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Irs forms Publication 596 - Main Content Table of Contents Chapter 1—Rules for EveryoneRule 1—Adjusted Gross Income (AGI) Limits Rule 2—You Must Have a Valid Social Security Number (SSN) Rule 3—Your Filing Status Cannot Be Married Filing Separately Rule 4—You Must Be a U. Irs forms S. Irs forms Citizen or Resident Alien All Year Rule 5—You Cannot File Form 2555 or Form 2555-EZ Rule 6—Your Investment Income Must Be $3,300 or Less Rule 7—You Must Have Earned Income Chapter 2—Rules If You Have a Qualifying ChildRule 8—Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Rule 9—Your Qualifying Child Cannot Be Used by More Than One Person To Claim the EIC Rule 10—You Cannot Be a Qualifying Child of Another Taxpayer Chapter 3—Rules If You Do Not Have a Qualifying ChildRule 11—You Must Be at Least Age 25 but Under Age 65 Rule 12—You Cannot Be the Dependent of Another Person Rule 13—You Cannot Be a Qualifying Child of Another Taxpayer Rule 14—You Must Have Lived in the United States More Than Half of the Year Chapter 4—Figuring and Claiming the EICRule 15—Earned Income Limits IRS Will Figure the EIC for You How To Figure the EIC Yourself Schedule EIC Chapter 5—Disallowance of the EICForm 8862 Are You Prohibited From Claiming the EIC for a Period of Years? Chapter 6—Detailed ExamplesExample 1—Sharon Rose Example 2—Cynthia and Jerry Grey Chapter 1—Rules for Everyone This chapter discusses Rules 1 through 7. Irs forms You must meet all seven rules to qualify for the earned income credit. Irs forms If you do not meet all seven rules, you cannot get the credit and you do not need to read the rest of the publication. Irs forms If you meet all seven rules in this chapter, then read either chapter 2 or chapter 3 (whichever applies) for more rules you must meet. Irs forms Rule 1—Adjusted Gross Income (AGI) Limits Your adjusted gross income (AGI) must be less than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. Irs forms Adjusted gross income (AGI). Irs forms   AGI is the amount on line 4 of Form 1040EZ, line 22 of Form 1040A, or line 38 of Form 1040. Irs forms   If your AGI is equal to or more than the applicable limit listed above, you cannot claim the EIC. Irs forms You do not need to read the rest of this publication. Irs forms Example—AGI is more than limit. Irs forms Your AGI is $38,550, you are single, and you have one qualifying child. Irs forms You cannot claim the EIC because your AGI is not less than $37,870. Irs forms However, if your filing status was married filing jointly, you might be able to claim the EIC because your AGI is less than $43,210. Irs forms Community property. Irs forms   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3), and live in a state that has community property laws, your AGI includes that portion of both your and your spouse's wages that you are required to include in gross income. Irs forms This is different from the community property rules that apply under Rule 7. Irs forms Rule 2—You Must Have a Valid Social Security Number (SSN) To claim the EIC, you (and your spouse, if filing a joint return) must have a valid SSN issued by the Social Security Administration (SSA). Irs forms Any qualifying child listed on Schedule EIC also must have a valid SSN. Irs forms (See Rule 8 if you have a qualifying child. Irs forms ) If your social security card (or your spouse's, if filing a joint return) says “Not valid for employment” and your SSN was issued so that you (or your spouse) could get a federally funded benefit, you cannot get the EIC. Irs forms An example of a federally funded benefit is Medicaid. Irs forms If you have a card with the legend “Not valid for employment” and your immigration status has changed so that you are now a U. Irs forms S. Irs forms citizen or permanent resident, ask the SSA for a new social security card without the legend. Irs forms If you get the new card after you have already filed your return, you can file an amended return on Form 1040X, Amended U. Irs forms S. Irs forms Individual Income Tax Return, to claim the EIC. Irs forms U. Irs forms S. Irs forms citizen. Irs forms   If you were a U. Irs forms S. Irs forms citizen when you received your SSN, you have a valid SSN. Irs forms Valid for work only with INS authorization or DHS authorization. Irs forms   If your social security card reads “Valid for work only with INS authorization” or “Valid for work only with DHS authorization,” you have a valid SSN, but only if that authorization is still valid. Irs forms SSN missing or incorrect. Irs forms   If an SSN for you or your spouse is missing from your tax return or is incorrect, you may not get the EIC. Irs forms Other taxpayer identification number. Irs forms   You cannot get the EIC if, instead of an SSN, you (or your spouse, if filing a joint return) have an individual taxpayer identification number (ITIN). Irs forms ITINs are issued by the Internal Revenue Service to noncitizens who cannot get an SSN. Irs forms No SSN. Irs forms   If you do not have a valid SSN, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Irs forms You cannot claim the EIC. Irs forms Getting an SSN. Irs forms   If you (or your spouse, if filing a joint return) do not have an SSN, you can apply for one by filing Form SS-5 with the SSA. Irs forms You can get Form SS-5 online at www. Irs forms socialsecurity. Irs forms gov, from your local SSA office, or by calling the SSA at 1-800-772-1213. Irs forms Filing deadline approaching and still no SSN. Irs forms   If the filing deadline is approaching and you still do not have an SSN, you have two choices. Irs forms Request an automatic 6-month extension of time to file your return. Irs forms You can get this extension by filing Form 4868, Application for Automatic Extension of Time to File U. Irs forms S. Irs forms Individual Income Tax Return. Irs forms For more information, see the instructions for Form 4868. Irs forms File the return on time without claiming the EIC. Irs forms After receiving the SSN, file an amended return, Form 1040X, claiming the EIC. Irs forms Attach a filled-in Schedule EIC, Earned Income Credit, if you have a qualifying child. Irs forms Rule 3—Your Filing Status Cannot Be “Married Filing Separately” If you are married, you usually must file a joint return to claim the EIC. Irs forms Your filing status cannot be “Married filing separately. Irs forms ” Spouse did not live with you. Irs forms   If you are married and your spouse did not live in your home at any time during the last 6 months of the year, you may be able to file as head of household, instead of married filing separately. Irs forms In that case, you may be able to claim the EIC. Irs forms For detailed information about filing as head of household, see Publication 501, Exemptions, Standard Deduction, and Filing Information. Irs forms Rule 4—You Must Be a U. Irs forms S. Irs forms Citizen or Resident Alien All Year If you (or your spouse, if married) were a nonresident alien for any part of the year, you cannot claim the earned income credit unless your filing status is married filing jointly. Irs forms You can use that filing status only if one spouse is a U. Irs forms S. Irs forms citizen or resident alien and you choose to treat the nonresident spouse as a U. Irs forms S. Irs forms resident. Irs forms If you make this choice, you and your spouse are taxed on your worldwide income. Irs forms If you need more information on making this choice, get Publication 519, U. Irs forms S. Irs forms Tax Guide for Aliens. Irs forms If you (or your spouse, if married) were a nonresident alien for any part of the year and your filing status is not married filing jointly, enter “No” on the dotted line next to line 64a (Form 1040) or in the space to the left of line 38a (Form 1040A). Irs forms Rule 5—You Cannot File Form 2555 or Form 2555-EZ You cannot claim the earned income credit if you file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. Irs forms You file these forms to exclude income earned in foreign countries from your gross income, or to deduct or exclude a foreign housing amount. Irs forms U. Irs forms S. Irs forms possessions are not foreign countries. Irs forms See Publication 54, Tax Guide for U. Irs forms S. Irs forms Citizens and Resident Aliens Abroad, for more detailed information. Irs forms Rule 6—Your Investment Income Must Be $3,300 or Less You cannot claim the earned income credit unless your investment income is $3,300 or less. Irs forms If your investment income is more than $3,300, you cannot claim the credit. Irs forms Form 1040EZ. Irs forms   If you file Form 1040EZ, your investment income is the total of the amount on line 2 and the amount of any tax-exempt interest you wrote to the right of the words “Form 1040EZ” on line 2. Irs forms Form 1040A. Irs forms   If you file Form 1040A, your investment income is the total of the amounts on lines 8a (taxable interest), 8b (tax-exempt interest), 9a (ordinary dividends), and 10 (capital gain distributions) on that form. Irs forms Form 1040. Irs forms   If you file Form 1040, use Worksheet 1 in this chapter to figure your investment income. Irs forms    Worksheet 1. Irs forms Investment Income If You Are Filing Form 1040 Use this worksheet to figure investment income for the earned income credit when you file Form 1040. Irs forms Interest and Dividends         1. Irs forms Enter any amount from Form 1040, line 8a 1. Irs forms   2. Irs forms Enter any amount from Form 1040, line 8b, plus any amount on Form 8814, line 1b 2. Irs forms   3. Irs forms Enter any amount from Form 1040, line 9a 3. Irs forms   4. Irs forms Enter the amount from Form 1040, line 21, that is from Form 8814 if you are filing that form to report your child's interest and dividend income on your return. Irs forms (If your child received an Alaska Permanent Fund dividend, use Worksheet 2 in this chapter to figure the amount to enter on this line. Irs forms ) 4. Irs forms   Capital Gain Net Income         5. Irs forms Enter the amount from Form 1040, line 13. Irs forms If the amount on that line is a loss, enter -0- 5. Irs forms       6. Irs forms Enter any gain from Form 4797, Sales of Business Property, line 7. Irs forms If the amount on that line is a loss, enter -0-. Irs forms (But, if you completed lines 8 and 9 of Form 4797, enter the amount from line 9 instead. Irs forms ) 6. Irs forms       7. Irs forms Substract line 6 of this worksheet from line 5 of this worksheet. Irs forms (If the result is less than zero, enter -0-. Irs forms ) 7. Irs forms   Royalties and Rental Income From Personal Property         8. Irs forms Enter any royalty income from Schedule E, line 23b, plus any income from the rental of personal property shown on Form 1040, line 21 8. Irs forms       9. Irs forms Enter any expenses from Schedule E, line 20, related to royalty income, plus any expenses from the rental of personal property deducted on Form 1040, line 36 9. Irs forms       10. Irs forms Subtract the amount on line 9 of this worksheet from the amount on line 8. Irs forms (If the result is less than zero, enter -0-. Irs forms ) 10. Irs forms   Passive Activities         11. Irs forms Enter the total of any net income from passive activities (such as income included on Schedule E, line 26, 29a (col. Irs forms (g)), 34a (col. Irs forms (d)), or 40). Irs forms (See instructions below for lines 11 and 12. Irs forms ) 11. Irs forms       12. Irs forms Enter the total of any losses from passive activities (such as losses included on Schedule E, line 26, 29b (col. Irs forms (f)), 34b (col. Irs forms (c)), or 40). Irs forms (See instructions below for lines 11 and 12. Irs forms ) 12. Irs forms       13. Irs forms Combine the amounts on lines 11 and 12 of this worksheet. Irs forms (If the result is less than zero, enter -0-. Irs forms ) 13. Irs forms   14. Irs forms Add the amounts on lines 1, 2, 3, 4, 7, 10, and 13. Irs forms Enter the total. Irs forms This is your investment income 14. Irs forms   15. Irs forms Is the amount on line 14 more than $3,300? ❑ Yes. Irs forms You cannot take the credit. Irs forms  ❑ No. Irs forms Go to Step 3 of the Form 1040 instructions for lines 64a and 64b to find out if you can take the credit (unless you are using this publication to find out if you can take the credit; in that case, go to Rule 7, next). Irs forms       Instructions for lines 11 and 12. Irs forms In figuring the amount to enter on lines 11 and 12, do not take into account any royalty income (or loss) included on line 26 of Schedule E or any amount included in your earned income. Irs forms To find out if the income on line 26 or line 40 of Schedule E is from a passive activity, see the Schedule E instructions. Irs forms If any of the rental real estate income (or loss) included on Schedule E, line 26, is not from a passive activity, print “NPA” and the amount of that income (or loss) on the dotted line next to line 26. Irs forms Worksheet 2. Irs forms Worksheet for Line 4 of Worksheet 1 Complete this worksheet only if Form 8814 includes an Alaska Permanent Fund dividend. Irs forms Note. Irs forms Fill out a separate Worksheet 2 for each Form 8814. Irs forms     1. Irs forms Enter the amount from Form 8814, line 2a 1. Irs forms   2. Irs forms Enter the amount from Form 8814, line 2b 2. Irs forms   3. Irs forms Subtract line 2 from line 1 3. Irs forms   4. Irs forms Enter the amount from Form 8814, line 1a 4. Irs forms   5. Irs forms Add lines 3 and 4 5. Irs forms   6. Irs forms Enter the amount of the child's Alaska Permanent Fund dividend 6. Irs forms   7. Irs forms Divide line 6 by line 5. Irs forms Enter the result as a decimal (rounded to at least three places) 7. Irs forms   8. Irs forms Enter the amount from Form 8814, line 12 8. Irs forms   9. Irs forms Multiply line 7 by line 8 9. Irs forms   10. Irs forms Subtract line 9 from line 8. Irs forms Enter the result on line 4 of Worksheet 1 10. Irs forms     (If filing more than one Form 8814, enter on line 4 of Worksheet 1 the total of the amounts on line 10 of all Worksheets 2. Irs forms )     Example—completing Worksheet 2. Irs forms Your 10-year-old child has taxable interest income of $400, an Alaska Permanent Fund dividend of $1,000, and ordinary dividends of $1,100, of which $500 are qualified dividends. Irs forms You choose to report this income on your return. Irs forms You enter $400 on line 1a of Form 8814, $2,100 ($1,000 + $1,100) on line 2a, and $500 on line 2b. Irs forms After completing lines 4 through 11, you enter $400 on line 12 of Form 8814 and line 21 of Form 1040. Irs forms On Worksheet 2, you enter $2,100 on line 1, $500 on line 2, $1,600 on line 3, $400 on