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How To File An Amended State Tax Return

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How To File An Amended State Tax Return

How to file an amended state tax return 4. How to file an amended state tax return   Student Loan Interest Deduction Table of Contents Introduction Student Loan Interest DefinedQualified Student Loan Qualified Education Expenses Include As Interest Do Not Include As Interest When Must Interest Be Paid Can You Claim the DeductionNo Double Benefit Allowed Figuring the DeductionEffect of the Amount of Your Income on the Amount of Your Deduction Which Worksheet To Use Claiming the Deduction Introduction Generally, personal interest you pay, other than certain mortgage interest, is not deductible on your tax return. How to file an amended state tax return However, if your modified adjusted gross income (MAGI) is less than $75,000 ($155,000 if filing a joint return) there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. How to file an amended state tax return For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. How to file an amended state tax return This deduction can reduce the amount of your income subject to tax by up to $2,500 in 2013. How to file an amended state tax return The student loan interest deduction is taken as an adjustment to income. How to file an amended state tax return This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). How to file an amended state tax return This chapter explains: What type of loan interest you can deduct, Whether you can claim the deduction, What expenses you must have paid with the student loan, Who is an eligible student, How to figure the deduction, and How to claim the deduction. How to file an amended state tax return Table 4-1. How to file an amended state tax return Student Loan Interest Deduction at a Glance This table summarizes the features of the student loan interest deduction. How to file an amended state tax return Do not rely on this table alone. How to file an amended state tax return Refer to the text for complete details. How to file an amended state tax return Feature   Description Maximum benefit   You can reduce your income subject to tax by up to $2,500. How to file an amended state tax return Loan qualifications   Your student loan: •must have been taken out solely to pay qualified education expenses, and •cannot be from a related person or made under a qualified employer plan. How to file an amended state tax return Student qualifications   The student must be: •you, your spouse, or your dependent, and  •enrolled at least half-time in a degree program. How to file an amended state tax return Time limit on deduction   You can deduct interest paid during the remaining period of your student loan. How to file an amended state tax return Limit on modified adjusted gross income (MAGI)   $155,000 if married filing a joint return; $75,000 if single, head of household, or qualifying widow(er). How to file an amended state tax return Student Loan Interest Defined Student loan interest is interest you paid during the year on a qualified student loan. How to file an amended state tax return It includes both required and voluntary interest payments. How to file an amended state tax return Qualified Student Loan This is a loan you took out solely to pay qualified education expenses (defined later) that were: For you, your spouse, or a person who was your dependent when you took out the loan, Paid or incurred within a reasonable period of time before or after you took out the loan, and For education provided during an academic period for an eligible student. How to file an amended state tax return Loans from the following sources are not qualified student loans. How to file an amended state tax return A related person. How to file an amended state tax return A qualified employer plan. How to file an amended state tax return Your dependent. How to file an amended state tax return   Generally, your dependent is someone who is either a: Qualifying child, or Qualifying relative. How to file an amended state tax return You can find more information about dependents in Publication 501. How to file an amended state tax return Exceptions. How to file an amended state tax return   For purposes of the student loan interest deduction, there are the following exceptions to the general rules for dependents. How to file an amended state tax return An individual can be your dependent even if you are the dependent of another taxpayer. How to file an amended state tax return An individual can be your dependent even if the individual files a joint return with a spouse. How to file an amended state tax return An individual can be your dependent even if the individual had gross income for the year that was equal to or more than the exemption amount for the year ($3,900 for 2013). How to file an amended state tax return Reasonable period of time. How to file an amended state tax return   Qualified education expenses are treated as paid or incurred within a reasonable period of time before or after you take out the loan if they are paid with the proceeds of student loans that are part of a federal postsecondary education loan program. How to file an amended state tax return   Even if not paid with the proceeds of that type of loan, the expenses are treated as paid or incurred within a reasonable period of time if both of the following requirements are met. How to file an amended state tax return The expenses relate to a specific academic period, and The loan proceeds are disbursed within a period that begins 90 days before the start of that academic period and ends 90 days after the end of that academic period. How to file an amended state tax return   If neither of the above situations applies, the reasonable period of time usually is determined based on all the relevant facts and circumstances. How to file an amended state tax return Academic period. How to file an amended state tax return   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. How to file an amended state tax return In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. How to file an amended state tax return Eligible student. How to file an amended state tax return   This is a student who was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. How to file an amended state tax return Enrolled at least half-time. How to file an amended state tax return   A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study. How to file an amended state tax return   The standard for what is half of the normal full-time work load is determined by each eligible educational institution. How to file an amended state tax return However, the standard may not be lower than any of those established by the U. How to file an amended state tax return S. How to file an amended state tax return Department of Education under the Higher Education Act of 1965. How to file an amended state tax return Related person. How to file an amended state tax return   You cannot deduct interest on a loan you get from a related person. How to file an amended state tax return Related persons include: Your spouse, Your brothers and sisters, Your half brothers and half sisters, Your ancestors (parents, grandparents, etc. How to file an amended state tax return ), Your lineal descendants (children, grandchildren, etc. How to file an amended state tax return ), and Certain corporations, partnerships, trusts, and exempt organizations. How to file an amended state tax return Qualified employer plan. How to file an amended state tax return   You cannot deduct interest on a loan made under a qualified employer plan or under a contract purchased under such a plan. How to file an amended state tax return Qualified Education Expenses For purposes of the student loan interest deduction, these expenses are the total costs of attending an eligible educational institution, including graduate school. How to file an amended state tax return They include amounts paid for the following items. How to file an amended state tax return Tuition and fees. How to file an amended state tax return Room and board. How to file an amended state tax return Books, supplies, and equipment. How to file an amended state tax return Other necessary expenses (such as transportation). How to file an amended state tax return The cost of room and board qualifies only to the extent that it is not more than the greater of: The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student, or The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. How to file an amended state tax return Eligible educational institution. How to file an amended state tax return   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. How to file an amended state tax return S. How to file an amended state tax