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Free Tax Filing 2011

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Free Tax Filing 2011

Free tax filing 2011 2. Free tax filing 2011   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. Free tax filing 2011 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. Free tax filing 2011 They are the American opportunity credit (this chapter) and the lifetime learning credit ( chapter 3 ). Free tax filing 2011 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. Free tax filing 2011 What is the tax benefit of the American opportunity credit. Free tax filing 2011   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. Free tax filing 2011   A tax credit reduces the amount of income tax you may have to pay. Free tax filing 2011 Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. Free tax filing 2011 Forty percent of the American opportunity credit may be refundable. Free tax filing 2011 This means that if the refundable portion of your credit is more than your tax, the excess will be refunded to you. Free tax filing 2011   Your allowable American opportunity credit may be limited by the amount of your income. Free tax filing 2011 Also, the nonrefundable part of the credit may be limited by the amount of your tax. Free tax filing 2011 Overview of the American opportunity credit. Free tax filing 2011   See Table 2-1, Overview of the American Opportunity Credit , for the basics of this credit. Free tax filing 2011 The details are discussed in this chapter. Free tax filing 2011 Can you claim more than one education credit this year. Free tax filing 2011   For each student, you can elect for any year only one of the credits. Free tax filing 2011 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. Free tax filing 2011   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. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 Differences between the American opportunity and lifetime learning credits. Free tax filing 2011   There are several differences between these two credits. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 If you have the choice, the American opportunity credit will always be greater than the lifetime learning credit. Free tax filing 2011 Table 2-1. Free tax filing 2011 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. Free tax filing 2011 Who Can Claim the Credit Generally, you can claim the American opportunity credit if all three of the following requirements are met. Free tax filing 2011 You pay qualified education expenses of higher education. Free tax filing 2011 You pay the education expenses for an eligible student. Free tax filing 2011 The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Free tax filing 2011 Student qualifications. Free tax filing 2011   Generally, you can take the American opportunity credit for a student only if all of the following four requirements are met. Free tax filing 2011 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. Free tax filing 2011 For this purpose, do not include academic credit awarded solely because of the student's performance on proficiency examinations. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 The standard for what is half of the normal full-time work load is determined by each eligible educational institution. Free tax filing 2011 However, the standard may not be lower than any of those established by the U. Free tax filing 2011 S. Free tax filing 2011 Department of Education under the Higher Education Act of 1965. Free tax filing 2011 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. Free tax filing 2011 See Prepaid expenses, later. Free tax filing 2011 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. Free tax filing 2011 Example 1. Free tax filing 2011 Sharon was eligible for the Hope Scholarship Credit for 2007 and 2008 and for the American opportunity credit for 2010 and 2012. Free tax filing 2011 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. Free tax filing 2011 Sharon claimed the American opportunity credit on her 2012 tax return. Free tax filing 2011 The American opportunity credit and Hope Scholarship Credit have been claimed for Sharon for four tax years before 2013. Free tax filing 2011 Therefore, the American opportunity credit cannot be claimed by Sharon for 2013. Free tax filing 2011 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. Free tax filing 2011 Example 2. Free tax filing 2011 Wilbert was eligible for the American opportunity credit for 2009, 2010, 2011, and 2013. Free tax filing 2011 His parents claimed the American opportunity credit for Wilbert on their tax returns for 2009, 2010, and 2011. Free tax filing 2011 No one claimed an American opportunity credit or Hope Scholarship Credit for Wilbert for any other tax year. Free tax filing 2011 The American opportunity credit and Hope Scholarship Credit have been claimed for Wilbert for only three tax years before 2013. Free tax filing 2011 Therefore, Wilbert meets the second requirement to be eligible for the American opportunity credit. Free tax filing 2011 If Wilbert were to file Form 8863 for 2013, he would check “No” for Part III, line 23. Free tax filing 2011 If Wilbert meets all of the other requirements, he is eligible for the American opportunity credit. Free tax filing 2011 Example 3. Free tax filing 2011 Glenda enrolls on a full-time basis in a degree program for the 2014 Spring semester, which begins in January 2014. Free tax filing 2011 Glenda pays her tuition for the 2014 Spring semester in December 2013. Free tax filing 2011 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. Free tax filing 2011 If the requirements above are not met for any student, you cannot take the American opportunity credit for that student. Free tax filing 2011 You may be able to take the lifetime learning credit for part or all of that student's qualified education expenses instead. Free tax filing 2011 Note. Free tax filing 2011 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. Free tax filing 2011 “Qualified education expenses” are defined later under Qualified Education Expenses . Free tax filing 2011 “Eligible students” are defined later under Who Is an Eligible Student . Free tax filing 2011 A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . Free tax filing 2011 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. Free tax filing 2011 This image is too large to be displayed in the current screen. Free tax filing 2011 Please click the link to view the image. Free tax filing 2011 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. Free tax filing 2011 Your filing status is married filing separately. Free tax filing 2011 You are listed as a dependent on another person's tax return (such as your parents'). Free tax filing 2011 See Who Can Claim a Dependent's Expenses , later. Free tax filing 2011 Your modified adjusted gross income (MAGI) is $90,000 or more ($180,000 or more in the case of a joint return). Free tax filing 2011 MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . Free tax filing 2011 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. Free tax filing 2011 More information on nonresident aliens can be found in Publication 519, U. Free tax filing 2011 S. Free tax filing 2011 Tax Guide for Aliens. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 Academic period. Free tax filing 2011   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. Free tax filing 2011 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. Free tax filing 2011 Paid with borrowed funds. Free tax filing 2011   You can claim an American opportunity credit for qualified education expenses paid with the proceeds of a loan. Free tax filing 2011 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. Free tax filing 2011 Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account. Free tax filing 2011 Student withdraws from class(es). Free tax filing 2011   You can claim an American opportunity credit for qualified education expenses not refunded when a student withdraws. Free tax filing 2011 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. Free tax filing 2011 Eligible educational institution. Free tax filing 2011   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. Free tax filing 2011 S. Free tax filing 2011 Department of Education. Free tax filing 2011 It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Free tax filing 2011 The educational institution should be able to tell you if it is an eligible educational institution. Free tax filing 2011   Certain educational institutions located outside the United States also participate in the U. Free tax filing 2011 S. Free tax filing 2011 Department of Education's Federal Student Aid (FSA) programs. Free tax filing 2011 Related expenses. Free tax filing 2011   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. Free tax filing 2011   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. Free tax filing 2011 Prepaid expenses. Free tax filing 2011   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. Free tax filing 2011 See Academic period, earlier. Free tax filing 2011 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). Free tax filing 2011    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). Free tax filing 2011   In the following examples, assume that each student is an eligible student at an eligible educational institution. Free tax filing 2011 Example 1. Free tax filing 2011 Jefferson is a sophomore in University V's degree program in dentistry. Free tax filing 2011 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. Free tax filing 2011 Because the equipment rental is needed for his course of study, Jefferson's equipment rental fee is a qualified expense. Free tax filing 2011 Example 2. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 William bought his books from a friend; Grace bought hers at College W's bookstore. Free tax filing 2011 Both are qualified education expenses for the American opportunity credit. Free tax filing 2011 Example 3. Free tax filing 2011 When Kelly enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. Free tax filing 2011 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. Free tax filing 2011 No portion of the fee covers personal expenses. Free tax filing 2011 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. Free tax filing 2011 No Double Benefit Allowed You cannot do any of the following. Free tax filing 2011 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. Free tax filing 2011 Claim an American opportunity credit in the same year that you are claiming a tuition and fees deduction for the same student. Free tax filing 2011 Claim an American opportunity credit for any student and use any of that student's expenses in figuring your lifetime learning credit. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 See Adjustments to Qualified Education Expenses, next. Free tax filing 2011 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. Free tax filing 2011 The result is the amount of adjusted qualified education expenses for each student. Free tax filing 2011 Tax-free educational assistance. Free tax filing 2011   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. Free tax filing 2011 See Academic period, earlier. Free tax filing 2011   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Free tax filing 2011 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). Free tax filing 2011   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. Free tax filing 2011 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. Free tax filing 2011   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). Free tax filing 2011 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. Free tax filing 2011 Generally, any scholarship or fellowship is treated as tax free. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 For examples, see Coordination with Pell grants and other scholarships, later. Free tax filing 2011 Refunds. Free tax filing 2011   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. Free tax filing 2011 Some tax-free educational assistance received after 2013 may be treated as a refund. Free tax filing 2011 See Tax-free educational assistance, earlier. Free tax filing 2011 Refunds received in 2013. Free tax filing 2011   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. Free tax filing 2011 Refunds received after 2013 but before your income tax return is filed. Free tax filing 2011   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. Free tax filing 2011 Refunds received after 2013 and after your income tax return is filed. Free tax filing 2011   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. Free tax filing 2011 See Credit recapture, next. Free tax filing 2011 Credit recapture. Free tax filing 2011    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. Free tax filing 2011 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. Free tax filing 2011 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). Free tax filing 2011 Include that amount as an additional tax for the year the refund or tax-free assistance was received. Free tax filing 2011 Example. Free tax filing 2011   You paid $7,000 tuition and fees in August 2013, and your child began college in September 2013. Free tax filing 2011 You filed your 2013 tax return on February 17, 2014, and claimed an American opportunity credit of $2,500. Free tax filing 2011 After you filed your return, you received a refund of $4,000. Free tax filing 2011 You must refigure your 2013 American opportunity credit using $3,000 of qualified education expenses instead of $7,000. Free tax filing 2011 The refigured credit is $2,250. Free tax filing 2011 The increase to your tax liability is also $250. Free tax filing 2011 Include the difference of $250 as additional tax on your 2014 tax return. Free tax filing 2011 See the instructions for your 2014 income tax return to determine where to include this tax. Free tax filing 2011 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. Free tax filing 2011 Amounts that do not reduce qualified education expenses. Free tax filing 2011   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. Free tax filing 2011   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. Free tax filing 2011 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. Free tax filing 2011 The use of the money is not restricted. Free tax filing 2011 Example 1. Free tax filing 2011 Joan paid $3,000 for tuition and $5,000 for room and board at University X. Free tax filing 2011 The university did not require her to pay any fees in addition to her tuition in order to enroll in or attend classes. Free tax filing 2011 To help pay these costs, she was awarded a $2,000 scholarship and a $4,000 student loan. Free tax filing 2011 The terms of the scholarship state that it can be used to pay any of Joan's college expenses. Free tax filing 2011 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. Free tax filing 2011 Joan does not report any portion of the scholarship as income on her tax return. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 Joan is treated as having paid $1,000 in qualified education expenses ($3,000 tuition – $2,000 scholarship). Free tax filing 2011 Example 2. Free tax filing 2011 The facts are the same as in Example 1, except that Joan reports her entire scholarship as income on her tax return. Free tax filing 2011 Because Joan reported the entire $2,000 scholarship in her income, she does not need to reduce her qualified education expenses. Free tax filing 2011 Joan is treated as having paid $3,000 in qualified education expenses. Free tax filing 2011 Coordination with Pell grants and other scholarships. Free tax filing 2011   In some cases, you may be able to reduce your tax liability by including scholarships in income. Free tax filing 2011 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. Free tax filing 2011 The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses. Free tax filing 2011 Example 1—No scholarship. Free tax filing 2011 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. Free tax filing 2011 This was his first year of postsecondary education. Free tax filing 2011 During 2013, he paid $5,600 for his qualified education expenses and $4,400 for his room and board for the fall 2013 semester. Free tax filing 2011 He and the college meet all the requirements for the American opportunity credit. Free tax filing 2011 Bill's AGI and his MAGI, for purposes of figuring his credit, are $30,000. Free tax filing 2011 Bill takes the standard deduction of $5,950 and personal exemption of $3,800, reducing his AGI to taxable income of $20,250. Free tax filing 2011 His income tax liability, before credits, is $2,599 and Bill claims no credits other than the American opportunity credit. Free tax filing 2011 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. Free tax filing 2011 Example 2—Scholarship excluded from income. Free tax filing 2011 The facts are the same as in Example 1—No scholarship, except that Bill was awarded a $5,600 scholarship. Free tax filing 2011 Under the terms of his scholarship, it may be used to pay any educational expenses, including room and board. Free tax filing 2011 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. Free tax filing 2011 His adjusted qualified education expenses will be zero and he will not have an education credit. Free tax filing 2011 Therefore, Bill's tax after credits would be $2,599. Free tax filing 2011 Example 3—Scholarship partially included in income. Free tax filing 2011 The facts are the same as in Example 2—Scholarship excluded from income. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. Free tax filing 2011 Sports, games, hobbies, and noncredit courses. Free tax filing 2011   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. Free tax filing 2011 However, if the course of instruction or other education is part of the student's degree program, these expenses can qualify. Free tax filing 2011 Comprehensive or bundled fees. Free tax filing 2011   Some eligible educational institutions combine all of their fees for an academic period into one amount. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 See Figuring the Credit , later, for more information about Form 1098-T. Free tax filing 2011 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. Free tax filing 2011 This is a student who meets all of the following requirements. Free tax filing 2011 The student did not have expenses that were used to figure an American opportunity credit in any 4 earlier tax years. Free tax filing 2011 This includes any tax year(s) in which you claimed the Hope Scholarship Credit for the same student. Free tax filing 2011 The student had not completed the first 4 years of postsecondary education (generally, the freshman, sophomore, junior, and senior years of college) before 2013. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 These requirements are also shown in Figure 2-2, Who is an Eligible Student for the American Opportunity Credit , later. Free tax filing 2011 Completion of first 4 years. Free tax filing 2011   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. Free tax filing 2011 This student generally would not be an eligible student for purposes of the American opportunity credit. Free tax filing 2011 Exception. Free tax filing 2011   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. Free tax filing 2011 Enrolled at least half-time. Free tax filing 2011   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. Free tax filing 2011   The standard for what is half of the normal full-time work load is determined by each eligible educational institution. Free tax filing 2011 However, the standard may not be lower than any of those established by the U. Free tax filing 2011 S. Free tax filing 2011 Department of Education under the Higher Education Act of 1965. Free tax filing 2011 Please click here for the text description of the image. Free tax filing 2011 Figure 2-2 Example 1. Free tax filing 2011 Mack graduated from high school in June 2012. Free tax filing 2011 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. Free tax filing 2011 For the 2013 fall semester, Mack was enrolled less than half-time. Free tax filing 2011 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). Free tax filing 2011 Example 2. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 Example 3. Free tax filing 2011 During the 2012 fall semester, Larry was a high school student who took classes on a half-time basis at College X. Free tax filing 2011 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. Free tax filing 2011 Because Larry was not enrolled in a degree program at College X during 2012, Larry was not an eligible student for tax year 2012. Free tax filing 2011 Example 4. Free tax filing 2011 The facts are the same as in Example 3. Free tax filing 2011 During the 2013 spring semester, Larry again attended College X but not as part of a degree program. Free tax filing 2011 Larry graduated from high school in June 2013. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 Example 5. Free tax filing 2011 Dee graduated from high school in June 2012. Free tax filing 2011 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. Free tax filing 2011 Dee completed the program in December 2013, and was awarded a certificate. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 For you to claim an American opportunity credit for your dependent's expenses, you must also claim an exemption for your dependent. Free tax filing 2011 You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. Free tax filing 2011 IF you. Free tax filing 2011 . Free tax filing 2011 . Free tax filing 2011 THEN only. Free tax filing 2011 . Free tax filing 2011 . Free tax filing 2011 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. Free tax filing 2011 The dependent cannot claim the credit. Free tax filing 2011 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. Free tax filing 2011 You cannot claim the credit based on this dependent's expenses. Free tax filing 2011 Expenses paid by dependent. Free tax filing 2011   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. Free tax filing 2011 Include these expenses when figuring the amount of your American opportunity credit. Free tax filing 2011    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. Free tax filing 2011 Expenses paid by you. Free tax filing 2011   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. Free tax filing 2011 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. Free tax filing 2011 Expenses paid by others. Free tax filing 2011   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. Free tax filing 2011 In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. Free tax filing 2011 If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. Free tax filing 2011 Example. Free tax filing 2011 In 2013, Ms. Free tax filing 2011 Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011 If anyone else claims an exemption for Todd, Todd cannot claim an American opportunity credit. Free tax filing 2011 Tuition reduction. Free tax filing 2011    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. Free tax filing 2011 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. Free tax filing 2011 For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Free tax filing 2011 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. Free tax filing 2011 The maximum amount of American opportunity credit you can claim in 2013 is $2,500 multiplied by the number of eligible students. Free tax filing 2011 You can claim the full $2,500 for each eligible student for whom you paid at least $4,000 of adjusted qualified education expenses. Free tax filing 2011 However, the credit may be reduced based on your MAGI. Free tax filing 2011 See Effect of the Amount of Your Income on the Amount of Your Credit , later. Free tax filing 2011 Example. Free tax filing 2011 Jack and Kay Ford are married and file a joint tax return. Free tax filing 2011 For 2013, they claim an exemption for their dependent daughter on their tax return. Free tax filing 2011 Their MAGI is $70,000. Free tax filing 2011 Their daughter is in her junior (third) year of studies at the local university. Free tax filing 2011 Jack and Kay paid qualified education expenses of $4,300 in 2013. Free tax filing 2011 Jack and Kay, their daughter, and the local university meet all of the requirements for the American opportunity credit. Free tax filing 2011 Jack and Kay can claim a $2,500 American opportunity credit in 2013. Free tax filing 2011 This is 100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000. Free tax filing 2011 Form 1098-T. Free tax filing 2011   To help you figure your American opportunity credit, the student should receive Form 1098-T, Tuition Statement. Free tax filing 2011 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. Free tax filing 2011 An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. Free tax filing 2011 However, the amounts in boxes 1 and 2 of Form 1098-T might be different than what you paid. Free tax filing 2011 When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. Free tax filing 2011   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. Free tax filing 2011    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. Free tax filing 2011 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). Free tax filing 2011 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). Free tax filing 2011 Modified adjusted gross income (MAGI). Free tax filing 2011   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. Free tax filing 2011 MAGI when using Form 1040A. Free tax filing 2011   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. Free tax filing 2011 MAGI when using Form 1040. Free tax filing 2011   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. Free tax filing 2011 You can use Worksheet 2-1, next, to figure your MAGI. Free tax filing 2011    Worksheet 2-1. Free tax filing 2011 MAGI for the American Opportunity Credit 1. Free tax filing 2011 Enter your adjusted gross