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Free turbotax for students 2. Free turbotax for students   Ordinary or Capital Gain or Loss Table of Contents IntroductionSection 1231 transactions. Free turbotax for students Topics - This chapter discusses: Useful Items - You may want to see: Capital Assets Noncapital AssetsCommodities derivative dealer. Free turbotax for students Sales and Exchanges Between Related PersonsGain Is Ordinary Income Nondeductible Loss Other DispositionsSale of a Business Dispositions of Intangible Property Subdivision of Land Timber Precious Metals and Stones, Stamps, and Coins Coal and Iron Ore Conversion Transactions Introduction You must classify your gains and losses as either ordinary or capital (and your capital gains or losses as either short-term or long-term). Free turbotax for students You must do this to figure your net capital gain or loss. Free turbotax for students For individuals, a net capital gain may be taxed at a different tax rate than ordinary income. Free turbotax for students See Capital Gains Tax Rates in chapter 4. Free turbotax for students Your deduction for a net capital loss may be limited. Free turbotax for students See Treatment of Capital Losses in chapter 4. Free turbotax for students Capital gain or loss. Free turbotax for students   Generally, you will have a capital gain or loss if you sell or exchange a capital asset. Free turbotax for students You also may have a capital gain if your section 1231 transactions result in a net gain. Free turbotax for students Section 1231 transactions. Free turbotax for students   Section 1231 transactions are sales and exchanges of property held longer than 1 year and either used in a trade or business or held for the production of rents or royalties. Free turbotax for students They also include certain involuntary conversions of business or investment property, including capital assets. Free turbotax for students See Section 1231 Gains and Losses in chapter 3 for more information. Free turbotax for students Topics - This chapter discusses: Capital assets Noncapital assets Sales and exchanges between  related persons Other dispositions Useful Items - You may want to see: Publication 550 Investment Income and Expenses Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 4797 Sales of Business Property 8594 Asset Acquisition Statement Under Section 1060 8949 Sales and Other Dispositions of Capital Assets See chapter 5 for information about getting publications and forms. Free turbotax for students Capital Assets Almost everything you own and use for personal purposes, pleasure, or investment is a capital asset. Free turbotax for students For exceptions, see Noncapital Assets, later. Free turbotax for students The following items are examples of capital assets. Free turbotax for students Stocks and bonds. Free turbotax for students A home owned and occupied by you and your family. Free turbotax for students Timber grown on your home property or investment property, even if you make casual sales of the timber. Free turbotax for students Household furnishings. Free turbotax for students A car used for pleasure or commuting. Free turbotax for students Coin or stamp collections. Free turbotax for students Gems and jewelry. Free turbotax for students Gold, silver, and other metals. Free turbotax for students Personal-use property. Free turbotax for students   Generally, property held for personal use is a capital asset. Free turbotax for students Gain from a sale or exchange of that property is a capital gain. Free turbotax for students Loss from the sale or exchange of that property is not deductible. Free turbotax for students You can deduct a loss relating to personal-use property only if it results from a casualty or theft. Free turbotax for students Investment property. Free turbotax for students   Investment property (such as stocks and bonds) is a capital asset, and a gain or loss from its sale or exchange is a capital gain or loss. Free turbotax for students This treatment does not apply to property used to produce rental income. Free turbotax for students See Business assets, later, under Noncapital Assets. Free turbotax for students Release of restriction on land. Free turbotax for students   Amounts you receive for the release of a restrictive covenant in a deed to land are treated as proceeds from the sale of a capital asset. Free turbotax for students Noncapital Assets A noncapital asset is property that is not a capital asset. Free turbotax for students The following kinds of property are not capital assets. Free turbotax for students Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business. Free turbotax for students Inventories are discussed in Publication 538, Accounting Periods and Methods. Free turbotax for students But, see the Tip below. Free turbotax for students Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale of any properties described in (1), above. Free turbotax for students Depreciable property used in your trade or business or as rental property (including section 197 intangibles defined later), even if the property is fully depreciated (or amortized). Free turbotax for students Sales of this type of property are discussed in chapter 3. Free turbotax for students Real property used in your trade or business or as rental property, even if the property is fully depreciated. Free turbotax for students A copyright; a literary, musical, or artistic composition; a letter; a memorandum; or similar property (such as drafts of speeches, recordings, transcripts, manuscripts, drawings, or photographs): Created by your personal efforts, Prepared or produced for you (in the case of a letter, memorandum, or similar property), or Received from a person who created the property or for whom the property was prepared under circumstances (for example, by gift) entitling you to the basis of the person who created the property, or for whom it was prepared or produced. Free turbotax for students But, see the Tip below. Free turbotax for students U. Free turbotax for students S. Free turbotax for students Government publications you got from the government for free or for less than the normal sales price or that you acquired under circumstances entitling you to the basis of someone who got the publications for free or for less than the normal sales price. Free turbotax for students Any commodities derivative financial instrument (discussed later) held by a commodities derivatives dealer unless it meets both of the following requirements. Free turbotax for students It is established to the satisfaction of the IRS that the instrument has no connection to the activities of the dealer as a dealer. Free turbotax for students The instrument is clearly identified in the dealer's records as meeting (a) by the end of the day on which it was acquired, originated, or entered into. Free turbotax for students Any hedging transaction (defined later) that is clearly identified as a hedging transaction by the end of the day on which it was acquired, originated, or entered into. Free turbotax for students Supplies of a type you regularly use or consume in the ordinary course of your trade or business. Free turbotax for students You can elect to treat as capital assets certain self-created musical compositions or copyrights you sold or exchanged. Free turbotax for students See chapter 4 of Publication 550 for details. Free turbotax for students Property held mainly for sale to customers. Free turbotax for students   Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business are not capital assets. Free turbotax for students Inventories are discussed in Publication 538. Free turbotax for students Business assets. Free turbotax for students   Real property and depreciable property used in your trade or business or as rental property (including section 197 intangibles defined later under Dispositions of Intangible Property) are not capital assets. Free turbotax for students The sale or disposition of business property is discussed in chapter 3. Free turbotax for students Letters and memoranda. Free turbotax for students   Letters, memoranda, and similar property (such as drafts of speeches, recordings, transcripts, manuscripts, drawings, or photographs) are not treated as capital assets (as discussed earlier) if your personal efforts created them or if they were prepared or produced for you. Free turbotax for students Nor is this property a capital asset if your basis in it is determined by reference to the person who created it or the person for whom it was prepared. Free turbotax for students For this purpose, letters and memoranda addressed to you are considered prepared for you. Free turbotax for students If letters or memoranda are prepared by persons under your administrative control, they are considered prepared for you whether or not you review them. Free turbotax for students Commodities derivative financial instrument. Free turbotax for students   A commodities derivative financial instrument is a commodities contract or other financial instrument for commodities (other than a share of corporate stock, a beneficial interest in a partnership or trust, a note, bond, debenture, or other evidence of indebtedness, or a section 1256 contract) the value or settlement price of which is calculated or determined by reference to a specified index (as defined in section 1221(b) of the Internal Revenue Code). Free turbotax for students Commodities derivative dealer. Free turbotax for students   A commodities derivative dealer is a person who regularly offers to enter into, assume, offset, assign, or terminate positions in commodities derivative financial instruments with customers in the ordinary course of a trade or business. Free turbotax for students Hedging transaction. Free turbotax for students   A hedging transaction is any transaction you enter into in the normal course of your trade or business primarily to manage any of the following. Free turbotax for students Risk of price changes or currency fluctuations involving ordinary property you hold or will hold. Free turbotax for students Risk of interest rate or price changes or currency fluctuations for borrowings you make or will make, or ordinary obligations you incur or will incur. Free turbotax for students Sales and Exchanges Between Related Persons This section discusses the rules that may apply to the sale or exchange of property between related persons. Free turbotax for students If these rules apply, gains may be treated as ordinary income and losses may not be deductible. Free turbotax for students See Transfers to Spouse in chapter 1 for rules that apply to spouses. Free turbotax for students Gain Is Ordinary Income If a gain is recognized on the sale or exchange of property to a related person, the gain may be ordinary income even if the property is a capital asset. Free turbotax for students It is ordinary income if the sale or exchange is a depreciable property transaction or a controlled partnership transaction. Free turbotax for students Depreciable property transaction. Free turbotax for students   Gain on the sale or exchange of property, including a leasehold or a patent application, that is depreciable property in the hands of the person who receives it is ordinary income if the transaction is either directly or indirectly between any of the following pairs of entities. Free turbotax for students A person and the person's controlled entity or entities. Free turbotax for students A taxpayer and any trust in which the taxpayer (or his or her spouse) is a beneficiary unless the beneficiary's interest in the trust is a remote contingent interest; that is, the value of the interest computed actuarially is 5% or less of the value of the trust property. Free turbotax for students An executor and a beneficiary of an estate unless the sale or exchange is in satisfaction of a pecuniary bequest (a bequest for a sum of money). Free turbotax for students An employer (or any person related to the employer under rules (1), (2), or (3)) and a welfare benefit fund (within the meaning of section 419(e) of the Internal Revenue Code) that is controlled directly or indirectly by the employer (or any person related to the employer). Free turbotax for students Controlled entity. Free turbotax for students   A person's controlled entity is either of the following. Free turbotax for students A corporation in which more than 50% of the value of all outstanding stock, or a partnership in which more than 50% of the capital interest or profits interest, is directly or indirectly owned by or for that person. Free turbotax for students An entity whose relationship with that person is one of the following. Free turbotax for students A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest or profits interest in the partnership. Free turbotax for students Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 50%” is substituted for “at least 80%” in that definition. Free turbotax for students Two S corporations, if the same persons own more than 50% in value of the outstanding stock of each corporation. Free turbotax for students Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Free turbotax for students Controlled partnership transaction. Free turbotax for students   A gain recognized in a controlled partnership transaction may be ordinary income. Free turbotax for students The gain is ordinary income if it results from the sale or exchange of property that, in the hands of the party who receives it, is a noncapital asset such as trade accounts receivable, inventory, stock in trade, or depreciable or real property used in a trade or business. Free turbotax for students   A controlled partnership transaction is a transaction directly or indirectly between either of the following pairs of entities. Free turbotax for students A partnership and a person who directly or indirectly owns more than 50% of the capital interest or profits interest in the partnership. Free turbotax for students Two partnerships, if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships. Free turbotax for students Determining ownership. Free turbotax for students   In the transactions under Depreciable property transaction and Controlled partnership transaction, earlier, use the following rules to determine the ownership of stock or a partnership interest. Free turbotax for students Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Free turbotax for students (However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more in value of the stock of the corporation. Free turbotax for students ) An individual is considered as owning the stock or partnership interest directly or indirectly owned by or for his or her family. Free turbotax for students Family includes only brothers, sisters, half-brothers, half-sisters, spouse, ancestors, and lineal descendants. Free turbotax for students For purposes of applying (1) or (2), above, stock or a partnership interest constructively owned by a person under (1) is treated as actually owned by that person. Free turbotax for students But stock or a partnership interest constructively owned by an individual under (2) is not treated as owned by the individual for reapplying (2) to make another person the constructive owner of that stock or partnership interest. Free turbotax for students Nondeductible Loss A loss on the sale or exchange of property between related persons is not deductible. Free turbotax for students This applies to both direct and indirect transactions, but not to distributions of property from a corporation in a complete liquidation. Free turbotax for students For the list of related persons, see Related persons next. Free turbotax for students If a sale or exchange is between any of these related persons and involves the lump-sum sale of a number of blocks of stock or pieces of property, the gain or loss must be figured separately for each block of stock or piece of property. Free turbotax for students The gain on each item is taxable. Free turbotax for students The loss on any item is nondeductible. Free turbotax for students Gains from the sales of any of these items may not be offset by losses on the sales of any of the other items. Free turbotax for students Related persons. Free turbotax for students   The following is a list of related persons. Free turbotax for students Members of a family, including only brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Free turbotax for students ), and lineal descendants (children, grandchildren, etc. Free turbotax for students ). Free turbotax for students An individual and a corporation if the individual directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. Free turbotax for students Two corporations that are members of the same controlled group as defined in section 267(f) of the Internal Revenue Code. Free turbotax for students A trust fiduciary and a corporation if the trust or the grantor of the trust directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. Free turbotax for students A grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Free