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

H&r block efile free 5. H&r block efile free   Figuring Your Tax Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Tax Year Identification NumberF-1 and M-1 visa holders. H&r block efile free J-1 visa holders. H&r block efile free Filing StatusResident Aliens Nonresident Aliens Reporting Your Income DeductionsResident Aliens Nonresident Aliens ExemptionsResident Aliens Nonresident Aliens Itemized DeductionsResident Aliens Nonresident Aliens Tax Credits and PaymentsResident Aliens Nonresident Aliens Bona Fide Residents of American Samoa or Puerto Rico Introduction After you have determined your alien status, the source of your income, and if and how that income is taxed in the United States, your next step is to figure your tax. H&r block efile free The information in this chapter is not as comprehensive for resident aliens as it is for nonresident aliens. H&r block efile free Resident aliens should get publications, forms, and instructions for U. H&r block efile free S. H&r block efile free citizens, because the information for filing returns for resident aliens is generally the same as for U. H&r block efile free S. H&r block efile free citizens. H&r block efile free If you are both a nonresident alien and a resident alien in the same tax year, see chapter 6 for a discussion of dual-status aliens. H&r block efile free Topics - This chapter discusses: Identification numbers, Filing status, Deductions, Exemptions, Tax credits and payments, and Special rules for bona fide residents of American Samoa and Puerto Rico. H&r block efile free Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 501 Exemptions, Standard Deduction, and Filing Information 521 Moving Expenses 526 Charitable Contributions 535 Business Expenses 597 Information on the United States–Canada Income Tax Treaty Form (and Instructions) W-7 Application for IRS Individual Taxpayer Identification Number 1040 U. H&r block efile free S. H&r block efile free Individual Income Tax Return 1040NR U. H&r block efile free S. H&r block efile free Nonresident Alien Income Tax Return 1040NR-EZ U. H&r block efile free S. H&r block efile free Income Tax Return for Certain Nonresident Aliens With No Dependents 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 3903 Moving Expenses 4563 Exclusion of Income for Bona Fide Residents of American Samoa 8959 Additional Medicare Tax See chapter 12 for information about getting these publications and forms. H&r block efile free Tax Year You must figure your income and file a tax return on the basis of an annual accounting period called a tax year. H&r block efile free If you have not previously established a fiscal tax year, your tax year is the calendar year. H&r block efile free A calendar year is 12 consecutive months ending on December 31. H&r block efile free If you have previously established a regular fiscal year (12 consecutive months ending on the last day of a month other than December or a 52–53 week year) and are considered to be a U. H&r block efile free S. H&r block efile free resident for any calendar year, you will be treated as a U. H&r block efile free S. H&r block efile free resident for any part of your fiscal year that falls within that calendar year. H&r block efile free Identification Number A taxpayer identification number must be furnished on returns, statements, and other tax-related documents. H&r block efile free For an individual, this is a social security number (SSN). H&r block efile free If you do not have and are not eligible to get an SSN, you must apply for an individual taxpayer identification number (ITIN). H&r block efile free An employer identification number (EIN) is required if you are engaged in a trade or business as a sole proprietor and have employees or a qualified retirement plan. H&r block efile free You must furnish a taxpayer identification number if you are: An alien who has income effectively connected with the conduct of a U. H&r block efile free S. H&r block efile free trade or business at any time during the year, An alien who has a U. H&r block efile free S. H&r block efile free office or place of business at any time during the year, A nonresident alien spouse treated as a resident, as discussed in chapter 1, or Any other alien who files a tax return, an amended return, or a refund claim (but not information returns). H&r block efile free Social security number (SSN). H&r block efile free   Generally, you can get an SSN if you have been lawfully admitted to the United States for permanent residence or under other immigration categories that authorize U. H&r block efile free S. H&r block efile free employment. H&r block efile free   To apply for this number, get Form SS-5, Application for a Social Security Card, from your local Social Security Administration (SSA) office or call the SSA at 1-800-772-1213. H&r block efile free You can also download Form SS-5 from the SSA's website at www. H&r block efile free socialsecurity. H&r block efile free gov/ssnumber/ss5. H&r block efile free htm. H&r block efile free You must visit an SSA office in person and submit your Form SS-5 along with original documentation showing your age, identity, immigration status, and authority to work in the United States. H&r block efile free Generally, you will receive your card about 2 weeks after the SSA has all of the necessary information. H&r block efile free F-1 and M-1 visa holders. H&r block efile free    If you are an F-1 or M-1 student, you must also show your Form I-20. H&r block efile free For more information, see SSA Publication 05-10181, International Students and Social Security Numbers, available online at www. H&r block efile free socialsecurity. H&r block efile free gov/pubs/10181. H&r block efile free html. H&r block efile free J-1 visa holders. H&r block efile free   If you are a J-1 exchange visitor, you will also need to show your Form DS-2019. H&r block efile free For more information, see SSA Publication 05-10107, Foreign Workers and Social Security Numbers, available online at www. H&r block efile free socialsecurity. H&r block efile free gov/pubs/10107. H&r block efile free html. H&r block efile free Individual taxpayer identification number (ITIN). H&r block efile free   If you do not have and are not eligible to get an SSN, you must apply for an ITIN. H&r block efile free For details on how to do so, see Form W-7 and its instructions. H&r block efile free Allow 6 to 10 weeks for the IRS to notify you of your ITIN. H&r block efile free If you already have an ITIN, enter it wherever an SSN is required on your tax return. H&r block efile free   An ITIN is for tax use only. H&r block efile free It does not entitle you to social security benefits or change your employment or immigration status under U. H&r block efile free S. H&r block efile free law. H&r block efile free   In addition to those aliens who are required to furnish a taxpayer identification number and are not eligible for an SSN, a Form W-7 must be filed for: Alien individuals who are claimed as dependents and are not eligible for an SSN, and Alien spouses who are claimed as exemptions and are not eligible for an SSN. H&r block efile free Employer identification number (EIN). H&r block efile free   An individual may use an SSN (or ITIN) for individual taxes and an EIN for business taxes. H&r block efile free To apply for an EIN, file Form SS-4, Application for Employer Identification Number, with the IRS. H&r block efile free Filing Status The amount of your tax depends on your filing status. H&r block efile free Your filing status is important in determining whether you can take certain deductions and credits. H&r block efile free The rules for determining your filing status are different for resident aliens and nonresident aliens. H&r block efile free Resident Aliens Resident aliens can use the same filing statuses available to U. H&r block efile free S. H&r block efile free citizens. H&r block efile free See your form instructions or Publication 501 for more information on filing status. H&r block efile free Married filing jointly. H&r block efile free   Generally, you can file as married filing jointly only if both you and your spouse were resident aliens for the entire tax year, or if you make one of the choices discussed in chapter 1 to treat your spouse as a resident alien for the entire tax year. H&r block efile free Qualifying widow(er). H&r block efile free   If your spouse died in 2011 or 2012, you did not remarry before the end of 2013, and