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Irs Forms For 2011 Tax Year

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Irs Forms For 2011 Tax Year

Irs forms for 2011 tax year 22. Irs forms for 2011 tax year   Taxes Table of Contents IntroductionIndian tribal government. Irs forms for 2011 tax year Useful Items - You may want to see: Tests To Deduct Any Tax Income TaxesState and Local Income Taxes Foreign Income Taxes General Sales TaxesMotor vehicles. Irs forms for 2011 tax year Real Estate TaxesReal estate taxes for prior years. Irs forms for 2011 tax year Examples. Irs forms for 2011 tax year Form 1099-S. Irs forms for 2011 tax year Real Estate-Related Items You Cannot Deduct Personal Property Taxes Taxes and Fees You Cannot Deduct Where To Deduct Introduction This chapter discusses which taxes you can deduct if you itemize deductions on Schedule A (Form 1040). Irs forms for 2011 tax year It also explains which taxes you can deduct on other schedules or forms and which taxes you cannot deduct. Irs forms for 2011 tax year This chapter covers the following topics. Irs forms for 2011 tax year Income taxes (federal, state, local, and foreign). Irs forms for 2011 tax year General sales taxes (state and local). Irs forms for 2011 tax year Real estate taxes (state, local, and foreign). Irs forms for 2011 tax year Personal property taxes (state and local). Irs forms for 2011 tax year Taxes and fees you cannot deduct. Irs forms for 2011 tax year Use Table 22-1 as a guide to determine which taxes you can deduct. Irs forms for 2011 tax year The end of the chapter contains a section that explains which forms you use to deduct different types of taxes. Irs forms for 2011 tax year Business taxes. Irs forms for 2011 tax year   You can deduct certain taxes only if they are ordinary and necessary expenses of your trade or business or of producing income. Irs forms for 2011 tax year For information on these taxes, see Publication 535, Business Expenses. Irs forms for 2011 tax year State or local taxes. Irs forms for 2011 tax year   These are taxes imposed by the 50 states, U. Irs forms for 2011 tax year S. Irs forms for 2011 tax year possessions, or any of their political subdivisions (such as a county or city), or by the District of Columbia. Irs forms for 2011 tax year Indian tribal government. Irs forms for 2011 tax year   An Indian tribal government recognized by the Secretary of the Treasury as performing substantial government functions will be treated as a state for purposes of claiming a deduction for taxes. Irs forms for 2011 tax year Income taxes, real estate taxes, and personal property taxes imposed by that Indian tribal government (or by any of its subdivisions that are treated as political subdivisions of a state) are deductible. Irs forms for 2011 tax year General sales taxes. Irs forms for 2011 tax year   These are taxes imposed at one rate on retail sales of a broad range of classes of items. Irs forms for 2011 tax year Foreign taxes. Irs forms for 2011 tax year   These are taxes imposed by a foreign country or any of its political subdivisions. Irs forms for 2011 tax year Useful Items - You may want to see: Publication 514 Foreign Tax Credit for Individuals 530 Tax Information for Homeowners Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule E (Form 1040) Supplemental Income and Loss 1116 Foreign Tax Credit Tests To Deduct Any Tax The following two tests must be met for you to deduct any tax. Irs forms for 2011 tax year The tax must be imposed on you. Irs forms for 2011 tax year You must pay the tax during your tax year. Irs forms for 2011 tax year The tax must be imposed on you. Irs forms for 2011 tax year   In general, you can deduct only taxes imposed on you. Irs forms for 2011 tax year   Generally, you can deduct property taxes only if you are an owner of the property. Irs forms for 2011 tax year If your spouse owns the property and pays the real estate taxes, the taxes are deductible on your spouse's separate return or on your joint return. Irs forms for 2011 tax year You must pay the tax during your tax year. Irs forms for 2011 tax year   If you are a cash basis taxpayer, you can deduct only those taxes you actually paid during your tax year. Irs forms for 2011 tax year If you pay your taxes by check, the day you mail or deliver the check is the date of payment, provided the check is honored by the financial institution. Irs forms for 2011 tax year If you use a pay-by-phone account (such as a credit card or electronic funds withdrawal), the date reported on the statement of the financial institution showing when payment was made is the date of payment. Irs forms for 2011 tax year If you contest a tax liability and are a cash basis taxpayer, you can deduct the tax only in the year you actually pay it (or transfer money or other property to provide for satisfaction of the contested liability). Irs forms for 2011 tax year See Publication 538, Accounting Periods and Methods, for details. Irs forms for 2011 tax year    If you use an accrual method of accounting, see Publication 538 for more information. Irs forms for 2011 tax year Income Taxes This section discusses the deductibility of state and local income taxes (including employee contributions to state benefit funds) and foreign income taxes. Irs forms for 2011 tax year State and Local Income Taxes You can deduct state and local income taxes. Irs forms for 2011 tax year However, you can elect to deduct state and local general sales taxes instead of state and local income taxes. Irs forms for 2011 tax year See General Sales Taxes , later. Irs forms for 2011 tax year Exception. Irs forms for 2011 tax year    You cannot deduct state and local income taxes you pay on income that is exempt from federal income tax, unless the exempt income is interest income. Irs forms for 2011 tax year For example, you cannot deduct the part of a state's income tax that is on a cost-of-living allowance exempt from federal income tax. Irs forms for 2011 tax year What To Deduct Your deduction may be for withheld taxes, estimated tax payments, or other tax payments as follows. Irs forms for 2011 tax year Withheld taxes. Irs forms for 2011 tax year   You can deduct state and local income taxes withheld from your salary in the year they are withheld. Irs forms for 2011 tax year Your Form(s) W-2 will show these amounts. Irs forms for 2011 tax year Forms W-2G, 1099-G, 1099-R, and 1099-MISC may also show state and local income taxes withheld. Irs forms for 2011 tax year Estimated tax payments. Irs forms for 2011 tax year   You can deduct estimated tax payments you made during the year to a state or local government. Irs forms for 2011 tax year However, you must have a reasonable basis for making the estimated tax payments. Irs forms for 2011 tax year Any estimated state or local tax payments that are not made in good faith at the time of payment are not deductible. Irs forms for 2011 tax year For example, you made an estimated state income tax payment. Irs forms for 2011 tax year However, the estimate of your state tax liability shows that you will get a refund of the full amount of your estimated payment. Irs forms for 2011 tax year You had no reasonable basis to believe you had any additional liability for state income taxes and you cannot deduct the estimated tax payment. Irs forms for 2011 tax year Refund applied to taxes. Irs forms for 2011 tax year   You can deduct any part of a refund of prior-year state or local income taxes that you chose to have credited to your 2013 estimated state or local income taxes. Irs forms for 2011 tax year    Do not reduce your deduction by either of the following items. Irs forms for 2011 tax year Any state or local income tax refund (or credit) you expect to receive for 2013. Irs forms for 2011 tax year Any refund of (or credit for) prior-year state and local income taxes you actually received in 2013. Irs forms for 2011 tax year   However, part or all of this refund (or credit) may be taxable. Irs forms for 2011 tax year See Refund (or credit) of state or local income taxes , later. Irs forms for 2011 tax year Separate federal returns. Irs forms for 2011 tax year   If you and your spouse file separate state, local, and federal income tax returns, you each can deduct on your federal return only the amount of your own state and local income tax that you paid during the tax year. Irs forms for 2011 tax year Joint state and local returns. Irs forms for 2011 tax year   If you and your spouse file joint state and local returns and separate federal returns, each of you can deduct on your separate federal return a part of the total state and local income taxes paid during the tax year. Irs forms for 2011 tax year You can deduct only the amount of the total taxes that is proportionate to your gross income compared to the combined gross income of you and your spouse. Irs forms for 2011 tax year However, you cannot deduct more than the amount you actually paid during the year. Irs forms for 2011 tax year You can avoid this calculation if you and your spouse are jointly and individually liable for the full amount of the state and local income taxes. Irs forms for 2011 tax year If so, you and your spouse can deduct on your separate federal returns the amount you each actually paid. Irs forms for 2011 tax year Joint federal return. Irs forms for 2011 tax year   If you file a joint federal return, you can deduct the total of the state and local income taxes both of you paid. Irs forms for 2011 tax year Contributions to state benefit funds. Irs forms for 2011 tax year    As an employee, you can deduct mandatory contributions to state benefit funds withheld from your wages that provide protection against loss of wages. Irs forms for 2011 tax year For example, certain states require employees to make contributions to state funds providing disability or unemployment insurance benefits. Irs forms for 2011 tax year Mandatory payments made to the following state benefit funds are deductible as state income taxes on Schedule A (Form 1040), line 5. Irs forms for 2011 tax year Alaska Unemployment Compensation Fund. Irs forms for 2011 tax year California Nonoccupational Disability Benefit Fund. Irs forms for 2011 tax year New Jersey Nonoccupational Disability Benefit Fund. Irs forms for 2011 tax year New Jersey Unemployment Compensation Fund. Irs forms for 2011 tax year New York Nonoccupational Disability Benefit Fund. Irs forms for 2011 tax year Pennsylvania Unemployment Compensation Fund. Irs forms for 2011 tax year Rhode Island Temporary Disability Benefit Fund. Irs forms for 2011 tax year Washington State Supplemental Workmen's Compensation Fund. Irs forms for 2011 tax year    Employee contributions to private or voluntary disability plans are not deductible. Irs forms for 2011 tax year Refund (or credit) of state or local income taxes. Irs forms for 2011 tax year   If you receive a refund of (or credit for) state or local income taxes in a year after the year in which you paid them, you may have to include the refund in income on Form 1040, line 10, in the year you receive it. Irs forms for 2011 tax year This includes refunds resulting from taxes that were overwithheld, applied from a prior year return, not figured correctly, or figured again because of an amended return. Irs forms for 2011 tax year If you did not itemize your deductions in the previous year, do not include the refund in income. Irs forms for 2011 tax year If you deducted the taxes in the previous year, include all or part of the refund on Form 1040, line 10, in the year you receive the refund. Irs forms for 2011 tax year For a discussion of how much to include, see Recoveries in chapter 12. Irs forms for 2011 tax year Foreign Income Taxes Generally, you can take either a deduction or a credit for income taxes imposed on you by a foreign country or a U. Irs forms for 2011 tax year S. Irs forms for 2011 tax year possession. Irs forms for 2011 tax year However, you cannot take a deduction or credit for foreign income taxes paid on income that is exempt from U. Irs forms for 2011 tax year S. Irs forms for 2011 tax year tax under the foreign earned income exclusion or the foreign housing exclusion. Irs forms for 2011 tax year For information on these exclusions, see Publication 54, Tax Guide for U. Irs forms for 2011 tax year S. Irs forms for 2011 tax year Citizens and Resident Aliens Abroad. Irs forms for 2011 tax year For information on the foreign tax credit, see Publication 514. Irs forms for 2011 tax year General Sales Taxes You can elect to deduct state and local general sales taxes, instead of state and local income taxes, as an itemized deduction on Schedule A (Form 1040), line 5b. Irs forms for 2011 tax year You can use either your actual expenses or the state and local sales tax tables to figure your sales tax deduction. Irs forms for 2011 tax year Actual expenses. Irs forms for 2011 tax year   Generally, you can deduct the actual state and local general sales taxes (including compensating use taxes) if the tax rate was the same as the general sales tax rate. Irs forms for 2011 tax year However, sales taxes on food, clothing, medical supplies, and motor vehicles are deductible as a general sales tax even if the tax rate was less than the general sales tax rate. Irs forms for 2011 tax year If you paid sales tax on a motor vehicle at a rate higher than the general sales tax rate, you can deduct only the amount of tax that you would have paid at the general sales tax rate on that vehicle. Irs forms for 2011 tax year If you use the actual expenses method, you must have receipts to show the general sales taxes paid. Irs forms for 2011 tax year Do not include sales taxes paid on items used in your trade or business. Irs forms for 2011 tax year Motor vehicles. Irs forms for 2011 tax year   For purposes of this section, motor vehicles include cars, motorcycles, motor homes, recreational vehicles, sport utility vehicles, trucks, vans, and off-road vehicles. Irs forms for 2011 tax year This also includes sales taxes on a leased motor vehicle, but not on vehicles used in your trade or business. Irs forms for 2011 tax year Optional sales tax tables. Irs forms for 2011 tax year   Instead of using your actual expenses, you can figure your state and local general sales tax deduction using the state and local sales tax tables in the Instructions for Schedule A (Form 1040). Irs forms for 2011 tax year You may also