turbotax for students Fiduciaries of two different trusts, and the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. Free turbotax for students A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization, or a member of that person's family. Free turbotax for students A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest or profits interest in the partnership. Free turbotax for students Two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. Free turbotax for students Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Free turbotax for students An executor and a beneficiary of an estate unless the sale or exchange is in satisfaction of a pecuniary bequest. Free turbotax for students Two partnerships if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships. Free turbotax for students A person and a partnership if the person directly or indirectly owns more than 50% of the capital interest or profits interest in the partnership. Free turbotax for students Partnership interests. Free turbotax for students   The nondeductible loss rule does not apply to a sale or exchange of an interest in the partnership between the related persons described in (12) or (13) above. Free turbotax for students Controlled groups. Free turbotax for students   Losses on transactions between members of the same controlled group described in (3) earlier are deferred rather than denied. Free turbotax for students   For more information, see section 267(f) of the Internal Revenue Code. Free turbotax for students Ownership of stock or partnership interests. Free turbotax for students   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership for a loss on a sale or exchange, the following rules apply. Free turbotax for students Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Free turbotax for students (However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more in value of the stock of the corporation. Free turbotax for students ) An individual is considered as owning the stock or partnership interest directly or indirectly owned by or for his or her family. Free turbotax for students Family includes only brothers, sisters, half-brothers, half-sisters, spouse, ancestors, and lineal descendants. Free turbotax for students An individual owning (other than by applying (2)) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. Free turbotax for students For purposes of applying (1), (2), or (3), stock or a partnership interest constructively owned by a person under (1) is treated as actually owned by that person. Free turbotax for students But stock or a partnership interest constructively owned by an individual under (2) or (3) is not treated as owned by the individual for reapplying either (2) or (3) to make another person the constructive owner of that stock or partnership interest. Free turbotax for students Indirect transactions. Free turbotax for students   You cannot deduct your loss on the sale of stock through your broker if under a prearranged plan a related person or entity buys the same stock you had owned. Free turbotax for students This does not apply to a cross-trade between related parties through an exchange that is purely coincidental and is not prearranged. Free turbotax for students Property received from a related person. Free turbotax for students   If, in a purchase or exchange, you received property from a related person who had a loss that was not allowable and you later sell or exchange the property at a gain, you recognize the gain only to the extent it is more than the loss previously disallowed to the related person. Free turbotax for students This rule applies only to the original transferee. Free turbotax for students Example 1. Free turbotax for students Your brother sold stock to you for $7,600. Free turbotax for students His cost basis was $10,000. Free turbotax for students His loss of $2,400 was not deductible. Free turbotax for students You later sell the same stock to an unrelated party for $10,500, realizing a gain of $2,900 ($10,500 − $7,600). Free turbotax for students Your recognized gain is only $500, the gain that is more than the $2,400 loss not allowed to your brother. Free turbotax for students Example 2. Free turbotax for students Assume the same facts as in Example 1, except that you sell the stock for $6,900 instead of $10,500. Free turbotax for students Your recognized loss is only $700 ($7,600 − $6,900). Free turbotax for students You cannot deduct the loss not allowed to your brother. Free turbotax for students Other Dispositions This section discusses rules for determining the treatment of gain or loss from various dispositions of property. Free turbotax for students Sale of a Business The sale of a business usually is not a sale of one asset. Free turbotax for students Instead, all the assets of the business are sold. Free turbotax for students Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss. Free turbotax for students A business usually has many assets. Free turbotax for students When sold, these assets must be classified as capital assets, depreciable property used in the business, real property used in the business, or property held for sale to customers, such as inventory or stock in trade. Free turbotax for students The gain or loss on each asset is figured separately. Free turbotax for students The sale of capital assets results in capital gain or loss. Free turbotax for students The sale of real property or depreciable property used in the business and held longer than 1 year results in gain or loss from a section 1231 transaction (discussed in chapter 3). Free turbotax for students The sale of inventory results in ordinary income or loss. Free turbotax for students Partnership interests. Free turbotax for students   An interest in a partnership or joint venture is treated as a capital asset when sold. Free turbotax for students The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary gain or loss. Free turbotax for students For more information, see Disposition of Partner's Interest in Publication 541. Free turbotax for students Corporation interests. Free turbotax for students   Your interest in a corporation is represented by stock certificates. Free turbotax for students When you sell these certificates, you usually realize capital gain or loss. Free turbotax for students For information on the sale of stock, see chapter 4 in Publication 550. Free turbotax for students Corporate liquidations. Free turbotax for students   Corporate liquidations of property generally are treated as a sale or exchange. Free turbotax for students Gain or loss generally is recognized by the corporation on a liquidating sale of its assets. Free turbotax for students Gain or loss generally is recognized also on a liquidating distribution of assets as if the corporation sold the assets to the distributee at fair market value. Free turbotax for students   In certain cases in which the distributee is a corporation in control of the distributing corporation, the distribution may not be taxable. Free turbotax for students For more information, see section 332 of the Internal Revenue Code and the related regulations. Free turbotax for students Allocation of consideration paid for a business. Free turbotax for students   The sale of a trade or business for a lump sum is considered a sale of each individual asset rather than of a single asset. Free turbotax for students Except for assets exchanged under any nontaxable exchange rules, both the buyer and seller of a business must use the residual method (explained later) to allocate the consideration to each business asset transferred. Free turbotax for students This method determines gain or loss from the transfer of each asset and how much of the consideration is for goodwill and certain other intangible property. Free turbotax for students It also determines the buyer's basis in the business assets. Free turbotax for students Consideration. Free turbotax for students   The buyer's consideration is the cost of the assets acquired. Free turbotax for students The seller's consideration is the amount realized (money plus the fair market value of property received) from the sale of assets. Free turbotax for students Residual method. Free turbotax for students   The residual method must be used for any transfer of a group of assets that constitutes a trade or business and for which the buyer's basis is determined only by the amount paid for the assets. Free turbotax for students This applies to both direct and indirect transfers, such as the sale of a business or the sale of a partnership interest in which the basis of the buyer's share of the partnership assets is adjusted for the amount paid under section 743(b) of the Internal Revenue Code. Free turbotax for students Section 743(b) applies if a partnership has an election in effect under section 754 of the Internal Revenue Code. Free turbotax for students   A group of assets constitutes a trade or business if either of the following applies. Free turbotax for students Goodwill or going concern value could, under any circumstances, attach to them. Free turbotax for students The use of the assets would constitute an active trade or business under section 355 of the Internal Revenue Code. Free turbotax for students   The residual method provides for the consideration to be reduced first by the amount of Class I assets (defined below). Free turbotax for students The consideration remaining after this reduction must be allocated among the various business assets in a certain order. Free turbotax for students See Classes of assets next for the complete order. Free turbotax for students Classes of assets. Free turbotax for students   The following definitions are the classifications for deemed or actual asset acquisitions. Free turbotax for students Allocate the consideration among the assets in the following order. Free turbotax for students The amount allocated to an asset, other than a Class VII asset, cannot exceed its fair market value on the purchase date. Free turbotax for students The amount you can allocate to an asset also is subject to any applicable limits under the Internal Revenue Code or general principles of tax law. Free turbotax for students Class I assets are cash and general deposit accounts (including checking and savings accounts but excluding certificates of deposit). Free turbotax for students Class II assets are certificates of deposit, U. Free turbotax for students S. Free turbotax for students Government securities, foreign currency, and actively traded personal property, including stock and securities. Free turbotax for students Class III assets are accounts receivable, other debt instruments, and assets that you mark to market at least annually for federal income tax purposes. Free turbotax for students However, see section 1. Free turbotax for students 338-6(b)(2)(iii) of the regulations for exceptions that apply to debt instruments issued by persons related to a target corporation, contingent debt instruments, and debt instruments convertible into stock or other property. Free turbotax for students Class IV assets are property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held by the taxpayer primarily for sale to customers in the ordinary course of business. Free turbotax for students Class V assets are all assets other than Class I, II, III, IV, VI, and VII assets. Free turbotax for students    Note. Free turbotax for students Furniture and fixtures, buildings, land, vehicles, and equipment, which constitute all or part of a trade or business are generally Class V assets. Free turbotax for students Class VI assets are section 197 intangibles (other than goodwill and going concern value). Free turbotax for students Class VII assets are goodwill and going concern value (whether the goodwill or going concern value qualifies as a section 197 intangible). Free turbotax for students   If an asset described in one of the classifications described above can be included in more than one class, include it in the lower numbered class. Free turbotax for students For example, if an asset is described in both Class II and Class IV, choose Class II. Free turbotax for students Example. Free turbotax for students The total paid in the sale of the assets of Company SKB is $21,000. Free turbotax for students No cash or deposit accounts or similar accounts were sold. Free turbotax for students The company's U. Free turbotax for students S. Free turbotax for students Government securities sold had a fair market value of $3,200. Free turbotax for students The only other asset transferred (other than goodwill and going concern value) was inventory with a fair market value of $15,000. Free turbotax for students Of the $21,000 paid for the assets of Company SKB, $3,200 is allocated to U. Free turbotax for students S. Free turbotax for students Government securities, $15,000 to inventory assets, and the remaining $2,800 to goodwill and going concern value. Free turbotax for students Agreement. Free turbotax for students   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value of any of the assets. Free turbotax for students This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. Free turbotax for students Reporting requirement. Free turbotax for students   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. Free turbotax for students Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. Free turbotax for students Generally, the buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. Free turbotax for students See the Instructions for Form 8594. Free turbotax for students Dispositions of Intangible Property Intangible property is any personal property that has value but cannot be seen or touched. Free turbotax for students It includes such items as patents, copyrights, and the goodwill value of a business. Free turbotax for students Gain or loss on the sale or exchange of amortizable or depreciable intangible property held longer than 1 year (other than an amount recaptured as ordinary income) is a section 1231 gain or loss. Free turbotax for students The treatment of section 1231 gain or loss and the recapture of amortization and depreciation as ordinary income are explained in chapter 3. Free turbotax for students See chapter 8 of Publication 535, Business Expenses, for information on amortizable intangible property and chapter 1 of Publication 946, How To Depreciate Property, for information on intangible property that can and cannot be depreciated. Free turbotax for students Gain or loss on dispositions of other intangible property is ordinary or capital depending on whether the property is a capital asset or a noncapital asset. Free turbotax for students The following discussions explain special rules that apply to certain dispositions of intangible property. Free turbotax for students Section 197 Intangibles Section 197 intangibles are certain intangible assets acquired after August 10, 1993 (after July 25, 1991, if chosen), and held in connection with the conduct of a trade or business or an activity entered into for profit whose costs are amortized over 15 years. Free turbotax for students They include the following assets. Free turbotax for students Goodwill. Free turbotax for students Going concern value. Free turbotax for students Workforce in place. Free turbotax for students Business books and records, operating systems, and other information bases. Free turbotax for students Patents, copyrights, formulas, processes, designs, patterns, know how, formats, and similar items. Free turbotax for students Customer-based intangibles. Free turbotax for students Supplier-based intangibles. Free turbotax for students Licenses, permits, and other rights granted by a governmental unit. Free turbotax for students Covenants not to compete entered into in connection with the acquisition of a business. Free turbotax for students Franchises, trademarks, and trade names. Free turbotax for students See chapter 8 of Publication 535 for a description of each intangible. Free turbotax for students Dispositions. Free turbotax for students   You cannot deduct a loss from the disposition or worthlessness of a section 197 intangible you acquired in the same transaction (or series of related transactions) as another section 197 intangible you still hold. Free turbotax for students Instead, you must increase the adjusted basis of your retained section 197 intangible by the nondeductible loss. Free turbotax for students If you retain more than one section 197 intangible, increase each intangible's adjusted basis. Free turbotax for students Figure the increase by multiplying the nondeductible loss by a fraction, the numerator (top number) of which is the retained intangible's adjusted basis on the date of the loss and the denominator (bottom number) of which is the total adjusted basis of all retained intangibles on the date of the loss. Free turbotax for students   In applying this rule, members of the same controlled group of corporations and commonly controlled businesses are treated as a single