you have a dependent child living with you, you may qualify to file as a qualifying widow(er) and use the joint return tax rates. H&r block efile free This applies only if you could have filed a joint return with your spouse for the year your spouse died. H&r block efile free Head of household. H&r block efile free   You can qualify as head of household if you are unmarried or considered unmarried on the last day of the year and you pay more than half the cost of keeping up a home for you and a qualifying person. H&r block efile free You must be a resident alien for the entire tax year. H&r block efile free   You are considered unmarried for this purpose if your spouse was a nonresident alien at any time during the year and you do not make one of the choices discussed in chapter 1 to treat your spouse as a resident alien for the entire tax year. H&r block efile free Note. H&r block efile free   Even if you are considered unmarried for head of household purposes because you are married to a nonresident alien, you may still be considered married for purposes of the earned income credit. H&r block efile free In that case, you will not be entitled to the credit. H&r block efile free See Publication 596 for more information. H&r block efile free Nonresident Aliens If you are a nonresident alien filing Form 1040NR, you may be able to use one of the filing statuses discussed later. H&r block efile free If you are filing Form 1040NR-EZ, you can only claim “Single nonresident alien” or “Married nonresident alien” as your filing status. H&r block efile free Married nonresident alien. H&r block efile free   Married nonresident aliens who are not married to U. H&r block efile free S. H&r block efile free citizens or residents generally must use the Tax Table column or the Tax Computation Worksheet for married filing separate returns when determining the tax on income effectively connected with a U. H&r block efile free S. H&r block efile free trade or business. H&r block efile free Exceptions. H&r block efile free   Married nonresident aliens normally cannot use the Tax Table column or the Tax Computation Worksheet for single individuals. H&r block efile free However, you may be able to file as single if you lived apart from your spouse during the last 6 months of the year and you are a married resident of Canada, Mexico, South Korea, or are a married U. H&r block efile free S. H&r block efile free national. H&r block efile free See the instructions for Form 1040NR or Form 1040NR-EZ to see if you qualify. H&r block efile free U. H&r block efile free S. H&r block efile free national is defined later in this section under Qualifying widow(er) . H&r block efile free   A nonresident alien generally cannot file as married filing jointly. H&r block efile free However, a nonresident alien who is married to a U. H&r block efile free S. H&r block efile free citizen or resident can choose to be treated as a resident and file a joint return on Form 1040, Form 1040A, or Form 1040EZ. H&r block efile free For information on these choices, see chapter 1. H&r block efile free If you do not make the choice to file jointly, file Form 1040NR or Form 1040NR-EZ and use the Tax Table column or the Tax Computation Worksheet for married individuals filing separately. H&r block efile free Qualifying widow(er). H&r block efile free   You may be eligible to file as a qualifying widow(er) and use the joint return tax rates if all of the following conditions apply. H&r block efile free You were a resident of Canada, Mexico, or South Korea, or a U. H&r block efile free S. H&r block efile free national (defined later). H&r block efile free Your spouse died in 2011 or 2012 and you did not remarry before the end of 2013. H&r block efile free You have a dependent child living with you. H&r block efile free See the instructions for Form 1040NR for the rules for filing as a qualifying widow(er) with a dependent child. H&r block efile free   A U. H&r block efile free S. H&r block efile free national is an individual who, although not a U. H&r block efile free S. H&r block efile free citizen, owes his or her allegiance to the United States. H&r block efile free U. H&r block efile free S. H&r block efile free nationals include American Samoans and Northern Mariana Islanders who chose to become U. H&r block efile free S. H&r block efile free nationals instead of U. H&r block efile free S. H&r block efile free citizens. H&r block efile free Head of household. H&r block efile free   You cannot file as head of household if you are a nonresident alien at any time during the tax year. H&r block efile free However, if you are married, your spouse can qualify as a head of household if: Your spouse is a resident alien or U. H&r block efile free S. H&r block efile free citizen for the entire tax year, You do not choose to be treated as a resident alien, and Your spouse meets the other requirements for this filing status, as discussed earlier under Resident Aliens . H&r block efile free Note. H&r block efile free   Even if your spouse is considered unmarried for head of household purposes because you are a nonresident alien, your spouse may still be considered married for purposes of the earned income credit. H&r block efile free In that case, your spouse will not be entitled to the credit. H&r block efile free See Publication 596 for more information. H&r block efile free Estates and trusts. H&r block efile free   A nonresident alien estate or trust using Form 1040NR must use Tax Rate Schedule W in the Form 1040NR instructions when determining the tax on income effectively connected with a U. H&r block efile free S. H&r block efile free trade or business. H&r block efile free Special rules for aliens from certain U. H&r block efile free S. H&r block efile free possessions. H&r block efile free   A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico for the entire tax year and who is temporarily working in the United States should read Bona Fide Residents of American Samoa or Puerto Rico, at the end of this chapter, for information about special rules. H&r block efile free Reporting Your Income You must report each item of income that is taxable according to the rules in chapters 2, 3, and 4. H&r block efile free For resident aliens, this includes income from sources both within and outside the United States. H&r block efile free For nonresident aliens, this includes both income that is effectively connected with a trade or business in the United States (subject to graduated tax rates) and income from U. H&r block efile free S. H&r block efile free sources that is not effectively connected (subject to a flat 30% tax rate or lower tax treaty rate). H&r block efile free Deductions Resident and nonresident aliens can claim similar deductions on their U. H&r block efile free S. H&r block efile free tax returns. H&r block efile free However, nonresident aliens generally can claim only deductions related to income that is effectively connected with their U. H&r block efile free S. H&r block efile free trade or business. H&r block efile free Resident Aliens You can claim the same deductions allowed to U. H&r block efile free S. H&r block efile free citizens if you are a resident alien for the entire tax year. H&r block efile free While the discussion that follows contains some of the same general rules and guidelines that apply to you, it is specifically directed toward nonresident aliens. H&r block efile free You should get Form 1040 and instructions for more information on how to claim your allowable deductions. H&r block efile free Nonresident Aliens You can claim deductions to figure your effectively connected taxable income. H&r block efile free You generally cannot claim deductions related to income that is not connected with your U. H&r block efile free S. H&r block efile free business activities. H&r block efile free Except for personal exemptions, and certain itemized deductions, discussed later, you can claim deductions only to the extent they are connected with your effectively connected income. H&r block efile free Ordinary and necessary business expenses. H&r block efile free   You can deduct all ordinary and necessary expenses in the operation of your U. H&r block efile free S. H&r block efile free trade or business to the extent they relate to income effectively connected with that trade or business. H&r block efile free The deduction for travel expenses while in the United States is discussed under Itemized Deductions, later. H&r block efile free For