income  (Form 1040, line 38)   1. Free tax filing 2011   2. Free tax filing 2011 Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. Free tax filing 2011       3. Free tax filing 2011 Enter your foreign housing deduction (Form 2555, line 50)   3. Free tax filing 2011       4. Free tax filing 2011 Enter the amount of income from Puerto Rico you are excluding   4. Free tax filing 2011       5. Free tax filing 2011 Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. Free tax filing 2011       6. Free tax filing 2011 Add the amounts on lines 2, 3, 4, and 5   6. Free tax filing 2011   7. Free tax filing 2011 Add the amounts on lines 1 and 6. Free tax filing 2011  This is your modified adjusted  gross income. Free tax filing 2011 Enter here and  on Form 8863, line 3   7. Free tax filing 2011   Phaseout. Free tax filing 2011   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. Free tax filing 2011 The same method is shown in the following example. Free tax filing 2011 Example. Free tax filing 2011 You are filing a joint return and your MAGI is $165,000. Free tax filing 2011 In 2013, you paid $5,000 of qualified education expenses. Free tax filing 2011 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). Free tax filing 2011 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. Free tax filing 2011 The numerator of the fraction is $180,000 (the upper limit for those filing a joint return) minus your MAGI. Free tax filing 2011 The denominator is $20,000, the range of incomes for the phaseout ($160,000 to $180,000). Free tax filing 2011 The result is the amount of your phased out (reduced) American opportunity credit ($1,875). Free tax filing 2011      $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. Free tax filing 2011 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. Free tax filing 2011 Instead, your allowed credit (figured on Form 8863, Part II) will be used to reduce your tax as a nonrefundable credit only. Free tax filing 2011 You do not qualify for a refund if items 1 (a, b, or c), 2, and 3 below apply to you. Free tax filing 2011 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). Free tax filing 2011 At least one of your parents was alive at the end of 2013. Free tax filing 2011 You are filing a return as single, head of household, qualifying widow(er), or married filing separately for 2013. Free tax filing 2011 Earned income. Free tax filing 2011   Earned income includes wages, salaries, professional fees, and other payments received for personal services actually performed. Free tax filing 2011 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. Free tax filing 2011 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. Free tax filing 2011   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). Free tax filing 2011 However, if capital is not an income-producing factor and your personal services produced the business income, the 30% limit does not apply. Free tax filing 2011 Support. Free tax filing 2011   Your support includes food, shelter, clothing, medical and dental care, education, and the like. Free tax filing 2011 Generally, the amount of the item of support will be the amount of expenses incurred by the one furnishing such item. Free tax filing 2011 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. Free tax filing 2011 However, a scholarship received by you is not considered support if you are a full-time student. Free tax filing 2011 See Publication 501 for details. Free tax filing 2011 Full-time student. Free tax filing 2011   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. Free tax filing 2011 Claiming the Credit You claim the American opportunity credit by completing Form 8863 and submitting it with your Form 1040 or 1040A. Free tax filing 2011 Enter the nonrefundable part of the credit on Form 1040, line 49, or on Form 1040A, line 31. Free tax filing 2011 Enter the refundable part of the credit on Form 1040, line 66, or on Form 1040A, line 40. Free tax filing 2011 A filled-in Form 8863 is shown at the end of this publication. Free tax filing 2011 Note. Free tax filing 2011 In Appendix A. Free tax filing 2011 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. Free tax filing 2011 Prev  Up  Next   Home   More Online Publications
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The Free Tax Filing 2011

Free tax filing 2011 4. Free tax filing 2011   How Income of Aliens Is Taxed Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Resident Aliens Nonresident AliensTrade or Business in the United States Effectively Connected Income The 30% Tax Income From Real Property Transportation Tax Interrupted Period of Residence Expatriation TaxExpatriation Before June 4, 2004 Expatriation After June 3, 2004, and Before June 17, 2008 Expatriation After June 16, 2008 Introduction Resident and nonresident aliens are taxed in different ways. Free tax filing 2011 Resident aliens are generally taxed in the same way as U. Free tax filing 2011 S. Free tax filing 2011 citizens. Free tax filing 2011 Nonresident aliens are taxed based on the source of their income and whether or not their income is effectively connected with a U. Free tax filing 2011 S. Free tax filing 2011 trade or business. Free tax filing 2011 The following discussions will help you determine if income you receive during the tax year is effectively connected with a U. Free tax filing 2011 S. Free tax filing 2011 trade or business and how it is taxed. Free tax filing 2011 Topics - This chapter discusses: Income that is effectively connected with a U. Free tax filing 2011 S. Free tax filing 2011 trade or business. Free tax filing 2011 Income that is not effectively connected with a U. Free tax filing 2011 S. Free tax filing 2011 trade or business. Free tax filing 2011 Interrupted period of residence. Free tax filing 2011 Expatriation tax. Free tax filing 2011 Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 1212 List of Original Issue Discount Instruments Form (and Instructions) 6251 Alternative Minimum Tax—Individuals Schedule D (Form 1040) Capital Gains and Losses See chapter 12 for information about getting these publications and forms. Free tax filing 2011 Resident Aliens Resident aliens are generally taxed in the same way as U. Free tax filing 2011 S. Free tax filing 2011 citizens. Free tax filing 2011 This means that their worldwide income is subject to U. Free tax filing 2011 S. Free tax filing 2011 tax and must be reported on their U. Free tax filing 2011 S. Free tax filing 2011 tax return. Free tax filing 2011 Income of resident aliens is subject to the graduated tax rates that apply to U. Free tax filing 2011 S. Free tax filing 2011 citizens. Free tax filing 2011 Resident aliens use the Tax Table or Tax Computation Worksheets located in the Form 1040 instructions, which apply to U. Free tax filing 2011 S. Free tax filing 2011 citizens. Free tax filing 2011 Nonresident Aliens A nonresident alien's income that is subject to U. Free tax filing 2011 S. Free tax filing 2011 income tax must be divided into two categories: Income that is effectively connected with a trade or business in the United States, and Income that is not effectively connected with a trade or business in the United States (discussed under The 30% Tax, later). Free tax filing 2011 The difference between these two categories is that effectively connected income, after allowable deductions, is taxed at graduated rates. Free tax filing 2011 These are the same rates that apply to U. Free tax filing 2011 S. Free tax filing 2011 citizens and residents. Free tax filing 2011 Income that is not effectively connected is taxed at a flat 30% (or lower treaty) rate. Free tax filing 2011 If you were formerly a U. Free tax filing 2011 S. Free tax filing 2011 citizen or resident alien, these rules may not apply. Free tax filing 2011 See Expatriation Tax, later, in this chapter. Free tax filing 2011 Trade or Business in the United States Generally, you must be engaged in a trade or business during the tax year to be able to treat income received in that year as effectively connected with that trade or business. Free tax filing 2011 Whether you are engaged in a trade or business in the United States depends on the nature of your activities. Free tax filing 2011 The discussions that follow will help you determine whether you are engaged in a trade or business in the United States. Free tax filing 2011 Personal Services If you perform personal services in the United States at any time during the tax year, you usually are considered engaged in a trade or business in the United States. Free tax filing 2011 Certain compensation paid to a nonresident alien by a foreign employer is not included in gross income. Free tax filing 2011 For more information, see Services Performed for Foreign Employer in chapter 3. Free tax filing 2011 Other Trade or Business Activities Other examples of being engaged in a trade or business in the United States follow. Free tax filing 2011 Students and trainees. Free tax filing 2011   You are considered engaged in a trade or business in the United States if you are temporarily present in the United States as a nonimmigrant under an “F,” “J,” “M,” or “Q” visa. Free tax filing 2011 A nonresident alien temporarily present in the United States under a “J” visa includes a nonresident alien individual admitted to the United States as an exchange visitor under the Mutual Educational and Cultural Exchange Act of 1961. Free tax filing 2011 The taxable part of any scholarship or fellowship grant that is U. Free tax filing 2011 S. Free tax filing 2011 source income is treated as effectively connected with a trade or business in the United States. Free tax filing 2011 Business operations. Free tax filing 2011   If you own and operate a business in the United States selling services, products, or merchandise, you are, with certain exceptions, engaged in a trade or business in the United States. Free tax filing 2011 Partnerships. Free tax filing 2011   If you are a member of a partnership that at any time during the tax year is engaged in a trade or business in the United States, you are considered to be engaged in a trade or business in the United States. Free tax filing 2011 Beneficiary of an estate or trust. Free tax filing 2011   If you are the beneficiary of an estate or trust that is engaged in a trade or business in the United States, you are treated as being engaged in the same trade or business. Free tax filing 2011 Trading in stocks, securities, and commodities. Free tax filing 2011   If your only U. Free tax filing 2011 S. Free tax filing 2011 business activity is trading in stocks, securities, or commodities (including hedging transactions) through a U. Free tax filing 2011 S. Free tax filing 2011 resident broker or other agent, you are not engaged in a trade or business in the United States. Free tax filing 2011   For transactions in stocks or securities, this applies to any nonresident alien, including a dealer or broker in stocks and securities. Free tax filing 2011   For transactions in commodities, this applies to commodities that are usually traded on an organized commodity exchange and to transactions that are usually carried out at such an exchange. Free tax filing 2011   This discussion does not apply if you have a U. Free tax filing 2011 S. Free tax filing 2011 office or other fixed place of business at any time during the tax year through which, or by the direction of which, you carry out your transactions in stocks, securities, or commodities. Free tax filing 2011 Trading for a nonresident alien's own account. Free tax filing 2011   You are not engaged in a trade or business in the United States if trading for your own account in stocks, securities, or commodities is your only U. Free tax filing 2011 S. Free tax filing 2011 business activity. Free tax filing 2011 This applies even if the trading takes place while you are present in the United States or is done by your employee or your broker or other agent. Free tax filing 2011   This does not apply to trading for your own account if you are a dealer in stocks, securities, or commodities. Free tax filing 2011 This does not necessarily mean, however, that as a dealer you are considered to be engaged in a trade or business in the United States. Free tax filing 2011 Determine that based on the facts and circumstances in each case or under the rules given above in Trading in stocks, securities, and commodities . Free tax filing 2011 Effectively Connected Income If you are engaged in a U. Free tax filing 2011 S. Free tax filing 2011 trade or business, all income, gain, or loss for the tax year that you get from sources within the United States (other than certain investment income) is treated as effectively connected income. Free tax filing 2011 This applies whether or not there is any connection between the income and the trade or business being carried on in the United States during the tax year. Free tax filing 2011 Two tests, described next under Investment Income, determine whether certain items of investment income (such