line 4, $2,000 on line 5, $1,000 on line 6, 0. Irs forms 500 on line 7, $400 on line 8, $200 on line 9, and $200 on line 10. Irs forms You then enter $200 on line 4 of Worksheet 1. Irs forms Rule 7—You Must Have Earned Income This credit is called the “earned income” credit because, to qualify, you must work and have earned income. Irs forms If you are married and file a joint return, you meet this rule if at least one spouse works and has earned income. Irs forms If you are an employee, earned income includes all the taxable income you get from your employer. Irs forms Rule 15 has information that will help you figure the amount of your earned income. Irs forms If you are self-employed or a statutory employee, you will figure your earned income on EIC Worksheet B in the Form 1040 instructions. Irs forms Earned Income Earned income includes all of the following types of income. Irs forms Wages, salaries, tips, and other taxable employee pay. Irs forms Employee pay is earned income only if it is taxable. Irs forms Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. Irs forms But there is an exception for nontaxable combat pay, which you can choose to include in earned income, as explained later in this chapter. Irs forms Net earnings from self-employment. Irs forms Gross income received as a statutory employee. Irs forms Wages, salaries, and tips. Irs forms    Wages, salaries, and tips you receive for working are reported to you on Form W-2, in box 1. Irs forms You should report these on line 1 (Form 1040EZ) or line 7 (Forms 1040A and 1040). Irs forms Nontaxable combat pay election. Irs forms   You can elect to include your nontaxable combat pay in earned income for the earned income credit. Irs forms The amount of your nontaxable combat pay should be shown on your Form W-2, in box 12, with code Q. Irs forms Electing to include nontaxable combat pay in earned income may increase or decrease your EIC. Irs forms For details, see Nontaxable combat pay in chapter 4. Irs forms Net earnings from self-employment. Irs forms   You may have net earnings from self-employment if: You own your own business, or You are a minister or member of a religious order. Irs forms Minister's housing. Irs forms   The rental value of a home or a housing allowance provided to a minister as part of the minister's pay generally is not subject to income tax but is included in net earnings from self-employment. Irs forms For that reason, it is included in earned income for the EIC (except in the cases described in Approved Form 4361 or Form 4029 , below). Irs forms Statutory employee. Irs forms   You are a statutory employee if you receive a Form W-2 on which the “Statutory employee” box (box 13) is checked. Irs forms You report your income and expenses as a statutory employee on Schedule C or C-EZ (Form 1040). Irs forms Strike benefits. Irs forms   Strike benefits paid by a union to its members are earned income. Irs forms Approved Form 4361 or Form 4029 This section is for persons who have an approved: Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, or Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits. Irs forms Each approved form exempts certain income from social security taxes. Irs forms Each form is discussed here in terms of what is or is not earned income for the EIC. Irs forms Form 4361. Irs forms   Whether or not you have an approved Form 4361, amounts you received for performing ministerial duties as an employee count as earned income. Irs forms This includes wages, salaries, tips, and other taxable employee compensation. Irs forms A nontaxable housing allowance or the nontaxable rental value of a home is not earned income. Irs forms Also, amounts you received for performing ministerial duties, but not as an employee, do not count as earned income. Irs forms Examples include fees for performing marriages and honoraria for delivering speeches. Irs forms Form 4029. Irs forms   Whether or not you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation count as earned income. Irs forms However, amounts you received as a self-employed individual do not count as earned income. Irs forms Also, in figuring earned income, do not subtract losses on Schedule C, C-EZ, or F from wages on line 7 of Form 1040. Irs forms Disability Benefits If you retired on disability, taxable benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. Irs forms Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. Irs forms You must report your taxable disability payments on line 7 of either Form 1040 or Form 1040A until you reach minimum retirement age. Irs forms Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income. Irs forms Report taxable pension payments on Form 1040, lines 16a and 16b, or Form 1040A, lines 12a and 12b. Irs forms Disability insurance payments. Irs forms   Payments you received from a disability insurance policy that you paid the premiums for are not earned income. Irs forms It does not matter whether you have reached minimum retirement age. Irs forms If this policy is through your employer, the amount may be shown in box 12 of your Form W-2 with code “J. Irs forms ” Income That Is Not Earned Income Examples of items that are not earned income include interest and dividends, pensions and annuities, social security and railroad retirement benefits (including disability benefits), alimony and child support, welfare benefits, workers' compensation benefits, unemployment compensation (insurance), nontaxable foster care payments, and veterans' benefits, including VA rehabilitation payments. Irs forms Do not include any of these items in your earned income. Irs forms Earnings while an inmate. Irs forms   Amounts received for work performed while an inmate in a penal institution are not earned income when figuring the earned income credit. Irs forms This includes amounts for work performed while in a work release program or while in a halfway house. Irs forms Workfare payments. Irs forms   Nontaxable workfare payments are not earned income for the EIC. Irs forms These are cash payments certain people receive from a state or local agency that administers public assistance programs funded under the federal Temporary Assistance for Needy Families (TANF) program in return for certain work activities such as (1) work experience activities (including remodeling or repairing public housing) if sufficient private sector employment is not available, or (2) community service program activities. Irs forms Community property. Irs forms   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3), and live in a state that has community property laws, your earned income for the EIC does not include any amount earned by your spouse that is treated as belonging to you under those laws. Irs forms That amount is not earned income for the EIC, even though you must include it in your gross income on your income tax return. Irs forms Your earned income includes the entire amount you earned, even if part of it is treated as belonging to your spouse under your state's community property laws. Irs forms Nevada, Washington, and California domestic partners. Irs forms   If you are a registered domestic partner in Nevada, Washington, or California, the same rules apply. Irs forms Your earned income for the EIC does not include any amount earned by your partner. Irs forms Your earned income includes the entire amount you earned. Irs forms For details, see Publication 555. Irs forms Conservation Reserve Program (CRP) payments. Irs forms   If you were receiving social security retirement benefits or social security disability benefits at the time you received any CRP payments, your CRP payments are not earned income for the EIC. Irs forms Nontaxable military pay. Irs forms   Nontaxable pay for members of the Armed Forces is not considered earned income for the EIC. Irs forms Examples of nontaxable military pay are combat pay, the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS). Irs forms See Publication 3, Armed Forces' Tax Guide, for more information. Irs forms    Combat pay. Irs forms You can elect to include your nontaxable combat pay in earned income for the EIC. Irs forms See Nontaxable combat pay in chapter 4. Irs forms Chapter 2—Rules If You Have a Qualifying Child If you have met all the rules in chapter 1, use this chapter to see if you have a qualifying child. Irs forms This chapter discusses Rules 8 through 10. Irs forms You must meet all three of those rules, in addition to the rules in chapters 1 and 4, to qualify for the earned income credit with a qualifying child. Irs forms You must file Form 1040 or Form 1040A to claim the EIC with a qualifying child. Irs forms (You cannot file Form 1040EZ. Irs forms ) You also must complete Schedule EIC and attach it to your return. Irs forms If you meet all the rules in chapter 1 and this chapter, read chapter 4 to find out what to do next. Irs forms No qualifying child. Irs forms   If you do not meet Rule 8, you do not have a qualifying child. Irs forms Read chapter 3 to find out if you can get the earned income credit without a qualifying child. Irs forms Rule 8—Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Your child is a qualifying child if your child meets four tests. Irs forms The fours tests are: Relationship, Age, Residency, and Joint return. Irs forms The four tests are illustrated in Figure 1. Irs forms The paragraphs that follow contain more information about each test. Irs forms Relationship Test To be your qualifying child, a child must be your: Son, daughter, stepchild, foster child, or a descendant of any of them (for example, your grandchild), or Brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them (for example, your niece or nephew). Irs forms The following definitions clarify the relationship test. Irs forms Adopted child. Irs forms   An adopted child is always treated as your own child. Irs forms The term “adopted child” includes a child who was lawfully placed with you for legal adoption. Irs forms Foster child. Irs forms   For the EIC, a person is your foster child if the child is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. Irs forms (An authorized placement agency includes a state or local government agency. Irs forms It also includes a tax-exempt organization licensed by a state. Irs forms In addition, it includes an Indian tribal government or an organization authorized by an Indian tribal government to place Indian children. Irs forms ) Example. Irs forms Debbie, who is 12 years old, was placed in your care 2 years ago by an authorized agency responsible for placing children in foster homes. Irs forms Debbie is your foster child. Irs forms Figure 1. Irs forms Tests for Qualifying Child Please click here for the text description of the image. Irs forms Conditions for Qualifying Child Age Test Your child must be: Under age 19 at the end of 2013 and younger than you (or your spouse, if filing jointly), Under age 24 at the end of 2013, a student, and younger than you (or your spouse, if filing jointly, or Permanently and totally disabled at any time during 2013, regardless of age. Irs forms The following examples and definitions clarify the age test. Irs forms Example 1—child not under age 19. Irs forms Your son turned 19 on December 10. Irs forms Unless he was permanently and totally disabled or a student, he is not a qualifying child because, at the end of the year, he was not under age 19. Irs forms Example 2—child not younger than you or your spouse. Irs forms Your 23-year-old brother, who is a full-time student and unmarried, lives with you and your spouse. Irs forms He is not disabled. Irs forms Both you and your spouse are 21 years old, and you file a joint return. Irs forms Your brother is not your qualifying child because he is not younger than you or your spouse. Irs forms Example 3—child younger than your spouse but not younger than you. Irs forms The facts are the same as in Example 2 except that your spouse is 25 years old. Irs forms Because your brother is younger than your spouse, he is your qualifying child, even though he is not younger than you. Irs forms Student defined. Irs forms   To qualify as a student, your child must be, during some part of each of any 5 calendar months during the calendar year: A full-time student at a school that has a regular teaching staff, course of study, and regular student body at the school, or A student taking a full-time, on-farm training course given by a school described in (1), or a state, county, or local government. Irs forms   The 5 calendar months need not be consecutive. Irs forms   A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance. Irs forms School defined. Irs forms   A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. Irs forms However, on-the-job training courses, correspondence schools, and schools offering courses only through the Internet do not count as schools for the EIC. Irs forms Vocational high school students. Irs forms   Students who work in co-op jobs in private industry as a part of a school's regular course of classroom and practical training are considered full-time students. Irs forms Permanently and totally disabled. Irs forms   Your child is permanently and totally disabled if both of the following apply. Irs forms He or she cannot engage in any substantial gainful activity because of a physical or mental condition. Irs forms A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death. Irs forms Residency Test Your child must have lived with you in the United States for more than half of 2013. Irs forms The following definitions clarify the residency test. Irs forms United States. Irs forms   This means the 50 states and the District of Columbia. Irs forms It does not include Puerto Rico or U. Irs forms S. Irs forms possessions such as Guam. Irs forms Homeless shelter. Irs forms   Your home can be any location where you regularly live. Irs forms You do not need a traditional home. Irs forms For example, if your child lived with you for more than half the year in one or more homeless shelters, your child meets the residency test. Irs forms Military personnel stationed outside the United States. Irs forms   U. Irs forms S. Irs forms military personnel stationed outside the United States on extended active duty are considered to live in the United States during that duty period for purposes of the EIC. Irs forms Extended active duty. Irs forms   Extended active duty means you are called or ordered to duty for an indefinite period or for a period of more than 90 days. Irs forms Once you begin serving your extended active duty, you are still considered to have been on extended active duty even if you do not