information about other business expenses, see Publication 535. H&r block efile free Losses. H&r block efile free   You can deduct losses resulting from transactions that you entered into for profit and that you were not reimbursed for by insurance, etc. H&r block efile free to the extent that they relate to income that is effectively connected with a trade or business in the United States. H&r block efile free Educator expenses. H&r block efile free   If you were an eligible educator in 2013, you can deduct as an adjustment to income up to $250 in unreimbursed qualified expenses you paid or incurred during 2013 for books, supplies (other than nonathletic supplies for courses of instruction in health or physical education), computer equipment, and other equipment and materials used in the classroom. H&r block efile free For more information, see your tax form instructions. H&r block efile free Individual retirement arrangement (IRA). H&r block efile free   If you made contributions to a traditional IRA for 2013, you may be able to take an IRA deduction. H&r block efile free But you must have taxable compensation effectively connected with a U. H&r block efile free S. H&r block efile free trade or business to do so. H&r block efile free A Form 5498 should be sent to you by May 31, 2014, that shows all contributions to your traditional IRA for 2013. H&r block efile free If you were covered by a retirement plan (qualified pension, profit-sharing (including 401(k)), annuity, SEP, SIMPLE, etc. H&r block efile free ) at work or through self-employment, your IRA deduction may be reduced or eliminated. H&r block efile free But you can still make contributions to a traditional IRA even if you cannot deduct them. H&r block efile free If you made nondeductible contributions to a traditional IRA for 2013, you must report them on Form 8606, Nondeductible IRAs. H&r block efile free   For more information, see Publication 590, Individual Retirement Arrangements (IRAs). H&r block efile free Moving expenses. H&r block efile free   If you are a nonresident alien temporarily in the United States earning taxable income for performing personal services, you can deduct moving expenses to the United States if you meet both of the following tests. H&r block efile free You are a full-time employee for at least 39 weeks during the 12 months right after you move, or if you are self-employed, you work full time for at least 39 weeks during the first 12 months and 78 weeks during the first 24 months right after you move. H&r block efile free Your new job location is at least 50 miles farther (by the shortest commonly traveled route) from your former home than your former job location was. H&r block efile free If you had no former job location, the new job location must be at least 50 miles from your former home. H&r block efile free   You cannot deduct the moving expense you have when returning to your home abroad or moving to a foreign job site. H&r block efile free   Figure your deductible moving expenses to the United States on Form 3903, and deduct them on line 26 of Form 1040NR. H&r block efile free   For more information on the moving expense deduction, see Publication 521. H&r block efile free Reimbursements. H&r block efile free   If your employer reimbursed you for allowable moving expenses under an accountable plan, your employer should have excluded these reimbursements from your income. H&r block efile free You can only deduct allowable moving expenses that were not reimbursed by your employer or that were reimbursed but the reimbursement was included in your income. H&r block efile free For more information, see Publication 521. H&r block efile free Moving expense or travel expense. H&r block efile free   If you deduct moving expenses to the United States, you cannot also deduct travel expenses (discussed later under Itemized Deductions) while temporarily away from your tax home in a foreign country. H&r block efile free Moving expenses are based on a change in your principal place of business while travel expenses are based on your temporary absence from your principal place of business. H&r block efile free Self-employed SEP, SIMPLE, and qualified retirement plans. H&r block efile free   If you are self-employed, you may be able to deduct contributions to a SEP, SIMPLE, or qualified retirement plan that provides retirement benefits for yourself and your common-law employees, if any. H&r block efile free To make deductible contributions for yourself, you must have net earnings from self-employment that are effectively connected with your U. H&r block efile free S. H&r block efile free trade or business. H&r block efile free   Get Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans), for further information. H&r block efile free Penalty on early withdrawal of savings. H&r block efile free   You must include in income all effectively connected interest income you receive or that is credited to your account during the year. H&r block efile free Do not reduce it by any penalty you must pay on an early withdrawal from a time savings account. H&r block efile free However, if the interest income is effectively connected with your U. H&r block efile free S. H&r block efile free trade or business during the year, you can deduct on line 30 of Form 1040NR the amount of the early withdrawal penalty that the banking institution charged. H&r block efile free Student loan interest expense. H&r block efile free   If you paid interest on a student loan in 2013, you may be able to deduct up to $2,500 of the interest you paid. H&r block efile free Generally, you can claim the deduction if all the following requirements are met. H&r block efile free Your filing status is any filing status except married filing separately. H&r block efile free Your modified adjusted gross income is less than $75,000. H&r block efile free No one else is claiming an exemption for you on his or her 2013 tax return. H&r block efile free You paid interest on a loan taken out only to pay tuition and other qualified higher education expenses for yourself, your spouse, someone who was your dependent when the loan was taken out, or someone you could have claimed as a dependent for the year the loan was taken out except that: The person filed a joint return, The person had gross income that was equal to or more than the exemption amount for that year ($3,900 for 2013), or You could be claimed as a dependent on someone else's return. H&r block efile free The loan is not from a related person or a person who borrowed the proceeds under a qualified employer plan or a contract purchased under such a plan. H&r block efile free The education expenses were paid or incurred within a reasonable period of time before or after the loan was taken out. H&r block efile free The person for whom the expenses were paid or incurred was an eligible student. H&r block efile free Use the worksheet in the Form 1040NR or Form 1040NR-EZ instructions to figure the deduction. H&r block efile free For more information, see Publication 970, Tax Benefits for Education. H&r block efile free Exemptions Resident aliens can claim personal exemptions and exemptions for dependents in the same way as U. H&r block efile free S. H&r block efile free citizens. H&r block efile free However, nonresident aliens generally can claim only a personal exemption for themselves on their U. H&r block efile free S. H&r block efile free tax return. H&r block efile free Resident Aliens You can claim personal exemptions and exemptions for dependents according to the dependency rules for U. H&r block efile free S. H&r block efile free citizens. H&r block efile free You can claim an exemption for your spouse on a separate return if your spouse had no gross income for U. H&r block efile free S. H&r block efile free tax purposes and was not the dependent of another taxpayer. H&r block efile free You can claim this exemption even if your spouse has not been a resident alien for a full tax year or is an alien who has not come to the United States. H&r block efile free You can claim an exemption for each person who qualifies as a dependent according to the rules for U. H&r block efile free S. H&r block efile free citizens. H&r block efile free The dependent must be a citizen or national (defined earlier) of the United States or be a resident of the United States, Canada, or Mexico for some part of the calendar year in which your tax year begins. H&r block efile free Get Publication 501 for more information. H&r block efile free Your