be able to add the state and local general sales taxes paid on certain specified items. Irs forms for 2011 tax year   Your applicable table amount is based on the state where you live, your income, and the number of exemptions claimed on your tax return. Irs forms for 2011 tax year Your income is your adjusted gross income plus any nontaxable items such as the following. Irs forms for 2011 tax year Tax-exempt interest. Irs forms for 2011 tax year Veterans' benefits. Irs forms for 2011 tax year Nontaxable combat pay. Irs forms for 2011 tax year Workers' compensation. Irs forms for 2011 tax year Nontaxable part of social security and railroad retirement benefits. Irs forms for 2011 tax year Nontaxable part of IRA, pension, or annuity distributions, excluding rollovers. Irs forms for 2011 tax year Public assistance payments. Irs forms for 2011 tax year If you lived in different states during the same tax year, you must prorate your applicable table amount for each state based on the days you lived in each state. Irs forms for 2011 tax year See the Instructions for Schedule A (Form 1040), line 5, for details. Irs forms for 2011 tax year Real Estate Taxes Deductible real estate taxes are any state, local, or foreign taxes on real property levied for the general public welfare. Irs forms for 2011 tax year You can deduct these taxes only if they are based on the assessed value of the real property and charged uniformly against all property under the jurisdiction of the taxing authority. Irs forms for 2011 tax year Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property. Irs forms for 2011 tax year They also do not include itemized charges for services (such as trash collection) assessed against specific property or certain people, even if the charge is paid to the taxing authority. Irs forms for 2011 tax year For more information about taxes and charges that are not deductible, see Real Estate-Related Items You Cannot Deduct , later. Irs forms for 2011 tax year Tenant-shareholders in a cooperative housing corporation. Irs forms for 2011 tax year   Generally, if you are a tenant-stockholder in a cooperative housing corporation, you can deduct the amount paid to the corporation that represents your share of the real estate taxes the corporation paid or incurred for your dwelling unit. Irs forms for 2011 tax year The corporation should provide you with a statement showing your share of the taxes. Irs forms for 2011 tax year For more information, see Special Rules for Cooperatives in Publication 530. Irs forms for 2011 tax year Division of real estate taxes between buyers and sellers. Irs forms for 2011 tax year   If you bought or sold real estate during the year, the real estate taxes must be divided between the buyer and the seller. Irs forms for 2011 tax year   The buyer and the seller must divide the real estate taxes according to the number of days in the real property tax year (the period to which the tax is imposed relates) that each owned the property. Irs forms for 2011 tax year The seller is treated as paying the taxes up to, but not including, the date of sale. Irs forms for 2011 tax year The buyer is treated as paying the taxes beginning with the date of sale. Irs forms for 2011 tax year This applies regardless of the lien dates under local law. Irs forms for 2011 tax year Generally, this information is included on the settlement statement provided at the closing. Irs forms for 2011 tax year    If you (the seller) cannot deduct taxes until they are paid because you use the cash method of accounting, and the buyer of your property is personally liable for the tax, you are considered to have paid your part of the tax at the time of the sale. Irs forms for 2011 tax year This lets you deduct the part of the tax to the date of sale even though you did not actually pay it. Irs forms for 2011 tax year However, you must also include the amount of that tax in the selling price of the property. Irs forms for 2011 tax year The buyer must include the same amount in his or her cost of the property. Irs forms for 2011 tax year   You figure your deduction for taxes on each property bought or sold during the real property tax year as follows. Irs forms for 2011 tax year Worksheet 22-1. Irs forms for 2011 tax year Figuring Your Real Estate Tax Deduction 1. Irs forms for 2011 tax year Enter the total real estate taxes for the real property tax year   2. Irs forms for 2011 tax year Enter the number of days in the real property tax year that you owned the property   3. Irs forms for 2011 tax year Divide line 2 by 365 (for leap years, divide line 2 by 366) . Irs forms for 2011 tax year 4. Irs forms for 2011 tax year Multiply line 1 by line 3. Irs forms for 2011 tax year This is your deduction. Irs forms for 2011 tax year Enter it on Schedule A (Form 1040), line 6   Note. Irs forms for 2011 tax year Repeat steps 1 through 4 for each property you bought or sold during the real property tax year. Irs forms for 2011 tax year Your total deduction is the sum of the line 4 amounts for all of the properties. Irs forms for 2011 tax year Real estate taxes for prior years. Irs forms for 2011 tax year   Do not divide delinquent taxes between the buyer and seller if the taxes are for any real property tax year before the one in which the property is sold. Irs forms for 2011 tax year Even if the buyer agrees to pay the delinquent taxes, the buyer cannot deduct them. Irs forms for 2011 tax year The buyer must add them to the cost of the property. Irs forms for 2011 tax year The seller can deduct these taxes paid by the buyer. Irs forms for 2011 tax year However, the seller must include them in the selling price. Irs forms for 2011 tax year Examples. Irs forms for 2011 tax year   The following examples illustrate how real estate taxes are divided between buyer and seller. Irs forms for 2011 tax year Example 1. Irs forms for 2011 tax year Dennis and Beth White's real property tax year for both their old home and their new home is the calendar year, with payment due August 1. Irs forms for 2011 tax year The tax on their old home, sold on May 7, was $620. Irs forms for 2011 tax year The tax on their new home, bought on May 3, was $732. Irs forms for 2011 tax year Dennis and Beth are considered to have paid a proportionate share of the real estate taxes on the old home even though they did not actually pay them to the taxing authority. Irs forms for 2011 tax year On the other hand, they can claim only a proportionate share of the taxes they paid on their new property even though they paid the entire amount. Irs forms for 2011 tax year Dennis and Beth owned their old home during the real property tax year for 126 days (January 1 to May 6, the day before the sale). Irs forms for 2011 tax year They figure their deduction for taxes on their old home as follows. Irs forms for 2011 tax year Worksheet 22-1. Irs forms for 2011 tax year Figuring Your Real Estate Tax Deduction — Taxes on Old Home 1. Irs forms for 2011 tax year Enter the total real estate taxes for the real property tax year $620 2. Irs forms for 2011 tax year Enter the number of days in the real property tax year that you owned the property 126 3. Irs forms for 2011 tax year Divide line 2 by 365 (for leap years, divide line 2 by 366) . Irs forms for 2011 tax year 3452 4. Irs forms for 2011 tax year Multiply line 1 by line 3. Irs forms for 2011 tax year This is your deduction. Irs forms for 2011 tax year Enter it on Schedule A (Form 1040), line 6 $214 Since the buyers of their old home paid all of the taxes, Dennis and Beth also include the $214 in the selling price of the old home. Irs forms for 2011 tax year (The buyers add the $214 to their cost of the home. Irs forms for 2011 tax year ) Dennis and Beth owned their new home during the real property tax year for 243 days (May 3 to December 31, including their date of purchase). Irs forms for 2011 tax year They figure their deduction for taxes on their new home as follows. Irs forms for 2011 tax year Worksheet 22-1. Irs forms for 2011 tax year Figuring Your Real Estate Tax Deduction — Taxes on New Home 1. Irs forms for 2011 tax year Enter the total real estate taxes for the real property tax year $732 2. Irs forms for 2011 tax year Enter the number of days in the real property tax year that you owned the property 243 3. Irs forms for 2011 tax year Divide line 2 by 365 (for leap years, divide line 2 by 366) . Irs forms for 2011 tax year 6658 4. Irs forms for 2011 tax year Multiply line 1 by line 3. Irs forms for 2011 tax year This is your deduction. Irs forms for 2011 tax year Enter it on Schedule A (Form 1040), line 6 $487 Since Dennis and Beth paid all of the taxes on the new home, they add $245 ($732 paid less $487 deduction) to their cost of the new home. Irs forms for 2011 tax year (The sellers add this $245 to their selling price and deduct the $245 as a real estate tax. Irs forms for 2011 tax year ) Dennis and Beth's real estate tax deduction for their old and new homes is the sum of $214 and $487, or $701. Irs forms for 2011 tax year They will enter this amount on Schedule A (Form 1040), line 6. Irs forms for 2011 tax year Example 2. Irs forms for 2011 tax year George and Helen Brown bought a new home on May 3, 2013. Irs forms for 2011 tax year Their real property tax year for the new home is the calendar year. Irs forms for 2011 tax year Real estate taxes for 2012 were assessed in their state on January 1, 2013. Irs forms for 2011 tax year The taxes became due on May 31, 2013, and October 31, 2013. Irs forms for 2011 tax year The Browns agreed to pay all taxes due after the date of purchase. Irs forms for 2011 tax year Real estate taxes for 2012 were $680. Irs forms for 2011 tax year They paid $340 on May 31, 2013, and $340 on October 31, 2013. Irs forms for 2011 tax year These taxes were for the 2012 real property tax year. Irs forms for 2011 tax year The Browns cannot deduct them since they did not own the property until 2013. Irs forms for 2011 tax year Instead, they must add $680 to the cost of their new home. Irs forms for 2011 tax year In January 2014, the Browns receive their 2013 property tax statement for $752, which they will pay in 2014. Irs forms for 2011 tax year The Browns owned their new home during the 2013 real property tax year for 243 days (May 3 to December 31). Irs forms for 2011 tax year They will figure their 2014 deduction for taxes as follows. Irs forms for 2011 tax year Worksheet 22-1. Irs forms for 2011 tax year Figuring Your Real Estate Tax Deduction — Taxes on New Home 1. Irs forms for 2011 tax year Enter the total real estate taxes for the real property tax year $752 2. Irs forms for 2011 tax year Enter the number of days in the real property tax year that you owned the property 243 3. Irs forms for 2011 tax year Divide line 2 by 365 (for leap years, divide line 2 by 366) . Irs forms for 2011 tax year 6658 4. Irs forms for 2011 tax year Multiply line 1 by line 3. Irs forms for 2011 tax year This is your deduction. Irs forms for 2011 tax year Claim it on Schedule A (Form 1040), line 6 $501 The remaining $251 ($752 paid less $501 deduction) of taxes paid in 2014, along with the $680 paid in 2013, is added to the cost of their new home. Irs forms for 2011 tax year Because the taxes up to the date of sale are considered paid by the seller on the date of sale, the seller is entitled to a 2013 tax deduction of $931. Irs forms for 2011 tax year This is the sum of the $680 for 2012 and the $251 for the 122 days the seller owned the home in 2013. Irs forms for 2011 tax year The seller must also include the $931 in the selling price when he or she figures the gain or loss on the sale. Irs forms for 2011 tax year The seller should contact the Browns in January 2014 to find out how much real estate tax is due for 2013. Irs forms for 2011 tax year Form 1099-S. Irs forms for 2011 tax year   For certain sales or exchanges of real estate, the person responsible for closing the sale (generally the settlement agent) prepares Form 1099-S, Proceeds From Real Estate Transactions, to report certain information to the IRS and to the seller of the property. Irs forms for 2011 tax year Box 2 of Form 1099-S is for the gross proceeds from the sale and should include the portion of the seller's real estate tax liability that the buyer will pay after the date of sale. Irs forms for 2011 tax year The buyer includes these taxes in the cost basis of the property, and the seller both deducts this amount as a tax paid and includes it in the sales price of the property. Irs forms for 2011 tax year   For a real estate transaction that involves a home, any real estate tax the seller paid in advance but that is the liability of the buyer appears on Form 1099-S, box 5. Irs forms for 2011 tax year The buyer deducts this amount as a real estate tax, and the seller reduces his or her real estate tax deduction (or includes it in income) by the same amount. Irs forms for 2011 tax year See Refund (or rebate) , later. Irs forms for 2011 tax year Taxes placed in escrow. Irs forms for 2011 tax year   If your monthly mortgage payment includes an amount placed in escrow (put in the care of a third party) for real estate taxes, you may not be able to deduct the total amount placed in escrow. Irs forms for 2011 tax year You can deduct only the real estate tax that the third party actually paid to the taxing authority. Irs forms for 2011 tax year If the third party does not notify you of the amount of real estate tax that was paid for you, contact the third party or the taxing authority to find the proper amount to show on your return. Irs forms for 2011 tax year Tenants by the entirety. Irs forms for 2011 tax year   If you and your spouse held property as tenants by the entirety and you file separate federal returns, each of you can deduct only the taxes each of you paid on the property. Irs forms for 2011 tax year Divorced individuals. Irs forms for 2011 tax year   If your divorce or separation agreement states that you must pay the real estate taxes for a home owned by you and your spouse, part of your payments may be deductible as alimony and part as real estate taxes. Irs forms for 2011 tax year See Taxes and insurance in chapter 18 for more information. Irs forms for 2011 tax year Ministers' and military housing allowances. Irs forms for 2011 tax year   If you are a minister or a member of the uniformed services and receive a housing allowance that you can exclude from