entity. Free turbotax for students For example, a corporation cannot deduct a loss on the sale of a section 197 intangible if, after the sale, a member of the same controlled group retains other section 197 intangibles acquired in the same transaction as the intangible sold. Free turbotax for students Covenant not to compete. Free turbotax for students   A covenant not to compete (or similar arrangement) that is a section 197 intangible cannot be treated as disposed of or worthless before you have disposed of your entire interest in the trade or business for which the covenant was entered into. Free turbotax for students Members of the same controlled group of corporations and commonly controlled businesses are treated as a single entity in determining whether a member has disposed of its entire interest in a trade or business. Free turbotax for students Anti-churning rules. Free turbotax for students   Anti-churning rules prevent a taxpayer from converting section 197 intangibles that do not qualify for amortization into property that would qualify for amortization. Free turbotax for students However, these rules do not apply to part of the basis of property acquired by certain related persons if the transferor elects to do both the following. Free turbotax for students Recognize gain on the transfer of the property. Free turbotax for students Pay income tax on the gain at the highest tax rate. Free turbotax for students   If the transferor is a partnership or S corporation, the partnership or S corporation (not the partners or shareholders) can make the election. Free turbotax for students But each partner or shareholder must pay the tax on his or her share of gain. Free turbotax for students   To make the election, you, as the transferor, must attach a statement containing certain information to your income tax return for the year of the transfer. Free turbotax for students You must file the tax return by the due date (including extensions). Free turbotax for students You must also notify the transferee of the election in writing by the due date of the return. Free turbotax for students   If you timely filed your return without making the election, you can make the election by filing an amended return within 6 months after the due date of the return (excluding extensions). Free turbotax for students Attach the statement to the amended return and write “Filed pursuant to section 301. Free turbotax for students 9100-2” at the top of the statement. Free turbotax for students File the amended return at the same address the original return was filed. Free turbotax for students For more information about making the election, see Regulations section 1. Free turbotax for students 197-2(h)(9). Free turbotax for students For information about reporting the tax on your income tax return, see the Instructions for Form 4797. Free turbotax for students Patents The transfer of a patent by an individual is treated as a sale or exchange of a capital asset held longer than 1 year. Free turbotax for students This applies even if the payments for the patent are made periodically during the transferee's use or are contingent on the productivity, use, or disposition of the patent. Free turbotax for students For information on the treatment of gain or loss on the transfer of capital assets, see chapter 4. Free turbotax for students This treatment applies to your transfer of a patent if you meet all the following conditions. Free turbotax for students You are the holder of the patent. Free turbotax for students You transfer the patent other than by gift, inheritance, or devise. Free turbotax for students You transfer all substantial rights to the patent or an undivided interest in all such rights. Free turbotax for students You do not transfer the patent to a related person. Free turbotax for students Holder. Free turbotax for students   You are the holder of a patent if you are either of the following. Free turbotax for students The individual whose effort created the patent property and who qualifies as the original and first inventor. Free turbotax for students The individual who bought an interest in the patent from the inventor before the invention was tested and operated successfully under operating conditions and who is neither related to, nor the employer of, the inventor. Free turbotax for students All substantial rights. Free turbotax for students   All substantial rights to patent property are all rights that have value when they are transferred. Free turbotax for students A security interest (such as a lien), or a reservation calling for forfeiture for nonperformance, is not treated as a substantial right for these rules and may be kept by you as the holder of the patent. Free turbotax for students   All substantial rights to a patent are not transferred if any of the following apply to the transfer. Free turbotax for students The rights are limited geographically within a country. Free turbotax for students The rights are limited to a period less than the remaining life of the patent. Free turbotax for students The rights are limited to fields of use within trades or industries and are less than all the rights that exist and have value at the time of the transfer. Free turbotax for students The rights are less than all the claims or inventions covered by the patent that exist and have value at the time of the transfer. Free turbotax for students Related persons. Free turbotax for students   This tax treatment does not apply if the transfer is directly or indirectly between you and a related person as defined earlier in the list under Nondeductible Loss, with the following changes. Free turbotax for students Members of your family include your spouse, ancestors, and lineal descendants, but not your brothers, sisters, half-brothers, or half-sisters. Free turbotax for students Substitute “25% or more” ownership for “more than 50%. Free turbotax for students ”   If you fit within the definition of a related person independent of family status, the brother-sister exception in (1), earlier, does not apply. Free turbotax for students For example, a transfer between a brother and a sister as beneficiary and fiduciary of the same trust is a transfer between related persons. Free turbotax for students The brother-sister exception does not apply because the trust relationship is independent of family status. Free turbotax for students Franchise, Trademark, or Trade Name If you transfer or renew a franchise, trademark, or trade name for a price contingent on its productivity, use, or disposition, the amount you receive generally is treated as an amount realized from the sale of a noncapital asset. Free turbotax for students A franchise includes an agreement that gives one of the parties the right to distribute, sell, or provide goods, services, or facilities within a specified area. Free turbotax for students Significant power, right, or continuing interest. Free turbotax for students   If you keep any significant power, right, or continuing interest in the subject matter of a franchise, trademark, or trade name that you transfer or renew, the amount you receive is ordinary royalty income rather than an amount realized from a sale or exchange. Free turbotax for students   A significant power, right, or continuing interest in a franchise, trademark, or trade name includes, but is not limited to, the following rights in the transferred interest. Free turbotax for students A right to disapprove any assignment of the interest, or any part of it. Free turbotax for students A right to end the agreement at will. Free turbotax for students A right to set standards of quality for products used or sold, or for services provided, and for the equipment and facilities used to promote such products or services. Free turbotax for students A right to make the recipient sell or advertise only your products or services. Free turbotax for students A right to make the recipient buy most supplies and equipment from you. Free turbotax for students A right to receive payments based on the productivity, use, or disposition of the transferred item of interest if those payments are a substantial part of the transfer agreement. Free turbotax for students Subdivision of Land If you own a tract of land and, to sell or exchange it, you subdivide it into individual lots or parcels, the gain normally is ordinary income. Free turbotax for students However, you may receive capital gain treatment on at least part of the proceeds provided you meet certain requirements. Free turbotax for students See section 1237 of the Internal Revenue Code. Free turbotax for students Timber Standing timber held as investment property is a capital asset. Free turbotax for students Gain or loss from its sale is reported as a capital gain or loss on Form 8949, and Schedule D (Form 1040), as applicable. Free turbotax for students If you held the timber primarily for sale to customers, it is not a capital asset. Free turbotax for students Gain or loss on its sale is ordinary business income or loss. Free turbotax for students It is reported in the gross receipts or sales and cost of goods sold items of your return. Free turbotax for students Farmers who cut timber on their land and sell it as logs, firewood, or pulpwood usually have no cost or other basis for that timber. Free turbotax for students These sales constitute a very minor part of their farm businesses. Free turbotax for students In these cases, amounts realized from such sales, and the expenses of cutting, hauling, etc. Free turbotax for students , are ordinary farm income and expenses reported on Schedule F (Form 1040), Profit or Loss From Farming. Free turbotax for students Different rules apply if you owned the timber longer than 1 year and elect to either: Treat timber cutting as a sale or exchange, or Enter into a cutting contract. Free turbotax for students Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. Free turbotax for students This is true whether the timber is cut under contract or whether you cut it yourself. Free turbotax for students Under the rules discussed below, disposition of the timber is treated as a section 1231 transaction. Free turbotax for students See chapter 3. Free turbotax for students Gain or loss is reported on Form 4797. Free turbotax for students Christmas trees. Free turbotax for students   Evergreen trees, such as Christmas trees, that are more than 6 years old when severed from their roots and sold for ornamental purposes are included in the term timber. Free turbotax for students They qualify for both rules discussed below. Free turbotax for students Election to treat cutting as a sale or exchange. Free turbotax for students   Under the general rule, the cutting of timber results in no gain or loss. Free turbotax for students It is not until a sale or exchange occurs that gain or loss is realized. Free turbotax for students But if you owned or had a contractual right to cut timber, you can elect to treat the cutting of timber as a section 1231 transaction in the year the timber is cut. Free turbotax for students Even though the cut timber is not actually sold or exchanged, you report your gain or loss on the cutting for the year the timber is cut. Free turbotax for students Any later sale results in ordinary business income or loss. Free turbotax for students See Example, later. Free turbotax for students   To elect this treatment, you must: Own or hold a contractual right to cut the timber for a period of more than 1 year before it is cut, and Cut the timber for sale or for use in your trade or business. Free turbotax for students Making the election. Free turbotax for students   You make the election on your return for the year the cutting takes place by including in income the gain or loss on the cutting and including a computation of the gain or loss. Free turbotax for students You do not have to make the election in the first year you cut timber. Free turbotax for students You can make it in any year to which the election would apply. Free turbotax for students If the timber is partnership property, the election is made on the partnership return. Free turbotax for students This election cannot be made on an amended return. Free turbotax for students   Once you have made the election, it remains in effect for all later years unless you cancel it. Free turbotax for students   If you previously elected to treat the cutting of timber as a sale or exchange, you may revoke this election without the consent of the IRS. Free turbotax for students The prior election (and revocation) is disregarded for purposes of making a subsequent election. Free turbotax for students See Form T (Timber), Forest Activities Schedule, for more information. Free turbotax for students Gain or loss. Free turbotax for students   Your gain or loss on the cutting of standing timber is the difference between its adjusted basis for depletion and its fair market value on the first day of your tax year in which it is cut. Free turbotax for students   Your adjusted basis for depletion of cut timber is based on the number of units (feet board measure, log scale, or other units) of timber cut during the tax year and considered to be sold or exchanged. Free turbotax for students Your adjusted basis for depletion is also based on the depletion unit of timber in the account used for the cut timber, and should be figured in the same manner as shown in section 611 of the Internal Revenue Code and the related regulations. Free turbotax for students   Timber depletion is discussed in chapter 9 of Publication 535. Free turbotax for students Example. Free turbotax for students In April 2013, you had owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. Free turbotax for students It had an adjusted basis for depletion of $40 per MBF. Free turbotax for students You are a calendar year taxpayer. Free turbotax for students On January 1, 2013, the timber had a fair market value (FMV) of $350 per MBF. Free turbotax for students It was cut in April for sale. Free turbotax for students On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. Free turbotax for students You report the difference between the fair market value and your adjusted basis for depletion as a gain. Free turbotax for students This amount is reported on Form 4797 along with your other section 1231 gains and losses to figure whether it is treated as capital gain or as ordinary gain. Free turbotax for students You figure your gain as follows. Free turbotax for students FMV of timber January 1, 2013 $1,400,000 Minus: Adjusted basis for depletion 160,000 Section 1231 gain $1,240,000 The fair market value becomes your basis in the cut timber and a later sale of the cut timber including any by-product or tree tops will result in ordinary business income or loss. Free turbotax for students Outright sales of timber. Free turbotax for students   Outright sales of timber by landowners qualify for capital gains treatment using rules similar to the rules for certain disposal of timber under a contract with retained economic interest (defined below). Free turbotax for students However, for outright sales, the date of disposal is not deemed to be the date the timber is cut because the landowner can elect to treat the payment date as the date of disposal (see below). Free turbotax for students Cutting contract. Free turbotax for students   You must treat the disposal of standing timber under a cutting contract as a section 1231 transaction if all the following apply to you. Free turbotax for students You are the owner of the timber. Free turbotax for students You held the timber longer than 1 year before its disposal. Free turbotax for students You kept an economic interest in the timber. Free turbotax for students   You have kept an economic interest in standing timber if, under the cutting contract, the expected return on your investment is conditioned on the cutting of the timber. Free turbotax for students   The difference between the amount realized from the disposal of the timber and its adjusted basis for depletion is treated as gain or loss on its sale. Free turbotax for students Include this amount on Form 4797 along with your other section 1231 gains or losses to figure whether it is treated as capital or ordinary gain or loss. Free turbotax for students Date of disposal. Free turbotax for students   The date of disposal is the date the timber is cut. Free turbotax for students However, for outright sales by landowners or if you receive payment under the contract before the timber is cut, you can elect to treat the date of payment as the date of disposal. Free turbotax for students   This election applies only to figure the holding period of the timber. Free turbotax for students It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). Free turbotax for students   To make this election, attach a statement to the tax return filed by the due date (including extensions) for the year payment is received. Free turbotax for students The statement must identify the advance payments subject to the election and the