spouse and each dependent for whom you claim an exemption must have either an SSN or an ITIN. H&r block efile free See Identification Number, earlier. H&r block efile free Nonresident Aliens Generally, if you are a nonresident alien engaged in a trade or business in the United States, you can claim only one personal exemption ($3,900 for 2013). H&r block efile free You may be able to claim an exemption for a spouse and a dependent if you are described in any of the following discussions. H&r block efile free Your spouse and each dependent for whom you claim an exemption must have either an SSN or an ITIN. H&r block efile free See Identification Number, earlier. H&r block efile free Residents of Mexico or Canada or U. H&r block efile free S. H&r block efile free nationals. H&r block efile free   If you are a resident of Mexico or Canada or a national of the United States (defined earlier), you can also claim a personal exemption for your spouse if your spouse had no gross income for U. H&r block efile free S. H&r block efile free tax purposes and cannot be claimed as the dependent on another U. H&r block efile free S. H&r block efile free taxpayer's return. H&r block efile free In addition, you can claim exemptions for your dependents who meet certain tests. H&r block efile free Residents of Mexico, Canada, or nationals of the United States must use the same rules as U. H&r block efile free S. H&r block efile free citizens to determine who is a dependent and for which dependents exemptions can be claimed. H&r block efile free See Publication 501 for these rules. H&r block efile free For purposes of these rules, dependents who are U. H&r block efile free S. H&r block efile free nationals meet the citizenship test discussed in Publication 501. H&r block efile free Residents of South Korea. H&r block efile free   Nonresident aliens who are residents of South Korea may be able to claim exemptions for a spouse and children. H&r block efile free The income tax treaty with South Korea imposes two additional requirements on South Korean residents: The spouse and all children claimed must live with the alien in the United States at some time during the tax year, and The additional deduction for the exemptions must be prorated based on the ratio of the alien's U. H&r block efile free S. H&r block efile free source gross income effectively connected with a U. H&r block efile free S. H&r block efile free trade or business for the tax year to the alien's entire income from all sources during the tax year. H&r block efile free Example. H&r block efile free Mr. H&r block efile free Park, a nonresident alien who is a resident of South Korea, lives temporarily in the United States with his wife and two children. H&r block efile free During the tax year he receives U. H&r block efile free S. H&r block efile free compensation of $18,000. H&r block efile free He also receives $6,000 of income from sources outside the United States that is not effectively connected with his U. H&r block efile free S. H&r block efile free trade or business. H&r block efile free Thus, his total income for the year is $24,000. H&r block efile free Mr. H&r block efile free Park meets all requirements for claiming exemptions for his spouse and two children. H&r block efile free The additional deduction for 2013 is $8,775 figured as follows: $18,000 $24,000 × $11,700* = $8,775               *3 × $3,900 = $11,700   Students and business apprentices from India. H&r block efile free   Students and business apprentices who are eligible for the benefits of Article 21(2) of the United States–India Income Tax Treaty may be able to claim exemptions for their spouse and dependents. H&r block efile free   You can claim an exemption for your spouse if he or she had no gross income during the year and cannot be claimed as a dependent on another U. H&r block efile free S. H&r block efile free taxpayer's return. H&r block efile free   You can claim exemptions for each of your dependents not admitted to the United States on “F-2,” “J-2,” or “M-2” visas if they meet the same rules that apply to U. H&r block efile free S. H&r block efile free citizens. H&r block efile free See Publication 501 for these rules. H&r block efile free   List your spouse and dependents on line 7c of Form 1040NR. H&r block efile free Enter the total on the appropriate line to the right of line 7c. H&r block efile free Itemized Deductions Nonresident aliens can claim some of the same itemized deductions that resident aliens can claim. H&r block efile free However, nonresident aliens can claim itemized deductions only if they have income effectively connected with their U. H&r block efile free S. H&r block efile free trade or business. H&r block efile free Resident Aliens You can claim the same itemized deductions as U. H&r block efile free S. H&r block efile free citizens, using Schedule A of Form 1040. H&r block efile free These deductions include certain medical and dental expenses, state and local income taxes, real estate taxes, interest you paid on a home mortgage, charitable contributions, casualty and theft losses, and miscellaneous deductions. H&r block efile free If you do not itemize your deductions, you can claim the standard deduction for your particular filing status. H&r block efile free For further information, see Form 1040 and instructions. H&r block efile free Nonresident Aliens You can deduct certain itemized deductions if you receive income effectively connected with your U. H&r block efile free S. H&r block efile free trade or business. H&r block efile free These deductions include state and local income taxes, charitable contributions to U. H&r block efile free S. H&r block efile free organizations, casualty and theft losses, and miscellaneous deductions. H&r block efile free Use Schedule A of Form 1040NR to claim itemized deductions. H&r block efile free If you are filing Form 1040NR-EZ, you can only claim a deduction for state or local income taxes. H&r block efile free If you are claiming any other itemized deduction, you must file Form 1040NR. H&r block efile free Standard deduction. H&r block efile free   Nonresident aliens cannot claim the standard deduction. H&r block efile free However, see Students and business apprentices from India , next. H&r block efile free Students and business apprentices from India. H&r block efile free   A special rule applies to students and business apprentices who are eligible for the benefits of Article 21(2) of the United States–India Income Tax Treaty. H&r block efile free You can claim the standard deduction provided you do not claim itemized deductions. H&r block efile free   Use Worksheet 5-1 to figure your standard deduction. H&r block efile free If you are married and your spouse files a return and itemizes deductions, you cannot take the standard deduction. H&r block efile free State and local income taxes. H&r block efile free   You can deduct state and local income taxes you paid on income that is effectively connected with a trade or business in the United States. H&r block efile free If you received a refund or rebate in 2013 of taxes you paid in an earlier year, do not reduce your deduction by that amount. H&r block efile free Instead, you must include the refund or rebate in income if you deducted the taxes in the earlier year and the deduction reduced your tax. H&r block efile free See Recoveries in Publication 525 for details on how to figure the amount to include in income. H&r block efile free Charitable contributions. H&r block efile free   You can deduct your charitable contributions or gifts to qualified organizations subject to certain limits. H&r block efile free Qualified organizations include organizations that are religious, charitable, educational, scientific, or literary in nature, or that work to prevent cruelty to children or animals. H&r block efile free Certain organizations that promote national or international amateur sports competition are also qualified organizations. H&r block efile free Foreign organizations. H&r block efile free   Contributions made directly to a foreign organization are not deductible. H&r block efile free However, you can deduct contributions to a U. H&r block efile free S. H&r block efile free organization that transfers funds to a charitable foreign organization if the U. H&r block efile free S. H&r block efile free organization controls the use of the funds or if the foreign organization is only an administrative arm of the U. H&r block efile free S. H&r block efile free organization. H&r block efile free   For more information about organizations that qualify to receive charitable contributions, see Publication 526, Charitable Contributions. H&r block efile free Worksheet 5-1. H&r block efile free 2013 Standard Deduction Worksheet for Students and Business Apprentices From India Caution. H&r block efile free If you are married filing a separate return and your spouse itemizes deductions, do not complete this worksheet. H&r block efile free You cannot take the standard deduction even if you were born before January 2, 1949, or are blind. H&r block efile free 1 Enter the amount shown below for your filing status. H&r block efile free           Single or married filing separately—$6,100 Qualifying widow(er)—$12,200 1. H&r block efile free           2 Can you be claimed as a dependent on someone else's U. H&r block efile free S. H&r block efile free income tax return?  