serve more than 90 days. Irs forms Birth or death of child. Irs forms    child who was born or died in 2013 is treated as having lived with you for more than half of 2013 if your home was the child's home for more than half the time he or she was alive in 2013. Irs forms Temporary absences. Irs forms   Count time that you or your child is away from home on a temporary absence due to a special circumstance as time the child lived with you. Irs forms Examples of a special circumstance include illness, school attendance, business, vacation, military service, and detention in a juvenile facility. Irs forms Kidnapped child. Irs forms   A kidnapped child is treated as living with you for more than half of the year if the child lived with you for more than half the part of the year before the date of the kidnapping. Irs forms The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or the child's family. Irs forms This treatment applies for all years until the child is returned. Irs forms However, the last year this treatment can apply is the earlier of: The year there is a determination that the child is dead, or The year the child would have reached age 18. Irs forms   If your qualifying child has been kidnapped and meets these requirements, enter “KC,” instead of a number, on line 6 of Schedule EIC. Irs forms Joint Return Test To meet this test, the child cannot file a joint return for the year. Irs forms Exception. Irs forms   An exception to the joint return test applies if your child and his or her spouse file a joint return only to claim a refund of income tax withheld or estimated tax paid. Irs forms Example 1—child files joint return. Irs forms You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. Irs forms He earned $25,000 for the year. Irs forms The couple files a joint return. Irs forms Because your daughter and her husband file a joint return, she is not your qualifying child. Irs forms Example 2—child files joint return to get refund of tax withheld. Irs forms Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. Irs forms They do not have a child. Irs forms Neither is required to file a tax return. Irs forms Taxes were taken out of their pay, so they file a joint return only to get a refund of the withheld taxes. Irs forms The exception to the joint return test applies, so your son may be your qualifying child if all the other tests are met. Irs forms Example 3—child files joint return to claim American opportunity credit. Irs forms The facts are the same as in Example 2 except no taxes were taken out of your son's pay. Irs forms He and his wife are not required to file a tax return, but they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. Irs forms Because claiming the American opportunity credit is their reason for filing the return, they are not filing it only to claim a refund of income tax withheld or estimated tax paid. Irs forms The exception to the joint return test does not apply, so your son is not your qualifying child. Irs forms Married child. Irs forms   Even if your child does not file a joint return, if your child was married at the end of the year, he or she cannot be your qualifying child unless: You can claim an exemption for the child, or The reason you cannot claim an exemption for the child is that you let the child's other parent claim the exemption under the Special rule for divorced or separated parents (or parents who live apart) described later. Irs forms    Social security number. Irs forms Your qualifying child must have a valid social security number (SSN), unless the child was born and died in 2013 and you attach to your return a copy of the child's birth certificate, death certificate, or hospital records showing a live birth. Irs forms You cannot claim the EIC on the basis of a qualifying child if: The qualifying child's SSN is missing from your tax return or is incorrect, The qualifying child's social security card says “Not valid for employment” and was issued for use in getting a federally funded benefit, or Instead of an SSN, the qualifying child has: An individual taxpayer identification number (ITIN), which is issued to a noncitizen who cannot get an SSN, or An adoption taxpayer identification number (ATIN), issued to adopting parents who cannot get an SSN for the child being adopted until the adoption is final. Irs forms   If you have more than one qualifying child and only one has a valid SSN, you can use only that child to claim the EIC. Irs forms For more information about SSNs, see Rule 2. Irs forms Rule 9—Your Qualifying Child Cannot Be Used by More Than One Person To Claim the EIC Sometimes a child meets the tests to be a qualifying child of more than one person. Irs forms However, only one of these persons can actually treat the child as a qualifying child. Irs forms Only that person can use the child as a qualifying child to take all of the following tax benefits (provided the person is eligible for each benefit). Irs forms The exemption for the child. Irs forms The child tax credit. Irs forms Head of household filing status. Irs forms The credit for child and dependent care expenses. Irs forms The exclusion for dependent care benefits. Irs forms The EIC. Irs forms The other person cannot take any of these benefits based on this qualifying child. Irs forms In other words, you and the other person cannot agree to divide these tax benefits between you. Irs forms The other person cannot take any of these tax benefits unless he or she has a different qualifying child. Irs forms The tiebreaker rules, which follow, explain who, if anyone, can claim the EIC when more than one person has the same qualifying child. Irs forms However, the tiebreaker rules do not apply if the other person is your spouse and you file a joint return. Irs forms Tiebreaker rules. Irs forms   To determine which person can treat the child as a qualifying child to claim the six tax benefits just listed, the following tiebreaker rules apply. Irs forms If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. Irs forms If the parents file a joint return together and can claim the child as a qualifying child, the child is treated as the qualifying child of the parents. Irs forms If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. Irs forms If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year. Irs forms If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year. Irs forms If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. Irs forms If the child's parents file a joint return with each other, this rule can be applied by treating the parents' total AGI as divided evenly between them. Irs forms See Example 8. Irs forms   Subject to these tiebreaker rules, you and the other person may be able to choose which of you claims the child as a qualifying child. Irs forms See Examples 1 through 13. Irs forms   If you cannot claim the EIC because your qualifying child is treated under the tiebreaker rules as the qualifying child of another person for 2013, you may be able to take the EIC using a different qualifying child, but you cannot take the EIC using the rules in chapter 3 for people who do not have a qualifying child. Irs forms If the other person cannot claim the EIC. Irs forms   If you and someone else have the same qualifying child but the other person cannot claim the EIC because he or she is not eligible or his or her earned income or AGI is too high, you may be able to treat the child as a qualifying child. Irs forms See Examples 6 and 7. Irs forms But you cannot treat the child as a qualifying child to claim the EIC if the other person uses the child to claim any of the other six tax benefits listed earlier in this chapter. Irs forms Examples. Irs forms    The following examples may help you in determining whether you can claim the EIC when you and someone else have the same qualifying child. Irs forms Example 1—child lived with parent and grandparent. Irs forms You and your 2-year-old son Jimmy lived with your mother all year. Irs forms You are 25 years old, unmarried, and your AGI is $9,000. Irs forms Your only income was $9,000 from a part-time job. Irs forms Your mother's only income was $20,000 from her job, and her AGI is $20,000. Irs forms Jimmy's father did not live with you or Jimmy. Irs forms The special rule explained later for divorced or separated parents (or parents who live apart) does not apply. Irs forms Jimmy is a qualifying child of both you and your mother because he meets the relationship, age, residency, and joint return tests for both you and your mother. Irs forms However, only one of you can treat him as a qualifying child to claim the EIC (and the other tax benefits listed earlier in this chapter for which that person qualifies). Irs forms He is not a qualifying child of anyone else, including his father. Irs forms If you do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can treat him as a qualifying child to claim the EIC (and any of the other tax benefits listed earlier for which she qualifies). Irs forms Example 2—parent has higher AGI than grandparent. Irs forms The facts are the same as in Example 1 except your AGI is $25,000. Irs forms Because your mother's AGI is not higher than yours, she cannot claim Jimmy as a qualifying child. Irs forms Only you can claim him. Irs forms Example 3—two persons claim same child. Irs forms The facts are the same as in Example 1 except that you and your mother both claim Jimmy as a qualifying child. Irs forms In this case, you as the child's parent will be the only one allowed to claim Jimmy as a qualifying child for the EIC and the other tax benefits listed earlier for which you qualify. Irs forms The IRS will disallow your mother's claim to the EIC and any of the other tax benefits listed earlier unless she has another qualifying child. Irs forms Example 4—qualifying children split between two persons. Irs forms The facts are the same as in Example 1 except that you also have two other young children who are qualifying children of both you and your mother. Irs forms Only one of you can claim each child. Irs forms However, if your mother's AGI is higher than yours, you can allow your mother to claim one or more of the children. Irs forms For example, if you claim one child, your mother can claim the other two. Irs forms Example 5—taxpayer who is a qualifying child. Irs forms The facts are the same as in Example 1 except that you are only 18 years old. Irs forms This means you are a qualifying child of your mother. Irs forms Because of Rule 10, discussed next, you cannot claim the EIC and cannot claim your son as a qualifying child. Irs forms Only your mother may be able to treat Jimmy as a qualifying child to claim the EIC. Irs forms If your mother meets all the other requirements for claiming the EIC and you do not claim Jimmy as a qualifying child for any of the other tax benefits listed earlier, your mother can claim both you and Jimmy as qualifying children for the EIC. Irs forms Example 6—grandparent with too much earned income to claim EIC. Irs forms The facts are the same as in Example 1 except that your mother earned $50,000 from her job. Irs forms Because your mother's earned income is too high for her to claim the EIC, only you can claim the EIC using your son. Irs forms Example 7—parent with too much earned income to claim EIC. Irs forms The facts are the same as in Example 1 except that you earned $50,000 from your job and your AGI is $50,500. Irs forms Your earned income is too high for you to claim the EIC. Irs forms But your mother cannot claim the EIC either, because her AGI is not higher than yours. Irs forms Example 8—child lived with both parents and grandparent. Irs forms The facts are the same as in Example 1 except that you and Jimmy's father are married to each other, live with Jimmy and your mother, and have AGI of $30,000 on a joint return. Irs forms If you and your husband do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can claim him instead. Irs forms Even though the AGI on your joint return, $30,000, is more than your mother's AGI of $20,000, for this purpose half of the joint AGI can be treated as yours and half as your husband's. Irs forms In other words, each parent's AGI can be treated as $15,000. Irs forms Example 9—separated parents. Irs forms You, your husband, and your 10-year-old son Joey lived together until August 1, 2013, when your husband moved out of the household. Irs forms In August and September, Joey lived with you. Irs forms For the rest of the year, Joey lived with your husband, who is Joey's father. Irs forms Joey is a qualifying child of both you and your husband because he lived with each of you for more than half the year and because he met the relationship, age, and joint return tests for both of you. Irs forms At the end of the year, you and your husband still were not divorced, legally separated, or separated under a written separation agreement, so the Special rule for divorced or separated parents (or parents who live apart) does not apply. Irs forms You and your husband will file separate returns. Irs forms Your husband agrees to let you treat Joey as a qualifying child. Irs forms This means, if your husband does not claim Joey as a qualifying child for any of the tax benefits listed earlier, you can claim him as a qualifying child for any tax benefit listed earlier for which you qualify. Irs forms However, your filing status is married filing separately, so you cannot claim the EIC or the credit for child and dependent care expenses. Irs forms See Rule 3. Irs forms Example 10—separated parents claim same child. Irs forms The facts are the same as in Example 9 except that you and your husband both claim Joey as a qualifying child. Irs forms In this case, only your husband will be allowed to treat Joey as a qualifying child. Irs forms This is because, during 2013, the boy lived with him longer than with you. Irs forms You cannot claim the EIC (either with or without a qualifying child). Irs forms However, your husband's filing status is married filing separately, so he cannot claim the EIC or the credit for child and dependent care expenses. Irs forms See Rule 3. Irs forms Example 11—unmarried parents. Irs forms You, your 5-year-old son, and your son's father lived together all year. Irs forms You and your son's father are not married. Irs forms Your son is a qualifying child of both you and his father because he meets the relationship, age, residency, and joint return tests for both you and his father. Irs forms Your earned income and AGI are $12,000, and your son's father's earned income and AGI are $14,000. Irs forms Neither of you had any other income. Irs forms Your son's