as interest, dividends, and royalties) are treated as effectively connected with that business. Free tax filing 2011 In limited circumstances, some kinds of foreign source income may be treated as effectively connected with a trade or business in the United States. Free tax filing 2011 For a discussion of these rules, see Foreign Income , later. Free tax filing 2011 Investment Income Investment income from U. Free tax filing 2011 S. Free tax filing 2011 sources that may or may not be treated as effectively connected with a U. Free tax filing 2011 S. Free tax filing 2011 trade or business generally falls into the following three categories. Free tax filing 2011 Fixed or determinable income (interest, dividends, rents, royalties, premiums, annuities, etc. Free tax filing 2011 ). Free tax filing 2011 Gains (some of which are considered capital gains) from the sale or exchange of the following types of property. Free tax filing 2011 Timber, coal, or domestic iron ore with a retained economic interest. Free tax filing 2011 Patents, copyrights, and similar property on which you receive contingent payments after October 4, 1966. Free tax filing 2011 Patents transferred before October 5, 1966. Free tax filing 2011 Original issue discount obligations. Free tax filing 2011 Capital gains (and losses). Free tax filing 2011 Use the two tests, described next, to determine whether an item of U. Free tax filing 2011 S. Free tax filing 2011 source income falling in one of the three categories above and received during the tax year is effectively connected with your U. Free tax filing 2011 S. Free tax filing 2011 trade or business. Free tax filing 2011 If the tests indicate that the item of income is effectively connected, you must include it with your other effectively connected income. Free tax filing 2011 If the item of income is not effectively connected, include it with all other income discussed under The 30% Tax later, in this chapter. Free tax filing 2011 Asset-use test. Free tax filing 2011   This test usually applies to income that is not directly produced by trade or business activities. Free tax filing 2011 Under this test, if an item of income is from assets (property) used in, or held for use in, the trade or business in the United States, it is considered effectively connected. Free tax filing 2011   An asset is used in, or held for use in, the trade or business in the United States if the asset is: Held for the principal purpose of promoting the conduct of a trade or business in the United States, Acquired and held in the ordinary course of the trade or business conducted in the United States (for example, an account receivable or note receivable arising from that trade or business), or Otherwise held to meet the present needs of the trade or business in the United States and not its anticipated future needs. Free tax filing 2011 Generally, stock of a corporation is not treated as an asset used in, or held for use in, a trade or business in the United States. Free tax filing 2011 Business-activities test. Free tax filing 2011   This test usually applies when income, gain, or loss comes directly from the active conduct of the trade or business. Free tax filing 2011 The business-activities test is most important when: Dividends or interest are received by a dealer in stocks or securities, Royalties are received in the trade or business of licensing patents or similar property, or Service fees are earned by a servicing business. Free tax filing 2011 Under this test, if the conduct of the U. Free tax filing 2011 S. Free tax filing 2011 trade or business was a material factor in producing the income, the income is considered effectively connected. Free tax filing 2011 Personal Service Income You usually are engaged in a U. Free tax filing 2011 S. Free tax filing 2011 trade or business when you perform personal services in the United States. Free tax filing 2011 Personal service income you receive in a tax year in which you are engaged in a U. Free tax filing 2011 S. Free tax filing 2011 trade or business is effectively connected with a U. Free tax filing 2011 S. Free tax filing 2011 trade or business. Free tax filing 2011 Income received in a year other than the year you performed the services is also effectively connected if it would have been effectively connected if received in the year you performed the services. Free tax filing 2011 Personal service income includes wages, salaries, commissions, fees, per diem allowances, and employee allowances and bonuses. Free tax filing 2011 The income may be paid to you in the form of cash, services, or property. Free tax filing 2011 If you are engaged in a U. Free tax filing 2011 S. Free tax filing 2011 trade or business only because you perform personal services in the United States during the tax year, income and gains from assets, and gains and losses from the sale or exchange of capital assets are generally not effectively connected with your trade or business. Free tax filing 2011 However, if there is a direct economic relationship between your holding of the asset and your trade or business of performing personal services, the income, gain, or loss is effectively connected. Free tax filing 2011 Pensions. Free tax filing 2011   If you were a nonresident alien engaged in a U. Free tax filing 2011 S. Free tax filing 2011 trade or business after 1986 because you performed personal services in the United States, and you later receive a pension or retirement pay attributable to these services, such payments are effectively connected income in each year you receive them. Free tax filing 2011 This is true whether or not you are engaged in a U. Free tax filing 2011 S. Free tax filing 2011 trade or business in the year you receive the retirement pay. Free tax filing 2011 Transportation Income Transportation income (defined in chapter 2) is effectively connected if you meet both of the following conditions. Free tax filing 2011 You had a fixed place of business in the United States involved in earning the income. Free tax filing 2011 At least 90% of your U. Free tax filing 2011 S. Free tax filing 2011 source transportation income is attributable to regularly scheduled transportation. Free tax filing 2011 “Fixed place of business” generally means a place, site, structure, or other similar facility through which you engage in a trade or business. Free tax filing 2011 “Regularly scheduled transportation” means that a ship or aircraft follows a published schedule with repeated sailings or flights at regular intervals between the same points for voyages or flights that begin or end in the United States. Free tax filing 2011 This definition applies to both scheduled and chartered air transportation. Free tax filing 2011 If you do not meet the two conditions above, the income is not effectively connected and is taxed at a 4% rate. Free tax filing 2011 See Transportation Tax, later, in this chapter. Free tax filing 2011 Business Profits and Losses and Sales Transactions All profits or losses from U. Free tax filing 2011 S. Free tax filing 2011 sources that are from the operation of a business in the United States are effectively connected with a trade or business in the United States. Free tax filing 2011 For example, profit from the sale in the United States of inventory property purchased either in this country or in a foreign country is effectively connected trade or business income. Free tax filing 2011 A share of U. Free tax filing 2011 S. Free tax filing 2011 source profits or losses of a partnership that is engaged in a trade or business in the United States is also effectively connected with a trade or business in the United States. Free tax filing 2011 Real Property Gain or Loss Gains and losses from the sale or exchange of U. Free tax filing 2011 S. Free tax filing 2011 real property interests (whether or not they are capital assets) are taxed as if you are engaged in a trade or business in the United States. Free tax filing 2011 You must treat the gain or loss as effectively connected with that trade or business. Free tax filing 2011 U. Free tax filing 2011 S. Free tax filing 2011 real property interest. Free tax filing 2011   This is any interest in real property located in the United States or the U. Free tax filing 2011 S. Free tax filing 2011 Virgin Islands or any interest (other than as a creditor) in a domestic corporation that is a U. Free tax filing 2011 S. Free tax filing 2011 real property holding corporation. Free tax filing 2011 Real property includes the following. Free tax filing 2011 Land and unsevered natural products of the land, such as growing crops and timber, and mines, wells, and other natural deposits. Free tax filing 2011 Improvements on land, including buildings, other permanent structures, and their structural components. Free tax filing 2011 Personal property associated with the use of real property, such as equipment used in farming, mining, forestry, or construction or property used in lodging facilities or rented office space, unless the personal property is: Disposed of more than one year before or after the disposition of the real property, or Separately sold to persons unrelated either to the seller or to the buyer of the real property. Free tax filing 2011 U. Free tax filing 2011 S. Free tax filing 2011 real property holding corporation. Free tax filing 2011   A corporation is a U. Free tax filing 2011 S. Free tax filing 2011 real property holding corporation if the fair market value of the corporation's U. Free tax filing 2011 S. Free tax filing 2011 real property interests are at least 50% of the total fair market value of: The corporation's U. Free tax filing 2011 S. Free tax filing 2011 real property interests, plus The corporation's interests in real property located outside the United States, plus The corporation's other assets that are used in, or held for use in, a trade or business. Free tax filing 2011   Gain or loss on the sale of the stock in any domestic corporation is taxed as if you are engaged in a U. Free tax filing 2011 S. Free tax filing 2011 trade or business unless you establish that the corporation is not a U. Free tax filing 2011 S. Free tax filing 2011 real property holding corporation. Free tax filing 2011   A U. Free tax filing 2011 S. Free tax filing 2011 real property interest does not include a class of stock of a corporation that is regularly traded on an established securities market, unless you hold more than 5% of the fair market value of that class of stock. Free tax filing 2011 An interest in a foreign corporation owning U. Free tax filing 2011 S. Free tax filing 2011 real property generally is not a U. Free tax filing 2011 S. Free tax filing 2011 real property interest unless the corporation chooses to be treated as a domestic corporation. Free tax filing 2011 Qualified investment entities. Free tax filing 2011   Special rules apply to qualified investment entities (QIEs). Free tax filing 2011 A QIE is any real estate investment trust (REIT) or any regulated investment company (RIC) that is a U. Free tax filing 2011 S. Free tax filing 2011 real property holding corporation. Free tax filing 2011    Generally, any distribution from a QIE to a shareholder that is attributable to gain from the sale or exchange of a U. Free tax filing 2011 S. Free tax filing 2011 real property interest is treated as a U. Free tax filing 2011 S. Free tax filing 2011 real property gain by the shareholder receiving the distribution. Free tax filing 2011 A distribution by a QIE on stock regularly traded on an established securities market in the United States is not treated as gain from the sale or exchange of a U. Free tax filing 2011 S. Free tax filing 2011 real property interest if you did not own more than 5% of that stock at any time during the 1-year period ending on the date of the distribution. Free tax filing 2011 A distribution that you do not treat as gain from the sale or exchange of a U. Free tax filing 2011 S. Free tax filing 2011 real property interest is included in your gross income as a regular dividend. Free tax filing 2011 Note. Free tax filing 2011 Beginning January 1, 2014 (unless extended by legislation), a RIC that is a U. Free tax filing 2011 S. Free tax filing 2011 real property holding corporation will only be treated as a QIE for certain distributions from the RIC that are directly or indirectly attributable to distributions received by the RIC from a REIT. Free tax filing 2011 Domestically controlled QIE. Free tax filing 2011   The sale of an interest in a domestically controlled QIE is not the sale of a U. Free tax filing 2011 S. Free tax filing 2011 real property interest. Free tax filing 2011 The entity is domestically controlled if at all times during the testing period less than 50% in value of its stock was held, directly or indirectly, by foreign persons. Free tax filing 2011 The testing period is the shorter of (a) the 5-year period ending on the date of disposition, or (b) the period during which the entity was in existence. Free tax filing 2011 Wash sale. Free