No. H&r block efile free Enter the amount from line 1 on line 4. H&r block efile free Skip line 3 and go to line 5. H&r block efile free   Yes. H&r block efile free Go to line 3. H&r block efile free         3 Is your earned income* more than $650?           Yes. H&r block efile free Add $350 to your earned income. H&r block efile free Enter the total. H&r block efile free           No. H&r block efile free Enter $1,000 3. H&r block efile free       4 Enter the smaller of line 1 or line 3 4. H&r block efile free   5 If born before January 2, 1949, OR blind, enter $1,200 ($1,500 if single). H&r block efile free If born before January 2, 1949, AND blind, enter $2,400 ($3,000 if single). H&r block efile free Otherwise, enter -0- 5. H&r block efile free   6 Add lines 4 and 5. H&r block efile free Enter the total here and on Form 1040NR, line 38 (or Form 1040NR-EZ, line 11). H&r block efile free Print “Standard Deduction Allowed Under U. H&r block efile free S. H&r block efile free –India Income Tax Treaty” in the space to the left of these lines. H&r block efile free This is your standard deduction for 2013. H&r block efile free 6. H&r block efile free   *Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. H&r block efile free It also includes any amount received as a scholarship that you must include in your income. H&r block efile free Generally, your earned income is the total of the amount(s) you reported on Form 1040NR, lines 8,12,13, and 19, minus amounts on lines 27 and 31 (or Form 1040NR-EZ, lines 3 and 5, minus any amount on line 8). H&r block efile free Contributions from which you benefit. H&r block efile free   If you receive a benefit as a result of making a contribution to a qualified organization, you can deduct only the amount of your contribution that is more than the value of the benefit you receive. H&r block efile free   If you pay more than the fair market value to a qualified organization for merchandise, goods, or services, the amount you pay that is more than the value of the item can be a charitable contribution. H&r block efile free For the excess amount to qualify, you must pay it with the intent to make a charitable contribution. H&r block efile free Cash contributions. H&r block efile free   You cannot deduct a cash contribution, regardless of the amount, unless you keep as a record of the contribution a bank record (such as a canceled check, a bank copy of a canceled check, or a bank statement containing the name of the charity, the date, and the amount) or a written record from the charity. H&r block efile free The written record must include the name of the charity, date of the contribution, and the amount of the contribution. H&r block efile free   You may deduct a cash contribution of $250 or more only if you have a written statement from the charitable organization showing: The amount of any money contributed, Whether the organization gave you any goods or services in return for your contribution, and A description and estimate of the value of any goods or services described in (2). H&r block efile free If you received only intangible religious benefits, the organization must state this, but it does not have to describe or value the benefit. H&r block efile free Noncash contributions. H&r block efile free   For contributions not made in cash, the records you must keep depend on the amount of your deduction. H&r block efile free See Publication 526 for details. H&r block efile free For example, if you make a noncash contribution and the amount of your deduction is more than $500, you must complete and attach to your tax return Form 8283, Noncash Charitable Contributions. H&r block efile free If you deduct more than $500 for a contribution of a motor vehicle, boat, or airplane, you must also attach a statement from the charitable organization to your return. H&r block efile free If your total deduction is over $5,000, you also may have to get appraisals of the values of the property. H&r block efile free If the donated property is valued at more than $5,000, you must obtain a qualified appraisal. H&r block efile free You generally must attach to your tax return an appraisal of any property if your deduction for the property is more than $500,000. H&r block efile free See Form 8283 and its instructions for details. H&r block efile free Contributions of appreciated property. H&r block efile free   If you contribute property to a qualified organization, the amount of your charitable contribution is generally the fair market value of the property at the time of the contribution. H&r block efile free However, if you contribute property with a fair market value that is more than your basis in it, you may have to reduce the fair market value by the amount of appreciation (increase in value) when you figure your deduction. H&r block efile free Your basis in the property is generally what you paid for it. H&r block efile free If you need more information about basis, get Publication 551, Basis of Assets. H&r block efile free   Different rules apply to figuring your deduction, depending on whether the property is: Ordinary income property, or Capital gain property. H&r block efile free For information about these rules, see Publication 526. H&r block efile free Limit. H&r block efile free   The amount you can deduct in a tax year is limited in the same way it is for a citizen or resident of the United States. H&r block efile free For a discussion of limits on charitable contributions and other information, get Publication 526. H&r block efile free Casualty and theft losses. H&r block efile free   You can deduct your loss from fire, storm, shipwreck, or other casualty, or theft of property even though your property is not connected with a U. H&r block efile free S. H&r block efile free trade or business. H&r block efile free The property can be personal use property or income-producing property not connected with a U. H&r block efile free S. H&r block efile free trade or business. H&r block efile free The property must be located in the United States at the time of the casualty or theft. H&r block efile free You can deduct theft losses only in the year in which you discover the loss. H&r block efile free   The amount of the loss is the fair market value of the property immediately before the casualty or theft less its fair market value immediately after the casualty or theft (but not more than its cost or adjusted basis) less any insurance or other reimbursement. H&r block efile free The fair market value of property immediately after a theft is considered zero, because you no longer have the property. H&r block efile free   If your property is covered by insurance, you should file a timely insurance claim for reimbursement. H&r block efile free If you do not, you cannot deduct this loss as a casualty or theft loss. H&r block efile free   Figure your deductible casualty and theft losses on Form 4684, Casualties and Thefts. H&r block efile free Losses from personal use property. H&r block efile free    You cannot deduct the first $100 of each casualty or theft loss to property held for personal use. H&r block efile free You can deduct only the total of these losses for the year (reduced by the $100 limit) that is more than 10% of your adjusted gross income (line 37, Form 1040NR) for the year. H&r block efile free Losses from income-producing property. H&r block efile free   These losses are not subject to the limitations that apply to personal use property. H&r block efile free Use Section B of Form 4684 to figure your deduction for these losses. H&r block efile free Job expenses and other miscellaneous