father agrees to let you treat the child as a qualifying child. Irs forms This means, if your son's father does not claim your son as a qualifying child for the EIC or any of the other tax benefits listed earlier, you can claim him as a qualifying child for the EIC and any of the other tax benefits listed earlier for which you qualify. Irs forms Example 12—unmarried parents claim same child. Irs forms The facts are the same as in Example 11 except that you and your son's father both claim your son as a qualifying child. Irs forms In this case, only your son's father will be allowed to treat your son as a qualifying child. Irs forms This is because his AGI, $14,000, is more than your AGI, $12,000. Irs forms You cannot claim the EIC (either with or without a qualifying child). Irs forms Example 13—child did not live with a parent. Irs forms You and your 7-year-old niece, your sister's child, lived with your mother all year. Irs forms You are 25 years old, and your AGI is $9,300. Irs forms Your only income was from a part-time job. Irs forms Your mother's AGI is $15,000. Irs forms Her only income was from her job. Irs forms Your niece's parents file jointly, have an AGI of less than $9,000, and do not live with you or their child. Irs forms Your niece is a qualifying child of both you and your mother because she meets the relationship, age, residency, and joint return tests for both you and your mother. Irs forms However, only your mother can treat her as a qualifying child. Irs forms This is because your mother's AGI, $15,000, is more than your AGI, $9,300. Irs forms Special rule for divorced or separated parents (or parents who live apart). Irs forms   A child will be treated as the qualifying child of his or her noncustodial parent (for purposes of claiming an exemption and the child tax credit, but not for the EIC) if all of the following statements are true. Irs forms The parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Lived apart at all time during the last 6 months of 2013, whether or not they are or were married. Irs forms The child received over half of his or her support for the year from the parents. Irs forms The child is in the custody of one or both parents for more than half of 2013. Irs forms Either of the following statements is true. Irs forms The custodial parent signs Form 8332 or a substantially similar statement that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches the form or statement to his or her return. Irs forms If the divorce decree or separation agreement went into effect after 1984 and before 2009, the noncustodial parent may be able to attach certain pages from the decree or agreement instead of Form 8332. Irs forms A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2013 provides that the noncustodial parent can claim the child as a dependent, and the noncustodial parent provides at least $600 for support of the child during 2013. Irs forms For details, see Publication 501. Irs forms Also see Applying Rule 9 to divorced or separated parents (or parents who live apart), next. Irs forms Applying Rule 9 to divorced or separated parents (or parents who live apart). Irs forms   If a child is treated as the qualifying child of the noncustodial parent under the special rule just described for children of divorced or separated parents (or parents who live apart), only the noncustodial parent can claim an exemption and the child tax credit for the child. Irs forms However, the custodial parent, if eligible, or another eligible taxpayer can claim the child as a qualifying child for the EIC and other tax benefits listed earlier in this chapter. Irs forms If the child is the qualifying child of more than one person for these benefits, then the tiebreaker rules determine which person can treat the child as a qualifying child. Irs forms Example 1. Irs forms You and your 5-year-old son lived all year with your mother, who paid the entire cost of keeping up the home. Irs forms Your AGI is $10,000. Irs forms Your mother’s AGI is $25,000. Irs forms Your son's father did not live with you or your son. Irs forms Under the Special rule for divorced or separated parents (or parents who live apart), your son is treated as the qualifying child of his father, who can claim an exemption and the child tax credit for the child. Irs forms However, your son's father cannot claim your son as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the EIC. Irs forms You and your mother did not have any child care expenses or dependent care benefits. Irs forms If you do not claim your son as a qualifying child, your mother can claim him as a qualifying child for the EIC and head of household filing status, if she qualifies for these tax benefits. Irs forms Example 2. Irs forms The facts are the same as in Example 1 except that your AGI is $25,000 and your mother's AGI is $21,000. Irs forms Your mother cannot claim your son as a qualifying child for any purpose because her AGI is not higher than yours. Irs forms Example 3. Irs forms The facts are the same as in Example 1 except that you and your mother both claim your son as a qualifying child for the EIC. Irs forms Your mother also claims him as a qualifying child for head of household filing status. Irs forms You as the child's parent will be the only one allowed to claim your son as a qualifying child for the EIC. Irs forms The IRS will disallow your mother's claim to the EIC and head of household filing status unless she has another qualifying child. Irs forms Rule 10—You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. Irs forms ) if all of the following statements are true. Irs forms You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. Irs forms Or, you are that person's brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. Irs forms You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student, and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. Irs forms You lived with that person in the United States for more than half of the year. Irs forms You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). Irs forms For more details about the tests to be a qualifying child, see Rule 8. Irs forms If you are a qualifying child of another taxpayer, you cannot claim the EIC. Irs forms This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. Irs forms Put “No” beside line 64a (Form 1040) or line 38a (Form 1040A). Irs forms Example. Irs forms You and your daughter lived with your mother all year. Irs forms You are 22 years old, unmarried, and attended a trade school full time. Irs forms You had a part-time job and earned $5,700. Irs forms You had no other income. Irs forms Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother. Irs forms She can claim the EIC if she meets all the other requirements. Irs forms Because you are your mother's qualifying child, you cannot claim the EIC. Irs forms This is so even if your mother cannot or does not claim the EIC. Irs forms Child of person not required to file a return. Irs forms   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you met the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. Irs forms Example 1—return not required. Irs forms The facts are the same as in the last example except your mother had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. Irs forms As a result, you are not your mother's qualifying child. Irs forms You can claim the EIC if you meet all the other requirements to do so. Irs forms Example 2—return filed to get refund of tax withheld. Irs forms The facts are the same as in Example 1 except your mother had wages of $1,500 and had income tax withheld from her wages. Irs forms She files a return only to get a refund of the income tax withheld and does not claim the EIC or any other tax credits or deductions. Irs forms As a result, you are not your mother's qualifying child. Irs forms You can claim the EIC if you meet all the other requirements to do so. Irs forms Example 3—return filed to get EIC. Irs forms The facts are the same as in Example 2 except your mother claimed the EIC on her return. Irs forms Since she filed the return to get the EIC, she is not filing it only to get a refund of income tax withheld. Irs forms As a result, you are your mother's qualifying child. Irs forms You cannot claim the EIC. Irs forms Chapter 3—Rules If You Do Not Have a Qualifying Child Use this chapter if you do not have a qualifying child and have met all the rules in chapter 1. Irs forms This chapter discusses Rules 11 through 14. Irs forms You must meet all four of those rules, in addition to the rules in chapters 1 and 4, to qualify for the earned income credit without a qualifying child. Irs forms You can file Form 1040, Form 1040A, or Form 1040EZ to claim the EIC without a qualifying child. Irs forms If you meet all the rules in chapter 1 and this chapter, read chapter 4 to find out what to do next. Irs forms If you have a qualifying child. Irs forms   If you meet Rule 8, you have a qualifying child. Irs forms If you meet Rule 8 and do not claim the EIC with a qualifying child, you cannot claim the EIC without a qualifying child. Irs forms Rule 11—You Must Be at Least Age 25 but Under Age 65 You must be at least age 25 but under age 65 at the end of 2013. Irs forms If you are married filing a joint return, either you or your spouse must be at least age 25 but under age 65 at the end of 2013. Irs forms It does not matter which spouse meets the age test, as long as one of the spouses does. Irs forms You meet the age test if you were born after December 31, 1948, and before January 2, 1989. Irs forms If you are married filing a joint return, you meet the age test if either you or your spouse was born after December 31, 1948, and before January 2, 1989. Irs forms If neither you nor your spouse meets the age test, you cannot claim the EIC. Irs forms Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Irs forms Death of spouse. Irs forms   If you are filing a joint return with your spouse who died in 2013, you meet the age test if your spouse was at least age 25 but under age 65 at the time of death. Irs forms Example 1. Irs forms You are age 28 and unmarried. Irs forms You meet the age test. Irs forms Example 2—spouse meets age test. Irs forms You are married and filing a joint return. Irs forms You are age 23 and your spouse is age 27. Irs forms You meet the age test because your spouse is at least age 25 but under age 65. Irs forms Example 3—spouse dies in 2013. Irs forms You are married and filing a joint return with your spouse who died in August 2013. Irs forms You are age 67. Irs forms Your spouse would have become age 65 in November 2013. Irs forms Because your spouse was under age 65 when she died, you meet the age test. Irs forms Rule 12—You Cannot Be the Dependent of Another Person If you are not filing a joint return, you meet this rule if: You checked box 6a on Form 1040 or 1040A, or You did not check the “You” box on line 5 of Form 1040EZ, and you entered $10,000 on that line. Irs forms If you are filing a joint return, you meet this rule if: You checked both box 6a and box 6b on Form 1040 or 1040A, or You and your spouse did not check either the “You” box or the “Spouse” box on line 5 of Form 1040EZ, and you entered $20,000 on that line. Irs forms If you are not sure whether someone else can claim you as a dependent, get Publication 501 and read the rules for claiming a dependent. Irs forms If someone else can claim you as a dependent on his or her return, but does not, you still cannot claim the credit. Irs forms Example 1. Irs forms In 2013, you were age 25, single, and living at home with your parents. Irs forms You worked and were not a student. Irs forms You earned $7,500. Irs forms Your parents cannot claim you as a dependent. Irs forms When you file your return, you claim an exemption for yourself by not checking the You box on line 5 of your Form 1040EZ and by entering $10,000 on that line. Irs forms You meet this rule. Irs forms You can claim the EIC if you meet all the other requirements. Irs forms Example 2. Irs forms The facts are the same as in Example 1, except that you earned $2,000. Irs forms Your parents can claim you as a dependent but decide not to. Irs forms You do not meet this rule. Irs forms You cannot claim the credit because your parents could have claimed you as a dependent. Irs forms Joint returns. Irs forms   You generally cannot be claimed as a dependent by another person if you are married and file a joint return. Irs forms   However, another person may be able to claim you as a dependent if you and your spouse file a joint return merely to claim a refund of income tax withheld or estimated tax paid. Irs forms But neither you nor your spouse can be claimed as a dependent by another person if you claim the EIC on your joint return. Irs forms Example 1—return filed to get refund of tax withheld. Irs forms You are 26 years old. Irs forms You and your wife live with your parents and had $800 of wages from part-time jobs and no other income. Irs forms Neither you nor your wife is required to file a tax return. Irs forms You do not have a child. Irs forms Taxes were taken out of your pay so you file a joint return only to get a refund of the withheld taxes. Irs forms Your parents are not disqualified from claiming an exemption for you just because you filed a joint return. Irs forms They can claim exemptions for you and your wife if all the other tests to do so are met. Irs forms Example 2—return filed to get EIC. Irs forms The facts are the same as in Example 1except no taxes were taken out of your pay. Irs forms Also, you and your wife are not required to file a tax return, but you file a joint return to claim an EIC of $63 and get a refund of that amount. Irs forms Because claiming the EIC is your reason for filing the return, you are not filing it only to claim a refund of income tax withheld or estimated tax paid. Irs forms Your parents cannot claim an exemption for either you or your wife. Irs forms Rule 13—You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. Irs forms ) if all of the following statements are true. Irs forms You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. Irs forms Or, you are that person's brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. Irs forms You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student, and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. Irs forms You lived with that person in the United States for more than half of the year. Irs forms You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). Irs forms For more details about the tests to be a qualifying child, see Rule 8. Irs forms If you