tax filing 2011    If you dispose of an interest in a domestically controlled QIE in an applicable wash sale transaction, special rules apply. Free tax filing 2011 An applicable wash sale transaction is one in which you: Dispose of an interest in the domestically controlled QIE during the 30-day period before the ex-dividend date of a distribution that you would (but for the disposition) have treated as gain from the sale or exchange of a U. Free tax filing 2011 S. Free tax filing 2011 real property interest, and Acquire, or enter into a contract or option to acquire, a substantially identical interest in that entity during the 61-day period that began on the first day of the 30-day period. Free tax filing 2011 If this occurs, you are treated as having gain from the sale or exchange of a U. Free tax filing 2011 S. Free tax filing 2011 real property interest in an amount equal to the distribution made after June 15, 2006, that would have been treated as such gain. Free tax filing 2011 This also applies to any substitute dividend payment. Free tax filing 2011   A transaction is not treated as an applicable wash sale transaction if: You actually receive the distribution from the domestically controlled QIE related to the interest disposed of, or acquired, in the transaction, or You dispose of any class of stock in a QIE that is regularly traded on an established securities market in the United States but only if you did not own more than 5% of that class of stock at any time during the 1-year period ending on the date of the distribution. Free tax filing 2011 Alternative minimum tax. Free tax filing 2011   There may be a minimum tax on your net gain from the disposition of U. Free tax filing 2011 S. Free tax filing 2011 real property interests. Free tax filing 2011 Figure the amount of this tax, if any, on Form 6251. Free tax filing 2011 Withholding of tax. Free tax filing 2011   If you dispose of a U. Free tax filing 2011 S. Free tax filing 2011 real property interest, the buyer may have to withhold tax. Free tax filing 2011 See the discussion of Tax Withheld on Real Property Sales in chapter 8. Free tax filing 2011 Foreign Income You must treat three kinds of foreign source income as effectively connected with a trade or business in the United States if: You have an office or other fixed place of business in the United States to which the income can be attributed, That office or place of business is a material factor in producing the income, and The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. Free tax filing 2011 An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. Free tax filing 2011 The three kinds of foreign source income are listed below. Free tax filing 2011 Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the United States or from any interest in such property. Free tax filing 2011 Included are rents or royalties for the use, or for the privilege of using, outside the United States, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the United States. Free tax filing 2011 Dividends, interest, or amounts received for the provision of a guarantee of indebtedness issued after September 27, 2010, from the active conduct of a banking, financing, or similar business in the United States. Free tax filing 2011 A substitute dividend or interest payment received under a securities lending transaction or a sale-repurchase transaction is treated the same as the amounts received on the transferred security. Free tax filing 2011 Income, gain, or loss from the sale outside the United States, through the U. Free tax filing 2011 S. Free tax filing 2011 office or other fixed place of business, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. Free tax filing 2011 Item (3) will not apply if you sold the property for use, consumption, or disposition outside the United States and an office or other fixed place of business in a foreign country was a material factor in the sale. Free tax filing 2011 Any foreign source income that is equivalent to any item of income described above is treated as effectively connected with a U. Free tax filing 2011 S. Free tax filing 2011 trade or business. Free tax filing 2011 For example, foreign source interest and dividend equivalents are treated as U. Free tax filing 2011 S. Free tax filing 2011 effectively connected income if the income is derived by a foreign person in the active conduct of a banking, financing, or similar business within the United States. Free tax filing 2011 Tax on Effectively Connected Income Income you receive during the tax year that is effectively connected with your trade or business in the United States is, after allowable deductions, taxed at the rates that apply to U. Free tax filing 2011 S. Free tax filing 2011 citizens and residents. Free tax filing 2011 Generally, you can receive effectively connected income only if you are a nonresident alien engaged in trade or business in the United States during the tax year. Free tax filing 2011 However, income you receive from the sale or exchange of property, the performance of services, or any other transaction in another tax year is treated as effectively connected in that year if it would have been effectively connected in the year the transaction took place or you performed the services. Free tax filing 2011 Example. Free tax filing 2011 Ted Richards, a nonresident alien, entered the United States in August 2012, to perform personal services in the U. Free tax filing 2011 S. Free tax filing 2011 office of his overseas employer. Free tax filing 2011 He worked in the U. Free tax filing 2011 S. Free tax filing 2011 office until December 25, 2012, but did not leave this country until January 11, 2013. Free tax filing 2011 On January 8, 2013, he received his final paycheck for services performed in the United States during 2012. Free tax filing 2011 All of Ted's income during his stay here is U. Free tax filing 2011 S. Free tax filing 2011 source income. Free tax filing 2011 During 2012, Ted was engaged in the trade or business of performing personal services in the United States. Free tax filing 2011 Therefore, all amounts paid to him in 2012 for services performed in the United States during 2012 are effectively connected with that trade or business during 2012. Free tax filing 2011 The salary payment Ted received in January 2013 is U. Free tax filing 2011 S. Free tax filing 2011 source income to him in 2013. Free tax filing 2011 It is effectively connected with a trade or business in the United States because he was engaged in a trade or business in the United States during 2012 when he performed the services that earned the income. Free tax filing 2011 Real property income. Free tax filing 2011   You may be able to choose to treat all income from real property as effectively connected. Free tax filing 2011 See Income From Real Property , later, in this chapter. Free tax filing 2011 The 30% Tax Tax at a 30% (or lower treaty) rate applies to certain items of income or gains from U. Free tax filing 2011 S. Free tax filing 2011 sources but only if the items are not effectively connected with your U. Free tax filing 2011 S. Free tax filing 2011 trade or business. Free tax filing 2011 Fixed or Determinable Income The 30% (or lower treaty) rate applies to the gross amount of U. Free tax filing 2011 S. Free tax filing 2011 source fixed or determinable annual or periodic gains, profits, or income. Free tax filing 2011 Income is fixed when it is paid in amounts known ahead of time. Free tax filing 2011 Income is determinable whenever there is a basis for figuring the amount to be paid. Free tax filing 2011 Income can be periodic if it is paid from time to time. Free tax filing 2011 It does not have to be paid annually or at regular intervals. Free tax filing 2011 Income can be determinable or periodic even if the length of time during which the payments are made is increased or decreased. Free tax filing 2011 Items specifically included as fixed or determinable income are interest (other than original issue discount), dividends, dividend equivalent payments (defined in chapter 2), rents, premiums, annuities, salaries, wages, and other compensation. Free tax filing 2011 A substitute dividend or interest payment received under a securities lending transaction or a sale-repurchase transaction is treated the same as the amounts received on the transferred security. Free tax filing 2011 Other items of income, such as royalties, also may be subject to the 30% tax. Free tax filing 2011 Some fixed or determinable income may be exempt from U. Free tax filing 2011 S. Free tax filing 2011 tax. Free tax filing 2011 See chapter 3 if you are not sure whether the income is taxable. Free tax filing 2011 Original issue discount (OID). Free tax filing 2011   If you sold, exchanged, or received a payment on a bond or other debt instrument that was issued at a discount after March 31, 1972, all or part of the original issue discount (OID) (other than portfolio interest) may be subject to the 30% tax. Free tax filing 2011 The amount of OID is the difference between the stated redemption price at maturity and the issue price of the debt instrument. Free tax filing 2011 The 30% tax applies in the following circumstances. Free tax filing 2011 You received a payment on a debt instrument. Free tax filing 2011 In this case, the amount of OID subject to tax is the OID that accrued while you held the debt instrument minus the OID previously taken into account. Free tax filing 2011 But the tax on the OID cannot be more than the payment minus the tax on the interest payment on the debt instrument. Free tax filing 2011 You sold or exchanged the debt instrument. Free tax filing 2011 The amount of OID subject to tax is the OID that accrued while you held the debt instrument minus the amount already taxed in (1) above. Free tax filing 2011   Report on your return the amount of OID shown on Form 1042-S, Foreign Person's U. Free tax filing 2011 S. Free tax filing 2011 Source Income Subject to Withholding, if you bought the debt instrument at original issue. Free tax filing 2011 However, you must recompute your proper share of OID shown on Form 1042-S if any of the following apply. Free tax filing 2011 You bought the debt instrument at a premium or paid an acquisition premium. Free tax filing 2011 The debt instrument is a stripped bond or a stripped coupon (including zero coupon instruments backed by U. Free tax filing 2011 S. Free tax filing 2011 Treasury securities). Free tax filing 2011 The debt instrument is a contingent payment or inflation-indexed debt instrument. Free tax filing 2011 For the definition of premium and acquisition premium and instructions on how to recompute OID, get Publication 1212. Free tax filing 2011   If you held a bond or other debt instrument that was issued at a discount before April 1, 1972, contact the IRS for further information. Free tax filing 2011 See chapter 12. Free tax filing 2011 Gambling Winnings In general, nonresident aliens are subject to the 30% tax on the gross proceeds from gambling won in the United States if that income is not effectively connected with a U. Free tax filing 2011 S. Free tax filing 2011 trade or business and is not exempted by treaty. Free tax filing 2011 However, no tax is imposed on nonbusiness gambling income a nonresident alien wins playing blackjack, baccarat, craps, roulette, or big-6 wheel in the United States. Free tax filing 2011 Nonresident aliens are taxed at graduated rates on net gambling income won in the United States that is effectively connected with a U. Free tax filing 2011 S. Free tax filing 2011 trade or business. Free tax filing 2011 Social Security Benefits A nonresident alien must include 85% of any U. Free tax filing 2011 S. Free tax filing 2011 social security benefit (and the social security equivalent part of a tier 1 railroad retirement benefit) in U. Free tax filing 2011 S. Free tax filing 2011 source fixed or determinable annual or periodic income. Free tax filing 2011 Social security benefits include monthly retirement, survivor, and disability benefits. Free tax filing 2011 This income is exempt under some tax treaties. Free tax filing 2011 See Table 1 in Publication 901, U. Free tax filing 2011 S. Free tax filing 2011 Tax Treaties, for a list of tax treaties that exempt U. Free tax filing 2011 S. Free tax filing 2011 social security benefits from U. Free tax filing 2011 S. Free tax filing 2011 tax. Free tax filing 2011 Sales or Exchanges of Capital Assets These rules apply only to those capital gains and losses from sources in the United States that are not effectively connected with a trade or business in the United States. Free tax filing 2011 They apply even if you are engaged in a trade or business in the United States. Free tax filing 2011 These rules do not apply to the sale or exchange of a U. Free tax filing 2011 S. Free tax filing 2011 real property interest or to the sale of any property that is effectively connected with a trade or business in the United States. Free tax filing 2011 See Real Property