income, you still can deduct all of the real estate taxes you pay on your home. Irs forms for 2011 tax year Refund (or rebate). Irs forms for 2011 tax year   If you received a refund or rebate in 2013 of real estate taxes you paid in 2013, you must reduce your deduction by the amount refunded to you. Irs forms for 2011 tax year If you received a refund or rebate in 2013 of real estate taxes you deducted in an earlier year (either as an itemized deduction or an increase to your standard deduction), you generally must include the refund or rebate in income in the year you receive it. Irs forms for 2011 tax year However, the amount you include in income is limited to the amount of the deduction that reduced your tax in the earlier year. Irs forms for 2011 tax year For more information, see Recoveries in chapter 12. Irs forms for 2011 tax year Table 22-1. Irs forms for 2011 tax year Which Taxes Can You Deduct? Type of Tax You Can Deduct You Cannot Deduct Fees and Charges Fees and charges that are expenses of your trade or business or of producing income. Irs forms for 2011 tax year Fees and charges that are not expenses of your trade or business or of producing income, such as fees for driver's licenses, car inspections, parking, or charges for water bills (see Taxes and Fees You Cannot Deduct ). Irs forms for 2011 tax year     Fines and penalties. Irs forms for 2011 tax year Income Taxes State and local income taxes. Irs forms for 2011 tax year Federal income taxes. Irs forms for 2011 tax year   Foreign income taxes. Irs forms for 2011 tax year     Employee contributions to state funds listed under Contributions to state benefit funds . Irs forms for 2011 tax year Employee contributions to private or voluntary disability plans. Irs forms for 2011 tax year     State and local general sales taxes if you choose to deduct state and local income taxes. Irs forms for 2011 tax year General Sales Taxes State and local general sales taxes, including compensating use taxes. Irs forms for 2011 tax year State and local income taxes if you choose to deduct state and local general sales taxes. Irs forms for 2011 tax year Other Taxes Taxes that are expenses of your trade or business. Irs forms for 2011 tax year Federal excise taxes, such as tax on gasoline, that are not expenses of your trade or business or of producing income. Irs forms for 2011 tax year   Taxes on property producing rent or royalty income. Irs forms for 2011 tax year Per capita taxes. Irs forms for 2011 tax year   Occupational taxes. Irs forms for 2011 tax year See chapter 28. Irs forms for 2011 tax year     One-half of self-employment tax paid. Irs forms for 2011 tax year   Personal Property Taxes State and local personal property taxes. Irs forms for 2011 tax year Customs duties that are not expenses of your trade or business or of producing income. Irs forms for 2011 tax year Real Estate Taxes State and local real estate taxes. Irs forms for 2011 tax year Real estate taxes that are treated as imposed on someone else (see Division of real estate taxes between buyers and sellers ). Irs forms for 2011 tax year   Foreign real estate taxes. Irs forms for 2011 tax year Taxes for local benefits (with exceptions). Irs forms for 2011 tax year See Real Estate-Related Items You Cannot Deduct . Irs forms for 2011 tax year   Tenant's share of real estate taxes paid by  cooperative housing corporation. Irs forms for 2011 tax year Trash and garbage pickup fees (with exceptions). Irs forms for 2011 tax year See Real Estate-Related Items You Cannot Deduct . Irs forms for 2011 tax year     Rent increase due to higher real estate taxes. Irs forms for 2011 tax year     Homeowners' association charges. Irs forms for 2011 tax year Real Estate-Related Items You Cannot Deduct Payments for the following items generally are not deductible as real estate taxes. Irs forms for 2011 tax year Taxes for local benefits. Irs forms for 2011 tax year Itemized charges for services (such as trash and garbage pickup fees). Irs forms for 2011 tax year Transfer taxes (or stamp taxes). Irs forms for 2011 tax year Rent increases due to higher real estate taxes. Irs forms for 2011 tax year Homeowners' association charges. Irs forms for 2011 tax year Taxes for local benefits. Irs forms for 2011 tax year   Deductible real estate taxes generally do not include taxes charged for local benefits and improvements tending to increase the value of your property. Irs forms for 2011 tax year These include assessments for streets, sidewalks, water mains, sewer lines, public parking facilities, and similar improvements. Irs forms for 2011 tax year You should increase the basis of your property by the amount of the assessment. Irs forms for 2011 tax year   Local benefit taxes are deductible only if they are for maintenance, repair, or interest charges related to those benefits. Irs forms for 2011 tax year If only a part of the taxes is for maintenance, repair, or interest, you must be able to show the amount of that part to claim the deduction. Irs forms for 2011 tax year If you cannot determine what part of the tax is for maintenance, repair, or interest, none of it is deductible. Irs forms for 2011 tax year    Taxes for local benefits may be included in your real estate tax bill. Irs forms for 2011 tax year If your taxing authority (or mortgage lender) does not furnish you a copy of your real estate tax bill, ask for it. Irs forms for 2011 tax year You should use the rules above to determine if the local benefit tax is deductible. Irs forms for 2011 tax year Contact the taxing authority if you need additional information about a specific charge on your real estate tax bill. Irs forms for 2011 tax year Itemized charges for services. Irs forms for 2011 tax year    An itemized charge for services assessed against specific property or certain people is not a tax, even if the charge is paid to the taxing authority. Irs forms for 2011 tax year For example, you cannot deduct the charge as a real estate tax if it is: A unit fee for the delivery of a service (such as a $5 fee charged for every 1,000 gallons of water you use), A periodic charge for a residential service (such as a $20 per month or $240 annual fee charged to each homeowner for trash collection), or A flat fee charged for a single service provided by your government (such as a $30 charge for mowing your lawn because it was allowed to grow higher than permitted under your local ordinance). Irs forms for 2011 tax year    You must look at your real estate tax bill to determine if any nondeductible itemized charges, such as those listed above, are included in the bill. Irs forms for 2011 tax year If your taxing authority (or mortgage lender) does not furnish you a copy of your real estate tax bill, ask for it. Irs forms for 2011 tax year Exception. Irs forms for 2011 tax year   Service charges used to maintain or improve services (such as trash collection or police and fire protection) are deductible as real estate taxes if: The fees or charges are imposed at a like rate against all property in the taxing jurisdiction, The funds collected are not earmarked; instead, they are commingled with general revenue funds, and Funds used to maintain or improve services are not limited to or determined by the amount of these fees or charges collected. Irs forms for 2011 tax year Transfer taxes (or stamp taxes). Irs forms for 2011 tax year   Transfer taxes and similar taxes and charges on the sale of a personal home are not deductible. Irs forms for 2011 tax year If they are paid by the seller, they are expenses of the sale and reduce the amount realized on the sale. Irs forms for 2011 tax year If paid by the buyer, they are included in the cost basis of the property. Irs forms for 2011 tax year Rent increase due to higher real estate taxes. Irs forms for 2011 tax year   If your landlord increases your rent in the form of a tax surcharge because of increased real estate taxes, you cannot deduct the increase as taxes. Irs forms for 2011 tax year Homeowners' association charges. Irs forms for 2011 tax year   These charges are not deductible because they are imposed by the homeowners' association, rather than the state or local government. Irs forms for 2011 tax year Personal Property Taxes Personal property tax is deductible if it is a state or local tax that is: Charged on personal property, Based only on the value of the personal property, and Charged on a yearly basis, even if it is collected more or less than once a year. Irs forms for 2011 tax year A tax that meets the above requirements can be considered charged on personal property even if it is for the exercise of a privilege. Irs forms for 2011 tax year For example, a yearly tax based on value qualifies as a personal property tax even if it is called a registration fee and is for the privilege of registering motor vehicles or using them on the highways. Irs forms for 2011 tax year If the tax is partly based on value and partly based on other criteria, it may qualify in part. Irs forms for 2011 tax year Example. Irs forms for 2011 tax year Your state charges a yearly motor vehicle registration tax of 1% of value plus 50 cents per hundredweight. Irs forms for 2011 tax year You paid $32 based on the value ($1,500) and weight (3,400 lbs. Irs forms for 2011 tax year ) of your car. Irs forms for 2011 tax year You can deduct $15 (1% × $1,500) as a personal property tax because it is based on the value. Irs forms for 2011 tax year The remaining $17 ($. Irs forms for 2011 tax year 50 × 34), based on the weight, is not deductible. Irs forms for 2011 tax year Taxes and Fees You Cannot Deduct Many federal, state, and local government taxes are not deductible because they do not fall within the categories discussed earlier. Irs forms for 2011 tax year Other taxes and fees, such as federal income taxes, are not deductible because the tax law specifically prohibits a deduction for them. Irs forms for 2011 tax year See Table 22-1. Irs forms for 2011 tax year Taxes and fees that are generally not deductible include the following items. Irs forms for 2011 tax year Employment taxes. Irs forms for 2011 tax year This includes social security, Medicare, and railroad retirement taxes withheld from your pay. Irs forms for 2011 tax year However, one-half of self-employment tax you pay is deductible. Irs forms for 2011 tax year In addition, the social security and other employment taxes you pay on the wages of a household worker may be included in medical expenses that you can deduct or child care expenses that allow you to claim the child and dependent care credit. Irs forms for 2011 tax year For more information, see chapters 21 and 32. Irs forms for 2011 tax year Estate, inheritance, legacy, or succession taxes. Irs forms for 2011 tax year However, you can deduct the estate tax attributable to income in respect of a decedent if you, as a beneficiary, must include that income in your gross income. Irs forms for 2011 tax year In that case, deduct the estate tax as a miscellaneous deduction that is not subject to the 2%-of-adjusted-gross-income limit. Irs forms for 2011 tax year For more information, see Publication 559, Survivors, Executors, and Administrators. Irs forms for 2011 tax year Federal income taxes. Irs forms for 2011 tax year This includes income taxes withheld from your pay. Irs forms for 2011 tax year Fines and penalties. Irs forms for 2011 tax year You cannot deduct fines and penalties paid to a government for violation of any law, including related amounts forfeited as collateral deposits. Irs forms for 2011 tax year Gift taxes. Irs forms for 2011 tax year License fees. Irs forms for 2011 tax year You cannot deduct license fees for personal purposes (such as marriage, driver's, and dog license fees). Irs forms for 2011 tax year Per capita taxes. Irs forms for 2011 tax year You cannot deduct state or local per capita taxes. Irs forms for 2011 tax year Many taxes and fees other than those listed above are also nondeductible, unless they are ordinary and necessary expenses of a business or income producing activity. Irs forms for 2011 tax year For other nondeductible items, see Real Estate-Related Items You Cannot Deduct , earlier. Irs forms for 2011 tax year Where To Deduct You deduct taxes on the following schedules. Irs forms for 2011 tax year State and local income taxes. Irs forms for 2011 tax year    These taxes are deducted on Schedule A (Form 1040), line 5, even if your only source of income is from business, rents, or royalties. Irs forms for 2011 tax year Check box a on line 5. Irs forms for 2011 tax year General sales taxes. Irs forms for 2011 tax year   Sales taxes are deducted on Schedule A (Form 1040), line 5. Irs forms for 2011 tax year You must check box b on line 5. Irs forms for 2011 tax year If you elect to deduct sales taxes, you cannot deduct state and local income taxes on Schedule A (Form 1040), line 5, box a. Irs forms for 2011 tax year Foreign income taxes. Irs forms for 2011 tax year   Generally, income taxes you pay to a foreign country or U. Irs forms for 2011 tax year S. Irs forms for 2011 tax year possession can be claimed as an itemized deduction on Schedule A (Form 1040), line 8, or as a credit against your U. Irs forms for 2011 tax year S. Irs forms for 2011 tax year income tax on Form 1040, line 47. Irs forms for 2011 tax year To claim the credit, you may have to complete and attach Form 1116. Irs forms for 2011 tax year For more information, see chapter 37, the Form 1040 instructions, or Publication 514. Irs forms for 2011 tax year Real estate taxes and personal property taxes. Irs forms for 2011 tax year    Real estate and personal property taxes are deducted on Schedule A (Form 1040), lines 6 and 7, respectively, unless they are paid on property used in your business, in which case they are deducted on Schedule C, Schedule C-EZ, or Schedule F (Form 1040). Irs forms for 2011 tax year Taxes on property that produces rent or royalty income are deducted on Schedule E (Form 1040). Irs forms for 2011 tax year Self-employment tax. Irs forms for 2011 tax year    Deduct one-half of your self-employment tax on Form 1040, line 27. Irs forms for 2011 tax year Other taxes. Irs forms for 2011 tax year    All other deductible taxes are deducted on Schedule A (Form 1040), line 8. Irs forms for 2011 tax year Prev  Up  Next   Home   More Online Publications
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Understanding Your CP53A Notice