return Department of Education. How to file an amended state tax return It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. How to file an amended state tax return   Certain educational institutions located outside the United States also participate in the U. How to file an amended state tax return S. How to file an amended state tax return Department of Education's Federal Student Aid (FSA) programs. How to file an amended state tax return   For purposes of the student loan interest deduction, an eligible educational institution also includes an institution conducting an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. How to file an amended state tax return   An educational institution must meet the above criteria only during the academic period(s) for which the student loan was incurred. How to file an amended state tax return The deductibility of interest on the loan is not affected by the institution's subsequent loss of eligibility. How to file an amended state tax return    The educational institution should be able to tell you if it is an eligible educational institution. How to file an amended state tax return Adjustments to Qualified Education Expenses You must reduce your qualified education expenses by the total amount paid for them with the following tax-free items. How to file an amended state tax return Employer-provided educational assistance. How to file an amended state tax return See chapter 11, Employer-Provided Educational Assistance . How to file an amended state tax return Tax-free distribution of earnings from a Coverdell education savings account (ESA). How to file an amended state tax return See Tax-Free Distributions in chapter 7, Coverdell Education Savings Account. How to file an amended state tax return Tax-free distribution of earnings from a qualified tuition program (QTP). How to file an amended state tax return See Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program. How to file an amended state tax return U. How to file an amended state tax return S. How to file an amended state tax return savings bond interest that you exclude from income because it is used to pay qualified education expenses. How to file an amended state tax return See chapter 10, Education Savings Bond Program . How to file an amended state tax return The tax-free part of scholarships and fellowships. How to file an amended state tax return See Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. How to file an amended state tax return Veterans' educational assistance. How to file an amended state tax return See Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. How to file an amended state tax return Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. How to file an amended state tax return Include As Interest In addition to simple interest on the loan, if all other requirements are met, the items discussed below can be student loan interest. How to file an amended state tax return Loan origination fee. How to file an amended state tax return   In general, this is a one-time fee charged by the lender when a loan is made. How to file an amended state tax return To be deductible as interest, a loan origination fee must be for the use of money rather than for property or services (such as commitment fees or processing costs) provided by the lender. How to file an amended state tax return A loan origination fee treated as interest accrues over the term of the loan. How to file an amended state tax return   Loan origination fees were not required to be reported on Form 1098-E, Student Loan Interest Statement, for loans made before September 1, 2004. How to file an amended state tax return If loan origination fees are not included in the amount reported on your Form 1098-E, you can use any reasonable method to allocate the loan origination fees over the term of the loan. How to file an amended state tax return The method shown in the example below allocates equal portions of the loan origination fee to each payment required under the terms of the loan. How to file an amended state tax return A method that results in the double deduction of the same portion of a loan origination fee would not be reasonable. How to file an amended state tax return Example. How to file an amended state tax return In August 2004, Bill took out a student loan for $16,000 to pay the tuition for his senior year of college. How to file an amended state tax return The lender charged a 3% loan origination fee ($480) that was withheld from the funds Bill received. How to file an amended state tax return Bill began making payments on his student loan in 2013. How to file an amended state tax return Because the loan origination fee was not included in his 2013 Form 1098-E, Bill can use any reasonable method to allocate that fee over the term of the loan. How to file an amended state tax return Bill's loan is payable in 120 equal monthly payments. How to file an amended state tax return He allocates the $480 fee equally over the total number of payments ($480 ÷ 120 months = $4 per month). How to file an amended state tax return Bill made 7 payments in 2013, so he paid $28 ($4 × 7) of interest attributable to the loan origination fee. How to file an amended state tax return To determine his student loan interest deduction, he will add the $28 to the amount of other interest reported to him on Form 1098-E. How to file an amended state tax return Capitalized interest. How to file an amended state tax return   This is unpaid interest on a student loan that is added by the lender to the outstanding principal balance of the loan. How to file an amended state tax return Capitalized interest is treated as interest for tax purposes and is deductible as payments of principal are made on the loan. How to file an amended state tax return No deduction for capitalized interest is allowed in a year in which no loan payments were made. How to file an amended state tax return Interest on revolving lines of credit. How to file an amended state tax return   This interest, which includes interest on credit card debt, is student loan interest if the borrower uses the line of credit (credit card) only to pay qualified education expenses. How to file an amended state tax return See Qualified Education Expenses , earlier. How to file an amended state tax return Interest on refinanced student loans. How to file an amended state tax return   This includes interest on both: Consolidated loans—loans used to refinance more than one student loan of the same borrower, and Collapsed loans—two or more loans of the same borrower that are treated by both the lender and the borrower as one loan. How to file an amended state tax return    If you refinance a qualified student loan for more than your original loan and you use the additional amount for any purpose other than qualified education expenses, you cannot deduct any interest paid on the refinanced loan. How to file an amended state tax return Voluntary interest payments. How to file an amended state tax return   These are payments made on a qualified student loan during a period when interest payments are not required, such as when the borrower has been granted a deferment or the loan has not yet entered repayment status. How to file an amended state tax return Example. How to file an amended state tax return The payments on Roger's student loan were scheduled to begin in June 2012, 6 months after he graduated from college. How to file an amended state tax return He began making payments as required. How to file an amended state tax return In September 2013, Roger enrolled in graduate school on a full-time basis. How to file an amended state tax return He applied for and was granted deferment of his loan payments while in graduate school. How to file an amended state tax return Wanting to pay down his student loan as much as possible, he made loan payments in October and November 2013. How to file an amended state tax return Even though these were voluntary (not required) payments, Roger can deduct the interest paid in October and November. How to file an amended state tax return Allocating Payments Between Interest and Principal The allocation of payments between interest and principal for tax purposes might not be the same as the allocation shown on the Form 1098-E or other statement you receive from the lender or loan servicer. How to file an amended state tax return To make the allocation for tax purposes, a payment generally applies first to stated interest that remains unpaid as of the date the payment is due, second to any loan origination fees allocable to the payment, third to any capitalized interest that remains unpaid as of the date the payment is due, and fourth to the outstanding principal. How to file an amended state tax return Example. How to file an amended state tax return In