified expenses Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Can You Claim the Credit The following rules will help you determine if you are eligible to claim the American opportunity credit on your tax return. File taxes 2009 Who Can Claim the Credit Generally, you can claim the American opportunity credit if all three of the following requirements are met. File taxes 2009 You pay qualified education expenses of higher education. File taxes 2009 You pay the education expenses for an eligible student. File taxes 2009 The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. File taxes 2009 Student qualifications. File taxes 2009   Generally, you can take the American opportunity credit for a student only if all of the following four requirements are met. File taxes 2009 As of the beginning of 2013, the student had not completed the first four years of postsecondary education (generally, the freshman through senior years of college), as determined by the eligible educational institution. File taxes 2009 For this purpose, do not include academic credit awarded solely because of the student's performance on proficiency examinations. File taxes 2009 Neither the American opportunity credit nor the Hope Scholarship Credit has been claimed (by you or anyone else) for this student for any four tax years before 2013. File taxes 2009 If the American opportunity credit (and Hope Scholarship Credit) has been claimed for this student for any three or fewer tax years before 2013, this requirement is met. File taxes 2009 For at least one academic period beginning (or treated as beginning) in 2013, the student both: Was enrolled in a program that leads to a degree, certificate, or other recognized educational credential; and Carried at least one-half the normal full-time workload for his or her course of study. File taxes 2009 The standard for what is half of the normal full-time work load is determined by each eligible educational institution. File taxes 2009 However, the standard may not be lower than any of those established by the U. File taxes 2009 S. File taxes 2009 Department of Education under the Higher Education Act of 1965. File taxes 2009 For purposes of whether the student satisfies this third requirement for 2013, treat an academic period beginning in the first three months of 2014 as if it began in 2013 if qualified education expenses for the student were paid in 2013 for that academic period. File taxes 2009 See Prepaid expenses, later. File taxes 2009 As of the end of 2013, the student had not been convicted of a federal or state felony for possessing or distributing a controlled substance. File taxes 2009 Example 1. File taxes 2009 Sharon was eligible for the Hope Scholarship Credit for 2007 and 2008 and for the American opportunity credit for 2010 and 2012. File taxes 2009 Her parents claimed the Hope Scholarship Credit for Sharon on their tax returns for 2007 and 2008 and claimed the American opportunity credit for Sharon on their 2010 tax return. File taxes 2009 Sharon claimed the American opportunity credit on her 2012 tax return. File taxes 2009 The American opportunity credit and Hope Scholarship Credit have been claimed for Sharon for four tax years before 2013. File taxes 2009 Therefore, the American opportunity credit cannot be claimed by Sharon for 2013. File taxes 2009 If Sharon were to file Form 8863 for 2013, she would check “Yes” for Part III, line 23, and would be eligible to claim only the lifetime learning credit. File taxes 2009 Example 2. File taxes 2009 Wilbert was eligible for the American opportunity credit for 2009, 2010, 2011, and 2013. File taxes 2009 His parents claimed the American opportunity credit for Wilbert on their tax returns for 2009, 2010, and 2011. File taxes 2009 No one claimed an American opportunity credit or Hope Scholarship Credit for Wilbert for any other tax year. File taxes 2009 The American opportunity credit and Hope Scholarship Credit have been claimed for Wilbert for only three tax years before 2013. File taxes 2009 Therefore, Wilbert meets the second requirement to be eligible for the American opportunity credit. File taxes 2009 If Wilbert were to file Form 8863 for 2013, he would check “No” for Part III, line 23. File taxes 2009 If Wilbert meets all of the other requirements, he is eligible for the American opportunity credit. File taxes 2009 Example 3. File taxes 2009 Glenda enrolls on a full-time basis in a degree program for the 2014 Spring semester, which begins in January 2014. File taxes 2009 Glenda pays her tuition for the 2014 Spring semester in December 2013. File taxes 2009 Because the tuition Glenda paid in 2013 relates to an academic period that begins in the first 3 months of 2014, her eligibility to claim an American opportunity credit in 2013 is determined as if the 2014 Spring semester began in 2013. File taxes 2009 If the requirements above are not met for any student, you cannot take the American opportunity credit for that student. File taxes 2009 You may be able to take the lifetime learning credit for part or all of that student's qualified education expenses instead. File taxes 2009 Note. File taxes 2009 Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you. File taxes 2009 “Qualified education expenses” are defined later under Qualified Education Expenses . File taxes 2009 “Eligible students” are defined later under Who Is an Eligible Student . File taxes 2009 A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . File taxes 2009 You may find Figure 2-1, Can You Claim the American Opportunity Credit for 2013 , later, helpful in determining if you can claim an American opportunity credit on your tax return. File taxes 2009 This image is too large to be displayed in the current screen. File taxes 2009 Please click the link to view the image. File taxes 2009 Figure 2-1 Can you claim the American opportunity credit for 2012? Who Cannot Claim the Credit You cannot claim the American opportunity credit for 2013 if any of the following apply. File taxes 2009 Your filing status is married filing separately. File taxes 2009 You are listed as a dependent on another person's tax return (such as your parents'). File taxes 2009 See Who Can Claim a Dependent's Expenses , later. File taxes 2009 Your modified adjusted gross income (MAGI) is $90,000 or more ($180,000 or more in the case of a joint return). File taxes 2009 MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . File taxes 2009 You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. File taxes 2009 More information on nonresident aliens can be found in Publication 519, U. File taxes 2009 S. File taxes 2009 Tax Guide for Aliens. File taxes 2009 What Expenses Qualify The American opportunity credit is based on adjusted qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. File taxes 2009 Generally, the credit is allowed for adjusted qualified education expenses paid in 2013 for an academic period beginning in 2013 or beginning in the first three months of 2014. File taxes 2009 For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning January 2014, you can use that $1,500 in figuring your 2013 credit. File taxes 2009 Academic period. File taxes 2009   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. File taxes 2009 In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. File taxes 2009 Paid with borrowed funds. File taxes 2009   You can claim an American opportunity credit for qualified education expenses paid with the proceeds of a loan. File taxes 2009 Use the expenses to figure the American opportunity credit for the year in which the expenses are paid, not the year in which the loan is repaid. File taxes 2009 Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account. File taxes 2009 Student withdraws from class(es). File taxes 2009   You can claim an American opportunity credit for qualified education expenses not refunded when a student withdraws. File taxes 2009 Qualified Education Expenses For purposes of the American opportunity credit, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. File taxes 2009 Eligible educational institution. File taxes 2009   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. File taxes 2009 S. File taxes 2009 Department of Education. File taxes 2009 It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. File taxes 2009 The educational institution should be able to tell you if it is an eligible educational institution. File taxes 2009   Certain educational institutions located outside the United States also participate in the U. File taxes 2009 S. File taxes 2009 Department of Education's Federal Student Aid (FSA) programs. File taxes 2009 Related expenses. File taxes 2009   Student-activity fees are included in qualified education expenses only if the fees must be paid to the institution as a condition of enrollment or attendance. File taxes 2009   However, expenses for books, supplies, and equipment needed for a course of study are included in qualified education expenses whether or not the materials are purchased from the educational institution. File taxes 2009 Prepaid expenses. File taxes 2009   Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring an education credit for 2013 only. File taxes 2009 See Academic period, earlier. File taxes 2009 For example, if you pay $2,000 in December 2013, for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). File taxes 2009    You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). File taxes 2009   In the following examples, assume that each student is an eligible student at an eligible educational institution. File taxes 2009 Example 1. File taxes 2009 Jefferson is a sophomore in University V's degree program in dentistry. File taxes 2009 This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. File taxes 2009 Because the equipment rental is needed for his course of study, Jefferson's equipment rental fee is a qualified expense. File taxes 2009 Example 2. File taxes 2009 Grace and William, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. File taxes 2009 The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. File taxes 2009 William bought his books from a friend; Grace bought hers at College W's bookstore. File taxes 2009 Both are qualified education expenses for the American opportunity credit. File taxes 2009 Example 3. File taxes 2009 When Kelly enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. File taxes 2009 This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and the student government. File taxes 2009 No portion of the fee covers personal expenses. File taxes 2009 Although labeled as a student activity fee, the fee is required for Kelly's enrollment and attendance at College X and is a qualified expense. File taxes 2009 No Double Benefit Allowed You cannot do any of the following. File taxes 2009 Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an American opportunity credit based on those same expenses. File taxes 2009 Claim an American opportunity credit in the same year that you are claiming a tuition and fees deduction for the same student. File taxes 2009 Claim an American opportunity credit for any student and use any of that student's expenses in figuring your lifetime learning credit. File taxes 2009 Figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP) using the same expenses you used to figure the American opportunity credit. File taxes 2009 See Coordination With American Opportunity and Lifetime Learning Credits in chapter 7, Coverdell Education Savings Account, and Coordination With American Opportunity and Lifetime Learning Credits in chapter 8, Qualified Tuition Program. File taxes 2009 Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. File taxes 2009 See Adjustments to Qualified Education Expenses, next. File taxes 2009 Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. File taxes 2009 The result is the amount of adjusted qualified education expenses for each student. File taxes 2009 Tax-free educational assistance. File taxes 2009   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. File taxes 2009 See Academic period, earlier. File taxes 2009   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. File taxes 2009 This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). File taxes 2009   If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed, later. File taxes 2009 If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed, later. File taxes 2009   Tax-free educational assistance includes: The tax-free parts of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions). File taxes 2009 Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. File taxes 2009 Generally, any scholarship or fellowship is treated as tax free. File taxes 2009 However, a scholarship or fellowship is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship is received) and either of the following is true. File taxes 2009 The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. File taxes 2009 The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. File taxes 2009 You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. File taxes 2009 For examples, see Coordination with Pell grants and other scholarships, later. File taxes 2009 Refunds. File taxes 2009   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. File taxes 2009 Some tax-free educational assistance received after 2013 may be treated as a refund. File taxes 2009 See Tax-free educational assistance, earlier. File taxes 2009 Refunds received in 2013. File taxes 2009   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses for 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. File taxes 2009 Refunds received after 2013 but before your income tax return is filed. File taxes 2009   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid before you file an income tax return for 2013, the amount of qualified education expenses for 2013 is reduced by the amount of the refund. File taxes 2009 Refunds received after 2013 and after your income tax return is filed. File taxes 2009   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid after you file an income tax return for 2013, you may need to repay some or all of the credit. File taxes 2009 See Credit recapture, next. File taxes 2009 Credit recapture. File taxes 2009    If any tax-free educational assistance for the qualified education expenses paid in 2013, or any refund of your qualified education expenses paid in 2013, is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. File taxes 2009 You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. File taxes 2009 You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you claimed the refigured credit(s). File taxes 2009 Include that amount as an additional tax for the year the refund or tax-free assistance was received. File taxes 2009 Example. File taxes 2009   You paid $7,000 tuition and fees in August 2013, and your child began college in September 2013. File taxes 2009 You filed your 2013 tax return on February 17, 2014, and claimed an American opportunity credit of $2,500. File taxes 2009 After you filed your return, you received a refund of $4,000. File taxes 2009 You must refigure your 2013 American opportunity credit using $3,000 of qualified education expenses instead of $7,000. File taxes 2009 The refigured credit is $2,250. File taxes 2009 The increase to your tax liability is also $250. File taxes 2009 Include the difference of $250 as additional tax on your 2014 tax return. File taxes 2009 See the instructions for your 2014 income tax return to determine where to include this tax. File taxes 2009 If you pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. File taxes 2009 Amounts that do not reduce qualified education expenses. File taxes 2009   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. File taxes 2009   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. File taxes 2009 The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. File taxes 2009 The use of the money is not restricted. File taxes 2009 Example 1. File taxes 2009 Joan paid $3,000 for tuition and $5,000 for room and board at University X. File taxes 2009 The university did not require her to pay any fees in addition to her tuition in order to enroll in or attend classes. File taxes 2009 To help pay these costs, she was awarded a $2,000 scholarship and a $4,000 student loan. File taxes 2009 The terms of the scholarship state that it can be used to pay any of Joan's college expenses. File taxes 2009 University X applies the $2,000 scholarship against Joan's $8,000 total bill, and Joan pays the $6,000 balance of her bill from University X with a combination of her student loan and her savings. File taxes 2009 Joan does not report any portion of the scholarship as income on her tax return. File taxes 2009 In figuring the amount of either education credit (American opportunity or lifetime learning), Joan must reduce her qualified education expenses by the amount of the scholarship ($2,000) because she excluded the entire scholarship from her income. File taxes 2009 The student loan is not tax-free educational assistance, so she does not need to reduce her qualified expenses by any part of the loan proceeds. File taxes 2009 Joan is treated as having paid $1,000 in qualified education expenses ($3,000 tuition – $2,000 scholarship). File taxes 2009 Example 2. File taxes 2009 The facts are the same as in Example 1, except that Joan reports her entire scholarship as income on her tax return. File taxes 2009 Because Joan reported the entire $2,000 scholarship in her income, she does not need to reduce her qualified education expenses. File taxes 2009 Joan is treated as having paid $3,000 in qualified education expenses. File taxes 2009 Coordination with Pell grants and other scholarships. File taxes 2009   In some cases, you may be able to reduce your tax liability by including scholarships in income. File taxes 2009 If you are claiming an education credit for a claimed dependent who received a scholarship, you may be able to reduce your tax liability if the student includes the scholarship in income. File taxes 2009 The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses. File taxes 2009 Example 1—No scholarship. File taxes 2009 Bill Pass, age 28 and unmarried, enrolled full-time in 2013 as a first-year student at a local college to earn a degree in law enforcement. File taxes 2009 This was his first year of postsecondary education. File taxes 2009 During 2013, he paid $5,600 for his qualified education expenses and $4,400 for his room and board for the fall 2013 semester. File taxes 2009 He and the college meet all the requirements for the American opportunity credit. File taxes 2009 Bill's AGI and his MAGI, for purposes of figuring his credit, are $30,000. File taxes 2009 Bill takes the standard deduction of $5,950 and personal exemption of $3,800, reducing his AGI to taxable income of $20,250. File taxes 2009 His income tax liability, before credits, is $2,599 and Bill claims no credits other than the American opportunity credit. File taxes 2009 He figures his American opportunity credit based on qualified education expenses of $4,000, which results in a credit of $2,500 and tax after credits of $99. File taxes 2009 Example 2—Scholarship excluded from income. File taxes 2009 The facts are the same as in Example 1—No scholarship, except that Bill was awarded a $5,600 scholarship. File taxes 2009 Under the terms of his scholarship, it may be used to pay any educational expenses, including room and board. File taxes 2009 If Bill excludes the scholarship from income, he will be deemed (for purposes of computing his education credit) to have used the scholarship to pay for tuition, required fees, and course materials. File taxes 2009 His adjusted qualified education expenses will be zero and he will not have an education credit. File taxes 2009 Therefore, Bill's tax after credits would be $2,599. File taxes 2009 Example 3—Scholarship partially included in income. File taxes 2009 The facts are the same as in Example 2—Scholarship excluded from income. File taxes 2009 If, unlike Example 2, Bill includes $4,000 of the scholarship in income, he will be deemed to have used that amount to pay for room and board. File taxes 2009 The remaining $1,600 of the $5,600 scholarship will reduce his qualified education expenses and his adjusted qualified education expenses will be $4,000. File taxes 2009 Bill's AGI will increase to $34,000, his taxable income will increase to $24,250, and his tax before credits will increase to $3,199. File taxes 2009 Based on his adjusted qualified education expenses of $4,000, Bill would be able to claim an American opportunity tax credit of $2,500 and his tax after credits would be $699. File taxes 2009 Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. File taxes 2009 This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. File taxes 2009 Sports, games, hobbies, and noncredit courses. File taxes 2009   Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. File taxes 2009 However, if the course of instruction or other education is part of the student's degree program, these expenses can qualify. File taxes 2009 Comprehensive or bundled fees. File taxes 2009   Some eligible educational institutions combine all of their fees for an academic period into one amount. File taxes 2009 If you do not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed earlier, contact the institution. File taxes 2009 The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T, Tuition Statement. File taxes 2009 See Figuring the Credit , later, for more information about Form 1098-T. File taxes 2009 Who Is an Eligible Student To claim the American opportunity credit, the student for whom you pay qualified education expenses must be an eligible student. File taxes 2009 This is a student who meets all of the following requirements. File taxes 2009 The student did not have expenses that were used to figure an American opportunity credit in any 4 earlier tax years. File taxes 2009 This includes any tax year(s) in which you claimed the Hope Scholarship Credit for the same student. File taxes 2009 The student had not completed the first 4 years of postsecondary education (generally, the freshman, sophomore, junior, and senior years of college) before 2013. File taxes 2009 For at least one academic period beginning in 2013, the student was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. File taxes 2009 The student has not been convicted of any federal or state felony for possessing or distributing a controlled substance as of the end of 2013. File taxes 2009 These requirements are also shown in Figure 2-2, Who is an Eligible Student for the American Opportunity Credit , later. File taxes 2009 Completion of first 4 years. File taxes 2009   A student has completed the first 4 years of postsecondary education if the institution at which the student is enrolled awards the student 4 years of academic credit at that institution for coursework completed by the student before 2013. File taxes 2009 This student generally would not be an eligible student for purposes of the American opportunity credit. File taxes 2009 Exception. File taxes 2009   Any academic credit awarded solely on the basis of the student's performance on proficiency examinations is disregarded in determining whether the student has completed 4 years of postsecondary education. File taxes 2009 Enrolled at least half-time. File taxes 2009   A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study. File taxes 2009   The standard for what is half of the normal full-time work load is determined by each eligible educational institution. File taxes 2009 However, the standard may not be lower than any of those established by the U. File taxes 2009 S. File taxes 2009 Department of Education under the Higher Education Act of 1965. File taxes 2009 Please click here for the text description of the image. File taxes 2009 Figure 2-2 Example 1. File taxes 2009 Mack graduated from high school in June 2012. File taxes 2009 In September, he enrolled in an undergraduate degree program at College U, and attended full-time for both the 2012 fall and 2013 spring semesters. File taxes 2009 For the 2013 fall semester, Mack was enrolled less than half-time. File taxes 2009 Because Mack was enrolled in an undergraduate degree program on at least a half-time basis for at least one academic period that began during 2012 and at least one academic period that began during 2013, he is an eligible student for tax years 2012 and 2013 (including the 2013 fall semester when he enrolled at College U on less than a half-time basis). File taxes 2009 Example 2. File taxes 2009 After taking classes at College V on a part-time basis for a few years, Shelly became a full-time student for the 2013 spring semester. File taxes 2009 College V classified Shelly as a second-semester senior (fourth year) for the 2013 spring semester and as a first-semester graduate student (fifth year) for the 2013 fall semester. File taxes 2009 Because College V did not classify Shelly as having completed the first 4 years of postsecondary education as of the beginning of 2013, Shelly is an eligible student for tax year 2013. File taxes 2009 Therefore, the qualified education expenses paid for the 2013 spring semester and the 2013 fall semester are taken into account in calculating the American opportunity credit for 2013. File taxes 2009 Example 3. File taxes 2009 During the 2012 fall semester, Larry was a high school student who took classes on a half-time basis at College X. File taxes 2009 Larry was not enrolled as part of a degree program at College X because College X only admits students to a degree program if they have a high school diploma or equivalent. File taxes 2009 Because Larry was not enrolled in a degree program at College X during 2012, Larry was not an eligible student for tax year 2012. File taxes 2009 Example 4. File taxes 2009 The facts are the same as in Example 3. File taxes 2009 During the 2013 spring semester, Larry again attended College X but not as part of a degree program. File taxes 2009 Larry graduated from high school in June 2013. File taxes 2009 For the 2013 fall semester, Larry enrolled as a full-time student in College X as part of a degree program, and College X awarded Larry credit for his prior coursework at College X. File taxes 2009 Because Larry was enrolled in a degree program at College X for the 2013 fall term on at least a half-time basis, Larry is an eligible student for all of tax year 2013. File taxes 2009 Therefore, the qualified education expenses paid for classes taken at College X during both the 2013 spring semester (during which Larry was not enrolled in a degree program) and the 2013 fall semester are taken into account in computing any American opportunity credit. File taxes 2009 Example 5. File taxes 2009 Dee graduated from high school in June 2012. File taxes 2009 In January 2013, Dee enrolled in a 1-year postsecondary certificate program on a full-time basis to obtain a certificate as a travel agent. File taxes 2009 Dee completed the program in December 2013, and was awarded a certificate. File taxes 2009 In January 2014, she enrolled in a 1-year postsecondary certificate program on a full-time basis to obtain a certificate as a computer programmer. File taxes 2009 Dee is an eligible student for both tax years 2013 and 2014 because she meets the degree requirement, the work load requirement, and the year of study requirement for those years. File taxes 2009 Who Can Claim a Dependent's Expenses If there are qualified education expenses for your dependent during a tax year, either you or your dependent, but not both of you, can claim an American opportunity credit for your dependent's expenses for that year. File taxes 2009 For you to claim an American opportunity credit for your dependent's expenses, you must also claim an exemption for your dependent. File taxes 2009 You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. File taxes 2009 IF you. File taxes 2009 . File taxes 2009 . File taxes 2009 THEN only. File taxes 