contract under which they were made. Free turbotax for students   If you timely filed your return for the year you received payment without making the election, you still can make the election by filing an amended return within 6 months after the due date for that year's return (excluding extensions). Free turbotax for students Attach the statement to the amended return and write “Filed pursuant to section 301. Free turbotax for students 9100-2” at the top of the statement. Free turbotax for students File the amended return at the same address the original return was filed. Free turbotax for students Owner. Free turbotax for students   The owner of timber is any person who owns an interest in it, including a sublessor and the holder of a contract to cut the timber. Free turbotax for students You own an interest in timber if you have the right to cut it for sale on your own account or for use in your business. Free turbotax for students Tree stumps. Free turbotax for students   Tree stumps are a capital asset if they are on land held by an investor who is not in the timber or stump business as a buyer, seller, or processor. Free turbotax for students Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. Free turbotax for students However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. Free turbotax for students Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. Free turbotax for students   See Form T (Timber) and its separate instructions for more information about dispositions of timber. Free turbotax for students Precious Metals and Stones, Stamps, and Coins Gold, silver, gems, stamps, coins, etc. Free turbotax for students , are capital assets except when they are held for sale by a dealer. Free turbotax for students Any gain or loss from their sale or exchange generally is a capital gain or loss. Free turbotax for students If you are a dealer, the amount received from the sale is ordinary business income. Free turbotax for students Coal and Iron Ore You must treat the disposal of coal (including lignite) or iron ore mined in the United States as a section 1231 transaction if both the following apply to you. Free turbotax for students You owned the coal or iron ore longer than 1 year before its disposal. Free turbotax for students You kept an economic interest in the coal or iron ore. Free turbotax for students For this rule, the date the coal or iron ore is mined is considered the date of its disposal. Free turbotax for students Your gain or loss is the difference between the amount realized from disposal of the coal or iron ore and the adjusted basis you use to figure cost depletion (increased by certain expenses not allowed as deductions for the tax year). Free turbotax for students This amount is included on Form 4797 along with your other section 1231 gains and losses. Free turbotax for students You are considered an owner if you own or sublet an economic interest in the coal or iron ore in place. Free turbotax for students If you own only an option to buy the coal in place, you do not qualify as an owner. Free turbotax for students In addition, this gain or loss treatment does not apply to income realized by an owner who is a co-adventurer, partner, or principal in the mining of coal or iron ore. Free turbotax for students The expenses of making and administering the contract under which the coal or iron ore was disposed of and the expenses of preserving the economic interest kept under the contract are not allowed as deductions in figuring taxable income. Free turbotax for students Rather, their total, along with the adjusted depletion basis, is deducted from the amount received to determine gain. Free turbotax for students If the total of these expenses plus the adjusted depletion basis is more than the amount received, the result is a loss. Free turbotax for students Special rule. Free turbotax for students   The above treatment does not apply if you directly or indirectly dispose of the iron ore or coal to any of the following persons. Free turbotax for students A related person whose relationship to you would result in the disallowance of a loss (see Nondeductible Loss under Sales and Exchanges Between Related Persons, earlier). Free turbotax for students An individual, trust, estate, partnership, association, company, or corporation owned or controlled directly or indirectly by the same interests that own or control your business. Free turbotax for students Conversion Transactions Recognized gain on the disposition or termination of any position held as part of certain conversion transactions is treated as ordinary income. Free turbotax for students This applies if substantially all your expected return is attributable to the time value of your net investment (like interest on a loan) and the transaction is any of the following. Free turbotax for students An applicable straddle (generally, any set of offsetting positions with respect to personal property, including stock). Free turbotax for students A transaction in which you acquire property and, at or about the same time, you contract to sell the same or substantially identical property at a specified price. Free turbotax for students Any other transaction that is marketed and sold as producing capital gain from a transaction in which substantially all of your expected return is due to the time value of your net investment. Free turbotax for students For more information, see chapter 4 of Publication 550. Free turbotax for students Prev  Up  Next   Home   More Online Publications
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Filing Your Taxes

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Page Last Reviewed or Updated: 06-Mar-2014

The Free Turbotax For Students

Free turbotax for students 7. Free turbotax for students   Interest Income Table of Contents Reminder Introduction Useful Items - You may want to see: General InformationSSN for joint account. Free turbotax for students Custodian account for your child. Free turbotax for students Penalty for failure to supply SSN. Free turbotax for students Reporting backup withholding. Free turbotax for students Savings account with parent as trustee. Free turbotax for students Interest not reported on Form 1099-INT. Free turbotax for students Nominees. Free turbotax for students Incorrect amount. Free turbotax for students Information reporting requirement. Free turbotax for students Taxable InterestInterest subject to penalty for early withdrawal. Free turbotax for students Money borrowed to invest in certificate of deposit. Free turbotax for students U. Free turbotax for students S. Free turbotax for students Savings Bonds Education Savings Bond Program U. Free turbotax for students S. Free turbotax for students Treasury Bills, Notes, and Bonds Bonds Sold Between Interest Dates Insurance State or Local Government Obligations Original Issue Discount (OID) When To Report Interest IncomeConstructive receipt. Free turbotax for students How To Report Interest IncomeSchedule B (Form 1040A or 1040). Free turbotax for students Reporting tax-exempt interest. Free turbotax for students U. Free turbotax for students S. Free turbotax for students savings bond interest previously reported. Free turbotax for students Reminder Foreign-source income. Free turbotax for students  If you are a U. Free turbotax for students S. Free turbotax for students citizen with interest income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt by U. Free turbotax for students S. Free turbotax for students law. Free turbotax for students This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer. Free turbotax for students Introduction This chapter discusses the following topics. Free turbotax for students Different types of interest income. Free turbotax for students What interest is taxable and what interest is nontaxable. Free turbotax for students When to report interest income. Free turbotax for students How to report interest income on your tax return. Free turbotax for students In general, any interest you receive or that is credited to your account and can be withdrawn is taxable income. Free turbotax for students Exceptions to this rule are discussed later in this chapter. Free turbotax for students You may be able to deduct expenses you have in earning this income on Schedule A (Form 1040) if you itemize your deductions. Free turbotax for students See Money borrowed to invest in certificate of deposit , later, and chapter 28. Free turbotax for students Useful Items - You may want to see: Publication 537 Installment Sales 550 Investment Income and Expenses 1212 Guide to Original Issue Discount (OID) Instruments Form (and Instructions) Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends 8815 Exclusion of Interest From Series EE and I U. Free turbotax for students S. Free turbotax for students Savings Bonds Issued After 1989 8818 Optional Form To Record Redemption of Series EE and I U. Free turbotax for students S. Free turbotax for students Savings Bonds Issued After 1989 General Information A few items of general interest are covered here. Free turbotax for students Recordkeeping. Free turbotax for students You should keep a list showing sources and interest amounts received during the year. Free turbotax for students Also, keep the forms you receive showing your interest income (Forms 1099-INT, for example) as an important part of your records. Free turbotax for students Tax on unearned income of certain children. Free turbotax for students    Part of a child's 2013 unearned income may be taxed at the parent's tax rate. Free turbotax for students If so, Form 8615, Tax for Certain Children Who Have Unearned Income, must be completed and attached to the child's tax return. Free turbotax for students If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate. Free turbotax for students   Some parents can choose to include the child's interest and dividends on the parent's return. Free turbotax for students If you can, use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose. Free turbotax for students   For more information about the tax on unearned income of children and the parents' election, see chapter 31. Free turbotax for students Beneficiary of an estate or trust. Free turbotax for students   Interest you receive as a beneficiary of an estate or trust is generally taxable income. Free turbotax for students You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. Free turbotax for students , from the fiduciary. Free turbotax for students Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. Free turbotax for students Social security number (SSN). Free turbotax for students   You must give your name and SSN or individual tax identification number (ITIN) to any person required by federal tax law to make a return, statement, or other document that relates to you. Free turbotax for students This includes payers of interest. Free turbotax for students If you do not give your SSN or ITIN to the payer of interest, you may have to pay a penalty. Free turbotax for students SSN for joint account. Free turbotax for students   If the funds in a joint account belong to one person, list that person's name first on the account and give that person's SSN to the payer. Free turbotax for students (For information on who owns the funds in a joint account, see Joint accounts , later. Free turbotax for students ) If the joint account contains combined funds, give the SSN of the person whose name is listed first on the account. Free turbotax for students This is because only one name and SSN can be shown on Form 1099. Free turbotax for students   These rules apply both to joint ownership by a married couple and to joint ownership by other individuals. Free turbotax for students For example, if you open a joint savings account with your child using funds belonging to the child, list the child's name first on the account and give the child's SSN. Free turbotax for students Custodian account for your child. Free turbotax for students   If your child is the actual owner of an account that is recorded in your name as custodian for the child, give the child's SSN to the payer. Free turbotax for students For example, you must give your child's SSN to the payer of interest on an account owned by your child, even though the interest is paid to you as custodian. Free turbotax for students Penalty for failure to supply SSN. Free turbotax for students   If you do not give your SSN to the payer of interest, you may have to pay a penalty. Free turbotax for students See Failure to supply SSN under Penalties in chapter 1. Free turbotax for students Backup withholding also may apply. Free turbotax for students Backup withholding. Free turbotax for students   Your interest income is generally not subject to regular withholding. Free turbotax for students However, it may be subject to backup withholding to ensure that income tax is collected on the income. Free turbotax for students Under backup withholding, the payer of interest must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. Free turbotax for students   Backup withholding may also be required if the IRS has determined that you underreported your interest or dividend income. Free turbotax for students For more information, see Backup Withholding in chapter 4. Free turbotax for students Reporting backup withholding. Free turbotax for students   If backup withholding is deducted from your interest income, the payer must give you a Form 1099-INT for the year indicating the amount withheld. Free turbotax for students The Form 1099-INT will show any backup withholding as “Federal income tax withheld. Free turbotax for students ” Joint accounts. Free turbotax for students   If two or more persons hold property (such as a savings account or bond) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest from the property is determined by local law. Free turbotax for students Income from property given to a child. Free turbotax for students   Property you give as a parent to your child under the Model Gifts of Securities to Minors Act, the Uniform Gifts to Minors Act, or any similar law becomes the child's property. Free turbotax for students   Income from the property is taxable to the child, except that any part used to satisfy a legal obligation to support the child is taxable to the parent or guardian having that legal obligation. Free turbotax for students Savings account with parent as trustee. Free turbotax for students   Interest income from a savings account opened for a minor child, but placed in the name and subject to the order of the parents as trustees, is taxable to the child if, under the law of the state in which the child resides, both of the following are true. Free turbotax for students The savings account legally belongs to the child. Free turbotax for students The parents are not legally permitted to use any of the funds to support the child. Free turbotax for students Form 1099-INT. Free turbotax for students   Interest income is generally reported to you on Form 1099-INT, or a similar statement, by banks, savings and loans, and other payers of interest. Free turbotax for students This form shows you the interest you received during the year. Free turbotax for students Keep this form for your records. Free turbotax for students You do not have to attach it to your tax return. Free turbotax for students   Report on your tax return the total interest income you receive for the tax year. Free turbotax for students Interest not reported on Form 1099-INT. Free turbotax for students   Even if you do not receive Form 1099-INT, you must still report all of your interest income. Free turbotax for students For example, you may receive distributive shares of interest from partnerships or S corporations. Free turbotax for students This interest is reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deduction, Credits, etc. Free turbotax for students , or Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. Free turbotax for students Nominees. Free turbotax for students   Generally, if someone receives interest as a nominee for you, that person must give you a Form 1099-INT showing the interest received on your behalf. Free turbotax for students   If you receive a Form 1099-INT that includes amounts belonging to another person, see the discussion on nominee distributions under How To Report Interest Income in chapter 1 of Publication 550, or Schedule B (Form 1040A or 1040) instructions. Free turbotax for students Incorrect amount. Free turbotax for students   If you receive a Form 1099-INT that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. Free turbotax for students The new Form 1099-INT you receive will be marked “Corrected. Free turbotax for students ” Form 1099-OID. Free turbotax for students   Reportable interest income also may be shown on Form 1099-OID, Original Issue Discount. Free turbotax for students For more information about amounts shown on this form, see Original Issue Discount (OID) , later in this chapter. Free turbotax for students Exempt-interest dividends. Free turbotax for