are a qualifying child of another taxpayer, you cannot claim the EIC. Irs forms This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. Irs forms Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Irs forms Example. Irs forms You lived with your mother all year. Irs forms You are age 26, unmarried, and permanently and totally disabled. Irs forms Your only income was from a community center where you went three days a week to answer telephones. Irs forms You earned $5,000 for the year and provided more than half of your own support. Irs forms Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother for the EIC. Irs forms She can claim the EIC if she meets all the other requirements. Irs forms Because you are a qualifying child of your mother, you cannot claim the EIC. Irs forms This is so even if your mother cannot or does not claim the EIC. Irs forms Joint returns. Irs forms   You generally cannot be a qualifying child of another taxpayer if you are married and file a joint return. Irs forms   However, you may be a qualifying child of another taxpayer if you and your spouse file a joint return merely to claim a refund of income tax withheld or estimated tax paid. Irs forms But neither you nor your spouse can be a qualifying child of another taxpayer if you claim the EIC on your joint return. Irs forms Child of person not required to file a return. Irs forms   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you meet the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. Irs forms Example 1—return not required. Irs forms You lived all year with your father. Irs forms You are 27 years old, unmarried, permanently and totally disabled, and earned $13,000. Irs forms You have no other income, no children, and provided more than half of your own support. Irs forms Your father had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. Irs forms As a result, you are not your father's qualifying child. Irs forms You can claim the EIC if you meet all the other requirements to do so. Irs forms Example 2—return filed to get refund of tax withheld. Irs forms The facts are the same as in Example 1 except your father had wages of $1,500 and had income tax withheld from his wages. Irs forms He files a return only to get a refund of the income tax withheld and does not claim the EIC or any other tax credits or deductions. Irs forms As a result, you are not your father's qualifying child. Irs forms You can claim the EIC if you meet all the other requirements to do so. Irs forms Example 3—return filed to get EIC. Irs forms The facts are the same as in Example 2 except your father claimed the EIC on his return. Irs forms Since he filed the return to get the EIC, he is not filing it only to get a refund of income tax withheld. Irs forms As a result, you are your father's qualifying child. Irs forms You cannot claim the EIC. Irs forms Rule 14—You Must Have Lived in the United States More Than Half of the Year Your home (and your spouse's, if filing a joint return) must have been in the United States for more than half the year. Irs forms If it was not, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Irs forms United States. Irs forms   This means the 50 states and the District of Columbia. Irs forms It does not include Puerto Rico or U. Irs forms S. Irs forms possessions such as Guam. Irs forms Homeless shelter. Irs forms   Your home can be any location where you regularly live. Irs forms You do not need a traditional home. Irs forms If you lived in one or more homeless shelters in the United States for more than half the year, you meet this rule. Irs forms Military personnel stationed outside the United States. Irs forms   U. Irs forms S. Irs forms military personnel stationed outside the United States on extended active duty (defined in chapter 2) are considered to live in the United States during that duty period for purposes of the EIC. Irs forms Chapter 4—Figuring and Claiming the EIC You must meet one more rule to claim the EIC. Irs forms You need to know the amount of your earned income to see if you meet the rule in this chapter. Irs forms You also need to know that amount to figure your EIC. Irs forms Rule 15—Earned Income Limits Your earned income must be less than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. Irs forms Earned Income Earned income generally means wages, salaries, tips, other taxable employee pay, and net earnings from self-employment. Irs forms Employee pay is earned income only if it is taxable. Irs forms Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. Irs forms But there is an exception for nontaxable combat pay, which you can choose to include in earned income. Irs forms Earned income is explained in detail in Rule 7 in chapter 1. Irs forms Figuring earned income. Irs forms   If you are self-employed, a statutory employee, or a member of the clergy or a church employee who files Schedule SE (Form 1040), you will figure your earned income when you fill out Part 4 of EIC Worksheet B in the Form 1040 instructions. Irs forms   Otherwise, figure your earned income by using the worksheet in Step 5 of the Form 1040 instructions for lines 64a and 64b or the Form 1040A instructions for lines 38a and 38b, or the worksheet in Step 2 of the Form 1040EZ instructions for lines 8a and 8b. Irs forms   When using one of those worksheets to figure your earned income, you will start with the amount on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). Irs forms You will then reduce that amount by any amount included on that line and described in the following list. Irs forms Scholarship or fellowship grants not reported on a Form W-2. Irs forms A scholarship or fellowship grant that was not reported to you on a Form W-2 is not considered earned income for the earned income credit. Irs forms Inmate's income. Irs forms Amounts received for work performed while an inmate in a penal institution are not earned income for the earned income credit. Irs forms This includes amounts received for work performed while in a work release program or while in a halfway house. Irs forms If you received any amount for work done while an inmate in a penal institution and that amount is included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “PRI” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). Irs forms Pension or annuity from deferred compensation plans. Irs forms A pension or annuity from a nonqualified deferred compensation plan or a nongovernmental section 457 plan is not considered earned income for the earned income credit. Irs forms If you received such an amount and it was included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “DFC” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). Irs forms This amount may be reported in box 11 of your Form W-2. Irs forms If you received such an amount but box 11 is blank, contact your employer for the amount received as a pension or an annuity. Irs forms Clergy. Irs forms   If you are a member of the clergy who files Schedule SE and the amount on line 2 of that schedule includes an amount that was also re
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Page Last Reviewed or Updated: 20-Mar-2014

The Irs Forms

Irs forms Publication 587 - Main Content Table of Contents Qualifying for a DeductionExclusive Use Regular Use Trade or Business Use Principal Place of Business Place To Meet Patients, Clients, or Customers Separate Structure Figuring the DeductionUsing Actual Expenses Using the Simplified Method Daycare Facility Standard meal and snack rates. Irs forms Sale or Exchange of Your HomeGain on Sale Depreciation Basis Adjustment Reporting the Sale More Information Business Furniture and EquipmentListed Property Property Bought for Business Use Personal Property Converted to Business Use Recordkeeping Where To DeductSelf-Employed Persons Employees Partners How To Get Tax HelpLow Income Taxpayer Clinics Worksheet To Figure the Deduction for Business Use of Your HomeInstructions for the Worksheet Worksheets To Figure the Deduction for Business Use of Your Home (Simplified Method) Instructions for the Simplified Method Worksheet Instructions for the Daycare Facility Worksheet Instructions for the Area Adjustment Worksheet Qualifying for a Deduction Generally, you cannot deduct items related to your home, such as mortgage interest, real estate taxes, utilities, maintenance, rent, depreciation, or property insurance, as business expenses. Irs forms However, you may be able to deduct expenses related to the business use of part of your home if you meet specific requirements. Irs forms Even then, the deductible amount of these types of expenses may be limited. Irs forms Use this section and Figure A, later, to decide if you can deduct expenses for the business use of your home. Irs forms To qualify to deduct expenses for business use of your home, you must use part of your home: Exclusively and regularly as your principal place of business (defined later), Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, In the case of a separate structure which is not attached to your home, in connection with your trade or business, On a regular basis for certain storage use (see Storage of inventory or product samples , later), For rental use (see Publication 527), or As a daycare facility (see Daycare Facility , later). Irs forms Additional tests for employee use. Irs forms   If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. Irs forms You must meet the tests discussed earlier plus: Your business use must be for the convenience of your employer, and You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer. Irs forms If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home. Irs forms Exclusive Use To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Irs forms The area used for business can be a room or other separately identifiable space. Irs forms The space does not need to be marked off by a permanent partition. Irs forms You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Irs forms Example. Irs forms You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. Irs forms Your family also uses the den for recreation. Irs forms The den is not used exclusively in your trade or business, so you cannot claim a deduction for the business use of the den. Irs forms Exceptions to Exclusive Use You do not have to meet the exclusive use test if either of the following applies. Irs forms You use part of your home for the storage of inventory or product samples (discussed next). Irs forms You use part of your home as a daycare facility, discussed later under Daycare Facility . Irs forms Note. Irs forms With the exception of these two uses, any portion of the home used for business purposes must meet the exclusive use test. Irs forms Storage of inventory or product samples. Irs forms    If you use part of your home for storage of inventory or product samples, you can deduct expenses for the business use of your home without meeting the exclusive use test. Irs forms However, you must meet all the following tests. Irs forms You sell products at wholesale or retail as your trade or business. Irs forms You keep the inventory or product samples in your home for use in your trade or business. Irs forms Your home is the only fixed location of your trade or business. Irs forms You use the storage space on a regular basis. Irs forms The space you use is a separately identifiable space suitable for storage. Irs forms Example. Irs forms Your home is the only fixed location of your business of selling mechanics' tools at retail. Irs forms You regularly use half of your basement for storage of inventory and product samples. Irs forms You sometimes use the area for personal purposes. Irs forms The expenses for the storage space are deductible even though you do not use this part of your basement exclusively for business. Irs forms Regular Use To qualify under the regular use test, you must use a specific area of your home for business on a regular basis. Irs forms Incidental or occasional business use is not regular use. Irs forms You must consider all facts and circumstances in determining whether your use is on a regular basis. Irs forms Trade or Business Use To qualify under the trade-or-business-use test, you must use part of your home in connection with a trade or business. Irs forms If you use your home for a profit-seeking activity that is not a trade or business, you cannot take a deduction for its business use. Irs forms Example. Irs forms You use part of your home exclusively and regularly to read financial periodicals and reports, clip bond coupons, and carry out similar activities related to your own investments. Irs forms You do not make investments as a broker or dealer. Irs forms So, your activities are not part of a trade or business and you cannot take a deduction for the business use of your home. Irs forms Principal Place of Business You can have more than one business location, including your home, for a single trade or business. Irs forms To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that trade or business. Irs forms To determine whether your home is your principal place of business, you must consider: The relative importance of the activities performed at each place where you conduct business, and The amount of time spent at each place where you conduct business. Irs forms Your home office will qualify as your principal place of business if you meet the following requirements. Irs forms You use it exclusively and regularly for administrative or management activities of your trade or business. Irs forms You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Irs forms If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Irs forms However, see the later discussions under Place To Meet Patients, Clients, or Customers and Separate Structure for other ways to qualify to deduct home office expenses. Irs forms Administrative or management activities. Irs forms   There are many activities that are administrative or managerial in nature. Irs forms The following are a few examples. Irs forms Billing customers, clients, or patients. Irs forms Keeping books and records. Irs forms Ordering supplies. Irs forms Setting up appointments. Irs forms Forwarding orders or writing reports. Irs forms Administrative or management activities performed at other locations. Irs forms   The following activities performed by you or others will not disqualify your home office from being your principal place of business. Irs forms You have others conduct your administrative or management activities at locations other than your home. Irs forms (For example, another company does your billing from its place