2009 . File taxes 2009 . File taxes 2009 claim an exemption on  your tax return for a  dependent who is an  eligible student you can claim the American opportunity credit based on that dependent's expenses. File taxes 2009 The dependent cannot claim the credit. File taxes 2009 do not claim an exemption on your tax return for a dependent who is an eligible student (even if entitled to the exemption) the dependent can claim the American opportunity credit. File taxes 2009 You cannot claim the credit based on this dependent's expenses. File taxes 2009 Expenses paid by dependent. File taxes 2009   If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent as if you had paid them. File taxes 2009 Include these expenses when figuring the amount of your American opportunity credit. File taxes 2009    Qualified education expenses paid directly to an eligible educational institution for your dependent under a court-approved divorce decree are treated as paid by your dependent. File taxes 2009 Expenses paid by you. File taxes 2009   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring the amount of the American opportunity credit. File taxes 2009 If neither you nor anyone else claims an exemption for the dependent, only the dependent can include any expenses you paid when figuring the American opportunity credit. File taxes 2009 Expenses paid by others. File taxes 2009   Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. File taxes 2009 In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. File taxes 2009 If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. File taxes 2009 Example. File taxes 2009 In 2013, Ms. File taxes 2009 Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. File taxes 2009 For purposes of claiming an American opportunity credit, Todd is treated as receiving the money from his grandmother and, in turn, paying his qualified education expenses himself. File taxes 2009 Unless an exemption for Todd is claimed on someone else's 2013 tax return, only Todd can use the payment to claim an American opportunity credit. File taxes 2009 If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2013 tax return, whoever claims the exemption may be able to use the expenses to claim an American opportunity credit. File taxes 2009 If anyone else claims an exemption for Todd, Todd cannot claim an American opportunity credit. File taxes 2009 Tuition reduction. File taxes 2009    When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. File taxes 2009 If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. File taxes 2009 For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. File taxes 2009 Figuring the Credit The amount of the American opportunity credit (per eligible student) is the sum of: 100% of the first $2,000 of qualified education expenses you paid for the eligible student, and 25% of the next $2,000 of qualified education expenses you paid for that student. File taxes 2009 The maximum amount of American opportunity credit you can claim in 2013 is $2,500 multiplied by the number of eligible students. File taxes 2009 You can claim the full $2,500 for each eligible student for whom you paid at least $4,000 of adjusted qualified education expenses. File taxes 2009 However, the credit may be reduced based on your MAGI. File taxes 2009 See Effect of the Amount of Your Income on the Amount of Your Credit , later. File taxes 2009 Example. File taxes 2009 Jack and Kay Ford are married and file a joint tax return. File taxes 2009 For 2013, they claim an exemption for their dependent daughter on their tax return. File taxes 2009 Their MAGI is $70,000. File taxes 2009 Their daughter is in her junior (third) year of studies at the local university. File taxes 2009 Jack and Kay paid qualified education expenses of $4,300 in 2013. File taxes 2009 Jack and Kay, their daughter, and the local university meet all of the requirements for the American opportunity credit. File taxes 2009 Jack and Kay can claim a $2,500 American opportunity credit in 2013. File taxes 2009 This is 100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000. File taxes 2009 Form 1098-T. File taxes 2009   To help you figure your American opportunity credit, the student should receive Form 1098-T, Tuition Statement. File taxes 2009 Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. File taxes 2009 An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. File taxes 2009 However, the amounts in boxes 1 and 2 of Form 1098-T might be different than what you paid. File taxes 2009 When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. File taxes 2009   In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student. File taxes 2009    The eligible educational institution may ask for a completed Form W-9S, Request for Student's or Borrower's Taxpayer Identification Number and Certification, or similar statement to obtain the student's name, address, and taxpayer identification number. File taxes 2009 Effect of the Amount of Your Income on the Amount of Your Credit The amount of your American opportunity credit is phased out (gradually reduced) if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). File taxes 2009 You cannot claim an American opportunity credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return). File taxes 2009 Modified adjusted gross income (MAGI). File taxes 2009   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. File taxes 2009 MAGI when using Form 1040A. File taxes 2009   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. File taxes 2009 MAGI when using Form 1040. File taxes 2009   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. File taxes 2009 You can use Worksheet 2-1, next, to figure your MAGI. File taxes 2009    Worksheet 2-1. File taxes 2009 MAGI for the American Opportunity Credit 1. File taxes 2009 Enter your adjusted gross income  (Form 1040, line 38)   1. File taxes 2009   2. File taxes 2009 Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. File taxes 2009       3. File taxes 2009 Enter your foreign housing deduction (Form 2555, line 50)   3. File taxes 2009       4. File taxes 2009 Enter the amount of income from Puerto Rico you are excluding   4. File taxes 2009       5. File taxes 2009 Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. File taxes 2009       6. File taxes 2009 Add the amounts on lines 2, 3, 4, and 5   6. File taxes 2009   7. File taxes 2009 Add the amounts on lines 1 and 6. File taxes 2009  This is your modified adjusted  gross income. File taxes 2009 Enter here and  on Form 8863, line 3   7. File taxes 2009   Phaseout. File taxes 2009   If your MAGI is within the range of incomes where the credit must be reduced, you will figure your reduced credit using lines 2-7, of Form 8863, Part I. File taxes 2009 The same method is shown in the following example. File taxes 2009 Example. File taxes 2009 You are filing a joint return and your MAGI is $165,000. File taxes 2009 In 2013, you paid $5,000 of qualified education expenses. File taxes 2009 You figure a tentative American opportunity credit of $2,500 (100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000 of qualified education expenses). File taxes 2009 Because your MAGI is within the range of incomes where the credit must be reduced, you must multiply your tentative credit ($2,500) by a fraction. File taxes 2009 The numerator of the fraction is $180,000 (the upper limit for those filing a joint return) minus your MAGI. File taxes 2009 The denominator is $20,000, the range of incomes for the phaseout ($160,000 to $180,000). File taxes 2009 The result is the amount of your phased out (reduced) American opportunity credit ($1,875). File taxes 2009      $2,500 × $180,000 − $165,000  $20,000 = $1,875   Refundable Part of Credit Forty percent of the American opportunity credit is refundable for most taxpayers. File taxes 2009 However, if you were under age 24 at the end of 2013 and the conditions listed below apply to you, you cannot claim any part of the American opportunity credit as a refundable credit on your tax return. File taxes 2009 Instead, your allowed credit (figured on Form 8863, Part II) will be used to reduce your tax as a nonrefundable credit only. File taxes 2009 You do not qualify for a refund if items 1 (a, b, or c), 2, and 3 below apply to you. File taxes 2009 You were: Under age 18 at the end of 2013, or Age 18 at the end of 2013 and your earned income (defined below) was less than one-half of your support (defined below), or Over age 18 and under age 24 at the end of 2013 and a full-time student (defined below) and your earned income (defined below) was less than one-half of your support (defined below). File taxes 2009 At least one of your parents was alive at the end of 2013. File taxes 2009 You are filing a return as single, head of household, qualifying widow(er), or married filing separately for 2013. File taxes 2009 Earned income. File taxes 2009   Earned income includes wages, salaries, professional fees, and other payments received for personal services actually performed. File taxes 2009 Earned income includes the part of any scholarship or fellowship that represents payment for teaching, research, or other services performed by the student that are required as a condition for receiving the scholarship or fellowship. File taxes 2009 Earned income does not include that part of the compensation for personal services rendered to a corporation which represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered. File taxes 2009   If you are a sole proprietor or a partner in a trade or business in which both personal services and capital are material income-producing factors, earned income also includes a reasonable allowance for compensation for personal services, but not more than 30% of your share of the net profits from that trade or business (after subtracting the deduction for one-half of self-employment tax). File taxes 2009 However, if capital is not an income-producing factor and your personal services produced the business income, the 30% limit does not apply. File taxes 2009 Support. File taxes 2009   Your support includes food, shelter, clothing, medical and dental care, education, and the like. File taxes 2009 Generally, the amount of the item of support will be the amount of expenses incurred by the one furnishing such item. File taxes 2009 If the item of support is in the form of property or lodging, measure the amount of such item of support by its fair market value. File taxes 2009 However, a scholarship received by you is not considered support if you are a full-time student. File taxes 2009 See Publication 501 for details. File taxes 2009 Full-time student. File taxes 2009   You are a full-time student for 2013 if during any part of any 5 calendar months during the year you were enrolled as a full-time student at an eligible educational institution (defined earlier), or took a full-time, on-farm training course given by such an institution or by a state, county, or local government agency. File taxes 2009 Claiming the Credit You claim the American opportunity credit by completing Form 8863 and submitting it with your Form 1040 or 1040A. File taxes 2009 Enter the nonrefundable part of the credit on Form 1040, line 49, or on Form 1040A, line 31. File taxes 2009 Enter the refundable part of the credit on Form 1040, line 66, or on Form 1040A, line 40. File taxes 2009 A filled-in Form 8863 is shown at the end of this publication. File taxes 2009 Note. File taxes 2009 In Appendix A. File taxes 2009 at the end of this publication, there is an example illustrating the use of Form 8863 when both the American opportunity credit and the lifetime learning credit are claimed on the same tax return. File taxes 2009 Prev  Up  Next   Home   More Online Publications
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File taxes 2009 Publication 559 - Main Content Table of Contents Personal RepresentativeDuties Fees Received by Personal Representatives Final Income Tax Return for Decedent—Form 1040Name, Address, and Signature When and Where To File Filing Requirements Income To Include Exemptions and Deductions Credits, Other Taxes, and Payments Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Filing Reminders Other Tax InformationTax Benefits for Survivors Income in Respect of a Decedent Deductions in Respect of a Decedent Estate Tax Deduction Gifts, Insurance, and Inheritances Other Items of Income Income Tax Return of an Estate— Form 1041Filing Requirements Income To Include Exemption and Deductions Credits, Tax, and Payments Name, Address, and Signature When and Where To File Distributions to BeneficiariesIncome That Must Be Distributed Currently Other Amounts Distributed Discharge of a Legal Obligation Character of Distributions How and When To Report Bequest Termination of Estate Estate and Gift TaxesApplicable Credit Amount Gift Tax Estate Tax Generation-Skipping Transfer Tax Comprehensive ExampleFinal Return for Decedent—Form 1040 Income Tax Return of an Estate—Form 1041 How To Get Tax HelpLow Income Taxpayer Clinics Personal Representative A personal representative of an estate is an executor, administrator, or anyone who is in charge of the decedent's property. File taxes 2009 Generally, an executor (or executrix) is named in a decedent's will to administer the estate and distribute properties as the decedent has directed. File taxes 2009 An administrator (or administratrix) is usually appointed by the court if no will exists, if no executor was named in the will, or if the named executor cannot or will not serve. File taxes 2009 In general, an executor and an administrator perform the same duties and have the same responsibilities. File taxes 2009 For estate tax purposes, if there is no executor or administrator appointed, qualified, and acting within the United States, the term “executor” includes anyone in actual or constructive possession of any property of the decedent. File taxes 2009 It includes, among others, the decedent's agents and representatives; safe-deposit companies, warehouse companies, and other