students   Exempt-interest dividends you receive from a mutual fund or other regulated investment company, including those received from a qualified fund of funds in any tax year beginning after December 22, 2010, are not included in your taxable income. Free turbotax for students (However, see Information reporting requirement , next. Free turbotax for students ) Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. Free turbotax for students You do not reduce your basis for distributions that are exempt-interest dividends. Free turbotax for students Information reporting requirement. Free turbotax for students   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file. Free turbotax for students This is an information reporting requirement and does not change the exempt-interest dividends into taxable income. Free turbotax for students Note. Free turbotax for students Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. Free turbotax for students See Alternative Minimum Tax (AMT) in chapter 30 for more information. Free turbotax for students Chapter 1 of Publication 550 contains a discussion on private activity bonds under State or Local Government Obligations. Free turbotax for students Interest on VA dividends. Free turbotax for students   Interest on insurance dividends left on deposit with the Department of Veterans Affairs (VA) is not taxable. Free turbotax for students This includes interest paid on dividends on converted United States Government Life Insurance and on National Service Life Insurance policies. Free turbotax for students Individual retirement arrangements (IRAs). Free turbotax for students   Interest on a Roth IRA generally is not taxable. Free turbotax for students Interest on a traditional IRA is tax deferred. Free turbotax for students You generally do not include it in your income until you make withdrawals from the IRA. Free turbotax for students See chapter 17. Free turbotax for students Taxable Interest Taxable interest includes interest you receive from bank accounts, loans you make to others, and other sources. Free turbotax for students The following are some sources of taxable interest. Free turbotax for students Dividends that are actually interest. Free turbotax for students   Certain distributions commonly called dividends are actually interest. Free turbotax for students You must report as interest so-called “dividends” on deposits or on share accounts in: Cooperative banks, Credit unions, Domestic building and loan associations, Domestic savings and loan associations, Federal savings and loan associations, and Mutual savings banks. Free turbotax for students  The “dividends” will be shown as interest income on Form 1099-INT. Free turbotax for students Money market funds. Free turbotax for students   Money market funds pay dividends and are offered by nonbank financial institutions, such as mutual funds and stock brokerage houses. Free turbotax for students Generally, amounts you receive from money market funds should be reported as dividends, not as interest. Free turbotax for students Certificates of deposit and other deferred interest accounts. Free turbotax for students   If you open any of these accounts, interest may be paid at fixed intervals of 1 year or less during the term of the account. Free turbotax for students You generally must include this interest in your income when you actually receive it or are entitled to receive it without paying a substantial penalty. Free turbotax for students The same is true for accounts that mature in 1 year or less and pay interest in a single payment at maturity. Free turbotax for students If interest is deferred for more than 1 year, see Original Issue Discount (OID) , later. Free turbotax for students Interest subject to penalty for early withdrawal. Free turbotax for students   If you withdraw funds from a deferred interest account before maturity, you may have to pay a penalty. Free turbotax for students You must report the total amount of interest paid or credited to your account during the year, without subtracting the penalty. Free turbotax for students See Penalty on early withdrawal of savings in chapter 1 of Publication 550 for more information on how to report the interest and deduct the penalty. Free turbotax for students Money borrowed to invest in certificate of deposit. Free turbotax for students   The interest you pay on money borrowed from a bank or savings institution to meet the minimum deposit required for a certificate of deposit from the institution and the interest you earn on the certificate are two separate items. Free turbotax for students You must report the total interest you earn on the certificate in your income. Free turbotax for students If you itemize deductions, you can deduct the interest you pay as investment interest, up to the amount of your net investment income. Free turbotax for students See Interest Expenses in chapter 3 of Publication 550. Free turbotax for students Example. Free turbotax for students You deposited $5,000 with a bank and borrowed $5,000 from the bank to make up the $10,000 minimum deposit required to buy a 6-month certificate of deposit. Free turbotax for students The certificate earned $575 at maturity in 2013, but you received only $265, which represented the $575 you earned minus $310 interest charged on your $5,000 loan. Free turbotax for students The bank gives you a Form 1099-INT for 2013 showing the $575 interest you earned. Free turbotax for students The bank also gives you a statement showing that you paid $310 interest for 2013. Free turbotax for students You must include the $575 in your income. Free turbotax for students If you itemize your deductions on Schedule A (Form 1040), you can deduct $310, subject to the net investment income limit. Free turbotax for students Gift for opening account. Free turbotax for students   If you receive noncash gifts or services for making deposits or for opening an account in a savings institution, you may have to report the value as interest. Free turbotax for students   For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest. Free turbotax for students For deposits of $5,000 or more, gifts or services valued at more than $20 must be reported as interest. Free turbotax for students The value is determined by the cost to the financial institution. Free turbotax for students Example. Free turbotax for students You open a savings account at your local bank and deposit $800. Free turbotax for students The account earns $20 interest. Free turbotax for students You also receive a $15 calculator. Free turbotax for students If no other interest is credited to your account during the year, the Form 1099-INT you receive will show $35 interest for the year. Free turbotax for students You must report $35 interest income on your tax return. Free turbotax for students Interest on insurance dividends. Free turbotax for students   Interest on insurance dividends left on deposit with an insurance company that can be withdrawn annually is taxable to you in the year it is credited to your account. Free turbotax for students However, if you can withdraw it only on the anniversary date of the policy (or other specified date), the interest is taxable in the year that date occurs. Free turbotax for students Prepaid insurance premiums. Free turbotax for students   Any increase in the value of prepaid insurance premiums, advance premiums, or premium deposit funds is interest if it is applied to the payment of premiums due on insurance policies or made available for you to withdraw. Free turbotax for students U. Free turbotax for students S. Free turbotax for students obligations. Free turbotax for students   Interest on U. Free turbotax for students S. Free turbotax for students obligations, such as U. Free turbotax for students S. Free turbotax for students Treasury bills, notes, and bonds, issued by any agency or instrumentality of the United States is taxable for federal income tax purposes. Free turbotax for students Interest on tax refunds. Free turbotax for students   Interest you receive on tax refunds is taxable income. Free turbotax for students Interest on condemnation award. Free turbotax for students   If the condemning authority pays you interest to compensate you for a delay in payment of an award, the interest is taxable. Free turbotax for students Installment sale payments. Free turbotax for students   If a contract for the sale or exchange of property provides for deferred payments, it also usually provides for interest payable with the deferred payments. Free turbotax for students That interest is taxable when you receive it. Free turbotax for students If little or no interest is provided for in a deferred payment contract, part of each payment may be treated as interest. Free turbotax for students See Unstated Interest and Original Issue Discount in Publication 537, Installment Sales. Free turbotax for students Interest on annuity contract. Free turbotax for students   Accumulated interest on an annuity contract you sell before its maturity date is taxable. Free turbotax for students Usurious interest. Free turbotax for students   Usurious interest is interest charged at an illegal rate. Free turbotax for students This is taxable as interest unless state law automatically changes it to a payment on the principal. Free turbotax for students Interest income on frozen deposits. Free turbotax for students   Exclude from your gross income interest on frozen deposits. Free turbotax for students A deposit is frozen if, at the end of the year, you cannot withdraw any part of the deposit because: The financial institution is bankrupt or insolvent, or The state where the institution is located has placed limits on withdrawals because other financial institutions in the state are bankrupt or insolvent. Free turbotax for students   The amount of interest you must exclude is the interest that was credited on the frozen deposits minus the sum of: The net amount you withdrew from these deposits during the year, and The amount you could have withdrawn as of the end of the year (not reduced by any penalty for premature withdrawals of a time deposit). Free turbotax for students If you receive a Form 1099-INT for interest income on deposits that were frozen at the end of 2013, see Frozen deposits under How To Report Interest Income in chapter 1 of Publication 550, for information about reporting this interest income exclusion on your tax return. Free turbotax for students   The interest you exclude is treated as credited to your account in the following year. Free turbotax for students You must include it in income in the year you can withdraw it. Free turbotax for students Example. Free turbotax for students $100 of interest was credited on your frozen deposit during the year. Free turbotax for students You withdrew $80 but could not withdraw any more as of the end of the year. Free turbotax for students You must include $80 in your income and exclude $20 from your income for the year. Free turbotax for students You must include the $20 in your income for the year you can withdraw it. Free turbotax for students Bonds traded flat. Free turbotax for students   If you buy a bond at a discount when interest has been defaulted or when the interest has accrued but has not been paid, the transaction is described as trading a bond flat. Free turbotax for students The defaulted or unpaid interest is not income and is not taxable as interest if paid later. Free turbotax for students When you receive a payment of that interest, it is a return of capital that reduces the remaining cost basis of your bond. Free turbotax for students Interest that accrues after the date of purchase, however, is taxable interest income for the year it is received or accrued. Free turbotax for students See Bonds Sold Between Interest Dates , later, for more information. Free turbotax for students Below-market loans. Free turbotax for students   In general, a below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Free turbotax for students See Below-Market Loans in chapter 1 of Publication 550 for more information. Free turbotax for students U. Free turbotax for students S. Free turbotax for students Savings Bonds This section provides tax information on U. Free turbotax for students S. Free turbotax for students savings bonds. Free turbotax for students It explains how to report the interest income on these bonds and how to treat transfers of these bonds. Free turbotax for students For other information on U. Free turbotax for students S. Free turbotax for students savings bonds, write to:  For series EE and I paper savings bonds: Bureau of the Public Debt Division of Customer Assistance P. Free turbotax for students O. Free turbotax for students Box 7012 Parkersburg, WV 26106-7012  For series EE and I electronic bonds: Bureau of the Public Debt Division of Customer Assistance P. Free turbotax for students O. Free turbotax for students Box 7015 Parkersburg, WV 26106–7015  For series HH/H: Bureau of the Public Debt Division of Customer Assistance P. Free turbotax for students O. Free turbotax for students Box 2186 Parkersburg, WV 26106-2186 Or, on the Internet, visit: www. Free turbotax for students treasurydirect. Free turbotax for students gov/indiv/indiv. Free turbotax for students htm. Free turbotax for students Accrual method taxpayers. Free turbotax for students   If you use an accrual method of accounting, you must report interest on U. Free turbotax for students S. Free turbotax for students savings bonds each year as it accrues. Free turbotax for students You cannot postpone reporting interest until you receive it or until the bonds mature. Free turbotax for students Accrual methods of accounting are explained in chapter 1 under Accounting Methods . Free turbotax for students Cash method taxpayers. Free turbotax for students   If you use the cash method of accounting, as most individual taxpayers do, you generally report the interest on U. Free turbotax for students S. Free turbotax for students savings bonds when you receive it. Free turbotax for students The cash method of accounting is explained in chapter 1 under Accounting Methods. Free turbotax for students But see Reporting options for cash method taxpayers , later. Free turbotax for students Series HH bonds. Free turbotax for students    These bonds were issued at face value. Free turbotax for students Interest is paid twice a year by direct deposit to your bank account. Free turbotax for students If you are a cash method taxpayer, you must report interest on these bonds as income in the year you receive it. Free turbotax for students   Series HH bonds were first offered in 1980 and last offered in August 2004. Free turbotax for students Before 1980, series H bonds were issued. Free turbotax for students Series H bonds are treated the same as series HH bonds. Free turbotax for students If you are a cash method taxpayer, you must report the interest when you receive it. Free turbotax for students   Series H bonds have a maturity period of 30 years. Free turbotax for students Series HH bonds mature in 20 years. Free turbotax for students The last series H bonds matured in 2009. Free turbotax for students Series EE and series I bonds. Free turbotax for students   Interest on these bonds is payable when you redeem the bonds. Free turbotax for students The difference between the purchase price and the redemption value is taxable interest. Free turbotax for students Series EE bonds. Free turbotax for students   Series EE bonds were first offered in January 1980 and have a maturity period of 30 years. Free turbotax for students   Before July 1980, series E bonds were issued. Free turbotax for students The original 10-year maturity period of series E bonds has been extended to 40 years for bonds issued before December 1965 and 30 years for bonds issued after November 1965. Free turbotax for students Paper series EE and series E bonds are issued at a discount. Free turbotax for students The face value is payable to you at maturity. Free turbotax for students Electronic series EE bonds are issued at their face value. Free turbotax for students The face value plus accrued interest is payable to you at maturity. Free turbotax for students As of January 1, 2012, paper savings bonds were no longer sold at financial institutions. Free turbotax for students   Owners of paper series EE bonds can convert them to electronic bonds. Free turbotax for students These converted bonds do not retain the denomination listed on the paper certificate but are posted at their purchase price (with accrued interest). Free turbotax for students Series I bonds. Free turbotax for students   Series I bonds were first offered in 1998. Free turbotax for students These are inflation-indexed bonds issued at their face amount with a maturity period of 30 years. Free turbotax for students The face value plus all accrued interest is payable to you at maturity. Free turbotax for students Reporting options for cash method taxpayers. Free turbotax for students   If you use the cash method of