We tried to direct deposit your refund, but the financial institution couldn’t process it. We are researching your account, but it will take 8 to 10 weeks to reissue your refund.


What you need to do

  • If you don’t receive your refund check or a follow-up letter within 10 weeks, call us at 1-866-682-7451 x733.
  • If you call us before then, we won’t have any information about the status of your refund until we complete the research on your account.

Answers to Common Questions

Why was my direct deposit refund returned to the IRS?
A financial institution will reject a refund for a variety of reasons. Most often, one of the following items doesn’t match its records:

  • Name
  • SSN
  • Routing number
  • Account number

Why will it take up to 10 weeks to receive my refund?
We must research your account to determine if you are entitled to the refund. We try to balance customer service and tax compliance by reviewing tax returns to prevent fraudulent or erroneous refunds. However, these critical reviews add time to refund processing. Refund timeframes are also affected by:

  • Bankruptcy
  • An open audit
  • A balance due on a related account (such as a different tax year)

Will calling the IRS give me additional information or speed my refund?
No, calling the IRS won’t do anything to speed your refund. You don’t need to call us unless we ask you to. If we need more information to process your refund, we’ll contact you by mail. Our telephone assistors won’t be able to provide any additional information.

Is the estimated date my tax preparer, tax software, or “Where’s My Refund” provided a guarantee of when I’ll get my refund?
Unfortunately, we can’t guarantee the date when a taxpayer will get his or her refund. While we can provide an estimate, this is a “best-case scenario” where the tax return doesn’t require any additional review or corrections.We work hard to issue refunds as quickly as possible. However, you shouldn’t make major financial decisions based on the estimated issue date of a tax refund.

Can I direct part of my refund into my tax professional’s checking or savings account to pay my tax preparation fee?
No. You can direct your refund to any of your checking or savings accounts. You can’t direct your refund to someone else’s account (except for your spouse’s account when you have a joint refund).


Tips for next year

If you request a direct deposit refund, ensure the account you specify is in your name (or your spouse’s if you have a joint refund).

Page Last Reviewed or Updated: 04-Mar-2014

Printable samples of this notice (PDF)

 

 