custodians of property in this country; brokers holding securities of the decedent as collateral; and the debtors of the decedent who are in this country. File taxes 2009 Duties The primary duties of a personal representative are to collect all the decedent's assets, pay his or her creditors, and distribute the remaining assets to the heirs or other beneficiaries. File taxes 2009 The personal representative also must perform the following duties. File taxes 2009 Apply for an employer identification number (EIN) for the estate. File taxes 2009 File all tax returns, including income, estate and gift tax returns, when due. File taxes 2009 Pay the tax determined up to the date of discharge from duties. File taxes 2009 Other duties of the personal representative in federal tax matters are discussed in other sections of this publication. File taxes 2009 If any beneficiary is a nonresident alien, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for information on the personal representative's duties as a withholding agent. File taxes 2009 Penalty. File taxes 2009   There is a penalty for failure to file a tax return when due unless the failure is due to reasonable cause. File taxes 2009 Reliance on an agent (attorney, accountant, etc. File taxes 2009 ) is not reasonable cause for late filing. File taxes 2009 It is the personal representative's duty to file the returns for the decedent and the estate when due. File taxes 2009 Identification number. File taxes 2009   The first action you should take if you are the personal representative for the decedent is to apply for an EIN for the estate. File taxes 2009 You should apply for this number as soon as possible because you need to enter it on returns, statements, and other documents you file concerning the estate. File taxes 2009 You also must give the number to payers of interest and dividends and other payers who must file a return concerning the estate. File taxes 2009   You can get an EIN by applying online at www. File taxes 2009 irs. File taxes 2009 gov (click on "Apply for an EIN Online" under the Tools heading). File taxes 2009 Generally, if you apply online, you will receive your EIN immediately upon completing the application. File taxes 2009 You can also apply using Form SS-4, Application for Employer Identification Number. File taxes 2009 Generally, if you apply by mail, it takes about 4 weeks to get your EIN. File taxes 2009 See the form instructions for other ways to apply. File taxes 2009   Payers of interest and dividends report amounts on Forms 1099 using the identification number of the person to whom the account is payable. File taxes 2009 After a decedent's death, Forms 1099 must reflect the identification number of the estate or beneficiary to whom the amounts are payable. File taxes 2009 As the personal representative handling the estate, you must furnish this identification number to the payer. File taxes 2009 For example, if interest is payable to the estate, the estate's EIN must be provided to the payer and used to report the interest on Form 1099-INT, Interest Income. File taxes 2009 If the interest is payable to a surviving joint owner, the survivor's identification number, such as an SSN or ITIN, must be provided to the payer and used to report the interest. File taxes 2009   If the estate or a survivor may receive interest or dividends after you inform the payer of the decedent's death, the payer should give you (or the survivor) a Form W-9, Request for Taxpayer Identification Number and Certification (or a similar substitute form). File taxes 2009 Complete this form to inform the payer of the estate's (or if completed by the survivor, the survivor's) identification number and return it to the payer. File taxes 2009    Do not use the deceased individual's identifying number to file an individual income tax return after the decedent's final tax return. File taxes 2009 Also do not use it to make estimated tax payments for a tax year after the year of death. File taxes 2009 Penalty. File taxes 2009   If you do not include the EIN or the taxpayer identification number of another person where it is required on a return, statement, or other document, you are liable for a penalty for each failure, unless you can show reasonable cause. File taxes 2009 You also are liable for a penalty if you do not give the taxpayer identification number of another person when required on a return, statement, or other document. File taxes 2009 Notice of fiduciary relationship. File taxes 2009   The term fiduciary means any person acting for another person. File taxes 2009 It applies to persons who have positions of trust on behalf of others. File taxes 2009 A personal representative for a decedent's estate is a fiduciary. File taxes 2009 Form 56. File taxes 2009   If you are appointed to act in a fiduciary capacity for another, you must file a written notice with the IRS stating this. File taxes 2009 Form 56, Notice Concerning Fiduciary Relationship, is used for this purpose. File taxes 2009 See the Instructions for Form 56 for filing requirements and other information. File taxes 2009   File Form 56 as soon as all the necessary information (including the EIN) is available. File taxes 2009 It notifies the IRS that you, as the fiduciary, are assuming the powers, rights, duties, and privileges of the decedent. File taxes 2009 The notice remains in effect until you notify the IRS (by filing another Form 56) that your fiduciary relationship with the estate has terminated. File taxes 2009 Termination of fiduciary relationship. File taxes 2009   Form 56 should also be filed to notify the IRS if your fiduciary relationship is terminated or when a successor fiduciary is appointed if the estate has not been terminated. File taxes 2009 See Form 56 and its instructions for more information. File taxes 2009   At the time of termination of the fiduciary relationship, you may want to file Form 4810, Request for Prompt Assessment Under Internal Revenue Code Section 6501(d), and Form 5495, Request for Discharge From Personal Liability Under Internal Revenue Code Section 2204 or 6905, to wind up your duties as fiduciary. File taxes 2009 See below for a discussion of these forms. File taxes 2009 Request for prompt assessment (charge) of tax. File taxes 2009   The IRS ordinarily has 3 years from the date an income tax return is filed, or its due date, whichever is later, to charge any additional tax due. File taxes 2009 However, as a personal representative, you may request a prompt assessment of tax after the return has been filed. File taxes 2009 This reduces the time for making the assessment to 18 months from the date the written request for prompt assessment was received. File taxes 2009 This request can be made for any tax return (except the estate tax return) of the decedent or the decedent's estate. File taxes 2009 This may permit a quicker settlement of the tax liability of the estate and an earlier final distribution of the assets to the beneficiaries. File taxes 2009 Form 4810. File taxes 2009   Form 4810 can be used for making this request. File taxes 2009 It must be filed separately from any other document. File taxes 2009   As the personal representative for the decedent's estate, you are responsible for any additional taxes that may be due. File taxes 2009 You can request prompt assessment of any of the decedent's taxes (other than federal estate taxes) for any years for which the statutory period for assessment is open. File taxes 2009 This applies even though the returns were filed before the decedent's death. File taxes 2009 Failure to report income. File taxes 2009   If you or the decedent failed to report substantial amounts of gross income (more than 25% of the gross income reported on the return) or filed a false or fraudulent return, your request for prompt assessment will not shorten the period during which the IRS may assess the additional tax. File taxes 2009 However, such a request may relieve you of personal liability for the tax if you did not have knowledge of the unpaid tax. File taxes 2009 Request for discharge from personal liability for tax. File taxes 2009   An executor can make a request for discharge from personal liability for a decedent's income, gift, and estate taxes. File taxes 2009 The request must be made after the returns for those taxes are filed. File taxes 2009 To make the request, file Form 5495. File taxes 2009 For this purpose, an executor is an executor or administrator that is appointed, qualified, and acting within the United States. File taxes 2009   Within 9 months after receipt of the request, the IRS will notify the executor of the amount of taxes due. File taxes 2009 If this amount is paid, the executor will be discharged from personal liability for any future deficiencies. File taxes 2009 If the IRS has not notified the executor, he or she will be discharged from personal liability at the end of the 9-month period. File taxes 2009    Even if the executor is discharged from personal liability, the IRS will still be able to assess tax deficiencies against the executor to the extent he or she still has any of the decedent's property. File taxes 2009 Insolvent estate. File taxes 2009   Generally, if a decedent's estate is insufficient to pay all the decedent's debts, the debts due to the United States must be paid first. File taxes 2009 Both the decedent's federal income tax liabilities at the time of death and the estate's income tax liability are debts due to the United States. File taxes 2009 The personal representative of an insolvent estate is personally responsible for any tax liability of the decedent or of the estate if he or she had notice of such tax obligations or failed to exercise due care in determining if such obligations existed before distribution of the estate's assets and before being discharged from duties. File taxes 2009 The extent of such personal responsibility is the amount of any other payments made before paying the debts due to the United States, except where such other debt paid has priority over the debts due to the United States. File taxes 2009 Income tax liabilities need not be formally assessed for the personal representative to be liable if he or she was aware or should have been aware of their existence. File taxes 2009 Fees Received by Personal Representatives All personal representatives must include fees paid to them from an estate in their gross income. File taxes 2009 If you are not in the trade or business of being an executor (for instance, you are the executor of a friend's or relative's estate), report these fees on your Form 1040, line 21. File taxes 2009 If you are in the trade or business of being an executor, report fees received from the estate as self-employment income on Schedule C or Schedule C-EZ of your Form 1040. File taxes 2009 If the estate operates a trade or business and you, as executor, actively participate in the trade or business while fulfilling your duties, any fees you receive related to the operation of the trade or business must be reported as self-employment income on Schedule C (or Schedule C-EZ) of your Form 1040. File taxes 2009 Final Income Tax Return for Decedent—Form 1040 The personal representative (defined earlier) must file the final income tax return (Form 1040) of the decedent for the year of death and any returns not filed for preceding years. File taxes 2009 A surviving spouse, under certain circumstances, may have to file the returns for the decedent. File taxes 2009 See Joint Return, later. File taxes 2009 Return for preceding year. File taxes 2009   If an individual died after the close of the tax year, but before the return for that year was filed, the return for the year just closed will not be the final return. File taxes 2009 The return for that year will be a regular return and the personal representative must file it. File taxes 2009 Example. File taxes 2009 Samantha Smith died on March 21, 2013, before filing her 2012 tax return. File taxes 2009 Her personal representative must file her 2012 return by April 15, 2013. File taxes 2009 Her final tax return covering the period from January 1, 2013, to March 20, 2013, is due April 15, 2014. File taxes 2009 Name, Address, and Signature Write the word “DECEASED,” the decedent's name, and the date of death across the top of the tax return. File taxes 2009 If filing a joint return, write the name and address of the decedent and the surviving spouse in the name and address fields. File taxes 2009 If a joint return is not being filed, write the decedent's name in the name field and the personal representative's name and address in the address field. File taxes 2009 Third party designee. File taxes 2009   You can check the “Yes” box in the Third Party Designee area on page 2 of the return to authorize the IRS to discuss the return with a friend, family member, or any other person you choose. File taxes 2009 This allows the IRS to call the person you identified as the designee to answer any questions that may arise during the processing of the return. File taxes 2009 It also allows the designee to perform certain actions. File taxes 2009 See the Instructions for Form 1040 for details. File taxes 2009 Signature. File taxes 2009   If a personal representative has been appointed, that person must sign the return. File taxes 2009 If it is a joint return, the surviving spouse must also sign it. File taxes 2009 If no personal representative has been appointed, the surviving spouse (on a joint return) signs the return and writes in the signature area “Filing as surviving spouse. File taxes 2009 ” If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. File taxes 2009 ” Paid preparer. File taxes 2009   If you pay someone to prepare, assist in preparing, or review the tax return, that person must sign the return and fill in the other blanks in the Paid Preparer Use Only area of the return. File taxes 2009 See the Form 1040 instructions for details. File taxes 2009 When and Where To File The final income tax return is due at the same time the decedent's return