August 2012, Peg took out a $10,000 student loan to pay the tuition for her senior year of college. How to file an amended state tax return The lender charged a 3% loan origination fee ($300) that was withheld from the funds Peg received. How to file an amended state tax return The interest (5% simple) on this loan accrued while she completed her senior year and for 6 months after she graduated. How to file an amended state tax return At the end of that period, the lender determined the amount to be repaid by capitalizing all accrued but unpaid interest ($625 interest accrued from August 2012 through October 2013) and adding it to the outstanding principal balance of the loan. How to file an amended state tax return The loan is payable over 60 months, with a payment of $200. How to file an amended state tax return 51 due on the first of each month, beginning November 2013. How to file an amended state tax return Peg did not receive a Form 1098-E for 2013 from her lender because the amount of interest she paid did not require the lender to issue an information return. How to file an amended state tax return However, she did receive an account statement from the lender that showed the following 2013 payments on her outstanding loan of $10,625 ($10,000 principal + $625 accrued but unpaid interest). How to file an amended state tax return Payment Date   Payment   Stated Interest   Principal November 2013   $200. How to file an amended state tax return 51   $44. How to file an amended state tax return 27   $156. How to file an amended state tax return 24 December 2013   $200. How to file an amended state tax return 51   $43. How to file an amended state tax return 62   $156. How to file an amended state tax return 89 Totals   $401. How to file an amended state tax return 02   $87. How to file an amended state tax return 89   $313. How to file an amended state tax return 13 To determine the amount of interest that could be deducted on the loan for 2013, Peg starts with the total amount of stated interest she paid, $87. How to file an amended state tax return 89. How to file an amended state tax return Next, she allocates the loan origination fee over the term of the loan ($300 ÷ 60 months = $5 per month). How to file an amended state tax return A total of $10 ($5 of each of the two principal payments) should be treated as interest for tax purposes. How to file an amended state tax return Peg then applies the unpaid capitalized interest ($625) to the two principal payments in the order in which they were made, and determines that the remaining amount of principal of both payments is treated as interest for tax purposes. How to file an amended state tax return Assuming that Peg qualifies to take the student loan interest deduction, she can deduct $401. How to file an amended state tax return 02 ($87. How to file an amended state tax return 89 + $10 + $303. How to file an amended state tax return 13). How to file an amended state tax return For 2014, Peg will continue to allocate $5 of the loan origination fee to the principal portion of each monthly payment she makes and treat that amount as interest for tax purposes. How to file an amended state tax return She also will apply the remaining amount of capitalized interest ($625 − $303. How to file an amended state tax return 13 = $321. How to file an amended state tax return 87) to the principal payments in the order in which they are made until the balance is zero, and treat those amounts as interest for tax purposes. How to file an amended state tax return Do Not Include As Interest You cannot claim a student loan interest deduction for any of the following items. How to file an amended state tax return Interest you paid on a loan if, under the terms of the loan, you are not legally obligated to make interest payments. How to file an amended state tax return Loan origination fees that are payments for property or services provided by the lender, such as commitment fees or processing costs. How to file an amended state tax return Interest you paid on a loan to the extent payments were made through your participation in the National Health Service Corps Loan Repayment Program (the “NHSC Loan Repayment Program”) or certain other loan repayment assistance programs. How to file an amended state tax return For more information, see Student Loan Repayment Assistance in chapter 5, Student Loan Cancellations and Repayment Assistance. How to file an amended state tax return When Must Interest Be Paid You can deduct all interest you paid during the year on your student loan, including voluntary payments, until the loan is paid off. How to file an amended state tax return Can You Claim the Deduction Generally, you can claim the deduction if all of the following requirements are met. How to file an amended state tax return Your filing status is any filing status except married filing separately. How to file an amended state tax return No one else is claiming an exemption for you on his or her tax return. How to file an amended state tax return You are legally obligated to pay interest on a qualified student loan. How to file an amended state tax return You paid interest on a qualified student loan. How to file an amended state tax return Claiming an exemption for you. How to file an amended state tax return   Another taxpayer is claiming an exemption for you if he or she lists your name and other required information on his or her Form 1040 (or Form 1040A), line 6c, or Form 1040NR, line 7c. How to file an amended state tax return Example 1. How to file an amended state tax return During 2013, Josh paid $600 interest on his qualified student loan. How to file an amended state tax return Only he is legally obligated to make the payments. How to file an amended state tax return No one claimed an exemption for Josh for 2013. How to file an amended state tax return Assuming all other requirements are met, Josh can deduct the $600 of interest he paid on his 2013 Form 1040 or 1040A. How to file an amended state tax return Example 2. How to file an amended state tax return During 2013, Jo paid $1,100 interest on her qualified student loan. How to file an amended state tax return Only she is legally obligated to make the payments. How to file an amended state tax return Jo's parents claimed an exemption for her on their 2013 tax return. How to file an amended state tax return In this case, neither Jo nor her parents may deduct the student loan interest Jo paid in 2013. How to file an amended state tax return Interest paid by others. How to file an amended state tax return   If you are the person legally obligated to make interest payments and someone else makes a payment of interest on your behalf, you are treated as receiving the payments from the other person and, in turn, paying the interest. How to file an amended state tax return Example 1. How to file an amended state tax return Darla obtained a qualified student loan to attend college. How to file an amended state tax return After Darla's graduation from college, she worked as an intern for a nonprofit organization. How to file an amended state tax return As part of the internship program, the nonprofit organization made an interest payment on behalf of Darla. How to file an amended state tax return This payment was treated as additional compensation and reported in box 1 of her Form W-2. How to file an amended state tax return Assuming all other qualifications are met, Darla can deduct this payment of interest on her tax return. How to file an amended state tax return Example 2. How to file an amended state tax return Ethan obtained a qualified student loan to attend college. How to file an amended state tax return After graduating from college, the first monthly payment on his loan was due in December. How to file an amended state tax return As a gift, Ethan's mother made this payment for him. How to file an amended state tax return No one is claiming a dependency exemption for Ethan on his or her tax return. How to file an amended state tax return Assuming all other qualifications are met, Ethan can deduct this payment of interest on his tax return. How to file an amended state tax return No Double Benefit Allowed You cannot deduct as interest on a student loan any amount that is an allowable deduction under any other provision of the tax law (for example, as home mortgage interest). How to file an amended state tax return Figuring the Deduction Your student loan interest deduction for 2013 is generally the smaller of: $2,500, or The interest you paid in 2013. How to file an amended state tax return However, the amount determined above may be gradually reduced (phased out) or eliminated based on your filing status and MAGI as explained below. How to file an amended state tax return You can use Worksheet 4-1. How to file an amended