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Irs Forms For 2011 Tax Year

Irs forms for 2011 tax year 4. Irs forms for 2011 tax year   Unrelated Business Taxable Income Table of Contents IncomeExclusions Dues of Agricultural Organizations and Business Leagues DeductionsDirectly Connected Exploitation of Exempt Activity—Advertising Sales Modifications Partnership Income or Loss S Corporation Income or Loss Special Rules for Foreign Organizations Special Rules for Social Clubs, VEBAs, SUBs, and GLSOsIncome that is set aside. Irs forms for 2011 tax year Special Rules for Veterans' Organizations Income From Controlled OrganizationsAddition to tax for valuation misstatements. Irs forms for 2011 tax year Net unrelated income. Irs forms for 2011 tax year Net unrelated loss. Irs forms for 2011 tax year Control. Irs forms for 2011 tax year Income from property financed with qualified 501(c)(3) bonds. Irs forms for 2011 tax year Disposition of property received from taxable subsidiary and used in unrelated business. Irs forms for 2011 tax year Income From Debt-Financed Property Debt-Financed PropertyAcquisition Indebtedness Computation of Debt-Financed Income Deductions for Debt-Financed Property Allocation Rules How to Get Tax Help The term “unrelated business taxable income” generally means the gross income derived from any unrelated trade or business regularly conducted by the exempt organization, less the deductions directly connected with carrying on the trade or business. Irs forms for 2011 tax year If an organization regularly carries on two or more unrelated business activities, its unrelated business taxable income is the total of gross income from all such activities less the total allowable deductions attributable to all the activities. Irs forms for 2011 tax year In computing unrelated business taxable income, gross income and deductions are subject to the modifications and special rules explained in this chapter. Irs forms for 2011 tax year Whether a particular item of income or expense falls within any of these modifications or special rules must be determined by all the facts and circumstances in each specific case. Irs forms for 2011 tax year For example, if the organization received a payment termed rent that is in fact a return of profits by a person operating the property for the benefit of the organization, or that is a share of the profits retained by the organization as a partner or joint venturer, the payment is not within the income exclusion for rents, discussed later under Exclusions. Irs forms for 2011 tax year Income Generally, unrelated business income is taxable, but there are exclusions and special rules that must be considered when figuring the income. Irs forms for 2011 tax year Exclusions The following types of income (and deductions directly connected with the income) are generally excluded when figuring unrelated business taxable income. Irs forms for 2011 tax year Dividends, interest, annuities and other investment income. Irs forms for 2011 tax year   All dividends, interest, annuities, payments with respect to securities loans, income from notional principal contracts, and other income from an exempt organization's ordinary and routine investments that the IRS determines are substantially similar to these types of income are excluded in computing unrelated business taxable income. Irs forms for 2011 tax year Exception for insurance activity income of a controlled foreign corporation. Irs forms for 2011 tax year   This exclusion does not apply to income from certain insurance activities of an exempt organization's controlled foreign corporation. Irs forms for 2011 tax year The income is not excludable dividend income, but instead is unrelated business taxable income to the extent it would be so treated if the exempt organization had earned it directly. Irs forms for 2011 tax year Certain exceptions to this rule apply. Irs forms for 2011 tax year For more information, see section 512(b)(17). Irs forms for 2011 tax year Other exceptions. Irs forms for 2011 tax year   This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later), to interest or annuities received from a controlled corporation (discussed under Income From Controlled Organizations, later). Irs forms for 2011 tax year Income from lending securities. Irs forms for 2011 tax year   Payments received with respect to a security loan are excluded in computing unrelated business taxable income only if the loan is made under an agreement that:    Provides for the return to the exempt organization of securities identical to the securities loaned, Requires payments to the organization of amounts equivalent to all interest, dividends, and other distributions that the owner of the securities is entitled to receive during the period of the loan, Does not reduce the organization's risk of loss or opportunity for gain on the securities, Contains reasonable procedures to implement the obligation of the borrower to furnish collateral to the organization with a fair market value each business day during the period of the loan in an amount not less than the fair market value of the securities at the close of the preceding business day, and Permits the organization to terminate the loan upon notice of not more than 5 business days. Irs forms for 2011 tax year   Payments with respect to securities loans include: Amounts in respect of dividends, interest, and other distributions, Fees based on the period of time the loan is in effect and the fair market value of the security during that period, Income from collateral security for the loan, and Income from the investment of collateral security. Irs forms for 2011 tax year The payments are considered to be from the securities loaned and not from collateral security or the investment of collateral security from the loans. Irs forms for 2011 tax year Any deductions that are directly connected with collateral security for the loan, or with the investment of collateral security, are considered deductions that are directly connected with the securities loaned. Irs forms for 2011 tax year Royalties. Irs forms for 2011 tax year   Royalties, including overriding royalties, are excluded in computing unrelated business taxable income. Irs forms for 2011 tax year   To be considered a royalty, a payment must relate to the use of a valuable right. Irs forms for 2011 tax year Payments for trademarks, trade names, or copyrights are ordinarily considered royalties. Irs forms for 2011 tax year Similarly, payments for the use of a professional athlete's name, photograph, likeness, or facsimile signature are ordinarily considered royalties. Irs forms for 2011 tax year However, royalties do not include payments for personal services. Irs forms for 2011 tax year Therefore, payments for personal appearances and interviews are not excluded as royalties and must be included in figuring unrelated business taxable income. Irs forms for 2011 tax year   Unrelated business taxable income does not include royalty income received from licensees by an exempt organization that is the legal and beneficial owner of patents assigned to it by inventors for specified percentages of future royalties. Irs forms for 2011 tax year   Mineral royalties are excluded whether measured by production or by gross or taxable income from the mineral property. Irs forms for 2011 tax year However, the exclusion does not apply to royalties that stem from an arrangement whereby the organization owns a working interest in a mineral property and is liable for its share of the development and operating costs under the terms of its agreement with the operator of the property. Irs forms for 2011 tax year To the extent they are not treated as loans under section 636 (relating to income tax treatment of mineral production payments), payments for mineral production are treated in the same manner as royalty payments for the purpose of computing unrelated business taxable income. Irs forms for 2011 tax year To the extent they are treated as loans, any payments for production that are the equivalent of interest are treated as interest and are excluded. Irs forms for 2011 tax year Exceptions. Irs forms for 2011 tax year   This exclusion does not apply to debt-financed income (discussed under Income From Debt-Financed Property, later) or to royalties received from a controlled corporation (discussed under Income From Controlled Organizations, later). Irs forms for 2011 tax year Rents. Irs forms for 2011 tax year   Rents from real property, including elevators and escalators, are excluded in computing unrelated business taxable income. Irs forms for 2011 tax year Rents from personal property are not excluded. Irs forms for 2011 tax year However, special rules apply to “mixed leases” of both real and personal property. Irs forms for 2011 tax year Mixed leases. Irs forms for 2011 tax year   In a mixed lease, all of the rents are excluded if the rents attributable to the personal property are not more than 10% of the total rents under the lease, as determined when the personal property is first placed in service by the lessee. Irs forms for 2011 tax year If the rents attributable to personal property are more than 10% but not more than 50% of the total rents, only the rents attributable to the real property are excluded. Irs forms for 2011 tax year If the rents attributable to the personal property are more than 50% of the total rents, none of the rents are excludable. Irs forms for 2011 tax year   Property is placed in service when the lessee first may use it under the terms of a lease. Irs forms for 2011 tax year For example, property subject to a lease entered into on November 1, for a term starting on January 1 of the next year, is considered placed in service on January 1, regardless of when the lessee first actually uses it. Irs forms for 2011 tax year   If separate leases are entered into for real and personal property and the properties have an integrated use (for example, one or more leases for real property and another lease or leases for personal property to be used on the real property), all the leases will be considered as one lease. Irs forms for 2011 tax year   The rent attributable to the personal property must be recomputed, and the treatment of the rents must be redetermined, if: The rent attributable to all the leased personal property increases by 100% or more because additional or substitute personal property is placed in service, or The lease is modified to change the rent charged (whether or not the amount of rented personal property changes). Irs forms for 2011 tax year Any change in the treatment of rents resulting from the recomputation is effective only for the period beginning with the event that caused the recomputation. Irs forms for 2011 tax year Exception for rents based on net profit. Irs forms for 2011 tax year   The exclusion for rents does not apply if the amount of the rent depends on the income or profits derived by any person from the leased property, other than an amount based on a fixed percentage of the gross receipts or sales. Irs forms for 2011 tax year Exception for income from personal services. Irs forms for 2011 tax year   Payment for occupying space when personal services are also rendered to the occupant does not constitute rent from real property. Irs forms for 2011 tax year Therefore, the exclusion does not apply to transactions such as renting hotel rooms, rooms in boarding houses or tourist homes, and space in parking lots or warehouses. Irs forms for 2011 tax year Other exceptions. Irs forms for 2011 tax year   This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later), or to interest, annuities, royalties and rents received from a controlled corporation (discussed under Income From Controlled Organizations, later), investment income (dividends, interest, rents, etc. Irs forms for 2011 tax year ) received by organizations described in sections 501(c)(7), 501(c)(9), 501(c)(17), and 501(c)(20). Irs forms for 2011 tax year See Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs, discussed later for more information. Irs forms for 2011 tax year Income from research. Irs forms for 2011 tax year   A tax-exempt organization may exclude income from research grants or contracts from unrelated business taxable income. Irs forms for 2011 tax year However, the extent of the exclusion depends on the nature of the organization and the type of research. Irs forms for 2011 tax year   Income from research for the United States, any of its agencies or instrumentalities, or a state or any of its political subdivisions is excluded when computing unrelated business taxable income. Irs forms for 2011 tax year   For a college, university, or hospital, all income from research, whether fundamental or applied, is excluded in computing unrelated business taxable income. Irs forms for 2011 tax year   When an organization is operated primarily to conduct fundamental research (as distinguished from applied research) and the results are freely available to the general public, all income from research performed for any person is excluded in computing unrelated business taxable income. Irs forms for 2011 tax year   The term research, for this purpose, does not include activities of a type normally conducted as an incident to commercial or industrial operations, such as testing or inspecting materials or products, or designing or constructing equipment, buildings, etc. Irs forms for 2011 tax year In addition, the term fundamental research does not include research conducted for the primary purpose of commercial or industrial application. Irs forms for 2011 tax year Gains and losses from disposition of property. Irs forms for 2011 tax year   Also excluded from unrelated business taxable income are gains or losses from the sale, exchange, or other disposition of property other than: Stock in trade or other property of a kind that would properly be includable in inventory if on hand at the close of the tax year, Property held primarily for sale to customers in the ordinary course of a trade or business, or Cutting of timber that an organization has elected to consider as a sale or exchange of the timber. Irs forms for 2011 tax year   It should be noted that the last exception relates only to cut timber. Irs forms for 2011 tax year The sale, exchange, or other disposition of standing timber is excluded from the computation of unrelated business income, unless it constitutes property held for sale to customers in the ordinary course of business. Irs forms for 2011 tax year Lapse or termination of options. Irs forms for 2011 tax year   Any gain from the lapse or termination of options to buy or sell securities is excluded from unrelated business taxable income. Irs forms for 2011 tax year The exclusion applies only if the option is written in connection with the exempt organization's investment activities. Irs forms for 2011 tax year Therefore, this exclusion is not available if the organization is engaged in the trade or business of writing options or the options are held by the organization as inventory or for sale to customers in the ordinary course of a trade or business. Irs forms for 2011 tax year Exception. Irs forms for 2011 tax year   This exclusion does not apply to unrelated debt-financed income, discussed later under Income From Debt-Financed Property. Irs forms for 2011 tax year Gain or loss on disposition of certain brownfield property. Irs forms for 2011 tax year   Gain or loss from the qualifying sale, exchange, or other disposition of a qualifying brownfield property (as defined in section 512(b)(19)(C)), which was acquired by the organization after December 31, 2005 and before January 1, 2011, is excluded from unrelated business taxable income and is excepted from the debt-financed rules for such property. Irs forms for 2011 tax year See sections 512(b)(19) and 514(b)(1)(E). Irs forms for 2011 tax year Income from services provided under federal license. Irs forms for 2011 tax year   There is a further exclusion from unrelated business taxable income of income from a trade or business conducted by a religious order or by an educational organization maintained by the order. Irs forms for 2011 tax year   This exclusion applies only if the following requirements are met. Irs forms for 2011 tax year The trade or business must have been operated by the order or by the institution before May 27, 1959. Irs forms for 2011 tax year The trade or business must provide services under a license issued by a federal regulatory agency. Irs forms for 2011 tax year More than 90% of the net income from the business for the tax year must be devoted to religious, charitable, or educational purposes that constitute the basis for the religious order's exemption. Irs forms for 2011 tax year The rates or other charges for these services must be fully competitive with the rates or other charges of similar taxable businesses. Irs forms for 2011 tax year Rates or other charges for these services will be considered as fully competitive if they are neither materially higher nor materially lower than the rates charged by similar businesses operating in the same general area. Irs forms for 2011 tax year Exception. Irs forms for 2011 tax year    This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later). Irs forms for 2011 tax year Member income of mutual or cooperative electric companies. Irs forms for 2011 tax year   Income of a mutual or cooperative electric company described in section 501(c)(12) which is treated as member income under subparagraph (H) of that section is excluded from unrelated business taxable income. Irs forms for 2011 tax year Dues of Agricultural Organizations and Business Leagues Dues received from associate members by organizations exempt under section 501(c)(5) or section 501(c)(6) may be treated as gross income from an unrelated trade or business if the associate member category exists for the principal purpose of producing unrelated business income. Irs forms for 2011 tax year For example, if an organization creates an associate member category solely to allow associate members to purchase insurance through the organization, the associate member dues may be unrelated business income. Irs forms for 2011 tax year Exception. Irs forms for 2011 tax year   Associate member dues received by an agricultural or horticultural organization are not treated as gross income from an unrelated trade or business, regardless of their purpose, if they are not more than the annual limit. Irs forms for 2011 tax year The limit on dues paid by an associate member is $148 for 2011. Irs forms for 2011 tax year   If the required annual dues are more than the limit, the entire amount is treated as income from an unrelated business unless the associate member category was formed or availed of for the principal purpose of furthering the organization's exempt purposes. Irs forms for 2011 tax year Deductions To qualify as allowable deductions in computing unrelated business taxable income, the expenses, depreciation, and similar items generally must be allowable income tax deductions that are directly connected with carrying on an unrelated trade or business. Irs forms for 2011 tax year They cannot be directly connected with excluded income. Irs