Gain or Loss , earlier, under Effectively Connected Income. Free tax filing 2011 A capital asset is everything you own except: Inventory. Free tax filing 2011 Business accounts or notes receivable. Free tax filing 2011 Depreciable property used in a trade or business. Free tax filing 2011 Real property used in a trade or business. Free tax filing 2011 Supplies regularly used in a trade or business. Free tax filing 2011 Certain copyrights, literary or musical or artistic compositions, letters or memoranda, or similar property. Free tax filing 2011 Certain U. Free tax filing 2011 S. Free tax filing 2011 government publications. Free tax filing 2011 Certain commodities derivative financial instruments held by a commodities derivatives dealer. Free tax filing 2011 Hedging transactions. Free tax filing 2011 A capital gain is a gain on the sale or exchange of a capital asset. Free tax filing 2011 A capital loss is a loss on the sale or exchange of a capital asset. Free tax filing 2011 If the sale is in foreign currency, for the purpose of determining gain, the cost and selling price of the property should be expressed in U. Free tax filing 2011 S. Free tax filing 2011 currency at the rate of exchange prevailing as of the date of the purchase and date of the sale, respectively. Free tax filing 2011 You may want to read Publication 544. Free tax filing 2011 However, use Publication 544 only to determine what is a sale or exchange of a capital asset, or what is treated as such. Free tax filing 2011 Specific tax treatment that applies to U. Free tax filing 2011 S. Free tax filing 2011 citizens or residents generally does not apply to you. Free tax filing 2011 The following gains are subject to the 30% (or lower treaty) rate without regard to the 183-day rule, discussed later. Free tax filing 2011 Gains on the disposal of timber, coal, or domestic iron ore with a retained economic interest. Free tax filing 2011 Gains on contingent payments received from the sale or exchange of patents, copyrights, and similar property after October 4, 1966. Free tax filing 2011 Gains on certain transfers of all substantial rights to, or an undivided interest in, patents if the transfers were made before October 5, 1966. Free tax filing 2011 Gains on the sale or exchange of original issue discount obligations. Free tax filing 2011 Gains in (1) are not subject to the 30% (or lower treaty) rate if you choose to treat the gains as effectively connected with a U. Free tax filing 2011 S. Free tax filing 2011 trade or business. Free tax filing 2011 See Income From Real Property , later. Free tax filing 2011 183-day rule. Free tax filing 2011   If you were in the United States for 183 days or more during the tax year, your net gain from sales or exchanges of capital assets is taxed at a 30% (or lower treaty) rate. Free tax filing 2011 For purposes of the 30% (or lower treaty) rate, net gain is the excess of your capital gains from U. Free tax filing 2011 S. Free tax filing 2011 sources over your capital losses from U. Free tax filing 2011 S. Free tax filing 2011 sources. Free tax filing 2011 This rule applies even if any of the transactions occurred while you were not in the United States. Free tax filing 2011   To determine your net gain, consider the amount of your gains and losses that would be recognized and taken into account only if, and to the extent that, they would be recognized and taken into account if you were in a U. Free tax filing 2011 S. Free tax filing 2011 trade or business during the year and the gains and losses were effectively connected with that trade or business during the tax year. Free tax filing 2011   In arriving at your net gain, do not take the following into consideration. Free tax filing 2011 The four types of gains listed earlier. Free tax filing 2011 The deduction for a capital loss carryover. Free tax filing 2011 Capital losses in excess of capital gains. Free tax filing 2011 Exclusion for gain from the sale or exchange of qualified small business stock (section 1202 exclusion). Free tax filing 2011 Losses from the sale or exchange of property held for personal use. Free tax filing 2011 However, losses resulting from casualties or thefts may be deductible on Schedule A (Form 1040NR). Free tax filing 2011 See Itemized Deductions in chapter 5. Free tax filing 2011   If you are not engaged in a trade or business in the United States and have not established a tax year for a prior period, your tax year will be the calendar year for purposes of the 183-day rule. Free tax filing 2011 Also, you must file your tax return on a calendar-year basis. Free tax filing 2011   If you were in the United States for less than 183 days during the tax year, capital gains (other than gains listed earlier) are tax exempt unless they are effectively connected with a trade or business in the United States during your tax year. Free tax filing 2011 Reporting. Free tax filing 2011   Report your gains and losses from the sales or exchanges of capital assets that are not effectively connected with a trade or business in the United States on page 4 of Form 1040NR. Free tax filing 2011 Report gains and losses from sales or exchanges of capital assets (including real property) that are effectively connected with a trade or business in the United States on a separate Schedule D (Form 1040), Form 4797, or both. Free tax filing 2011 Attach them to Form 1040NR. Free tax filing 2011 Income From Real Property If you have income from real property located in the United States that you own or have an interest in and hold for the production of income, you can choose to treat all income from that property as income effectively connected with a trade or business in the United States. Free tax filing 2011 The choice applies to all income from real property located in the United States and held for the production of income and to all income from any interest in such property. Free tax filing 2011 This includes income from rents, royalties from mines, oil or gas wells, or other natural resources. Free tax filing 2011 It also includes gains from the sale or exchange of timber, coal, or domestic iron ore with a retained economic interest. Free tax filing 2011 You can make this choice only for real property income that is not otherwise effectively connected with your U. Free tax filing 2011 S. Free tax filing 2011 trade or business. Free tax filing 2011 If you make the choice, you can claim deductions attributable to the real property income and only your net income from real property is taxed. Free tax filing 2011 This choice does not treat a nonresident alien, who is not otherwise engaged in a U. Free tax filing 2011 S. Free tax filing 2011 trade or business, as being engaged in a trade or business in the United States during the year. Free tax filing 2011 Example. Free tax filing 2011 You are a nonresident alien and are not engaged in a U. Free tax filing 2011 S. Free tax filing 2011 trade or business. Free tax filing 2011 You own a single-family house in the United States that you rent out. Free tax filing 2011 Your rental income for the year is $10,000. Free tax filing 2011 This is your only U. Free tax filing 2011 S. Free tax filing 2011 source income. Free tax filing 2011 As discussed earlier under The 30% Tax, the rental income is subject to a tax at a 30% (or lower treaty) rate. Free tax filing 2011 You received a Form 1042-S showing that your tenants properly withheld this tax from the rental income. Free tax filing 2011 You do not have to file a U. Free tax filing 2011 S. Free tax filing 2011 tax return (Form 1040NR) because your U. Free tax filing 2011 S. Free tax filing 2011 tax liability is satisfied by the withholding of tax. Free tax filing 2011 If you make the choice discussed earlier, you can offset the $10,000 income by certain rental expenses. Free tax filing 2011 (See Publication 527, Residential Rental Property, for information on rental expenses. Free tax filing 2011 ) Any resulting net income is taxed at graduated rates. Free tax filing 2011 If you make this choice, report the rental income and expenses on Schedule E (Form 1040) and attach the schedule to Form 1040NR. Free tax filing 2011 For the first year you make the choice, also attach the statement discussed next. Free tax filing 2011 Making the choice. Free tax filing 2011   Make the initial choice by attaching a statement to your return, or amended return, for the year of the choice. Free tax filing 2011 Include the following in your statement. Free tax filing 2011 That you are making the choice. Free tax filing 2011 Whether the choice is under Internal Revenue Code section 871(d) (explained earlier) or a tax treaty. Free tax filing 2011 A complete list of all your real property, or any interest in real property, located in the United States. Free tax filing 2011 Give the legal identification of U. Free tax filing 2011 S. Free tax filing 2011 timber, coal, or iron ore in which you have an interest. Free tax filing 2011 The extent of your ownership in the property. Free tax filing 2011 The location of the property. Free tax filing 2011 A description of any major improvements to the property. Free tax filing 2011 The dates you owned the property. Free tax filing 2011 Your income from the property. Free tax filing 2011 Details of any previous choices and revocations of the real property income choice. Free tax filing 2011   This choice stays in effect for all later tax years unless you revoke it. Free tax filing 2011 Revoking the choice. Free tax filing 2011   You can revoke the choice without IRS approval by filing Form 1040X, Amended U. Free tax filing 2011 S. Free tax filing 2011 Individual Income Tax Return, for the year you made the choice and for later tax years. Free tax filing 2011 You must file Form 1040X within 3 years from the date your return was filed or 2 years from the time the tax was paid, whichever is later. Free tax filing 2011 If this time period has expired for the year of choice, you cannot revoke the choice for that year. Free tax filing 2011 However, you may revoke the choice for later tax years only if you have IRS approval. Free tax filing 2011 For information on how to get IRS approval, see Regulation section 1. Free tax filing 2011 871-10(d)(2). Free tax filing 2011 Transportation Tax A 4% tax rate applies to transportation income that is not effectively connected because it does not meet the two conditions listed earlier under Transportation Income . Free tax filing 2011 If you receive transportation income subject to the 4% tax, you should figure the tax and show it on line 57 of Form 1040NR. Free tax filing 2011 Attach a statement to your return that includes the following information (if applicable). Free tax filing 2011 Your name, taxpayer identification number, and tax year. Free tax filing 2011 A description of the types of services performed (whether on or off board). Free tax filing 2011 Names of vessels or registration numbers of aircraft on which you performed the services. Free tax filing 2011 Amount of U. Free tax filing 2011 S. Free tax filing 2011 source transportation income derived from each type of service for each vessel or aircraft for the calendar year. Free tax filing 2011 Total amount of U. Free tax filing 2011 S. Free tax filing 2011 source transportation income derived from all types of services for the calendar year. Free tax filing 2011 This 4% tax applies to your U. Free tax filing 2011 S. Free tax filing 2011 source gross transportation income. Free tax filing 2011 This only includes transportation income that is treated as derived from sources in the United States if the transportation begins or ends in the United States. Free tax filing 2011 For transportation income from personal services, the transportation must be between the United States and a U. Free tax filing 2011 S. Free tax filing 2011 possession. Free tax filing 2011 For personal services of a nonresident alien, this only applies to income derived from, or in connection with, an aircraft. Free tax filing 2011 Interrupted Period of Residence You are subject to tax under a special rule if you interrupt your period of U. Free tax filing 2011 S. Free tax filing 2011 residence with a period of nonresidence. Free tax filing 2011 The special rule applies if you meet all of the following conditions. Free tax filing 2011 You were a U. Free tax filing 2011 S. Free tax filing 2011 resident for a period that includes at least 3 consecutive calendar years. Free tax filing 2011 You were a U. Free tax filing 2011 S. Free tax filing 2011 resident for at least 183 days in each of those years. Free tax filing 2011 You ceased to be treated as a U. Free tax filing 2011 S. Free tax filing 2011 resident. Free tax filing 2011 You then again became a U. Free tax filing 2011 S. Free tax filing 2011 resident before the end of the third calendar year after the end of the period described in (1) above. Free tax filing 2011 Under this special rule, you are subject to tax on your U. Free tax filing 2011 S. Free tax filing 2011 source gross income and gains on a