state tax return Student Loan Interest Deduction Worksheet (at the end of this chapter) to figure both your MAGI and your deduction. How to file an amended state tax return Form 1098-E. How to file an amended state tax return   To help you figure your student loan interest deduction, you should receive Form 1098-E. How to file an amended state tax return Generally, an institution (such as a bank or governmental agency) that received interest payments of $600 or more during 2013 on one or more qualified student loans must send Form 1098-E (or acceptable substitute) to each borrower by January 31, 2014. How to file an amended state tax return   For qualified student loans taken out before September 1, 2004, the institution is required to include on Form 1098-E only payments of stated interest. How to file an amended state tax return Other interest payments, such as certain loan origination fees and capitalized interest, may not appear on the form you receive. How to file an amended state tax return However, if you pay qualifying interest that is not included on Form 1098-E, you can also deduct those amounts. How to file an amended state tax return See Allocating Payments Between Interest and Principal , earlier. How to file an amended state tax return    The lender may ask for a completed Form W-9S, or similar statement to obtain the borrower's name, address, and taxpayer identification number. How to file an amended state tax return The form may also be used by the borrower to certify that the student loan was incurred solely to pay for qualified education expenses. How to file an amended state tax return Effect of the Amount of Your Income on the Amount of Your Deduction The amount of your student loan interest deduction is phased out (gradually reduced) if your MAGI is between $60,000 and $75,000 ($125,000 and $155,000 if you file a joint return). How to file an amended state tax return You cannot take a student loan interest deduction if your MAGI is $75,000 or more ($155,000 or more if you file a joint return). How to file an amended state tax return Modified adjusted gross income (MAGI). How to file an amended state tax return   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return before subtracting any deduction for student loan interest. How to file an amended state tax return However, as discussed below, there may be other modifications. How to file an amended state tax return Table 4-2 shows how the amount of your MAGI can affect your student loan interest deduction. How to file an amended state tax return Table 4-2. How to file an amended state tax return Effect of MAGI on Student Loan Interest Deduction IF your filing status is. How to file an amended state tax return . How to file an amended state tax return . How to file an amended state tax return AND your MAGI is. How to file an amended state tax return . How to file an amended state tax return . How to file an amended state tax return THEN your student loan interest deduction is. How to file an amended state tax return . How to file an amended state tax return . How to file an amended state tax return single,  head of household, or qualifying widow(er) not more than $60,000 not affected by the phaseout. How to file an amended state tax return more than $60,000  but less than $75,000 reduced because of the phaseout. How to file an amended state tax return $75,000 or more eliminated by the phaseout. How to file an amended state tax return married filing joint return not more than $125,000 not affected by the phaseout. How to file an amended state tax return more than $125,000 but less than $155,000 reduced because of the phaseout. How to file an amended state tax return $155,000 or more eliminated by the phaseout. How to file an amended state tax return MAGI when using Form 1040A. How to file an amended state tax return   If you file Form 1040A, your MAGI is the AGI on line 22 of that form figured without taking into account any amount on line 18 (student loan interest deduction) and line 19 (tuition and fees deduction). How to file an amended state tax return MAGI when using Form 1040. How to file an amended state tax return   If you file Form 1040, your MAGI is the AGI on line 38 of that form figured without taking into account any amount on line 33 (student loan interest deduction), line 34 (tuition and fees deduction), or line 35 (domestic production activities deduction), and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. How to file an amended state tax return MAGI when using Form 1040NR. How to file an amended state tax return   If you file Form 1040NR, your MAGI is the AGI on line 36 of that form figured without taking into account any amount on line 33 (student loan interest deduction) and line 34 (domestic production activities deduction). How to file an amended state tax return MAGI when using Form 1040NR-EZ. How to file an amended state tax return   If you file Form 1040NR-EZ, your MAGI is the AGI on line 10 of that form figured without taking into account any amount on line 9 (student loan interest deduction). How to file an amended state tax return Phaseout. How to file an amended state tax return   If your MAGI is within the range of incomes where the credit must be reduced, you must figure your reduced deduction. How to file an amended state tax return To figure the phaseout, multiply your interest deduction (before the phaseout) by a fraction. How to file an amended state tax return The numerator is your MAGI minus $60,000 ($125,000 in the case of a joint return). How to file an amended state tax return The denominator is $15,000 ($30,000 in the case of a joint return). How to file an amended state tax return Subtract the result from your deduction (before the phaseout) to give you the amount you can deduct. How to file an amended state tax return Example 1. How to file an amended state tax return During 2013 you paid $800 interest on a qualified student loan. How to file an amended state tax return Your 2013 MAGI is $145,000 and you are filing a joint return. How to file an amended state tax return You must reduce your deduction by $533, figured as follows. How to file an amended state tax return   $800 × $145,000 − $125,000  $30,000 = $533   Your reduced student loan interest deduction is $267 ($800 − $533). How to file an amended state tax return Example 2. How to file an amended state tax return The facts are the same as in Example 1 except that you paid $2,750 interest. How to file an amended state tax return Your maximum deduction for 2013 is $2,500. How to file an amended state tax return You must reduce your maximum deduction by $1,667, figured as follows. How to file an amended state tax return   $2,500 × $145,000 − $125,000  $30,000 = $1,667   In this example, your reduced student loan interest deduction is $833 ($2,500 − $1,667). How to file an amended state tax return Which Worksheet To Use Generally, you figure the deduction using the Student Loan Interest Deduction Worksheet in the instructions for Form 1040, Form 1040A, or Form 1040NR. How to file an amended state tax return However, if you are filing Form 2555, Foreign Earned Income, Form 2555-EZ, Foreign Earned Income Exclusion, or Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa, or you are excluding income from sources within Puerto Rico, you must complete Worksheet 4-1. How to file an amended state tax return Student Loan Interest Deduction Worksheet at the end of this chapter. How to file an amended state tax return Claiming the Deduction The student loan interest deduction is an adjustment to income. How to file an amended state tax return To claim the deduction, enter the allowable amount on line 33 (Form 1040), line 18 (Form 1040A), line 33 (Form 1040NR), or line 9 (Form 1040NR-EZ). How to file an amended state tax return Worksheet 4-1. How to file an amended state tax return Student Loan Interest Deduction Worksheet Use this worksheet instead of the worksheet in the Form 1040 instructions if you are filing Form 2555, 2555-EZ, or 4563, or you are excluding income from sources within Puerto Rico. How to file an amended state tax return Before using this worksheet, you must complete Form 1040, lines 7 through 32, plus any amount to be entered on the dotted line next to line 36. How to file an amended state tax return 1. How to file an amended state tax return Enter the total interest you paid in 2013 on qualified student loans. How to file an amended state tax return Do not enter  more than $2,500 1. How to file an amended state tax return   2. How to file an amended state tax return Enter the amount from Form 1040, line 22 2. How to file an amended state tax return       3. How to file an amended state tax return Enter the total of the amounts from Form 1040,  lines 23 through 32 3. How to file an amended state tax return           