of business. Irs forms ) You conduct administrative or management activities at places that are not fixed locations of your business, such as in a car or a hotel room. Irs forms You occasionally conduct minimal administrative or management activities at a fixed location outside your home. Irs forms You conduct substantial nonadministrative or nonmanagement business activities at a fixed location outside your home. Irs forms (For example, you meet with or provide services to customers, clients, or patients at a fixed location of the business outside your home. Irs forms ) You have suitable space to conduct administrative or management activities outside your home, but choose to use your home office for those activities instead. Irs forms Please click here for the text description of the image. Irs forms Can you deduct business use of the home expenses? Example 1. Irs forms John is a self-employed plumber. Irs forms Most of John's time is spent at customers' homes and offices installing and repairing plumbing. Irs forms He has a small office in his home that he uses exclusively and regularly for the administrative or management activities of his business, such as phoning customers, ordering supplies, and keeping his books. Irs forms John writes up estimates and records of work completed at his customers' premises. Irs forms He does not conduct any substantial administrative or management activities at any fixed location other than his home office. Irs forms John does not do his own billing. Irs forms He uses a local bookkeeping service to bill his customers. Irs forms John's home office qualifies as his principal place of business for deducting expenses for its use. Irs forms He uses the home office for the administrative or managerial activities of his plumbing business and he has no other fixed location where he conducts these administrative or managerial activities. Irs forms His choice to have his billing done by another company does not disqualify his home office from being his principal place of business. Irs forms He meets all the qualifications, including principal place of business, so he can deduct expenses (subject to certain limitations, explained later) for the business use of his home. Irs forms Example 2. Irs forms Pamela is a self-employed sales representative for several different product lines. Irs forms She has an office in her home that she uses exclusively and regularly to set up appointments and write up orders and other reports for the companies whose products she sells. Irs forms She occasionally writes up orders and sets up appointments from her hotel room when she is away on business overnight. Irs forms Pamela's business is selling products to customers at various locations throughout her territory. Irs forms To make these sales, she regularly visits customers to explain the available products and take orders. Irs forms Pamela's home office qualifies as her principal place of business for deducting expenses for its use. Irs forms She conducts administrative or management activities there and she has no other fixed location where she conducts substantial administrative or management activities. Irs forms The fact that she conducts some administrative or management activities in her hotel room (not a fixed location) does not disqualify her home office from being her principal place of business. Irs forms She meets all the qualifications, including principal place of business, so she can deduct expenses (subject to certain limitations, explained later) for the business use of her home. Irs forms Example 3. Irs forms Paul is a self-employed anesthesiologist. Irs forms He spends the majority of his time administering anesthesia and postoperative care in three local hospitals. Irs forms One of the hospitals provides him with a small shared office where he could conduct administrative or management activities. Irs forms Paul very rarely uses the office the hospital provides. Irs forms He uses a room in his home that he has converted to an office. Irs forms He uses this room exclusively and regularly to conduct all the following activities. Irs forms Contacting patients, surgeons, and hospitals regarding scheduling. Irs forms Preparing for treatments and presentations. Irs forms Maintaining billing records and patient logs. Irs forms Satisfying continuing medical education requirements. Irs forms Reading medical journals and books. Irs forms Paul's home office qualifies as his principal place of business for deducting expenses for its use. Irs forms He conducts administrative or management activities for his business as an anesthesiologist there and he has no other fixed location where he conducts substantial administrative or management activities for this business. Irs forms His choice to use his home office instead of the one provided by the hospital does not disqualify his home office from being his principal place of business. Irs forms His performance of substantial nonadministrative or nonmanagement activities at fixed locations outside his home also does not disqualify his home office from being his principal place of business. Irs forms He meets all the qualifications, including principal place of business, so he can deduct expenses (subject to certain limitations, explained later) for the business use of his home. Irs forms Example 4. Irs forms Kathleen is employed as a teacher. Irs forms She is required to teach and meet with students at the school and to grade papers and tests. Irs forms The school provides her with a small office where she can work on her lesson plans, grade papers and tests, and meet with parents and students. Irs forms The school does not require her to work at home. Irs forms Kathleen prefers to use the office she has set up in her home and does not use the one provided by the school. Irs forms She uses this home office exclusively and regularly for the administrative duties of her teaching job. Irs forms Kathleen must meet the convenience-of-the-employer test, even if her home qualifies as her principal place of business for deducting expenses for its use. Irs forms Her employer provides her with an office and does not require her to work at home, so she does not meet the convenience-of-the-employer test and cannot claim a deduction for the business use of her home. Irs forms More Than One Trade or Business The same home office can be the principal place of business for two or more separate business activities. Irs forms Whether your home office is the principal place of business for more than one business activity must be determined separately for each of your trade or business activities. Irs forms You must use the home office exclusively and regularly for one or more of the following purposes. Irs forms As the principal place of business for one or more of your trades or businesses. Irs forms As a place to meet or deal with patients, clients, or customers in the normal course of one or more of your trades or businesses. Irs forms If your home office is a separate structure, in connection with one or more of your trades or businesses. Irs forms You can use your home office for more than one business activity, but you cannot use it for any nonbusiness (i. Irs forms e. Irs forms , personal) activities. Irs forms If you are an employee, any use of the home office in connection with your employment must be for the convenience of your employer. Irs forms See Rental to employer , later, if you rent part of your home to your employer. Irs forms Example. Irs forms Tracy White is employed as a teacher. Irs forms Her principal place of work is the school, which provides her office space to do her school work. Irs forms She also has a mail order jewelry business. Irs forms All her work in the jewelry business is done in her home office and the office is used exclusively for that business. Irs forms If she meets all the other tests, she can deduct expenses for the business use of her home for the jewelry business. Irs forms If Tracy also uses the office for work related to her teaching, she must meet the exclusive use test for both businesses to qualify for the deduction. Irs forms As an employee, Tracy must also meet the convenience-of-the-employer test to qualify for the deduction. Irs forms She does not meet this test for her work as a teacher, so she cannot claim a deduction for the business use of her home for either activity. Irs forms Place To Meet Patients, Clients, or Customers If you meet or deal with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business if you meet both the following tests. Irs forms You physically meet with patients, clients, or customers on your premises. Irs forms Their use of your home is substantial and integral to the conduct of your business. Irs forms Doctors, dentists, attorneys, and other professionals who maintain offices in their homes generally will meet this requirement. Irs forms Using your home for occasional meetings and telephone calls will not qualify you to deduct expenses for the business use of your home. Irs forms The part of your home you use exclusively and regularly to meet patients, clients, or customers does not have to be your principal place of business. Irs forms Example. Irs forms June Quill, a self-employed attorney, works 3 days a week in her city office. Irs forms She works 2 days a week in her home office used only for business. Irs forms She regularly meets clients there. Irs forms Her home office qualifies for a business deduction because she meets clients there in the normal course of her business. Irs forms Separate Structure You can deduct expenses for a separate free-standing structure, such as a studio, workshop, garage, or barn, if you use it exclusively and regularly for your business. Irs forms The structure does not have to be your principal place of business or a place where you meet patients, clients, or customers. Irs forms Example. Irs forms John Berry operates a floral shop in town. Irs forms He grows the plants for his shop in a greenhouse behind his home. Irs forms He uses the greenhouse exclusively and regularly in his business, so he can deduct the expenses for its use, subject to certain limitations, explained later. Irs forms Figuring the Deduction After you determine that you meet the tests under Qualifying for a Deduction , you can begin to figure how much you can deduct. Irs forms When figuring the amount you can deduct for the business use of your home, you will use either your actual expenses or a simplified method. Irs forms Electing to use the simplified method. Irs forms   The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Irs forms You choose whether or not to figure your deduction using the simplified method each taxable year. Irs forms See Using the Simplified Method , later. Irs forms Rental to employer. Irs forms   If you rent part of your home to your employer and you use the rented part in performing services for your employer as an employee, your deduction for the business use of your home is limited. Irs forms You can deduct mortgage interest, qualified mortgage insurance premiums, real estate taxes, and personal casualty losses for the rented part, subject to any limitations. Irs forms However, you cannot deduct otherwise allowable trade or business expenses, business casualty losses, or depreciation related to the use of your home (or use the simplified method as an alternative to deducting these actual expenses) in performing services for your employer. Irs forms Using Actual Expenses If you do not or cannot elect to use the simplified method for a home, you will figure your deduction for that home using your actual expenses. Irs forms You will also need to figure the percentage of your home used for business and the limit on the deduction. Irs forms If you are an employee or a partner, or you use your home in your farming business and you file Schedule F (Form 1040), you can use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication, to help you figure your deduction. Irs forms If you use your home in a trade or business and you file Schedule C (Form 1040), you will use Form 8829 to figure your deduction. Irs forms Part-year use. Irs forms   You cannot deduct expenses for the business use of your home incurred during any part of the year you did not use your home for business purposes. Irs forms For example, if you begin using part of your home for business on July 1, and you meet all the tests from that date until the end of the year, consider only your expenses for the last half of the year in figuring your allowable deduction. Irs forms Expenses related to tax-exempt income. Irs forms   Generally, you cannot deduct expenses that are related to tax-exempt allowances. Irs forms However, if you receive a tax-exempt parsonage allowance or a tax-exempt military allowance, your expenses for mortgage interest and real estate taxes are deductible under the normal rules. Irs forms No deduction is allowed for other expenses related to the tax-exempt allowance. Irs forms   If your housing is provided free of charge and the value of the housing is tax exempt, you cannot deduct the rental value of any portion of the housing. Irs forms Actual Expenses You must divide the expenses of operating your home between personal and business use. Irs forms The part of a home operating expense you can use to figure your deduction depends on both of the following. Irs forms Whether the expense is direct, indirect, or unrelated. Irs forms The percentage of your home used for business. Irs forms Table 1, next, describes the types of expenses you may have and the extent to which they are deductible. Irs forms Table 1. Irs forms Types of Expenses  Expense  Description  Deductibility Direct Expenses only for  the business part  of your home. Irs forms Deductible in full. Irs forms *   Examples:  Painting or repairs  only in the area  used for business. Irs forms Exception: May be only partially  deductible in a daycare facility. Irs forms See Daycare Facility , later. Irs forms Indirect Expenses for  keeping up and running your  entire home. Irs forms Deductible based on the percentage of your home used for business. Irs forms *   Examples:  Insurance, utilities, and  general repairs. Irs forms   Unrelated Expenses only for  the parts of your  home not used  for business. Irs forms Not deductible. Irs forms   Examples:  Lawn care or painting  a room not used  for business. Irs forms   *Subject to the deduction limit, discussed later. Irs forms Form 8829 and the Worksheet To Figure the Deduction for Business Use of Your Home have separate columns for direct and indirect expenses. Irs forms Certain expenses are deductible