would have been due had death not occurred. File taxes 2009 A final return for a decedent who was a calendar year taxpayer is generally due on April 15 following the year of death, regardless of when during that year death occurred. File taxes 2009 However, when the due date falls on a Saturday, Sunday, or legal holiday, the return is filed timely if filed by the next business day. File taxes 2009 The tax return must be prepared for the year of death regardless of when during the year death occurred. File taxes 2009 Generally, you must file the final income tax return of the decedent with the Internal Revenue Service Center for the place where you live. File taxes 2009 A tax return for a decedent can be electronically filed. File taxes 2009 A personal representative may also obtain an income tax filing extension on behalf of a decedent. File taxes 2009 Filing Requirements The gross income, age, and filing status of a decedent generally determine whether a return must be filed. File taxes 2009 Gross income is all income received by an individual from any source in the form of money, goods, property, and services that is not tax-exempt. File taxes 2009 It includes gross receipts from self-employment, but if the business involves manufacturing, merchandising, or mining, subtract any cost of goods sold. File taxes 2009 In general, filing status depends on whether the decedent was considered single or married at the time of death. File taxes 2009 See the income tax return instructions or Publication 501, Exemptions, Standard Deduction, and Filing Information. File taxes 2009 Refund A return must be filed to obtain a refund if tax was withheld from salaries, wages, pensions, or annuities, or if estimated tax was paid, even if a return is not otherwise required to be filed. File taxes 2009 Also, the decedent may be entitled to other credits that result in a refund. File taxes 2009 These advance payments of tax and credits are discussed later under Credits, Other Taxes, and Payments. File taxes 2009 Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer. File taxes 2009   Form 1310 does not have to be filed if you are claiming a refund and you are: A surviving spouse filing an original or amended joint return with the decedent, or A court-appointed or certified personal representative filing the decedent’s original return and a copy of the court certificate showing your appointment is attached to the return. File taxes 2009   If the personal representative is filing a claim for refund on Form 1040X, Amended U. File taxes 2009 S. File taxes 2009 Individual Income Tax Return, or Form 843, Claim for Refund and Request for Abatement, and the court certificate has already been filed with the IRS, attach Form 1310 and write “Certificate Previously Filed” at the bottom of the form. File taxes 2009 Example. File taxes 2009 Edward Green died before filing his tax return. File taxes 2009 You were appointed the personal representative for Edward's estate, and you file his Form 1040 showing a refund due. File taxes 2009 You do not need Form 1310 to claim the refund if you attach a copy of the court certificate showing you were appointed the personal representative. File taxes 2009    If you are a surviving spouse and you receive a tax refund check in both your name and your deceased spouse's name, you can have the check reissued in your name alone. File taxes 2009 Return the joint-name check marked “VOID” to your local IRS office or the service center where you mailed your return, along with a written request for reissuance of the refund check. File taxes 2009 A new check will be issued in your name and mailed to you. File taxes 2009 Death certificate. File taxes 2009   When filing the decedent's final income tax return, do not attach the death certificate or other proof of death to the final return. File taxes 2009 Instead, keep it for your records and provide it if requested. File taxes 2009 Nonresident Alien If the decedent was a nonresident alien who would have had to file Form 1040NR, U. File taxes 2009 S. File taxes 2009 Nonresident Alien Income Tax Return, you must file that form for the decedent's final tax year. File taxes 2009 See the Instructions for Form 1040NR for the filing requirements, due date, and where to file. File taxes 2009 Joint Return Generally, the personal representative and the surviving spouse can file a joint return for the decedent and the surviving spouse. File taxes 2009 However, the surviving spouse alone can file the joint return if no personal representative has been appointed before the due date for filing the final joint return for the year of death. File taxes 2009 This also applies to the return for the preceding year if the decedent died after the close of the preceding tax year and before filing the return for that year. File taxes 2009 The income of the decedent that was includible on his or her return for the year up to the date of death (see Income To Include, later) and the income of the surviving spouse for the entire year must be included in the final joint return. File taxes 2009 A final joint return with the decedent cannot be filed if the surviving spouse remarried before the end of the year of the decedent's death. File taxes 2009 The filing status of the decedent in this instance is married filing a separate return. File taxes 2009 For information about tax benefits to which a surviving spouse may be entitled, see Tax Benefits for Survivors, later, under Other Tax Information. File taxes 2009 Personal representative may revoke joint return election. File taxes 2009   A court-appointed personal representative may revoke an election to file a joint return previously made by the surviving spouse alone. File taxes 2009 This is done by filing a separate return for the decedent within one year from the due date of the return (including any extensions). File taxes 2009 The joint return made by the surviving spouse will then be regarded as the separate return of that spouse by excluding the decedent's items and refiguring the tax liability. File taxes 2009 Relief from joint liability. File taxes 2009   In some cases, one spouse may be relieved of joint liability for tax, interest, and penalties on a joint return for items of the other spouse that were incorrectly reported on the joint return. File taxes 2009 If the decedent qualified for this relief while alive, the personal representative can pursue an existing request, or file a request, for relief from joint liability. File taxes 2009 For information on requesting this relief, see Publication 971, Innocent Spouse Relief. File taxes 2009 Income To Include The decedent's income includible on the final return is generally determined as if the person were still alive except that the taxable period is usually shorter because it ends on the date of death. File taxes 2009 The method of accounting regularly used by the decedent before death also determines the income includible on the final return. File taxes 2009 This section explains how some types of income are reported on the final return. File taxes 2009 For more information about accounting methods, see Publication 538, Accounting Periods and Methods. File taxes 2009 Cash Method If the decedent accounted for income under the cash method, only those items actually or constructively received before death are included on the final return. File taxes 2009 Constructive receipt of income. File taxes 2009   Interest from coupons on the decedent's bonds is constructively received by the decedent if the coupons matured in the decedent's final tax year, but had not been cashed. File taxes 2009 Include the interest income on the final return. File taxes 2009   Generally, a dividend is considered constructively received if it was available for use by the decedent without restriction. File taxes 2009 If the corporation customarily mailed its dividend checks, the dividend was includible when received. File taxes 2009 If the individual died between the time the dividend was declared and the time it was received in the mail, the decedent did not constructively receive it before death. File taxes 2009 Do not include the dividend in the final return. File taxes 2009 Accrual Method Generally, under an accrual method of accounting, income is reported when earned. File taxes 2009 If the decedent used an accrual method, only the income items normally accrued before death are included on the final return. File taxes 2009 Interest and Dividend Income (Forms 1099) Form(s) 1099 reporting interest and dividends earned by the decedent before death should be received and the amounts included on the decedent's final return. File taxes 2009 A separate Form 1099 should show the interest and dividends earned after the date of the decedent's death and paid to the estate or other recipient that must include those amounts on its return. File taxes 2009 You can request corrected Forms 1099 if these forms do not properly reflect the right recipient or amounts. File taxes 2009 For example, a Form 1099-INT, reporting interest payable to the decedent, may include income that should be reported on the final income tax return of the decedent, as well as income that the estate or other recipient should report, either as income earned after death or as income in respect of the decedent (discussed later). File taxes 2009 For income earned after death, you should ask the payer for a Form 1099 that properly identifies the recipient (by name and identification number) and the proper amount. File taxes 2009 If that is not possible, or if the form includes an amount that represents income in respect of the decedent, report the interest as shown next under How to report. File taxes 2009 See U. File taxes 2009 S. File taxes 2009 savings bonds acquired from decedent under Income in Respect of a Decedent, later, for information on savings bond interest that may have to be reported on the final return. File taxes 2009 How to report. File taxes 2009   If you are preparing the decedent's final return and you have received a Form 1099-INT for the decedent that includes amounts belonging to the decedent and to another recipient (the decedent's estate or another beneficiary), report the total interest shown on Form 1099-INT on Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. File taxes 2009 Next, enter a subtotal of the interest shown on Forms 1099, and the interest reportable from other sources for which you did not receive Forms 1099. File taxes 2009 Then, show any interest (including any interest you receive as a nominee) belonging to another recipient separately and subtract it from the subtotal. File taxes 2009 Identify the amount of this adjustment as “Nominee Distribution” or other appropriate designation. File taxes 2009   Report dividend income for which you received a Form 1099-DIV, Dividends and Distributions, on the appropriate schedule using the same procedure. File taxes 2009    Note. File taxes 2009 If the decedent received amounts as a nominee, you must give the actual owner a Form 1099, unless the owner is the decedent's spouse. File taxes 2009 See General Instructions for Certain Information Returns (Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G) for more information on filing Forms 1099. File taxes 2009 Partnership Income The death of a partner closes the partnership's tax year for that partner. File taxes 2009 Generally, it does not close the partnership's tax year for the remaining partners. File taxes 2009 The decedent's distributive share of partnership items must be figured as if the partnership's tax year ended on the date the partner died. File taxes 2009 To avoid an interim closing of the partnership books, the partners can agree to estimate the decedent's distributive share by prorating the amounts the partner would have included for the entire partnership tax year. File taxes 2009 On the decedent's final return, include the decedent's distributive share of partnership items for the following periods. File taxes 2009 The partnership's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). File taxes 2009 The period, if any, from the end of the partnership's tax year in (1) to the decedent's date of death. File taxes 2009 Example. File taxes 2009 Mary Smith was a partner in XYZ partnership and reported her income on a tax year ending December 31. File taxes 2009 The partnership uses a tax year ending June 30. File taxes 2009 Mary died August 31, 2013, and her estate established its tax year through August 31. File taxes 2009 The distributive share of partnership items based on the decedent's partnership interest is reported as follows. File taxes 2009 Final Return for the Decedent—January 1 through August 31, 2013, includes XYZ partnership items from (a) the partnership tax year ending June 30, 2013, and (b) the partnership tax year beginning July 1, 2013, and ending August 31, 2013 (the date of death). File taxes 2009 Income Tax Return of the Estate—September 1, 2013, through August 31, 2014, includes XYZ partnership items for the period September 1, 2013, through June 30, 2014. File taxes 2009 S Corporation Income If the decedent was a shareholder in an S corporation, include on the final return the decedent's share of the S corporation's items of income, loss, deduction, and credit for the following periods. File taxes 2009 The corporation's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). File taxes 2009 The period, if any, from the end of the corporation's tax year in (1) to the decedent's date of death. File taxes 2009 Self-Employment Income Include self-employment income actually or constructively received or accrued, depending on the decedent's accounting method. File taxes 2009 For self-employment tax purposes only, the decedent's self-employment income will include the decedent's distributive share of a partnership's income or loss through the end of the month in which death occurred. File taxes 2009 For this purpose, the partnership's income or loss is considered to be earned ratably over the partnership's tax year. File taxes 2009 Community