4. How to file an amended state tax return Enter the total of any amounts entered on the dotted line next to Form 1040, line 36 4. How to file an amended state tax return           5. How to file an amended state tax return Add lines 3 and 4 5. How to file an amended state tax return       6. How to file an amended state tax return Subtract line 5 from line 2 6. How to file an amended state tax return       7. How to file an amended state tax return Enter any foreign earned income exclusion and/or housing  exclusion (Form 2555, line 45, or Form 2555-EZ, line 18) 7. How to file an amended state tax return       8. How to file an amended state tax return Enter any foreign housing deduction (Form 2555, line 50) 8. How to file an amended state tax return       9. How to file an amended state tax return Enter the amount of income from Puerto Rico you are excluding 9. How to file an amended state tax return       10. How to file an amended state tax return Enter the amount of income from American Samoa  you are excluding (Form 4563, line 15) 10. How to file an amended state tax return       11. How to file an amended state tax return Add lines 6 through 10. How to file an amended state tax return This is your modified adjusted gross income 11. How to file an amended state tax return   12. How to file an amended state tax return Enter the amount shown below for your filing status 12. How to file an amended state tax return     •Single, head of household, or qualifying widow(er)—$60,000       •Married filing jointly—$125,000     13. How to file an amended state tax return Is the amount on line 11 more than the amount on line 12?       □ No. How to file an amended state tax return Skip lines 13 and 14, enter -0- on line 15, and go to line 16. How to file an amended state tax return       □ Yes. How to file an amended state tax return Subtract line 12 from line 11 13. How to file an amended state tax return   14. How to file an amended state tax return Divide line 13 by $15,000 ($30,000 if married filing jointly). How to file an amended state tax return Enter the result as a decimal  (rounded to at least three places). How to file an amended state tax return If the result is 1. How to file an amended state tax return 000 or more, enter 1. How to file an amended state tax return 000 14. How to file an amended state tax return . How to file an amended state tax return 15. How to file an amended state tax return Multiply line 1 by line 14 15. How to file an amended state tax return   16. How to file an amended state tax return Student loan interest deduction. How to file an amended state tax return Subtract line 15 from line 1. How to file an amended state tax return Enter the result here  and on Form 1040, line 33. How to file an amended state tax return Do not include this amount in figuring any other  deduction on your return (such as on Schedule A, C, E, etc. How to file an amended state tax return ) 16. How to file an amended state tax return   Prev  Up  Next   Home   More Online Publications
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The How To File An Amended State Tax Return

How to file an amended state tax return 2. How to file an amended state tax return   Possession Source Income Table of Contents Types of IncomeCompensation for Labor or Personal Services Investment Income Sales or Other Dispositions of Property Scholarships, Fellowships, Grants, Prizes, and Awards Effectively Connected Income In order to determine where to file your return and which form(s) you need to complete, you must determine the source of each item of income you received during the tax year. How to file an amended state tax return Income you received from sources within, or that was effectively connected with the conduct of a trade or business within, the relevant possession must be identified separately from U. How to file an amended state tax return S. How to file an amended state tax return or foreign source income. How to file an amended state tax return This chapter discusses the rules for determining if the source of your income is from: American Samoa, The Commonwealth of the Northern Mariana Islands (CNMI), The Commonwealth of Puerto Rico (Puerto Rico), Guam, or The U. How to file an amended state tax return S. How to file an amended state tax return Virgin Islands (USVI). How to file an amended state tax return Generally, the same rules that apply for determining U. How to file an amended state tax return S. How to file an amended state tax return source income also apply for determining possession source income. How to file an amended state tax return However, there are some important exceptions to these rules. How to file an amended state tax return Both the general rules and the exceptions are discussed in this chapter. How to file an amended state tax return U. How to file an amended state tax return S. How to file an amended state tax return income rule. How to file an amended state tax return   This rule states that income is not possession source income if, under the rules of Internal Revenue Code sections 861–865, it is treated as income: From sources within the United States, or Effectively connected with the conduct of a trade or business within the United States. How to file an amended state tax return Table 2-1 shows the general rules for determining whether income is from sources within the United States. How to file an amended state tax return Table 2-1. How to file an amended state tax return General Rules for Determining U. How to file an amended state tax return S. How to file an amended state tax return Source of Income Item of Income Factor Determining Source Salaries, wages, and other compensation for labor or personal services Where labor or services performed Pensions Contributions: Where services were performed that earned the pension Investment earnings: Where pension trust is located Interest Residence of payer Dividends Where corporation created or organized Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. How to file an amended state tax return Where property is used Sale of business inventory—purchased Where sold Sale of business inventory—produced Allocation if produced and sold in different locations Sale of real property Location of property Sale of personal property Seller's tax home (but see Special Rules for Gains From Dispositions of Certain Property , later, for exceptions) Sale of natural resources Allocation based on fair market value of product at export terminal. How to file an amended state tax return For more information, see Regulations section 1. How to file an amended state tax return 863-1(b). How to file an amended state tax return Types of Income This section looks at the most common types of income received by individuals, and the rules for determining the source of the income. How to file an amended state tax return Generally, the same rules shown in Table 2-1 are used to determine if you have possession source income. How to file an amended state tax return Compensation for Labor or Personal Services Income from labor or personal services includes wages, salaries, commissions, fees, per diem allowances, employee allowances and bonuses, and fringe benefits. How to file an amended state tax return It also includes income earned by sole proprietors and general partners from providing personal services in the course of their trade or business. How to file an amended state tax return Services performed wholly within a relevant possession. How to file an amended state tax return   Generally, all pay you receive for services performed in a relevant possession is considered to be from sources within that possession. How to file an amended state tax return However, there is an exception for income earned as a member of the U. How to file an amended state tax return S. How to file an amended state tax return Armed Forces or a civilian spouse. How to file an amended state tax return U. How to file an amended state tax return S. How to file an amended state tax return Armed Forces. How to file an amended state tax return   If you are a bona fide resident of a relevant possession, your military service pay will be sourced in that possession even if you perform the services in the United States or another possession. How to file an amended state tax return However, if you are not a bona fide resident of a possession, your military service pay will be income from the  United States even if you perform services in a possession. How to file an amended state tax return Civilian spouse of active duty member of the U. How to file an amended state tax return S. How to file an amended state tax return Armed Forces. How to file an amended state tax return   If you are a bona fide resident of a U. How to file an amended state tax return S. How to file an amended state tax return possession