deductions. H&r block efile free   You can deduct job expenses, such as allowable unreimbursed travel expenses (discussed next), and other miscellaneous deductions. H&r block efile free Generally, the allowable deductions must be related to effectively connected income. H&r block efile free Deductible expenses include: Union dues, Safety equipment and small tools needed for your job, Dues to professional organizations, Subscriptions to professional journals, Tax return preparation fees, and Casualty and theft losses of property used in performing services as an employee (employee property). H&r block efile free   Most miscellaneous itemized deductions are deductible only if they are more than 2% of your adjusted gross income (line 37, Form 1040NR). H&r block efile free For more information on miscellaneous deductions, see the instructions for Form 1040NR. H&r block efile free Travel expenses. H&r block efile free   You may be able to deduct your ordinary and necessary travel expenses while you are temporarily performing personal services in the United States. H&r block efile free Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for one year or less. H&r block efile free You must be able to show you were present in the United States on an activity that required your temporary absence from your regular place of work. H&r block efile free   For example, if you have established a “tax home” through regular employment in a foreign country, and intend to return to similar employment in the same country at the end of your temporary stay in the United States, you can deduct reasonable travel expenses you paid. H&r block efile free You cannot deduct travel expenses for other members of your family or party. H&r block efile free Deductible travel expenses. H&r block efile free   If you qualify, you can deduct your expenses for: Transportation—airfare, local transportation, including train, bus, etc. H&r block efile free , Lodging—rent paid, utilities (do not include telephone), hotel or motel room expenses, and Meal expenses—actual expenses allowed if you keep records of the amounts, or, if you do not wish to keep detailed records, you are generally allowed a standard meal allowance amount depending on the date and area of your travel. H&r block efile free You generally can deduct only 50% of unreimbursed meal expenses. H&r block efile free The standard meal allowance rates for high-cost areas are available at www. H&r block efile free gsa. H&r block efile free gov/perdiem. H&r block efile free The rates for other areas are in Publication 463. H&r block efile free   Use Form 2106 or 2106-EZ to figure your allowable expenses that you claim on line 7 of Schedule A (Form 1040NR). H&r block efile free Expenses allocable to U. H&r block efile free S. H&r block efile free tax-exempt income. H&r block efile free   You cannot deduct an expense, or part of an expense, that is allocable to U. H&r block efile free S. H&r block efile free tax-exempt income, including income exempt by tax treaty. H&r block efile free Example. H&r block efile free Irina Oak, a citizen of Poland, resided in the United States for part of the year to acquire business experience from a U. H&r block efile free S. H&r block efile free company. H&r block efile free During her stay in the United States, she received a salary of $8,000 from her Polish employer. H&r block efile free She received no other U. H&r block efile free S. H&r block efile free source income. H&r block efile free She spent $3,000 on travel expenses, of which $1,000 were for meals. H&r block efile free None of these expenses were reimbursed. H&r block efile free Under the tax treaty with Poland, $5,000 of her salary is exempt from U. H&r block efile free S. H&r block efile free income tax. H&r block efile free In filling out Form 2106-EZ, she must reduce her deductible meal expenses by half ($500). H&r block efile free She must reduce the remaining $2,500 of travel expenses by 62. H&r block efile free 5% ($1,563) because 62. H&r block efile free 5% ($5,000 ÷ $8,000) of her salary is exempt from tax. H&r block efile free She enters the remaining total of $937 on line 7 of Schedule A (Form 1040NR). H&r block efile free She completes the remaining lines according to the instructions for Schedule A. H&r block efile free More information. H&r block efile free   For more information about deductible expenses, reimbursements, and recordkeeping, get Publication 463. H&r block efile free Tax Credits and Payments This discussion covers tax credits and payments for resident aliens, followed by a discussion of the credits and payments for nonresident aliens. H&r block efile free Resident Aliens Resident aliens generally claim tax credits and report tax payments, including withholding, using the same rules that apply to U. H&r block efile free S. H&r block efile free citizens. H&r block efile free The following items are some of the credits you may be able to claim. H&r block efile free Foreign tax credit. H&r block efile free   You can claim a credit, subject to certain limits, for income tax you paid or accrued to a foreign country on foreign source income. H&r block efile free You cannot claim a credit for taxes paid or accrued on excluded foreign earned income. H&r block efile free To claim a credit for income taxes paid or accrued to a foreign country, you generally will file Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), with your Form 1040. H&r block efile free   For more information, get Publication 514, Foreign Tax Credit for Individuals. H&r block efile free Child and dependent care credit. H&r block efile free   You may be able to take this credit if you pay someone to care for your qualifying child who is under age 13, or your disabled dependent or disabled spouse, so that you can work or look for work. H&r block efile free Generally, you must be able to claim an exemption for your dependent. H&r block efile free   For more information, get Publication 503, Child and Dependent Care Expenses, and Form 2441, Child and Dependent Care Expenses. H&r block efile free Credit for the elderly or the disabled. H&r block efile free   You may qualify for this credit if you are 65 or older or if you retired on permanent and total disability. H&r block efile free For more information on this credit, get Publication 524, Credit for the Elderly or the Disabled, and Schedule R (Form 1040A or 1040). H&r block efile free Education credits. H&r block efile free   You may qualify for these credits if you paid qualified education expenses for yourself, your spouse, or your dependent. H&r block efile free There are two education credits: the American Opportunity Credit and the lifetime learning credit. H&r block efile free You cannot claim these credits if you are married filing separately. H&r block efile free Use Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits), to figure the credit. H&r block efile free For more information, see Publication 970. H&r block efile free Retirement savings contributions credit. H&r block efile free   You may qualify for this credit (also known as the saver's credit) if you made eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement (IRA) in 2013. H&r block efile free You cannot claim this credit if: You were born after January 1, 1996, You were a full-time student, Your exemption is claimed by someone else on his or her 2013 tax return, or Your adjusted gross income is more than: $59,000, if your filing status is married filing jointly, $44,250, if your filing status is head of household, or $29,500, if your filing status is single, married filing separately, or qualifying widow(er). H&r block efile free Use Form 8880, Credit for Qualified Retirement Savings Contributions, to figure the credit. H&r block efile free For more information, see Publication 590. H&r block efile free Child tax credit. H&r block efile free   You may be able to take this credit if you have a qualifying child. H&r block efile free   A qualifying child for purposes of the child tax credit is a child who: Was under age 17 at the end of 2013. H&r block efile free Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew). H&r block efile free Is a U. H&r block efile free S. H&r block efile free citizen, a U. H&r block efile free S. H&r block efile free national, or a resident alien. H&r block efile free Did not provide over half of his or her own support for 2013. H&r block efile free Lived with you more than half of 2013. H&r block efile free Temporary absences, such as for school, vacation, or