reporting income, you can report the interest on series EE, series E, and series I bonds in either of the following ways. Free turbotax for students Method 1. Free turbotax for students Postpone reporting the interest until the earlier of the year you cash or dispose of the bonds or the year they mature. Free turbotax for students (However, see Savings bonds traded , later. Free turbotax for students )  Note. Free turbotax for students Series EE bonds issued in 1983 matured in 2013. Free turbotax for students If you have used method 1, you generally must report the interest on these bonds on your 2013 return. Free turbotax for students The last series E bonds were issued in 1980 and matured in 2010. Free turbotax for students If you used method 1, you generally should have reported the interest on these bonds on your 2010 return. Free turbotax for students Method 2. Free turbotax for students Choose to report the increase in redemption value as interest each year. Free turbotax for students You must use the same method for all series EE, series E, and series I bonds you own. Free turbotax for students If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1. Free turbotax for students    If you plan to cash your bonds in the same year you will pay for higher education expenses, you may want to use method 1 because you may be able to exclude the interest from your income. Free turbotax for students To learn how, see Education Savings Bond Program, later. Free turbotax for students Change from method 1. Free turbotax for students   If you want to change your method of reporting the interest from method 1 to method 2, you can do so without permission from the IRS. Free turbotax for students In the year of change you must report all interest accrued to date and not previously reported for all your bonds. Free turbotax for students   Once you choose to report the interest each year, you must continue to do so for all series EE, series E, and series I bonds you own and for any you get later, unless you request permission to change, as explained next. Free turbotax for students Change from method 2. Free turbotax for students   To change from method 2 to method 1, you must request permission from the IRS. Free turbotax for students Permission for the change is automatically granted if you send the IRS a statement that meets all the following requirements. Free turbotax for students You have typed or printed the following number at the top: “131. Free turbotax for students ” It includes your name and social security number under “131. Free turbotax for students ” It includes the year of change (both the beginning and ending dates). Free turbotax for students It identifies the savings bonds for which you are requesting this change. Free turbotax for students It includes your agreement to: Report all interest on any bonds acquired during or after the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, and Report all interest on the bonds acquired before the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, with the exception of the interest reported in prior tax years. Free turbotax for students   You must attach this statement to your tax return for the year of change, which you must file by the due date (including extensions). Free turbotax for students   You can have an automatic extension of 6 months from the due date of your return for the year of change (excluding extensions) to file the statement with an amended return. Free turbotax for students On the statement, type or print “Filed pursuant to section 301. Free turbotax for students 9100-2. Free turbotax for students ” To get this extension, you must have filed your original return for the year of the change by the due date (including extensions). Free turbotax for students    By the date you file the original statement with your return, you must also send a signed copy to the address below. Free turbotax for students   Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) P. Free turbotax for students O. Free turbotax for students Box 7604 Benjamin Franklin Station Washington, DC 20044   If you use a private delivery service, send the signed copy to the address below. Free turbotax for students   Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) Room 5336 1111 Constitution Avenue, NW  Washington, DC 20224   Instead of filing this statement, you can request permission to change from method 2 to method 1 by filing Form 3115, Application for Change in Accounting Method. Free turbotax for students In that case, follow the form instructions for an automatic change. Free turbotax for students No user fee is required. Free turbotax for students Co-owners. Free turbotax for students   If a U. Free turbotax for students S. Free turbotax for students savings bond is issued in the names of co-owners, such as you and your child or you and your spouse, interest on the bond is generally taxable to the co-owner who bought the bond. Free turbotax for students One co-owner's funds used. Free turbotax for students    If you used your funds to buy the bond, you must pay the tax on the interest. Free turbotax for students This is true even if you let the other co-owner redeem the bond and keep all the proceeds. Free turbotax for students Under these circumstances, the co-owner who redeemed the bond will receive a Form 1099-INT at the time of redemption and must provide you with another Form 1099-INT showing the amount of interest from the bond taxable to you. Free turbotax for students The co-owner who redeemed the bond is a “nominee. Free turbotax for students ” See Nominee distributions under How To Report Interest Income in chapter 1 of Publication 550 for more information about how a person who is a nominee reports interest income belonging to another person. Free turbotax for students Both co-owners' funds used. Free turbotax for students   If you and the other co-owner each contribute part of the bond's purchase price, the interest is generally taxable to each of you, in proportion to the amount each of you paid. Free turbotax for students Community property. Free turbotax for students   If you and your spouse live in a community property state and hold bonds as community property, one-half of the interest is considered received by each of you. Free turbotax for students If you file separate returns, each of you generally must report one-half of the bond interest. Free turbotax for students For more information about community property, see Publication 555. Free turbotax for students Table 7-1. Free turbotax for students   These rules are also shown in Table 7-1. Free turbotax for students Ownership transferred. Free turbotax for students   If you bought series E, series EE, or series I bonds entirely with your own funds and had them reissued in your co-owner's name or beneficiary's name alone, you must include in your gross income for the year of reissue all interest that you earned on these bonds and have not previously reported. Free turbotax for students But, if the bonds were reissued in your name alone, you do not have to report the interest accrued at that time. Free turbotax for students   This same rule applies when bonds (other than bonds held as community property) are transferred between spouses or incident to divorce. Free turbotax for students Purchased jointly. Free turbotax for students   If you and a co-owner each contributed funds to buy series E, series EE, or series I bonds jointly and later have the bonds reissued in the co-owner's name alone, you must include in your gross income for the year of reissue your share of all the interest earned on the bonds that you have not previously reported. Free turbotax for students The former co-owner does not have to include in gross income at the time of reissue his or her share of the interest earned that was not reported before the transfer. Free turbotax for students This interest, however, as well as all interest earned after the reissue, is income to the former co-owner. Free turbotax for students   This income-reporting rule also applies when the bonds are reissued in the name of your former co-owner and a new co-owner. Free turbotax for students But the new co-owner will report only his or her share of the interest earned after the transfer. Free turbotax for students   If bonds that you and a co-owner bought jointly are reissued to each of you separately in the same proportion as your contribution to the purchase price, neither you nor your co-owner has to report at that time the interest earned before the bonds were reissued. Free turbotax for students    Table 7-1. Free turbotax for students Who Pays the Tax on U. Free turbotax for students S. Free turbotax for students Savings Bond Interest IF . Free turbotax for students . Free turbotax for students . Free turbotax for students THEN the interest must be reported by . Free turbotax for students . Free turbotax for students . Free turbotax for students you buy a bond in your name and the name of another person as co-owners, using only your own funds you. Free turbotax for students you buy a bond in the name of another person, who is the sole owner of the bond the person for whom you bought the bond. Free turbotax for students you and another person buy a bond as co-owners, each contributing part of the purchase price both you and the other co-owner, in proportion to the amount each paid for the bond. Free turbotax for students you and your spouse, who live in a community property state, buy a bond that is community property you and your spouse. Free turbotax for students If you file separate returns, both you and your spouse generally report one-half of the interest. Free turbotax for students Example 1. Free turbotax for students You and your spouse each spent an equal amount to buy a $1,000 series EE savings bond. Free turbotax for students The bond was issued to you and your spouse as co-owners. Free turbotax for students You both postpone reporting interest on the bond. Free turbotax for students You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Free turbotax for students At that time neither you nor your spouse has to report the interest earned to the date of reissue. Free turbotax for students Example 2. Free turbotax for students You bought a $1,000 series EE savings bond entirely with your own funds. Free turbotax for students The bond was issued to you and your spouse as co-owners. Free turbotax for students You both postpone reporting interest on the bond. Free turbotax for students You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Free turbotax for students You must report half the interest earned to the date of reissue. Free turbotax for students Transfer to a trust. Free turbotax for students   If you own series E, series EE, or series I bonds and transfer them to a trust, giving up all rights of ownership, you must include in your income for that year the interest earned to the date of transfer if you have not already reported it. Free turbotax for students However, if you are considered the owner of the trust and if the increase in value both before and after the transfer continues to be taxable to you, you can continue to defer reporting the interest earned each year. Free turbotax for students You must include the total interest in your income in the year you cash or dispose of the bonds or the year the bonds finally mature, whichever is earlier. Free turbotax for students   The same rules apply to previously unreported interest on series EE or series E bonds if the transfer to a trust consisted of series HH or series H bonds you acquired in a trade for the series EE or series E bonds. Free turbotax for students See Savings bonds traded , later. Free turbotax for students Decedents. Free turbotax for students   The manner of reporting interest income on series E, series EE, or series I bonds, after the death of the owner (decedent), depends on the accounting and income-reporting methods previously used by the decedent. Free turbotax for students This is explained in chapter 1 of Publication 550. Free turbotax for students Savings bonds traded. Free turbotax for students   If you postponed reporting the interest on your series EE or series E bonds, you did not recognize taxable income when you traded the bonds for series HH or series H bonds, unless you received cash in the trade. Free turbotax for students (You cannot trade series I bonds for series HH bonds. Free turbotax for students After August 31, 2004, you cannot trade any other series of bonds for series HH bonds. Free turbotax for students ) Any cash you received is income up to the amount of the interest earned on the bonds traded. Free turbotax for students When your series HH or series H bonds mature, or if you dispose of them before maturity, you report as interest the difference between their redemption value and your cost. Free turbotax for students Your cost is the sum of the amount you paid for the traded series EE or series E bonds plus any amount you had to pay at the time of the trade. Free turbotax for students Example. Free turbotax for students You traded series EE bonds (on which you postponed reporting the interest) for $2,500 in series HH bonds and $223 in cash. Free turbotax for students You reported the $223 as taxable income on your tax return. Free turbotax for students At the time of the trade, the series EE bonds had accrued interest of $523 and a redemption value of $2,723. Free turbotax for students You hold the series HH bonds until maturity, when you receive $2,500. Free turbotax for students You must report $300 as interest income in the year of maturity. Free turbotax for students This is the difference between their redemption value, $2,500, and your cost, $2,200 (the amount you paid for the series EE bonds). Free turbotax for students (It is also the difference between the accrued interest of $523 on the series EE bonds and the $223 cash received on the trade. Free turbotax for students ) Choice to report interest in year of trade. Free turbotax for students   You could have chosen to treat all of the previously unreported accrued interest on the series EE or series E bonds traded for series HH bonds as income in the year of the trade. Free turbotax for students If you made this choice, it is treated as a change from method 1. Free turbotax for students See Change from method 1 under Series EE and series I bonds, earlier. Free turbotax for students Form 1099-INT for U. Free turbotax for students S. Free turbotax for students savings bonds interest. Free turbotax for students   When you cash a bond, the bank or other payer that redeems it must give you a Form 1099-INT if the interest part of the payment you receive is $10 or more. Free turbotax for students Box 3 of your Form 1099-INT should show the interest as the difference between the amount you received and the amount paid for the bond. Free turbotax for students However, your Form 1099-INT may show more interest than you have to include on your income tax return. Free turbotax for students For example, this may happen if any of the following are true. Free turbotax for students You chose to report the increase in the redemption value of the bond each year. Free turbotax for students The interest shown on your Form 1099-INT will not be reduced by amounts previously included in income. Free turbotax for students You received the bond from a decedent. Free turbotax for students The interest shown on your Form 1099-INT will not be reduced by any interest reported by the decedent before death, or on the decedent's final return, or by the estate on the estate's income tax return. Free turbotax for students Ownership of the bond was transferred. Free turbotax for students The interest shown on your Form 1099-INT will not be reduced by interest that accrued before the transfer. Free turbotax for students You were named as a co-owner, and the other co-owner contributed funds to buy the bond. Free turbotax for students The interest shown on your Form 1099-INT will not be reduced by the amount you received as nominee for the other co-owner. Free turbotax for students (See Co-owners , earlier in this chapter, for more information about the reporting requirements. Free turbotax for students ) You received the bond in a taxable distribution from a retirement or profit-sharing plan. Free turbotax for students The interest shown on your Form 1099-INT will not be reduced by the interest portion of the amount taxable as a distribution from the plan and not taxable as interest. Free turbotax for students (This amount is generally shown on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Free turbotax for students , for the year of distribution. Free turbotax for students )   For more information on including the correct amount of interest on your return, see How To Report Interest Income , later. Free turbotax for students Publication 550 includes examples showing how to report these amounts. Free turbotax for students    Interest on U. Free turbotax for students S. Free turbotax for students savings bonds is exempt from state and local