Income If the decedent was married and domiciled in a community property state, half of the income received and half of the expenses paid during the decedent's tax year by either the decedent or spouse may be considered to be the income and expenses of the other. File taxes 2009 For more information, see Publication 555, Community Property. File taxes 2009 HSA, Archer MSA, or Medicare Advantage MSA The treatment of an HSA (health savings account), an Archer MSA (medical savings account), or a Medicare Advantage MSA at the death of the account holder, depends on who acquires the interest in the account. File taxes 2009 If the decedent's estate acquires the interest, the fair market value (FMV) of the assets in the account on the date of death is included in income on the decedent's final return. File taxes 2009 The estate tax deduction, discussed later, does not apply to this amount. File taxes 2009 If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. File taxes 2009 For other information on HSAs, Archer MSAs, or Medicare Advantage MSAs, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. File taxes 2009 Coverdell Education Savings Account (ESA) Generally, the balance in a Coverdell ESA must be distributed within 30 days after the individual for whom the account was established reaches age 30, or dies, whichever is earlier. File taxes 2009 The treatment of the Coverdell ESA at the death of an individual under age 30 depends on who acquires the interest in the account. File taxes 2009 If the decedent's estate acquires the interest, the earnings on the account must be included on the final income tax return of the decedent. File taxes 2009 The estate tax deduction, discussed later, does not apply to this amount. File taxes 2009 If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. File taxes 2009 The age 30 limitation does not apply if the individual for whom the account was established or the beneficiary that acquires the account is an individual with special needs. File taxes 2009 This includes an individual who, because of a physical, mental, or emotional condition (including a learning disability), requires additional time to complete his or her education. File taxes 2009 For more information on Coverdell ESAs, see Publication 970, Tax Benefits for Education. File taxes 2009 Accelerated Death Benefits Accelerated death benefits are amounts received under a life insurance contract before the death of the insured individual. File taxes 2009 These benefits also include amounts received on the sale or assignment of the contract to a viatical settlement provider. File taxes 2009 Generally, if the decedent received accelerated death benefits on the life of a terminally or chronically ill individual, whether on his or her own life or on the life of another person, those benefits are not included in the decedent's income. File taxes 2009 For more information, see the discussion under Gifts, Insurance, and Inheritances under Other Tax Information, later. File taxes 2009 Exemptions and Deductions Generally, the rules for exemptions and deductions allowed to an individual also apply to the decedent's final income tax return. File taxes 2009 Show on the final return deductible items the decedent paid (or accrued, if the decedent reported deductions on an accrual method) before death. File taxes 2009 This section contains a detailed discussion of medical expenses because the tax treatment of the decedent's medical expenses can be different. File taxes 2009 See Medical Expenses, later. File taxes 2009 Exemptions You can claim the decedent's personal exemption on the final income tax return. File taxes 2009 If the decedent was another person's dependent (for example, a parent's), you cannot claim the personal exemption on the decedent's final return. File taxes 2009 Standard Deduction If you do not itemize deductions on the final return, the full amount of the appropriate standard deduction is allowed regardless of the date of death. File taxes 2009 For information on the appropriate standard deduction, see the Form 1040 income tax return instructions or Publication 501. File taxes 2009 Medical Expenses Medical expenses paid before death by the decedent are deductible, subject to limits, on the final income tax return if deductions are itemized. File taxes 2009 This includes expenses for the decedent, as well as for the decedent's spouse and dependents. File taxes 2009 Beginning in 2013, medical expenses exceeding 10% of adjusted gross income (AGI) may be deducted, unless the decedent or their spouse is age 65 or older. File taxes 2009 In that case medical expenses exceeding 7. File taxes 2009 5% of AGI may be deducted. File taxes 2009 Qualified medical expenses are not deductible if paid with a tax-free distribution from an HSA or an Archer MSA. File taxes 2009 Election for decedent's expenses. File taxes 2009   Medical expenses not paid before death are liabilities of the estate and are shown on the federal estate tax return (Form 706). File taxes 2009 However, if medical expenses for the decedent are paid out of the estate during the 1-year period beginning with the day after death, you can elect to treat all or part of the expenses as paid by the decedent at the time they were incurred. File taxes 2009   If you make the election, you can claim all or part of the expenses on the decedent's income tax return (if deductions are itemized) rather than on the federal estate tax return (Form 706). File taxes 2009 You can deduct expenses incurred in the year of death on the final income tax return. File taxes 2009 You should file an amended return (Form 1040X) for medical expenses incurred in an earlier year, unless the statutory period for filing a claim for that year has expired. File taxes 2009   The amount you can deduct on the income tax return is the amount above 10% of adjusted gross income (or 7. File taxes 2009 5% of adjusted gross income if the decedent or the decedent's spouse was born before January 2, 1949). File taxes 2009 Amounts not deductible because of this percentage cannot be claimed on the federal estate tax return. File taxes 2009 Making the election. File taxes 2009   You make the election by attaching a statement, in duplicate, to the decedent's income tax return or amended return. File taxes 2009 The statement must state that you have not claimed the amount as an estate tax deduction, and that the estate waives the right to claim the amount as a deduction. File taxes 2009 This election applies only to expenses incurred for the decedent, not to expenses incurred to provide medical care for dependents. File taxes 2009 Example. File taxes 2009 Richard Brown used the cash method of accounting and filed his income tax return on a calendar year basis. File taxes 2009 Richard died on June 1, 2013, at the age of 78, after incurring $800 in medical expenses. File taxes 2009 Of that amount, $500 was incurred in 2012 and $300 was incurred in 2013. File taxes 2009 Richard itemized his deductions when he filed his 2012 income tax return. File taxes 2009 The personal representative of the estate paid the entire $800 liability in August 2013. File taxes 2009 The personal representative may file an amended return (Form 1040X) for 2012 claiming the $500 medical expense as a deduction, subject to the 7. File taxes 2009 5% limit. File taxes 2009 The $300 of expenses incurred in 2013 can be deducted on the final income tax return if deductions are itemized, subject to the 7. File taxes 2009 5% limit. File taxes 2009 The personal representative must file a statement in duplicate with each return stating that these amounts have not been claimed on the federal estate tax return (Form 706), and waiving the right to claim such a deduction on Form 706 in the future. File taxes 2009 Medical expenses not paid by estate. File taxes 2009   If you paid medical expenses for your deceased spouse or dependent, claim the expenses on your tax return for the year in which you paid them, whether they are paid before or after the decedent's death. File taxes 2009 If the decedent was a child of divorced or separated parents, the medical expenses can usually be claimed by both the custodial and noncustodial parent to the extent paid by that parent during the year. File taxes 2009 Insurance reimbursements. File taxes 2009   Insurance reimbursements of previously deducted medical expenses due a decedent at the time of death and later received by the decedent's estate are includible in the income tax return of the estate (Form 1041) for the year the reimbursements are received. File taxes 2009 The reimbursements are also includible in the decedent's gross estate. File taxes 2009 No deduction for funeral expenses can be taken on the final Form 1040 of a decedent. File taxes 2009 These expenses may be deductible for estate tax purposes on Form 706. File taxes 2009 Deduction for Losses A decedent's net operating loss deduction from a prior year and any capital losses (including capital loss carryovers) can be deducted only on the decedent's final income tax return. File taxes 2009 A net operating loss on the decedent's final income tax return can be carried back to prior years. File taxes 2009 (See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. File taxes 2009 ) You cannot deduct any unused net operating loss or capital loss on the estate's income tax return. File taxes 2009 At-risk loss limits. File taxes 2009   Special at-risk rules apply to most activities that are engaged in as a trade or business or for the production of income. File taxes 2009   These rules limit the deductible loss to the amount which the individual was considered at-risk in the activity. File taxes 2009 An individual generally will be considered at-risk to the extent of the money and the adjusted basis of property that he or she contributed to the activity and certain amounts the individual borrowed for use in the activity. File taxes 2009 An individual will be considered at-risk for amounts borrowed only if he or she was personally liable for the repayment or if the amounts borrowed were secured by property other than that used in the activity. File taxes 2009 The individual is not considered at-risk for borrowed amounts if the lender has an interest in the activity or if the lender is related to a person who has an interest in the activity. File taxes 2009 For more information, see Publication 925, Passive Activity and At-Risk Rules. File taxes 2009 Passive activity rules. File taxes 2009   A passive activity is any trade or business activity in which the taxpayer does not materially participate. File taxes 2009 To determine material participation, see Publication 925. File taxes 2009 Rental activities are passive activities regardless of the taxpayer's participation, unless the taxpayer meets certain eligibility requirements. File taxes 2009   Individuals, estates, and trusts can offset passive activity losses only against passive activity income. File taxes 2009 Passive activity losses or credits not allowed in one tax year can be carried forward to the next year. File taxes 2009   If a passive activity interest is transferred because a taxpayer dies, the accumulated unused passive activity losses are allowed as a deduction against the decedent's income in the year of death. File taxes 2009 Losses are allowed only to the extent they are greater than the excess of the transferee's (recipient of the interest transferred) basis in the property over the decedent's adjusted basis in the property immediately before death. File taxes 2009 The part of the accumulated losses equal to the excess is not allowed as a deduction for any tax year. File taxes 2009   Use Form 8582, Passive Activity Loss Limitations, to summarize losses and income from passive activities and to figure the amounts allowed. File taxes 2009 For more information, see Publication 925. File taxes 2009 Credits, Other Taxes, and Payments Discussed below are some of the tax credits, types of taxes that may be owed, income tax withheld, and estimated tax payments reported on the final return of a decedent. File taxes 2009 Credits On the final income tax return, you can claim any tax credits that applied to the decedent before death. File taxes 2009 Some of these credits are discussed next. File taxes 2009 Earned income credit. File taxes 2009   If the decedent was an eligible individual, you can claim the earned income credit on the decedent's final return even though the return covers less than 12 months. File taxes 2009 If the allowable credit is more than the tax liability for the year, the excess is refunded. File taxes 2009   For more information, see Publication 596, Earned Income Credit (EIC). File taxes 2009 Credit for the elderly or the disabled. File taxes 2009   This credit is allowable on a decedent's final income tax return if the decedent met both of the following requirements in the year of death. File taxes 2009 The decedent: Was a “qualified individual,” and Had income (adjusted gross income (AGI) and nontaxable social security and pensions) less than certain limits. File taxes 2009   For details on qualifying for or figuring the credit, see Publication 524, Credit for the Elderly or the Disabled. File taxes 2009 Child tax credit. File taxes 2009   If the decedent had a qualifying child, you may be able to claim the child tax credit on the decedent's final return even though the return covers less than 12 months. File taxes 2009 You may be able to claim the additional child tax credit and get a refund if the credit is more than the decedent's liability. File taxes 2009 For more information, see the Instructions for Form 1040. File taxes 2009 Adoption credit. File taxes 2009   Depending upon when the adoption was finalized, this credit may be taken on a decedent's final income tax return if the decedent: Adopted an eligible child and paid qualified adoption expenses, or Has a carryforward of an adoption credit from a prior year. File taxes 2009   Also, if the decedent is survived by a spouse who meets the filing status of qualifying