medical care, count as time lived in the home. H&r block efile free Is claimed as a dependent on your return. H&r block efile free An adopted child is always treated as your own child. H&r block efile free An adopted child includes a child lawfully placed with you for legal adoption. H&r block efile free   See your form instructions for additional details. H&r block efile free Adoption credit. H&r block efile free   You may qualify to take a tax credit of up to $12,970 for qualifying expenses paid to adopt an eligible child. H&r block efile free This amount may be allowed for the adoption of a child with special needs regardless of whether you have qualifying expenses. H&r block efile free To claim the adoption credit, file Form 8839, Qualified Adoption Expenses, with your Form 1040. H&r block efile free Earned income credit. H&r block efile free   You may qualify for an earned income credit of up to $3,250 if a child lived with you in the United States and your earned income and adjusted gross income were each less than $37,870 ($43,210 if married filing jointly). H&r block efile free If two children lived with you in the United States and your earned income and adjusted gross income were each less than $43,038 ($48,378 if married filing jointly), your credit could be as much as $5,372. H&r block efile free If three or more children lived with you in the United States and your earned income and adjusted gross income were each less than $46,227 ($51,567 if married filing jointly), your credit could be as much as $6,044. H&r block efile free If you do not have a qualifying child and your earned income and adjusted gross income were each less than $14,340 ($19,680 if married filing jointly), your credit could be as much as $487. H&r block efile free You cannot claim the earned income credit if your filing status is married filing separately. H&r block efile free    You and your spouse (if filing a joint return) and any qualifying child must have valid SSNs to claim this credit. H&r block efile free You cannot claim the credit using an ITIN. H&r block efile free If a social security card has a legend that says Not Valid for Employment and the number was issued so that you (or your spouse or your qualifying child) could receive a federally funded benefit, you cannot claim the earned income credit. H&r block efile free An example of a federally funded benefit is Medicaid. H&r block efile free If a card has this legend and the individual's immigration status has changed so that the individual is now a U. H&r block efile free S. H&r block efile free citizen or lawful permanent resident, ask the SSA to issue a new social security card without the legend. H&r block efile free Other information. H&r block efile free   There are other eligibility rules that are not discussed here. H&r block efile free For more information, get Publication 596, Earned Income Credit. H&r block efile free Nonresident Aliens You can claim some of the same credits that resident aliens can claim. H&r block efile free You can also report certain taxes you paid, are considered to have paid, or that were withheld from your income. H&r block efile free Credits Credits are allowed only if you receive effectively connected income. H&r block efile free You may be able to claim some of the following credits. H&r block efile free Foreign tax credit. H&r block efile free   If you receive foreign source income that is effectively connected with a trade or business in the United States, you can claim a credit for any income taxes paid or accrued to any foreign country or U. H&r block efile free S. H&r block efile free possession on that income. H&r block efile free   If you do not have foreign source income effectively connected with a U. H&r block efile free S. H&r block efile free trade or business, you cannot claim credits against your U. H&r block efile free S. H&r block efile free tax for taxes paid or accrued to a foreign country or U. H&r block efile free S. H&r block efile free possession. H&r block efile free   You cannot take any credit for taxes imposed by a foreign country or U. H&r block efile free S. H&r block efile free possession on your U. H&r block efile free S. H&r block efile free source income if those taxes were imposed only because you are a citizen or resident of the foreign country or possession. H&r block efile free   If you claim a foreign tax credit, you generally will have to attach to your return a Form 1116. H&r block efile free See Publication 514 for more information. H&r block efile free Child and dependent care credit. H&r block efile free   You may qualify for this credit if you pay someone to care for your qualifying child who is under age 13, or your disabled dependent or disabled spouse, so that you can work or look for work. H&r block efile free Generally, you must be able to claim an exemption for your dependent. H&r block efile free   Married nonresident aliens can claim the credit only if they choose to file a joint return with a U. H&r block efile free S. H&r block efile free citizen or resident spouse as discussed in chapter 1, or if they qualify as certain married individuals living apart (see Joint Return Test in Publication 503). H&r block efile free   The amount of your child and dependent care expense that qualifies for the credit in any tax year cannot be more than your earned income from the United States for that tax year. H&r block efile free Earned income generally means wages, salaries, and professional fees for personal services performed. H&r block efile free   For more information, get Publication 503. H&r block efile free Education credits. H&r block efile free   If you are a nonresident alien for any part of the year, you generally cannot claim the education credits. H&r block efile free However, if you are married and choose to file a joint return with a U. H&r block efile free S. H&r block efile free citizen or resident spouse as discussed in chapter 1, you may be eligible for these credits. H&r block efile free Retirement savings contributions credit. H&r block efile free   You may qualify for this credit (also known as the saver's credit) if you made eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement (IRA) in 2013. H&r block efile free You cannot claim this credit if: You were born after January 1, 1996, You were a full-time student, Your exemption is claimed by someone else on his or her 2013 tax return, or Your adjusted gross income is more than $29,500. H&r block efile free Use Form 8880 to figure the credit. H&r block efile free For more information, see Publication 590. H&r block efile free Child tax credit. H&r block efile free   You may be able to take this credit if you have a qualifying child. H&r block efile free   A qualifying child for purposes of the child tax credit is a child who: Was under age 17 at the end of 2013. H&r block efile free Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew). H&r block efile free Is a U. H&r block efile free S. H&r block efile free citizen, a U. H&r block efile free S. H&r block efile free national, or a resident alien. H&r block efile free Did not provide over half of his or her own support for 2013. H&r block efile free Lived with you more than half of 2013. H&r block efile free Temporary absences, such as for school, vacation, or medical care, count as time lived in the home. H&r block efile free Is claimed as a dependent on your return. H&r block efile free An adopted child is always treated as your own child. H&r block efile free An adopted child includes a child lawfully placed with you for legal adoption. H&r block efile free   See your form instructions for additional details. H&r block efile free Adoption credit. H&r block efile free   You may qualify to take a tax credit of up to $12,970 for qualifying expenses paid to adopt an eligible child. H&r block efile free This amount may be allowed for the adoption of a child with special needs regardless of whether you have qualifying expenses. H&r block efile free To claim the adoption credit, file Form 8839 with your Form 1040NR. H&r block efile free   Married nonresident aliens can claim the credit only if they choose to file a joint return with a U. H&r block efile free S. H&r block efile free citizen or resident spouse as discussed in chapter 1, or if they qualify as certain married individuals living apart (see Married Persons Not Filing Jointly in the Form 8839 instructions). H&r block efile free Credit for prior year minimum tax. H&r block efile free   If you paid