whether or not you use your home for business. Irs forms If you qualify to deduct business use of the home expenses, use the business percentage of these expenses to figure your total business use of the home deduction. Irs forms These expenses include the following. Irs forms Real estate taxes. Irs forms Qualified mortgage insurance premiums. Irs forms Deductible mortgage interest. Irs forms Casualty losses. Irs forms Other expenses are deductible only if you use your home for business. Irs forms You can use the business percentage of these expenses to figure your total business use of the home deduction. Irs forms These expenses generally include (but are not limited to) the following. Irs forms Depreciation (covered under Depreciating Your Home , later). Irs forms Insurance. Irs forms Rent paid for the use of property you do not own but use in your trade or business. Irs forms Repairs. Irs forms Security system. Irs forms Utilities and services. Irs forms Real estate taxes. Irs forms   To figure the business part of your real estate taxes, multiply the real estate taxes paid by the percentage of your home used for business. Irs forms   For more information on the deduction for real estate taxes, see Publication 530, Tax Information for Homeowners. Irs forms Deductible mortgage interest. Irs forms   To figure the business part of your deductible mortgage interest, multiply this interest by the percentage of your home used for business. Irs forms You can include interest on a second mortgage in this computation. Irs forms If your total mortgage debt is more than $1,000,000 or your home equity debt is more than $100,000, your deduction may be limited. Irs forms For more information on what interest is deductible, see Publication 936, Home Mortgage Interest Deduction. Irs forms Qualified mortgage insurance premiums. Irs forms   To figure the business part of your qualified mortgage insurance premiums, multiply the premiums by the percentage of your home used for business. Irs forms You can include premiums for insurance on a second mortgage in this computation. Irs forms If your adjusted gross income is more than $100,000 ($50,000 if your filing status is married filing separately), your deduction may be limited. Irs forms For more information, see Publication 936, and Line 13 in the Instructions for Schedule A (Form 1040). Irs forms Casualty losses. Irs forms    If you have a casualty loss on your home that you use for business, treat the casualty loss as a direct expense, an indirect expense, or an unrelated expense, depending on the property affected. Irs forms A direct expense is the loss on the portion of the property you use only in your business. Irs forms Use the entire loss to figure the business use of the home deduction. Irs forms An indirect expense is the loss on property you use for both business and personal purposes. Irs forms Use only the business portion to figure the deduction. Irs forms An unrelated expense is the loss on property you do not use in your business. Irs forms Do not use any of the loss to figure the deduction. Irs forms Example. Irs forms You meet the rules to take a deduction for an office in your home that is 10% of the total area of your house. Irs forms A storm damages your roof. Irs forms This is an indirect expense as the roof is part of the whole house and is considered to be used both for business and personal purposes. Irs forms You would complete Form 4684, Casualties and Thefts, to report your loss. Irs forms You complete both section A (Personal Use Property) and section B (Business and Income-Producing Property) as your home is used both for business and personal purposes. Irs forms Since you use 90% of your home for personal purposes, use 90% of the cost or adjusted basis of your home, insurance or other reimbursement, and fair market value, both before and after the storm, to figure the amounts to enter on lines 2, 3, 5, and 6 of Form 4684. Irs forms Since you use 10% of your home for business purposes, use 10% of the cost or adjusted basis of your home, insurance or other reimbursement, and fair market value, both before and after the storm, to figure the amounts to enter on lines 20, 21, 23, and 24 of Form 4684. Irs forms Forms and worksheets to use. Irs forms   If you are filing Schedule C (Form 1040), get Form 8829 and follow the instructions for casualty losses. Irs forms If you are an employee or a partner, or you file Schedule F (Form 1040), use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication. Irs forms You will also need to get Form 4684. Irs forms More information. Irs forms   For more information on casualty losses, see Publication 547, Casualties, Disasters, and Thefts. Irs forms Insurance. Irs forms   You can deduct the cost of insurance that covers the business part of your home. Irs forms However, if your insurance premium gives you coverage for a period that extends past the end of your tax year, you can deduct only the business percentage of the part of the premium that gives you coverage for your tax year. Irs forms You can deduct the business percentage of the part that applies to the following year in that year. Irs forms Rent. Irs forms   If you rent the home you occupy and meet the requirements for business use of the home, you can deduct part of the rent you pay. Irs forms To figure your deduction, multiply your rent payments by the percentage of your home used for business. Irs forms   If you own your home, you cannot deduct the fair rental value of your home. Irs forms However, see Depreciating Your Home , later. Irs forms Repairs. Irs forms   The cost of repairs that relate to your business, including labor (other than your own labor), is a deductible expense. Irs forms For example, a furnace repair benefits the entire home. Irs forms If you use 10% of your home for business, you can deduct 10% of the cost of the furnace repair. Irs forms   Repairs keep your home in good working order over its useful life. Irs forms Examples of common repairs are patching walls and floors, painting, wallpapering, repairing roofs and gutters, and mending leaks. Irs forms However, repairs are sometimes treated as a permanent improvement and are not deductible. Irs forms See Permanent improvements , later, under Depreciating Your Home. Irs forms Security system. Irs forms   If you install a security system that protects all the doors and windows in your home, you can deduct the business part of the expenses you incur to maintain and monitor the system. Irs forms You also can take a depreciation deduction for the part of the cost of the security system relating to the business use of your home. Irs forms Utilities and services. Irs forms   Expenses for utilities and services, such as electricity, gas, trash removal, and cleaning services, are primarily personal expenses. Irs forms However, if you use part of your home for business, you can deduct the business part of these expenses. Irs forms Generally, the business percentage for utilities is the same as the percentage of your home used for business. Irs forms Telephone. Irs forms   The basic local telephone service charge, including taxes, for the first telephone line into your home (i. Irs forms e. Irs forms , landline) is a nondeductible personal expense. Irs forms However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses. Irs forms Do not include these expenses as a cost of using your home for business. Irs forms Deduct these charges separately on the appropriate form or schedule. Irs forms For example, if you file Schedule C (Form 1040), deduct these expenses on line 25, Utilities (instead of line 30, Expenses for business use of your home). Irs forms Depreciating Your Home If you own your home and qualify to deduct expenses for its business use, you can claim a deduction for depreciation. Irs forms Depreciation is an allowance for the wear and tear on the part of your home used for business. Irs forms You cannot depreciate the cost or value of the land. Irs forms You recover its cost when you sell or otherwise dispose of the property. Irs forms Before you figure your depreciation deduction, you need to know the following information. Irs forms The month and year you started using your home for business. Irs forms The adjusted basis and fair market value of your home (excluding land) at the time you began using it for business. Irs forms The cost of any improvements before and after you began using the property for business. Irs forms The percentage of your home used for business. Irs forms See Business Percentage , later. Irs forms Adjusted basis defined. Irs forms   The adjusted basis of your home is generally its cost, plus the cost of any permanent improvements you made to it, minus any casualty losses or depreciation deducted in earlier tax years. Irs forms For a discussion of adjusted basis, see Publication 551. Irs forms Permanent improvements. Irs forms   A permanent improvement increases the value of property, adds to its life, or gives it a new or different use. Irs forms Examples of improvements are replacing electric wiring or plumbing, adding a new roof or addition, paneling, or remodeling. Irs forms    You must carefully distinguish between repairs and improvements. Irs forms See Repairs , earlier, under Actual Expenses. Irs forms You also must keep accurate records of these expenses. Irs forms These records will help you decide whether an expense is a deductible or a capital (added to the basis) expense. Irs forms However, if you make repairs as part of an extensive remodeling or restoration of your home, the entire job is an improvement. Irs forms Example. Irs forms You buy an older home and fix up two rooms as a beauty salon. Irs forms You patch the plaster on the ceilings and walls, paint, repair the floor, install an outside door, and install new wiring, plumbing, and other equipment. Irs forms Normally, the patching, painting, and floor work are repairs and the other expenses are permanent improvements. Irs forms However, because the work gives your property a new use, the entire remodeling job is a permanent improvement and its cost is added to the basis of the property. Irs forms You cannot deduct any portion of it as a repair expense. Irs forms Adjusting for depreciation deducted in earlier years. Irs forms   Decrease the basis of your property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you properly selected. Irs forms If you deducted less depreciation than you could have under the method you selected, decrease the basis by the amount you could have deducted under that method. Irs forms If you did not deduct any depreciation, decrease the basis by the amount you could have deducted. Irs forms   If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted, plus the part of the excess depreciation you deducted that actually decreased your tax liability for any year. Irs forms   If you deducted the incorrect amount of depreciation, see Publication 946. Irs forms Fair market value defined. Irs forms   The fair market value of your home is the price at which the property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Irs forms Sales of similar property, on or about the date you begin using your home for business, may be helpful in determining the property's fair market value. Irs forms Figuring the depreciation deduction for the current year. Irs forms   If you began using your home for business before 2013, continue to use the same depreciation method you used in past tax years. Irs forms   If you began using your home for business for the first time in 2013, depreciate the business part as nonresidential real property under the modified accelerated cost recovery system (MACRS). Irs forms Under MACRS, nonresidential real property is depreciated using the straight line method over 39 years. Irs forms For more information on MACRS and other methods of depreciation, see Publication 946. Irs forms   To figure the depreciation deduction, you must first figure the part of the cost of your home that can be depreciated (depreciable basis). Irs forms The depreciable basis is figured by multiplying the percentage of your home used for business by the smaller of the following. Irs forms The adjusted basis of your home (excluding land) on the date you began using your home for business. Irs forms The fair market value of your home (excluding land) on the date you began using your home for business. Irs forms Depreciation table. Irs forms   If 2013 was the first year you used your home for business, you can figure your 2013 depreciation for the business part of your home by using the appropriate percentage from the following table. Irs forms Table 2. Irs forms MACRS Percentage Table for 39-Year Nonresidential Real Property Month First Used for Business Percentage To Use 1 2. Irs forms 461% 2 2. Irs forms 247% 3 2. Irs forms 033% 4 1. Irs forms 819% 5 1. Irs forms 605% 6 1. Irs forms 391% 7 1. Irs forms 177% 8 0. Irs forms 963% 9 0. Irs forms 749% 10 0. Irs forms 535% 11 0. Irs forms 321% 12 0. Irs forms 107%   Multiply the depreciable basis of the business part of your home by the percentage from the table for the first month you use your home for business. Irs forms See Publication 946 for the percentages for the remaining tax years of the recovery period. Irs forms Example. Irs forms In May, George Miller began to use one room in his home exclusively and regularly to meet clients. Irs forms This room is 8% of the square footage of his home. Irs forms He bought the home in 2003 for $125,000. Irs forms He determined from his property tax records that his adjusted basis in the house (exclusive of land) is $115,000. Irs forms In May, the house had a fair market value of $165,000. Irs forms He multiplies his adjusted basis of $115,000 (which is less than the fair market value) by 8%. Irs forms The result is $9,200, his depreciable basis for the business part of the house. Irs forms George files his return based on the calendar year. Irs forms May is the 5th month of his tax year. Irs forms He multiplies his depreciable basis of $9,200 by 1. Irs forms 605% (. Irs forms 01605), the percentage from the table for the 5th month. Irs forms His depreciation deduction is $147. Irs forms 66. Irs forms Depreciating permanent improvements. Irs forms   Add the costs of permanent improvements made before you began using your home for business to the basis of your property. Irs forms Depreciate these costs as part of the cost of your home as explained earlier. Irs forms The costs of improvements made after you begin using your home for business (that affect the business part of your home, such as a new roof) are depreciated