and choose to keep that possession as your tax residence under MSRRA when relocating with your servicemember spouse under military orders, the source of income for your labor or personal services is considered to be that possession. How to file an amended state tax return Likewise, if your tax residence is in one of the 50 states or the District of Columbia before relocating and you choose to keep it as your tax residence, the source of income for services performed in any of the U. How to file an amended state tax return S. How to file an amended state tax return possessions is considered to be the United States and, specifically, your state of residence or the District of Columbia. How to file an amended state tax return Services performed partly inside and partly outside a relevant possession. How to file an amended state tax return   If you are an employee and receive compensation for labor or personal services performed both inside and outside the relevant possession, special rules apply in determining the source of the compensation. How to file an amended state tax return Compensation (other than certain fringe benefits) is sourced on a time basis. How to file an amended state tax return Certain fringe benefits (such as housing and education) are sourced on a geographical basis. How to file an amended state tax return   Or, you may be permitted to use an alternative basis to determine the source of compensation. How to file an amended state tax return See Alternative basis , later. How to file an amended state tax return   If you are self-employed, determine the source of your income for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. How to file an amended state tax return In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. How to file an amended state tax return Time basis. How to file an amended state tax return   Use a time basis to figure your compensation for labor or personal services from the relevant possession (other than the fringe benefits discussed later). How to file an amended state tax return Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed  services in the relevant  possession during the year     Total number of days you  performed services during the year           You can use a unit of time less than a day in the above fraction, if appropriate. How to file an amended state tax return The time period for which the income is made does not have to be a year. How to file an amended state tax return Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. How to file an amended state tax return Example. How to file an amended state tax return In 2013, you worked in your employer's office in the United States for 60 days and in the Puerto Rico office for 180 days, earning a total of $80,000 for the year. How to file an amended state tax return Your Puerto Rico source income is $60,000, figured as follows. How to file an amended state tax return       180 days 240 days × $80,000 = $60,000                 Multi-year compensation. How to file an amended state tax return   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. How to file an amended state tax return Multi-year compensation is compensation that is included in your income in 1 tax year but is attributable to a period that includes 2 or more tax years. How to file an amended state tax return You determine the period to which the income is attributable based on the facts and circumstances of your case. How to file an amended state tax return For more information on multi-year compensation, see Treasury Decision (T. How to file an amended state tax return D. How to file an amended state tax return ) 9212 and Regulations section 1. How to file an amended state tax return 861-4, 2005-35 I. How to file an amended state tax return R. How to file an amended state tax return B. How to file an amended state tax return 429, available at www. How to file an amended state tax return irs. How to file an amended state tax return gov/irb/2005-35_IRB/ar14. How to file an amended state tax return html. How to file an amended state tax return Certain fringe benefits sourced on a geographical basis. How to file an amended state tax return   If you received any of the following fringe benefits as compensation for labor or services performed as an employee partly inside and partly outside a relevant possession, you must source that income on a geographical basis. How to file an amended state tax return Housing. How to file an amended state tax return Education. How to file an amended state tax return Local transportation. How to file an amended state tax return Tax reimbursement. How to file an amended state tax return Hazardous or hardship duty pay. How to file an amended state tax return Moving expense reimbursement. How to file an amended state tax return For information on determining the source of the fringe benefits listed above, see Regulations section 1. How to file an amended state tax return 861-4. How to file an amended state tax return Alternative basis. How to file an amended state tax return   You can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your income than the time or geographical basis. How to file an amended state tax return If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your income. How to file an amended state tax return De minimis exception. How to file an amended state tax return   There is an exception to the rule for determining the source of income earned in a possession. How to file an amended state tax return Generally, you will not have income from a possession if during a tax year you: Are a U. How to file an amended state tax return S. How to file an amended state tax return citizen or resident, Are not a bona fide resident of that possession, Are not employed by or under contract with an individual, partnership, or corporation that is engaged in a trade or business in that possession, Temporarily perform services in that possession for 90 days or less, and Earned $3,000 or less from such services. How to file an amended state tax return This exception began with income earned during your 2008 tax year. How to file an amended state tax return Pensions. How to file an amended state tax return   Generally, pension income has two components: contributions to the pension plan and the earnings accrued from investing those contributions. How to file an amended state tax return The contribution portion is sourced according to where services were performed that earned the pension. How to file an amended state tax return The investment earnings portion is sourced according to the location of the pension trust. How to file an amended state tax return Example. How to file an amended state tax return You are a U. How to file an amended state tax return S. How to file an amended state tax return citizen who worked in Puerto Rico for a U. How to file an amended state tax return S. How to file an amended state tax return company. How to file an amended state tax return All services were performed in Puerto Rico. How to file an amended state tax return Upon retirement you remained in Puerto Rico and began receiving your pension from the U. How to file an amended state tax return S. How to file an amended state tax return pension trust of your employer. How to file an amended state tax return Distributions from the U. How to file an amended state tax return S. How to file an amended state tax return pension trust must be allocated between (1) contributions, which are Puerto Rico source income, and (2) investment earnings, which are U. How to file an amended state tax return S. How to file an amended state tax return source income. How to file an amended state tax return Investment Income This category includes such income as interest, dividends, rents, and royalties. How to file an amended state tax return Interest income. How to file an amended state tax return   The source of interest income is generally determined by the residence of the payer. How to file an amended state tax return Interest paid by corporations created or organized in a relevant possession (possession corporation) or by individuals who are bona fide residents of a relevant possession is considered income from sources within that possession. How to file an amended state tax return   However, there is an exception to this rule if you are a bona fide resident of a relevant possession, receive interest from a corporation created or organized in that possession, and are a shareholder of that corporation who owns, directly or indirectly, at least 10% of the total voting stock of the corporation. How to file an amended state tax return See Regulations section 1. How to file an amended state tax return 937-2(i) for more information. How to file an amended state tax return Dividends. How to file an amended state tax return   Generally, dividends