alternative minimum tax in a prior year, get Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts, to see if you qualify for this credit. H&r block efile free Earned income credit. H&r block efile free   If you are a nonresident alien for any part of the tax year, you generally cannot get the earned income credit. H&r block efile free However, if you are married and choose to file a joint return with a U. H&r block efile free S. H&r block efile free citizen or resident spouse as discussed in chapter 1, you may be eligible for the credit. H&r block efile free    You, your spouse, and any qualifying child must have valid SSNs to claim this credit. H&r block efile free You cannot claim the credit using an ITIN. H&r block efile free If a social security card has a legend that says Not Valid for Employment and the number was issued so that you (or your spouse or your qualifying child) could receive a federally funded benefit, you cannot claim the earned income credit. H&r block efile free An example of a federally funded benefit is Medicaid. H&r block efile free If a card has this legend and the individual's immigration status has changed so that the individual is now a U. H&r block efile free S. H&r block efile free citizen or lawful permanent resident, ask the SSA to issue a new social security card without the legend. H&r block efile free   See Publication 596 for more information on the credit. H&r block efile free Tax Withheld You can claim the tax withheld during the year as a payment against your U. H&r block efile free S. H&r block efile free tax. H&r block efile free You claim it on line 61 of Form 1040NR or on line 18 of Form 1040NR-EZ. H&r block efile free The tax withheld reduces any tax you owe with Form 1040NR or Form 1040NR-EZ. H&r block efile free Withholding from wages. H&r block efile free   Any federal income tax withheld from your wages during the tax year while you were a nonresident alien is allowed as a payment against your U. H&r block efile free S. H&r block efile free income tax liability for the same year. H&r block efile free You can claim the income tax withheld whether or not you were engaged in a trade or business in the United States during the year, and whether or not the wages (or any other income) were connected with a trade or business in the United States. H&r block efile free Excess social security tax withheld. H&r block efile free   If you have two or more employers, you may be able to claim a credit against your U. H&r block efile free S. H&r block efile free income tax liability for social security tax withheld in excess of the maximum required. H&r block efile free See Social Security and Medicare Taxes in chapter 8 for more information. H&r block efile free Additional Medicare Tax. H&r block efile free   Your employer is responsible for withholding the 0. H&r block efile free 9% Additional Medicare Tax on Medicare wages or RRTA compensation it pays to you in excess of $200,000 in 2013. H&r block efile free If you do not owe Additional Medicare Tax, you can claim a credit for any withheld Additional Medicare Tax against the total tax liability shown on your tax return by filing Form 8959. H&r block efile free Tax paid on undistributed long-term capital gains. H&r block efile free   If you are a shareholder in a mutual fund (or other regulated investment company) or real estate investment trust, you can claim a credit for your share of any taxes paid by the company on its undistributed long-term capital gains. H&r block efile free You will receive information on Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, which you must attach to your return. H&r block efile free Tax withheld at the source. H&r block efile free   You can claim as a payment any tax withheld at the source on investment and other fixed or determinable annual or periodic income paid to you. H&r block efile free Fixed or determinable income includes interest, dividend, rental, and royalty income that you do not claim to be effectively connected income. H&r block efile free Wage or salary payments can be fixed or determinable income to you, but usually are subject to withholding as discussed above. H&r block efile free Taxes on fixed or determinable income are withheld at a 30% rate or at a lower treaty rate. H&r block efile free Tax withheld on partnership income. H&r block efile free   If you are a foreign partner in a partnership, the partnership will withhold tax on your share of effectively connected taxable income from the partnership. H&r block efile free The partnership will give you a statement on Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, showing the tax withheld. H&r block efile free A partnership that is publicly traded may withhold on your actual distributions of effectively connected income. H&r block efile free In this case, the partnership will give you a statement on Form 1042-S. H&r block efile free Claim the tax withheld as a payment on line 61b or 61d of Form 1040NR, as appropriate. H&r block efile free Claiming tax withheld on your return. H&r block efile free   When you fill out your tax return, take extra care to enter the correct amount of any tax withheld shown on your information documents. H&r block efile free The following table lists some of the more common information documents and shows where to find the amount of tax withheld. H&r block efile free Form number Location  of tax  withheld RRB-1042S Box 12 SSA-1042S Box 9 W-2 Box 2 W-2c Box 2 1042-S Box 9 8805 Line 10 8288-A Box 2 Bona Fide Residents of American Samoa or Puerto Rico If you are a nonresident alien who is a bona fide resident of American Samoa or Puerto Rico for the entire tax year, you generally are taxed the same as resident aliens. H&r block efile free You should file Form 1040 and report all income from sources both in and outside the United States. H&r block efile free However, you can exclude the income discussed in the following paragraphs. H&r block efile free For tax purposes other than reporting income, however, you will be treated as a nonresident alien. H&r block efile free For example, you are not allowed the standard deduction, you cannot file a joint return, and you are not allowed a deduction for a dependent unless that person is a citizen or national of the United States. H&r block efile free There are also limits on what deductions and credits are allowed. H&r block efile free See Nonresident Aliens under Deductions , Itemized Deductions , and Tax Credits and Payments in this chapter. H&r block efile free Residents of Puerto Rico. H&r block efile free   If you are a bona fide resident of Puerto Rico for the entire year, you can exclude from gross income all income from sources in Puerto Rico (other than amounts for services performed as an employee of the United States or any of its agencies). H&r block efile free   If you report income on a calendar year basis and you do not have wages subject to withholding, file your return and pay your tax by June 15. H&r block efile free You must also make your first payment of estimated tax by June 15. H&r block efile free You cannot file a joint income tax return or make joint payments of estimated tax. H&r block efile free However, if you are married to a U. H&r block efile free S. H&r block efile free citizen or resident, see Nonresident Spouse Treated as a Resident in chapter 1. H&r block efile free   If you earn wages subject to withholding, your U. H&r block efile free S. H&r block efile free income tax return is due by April 15. H&r block efile free Your first payment of estimated tax is also due by April 15. H&r block efile free For information on withholding and estimated tax, see chapter 8 . H&r block efile free Residents of American Samoa. H&r block efile free   If you are a bona fide resident of American Samoa for the entire year, you can exclude from gross income all income from sources in American Samoa (other than amounts for services performed as an employee of the U. H&r block efile free S. H&r block efile free government or any of its agencies). H&r block efile free An employee of the American Samoan government is not considered an employee of the U. H&r block efile free S. H&r block efile free government or any of its agencies for purposes of the exclusion. H&r block efile free For more information about this exclusion, get Form 4563 and Publication 570, Tax Guide for Individuals With Income From U. H&r block efile free S. H&r block efile free Possessions. H&r block efile free Prev  Up  Next   Home   More Online Publications