forms for 2011 tax year For an exception to the “directly connected” requirement, see Charitable contributions deduction, under Modifications, later. Irs forms for 2011 tax year Directly Connected To be directly connected with the conduct of an unrelated business, deductions must have a proximate and primary relationship to carrying on that business. Irs forms for 2011 tax year For an exception, see Expenses attributable to exploitation of exempt activities, later. Irs forms for 2011 tax year Expenses attributable solely to unrelated business. Irs forms for 2011 tax year   Expenses, depreciation, and similar items attributable solely to the conduct of an unrelated business are proximately and primarily related to that business and qualify for deduction to the extent that they are otherwise allowable income tax deductions. Irs forms for 2011 tax year   For example, salaries of personnel employed full-time to conduct the unrelated business and depreciation of a building used entirely in the conduct of that business are deductible to the extent otherwise allowable. Irs forms for 2011 tax year Expenses attributable to dual use of facilities or personnel. Irs forms for 2011 tax year   When facilities or personnel are used both to conduct exempt functions and to conduct an unrelated trade or business, expenses, depreciation, and similar items attributable to the facilities or personnel must be allocated between the two uses on a reasonable basis. Irs forms for 2011 tax year The part of an item allocated to the unrelated trade or business is proximately and primarily related to that business and is allowable as a deduction in computing unrelated business taxable income if the expense is otherwise an allowable income tax deduction. Irs forms for 2011 tax year Example 1. Irs forms for 2011 tax year A school recognized as a tax-exempt organization contracts with an individual to conduct a summer tennis camp. Irs forms for 2011 tax year The school provides the tennis courts, housing, and dining facilities. Irs forms for 2011 tax year The contracted individual hires the instructors, recruits campers, and provides supervision. Irs forms for 2011 tax year The income the school receives from this activity is from a dual use of the facilities and personnel. Irs forms for 2011 tax year The school, in computing its unrelated business taxable income, may deduct an allocable part of the expenses attributable to the facilities and personnel. Irs forms for 2011 tax year Example 2. Irs forms for 2011 tax year An exempt organization with gross income from an unrelated trade or business pays its president $90,000 a year. Irs forms for 2011 tax year The president devotes approximately 10% of his time to the unrelated business. Irs forms for 2011 tax year To figure the organization's unrelated business taxable income, a deduction of $9,000 ($90,000 × 10%) is allowed for the salary paid to its president. Irs forms for 2011 tax year Expenses attributable to exploitation of exempt activities. Irs forms for 2011 tax year   Generally, expenses, depreciation, and similar items attributable to the conduct of an exempt activity are not deductible in computing unrelated business taxable income from an unrelated trade or business that exploits the exempt activity. Irs forms for 2011 tax year (See Exploitation of exempt functions under Not substantially related in chapter 3. Irs forms for 2011 tax year ) This is because they do not have a proximate and primary relationship to the unrelated trade or business, and therefore, they do not qualify as directly connected with that business. Irs forms for 2011 tax year Exception. Irs forms for 2011 tax year   Expenses, depreciation, and similar items may be treated as directly connected with the conduct of the unrelated business if all the following statements are true. Irs forms for 2011 tax year The unrelated business exploits the exempt activity. Irs forms for 2011 tax year The unrelated business is a type normally conducted for profit by taxable organizations. Irs forms for 2011 tax year The exempt activity is a type normally conducted by taxable organizations in carrying on that type of business. Irs forms for 2011 tax year The amount treated as directly connected is the smaller of: The excess of these expenses, depreciation, and similar items over the income from, or attributable to, the exempt activity; or The gross unrelated business income reduced by all other expenses, depreciation, and other items that are actually directly connected. Irs forms for 2011 tax year   The application of these rules to an advertising activity that exploits an exempt publishing activity is explained next. Irs forms for 2011 tax year Exploitation of Exempt Activity—Advertising Sales The sale of advertising in a periodical of an exempt organization that contains editorial material related to the accomplishment of the organization's exempt purpose is an unrelated business that exploits an exempt activity, the circulation and readership of the periodical. Irs forms for 2011 tax year Therefore, in addition to direct advertising costs, exempt activity costs (expenses, depreciation, and similar expenses attributable to the production and distribution of the editorial or readership content) can be treated as directly connected with the conduct of the advertising activity. Irs forms for 2011 tax year (See Expenses attributable to exploitation of exempt activities under Directly Connected, earlier. Irs forms for 2011 tax year ) Figuring unrelated business taxable income (UBTI). Irs forms for 2011 tax year   The UBTI of an advertising activity is the amount shown in the following chart. Irs forms for 2011 tax year IF gross advertising income is . Irs forms for 2011 tax year . Irs forms for 2011 tax year . Irs forms for 2011 tax year THEN UBTI is . Irs forms for 2011 tax year . Irs forms for 2011 tax year . Irs forms for 2011 tax year More than direct advertising costs The excess advertising income, reduced (but not below zero) by the excess, if any, of readership costs over circulation income. Irs forms for 2011 tax year Equal to or less than direct advertising costs Zero. Irs forms for 2011 tax year   • Circulation income and readership costs are not taken into account. Irs forms for 2011 tax year   • Any excess advertising costs reduce (but not below zero) UBTI from any other unrelated business activity. Irs forms for 2011 tax year   The terms used in the chart are explained in the following discussions. Irs forms for 2011 tax year Periodical Income Gross advertising income. Irs forms for 2011 tax year   This is all the income from the unrelated advertising activities of an exempt organization periodical. Irs forms for 2011 tax year Circulation income. Irs forms for 2011 tax year   This is all the income from the production, distribution, or circulation of an exempt organization's periodical (other than gross advertising income). Irs forms for 2011 tax year It includes all amounts from the sale or distribution of the readership content of the periodical, such as income from subscriptions. Irs forms for 2011 tax year It also includes allocable membership receipts if the right to receive the periodical is associated with a membership or similar status in the organization. Irs forms for 2011 tax year Allocable membership receipts. Irs forms for 2011 tax year   This is the part of membership receipts (dues, fees, or other charges associated with membership) equal to the amount that would have been charged and paid for the periodical if: The periodical was published by a taxable organization, The periodical was published for profit, and The member was an unrelated party dealing with the taxable organization at arm's length. Irs forms for 2011 tax year   The amount used to allocate membership receipts is the amount shown in the following chart. Irs forms for 2011 tax year   For this purpose, the total periodical costs are the sum of the direct advertising costs and the readership costs, explained under Periodical Costs, later. Irs forms for 2011 tax year The cost of other exempt activities means the total expenses incurred by the organization in connection with its other exempt activities, not offset by any income earned by the organization from those activities. Irs forms for 2011 tax year IF . Irs forms for 2011 tax year . Irs forms for 2011 tax year . Irs forms for 2011 tax year THEN the amount used to allocate membership receipts is . Irs forms for 2011 tax year . Irs forms for 2011 tax year . Irs forms for 2011 tax year 20% or more of the total circulation consists of sales to nonmembers The subscription price charged nonmembers. Irs forms for 2011 tax year The above condition does not apply, and 20% or more of the members pay reduced dues because they do not receive the periodical The reduction in dues for a member not receiving the periodical. Irs forms for 2011 tax year Neither of the above conditions applies The membership receipts multiplied by this fraction:   Total periodical costs Total periodical costs Plus Cost of other exempt activities Example 1. Irs forms for 2011 tax year U is an exempt scientific organization with 10,000 members who pay annual dues of $15. Irs forms for 2011 tax year One of U's activities is publishing a monthly periodical distributed to all of its members. Irs forms for 2011 tax year U also distributes 5,000 additional copies of its periodical to nonmembers, who subscribe for $10 a year. Irs forms for 2011 tax year Since the nonmember circulation of U's periodical represents one-third (more than 20%) of its total circulation, the subscription price charged to nonmembers is used to determine the part of U's membership receipts allocable to the periodical. Irs forms for 2011 tax year Thus, U's allocable membership receipts are $100,000 ($10 times 10,000 members), and U's total circulation income for the periodical is $150,000 ($100,000 from members plus $50,000 from sales to nonmembers). Irs forms for 2011 tax year Example 2. Irs forms for 2011 tax year Assume the same facts except that U sells only 500 copies of its periodical to nonmembers, at a price of $10 a year. Irs forms for 2011 tax year Assume also that U's members may elect not to receive the periodical, in which case their dues are reduced from $15 a year to $6 a year, and that only 3,000 members elect to receive the periodical and pay the full dues of $15 a year. Irs forms for 2011 tax year U's stated subscription price of $9 to members consistently results in an excess of total income (including gross advertising income) attributable to the periodical over total costs of the periodical. Irs forms for 2011 tax year Since the 500 copies of the periodical distributed to nonmembers represent only 14% of the 3,500 copies distributed, the $10 subscription price charged to nonmembers is not used to determine the part of membership receipts allocable to the periodical. Irs forms for 2011 tax year Instead, since 70% of the members elect not to receive the periodical and pay $9 less per year in dues, the $9 price is used to determine the subscription price charged to members. Irs forms for 2011 tax year Thus, the allocable membership receipts will be $9 a member, or $27,000 ($9 times 3,000 copies). Irs forms for 2011 tax year U's total circulation income is $32,000 ($27,000 plus the $5,000 from nonmember subscriptions). Irs forms for 2011 tax year Periodical Costs Direct advertising costs. Irs forms for 2011 tax year   These are expenses, depreciation, and similar items of deduction directly connected with selling and publishing advertising in the periodical. Irs forms for 2011 tax year   Examples of allowable deductions under this classification include agency commissions and other direct selling costs, such as transportation and travel expenses, office salaries, promotion and research expenses, and office overhead directly connected with the sale of advertising lineage in the periodical. Irs forms for 2011 tax year Also included are other deductions commonly classified as advertising costs under standard account classifications, such as artwork and copy preparation, telephone, telegraph, postage, and similar costs directly connected with advertising. Irs forms for 2011 tax year   In addition, direct advertising costs include the part of mechanical and distribution costs attributable to advertising lineage. Irs forms for 2011 tax year For this purpose, the general account classifications of items includable in mechanical and distribution costs ordinarily employed in business-paper and consumer-publication accounting provide a guide for the computation. Irs forms for 2011 tax year Accordingly, the mechanical and distribution costs include the part of the costs and other expenses of composition, press work, binding, mailing (including paper and wrappers used for mailing), and bulk postage attributable to the advertising lineage of the publication. Irs forms for 2011 tax year   In the absence of specific and detailed records, the part of mechanical and distribution costs attributable to the periodical's advertising lineage can be based on the ratio of advertising lineage to total lineage in the periodical, if this allocation is reasonable. Irs forms for 2011 tax year Readership costs. Irs forms for 2011 tax year   These are all expenses, depreciation, and similar items that are directly connected with the production and distribution of the readership content of the periodical. Irs forms for 2011 tax year Costs partly attributable to other activities. Irs forms for 2011 tax year   Deductions properly attributable to exempt activities other than publishing the periodical may not be allocated to the periodical. Irs forms for 2011 tax year When expenses are attributable both to the periodical and to the organization's other activities, an allocation must be made on a reasonable basis. Irs forms for 2011 tax year The method of allocation will vary with the nature of the item, but once adopted, should be used consistently. Irs forms for 2011 tax year Allocations based on dollar receipts from various exempt activities generally are not reasonable since receipts usually do not accurately reflect the costs associated with specific activities that an exempt organization conducts. Irs forms for 2011 tax year Consolidated Periodicals If an exempt organization publishes more than one periodical to produce income, it may treat all of them (but not less than all) as one in determining unrelated business taxable income from selling advertising. Irs forms for 2011 tax year It treats the gross income from all the periodicals, and the deductions directly connected with them, on a consolidated basis. Irs forms for 2011 tax year Consolidated treatment, once adopted, must be followed consistently and is binding. Irs forms for 2011 tax year This treatment can be changed only with the consent of the Internal Revenue Service. Irs forms for 2011 tax year An exempt organization's periodical is published to produce income if: The periodical generates gross advertising income to the organization equal to at least 25% of its readership costs, and Publishing the periodical is an activity engaged in for profit. Irs forms for 2011 tax year Whether the publication of a periodical is an activity engaged in for profit can be determined only by all the facts and circumstances in each case. Irs forms for 2011 tax year The facts and circumstances must show that the organization carries on the activity for economic profit, although there may not be a profit in a particular year. Irs forms for 2011 tax year For example, if an organization begins publishing a new periodical whose total costs exceed total income in the start-up years because of lack of advertising sales, that does not mean that the organization did not have as its objective an economic profit. Irs forms for 2011 tax year The organization may establish that it had this objective by showing it can reasonably expect advertising sales to increase, so that total income will exceed costs within a reasonable time. Irs forms for 2011 tax year Example. Irs forms for 2011 tax year Y, an exempt trade association, publishes three periodicals that it distributes to its members: a weekly newsletter, a monthly magazine, and a quarterly journal. Irs forms for 2011 tax year Both the monthly magazine and the quarterly journal contain advertising that accounts for gross advertising income equal to more than 25% of their respective readership costs. Irs forms for 2011 tax year Similarly, the total income attributable to each periodical has exceeded the total deductions attributable to each periodical for substantially all the years they have been published. Irs forms for 2011 tax year The newsletter carries no advertising and its annual subscription price is not intended to cover the cost of publication. Irs forms for 2011 tax year The newsletter is a service that Y distributes to all of its members in an effort to keep them informed of changes occurring in the business world. Irs forms for 2011 tax year It is not engaged in for profit. Irs forms for 2011 tax year Under these circumstances, Y may consolidate the income and deductions from the monthly and quarterly journals in computing its unrelated business taxable income. Irs forms for 2011 tax year It may not consolidate the income and deductions from the newsletter with the income and deductions of its other periodicals, since the newsletter is not published for the production of income. Irs forms for 2011 tax year Modifications Net operating loss deduction. Irs forms for 2011 tax year   The net operating loss (NOL) deduction (as provided in section 172) is allowed in computing unrelated business taxable income. Irs forms for 2011 tax year However, the NOL for any tax year, the carrybacks and carryovers of NOLs, and the NOL deduction are determined without taking into account any amount of income or deduction that has been specifically excluded in computing unrelated business taxable income. Irs forms for 2011 tax year For example, a loss from an unrelated trade or business is not diminished because dividend income was received. Irs forms for 2011 tax year   If this were not done, organizations would, in effect, be taxed on their exempt income, since unrelated business losses then would be offset by dividends, interest, and other excluded income. Irs forms for 2011 tax year This would reduce the loss that could be applied against unrelated business income of prior or future tax years. Irs forms for 2011 tax year Therefore, to preserve the immunity of exempt income, all NOL computations are limited to those items of income and deductions that affect the unrelated business taxable income. Irs forms for 2011 tax year   In line with this concept, an NOL carryback or carryover is allowed only from a tax year for which the organization is subject to tax on unrelated business income. Irs forms for 2011 tax year   For example, if an organization just became subject to the tax last year, its NOL for that year is not a carryback to a prior year when it had no unrelated business taxable income, nor is its NOL carryover to succeeding years reduced by the related income of those prior years. Irs forms for 2011 tax year   However, in determining the span of years for which an NOL may be carried back or