net basis at the graduated rates applicable to individuals (with allowable deductions) for the period you were a nonresident alien, unless you would be subject to a higher tax under the 30% tax (discussed earlier) on income not connected with a U. Free tax filing 2011 S. Free tax filing 2011 trade or business. Free tax filing 2011 For information on how to figure the special tax, see How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) under Expatriation Tax , below. Free tax filing 2011 Example. Free tax filing 2011 John Willow, a citizen of New Zealand, entered the United States on April 1, 2008, as a lawful permanent resident. Free tax filing 2011 On August 1, 2010, John ceased to be a lawful permanent resident and returned to New Zealand. Free tax filing 2011 During his period of residence, he was present in the United States for at least 183 days in each of three consecutive years (2008, 2009, and 2010). Free tax filing 2011 He returned to the United States on October 5, 2013, as a lawful permanent resident. Free tax filing 2011 He became a resident before the close of the third calendar year (2013) beginning after the end of his first period of residence (August 1, 2010). Free tax filing 2011 Therefore, he is subject to tax under the special rule for the period of nonresidence (August 2, 2010, through October 4, 2013) if it is more than the tax that would normally apply to him as a nonresident alien. Free tax filing 2011 Reporting requirements. Free tax filing 2011   If you are subject to this tax for any year in the period you were a nonresident alien, you must file Form 1040NR for that year. Free tax filing 2011 The return is due by the due date (including extensions) for filing your U. Free tax filing 2011 S. Free tax filing 2011 income tax return for the year that you again become a U. Free tax filing 2011 S. Free tax filing 2011 resident. Free tax filing 2011 If you already filed returns for that period, you must file amended returns. Free tax filing 2011 You must attach a statement to your return that identifies the source of all of your U. Free tax filing 2011 S. Free tax filing 2011 and foreign gross income and the items of income subject to this special rule. Free tax filing 2011 Expatriation Tax The expatriation tax provisions apply to U. Free tax filing 2011 S. Free tax filing 2011 citizens who have renounced their citizenship and long-term residents who have ended their residency. Free tax filing 2011 The rules that apply are based on the dates of expatriation, which are described in the following sections. Free tax filing 2011 Expatriation Before June 4, 2004. Free tax filing 2011 Expatriation After June 3, 2004, and Before June 17, 2008. Free tax filing 2011 Expatriation After June 16, 2008. Free tax filing 2011 Long-term resident defined. Free tax filing 2011   You are a long-term resident if you were a lawful permanent resident of the United States in at least 8 of the last 15 tax years ending with the year your residency ends. Free tax filing 2011 In determining if you meet the 8-year requirement, do not count any year that you are treated as a resident of a foreign country under a tax treaty and do not waive treaty benefits. Free tax filing 2011 Expatriation Before June 4, 2004 If you expatriated before June 4, 2004, the expatriation rules apply if one of the principal purposes of the action is the avoidance of U. Free tax filing 2011 S. Free tax filing 2011 taxes. Free tax filing 2011 Unless you received a ruling from the IRS that you did not expatriate to avoid U. Free tax filing 2011 S. Free tax filing 2011 taxes, you are presumed to have tax avoidance as a principal purpose if: Your average annual net income tax for the last 5 tax years ending before the date of your action to relinquish your citizenship or terminate your residency was more than $100,000, or Your net worth on the date of your action was $500,000 or more. Free tax filing 2011 The amounts above are adjusted for inflation if your expatriation action is after 1997 (see Table 4-1). Free tax filing 2011 Table 4-1. Free tax filing 2011 Inflation-Adjusted Amounts for Expatriation Actions Before June 4, 2004 IF you expatriated during . Free tax filing 2011 . Free tax filing 2011 . Free tax filing 2011   THEN the rules outlined on this page apply if . Free tax filing 2011 . Free tax filing 2011 . Free tax filing 2011     Your 5-year average annual net income tax was more than . Free tax filing 2011 . Free tax filing 2011 . Free tax filing 2011 OR Your net worth equaled or exceeded . Free tax filing 2011 . Free tax filing 2011 . Free tax filing 2011 1999   110,000   552,000 2000   112,000   562,000 2001   116,000   580,000 2002   120,000   599,000 2003   122,000   608,000 2004 (before June 4)*   124,000   622,000 *If you expatriated after June 3, 2004, see Expatriation After June 3, 2004, and Before June 17, 2008 or Expatriation After June 16, 2008. Free tax filing 2011 Reporting requirements. Free tax filing 2011   If you lost your U. Free tax filing 2011 S. Free tax filing 2011 citizenship, you should have filed Form 8854 with a consular office or a federal court at the time of loss of citizenship. Free tax filing 2011 If you ended your long-term residency, you should have filed Form 8854 with the Internal Revenue Service when you filed your dual-status tax return for the year your residency ended. Free tax filing 2011   Your U. Free tax filing 2011 S. Free tax filing 2011 residency is considered to have ended when you ceased to be a lawful permanent resident or you began to be treated as a resident of another country under a tax treaty and do not waive treaty benefits. Free tax filing 2011 Penalties. Free tax filing 2011   If you failed to file Form 8854, you may have to pay a penalty equal to the greater of 5% of the expatriation tax or $1,000. Free tax filing 2011 The penalty will be assessed for each year of the 10-year period beginning on the date of expatriation during which your failure to file continues. Free tax filing 2011 The penalty will not be imposed if you can show that the failure is due to reasonable cause and not willful neglect. Free tax filing 2011 Expatriation tax. Free tax filing 2011   The expatriation tax applies to the 10-year period following the date of expatriation or termination of residency. Free tax filing 2011 It is figured in the same way as for those expatriating after June 3, 2004, and before June 17, 2008. Free tax filing 2011 See How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) in the next section. Free tax filing 2011 Expatriation After June 3, 2004, and Before June 17, 2008 If you expatriated after June 3, 2004, and before June 17, 2008, the expatriation rules apply to you if any of the following statements apply. Free tax filing 2011 Your average annual net income tax for the 5 tax years ending before the date of expatriation or termination of residency is more than: $124,000 if you expatriated or terminated residency in 2004. Free tax filing 2011 $127,000 if you expatriated or terminated residency in 2005. Free tax filing 2011 $131,000 if you expatriated or terminated residency in 2006. Free tax filing 2011 $136,000 if you expatriated or terminated residency in 2007. Free tax filing 2011 $139,000 if you expatriated or terminated residency in 2008. Free tax filing 2011 Your net worth is $2 million or more on the date of your expatriation or termination of residency. Free tax filing 2011 You fail to certify on Form 8854 that you have complied with all U. Free tax filing 2011 S. Free tax filing 2011 federal tax obligations for the 5 tax years preceding the date of your expatriation or termination of residency. Free tax filing 2011 Exception for dual-citizens and certain minors. Free tax filing 2011   Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) earlier. Free tax filing 2011 However, they still must provide the certification required in (3). Free tax filing 2011 Certain dual-citizens. Free tax filing 2011   You may qualify for the exception described above if all of the following apply. Free tax filing 2011 You became at birth a U. Free tax filing 2011 S. Free tax filing 2011 citizen and a citizen of another country and you continue to be a citizen of that other country. Free tax filing 2011 You were never a resident alien of the United States (as defined in chapter 1). Free tax filing 2011 You never held a U. Free tax filing 2011 S. Free tax filing 2011 passport. Free tax filing 2011 You were present in the United States for no more than 30 days during any calendar year that is 1 of the 10 calendar years preceding your loss of U. Free tax filing 2011 S. Free tax filing 2011 citizenship. Free tax filing 2011 Certain minors. Free tax filing 2011   You may qualify for the exception described above if you meet all of the following requirements. Free tax filing 2011 You became a U. Free tax filing 2011 S. Free tax filing 2011 citizen at birth. Free tax filing 2011 Neither of your parents was a U. Free tax filing 2011 S. Free tax filing 2011 citizen at the time of your birth. Free tax filing 2011 You expatriated before you were 18½. Free tax filing 2011 You were present in the United States for not more than 30 days during any calendar year that is 1 of the 10 calendar years preceding your expatriation. Free tax filing 2011 Tax consequences of presence in the United States. Free tax filing 2011   The following rules apply if you do not meet the exception above for dual-citizens and certain minors and the expatriation rules would otherwise apply to you. Free tax filing 2011   The expatriation tax does not apply to any tax year during the 10-year period if you are physically present in the United States for more than 30 days during the calendar year ending in that year. Free tax filing 2011 Instead, you are treated as a U. Free tax filing 2011 S. Free tax filing 2011 citizen or resident and taxed on your worldwide income for that tax year. Free tax filing 2011 You must file Form 1040, 1040A, or 1040EZ and figure your tax as prescribed in the instructions for those forms. Free tax filing 2011   When counting the number of days of presence during a calendar year, count any day you were physically present in the United States at any time during the day. Free tax filing 2011 However, do not count any days (up to a limit of 30 days) on which you performed personal services in the United States for an employer who is not related to you if either of the following apply. Free tax filing 2011 You have ties with other countries. Free tax filing 2011 You have ties with other countries if: You became (within a reasonable period after your expatriation or termination of residency) a citizen or resident of the country in which you, your spouse, or either of your parents were born, and You became fully liable for income tax in that country. Free tax filing 2011 You were physically present in the United States for 30 days or less during each year in the 10-year period ending on the date of expatriation or termination of residency. Free tax filing 2011 Do not count any day you were an exempt individual or were unable to leave the United States because of a medical condition that arose while you were in the United States. Free tax filing 2011 See Exempt individual and Medical condition in chapter 1 under Substantial Presence Test, but disregard the information about Form 8843. Free tax filing 2011 Related employer. Free tax filing 2011   If your employer in the United States is any of the following, then your employer is related to you. Free tax filing 2011 You must count any days you performed services in the United States for that employer as days of presence in the United States. Free tax filing 2011 Members of your family. Free tax filing 2011 This includes only your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc. Free tax filing 2011 ), and lineal descendants (children, grandchildren, etc. Free tax filing 2011 ). Free tax filing 2011 A partnership in which you directly or indirectly own more than 50% of the capital interest or the profits interest. Free tax filing 2011 A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock. Free tax filing 2011 (See Publication 550, chapter 4, Constructive ownership of stock, for how to determine whether you directly or indirectly own outstanding stock. Free tax filing 2011 ) A tax-exempt charitable or educational organization that is directly or indirectly controlled, in any manner or by any method, by you or by a member of your family, whether or not this control is legally enforceable. Free tax filing 2011 Date of tax expatriation. Free tax filing 2011   For purposes of U. Free tax filing 2011 S. Free tax filing 2011 tax rules, the date of your expatriation or termination of residency is the later of the dates on which you perform the following actions. Free tax filing 2011 You notify either the Department of State or the Department of Homeland Security (whichever is appropriate) of your expatriating act or termination of residency. Free tax filing 2011 You file Form 8854 in accordance with the form