widow(er), unused adoption credit may be carried forward and used following the death of the decedent. File taxes 2009 See Form 8839, Qualified Adoption Expenses, and its instructions for more details. File taxes 2009 General business tax credit. File taxes 2009   The general business credit available to a taxpayer is limited. File taxes 2009 Any credit arising in a tax year beginning before 1998 that has not been used up can be carried forward for up to 15 years. File taxes 2009 Any unused credit arising in a tax year beginning after 1997 has a 1-year carryback and a 20-year carryforward period. File taxes 2009   After the carryforward period, a deduction may be allowed for any unused business credit. File taxes 2009 If the taxpayer dies before the end of the carryforward period, the deduction generally is allowed in the year of death. File taxes 2009   For more information on the general business credit, see Publication 334, Tax Guide for Small Business. File taxes 2009 Other Taxes Taxes other than income tax that may be owed on the final return of a decedent include self-employment tax and alternative minimum tax, which are reported on Form 1040. File taxes 2009 Self-employment tax. File taxes 2009   Self-employment tax may be owed on the final return if either of the following applied to the decedent in the year of death: Net earnings from self-employment (excluding income described in (2)) were $400 or more; or Wages from services performed as a church employee were $108. File taxes 2009 28 or more. File taxes 2009 Alternative minimum tax (AMT). File taxes 2009   The tax laws give special treatment to certain types of income and allow special deductions and credits for certain types of expenses. File taxes 2009 The alternative minimum tax (AMT) was enacted so taxpayers who benefit from these laws still pay at least a minimum amount of tax. File taxes 2009 In general, the AMT is the excess of the tentative minimum tax over the regular tax shown on the return. File taxes 2009 Form 6251. File taxes 2009    Use Form 6251, Alternative Minimum Tax—Individuals, to determine if this tax applies to the decedent. File taxes 2009 See the form instructions for information on when you must attach Form 6251 to Form 1040. File taxes 2009 Form 8801. File taxes 2009   If the decedent paid AMT in a previous year or had a credit carryforward, the decedent may be eligible for a minimum tax credit. File taxes 2009 See Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts. File taxes 2009 Payments of Tax The income tax withheld from the decedent's salary, wages, pensions, or annuities, and the amount paid as estimated tax are credits (advance payments of tax) that must be claimed on the final return. File taxes 2009 Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Income tax liability may be forgiven for a decedent who dies due to service in a combat zone, due to military or terrorist actions, as a result of a terrorist attack, or while serving in the line of duty as an astronaut. File taxes 2009 Combat Zone If a member of the Armed Forces of the United States dies while in active service in a combat zone or from wounds, disease, or injury incurred in a combat zone, the decedent's income tax liability is abated (forgiven) for the entire year in which death occurred and for any prior tax year ending on or after the first day the person served in a combat zone in active service. File taxes 2009 For this purpose, a qualified hazardous duty area is treated as a combat zone. File taxes 2009 If the tax (including interest, additions to the tax, and additional amounts) for these years has been assessed, the assessment will be forgiven. File taxes 2009 If the tax has been collected (regardless of the date of collection), that tax will be credited or refunded. File taxes 2009 Any of the decedent's income tax for tax years before those mentioned above that remains unpaid as of the actual (or presumptive) date of death will not be assessed. File taxes 2009 If any unpaid tax (including interest, additions to the tax, and additional amounts) has been assessed, this assessment will be forgiven. File taxes 2009 Also, if any tax was collected after the date of death, that amount will be credited or refunded. File taxes 2009 The date of death of a member of the Armed Forces reported as missing in action or as a prisoner of war is the date his or her name is removed from missing status for military pay purposes. File taxes 2009 This is true even if death actually occurred earlier. File taxes 2009 For other tax information for members of the Armed Forces, see Publication 3, Armed Forces' Tax Guide. File taxes 2009 Military or Terrorist Actions The decedent's income tax liability is forgiven if, at death, he or she was a military or civilian employee of the United States who died because of wounds or injury incurred: While a U. File taxes 2009 S. File taxes 2009 employee, and In a military or terrorist action. File taxes 2009 The forgiveness applies to the tax year in which death occurred and for any earlier tax year, beginning with the year before the year in which the wounds or injury occurred. File taxes 2009 Example. File taxes 2009 The income tax liability of a civilian employee of the United States who died in 2013 because of wounds incurred while a U. File taxes 2009 S. File taxes 2009 employee in a terrorist attack that occurred in 2008 will be forgiven for 2013 and for all prior tax years in the period 2007 through 2012. File taxes 2009 Refunds are allowed for the tax years for which the period for filing a claim for refund has not ended, as discussed later. File taxes 2009 Military or terrorist action defined. File taxes 2009   A military or terrorist action means the following. File taxes 2009 Any terrorist activity that most of the evidence indicates was directed against the United States or any of its allies. File taxes 2009 Any military action involving the U. File taxes 2009 S. File taxes 2009 Armed Forces and resulting from violence or aggression against the United States or any of its allies, or the threat of such violence or aggression. File taxes 2009   Terrorist activity includes criminal offenses intended to coerce, intimidate, or retaliate against the government or civilian population. File taxes 2009 Military action does not include training exercises. File taxes 2009 Any multinational force in which the United States is participating is treated as an ally of the United States. File taxes 2009 Determining if a terrorist activity or military action has occurred. File taxes 2009   You may rely on published guidance from the IRS to determine if a particular event is considered a terrorist activity or military action. File taxes 2009 Specified Terrorist Victim The Victims of Terrorism Tax Relief Act of 2001 (the Act) provides tax relief for those injured or killed as a result of terrorist attacks, certain survivors of those killed as a result of terrorist attacks, and others who were affected by terrorist attacks. File taxes 2009 Under the Act, the federal income tax liability of those killed in the following attacks (specified terrorist victim) is forgiven for certain tax years. File taxes 2009 The April 19, 1995, terrorist attack on the Alfred P. File taxes 2009 Murrah Federal Building (Oklahoma City). File taxes 2009 The September 11, 2001, terrorist attacks. File taxes 2009 The terrorist attacks involving anthrax occurring after September 10, 2001, and before January 1, 2002. File taxes 2009 The Act also exempts from federal income tax the following types of income. File taxes 2009 Qualified disaster relief payments made after September 10, 2001, to cover personal, family, living, or funeral expenses incurred because of a terrorist attack. File taxes 2009 Certain disability payments received in tax years ending after September 10, 2001, for injuries sustained in a terrorist attack. File taxes 2009 Certain death benefits paid by an employer to the survivor of an employee because the employee died as a result of a terrorist attack. File taxes 2009 Payments from the September 11th Victim Compensation Fund 2001. File taxes 2009 The Act also reduces the estate tax of individuals who die as a result of a terrorist attack. File taxes 2009 See Publication 3920, Tax Relief for Victims of Terrorist Attacks, for more information. File taxes 2009 Astronauts Legislation extended the tax relief available under the Victims of Terrorism Tax Relief Act of 2001 (the Act) to astronauts who died in the line of duty after December 31, 2002. File taxes 2009 The decedent's income tax liability is forgiven for the tax year in which death occurs, and for the tax year prior to death. File taxes 2009 For information on death benefit payments and the reduction of federal estate taxes, see Publication 3920. File taxes 2009 However, the discussions in that publication under Death Benefits and Estate Tax Reduction should be modified for astronauts (for example, by using the date of death of the astronaut instead of September 11, 2001). File taxes 2009 For more information on the Act, see Publication 3920. File taxes 2009 Claim for Credit or Refund If any of these tax-forgiveness situations applies to a prior year tax, any tax paid for which the period for filing a claim has not ended will be credited or refunded. File taxes 2009 If any tax is still due, it will be canceled. File taxes 2009 The normal period for filing a claim for credit or refund is 3 years after the return was filed or 2 years after the tax was paid, whichever is later. File taxes 2009 If death occurred in a combat zone or from wounds, disease, or injury incurred in a combat zone, the period for filing the claim is extended by: The amount of time served in the combat zone (including any period in which the individual was in missing status), plus The period of continuous qualified hospitalization for injury from service in the combat zone, if any, plus The next 180 days. File taxes 2009 Qualified hospitalization means any hospitalization outside the United States and any hospitalization in the United States of not more than 5 years. File taxes 2009 This extended period for filing the claim also applies to a member of the Armed Forces who was deployed outside the United States in a designated contingency operation. File taxes 2009 Filing a claim. File taxes 2009   Use the following procedures to file a claim. File taxes 2009 If a U. File taxes 2009 S. File taxes 2009 individual income tax return (Form 1040, 1040A, or 1040EZ) has not been filed, you should make a claim for refund of any withheld income tax or estimated tax payments by filing Form 1040. File taxes 2009 Form W-2, Wage and Tax Statement, must accompany all returns. File taxes 2009 If a U. File taxes 2009 S. File taxes 2009 individual income tax return has been filed, you should make a claim for refund by filing Form 1040X. File taxes 2009 You must file a separate Form 1040X for each year in question. File taxes 2009   You must file these returns and claims at the following address for regular mail (U. File taxes 2009 S. File taxes 2009 Postal Service). File taxes 2009    Internal Revenue Service 333 W. File taxes 2009 Pershing, P5–6503 Kansas City, MO 64108   Identify all returns and claims for refund by writing “Iraq—KIA,” “Enduring Freedom—KIA,” “Kosovo Operation—KIA,” “Desert Storm—KIA,” or “Former Yugoslavia—KIA” in bold letters on the top of page 1 of the return or claim. File taxes 2009 On the applicable return, write the same phrase on the line for total tax. File taxes 2009 If the individual was killed in a terrorist or military action, put “KITA” on the front of the return and on the line for total tax. File taxes 2009   Include an attachment showing the computation of the decedent's tax liability and a computation of the amount to be forgiven. File taxes 2009 On joint returns, make an allocation of the tax as described below under Joint returns. File taxes 2009 If you cannot make a proper allocation, attach a statement of all income and deductions allocable to each spouse and the IRS will make the proper allocation. File taxes 2009   You must attach Form 1310 to all returns and claims for refund. File taxes 2009 However, for exceptions to filing Form 1310, see Form 1310. File taxes 2009 Statement of Person Claiming Refund Due a Deceased Taxpayer, under Refund, earlier. File taxes 2009   You must also attach proof of death that includes a statement that the individual was a U. File taxes 2009 S. File taxes 2009 employee on the date of injury and on the date of death and died as the result of a military or terrorist action. File taxes 2009 For military and civilian employees of the Department of Defense, attach DD Form 1300, Report of Casualty. File taxes 2009 For other U. File taxes 2009 S. File taxes 2009 civilian employees killed in the United States, attach a death certificate and a certification (letter) from the federal employer. File taxes 2009 For other U. File taxes 2009 S. File taxes 2009 civilian employees killed overseas, attach a certification from the Department of State. File taxes 2009   If you do not have enough tax information to file a timely claim for refund, you can suspend the period for filing a claim by filing Form 1040X. File taxes 2009 Attach Form 1310, any required documentation currently available, and a statement that you will file an amended claim as soon as you have the required tax information. File taxes 2009 Joint returns. File taxes 2009   If a joint return was filed, only the decedent's part of the income tax liability is eligible for forgiveness. File taxes 2009 Determine the decedent's tax liability as follows. File taxes 2009 Figure the income tax for which the decedent would have been liable if a separate return had been filed. File taxes 2009 Figure the income tax for which the spouse would have been liable if a separate return had been filed. File taxes 2009 Multiply the joint tax liability by a fraction. File taxes 2009 The numerator of the fraction is the amount in (1), above. File taxes 2009 The denominator of the fraction