paid by a corporation created or organized in a relevant possession will be considered income from sources within that possession. How to file an amended state tax return There are additional rules for bona fide residents of a relevant possession who receive dividend income from possession corporations, and who own, directly or indirectly, at least 10% of the voting stock of the corporation. How to file an amended state tax return For more information, see Regulations section 1. How to file an amended state tax return 937-2(g). How to file an amended state tax return Rental income. How to file an amended state tax return   Rents from property located in a relevant possession are treated as income from sources within that possession. How to file an amended state tax return Royalties. How to file an amended state tax return   Royalties from natural resources located in a relevant possession are considered income from sources within that possession. How to file an amended state tax return   Also considered possession source income are royalties received for the use of, or for the privilege of using, in a relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and other like property. How to file an amended state tax return Sales or Other Dispositions of Property The source rules for sales or other dispositions of property are varied. How to file an amended state tax return The most common situations are discussed below. How to file an amended state tax return Real property. How to file an amended state tax return   Real property includes land and buildings, and generally anything built on, growing on, or attached to land. How to file an amended state tax return The location of the property generally determines the source of income from the sale. How to file an amended state tax return For example, if you are a bona fide resident of Guam and sell your home that is located in Guam, the gain on the sale is sourced in Guam. How to file an amended state tax return If, however, the home you sold was located in the United States, the gain is U. How to file an amended state tax return S. How to file an amended state tax return source income. How to file an amended state tax return Personal property. How to file an amended state tax return   The term “personal property” refers to property (such as machinery, equipment, or furniture) that is not real property. How to file an amended state tax return Generally, gain (or loss) from the sale or other disposition is sourced according to the seller's tax home. How to file an amended state tax return If personal property is sold by a bona fide resident of a relevant possession, the gain (or loss) from the sale is treated as sourced within that possession. How to file an amended state tax return   This rule does not apply to the sale of inventory, intangible property, depreciable personal property, or property sold through a foreign office or fixed place of business. How to file an amended state tax return The rules applying to sales of inventory are discussed below. How to file an amended state tax return For information on sales of the other types of property mentioned, see Internal Revenue Code section 865. How to file an amended state tax return Inventory. How to file an amended state tax return   Your inventory is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. How to file an amended state tax return The source of income from the sale of inventory depends on whether the inventory was purchased or produced. How to file an amended state tax return Purchased. How to file an amended state tax return   Income from the sale of inventory that you purchased is sourced where you sell the property. How to file an amended state tax return Generally, this is where title to the property passes to the buyer. How to file an amended state tax return Produced. How to file an amended state tax return   Income from the sale of inventory that you produced in a relevant possession and sold outside that possession (or vice versa) is sourced based on an allocation. How to file an amended state tax return For information on making the allocation, see Regulations section 1. How to file an amended state tax return 863-3(f). How to file an amended state tax return Special Rules for Gains From Dispositions of Certain Property There are special rules for gains from dispositions of certain investment property (for example, stocks, bonds, debt instruments, diamonds, and gold) owned by a U. How to file an amended state tax return S. How to file an amended state tax return citizen or resident alien prior to becoming a bona fide resident of a possession. How to file an amended state tax return You are subject to these special rules if you meet both of the following conditions. How to file an amended state tax return For the tax year for which the source of the gain must be determined, you are a bona fide resident of the relevant possession. How to file an amended state tax return For any of the 10 years preceding that year, you were a citizen or resident alien of the United States (other than a bona fide resident of the relevant possession). How to file an amended state tax return If you meet these conditions, gains from the disposition of this property will not be treated as income from sources within the relevant possession for purposes of the Internal Revenue Code. How to file an amended state tax return Accordingly, bona fide residents of American Samoa and Puerto Rico, for example, may not exclude the gain on their U. How to file an amended state tax return S. How to file an amended state tax return tax return. How to file an amended state tax return (See chapter 3 for additional filing information. How to file an amended state tax return ) With respect to the CNMI, Guam, and the USVI, the gain from the disposition of this property will not meet the requirements for certain tax rules that may allow bona fide residents of those possessions to reduce or obtain a rebate of taxes on income from sources within the relevant possessions. How to file an amended state tax return These rules apply to dispositions after April 11, 2005. How to file an amended state tax return For details, see Regulations section 1. How to file an amended state tax return 937-2(f)(1) and Examples 1 and 2 of section 1. How to file an amended state tax return 937-2(k). How to file an amended state tax return Example 1. How to file an amended state tax return In 2007, Cheryl Jones, a U. How to file an amended state tax return S. How to file an amended state tax return citizen, lived in the United States and paid $1,000 for 100 shares of stock in the Rose Corporation, a U. How to file an amended state tax return S. How to file an amended state tax return corporation listed on the New York Stock Exchange. How to file an amended state tax return On March 1, 2010, she moved to Puerto Rico and changed her tax home to Puerto Rico on the same date. How to file an amended state tax return Cheryl satisfied the presence test in 2010 and, under the year-of-move exception, she was considered a bona fide resident of Puerto Rico for the rest of 2010. How to file an amended state tax return On March 1, 2010, the closing value of Cheryl's stock in the Rose Corporation was $2,000. How to file an amended state tax return On January 5, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold all her Rose Corporation stock for $7,000. How to file an amended state tax return Under the earlier rules, none of Cheryl's $6,000 gain will be treated as income from sources within Puerto Rico. How to file an amended state tax return The source rules discussed in the preceding paragraphs supplement, and may apply in conjunction with, an existing special rule. How to file an amended state tax return This existing special rule applies if you are a U. How to file an amended state tax return S. How to file an amended state tax return citizen or resident alien who becomes a bona fide resident of American Samoa, the CNMI, or Guam, and who has gain from the disposition of certain U. How to file an amended state tax return S. How to file an amended state tax return assets during the 10-year period beginning when you became a bona fide resident. How to file an amended state tax return The gain is U. How to file an amended state tax return S. How to file an amended state tax return source income that generally is subject to U. How to file an amended state tax return S. How to file an amended state tax return tax if the property is either (1) located in the United States; (2) stock issued by a U. How to file an amended state tax return S. How to file an amended state tax return corporation or a debt obligation of a U. How to file an amended state tax return S. How to file an amended state tax return person or of the United States, a state (or political