forward, the tax years for which the organization is not subject to the tax on unrelated business income are counted. Irs forms for 2011 tax year For example, if an organization was subject to the tax for 2009 and had an NOL for that year, the last tax year to which any part of that loss may be carried over is 2029, regardless of whether the organization was subject to the unrelated business income tax in any of the intervening years. Irs forms for 2011 tax year   For more details on the NOL deduction, including property eligible for an extended carryback period, see sections 172 and 1400N, Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts, and Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. Irs forms for 2011 tax year Charitable contributions deduction. Irs forms for 2011 tax year   An exempt organization is allowed to deduct its charitable contributions in computing its unrelated business taxable income whether or not the contributions are directly connected with the unrelated business. Irs forms for 2011 tax year   To be deductible, the contribution must be paid to another qualified organization. Irs forms for 2011 tax year For example, an exempt university that operates an unrelated business may deduct a contribution made to another university for educational work, but may not claim a deduction for contributions of amounts spent for carrying out its own educational program. Irs forms for 2011 tax year   For purposes of the deduction, a distribution by a trust made under the trust instrument to a beneficiary, which itself is a qualified organization, is treated the same as a contribution. Irs forms for 2011 tax year Deduction limits. Irs forms for 2011 tax year   An exempt organization that is subject to the unrelated business income tax at corporate rates is allowed a deduction for charitable contributions up to 10% of its unrelated business taxable income computed without regard to the deduction for contributions. Irs forms for 2011 tax year See the Instructions for Form 990-T for more information. Irs forms for 2011 tax year    An exempt trust that is subject to the unrelated business income tax at trust rates generally is allowed a deduction for charitable contributions in the same amounts as allowed for individuals. Irs forms for 2011 tax year However, the limit on the deduction is determined in relation to the trust's unrelated business taxable income computed without regard to the deduction, rather than in relation to adjusted gross income. Irs forms for 2011 tax year   Contributions in excess of the limits just described may be carried over to the next 5 tax years. Irs forms for 2011 tax year A contribution carryover is not allowed, however, to the extent that it increases an NOL carryover. Irs forms for 2011 tax year Suspension of deduction limits for farmers and ranchers. Irs forms for 2011 tax year   The limitations discussed above are temporarily suspended for certain qualified conservation contributions of property used in agriculture or livestock production. Irs forms for 2011 tax year See the Instructions for Form 990-T for details. Irs forms for 2011 tax year Specific deduction. Irs forms for 2011 tax year   In computing unrelated business taxable income, a specific deduction of $1,000 is allowed. Irs forms for 2011 tax year However, the specific deduction is not allowed in computing an NOL or the NOL deduction. Irs forms for 2011 tax year   Generally, the deduction is limited to $1,000 regardless of the number of unrelated businesses in which the organization is engaged. Irs forms for 2011 tax year Exception. Irs forms for 2011 tax year   An exception is provided in the case of a diocese, province of a religious order, or a convention or association of churches that may claim a specific deduction for each parish, individual church, district, or other local unit. Irs forms for 2011 tax year In these cases, the specific deduction for each local unit is limited to the lower of: $1,000, or Gross income derived from an unrelated trade or business regularly conducted by the local unit. Irs forms for 2011 tax year   This exception applies only to parishes, districts, or other local units that are not separate legal entities, but are components of a larger entity (diocese, province, convention, or association) filing Form 990-T. Irs forms for 2011 tax year The parent organization must file a return reporting the unrelated business gross income and related deductions of all units that are not separate legal entities. Irs forms for 2011 tax year The local units cannot file separate returns. Irs forms for 2011 tax year However, each local unit that is separately incorporated must file its own return and cannot include, or be included with, any other entity. Irs forms for 2011 tax year See Title-holding corporations in chapter 1 for a discussion of the only situation in which more than one legal entity may be included on the same Form 990-T. Irs forms for 2011 tax year Example. Irs forms for 2011 tax year X is an association of churches and is divided into local units A, B, C, and D. Irs forms for 2011 tax year Last year, A, B, C, and D derived gross income of, respectively, $1,200, $800, $1,500, and $700 from unrelated businesses that they regularly conduct. Irs forms for 2011 tax year X may claim a specific deduction of $1,000 with respect to A, $800 with respect to B, $1,000 with respect to C, and $700 with respect to D. Irs forms for 2011 tax year Partnership Income or Loss An organization may have unrelated business income or loss as a member of a partnership, rather than through direct business dealings with the public. Irs forms for 2011 tax year If so, it must treat its share of the partnership income or loss as if it had conducted the business activity in its own capacity as a corporation or trust. Irs forms for 2011 tax year No distinction is made between limited and general partners. Irs forms for 2011 tax year The organization is required to notify the partnership of its tax-exempt status. Irs forms for 2011 tax year Thus, if an organization is a member of a partnership regularly engaged in a trade or business that is an unrelated trade or business with respect to the organization, the organization must include in its unrelated business taxable income its share of the partnership's gross income from the unrelated trade or business (whether or not distributed), and the deductions attributable to it. Irs forms for 2011 tax year The partnership income and deductions to be included in the organization's unrelated business taxable income are figured the same way as any income and deductions from an unrelated trade or business conducted directly by the organization. Irs forms for 2011 tax year The partnership is required to provide the organization this information on Schedule K-1. Irs forms for 2011 tax year Example. Irs forms for 2011 tax year An exempt educational organization is a partner in a partnership that operates a factory. Irs forms for 2011 tax year The partnership also holds stock in a corporation. Irs forms for 2011 tax year The exempt organization must include its share of the gross income from operating the factory in its unrelated business taxable income but may exclude its share of any dividends the partnership received from the corporation. Irs forms for 2011 tax year Different tax years. Irs forms for 2011 tax year   If the exempt organization and the partnership of which it is a member have different tax years, the partnership items that enter into the computation of the organization's unrelated business taxable income must be based on the income and deductions of the partnership for the partnership's tax year that ends within or with the organization's tax year. Irs forms for 2011 tax year S Corporation Income or Loss An organization that owns S corporation stock must take into account its share of the S corporation's income, deductions, or losses in figuring unrelated business taxable income, regardless of the actual source or nature of the income, deductions, and losses. Irs forms for 2011 tax year For example, the organization's share of the S corporation's interest and dividend income will be taxable, even though interest and dividends are normally excluded from unrelated business taxable income. Irs forms for 2011 tax year The organization must also take into account its gain or loss on the sale or other disposition of the S corporation stock in figuring unrelated business taxable income. Irs forms for 2011 tax year Special Rules for Foreign Organizations The unrelated business taxable income of a foreign organization exempt from tax under section 501(a) consists of the organization's: Unrelated business taxable income derived from sources within the United States but not effectively connected with the conduct of a trade or business within the United States, and Unrelated business taxable income effectively connected with the conduct of a trade or business within the United States, whether or not this income is derived from sources within the United States. Irs forms for 2011 tax year To determine whether income realized by a foreign organization is derived from sources within the United States or is effectively connected with the conduct of a trade or business within the United States, see sections 861 through 865 and the related regulations. Irs forms for 2011 tax year Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs The following discussion applies to: Social clubs described in section 501(c)(7), Voluntary employees' beneficiary associations (VEBAs) described in section 501(c)(9), Supplemental unemployment compensation benefit trusts (SUBs) described in section 501(c)(17), and Group legal services organizations (GLSOs) described in section 501(c)(20). Irs forms for 2011 tax year These organizations must figure unrelated business taxable income under special rules. Irs forms for 2011 tax year Unlike other exempt organizations, they cannot exclude their investment income (dividends, interest, rents, etc. Irs forms for 2011 tax year ). Irs forms for 2011 tax year (See Exclusions under Income, earlier. Irs forms for 2011 tax year ) Therefore, they are generally subject to unrelated business income tax on this income. Irs forms for 2011 tax year The unrelated business taxable income of these organizations includes all gross income, less deductions directly connected with the production of that income, except that gross income for this purpose does not include exempt function income. Irs forms for 2011 tax year The dividends received by a corporation are not allowed in computing unrelated business taxable income because it is not an expense incurred in the production of income. Irs forms for 2011 tax year Losses from nonexempt activities. Irs forms for 2011 tax year   Losses from nonexempt activities of these organizations cannot be used to offset investment income unless the activities were undertaken with the intent to make a profit. Irs forms for 2011 tax year Example. Irs forms for 2011 tax year A private golf and country club that is a qualified tax-exempt social club has nonexempt function income from interest and from the sale of food and beverages to nonmembers. Irs forms for 2011 tax year The club sells food and beverages as a service to members and their guests rather than for the purpose of making a profit. Irs forms for 2011 tax year Therefore, any loss resulting from sales to nonmembers cannot be used to offset the club's interest income. Irs forms for 2011 tax year Modifications. Irs forms for 2011 tax year   The unrelated business taxable income is modified by any NOL or charitable contributions deduction and by the specific deduction (described earlier under Deductions). Irs forms for 2011 tax year Exempt function income. Irs forms for 2011 tax year   This is gross income from dues, fees, charges or similar items paid by members for goods, facilities, or services to the members or their dependents or guests, to further the organization's exempt purposes. Irs forms for 2011 tax year Exempt function income also includes income set aside for qualified purposes. Irs forms for 2011 tax year Income that is set aside. Irs forms for 2011 tax year   This is income set aside to be used for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals. Irs forms for 2011 tax year In addition, for a VEBA, SUB, or GLSO, it is income set aside to provide for the payment of life, sick, accident, or other benefits. Irs forms for 2011 tax year   However, any amounts set aside by a VEBA or SUB that exceed the organization's qualified asset account limit (determined under section 419A) are unrelated business income. Irs forms for 2011 tax year Special rules apply to the treatment of existing reserves for post-retirement medical or life insurance benefits. Irs forms for 2011 tax year These rules are explained in section 512(a)(3)(E)(ii). Irs forms for 2011 tax year   Income derived from an unrelated trade or business may not be set aside and therefore cannot be exempt function income. Irs forms for 2011 tax year In addition, any income set aside and later spent for other purposes must be included in unrelated business taxable income. Irs forms for 2011 tax year   Set-aside income is generally excluded from gross income only if it is set aside in the tax year in which it is otherwise includible in gross income. Irs forms for 2011 tax year However, income set aside on or before the date for filing Form 990-T, including extensions of time, may, at the election of the organization, be treated as having been set aside in the tax year for which the return was filed. Irs forms for 2011 tax year The income set aside must have been includible in gross income for that earlier year. Irs forms for 2011 tax year Nonrecognition of gain. Irs forms for 2011 tax year   If the organization sells property used directly in performing an exempt function and purchases other property used directly in performing an exempt function, any gain on the sale is recognized only to the extent that the sales price of the old property exceeds the cost of the new property. Irs forms for 2011 tax year The purchase of the new property must be made within 1 year before the date of sale of the old property or within 3 years after the date of sale. Irs forms for 2011 tax year   This rule also applies to gain from an involuntary conversion of the property resulting from its destruction in whole or in part, theft, seizure, requisition, or condemnation. Irs forms for 2011 tax year Special Rules for Veterans' Organizations Unrelated business taxable income of a veterans' organization that is exempt under section 501(c)(19) does not include the net income from insurance business that is properly set aside. Irs forms for 2011 tax year The organization may set aside income from payments received for life, sick, accident, or health insurance for the organization's members or their dependents for the payment of insurance benefits or reasonable costs of insurance administration, or for use exclusively for religious, charitable, scientific, literary, or educational purposes, or the prevention of cruelty to children or animals. Irs forms for 2011 tax year For details, see section 512(a)(4) and the regulations under that section. Irs forms for 2011 tax year Income From Controlled Organizations The exclusions for interest, annuities, royalties, and rents, explained earlier in this chapter under Income, may not apply to a payment of these items received by a controlling organization from its controlled organization. Irs forms for 2011 tax year The payment is included in the controlling organization's unrelated business taxable income to the extent it reduced the net unrelated income (or increased the net unrelated loss) of the controlled organization. Irs forms for 2011 tax year All deductions of the controlling organization directly connected with the amount included in its unrelated business taxable income are allowed. Irs forms for 2011 tax year Excess qualifying specified payments. Irs forms for 2011 tax year   Excess qualifying specified payments received or accrued from a controlled entity are included in a controlling exempt organization's unrelated business taxable income only on the amount that exceeds that which would have been paid or accrued if the payments had been determined under section 482. Irs forms for 2011 tax year Qualifying specified payments means any payments of interest, annuities, royalties, or rents received or accrued from the controlled organization pursuant to a binding written contract in effect on August 17, 2006, or to a contract which is a renewal, under substantially similar terms of a binding written contract in effect on August 17, 2006, and the payments are received or accrued before January 1, 2012. Irs forms for 2011 tax year   If a controlled participant is not required to file a U. Irs forms for 2011 tax year S. Irs forms for 2011 tax year income tax return, the participant must ensure that the copy or copies of the Regulations section 1. Irs forms for 2011 tax year 482-7 Cost Sharing Arrangement Statement and any updates are attached to Schedule M of any Form 5471, Information Return of U. Irs forms for 2011 tax year S. Irs forms for 2011 tax year Persons With Respect To Certain Foreign Corporations, any Form 5472, Information Return of a 25% Foreign-Owned U. Irs forms for 2011 tax year S. Irs forms for 2011 tax year Corporation or a Foreign Corporation Engaged in a U. Irs forms for 2011 tax year S. Irs forms for 2011 tax year Trade or Business, or any Form 8865, Return of U. Irs forms for 2011 tax year S. Irs forms for 2011 tax year Persons With Respect to Certain Foreign Partnerships, filed for that participant. Irs forms for 2011 tax year Addition to tax for valuation misstatements. Irs forms for 2011 tax year   Under section 512(b)(13)(E)(ii), the tax imposed on a controlling organization will be increased by 20 percent of the excess qualifying specified payments that are determined with or without any amendments or supplements, whichever is larger. Irs forms for 2011 tax year See section 512(b)(13)(E)(ii) for more information. Irs forms for 2011 tax year Net unrelated income. Irs forms for 2011 tax year   This is: For an exempt organization, its unrelated business taxable income, or For a nonexempt organization, the part of its taxable income that would be unrelated business taxable income if it were exempt and had the same exempt purposes as the controlling organization. Irs forms for 2011 tax year Net unrelated loss. Irs forms for 2011 tax year   This is: For an exempt organization, its NOL, or For a nonexempt organization, the part of its NOL that would be its NOL if it were exempt and had the same exempt purposes as the controlling organization. Irs forms for 2011 tax year Control. Irs forms for 2011 tax year   An organization is controlled if: For a corporation, the controlling organization owns (by vote or value) more than 50% of the stock, For a partnership, the controlling organization owns more than 50% of the profits or capital interests, or For any other organization, the controlling organization owns more than 50% of the beneficial interest. Irs forms for 2011 tax year For this purpose, constructive ownership of stock (determined under section 318) or other interests