taxes. Free turbotax for students The Form 1099-INT you receive will indicate the amount that is for U. Free turbotax for students S. Free turbotax for students savings bond interest in box 3. Free turbotax for students Education Savings Bond Program You may be able to exclude from income all or part of the interest you receive on the redemption of qualified U. Free turbotax for students S. Free turbotax for students savings bonds during the year if you pay qualified higher educational expenses during the same year. Free turbotax for students This exclusion is known as the Education Savings Bond Program. Free turbotax for students You do not qualify for this exclusion if your filing status is married filing separately. Free turbotax for students Form 8815. Free turbotax for students   Use Form 8815 to figure your exclusion. Free turbotax for students Attach the form to your Form 1040 or Form 1040A. Free turbotax for students Qualified U. Free turbotax for students S. Free turbotax for students savings bonds. Free turbotax for students   A qualified U. Free turbotax for students S. Free turbotax for students savings bond is a series EE bond issued after 1989 or a series I bond. Free turbotax for students The bond must be issued either in your name (sole owner) or in your and your spouse's names (co-owners). Free turbotax for students You must be at least 24 years old before the bond's issue date. Free turbotax for students For example, a bond bought by a parent and issued in the name of his or her child under age 24 does not qualify for the exclusion by the parent or child. Free turbotax for students    The issue date of a bond may be earlier than the date the bond is purchased because the issue date assigned to a bond is the first day of the month in which it is purchased. Free turbotax for students Beneficiary. Free turbotax for students   You can designate any individual (including a child) as a beneficiary of the bond. Free turbotax for students Verification by IRS. Free turbotax for students   If you claim the exclusion, the IRS will check it by using bond redemption information from the Department of the Treasury. Free turbotax for students Qualified expenses. Free turbotax for students   Qualified higher educational expenses are tuition and fees required for you, your spouse, or your dependent (for whom you claim an exemption) to attend an eligible educational institution. Free turbotax for students   Qualified expenses include any contribution you make to a qualified tuition program or to a Coverdell education savings account. Free turbotax for students   Qualified expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Free turbotax for students Eligible educational institutions. Free turbotax for students   These institutions include most public, private, and nonprofit universities, colleges, and vocational schools that are accredited and eligible to participate in student aid programs run by the U. Free turbotax for students S. Free turbotax for students Department of Education. Free turbotax for students Reduction for certain benefits. Free turbotax for students   You must reduce your qualified higher educational expenses by all of the following tax-free benefits. Free turbotax for students Tax-free part of scholarships and fellowships (see Scholarships and fellowships in chapter 12). Free turbotax for students Expenses used to figure the tax-free portion of distributions from a Coverdell ESA. Free turbotax for students Expenses used to figure the tax-free portion of distributions from a qualified tuition program. Free turbotax for students Any tax-free payments (other than gifts or inheritances) received for educational expenses, such as Veterans' educational assistance benefits, Qualified tuition reductions, or Employer-provided educational assistance. Free turbotax for students Any expense used in figuring the American Opportunity and lifetime learning credits. Free turbotax for students Amount excludable. Free turbotax for students   If the total proceeds (interest and principal) from the qualified U. Free turbotax for students S. Free turbotax for students savings bonds you redeem during the year are not more than your adjusted qualified higher educational expenses for the year, you may be able to exclude all of the interest. Free turbotax for students If the proceeds are more than the expenses, you may be able to exclude only part of the interest. Free turbotax for students   To determine the excludable amount, multiply the interest part of the proceeds by a fraction. Free turbotax for students The numerator of the fraction is the qualified higher educational expenses you paid during the year. Free turbotax for students The denominator of the fraction is the total proceeds you received during the year. Free turbotax for students Example. Free turbotax for students In February 2013, Mark and Joan, a married couple, cashed a qualified series EE U. Free turbotax for students S. Free turbotax for students savings bond they bought in April 1997. Free turbotax for students They received proceeds of $8,372 representing principal of $5,000 and interest of $3,372. Free turbotax for students In 2013, they paid $4,000 of their daughter's college tuition. Free turbotax for students They are not claiming an education credit for that amount, and their daughter does not have any tax-free educational assistance. Free turbotax for students They can exclude $1,611 ($3,372 × ($4,000 ÷ $8,372)) of interest in 2013. Free turbotax for students They must pay tax on the remaining $1,761 ($3,372 − $1,611) interest. Free turbotax for students Modified adjusted gross income limit. Free turbotax for students   The interest exclusion is limited if your modified adjusted gross income (modified AGI) is: $74,700 to $89,700 for taxpayers filing single or head of household, and $112,050 to $142,050 for married taxpayers filing jointly or for a qualifying widow(er) with dependent child. Free turbotax for students You do not qualify for the interest exclusion if your modified AGI is equal to or more than the upper limit for your filing status. Free turbotax for students   Modified AGI, for purposes of this exclusion, is adjusted gross income (Form 1040, line 37, or Form 1040A, line 21) figured before the interest exclusion, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion and deduction, Exclusion of income for bona fide residents of American Samoa, Exclusion for income from Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for tuition and fees, Deduction for student loan interest, and Deduction for domestic production activities. Free turbotax for students   Use the Line 9 Worksheet in the Form 8815 instructions to figure your modified AGI. Free turbotax for students If you claim any of the exclusion or deduction items listed above (except items 6, 7, and 8), add the amount of the exclusion or deduction (except items 6, 7, and 8) to the amount on line 5 of the worksheet, and enter the total on Form 8815, line 9, as your modified AGI. Free turbotax for students   If you have investment interest expense incurred to earn royalties and other investment income, see Education Savings Bond Program in chapter 1 of Publication 550. Free turbotax for students Recordkeeping. Free turbotax for students If you claim the interest exclusion, you must keep a written record of the qualified U. Free turbotax for students S. Free turbotax for students savings bonds you redeem. Free turbotax for students Your record must include the serial number, issue date, face value, and total redemption proceeds (principal and interest) of each bond. Free turbotax for students You can use Form 8818 to record this information. Free turbotax for students You should also keep bills, receipts, canceled checks, or other documentation that shows you paid qualified higher educational expenses during the year. Free turbotax for students U. Free turbotax for students S. Free turbotax for students Treasury Bills, Notes, and Bonds Treasury bills, notes, and bonds are direct debts (obligations) of the U. Free turbotax for students S. Free turbotax for students Government. Free turbotax for students Taxation of interest. Free turbotax for students   Interest income from Treasury bills, notes, and bonds is subject to federal income tax but is exempt from all state and local income taxes. Free turbotax for students You should receive Form 1099-INT showing the interest (in box 3) paid to you for the year. Free turbotax for students   Payments of principal and interest generally will be credited to your designated checking or savings account by direct deposit through the TreasuryDirect® system. Free turbotax for students Treasury bills. Free turbotax for students   These bills generally have a 4-week, 13-week, 26-week, or 52-week maturity period. Free turbotax for students They are generally issued at a discount in the amount of $100 and multiples of $100. Free turbotax for students The difference between the discounted price you pay for the bills and the face value you receive at maturity is interest income. Free turbotax for students Generally, you report this interest income when the bill is paid at maturity. Free turbotax for students If you paid a premium for a bill (more than the face value), you generally report the premium as a section 171 deduction when the bill is paid at maturity. Free turbotax for students Treasury notes and bonds. Free turbotax for students   Treasury notes have maturity periods of more than 1 year, ranging up to 10 years. Free turbotax for students Maturity periods for Treasury bonds are longer than 10 years. Free turbotax for students Both generally are issued in denominations of $100 to $1 million and generally pay interest every 6 months. Free turbotax for students Generally, you report this interest for the year paid. Free turbotax for students For more information, see U. Free turbotax for students S. Free turbotax for students Treasury Bills, Notes, and Bonds in chapter 1 of Publication 550. Free turbotax for students For other information on Treasury notes or bonds, write to:  Bureau of the Public Debt P. Free turbotax for students O. Free turbotax for students Box 7015 Parkersburg, WV 26106-7015 Or, on the Internet, visit: www. Free turbotax for students treasurydirect. Free turbotax for students gov/indiv/indiv. Free turbotax for students htm. Free turbotax for students For information on series EE, series I, and series HH savings bonds, see U. Free turbotax for students S. Free turbotax for students Savings Bonds , earlier. Free turbotax for students Treasury inflation-protected securities (TIPS). Free turbotax for students   These securities pay interest twice a year at a fixed rate, based on a principal amount adjusted to take into account inflation and deflation. Free turbotax for students For the tax treatment of these securities, see Inflation-Indexed Debt Instruments under Original Issue Discount (OID), in Publication 550. Free turbotax for students Bonds Sold Between Interest Dates If you sell a bond between interest payment dates, part of the sales price represents interest accrued to the date of sale. Free turbotax for students You must report that part of the sales price as interest income for the year of sale. Free turbotax for students If you buy a bond between interest payment dates, part of the purchase price represents interest accrued before the date of purchase. Free turbotax for students When that interest is paid to you, treat it as a return of your capital investment, rather than interest income, by reducing your basis in the bond. Free turbotax for students See Accrued interest on bonds under How To Report Interest Income in chapter 1 of Publication 550 for information on reporting the payment. Free turbotax for students Insurance Life insurance proceeds paid to you as beneficiary of the insured person are usually not taxable. Free turbotax for students But if you receive the proceeds in installments, you must usually report a part of each installment payment as interest income. Free turbotax for students For more information about insurance proceeds received in installments, see Publication 525, Taxable and Nontaxable Income. Free turbotax for students Annuity. Free turbotax for students   If you buy an annuity with life insurance proceeds, the annuity payments you receive are taxed as pension and annuity income from a nonqualified plan, not as interest income. Free turbotax for students See chapter 10 for information on pension and annuity income from nonqualified plans. Free turbotax for students State or Local Government Obligations Interest on a bond used to finance government operations generally is not taxable if the bond is issued by a state, the District of Columbia, a possession of the United States, or any of their political subdivisions. Free turbotax for students Bonds issued after 1982 (including tribal economic development bonds issued after February 17, 2009) by an Indian tribal government are treated as issued by a state. Free turbotax for students Interest on these bonds is generally tax exempt if the bonds are part of an issue of which substantially all proceeds are to be used in the exercise of any essential government function. Free turbotax for students For information on federally guaranteed bonds, mortgage revenue bonds, arbitrage bonds, private activity bonds, qualified tax credit bonds, and Build America bonds, see State or Local Government Obligations in chapter 1 of Publication 550. Free turbotax for students Information reporting requirement. Free turbotax for students   If you must file a tax return, you are required to show any tax-exempt interest you received on your return. Free turbotax for students This is an information reporting requirement only. Free turbotax for students It does not change tax-exempt interest to taxable interest. Free turbotax for students Original Issue Discount (OID) Original issue discount (OID) is a form of interest. Free turbotax for students You generally include OID in your income as it accrues over the term of the debt instrument, whether or not you receive any payments from the issuer. Free turbotax for students A debt instrument generally has OID when the instrument is issued for a price that is less than its stated redemption price at maturity. Free turbotax for students OID is the difference between the stated redemption price at maturity and the issue price. Free turbotax for students All debt instruments that pay no interest before maturity are presumed to be issued at a discount. Free turbotax for students Zero coupon bonds are one example of these instruments. Free turbotax for students The OID accrual rules generally do not apply to short-term obligations (those with a fixed maturity date of 1 year or less from date of issue). Free turbotax for students See Discount on Short-Term Obligations in chapter 1 of Publication 550. Free turbotax for students De minimis OID. Free turbotax for students   You can treat the discount as zero if it is less than one-fourth of 1% (. Free turbotax for students 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. Free turbotax for students This small discount is known as “de minimis” OID. Free turbotax for students Example 1. Free turbotax for students You bought a 10-year bond with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. Free turbotax for students One-fourth of 1% of $1,000 (stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. Free turbotax for students Because the $20 discount is less than $25, the OID is treated as zero. Free turbotax for students (If you hold the bond at maturity, you will recognize $20 ($1,000 − $980) of capital gain. Free turbotax for students ) Example 2. Free turbotax for students The facts are the same as in Example 1, except that the bond was issued at $950. Free turbotax for students The OID is $50. Free turbotax for students Because the $50 discount is more than the $25 figured in Example 1, you must include the OID in income as it accrues over the term of the bond. Free turbotax for students Debt instrument bought after original issue. Free turbotax for students   If you buy a debt instrument with de minimis OID at a premium, the discount is not includible in income. Free turbotax for students If you buy a debt instrument with de minimis OID at a discount, the discount is reported under the market discount rules. Free turbotax for students See Market Discount Bonds in chapter 1 of Publication 550. Free turbotax for students Exceptions to reporting OID. Free turbotax for students   The OID rules discussed in this chapter do not apply to the following debt instruments. Free turbotax for students Tax-exempt obligations. Free turbotax for students (However, see Stripped tax-exempt obligations under Stripped Bonds and Coupons in chapter 1 of Publication 550). Free turbotax for students U. Free turbotax for students S. Free turbotax for students savings bonds. Free turbotax for students Short-term debt instruments (those with a fixed maturity date of not more than 1 year from the date of issue). Free