subdivision), or the District of Columbia; or (3) property that has a basis in whole or in part by reference to property described in (1) or (2). How to file an amended state tax return See chapter 3 for filing information. How to file an amended state tax return Special election. How to file an amended state tax return   For dispositions after April 11, 2005, you can choose to treat the part of gain (or loss) attributable to the time you held the property while a bona fide resident of the relevant possession (the possession holding period) as gain (or loss) from sources within that possession. How to file an amended state tax return Make the election by reporting the gain attributable to the possession holding period on your income tax return for the year of disposition. How to file an amended state tax return This election overrides both of the special rules discussed earlier. How to file an amended state tax return   There are two methods for figuring the gain for the possession holding period, one for marketable securities and another for other types of investment property. How to file an amended state tax return Marketable securities. How to file an amended state tax return   Marketable securities are those actively traded on an established financial market, such as stock in a publicly held corporation. How to file an amended state tax return Under the special election, allocate the gain (or loss) by figuring the appreciation separately for your possession and U. How to file an amended state tax return S. How to file an amended state tax return holding periods. How to file an amended state tax return   Your possession holding period begins on the first day you do not have a tax home outside the relevant possession. How to file an amended state tax return The gain (or loss) attributable to the possession holding period is the difference in fair market value of the security at the close of the market on the first and last days of this holding period. How to file an amended state tax return This is your gain (or loss) that is treated as being from sources within the relevant possession. How to file an amended state tax return If you were a bona fide resident of the relevant possession for more than one continuous period, combine the gains (or losses) from each possession holding period. How to file an amended state tax return Example 2. How to file an amended state tax return Assume the same facts as in Example 1, except that Cheryl makes the special election to allocate the gain between her U. How to file an amended state tax return S. How to file an amended state tax return and possession holding periods. How to file an amended state tax return Cheryl's possession holding period began March 1, 2010, the date her tax home changed to Puerto Rico. How to file an amended state tax return Therefore, the portion of gain attributable to her possession holding period is $5,000 ($7,000 sale price – $2,000 closing value on first day of the possession holding period). How to file an amended state tax return By reporting $5,000 of her $6,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. How to file an amended state tax return Other personal property. How to file an amended state tax return   For personal property other than marketable securities, use a time-based allocation. How to file an amended state tax return Figure the gain (or loss) attributable to the possession holding period by multiplying your total gain (or loss) by the following fraction. How to file an amended state tax return      Number of days in the  possession holding period     Total number of days  in your holding period         The result is your gain (or loss) that is treated as being from sources within the relevant possession. How to file an amended state tax return Example 3. How to file an amended state tax return In addition to the stock in Rose Corporation, Cheryl acquired a 5% interest in the Alder Partnership on January 1, 2009. How to file an amended state tax return On March 1, 2010, when she established bona fide residency in Puerto Rico, her partnership interest was not considered a marketable security. How to file an amended state tax return On September 16, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold her interest in Alder Partnership for a $100,000 gain. How to file an amended state tax return She had owned the interest for a total of 1,720 days. How to file an amended state tax return Cheryl's possession holding period (from March 1, 2010, through September 16, 2013) is 1,296 days. How to file an amended state tax return The portion of her gain attributable to Puerto Rico is $75,349 ($100,000 x (1,296 Puerto Rico days ÷ 1,720 total days)). How to file an amended state tax return By reporting $75,349 of her $100,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. How to file an amended state tax return Scholarships, Fellowships, Grants, Prizes, and Awards The source of these types of income is generally the residence of the payer, regardless of who actually disburses the funds. How to file an amended state tax return Therefore, in order to be possession source income, the payer must be a resident of the relevant possession, such as an individual who is a bona fide resident or a corporation created or organized in that possession. How to file an amended state tax return These rules do not apply to amounts paid as salary or other compensation for services. How to file an amended state tax return See Compensation for Labor or Personal Services, earlier in this chapter, for the source rules that apply. How to file an amended state tax return Effectively Connected Income In limited circumstances, some kinds of income from sources outside the relevant possession must be treated as effectively connected with a trade or business in that possession. How to file an amended state tax return These circumstances are listed below. How to file an amended state tax return You have an office or other fixed place of business in the relevant possession to which the income can be attributed. How to file an amended state tax return That office or place of business is a material factor in producing the income. How to file an amended state tax return The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. How to file an amended state tax return An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. How to file an amended state tax return The three kinds of income from sources outside the relevant possession to which these rules apply are the following. How to file an amended state tax return Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the relevant possession or from any interest in such property. How to file an amended state tax return Included are rents or royalties for the use of, or for the privilege of using, outside the relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the relevant possession. How to file an amended state tax return Dividends or interest from the active conduct of a banking, financing, or similar business in the relevant possession. How to file an amended state tax return Income, gain, or loss from the sale or exchange outside the relevant possession, through the office or other fixed place of business in the relevant possession, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. How to file an amended state tax return Item (3) will not apply if you sold the property for use, consumption, or disposition outside the relevant possession and an office or other fixed place of business in a foreign country was a material factor in the sale. How to file an amended state tax return Example. How to file an amended state tax return Marcy Jackson is a bona fide resident of American Samoa. How to file an amended state tax return Her business, which she conducts from an office in American Samoa, is developing and selling specialized computer software. How to file an amended state tax return A software purchaser will frequently pay Marcy an additional amount to install the software on the purchaser's operating system and to ensure that the software is functioning properly. How to file an amended state tax return Marcy installs the software at the purchaser's place of business, which may be in American Samoa, in the United States, or in another country. How to file an amended state tax return The income from selling the software is effectively connected with the conduct of Marcy's business in American Samoa, even though the product's destination may be outside the possession. How to file an amended state tax return However, the compensation she receives for installing the software (personal services) outside of American Samoa is not effectively connected with the conduct of her business in the possession—the income is sourced where she performs the services. 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