is the total of (1) and (2). File taxes 2009   The resulting amount from (3) above is the decedent's tax liability eligible for forgiveness. File taxes 2009 Filing Reminders To minimize the time needed to process the decedent's final return and issue any refund, be sure to follow these procedures. File taxes 2009 Write “DECEASED,” the decedent's name, and the date of death across the top of the tax return. File taxes 2009 If a personal representative has been appointed, the personal representative must sign the return. File taxes 2009 If it is a joint return, the surviving spouse must also sign it. File taxes 2009 If you are the decedent's spouse filing a joint return with the decedent and no personal representative has been appointed, write “Filing as surviving spouse” in the area where you sign the return. File taxes 2009 If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. File taxes 2009 ” To claim a refund for the decedent, do the following. File taxes 2009 If you are the decedent's spouse filing a joint return with the decedent, file only the tax return to claim the refund. File taxes 2009 If you are the personal representative and the return is not a joint return filed with the decedent's surviving spouse, file the return and attach a copy of the certificate that shows your appointment by the court. File taxes 2009 (A power of attorney or a copy of the decedent's will is not acceptable evidence of your appointment as the personal representative. File taxes 2009 ) If you are filing an amended return, attach Form 1310 and a copy of the certificate of appointment (or, if you have already sent the certificate of appointment to IRS, write “Certificate Previously Filed” at the bottom of Form 1310). File taxes 2009 If you are not filing a joint return as the surviving spouse and a personal representative has not been appointed, file the return and attach Form 1310. File taxes 2009 Other Tax Information Discussed below is information about the effect of an individual's death on the income tax liability of the survivors (including widows and widowers), the beneficiaries, and the estate. File taxes 2009 Tax Benefits for Survivors Survivors can qualify for certain benefits when filing their own income tax returns. File taxes 2009 Joint return by surviving spouse. File taxes 2009   A surviving spouse can file a joint return for the year of death and may qualify for special tax rates for the following 2 years, as explained under Qualifying widows and widowers, later. File taxes 2009 Decedent as your dependent. File taxes 2009   If the decedent qualified as your dependent for a part of the year before death, you can claim the exemption for the dependent on your tax return, regardless of when death occurred during the year. File taxes 2009   If the decedent was your qualifying child, you may be able to claim the child tax credit or the earned income credit. File taxes 2009 To determine if you qualify for the child tax credit, see the instructions for Form 1040, line 51; Form 1040A, line 33; or Form 1040NR, line 48. File taxes 2009 To determine if you qualify for the earned income credit, see the instructions for Form 1040, lines 64a and 64b or Form 1040A, lines 38a and 38b. File taxes 2009 Qualifying widows and widowers. File taxes 2009   If your spouse died within the 2 tax years preceding the year for which your return is being filed, you may be eligible to claim the filing status of qualifying widow(er) with dependent child and qualify to use the married-filing-jointly tax rates. File taxes 2009 Requirements. File taxes 2009   Generally, you qualify for this special benefit if you meet all of the following requirements. File taxes 2009 You were entitled to file a joint return with your spouse for the year of death—whether or not you actually filed jointly. File taxes 2009 You did not remarry before the end of the current tax year. File taxes 2009 You have a child, stepchild, or foster child who qualifies as your dependent for the tax year. File taxes 2009 You provide more than half the cost of maintaining your home, which is the principal residence of that child for the entire year except for temporary absences. File taxes 2009 Example. File taxes 2009 William Burns' wife died in 2010. File taxes 2009 William has not remarried and continued throughout 2011 and 2012 to maintain a home for himself and his dependent child. File taxes 2009 For 2010, he was entitled to file a joint return for himself and his deceased wife. File taxes 2009 For 2011 and 2012, he qualifies to file as a qualifying widower with dependent child. File taxes 2009 For later years, he may qualify to file as a head of household. File taxes 2009 Figuring your tax. File taxes 2009   Check the box on line 5 (Form 1040 or 1040A) under Filing Status on your tax return. File taxes 2009 Use the Tax Rate Schedule or the column in the Tax Table for Married filing jointly, which gives you the split-income benefits. File taxes 2009   The last year you can file jointly with, or claim an exemption for, your deceased spouse is the year of death. File taxes 2009 Joint return filing rules. File taxes 2009   If you are the surviving spouse and a personal representative is handling the estate for the decedent, you should coordinate filing your return for the year of death with this personal representative. File taxes 2009 See Joint Return under Final Income Tax Return for Decedent—Form 1040, earlier. File taxes 2009 Income in Respect of a Decedent All income the decedent would have received had death not occurred that was not properly includible on the final return, discussed earlier, is income in respect of a decedent. File taxes 2009 If the decedent is a specified terrorist victim (see Specified Terrorist Victim, earlier), income received after the date of death and before the end of the decedent's tax year (determined without regard to death) is excluded from the recipient's gross income. File taxes 2009 This exclusion does not apply to certain income. File taxes 2009 For more information, see Publication 3920. File taxes 2009 How To Report Income in respect of a decedent must be included in the income of one of the following. File taxes 2009 The decedent's estate, if the estate receives it. File taxes 2009 The beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it. File taxes 2009 Any person to whom the estate properly distributes the right to receive it. File taxes 2009 If you have to include income in respect of a decedent in your gross income and an estate tax return (Form 706) was filed for the decedent, you may be able to claim a deduction for the estate tax paid on that income. File taxes 2009 See Estate Tax Deduction, later. File taxes 2009 Example 1. File taxes 2009 Frank Johnson owned and operated an apple orchard. File taxes 2009 He used the cash method of accounting. File taxes 2009 He sold and delivered 1,000 bushels of apples to a canning factory for $2,000, but did not receive payment before his death. File taxes 2009 The proceeds from the sale are income in respect of a decedent. File taxes 2009 When the estate was settled, payment had not been made and the estate transferred the right to the payment to his widow. File taxes 2009 When Frank's widow collects the $2,000, she must include that amount in her return. File taxes 2009 It is not reported on the final return of the decedent or on the return of the estate. File taxes 2009 Example 2. File taxes 2009 Assume the same facts as in Example 1, except that Frank used the accrual method of accounting. File taxes 2009 The amount accrued from the sale of the apples would be included on his final return. File taxes 2009 Neither the estate nor the widow would realize income in respect of a decedent when the money is later paid. File taxes 2009 Example 3. File taxes 2009 On February 1, George High, a cash method taxpayer, sold his tractor for $3,000, payable March 1 of the same year. File taxes 2009 His adjusted basis in the tractor was $2,000. File taxes 2009 George died on February 15, before receiving payment. File taxes 2009 The gain to be reported as income in respect of a decedent is the $1,000 difference between the decedent's basis in the property and the sale proceeds. File taxes 2009 In other words, the income in respect of a decedent is the gain the decedent would have realized had he lived. File taxes 2009 Example 4. File taxes 2009 Cathy O'Neil was entitled to a large salary payment at the date of her death. File taxes 2009 The amount was to be paid in five annual installments. File taxes 2009 The estate, after collecting two installments, distributed the right to the remaining installments to you, the beneficiary. File taxes 2009 The payments are income in respect of a decedent. File taxes 2009 None of the payments were includible on Cathy's final return. File taxes 2009 The estate must include in its income the two installments it received, and you must include in your income each of the three installments as you receive them. File taxes 2009 Example 5. File taxes 2009 You inherited the right to receive renewal commissions on life insurance sold by your father before his death. File taxes 2009 You inherited the right from your mother, who acquired it by bequest from your father. File taxes 2009 Your mother died before she received all the commissions she had the right to receive, so you received the rest. File taxes 2009 The commissions are income in respect of a decedent. File taxes 2009 None of these commissions were includible in your father's final return. File taxes 2009 The commissions received by your mother were included in her income. File taxes 2009 The commissions you received are not includible in your mother's income, even on her final return. File taxes 2009 You must include them in your income. File taxes 2009 Character of income. File taxes 2009   The character of the income you receive in respect of a decedent remains the same as it would have been to the decedent if he or she were alive. File taxes 2009 If the income would have been a capital gain to the decedent, it will be a capital gain to you. File taxes 2009 Transfer of right to income. File taxes 2009   If you transfer your right to income in respect of a decedent, you must include in your income the greater of: The amount you receive for the right, or The fair market value of the right you transfer. File taxes 2009   If you make a gift of such a right, you must include in your income the fair market value of the right at the time of the gift. File taxes 2009   If the right to income from an installment obligation is transferred, the amount you must include in income is reduced by the basis of the obligation. File taxes 2009 See Installment obligations, later. File taxes 2009 Transfer defined. File taxes 2009   A transfer for this purpose includes a sale, exchange, or other disposition, the satisfaction of an installment obligation at other than face value, or the cancellation of an installment obligation. File taxes 2009 Installment obligations. File taxes 2009   If the decedent sold property using the installment method and you are collecting payments on an installment obligation acquired from the decedent, use the same gross profit percentage the decedent used to figure the part of each payment that represents profit. File taxes 2009 Include in your income the same profit the decedent would have included had death not occurred. File taxes 2009 For more information, see Publication 537, Installment Sales. File taxes 2009   If you dispose of an installment obligation acquired from a decedent (other than by transfer to the obligor), the rules explained in Publication 537 for figuring gain or loss on the disposition apply to you. File taxes 2009 Transfer to obligor. File taxes 2009   A transfer of a right to income, discussed earlier, has occurred if the decedent (seller) sold property using the installment method and the installment obligation was transferred to the obligor (buyer or person legally obligated to pay the installments). File taxes 2009 A transfer also occurs if the obligation was canceled either at death or by the estate or person receiving the obligation from the decedent. File taxes 2009 An obligation that becomes unenforceable is treated as having been canceled. File taxes 2009   If such a transfer occurs, the amount included in the income of the transferor (the estate or beneficiary) is the greater of the amount received or the fair market value of the installment obligation at the time of transfer, reduced by the basis of the obligation. File taxes 2009 The basis of the obligation is the decedent's basis, adjusted for all installment payments received after the decedent's death and before the transfer. File taxes 2009   If the decedent and obligor were related persons, the fair market value of the obligation cannot be less than its face value. File taxes 2009 Specific Types of Income in Respect of a Decedent This section explains and provides examples of some specific types of income in respect of a decedent. File taxes 2009 Wages. File taxes 2009   The entire amount of wages or other employee compensation earned by the decedent but unpaid at the time of death is income in respect of a decedent. File taxes 2009 The income is not reduced by any amounts withheld by the employer. File taxes 2009 If the income is $600 or more, the employer should report it in box 3 of Form 1099-MISC, Miscellaneous Income, and give the recipient a copy of the form or a similar statement. File taxes 2009   Wages paid as income in respect of a decedent are not subject to federal income tax withholding. File taxes 2009 However, if paid during the calendar year of death, they are subject to withholding for social security and Medicare taxes. File taxes 2009 These taxes should be included on the decedent's Form W-2 along with the taxes withheld before death. File taxes 2009 These wages are not included in box 1 of Form W-2. File taxes 2009   Wages paid as income in respect of a decedent after the year of death generally are not subject to withholding for any federal taxe