instructions. Free tax filing 2011 Annual return. Free tax filing 2011   If the expatriation tax applies to you, you must file Form 8854 each year during the 10-year period following the date of expatriation. Free tax filing 2011 You must file this form even if you owe no U. Free tax filing 2011 S. Free tax filing 2011 tax. Free tax filing 2011 Penalty. Free tax filing 2011   If you fail to file Form 8854 for any tax year, fail to include all information required to be shown on the form, or include incorrect information, you may have to pay a penalty of $10,000. Free tax filing 2011 You will not have to pay a penalty if you show that the failure is due to reasonable cause and not to willful neglect. Free tax filing 2011 How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) If the expatriation tax applies to you, you are generally subject to tax on your U. Free tax filing 2011 S. Free tax filing 2011 source gross income and gains on a net basis at the graduated rates applicable to individuals (with allowable deductions) unless you would be subject to a higher tax under the 30% tax (discussed earlier) on income not connected with a U. Free tax filing 2011 S. Free tax filing 2011 trade or business. Free tax filing 2011 For this purpose, U. Free tax filing 2011 S. Free tax filing 2011 source gross income (defined in chapter 2) includes gains from the sale or exchange of: Property (other than stock or debt obligations) located in the United States, Stock issued by a U. Free tax filing 2011 S. Free tax filing 2011 domestic corporation, and Debt obligations of U. Free tax filing 2011 S. Free tax filing 2011 persons or of the United States, a state or political subdivision thereof, or the District of Columbia. Free tax filing 2011 U. Free tax filing 2011 S. Free tax filing 2011 source income also includes any income or gain derived from stock in certain controlled foreign corporations if you owned, or were considered to own, at any time during the 2-year period ending on the date of expatriation, more than 50% of: The total combined voting power of all classes of that corporation's stock, or The total value of the stock. Free tax filing 2011 The income or gain is considered U. Free tax filing 2011 S. Free tax filing 2011 source income only to the extent of your share of earnings and profits earned or accumulated before the date of expatriation and during the periods you met the ownership requirements discussed above. Free tax filing 2011 Any exchange of property is treated as a sale of the property at its fair market value on the date of the exchange and any gain is treated as U. Free tax filing 2011 S. Free tax filing 2011 source gross income in the tax year of the exchange unless you enter into a gain recognition agreement under Notice 97-19. Free tax filing 2011 Other information. Free tax filing 2011   For more information on the expatriation tax provisions, including exceptions to the tax and special U. Free tax filing 2011 S. Free tax filing 2011 source rules, see section 877 of the Internal Revenue Code. Free tax filing 2011 Expatriation Tax Return If you expatriated or terminated your U. Free tax filing 2011 S. Free tax filing 2011 residency, or you are subject to the expatriation tax, you must file Form 8854, Initial and Annual Expatriation Statement. Free tax filing 2011 Attach it to Form 1040NR if you are required to file that form. Free tax filing 2011 If you are present in the United States following your expatriation and are subject to tax as a U. Free tax filing 2011 S. Free tax filing 2011 citizen or resident, file Form 8854 with Form 1040. Free tax filing 2011 Expatriation After June 16, 2008 If you expatriated after June 16, 2008, the expatriation rules apply to you if you meet any of the following conditions. Free tax filing 2011 Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than: $139,000 if you expatriated or terminated residency in 2008. Free tax filing 2011 $145,000 if you expatriated or terminated residency in 2009 or 2010. Free tax filing 2011 $147,000 if you expatriated or terminated residency in 2011. Free tax filing 2011 $151,000 if you expatriated or terminated residency in 2012. Free tax filing 2011 $155,000 if you expatriated or terminated residency in 2013. Free tax filing 2011 Your net worth is $2 million or more on the date of your expatriation or termination of residency. Free tax filing 2011 You fail to certify on Form 8854 that you have complied with all U. Free tax filing 2011 S. Free tax filing 2011 federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency. Free tax filing 2011 Exception for dual-citizens and certain minors. Free tax filing 2011   Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) above. Free tax filing 2011 However, they still must provide the certification required in (3) above. Free tax filing 2011 Certain dual-citizens. Free tax filing 2011   You may qualify for the exception described above if both of the following apply. Free tax filing 2011 You became at birth a U. Free tax filing 2011 S. Free tax filing 2011 citizen and a citizen of another country and you continue to be a citizen of, and are taxed as a resident of, that other country. Free tax filing 2011 You have been a resident of the United States for not more than 10 years during the 15-year tax period ending with the tax year during which the expatriation occurs. Free tax filing 2011 For the purpose of determining U. Free tax filing 2011 S. Free tax filing 2011 residency, use the substantial presence test described in chapter 1. Free tax filing 2011 Certain minors. Free tax filing 2011   You may qualify for the exception described earlier if you meet both of the following requirements. Free tax filing 2011 You expatriated before you were 18½. Free tax filing 2011 You have been a resident of the United States for not more than 10 tax years before the expatriation occurs. Free tax filing 2011 For the purpose of determining U. Free tax filing 2011 S. Free tax filing 2011 residency, use the substantial presence test described in chapter 1. Free tax filing 2011 Expatriation date. Free tax filing 2011   Your expatriation date is the date you relinquish U. Free tax filing 2011 S. Free tax filing 2011 citizenship (in the case of a former citizen) or terminate your long-term residency (in the case of a former U. Free tax filing 2011 S. Free tax filing 2011 resident). Free tax filing 2011 Former U. Free tax filing 2011 S. Free tax filing 2011 citizen. Free tax filing 2011   You are considered to have relinquished your U. Free tax filing 2011 S. Free tax filing 2011 citizenship on the earliest of the following dates. Free tax filing 2011 The date you renounced U. Free tax filing 2011 S. Free tax filing 2011 citizenship before a diplomatic or consular officer of the United States (provided that the voluntary renouncement was later confirmed by the issuance of a certificate of loss of nationality). Free tax filing 2011 The date you furnished to the State Department a signed statement of voluntary relinquishment of U. Free tax filing 2011 S. Free tax filing 2011 nationality confirming the performance of an expatriating act (provided that the voluntary relinquishment was later confirmed by the issuance of a certificate of loss of nationality). Free tax filing 2011 The date the State Department issued a certificate of loss of nationality. Free tax filing 2011 The date that a U. Free tax filing 2011 S. Free tax filing 2011 court canceled your certificate of naturalization. Free tax filing 2011 Former long-term resident. Free tax filing 2011   You are considered to have terminated your long-term residency on the earliest of the following dates. Free tax filing 2011 The date you voluntarily relinquished your lawful permanent resident status by filing Department of Homeland Security Form I-407 with a U. Free tax filing 2011 S. Free tax filing 2011 consular or immigration officer, and the Department of Homeland Security determined that you have, in fact, abandoned your lawful permanent resident status. Free tax filing 2011 The date you became subject to a final administrative order for your removal from the United States under the Immigration and Nationality Act and you actually left the United States as a result of that order. Free tax filing 2011 If you were a dual resident of the United States and a country with which the United States has an income tax treaty, the date you began to be treated as a resident of that country and you determined that, for purposes of the treaty, you are a resident of the treaty country and notify the IRS of that treatment on Forms 8833 and 8854. Free tax filing 2011 See Effect of Tax Treaties in chapter 1 for more information about dual residents. Free tax filing 2011 How To Figure the Expatriation Tax (If You Expatriate After June 16, 2008) In the year you expatriate, you are subject to income tax on the net unrealized gain (or loss) in your property as if the property had been sold for its fair market value on the day before your expatriation date (“mark-to-market tax”). Free tax filing 2011 This applies to most types of property interests you held on the date of relinquishment of citizenship or termination of residency. Free tax filing 2011 But see Exceptions , later. Free tax filing 2011 Gains arising from deemed sales must be taken into account for the tax year of the deemed sale without regard to other U. Free tax filing 2011 S. Free tax filing 2011 internal revenue laws. Free tax filing 2011 Losses from deemed sales must be taken into account to the extent otherwise provided under U. Free tax filing 2011 S. Free tax filing 2011 internal revenue laws. Free tax filing 2011 However, Internal Revenue Code section 1091 (relating to the disallowance of losses on wash sales of stock and securities) does not apply. Free tax filing 2011 The net gain that you otherwise must include in your income is reduced (but not below zero) by: $600,000 if you expatriated or terminated residency before January 1, 2009. Free tax filing 2011 $626,000 if you expatriated or terminated residency in 2009. Free tax filing 2011 $627,000 if you expatriated or terminated residency in 2010. Free tax filing 2011 $636,000 if you expatriated or terminated residency in 2011. Free tax filing 2011 $651,000 if you expatriated or terminated residency in 2012. Free tax filing 2011 $668,000 if you expatriated or terminated residency in 2013. Free tax filing 2011 Exceptions. Free tax filing 2011   The mark-to-market tax does not apply to the following. Free tax filing 2011 Eligible deferred compensation items. Free tax filing 2011 Ineligible deferred compensation items. Free tax filing 2011 Interests in nongrantor trusts. Free tax filing 2011 Specified tax deferred accounts. Free tax filing 2011 Instead, items (1) and (3) may be subject to withholding at source. Free tax filing 2011 In the case of item (2), you are treated as receiving the present value of your accrued benefit as of the day before the expatriation date. Free tax filing 2011 In the case of item (4), you are treated as receiving a distribution of your entire interest in the account on the day before your expatriation date. Free tax filing 2011 See paragraphs (d), (e), and (f) of section 877A for more information. Free tax filing 2011 Expatriation Tax Return If you expatriated or terminated your U. Free tax filing 2011 S. Free tax filing 2011 residency, or you are subject to the expatriation rules (as discussed earlier in the first paragraph under Expatriation After June 16, 2008), you must file Form 8854. Free tax filing 2011 Attach it to Form 1040 or Form 1040NR if you are required to file either of those forms. Free tax filing 2011 Deferral of payment of mark-to-market tax. Free tax filing 2011   You can make an irrevocable election to defer payment of the mark-to-market tax imposed on the deemed sale of property. Free tax filing 2011 If you make this election, the following rules apply. Free tax filing 2011 You can make the election on a property-by-property basis. Free tax filing 2011 The deferred tax attributable to a particular property is due on the return for the tax year in which you dispose of the property. Free tax filing 2011 Interest is charged for the period the tax is deferred. Free tax filing 2011 The due date for the payment of the deferred tax cannot be extended beyond the earlier of the following dates. Free tax filing 2011 The due date of the return required for the year of death. Free tax filing 2011 The time that the security provided for the property fails to be adequate. Free tax filing 2011 See item (6) below. Free tax filing 2011 You make the election on Form 8854. Free tax filing 2011 You must provide adequate security (such as a bond). Free tax filing 2011 You must make an irrevocable waiver of any right under any treaty of the United States which would preclude assessment or collection of the mark-to-market tax. Free tax filing 2011   For more information about the deferral of payment, see the Instructions for Form 8854. Free tax filing 2011 Prev  Up  Next   Home   More Online Publications