turbotax for students Obligations issued by an individual before March 2, 1984. Free turbotax for students Loans between individuals if all the following are true. Free turbotax for students The lender is not in the business of lending money. Free turbotax for students The amount of the loan, plus the amount of any outstanding prior loans between the same individuals, is $10,000 or less. Free turbotax for students Avoiding any federal tax is not one of the principal purposes of the loan. Free turbotax for students Form 1099-OID. Free turbotax for students   The issuer of the debt instrument (or your broker if you held the instrument through a broker) should give you Form 1099-OID, or a similar statement, if the total OID for the calendar year is $10 or more. Free turbotax for students Form 1099-OID will show, in box 1, the amount of OID for the part of the year that you held the bond. Free turbotax for students It also will show, in box 2, the stated interest you must include in your income. Free turbotax for students A copy of Form 1099-OID will be sent to the IRS. Free turbotax for students Do not file your copy with your return. Free turbotax for students Keep it for your records. Free turbotax for students   In most cases, you must report the entire amount in boxes 1 and 2 of Form 1099-OID as interest income. Free turbotax for students But see Refiguring OID shown on Form 1099-OID, later in this discussion, for more information. Free turbotax for students Form 1099-OID not received. Free turbotax for students   If you had OID for the year but did not receive a Form 1099-OID, you can find tables on IRS. Free turbotax for students gov that list total OID on certain debt instruments and have information that will help you figure OID. Free turbotax for students For the latest OID tables, go to www. Free turbotax for students irs. Free turbotax for students gov and enter “OID tables” in the Search box. Free turbotax for students If your debt instrument is not listed, consult the issuer for further information about the accrued OID for the year. Free turbotax for students Nominee. Free turbotax for students   If someone else is the holder of record (the registered owner) of an OID instrument belonging to you and receives a Form 1099-OID on your behalf, that person must give you a Form 1099-OID. Free turbotax for students Refiguring OID shown on Form 1099-OID. Free turbotax for students   You must refigure the OID shown in box 1 or box 8 of Form 1099-OID if either of the following apply. Free turbotax for students You bought the debt instrument after its original issue and paid a premium or an acquisition premium. Free turbotax for students The debt instrument is a stripped bond or a stripped coupon (including certain zero coupon instruments). Free turbotax for students For information about figuring the correct amount of OID to include in your income, see Figuring OID on Long-Term Debt Instruments in Publication 1212. Free turbotax for students Refiguring periodic interest shown on Form 1099-OID. Free turbotax for students   If you disposed of a debt instrument or acquired it from another holder during the year, see Bonds Sold Between Interest Dates , earlier, for information about the treatment of periodic interest that may be shown in box 2 of Form 1099-OID for that instrument. Free turbotax for students Certificates of deposit (CDs). Free turbotax for students   If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due and report it in the same manner as other OID. Free turbotax for students   This also applies to similar deposit arrangements with banks, building and loan associations, etc. Free turbotax for students , including: Time deposits, Bonus plans, Savings certificates, Deferred income certificates, Bonus savings certificates, and Growth savings certificates. Free turbotax for students Bearer CDs. Free turbotax for students   CDs issued after 1982 generally must be in registered form. Free turbotax for students Bearer CDs are CDs not in registered form. Free turbotax for students They are not issued in the depositor's name and are transferable from one individual to another. Free turbotax for students   Banks must provide the IRS and the person redeeming a bearer CD with a Form 1099-INT. Free turbotax for students More information. Free turbotax for students   See chapter 1 of Publication 550 for more information about OID and related topics, such as market discount bonds. Free turbotax for students When To Report Interest Income When to report your interest income depends on whether you use the cash method or an accrual method to report income. Free turbotax for students Cash method. Free turbotax for students   Most individual taxpayers use the cash method. Free turbotax for students If you use this method, you generally report your interest income in the year in which you actually or constructively receive it. Free turbotax for students However, there are special rules for reporting the discount on certain debt instruments. Free turbotax for students See U. Free turbotax for students S. Free turbotax for students Savings Bonds and Original Issue Discount (OID) , earlier. Free turbotax for students Example. Free turbotax for students On September 1, 2011, you loaned another individual $2,000 at 12%, compounded annually. Free turbotax for students You are not in the business of lending money. Free turbotax for students The note stated that principal and interest would be due on August 31, 2013. Free turbotax for students In 2013, you received $2,508. Free turbotax for students 80 ($2,000 principal and $508. Free turbotax for students 80 interest). Free turbotax for students If you use the cash method, you must include in income on your 2013 return the $508. Free turbotax for students 80 interest you received in that year. Free turbotax for students Constructive receipt. Free turbotax for students   You constructively receive income when it is credited to your account or made available to you. Free turbotax for students You do not need to have physical possession of it. Free turbotax for students For example, you are considered to receive interest, dividends, or other earnings on any deposit or account in a bank, savings and loan, or similar financial institution, or interest on life insurance policy dividends left to accumulate, when they are credited to your account and subject to your withdrawal. Free turbotax for students This is true even if they are not yet entered in your passbook. Free turbotax for students   You constructively receive income on the deposit or account even if you must: Make withdrawals in multiples of even amounts, Give a notice to withdraw before making the withdrawal, Withdraw all or part of the account to withdraw the earnings, or Pay a penalty on early withdrawals, unless the interest you are to receive on an early withdrawal or redemption is substantially less than the interest payable at maturity. Free turbotax for students Accrual method. Free turbotax for students   If you use an accrual method, you report your interest income when you earn it, whether or not you have received it. Free turbotax for students Interest is earned over the term of the debt instrument. Free turbotax for students Example. Free turbotax for students If, in the previous example, you use an accrual method, you must include the interest in your income as you earn it. Free turbotax for students You would report the interest as follows: 2011, $80; 2012, $249. Free turbotax for students 60; and 2013, $179. Free turbotax for students 20. Free turbotax for students Coupon bonds. Free turbotax for students   Interest on coupon bonds is taxable in the year the coupon becomes due and payable. Free turbotax for students It does not matter when you mail the coupon for payment. Free turbotax for students How To Report Interest Income Generally, you report all your taxable interest income on Form 1040, line 8a; Form 1040A, line 8a; or Form 1040EZ, line 2. Free turbotax for students You cannot use Form 1040EZ if your taxable interest income is more than $1,500. Free turbotax for students Instead, you must use Form 1040A or Form 1040. Free turbotax for students Form 1040A. Free turbotax for students   You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040A and any of the following are true. Free turbotax for students Your taxable interest income is more than $1,500. Free turbotax for students You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier). Free turbotax for students You received interest from a seller-financed mortgage, and the buyer used the property as a home. Free turbotax for students You received a Form 1099-INT for U. Free turbotax for students S. Free turbotax for students savings bond interest that includes amounts you reported before 2013. Free turbotax for students You received, as a nominee, interest that actually belongs to someone else. Free turbotax for students You received a Form 1099-INT for interest on frozen deposits. Free turbotax for students You are reporting OID in an amount less than the amount shown on Form 1099-OID. Free turbotax for students You received a Form 1099-INT for interest on a bond you bought between interest payment dates. Free turbotax for students You acquired taxable bonds after 1987 and choose to reduce interest income from the bonds by any amortizable bond premium (see Bond Premium Amortization in chapter 3 of Publication 550). Free turbotax for students List each payer's name and the amount of interest income received from each payer on line 1. Free turbotax for students If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer. Free turbotax for students   You cannot use Form 1040A if you must use Form 1040, as described next. Free turbotax for students Form 1040. Free turbotax for students   You must use Form 1040 instead of Form 1040A or Form 1040EZ if: You forfeited interest income because of the early withdrawal of a time deposit; You acquired taxable bonds after 1987, you choose to reduce interest income from the bonds by any amortizable bond premium, and you are deducting the excess of bond premium amortization for the accrual period over the qualified stated interest for the period (see Bond Premium Amortization in chapter 3 of Publication 550); or You received tax-exempt interest from private activity bonds issued after August 7, 1986. Free turbotax for students Schedule B (Form 1040A or 1040). Free turbotax for students   You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040 and any of the following apply. Free turbotax for students Your taxable interest income is more than $1,500. Free turbotax for students You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier). Free turbotax for students You received interest from a seller-financed mortgage, and the buyer used the property as a home. Free turbotax for students You received a Form 1099-INT for U. Free turbotax for students S. Free turbotax for students savings bond interest that includes amounts you reported before 2013. Free turbotax for students You received, as a nominee, interest that actually belongs to someone else. Free turbotax for students You received a Form 1099-INT for interest on frozen deposits. Free turbotax for students You received a Form 1099-INT for interest on a bond you bought between interest payment dates. Free turbotax for students You are reporting OID in an amount less than the amount shown on Form 1099-OID. Free turbotax for students Statement (2) in the preceding list under Form 1040 is true. Free turbotax for students In Part I, line 1, list each payer's name and the amount received from each. Free turbotax for students If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer. Free turbotax for students Reporting tax-exempt interest. Free turbotax for students   Total your tax-exempt interest (such as interest or accrued OID on certain state and municipal bonds, including tax-exempt interest on zero coupon municipal bonds) and exempt-interest dividends from a mutual fund as shown on Form 1099-INT, box 8, and on Form 1099-DIV, box 10. Free turbotax for students Add these amounts to any other tax-exempt interest you received. Free turbotax for students Report the total on line 8b of Form 1040A or 1040. Free turbotax for students   If you file Form 1040EZ, enter “TEI” and the amount in the space to the left of line 2. Free turbotax for students Do not add tax-exempt interest in the total on Form 1040EZ, line 2. Free turbotax for students   Form 1099-INT, box 9, and Form 1099-DIV, box 11, show the tax-exempt interest subject to the alternative minimum tax on Form 6251. Free turbotax for students These amounts are already included in the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10. Free turbotax for students Do not add the amounts in Form 1099-INT, box 9 and Form 1099-DIV, box 11 to, or subtract them from, the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10. Free turbotax for students    Do not report interest from an individual retirement account (IRA) as tax-exempt interest. Free turbotax for students Form 1099-INT. Free turbotax for students   Your taxable interest income, except for interest from U. Free turbotax for students S. Free turbotax for students savings bonds and Treasury obligations, is shown in box 1 of Form 1099-INT. Free turbotax for students Add this amount to any other taxable interest income you received. Free turbotax for students You must report all of your taxable interest income even if you do not receive a Form 1099-INT. Free turbotax for students Generally, contact your financial institution if you do not receive a Form 1099-INT by February 15. Free turbotax for students Your identifying number may be truncated on any paper Form 1099-INT you receive. Free turbotax for students   If you forfeited interest income because of the early withdrawal of a time deposit, the deductible amount will be shown on Form 1099-INT in box 2. Free turbotax for students See Penalty on early withdrawal of savings in chapter 1 of Publication 550. Free turbotax for students   Box 3 of Form 1099-INT shows the interest income you received from U. Free turbotax for students S. Free turbotax for students savings bonds, Treasury bills, Treasury notes, and Treasury bonds. Free turbotax for students Add the amount shown in box 3 to any other taxable interest income you received, unless part of the amount in box 3 was previously included in your interest income. Free turbotax for students If part of the amount shown in box 3 was previously included in your interest income, see U. Free turbotax for students S. Free turbotax for students savings bond interest previously reported , later. Free turbotax for students   Box 4 of Form 1099-INT will contain an amount if you were subject to backup withholding. Free turbotax for students Report the amount from box 4 on Form 1040EZ, line 7; on Form 1040A, line 36; or Form 1040, line 62 (federal income tax withheld). Free turbotax for students   Box 5 of Form 1099-INT shows investment expenses you may be able to deduct as an itemized deduction. Free turbotax for students See chapter 28 for more information about investment expenses. Free turbotax for students   If there are entries in boxes 6 and 7 of Form 1099-INT, you must file Form 1040. Free turbotax for students You may be able to take a credit for the amount shown in box 6 unless you deduct this amount on line 8 of Schedule A (Form 1040). Free turbotax for students To take the credit, you may have to file Form 1116, Foreign Tax Credit. Free turbotax for students For more information, see Publication 514, Foreign Tax Credit for Individuals. Free turbotax for students U. Free turbotax for students S. Free turbotax for students savings bond interest previously reported. Free turbotax for students   If you received a Form 1099-INT for U. Free turbotax for students S. Free turbotax for students savings bond interest, the form may show interest you do not have to report. Free turbotax for students See Form 1099-INT for U. Free turbotax for students S. Free turbotax for students savings bonds interest , earlier, under U. Free turbotax for students S. Free turbotax for students Savings Bonds. Free turbotax for students   On Schedule B (Form 1040A or 1040), Part I, line 1, report all the interest shown on your Form 1099-INT. Free turbotax for students Then follow these steps. Free turbotax for students Several lines above line 2, enter a subtotal of all interest listed on line 1. Free turbotax for students Below the subtotal enter “U. Free turbotax for students S. Free turbotax for students Savings Bond Interest Previously Reported” and enter amounts previously reported or interest accrued before you received the bond. Free turbotax for students Subtract these amounts from the subtotal and enter the result on line 2. Free turbotax for students More information. Free turbotax for students   For more information about how to report interest income, see chapter 1 of Publication 550 or the instructions for the form you must file. Free turbotax for students Prev  Up  Next   Home   More Online Publications