is taken into account. Irs forms for 2011 tax year   As a result, an exempt parent organization is treated as controlling any subsidiary in which it holds more than 50% of the voting power or value, whether directly (as in the case of a first-tier subsidiary) or indirectly (as in the case of a second-tier subsidiary). Irs forms for 2011 tax year Income from property financed with qualified 501(c)(3) bonds. Irs forms for 2011 tax year If any part of a 501(c)(3) organization's property financed with qualified 501(c)(3) bonds is used in a trade or business of any person other than a section 501(c)(3) organization or a governmental unit, and such use is not consistent with the requirements for qualified 501(c)(3) bonds under section 145, the section 501(c)(3) organization is considered to have received unrelated business income in the amount of the greater of the actual rental income or the fair rental value of the property for the period it is used. Irs forms for 2011 tax year No deduction is allowed for interest on the private activity bond. Irs forms for 2011 tax year See sections 150(b)(3) and (c) for more information. Irs forms for 2011 tax year Disposition of property received from taxable subsidiary and used in unrelated business. Irs forms for 2011 tax year A taxable 80%-owned subsidiary corporation of one or more tax-exempt entities is generally subject to tax on a distribution in liquidation of its assets to its exempt parent (or parents). Irs forms for 2011 tax year The assets are treated as if sold at fair market value. Irs forms for 2011 tax year Tax-exempt entities include organizations described in sections 501(a), 529, and 115, charitable remainder trusts, U. Irs forms for 2011 tax year S. Irs forms for 2011 tax year and foreign governments, Indian tribal governments, international organizations, and similar non-taxable organizations. Irs forms for 2011 tax year A taxable corporation that transfers substantially all of its assets to a tax-exempt entity in a transaction that otherwise qualifies for nonrecognition treatment must recognize gain on the transaction as if it sold the assets at fair market value. Irs forms for 2011 tax year However, such a transfer is not taxable if it qualifies as a like-kind exchange under section 1031 or an involuntary conversion under section 1033. Irs forms for 2011 tax year In such a case the built-in appreciation is preserved in the replacement property received in the transaction. Irs forms for 2011 tax year A corporation that changes status from taxable to tax-exempt is treated generally as if it transferred all of its assets to a tax-exempt entity immediately before the change in status (thus subjecting it to the tax on a deemed sale for fair market value). Irs forms for 2011 tax year This rule does not apply where the taxable corporation becomes exempt within 3 years of formation, or had previously been exempt and within several years (generally a period of 3 years) regains exemption, unless the principal purpose of the transactions is to avoid the tax on the change in status. Irs forms for 2011 tax year In the transactions described above, the taxable event is deferred for property that the tax-exempt entity immediately uses in an unrelated business. Irs forms for 2011 tax year If the parent later disposes of the property, then any gain (not in excess of the amount not recognized) is included in the parent's unrelated business taxable income. Irs forms for 2011 tax year If there is partial use of the assets in unrelated business, then there is partial recognition of gain or loss. Irs forms for 2011 tax year Property is treated as disposed if the tax-exempt entity no longer uses it in an unrelated business. Irs forms for 2011 tax year Losses on the transfer of assets to a tax-exempt entity are disallowed if part of a plan with a principal purpose of recognizing losses. Irs forms for 2011 tax year Income From Debt-Financed Property Investment income that would otherwise be excluded from an exempt organization's unrelated business taxable income (see Exclusions under Income earlier) must be included to the extent it is derived from debt-financed property. Irs forms for 2011 tax year The amount of income included is proportionate to the debt on the property. Irs forms for 2011 tax year Debt-Financed Property In general, the term “debt-financed property” means any property held to produce income (including gain from its disposition) for which there is an acquisition indebtedness at any time during the tax year (or during the 12-month period before the date of the property's disposal, if it was disposed of during the tax year). Irs forms for 2011 tax year It includes rental real estate, tangible personal property, and corporate stock. Irs forms for 2011 tax year Acquisition Indebtedness For any debt-financed property, acquisition indebtedness is the unpaid amount of debt incurred by an organization: When acquiring or improving the property, Before acquiring or improving the property if the debt would not have been incurred except for the acquisition or improvement, and After acquiring or improving the property if: The debt would not have been incurred except for the acquisition or improvement, and Incurring the debt was reasonably foreseeable when the property was acquired or improved. Irs forms for 2011 tax year The facts and circumstances of each situation determine whether incurring a debt was reasonably foreseeable. Irs forms for 2011 tax year That an organization may not have foreseen the need to incur a debt before acquiring or improving the property does not necessarily mean that incurring the debt later was not reasonably foreseeable. Irs forms for 2011 tax year Example 1. Irs forms for 2011 tax year Y, an exempt scientific organization, mortgages its laboratory to replace working capital used in remodeling an office building that Y rents to an insurance company for nonexempt purposes. Irs forms for 2011 tax year The debt is acquisition indebtedness since the debt, though incurred after the improvement of the office building, would not have been incurred without the improvement, and the debt was reasonably foreseeable when, to make the improvement, Y reduced its working capital below the amount necessary to continue current operations. Irs forms for 2011 tax year Example 2. Irs forms for 2011 tax year X, an exempt organization, forms a partnership with A and B. Irs forms for 2011 tax year The partnership agreement provides that all three partners will share equally in the profits of the partnership, each will invest $3 million, and X will be a limited partner. Irs forms for 2011 tax year X invests $1 million of its own funds in the partnership and $2 million of borrowed funds. Irs forms for 2011 tax year The partnership buys as its sole asset an office building that it leases to the public for nonexempt purposes. Irs forms for 2011 tax year The office building costs the partnership $24 million, of which $15 million is borrowed from Y bank. Irs forms for 2011 tax year The loan is secured by a mortgage on the entire office building. Irs forms for 2011 tax year By agreement with Y bank, X is not personally liable for payment of the mortgage. Irs forms for 2011 tax year X has acquisition indebtedness of $7 million. Irs forms for 2011 tax year This amount is the $2 million debt X incurred in acquiring the partnership interest, plus the $5 million that is X's allocable part of the partnership's debt incurred to buy the office building (one-third of $15 million). Irs forms for 2011 tax year Example 3. Irs forms for 2011 tax year A labor union advanced funds, from existing resources and without any borrowing, to its tax-exempt subsidiary title-holding company. Irs forms for 2011 tax year The subsidiary used the funds to pay a debt owed to a third party that was previously incurred in acquiring two income-producing office buildings. Irs forms for 2011 tax year Neither the union nor the subsidiary has incurred any further debt in acquiring or improving the property. Irs forms for 2011 tax year The union has no outstanding debt on the property. Irs forms for 2011 tax year The subsidiary's debt to the union is represented by a demand note on which the subsidiary makes payments whenever it has the available cash. Irs forms for 2011 tax year The books of the union and the subsidiary list the outstanding debt as interorganizational indebtedness. Irs forms for 2011 tax year Although the subsidiary's books show a debt to the union, it is not the type subject to the debt-financed property rules. Irs forms for 2011 tax year In this situation, the very nature of the title-holding company and the parent-subsidiary relationship shows this debt to be merely a matter of accounting between the two organizations. Irs forms for 2011 tax year Accordingly, the debt is not acquisition indebtedness. Irs forms for 2011 tax year Change in use of property. Irs forms for 2011 tax year   If an organization converts property that is not debt-financed property to a use that results in its treatment as debt-financed property, the outstanding principal debt on the property is thereafter treated as acquisition indebtedness. Irs forms for 2011 tax year Example. Irs forms for 2011 tax year Four years ago a university borrowed funds to acquire an apartment building as housing for married students. Irs forms for 2011 tax year Last year, the university rented the apartment building to the public for nonexempt purposes. Irs forms for 2011 tax year The outstanding principal debt becomes acquisition indebtedness as of the time the building was first rented to the public. Irs forms for 2011 tax year Continued debt. Irs forms for 2011 tax year   If an organization sells property and, without paying off debt that would be acquisition indebtedness if the property were debt-financed property, buys property that is otherwise debt-financed property, the unpaid debt is acquisition indebtedness for the new property. Irs forms for 2011 tax year This is true even if the original property was not debt-financed property. Irs forms for 2011 tax year Example. Irs forms for 2011 tax year To house its administration offices, an exempt organization bought a building using $600,000 of its own funds and $400,000 of borrowed funds secured by a pledge of its securities. Irs forms for 2011 tax year The office building was not debt-financed property. Irs forms for 2011 tax year The organization later sold the building for $1 million without repaying the $400,000 loan. Irs forms for 2011 tax year It used the sale proceeds to buy an apartment building it rents to the general public. Irs forms for 2011 tax year The unpaid debt of $400,000 is acquisition indebtedness with respect to the apartment building. Irs forms for 2011 tax year Property acquired subject to mortgage or lien. Irs forms for 2011 tax year   If property (other than certain gifts, bequests, and devises) is acquired subject to a mortgage, the outstanding principal debt secured by that mortgage is treated as acquisition indebtedness even if the organization did not assume or agree to pay the debt. Irs forms for 2011 tax year Example. Irs forms for 2011 tax year An exempt organization paid $50,000 for real property valued at $150,000 and subject to a $100,000 mortgage. Irs forms for 2011 tax year The $100,000 of outstanding principal debt is acquisition indebtedness, as though the organization had borrowed $100,000 to buy the property. Irs forms for 2011 tax year Liens similar to a mortgage. Irs forms for 2011 tax year   In determining acquisition indebtedness, a lien similar to a mortgage is treated as a mortgage. Irs forms for 2011 tax year A lien is similar to a mortgage if title to property is encumbered by the lien for a creditor's benefit. Irs forms for 2011 tax year However, when state law provides that a lien for taxes or assessments attaches to property before the taxes or assessments become due and payable, the lien is not treated as a mortgage until after the taxes or assessments have become due and payable and the organization has had an opportunity to pay the lien in accordance with state law. Irs forms for 2011 tax year Liens similar to mortgages include (but are not limited to): Deeds of trust, Conditional sales contracts, Chattel mortgages, Security interests under the Uniform Commercial Code, Pledges, Agreements to hold title in escrow, and Liens for taxes or assessments (other than those discussed earlier in this paragraph). Irs forms for 2011 tax year Exception for property acquired by gift, bequest, or devise. Irs forms for 2011 tax year   If property subject to a mortgage is acquired by gift, bequest, or devise, the outstanding principal debt secured by the mortgage is not treated as acquisition indebtedness during the 10-year period following the date the organization receives the property. Irs forms for 2011 tax year However, this applies to a gift of property only if:    The mortgage was placed on the property more than 5 years before the date the organization received it, and The donor held the property for more than 5 years before the date the organization received it. Irs forms for 2011 tax year   This exception does not apply if an organization assumes and agrees to pay all or part of the debt secured by the mortgage or makes any payment for the equity in the property owned by the donor or decedent (other than a payment under an annuity obligation excluded from the definition of acquisition indebtedness, discussed under Debt That Is Not Acquisition Indebtedness, later). Irs forms for 2011 tax year   Whether an organization has assumed and agreed to pay all or part of a debt in order to acquire the property is determined by the facts and circumstances of each situation. Irs forms for 2011 tax year Modifying existing debt. Irs forms for 2011 tax year   Extending, renewing, or refinancing an existing debt is considered a continuation of that debt to the extent its outstanding principal does not increase. Irs forms for 2011 tax year When the principal of the modified debt is more than the outstanding principal of the old debt, the excess is treated as a separate debt. Irs forms for 2011 tax year Extension or renewal. Irs forms for 2011 tax year   In general, any modification or substitution of the terms of a debt by an organization is considered an extension or renewal of the original debt, rather than the start of a new one, to the extent that the outstanding principal of the debt does not increase. Irs forms for 2011 tax year   The following are examples of acts resulting in the extension or renewal of a debt: Substituting liens to secure the debt, Substituting obligees whether or not with the organization's consent, Renewing, extending, or accelerating the payment terms of the debt, and Adding, deleting, or substituting sureties or other primary or secondary obligors. Irs forms for 2011 tax year Debt increase. Irs forms for 2011 tax year   If the outstanding principal of a modified debt is more than that of the unmodified debt, and only part of the refinanced debt is acquisition indebtedness, the payments on the refinanced debt must be allocated between the old debt and the excess. Irs forms for 2011 tax year Example. Irs forms for 2011 tax year An organization has an outstanding principal debt of $500,000 that is treated as acquisition indebtedness. Irs forms for 2011 tax year The organization borrows another $100,000, which is not acquisition indebtedness, from the same lender, resulting in a $600,000 note for the total obligation. Irs forms for 2011 tax year A payment of $60,000 on the total obligation would reduce the acquisition indebtedness by $50,000 ($60,000 x $500,000/$600,000) and the excess debt by $10,000. Irs forms for 2011 tax year Debt That Is Not Acquisition Indebtedness Certain debt and obligations are not acquisition indebtedness. Irs forms for 2011 tax year These include the following. Irs forms for 2011 tax year Debts incurred in performing an exempt purpose. Irs forms for 2011 tax year Annuity obligations. Irs forms for 2011 tax year Securities loans. Irs forms for 2011 tax year Real property debts of qualified organizations. Irs forms for 2011 tax year Certain Federal financing. Irs forms for 2011 tax year Debt incurred in performing exempt purpose. Irs forms for 2011 tax year   A debt incurred in performing an exempt purpose is not acquisition indebtedness. Irs forms for 2011 tax year For example, acquisition indebtedness does not include the debt an exempt credit union incurs in accepting deposits from its members or the debt an exempt organization incurs in accepting payments from its members to provide them with insurance, retirement, or other benefits. Irs forms for 2011 tax year Annuity obligation. Irs forms for 2011 tax year   The organization's obligation to pay an annuity is not acquisition indebtedness if the annuity meets all the following requirements. Irs forms for 2011 tax year It must be the sole consideration (other than a mortgage on property acquired by gift, bequest, or devise that meets the exception discussed under Property acquired subject to mortgage or lien, earlier in this chapter) issued in exchange for the property received. Irs forms for 2011 tax year Its present value, at the time of exchange, must be less than 90% of the value of the prior owner's equity in the property received. Irs forms for 2011 tax year It must be payable over the lives of either one or two individuals living when issued. Irs forms for 2011 tax year It must be payable under a contract that: Does not guarantee a minimum nor specify a maximum number of payments, and Does not provide for any adjustment of the amount of the annuity payments based on the income received from the transferred property or any other property. Irs forms for 2011 tax year Example. Irs forms for 2011 tax year X, an exempt organization, receives property valued at $100,000 from donor A, a male age 60. Irs forms for 2011 tax year In return X promises to pay A $6,000 a year for the rest of A's life, with neither a minimum nor maximum number of payments specified. Irs forms for 2011 tax year The amounts paid under the annuity are not dependent on the income derived from the property transferred to X. Irs forms for 2011 tax year The present value of this annuity is $81,156, determined from IRS valuation tables. Irs forms for 2011 tax year Since the value of the annuity is less than 90 percent of A's $100,000 equity in the property transferred and the annuity meets all the other requirements just discussed, the obligation to make annuity payments is not acquisition indebtedness. Irs forms for 2011 tax year Securities loans. Irs forms for 2011 tax year   Acquisition indebtedness does not include an obligation of the exempt organization to return collateral security provided by the borrower of the exempt organization's securities under a securities loan agreement (discussed under Exclusions earlier in this chapter). Irs forms for 2011 tax year This transaction is not treated as the borrowing by the exempt organization of the collateral furnished by the borrower (usually a broker) of the securities. Irs forms for 2011 tax year   However, if the exempt organization incurred debt to buy the loaned securities, any income from the securities (including income from