separately. Irs forms Multiply the cost of the improvement by the business-use percentage and depreciate the result over the recovery period that would apply to your home if you began using it for business at the same time as the improvement. Irs forms For improvements made this year, the recovery period is 39 years. Irs forms For the percentage to use for the first year, see Table 2, earlier. Irs forms For more information on recovery periods, see Publication 946. Irs forms Business Percentage To find the business percentage, compare the size of the part of your home that you use for business to your whole house. Irs forms Use the resulting percentage to figure the business part of the expenses for operating your entire home. Irs forms You can use any reasonable method to determine the business percentage. Irs forms The following are two commonly used methods for figuring the percentage. Irs forms Divide the area (length multiplied by the width) used for business by the total area of your home. Irs forms If the rooms in your home are all about the same size, you can divide the number of rooms used for business by the total number of rooms in your home. Irs forms Example 1. Irs forms Your office is 240 square feet (12 feet × 20 feet). Irs forms Your home is 1,200 square feet. Irs forms Your office is 20% (240 ÷ 1,200) of the total area of your home. Irs forms Your business percentage is 20%. Irs forms Example 2. Irs forms You use one room in your home for business. Irs forms Your home has 10 rooms, all about equal size. Irs forms Your office is 10% (1 ÷ 10) of the total area of your home. Irs forms Your business percentage is 10%. Irs forms Use lines 1-7 of Form 8829, or lines 1-3 on the Worksheet To Figure the Deduction for Business Use of Your Home (near the end of this publication) to figure your business percentage. Irs forms Deduction Limit If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home. Irs forms If your gross income from the business use of your home is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. Irs forms Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation of your home (with depreciation of your home taken last), that are allocable to the business, is limited to the gross income from the business use of your home minus the sum of the following. Irs forms The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). Irs forms These expenses are discussed in detail under Actual Expenses , earlier. Irs forms The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself. Irs forms If you are self-employed, do not include in (2) above your deduction for one-half of your self-employment tax. Irs forms Carryover of unallowed expenses. Irs forms   If your deductions are greater than the current year's limit, you can carry over the excess to the next year in which you use actual expenses. Irs forms They are subject to the deduction limit for that year, whether or not you live in the same home during that year. Irs forms Figuring the deduction limit and carryover. Irs forms   If you are an employee or a partner, or you file Schedule F (Form 1040), use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication. Irs forms If you file Schedule C (Form 1040), figure your deduction limit and carryover on Form 8829. Irs forms Example. Irs forms You meet the requirements for deducting expenses for the business use of your home. Irs forms You use 20% of your home for business. Irs forms In 2013, your business expenses and the expenses for the business use of your home are deducted from your gross income in the following order. Irs forms    Gross income from business $6,000 Minus:   Deductible mortgage interest and real estate taxes (20%) 3,000 Business expenses not related to the use of your home (100%) (business phone, supplies, and depreciation on equipment) 2,000 Deduction limit $1,000 Minus other expenses allocable to business use of home:   Maintenance, insurance, and utilities (20%) 800 Depreciation allowed (20% = $1,600 allowable, but subject to balance of deduction limit) 200 Other expenses up to the deduction limit $1,000 Depreciation carryover to 2014 ($1,600 − $200) (subject to deduction limit in 2014) $1,400   You can deduct all of the business part of your deductible mortgage interest and real estate taxes ($3,000). Irs forms You also can deduct all of your business expenses not related to the use of your home ($2,000). Irs forms Additionally, you can deduct all of the business part of your expenses for maintenance, insurance, and utilities, because the total ($800) is less than the $1,000 deduction limit. Irs forms Your deduction for depreciation for the business use of your home is limited to $200 ($1,000 minus $800) because of the deduction limit. Irs forms You can carry over the $1,400 balance and add it to your depreciation for 2014, subject to your deduction limit in 2014. Irs forms More than one place of business. Irs forms   If part of the gross income from your trade or business is from the business use of part of your home and part is from a place other than your home, you must determine the part of your gross income from the business use of your home before you figure the deduction limit. Irs forms In making this determination, consider the time you spend at each location, the business investment in each location, and any other relevant facts and circumstances. Irs forms If your home office qualifies as your principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. Irs forms For more information on transportation costs, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Irs forms Using the Simplified Method The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Irs forms In most cases, you will figure your deduction by multiplying $5, the prescribed rate, by the area of your home used for a qualified business use. Irs forms The area you use to figure your deduction is limited to 300 square feet. Irs forms See Simplified Amount , later, for information about figuring the amount of the deduction. Irs forms For more information about the simplified method, see Revenue Procedure 2013-13, 2013-06 I. Irs forms R. Irs forms B. Irs forms 478, available at www. Irs forms irs. Irs forms gov/irb/2013-06_IRB/ar09. Irs forms html. Irs forms Actual expenses and depreciation of your home. Irs forms   If you elect to use the simplified method, you cannot deduct any actual expenses for the business except for business expenses that are not related to the use of the home. Irs forms You also cannot deduct any depreciation (including any additional first-year depreciation) or section 179 expense for the portion of the home that is used for a qualified business use. Irs forms The depreciation deduction allowable for that portion of the home is deemed to be zero for a year you use the simplified method. Irs forms If you figure your deduction for business use of the home using actual expenses in a subsequent year, you will have to use the appropriate optional depreciation table for MACRS to figure your depreciation. Irs forms More information. Irs forms   For more information about claiming depreciation in a subsequent year, see Revenue Procedure 2013-13, 2013-06 I. Irs forms R. Irs forms B. Irs forms 478, available at www. Irs forms irs. Irs forms gov/irb/2013-06_IRB/ar09. Irs forms html. Irs forms See Publication 946 for the optional depreciation tables Although you cannot deduct any depreciation or section 179 expense for the portion of your home used for a qualified business use, you may still claim depreciation or the section 179 expense deduction on other assets used in the business (for example, furniture and equipment). Irs forms Expenses deductible without regard to business use. Irs forms   When using the simplified method, treat as personal expenses those business expenses related to the use of the home that are deductible without regard to whether there is a qualified business use of the home. Irs forms These expenses include mortgage interest, real estate taxes, and casualty losses, subject to any limitations. Irs forms See Where To Deduct , later. Irs forms If you also rent part of your home, you must still allocate these expenses between rental use and personal use (for this purpose, personal use includes business use reported using the simplified method). Irs forms No deduction of carryover of actual expenses. Irs forms   If you used actual expenses to figure your deduction for business use of the home in a prior year and your deduction was limited, you cannot deduct the disallowed amount carried over from the prior year during a year you figure your deduction using the simplified method. Irs forms Instead, you will continue to carry over the disallowed amount to the next year that you use actual expenses to figure your deduction. Irs forms Electing the Simplified Method You choose whether or not to figure your deduction using the simplified method each taxable year. Irs forms Make the election for a home by using the simplified method to figure the deduction for the qualified business use of that home on a timely filed, original federal income tax return. Irs forms An election for a taxable year, once made, is irrevocable. Irs forms A change from using the simplified method in one year to actual expenses in a succeeding taxable year, or vice-versa, is not a change in method of accounting and does not require the consent of the Commissioner. Irs forms Shared use. Irs forms   If you share your home with someone else who also uses the home in a business that qualifies for this deduction, each of you make your own election. Irs forms More than one qualified business use. Irs forms   If you conduct more than one business that qualifies for this deduction in your home, your election to use the simplified method applies to all your qualified business uses of that home. Irs forms More than one home. Irs forms   If you used more than one home during the year (for example, you moved during the year), you can elect to use the simplified method for only one of the homes. Irs forms You must figure the deduction for any other home using actual expenses. Irs forms Simplified Amount Your deduction for the qualified business use of a home is the sum of each amount you figure for a separate qualified business use of your home. Irs forms To figure your deduction for the business use of a home using the simplified method, you will need to know the following information for each qualified business use of the home. Irs forms The allowable area of your home used in conducting the business. Irs forms If you did not conduct the business for the entire year in the home or the area changed during the year, you will need to know the allowable area you used and the number of days you conducted the business for each month. Irs forms The gross income from the business use of your home. Irs forms The amount of the business expenses that are not related to the use of your home. Irs forms If the qualified business use is for a daycare facility that uses space in your home on a regular (but not exclusive) basis, you will also need to know the percentage of time that part of your home is used for daycare. Irs forms To figure the amount you can deduct for qualified business use of your home using the simplified method, follow these 3 steps. Irs forms Multiply the allowable area by $5 (or less than $5 if the qualified business use is for a daycare that uses space in your home on a regular, but not exclusive, basis). Irs forms See Allowable area and Space used regularly for daycare , later. Irs forms Subtract the expenses from the business that are not related to the use of the home from the gross income related to the business use of the home. Irs forms If these expenses are greater than the gross income from the business use of the home, then you cannot take a deduction for this business use of the home. Irs forms See Gross income limitation , later. Irs forms Take the smaller of the amounts from (1) and (2). Irs forms This is the amount you can deduct for this qualified business use of your home using the simplified method. Irs forms If you are an employee or a partner, or you use your home in your farming business and file Schedule F (Form 1040), you can use the Simplified Method Worksheet, near the end of this publication, to help you figure your deduction. Irs forms If you use your home in a trade or business and you file Schedule C (Form 1040), you will use the Simplified Method Worksheet in your Instructions for Schedule C to figure your deduction. Irs forms Allowable area. Irs forms   In most cases, the allowable area is the smaller of the actual area (in square feet) of your home used in conducting the business and 300 square feet. Irs forms Your allowable area may be smaller if you conducted the business as a qualified joint venture with your spouse, the area used by the business was shared with another qualified business use, you used the home for the business for only part of the year, or the area used by the business changed during the year. Irs forms You can use the Area Adjustment Worksheet (for simplified method), near the end of this publication, to help you figure your allowable area for a qualified business use. Irs forms Area used by a qualified joint venture. Irs forms   If the qualified business use of the home is also a qualified joint venture, you and your spouse will figure the deduction for the business use separately. Irs forms Split the actual area used in conducting business between you and your spouse in the same manner you split your other tax attributes. Irs forms Then, each spouse will figure the allowable area separately. Irs forms For more information about qualified joint ventures, see Qualified Joint Venture in the Instructions for Schedule C. Irs forms Shared use. Irs forms   If you share your home with someone else who uses the home to conduct business that also qualifies for this deduction, you may not include the same square feet to figure your deduction as the other person. Irs forms You must allocate the shared space between you and the other person in a reasonable manner. Irs forms Example. Irs forms Kristin and Lindsey are roommates. Irs forms Kristin uses 300 square feet of their home for a qualified business use. Irs forms Lindsey uses 200 square feet of their home for a separate qualified business use. Irs forms The qualified business uses share 100 square feet. Irs forms In addition to the portion that they do not share, Kristin and Lindsey can both claim 50 of the 100 square feet or divide the 100 square feet between them in any reasonable manner. Irs forms If divided evenly, Kristin could claim 250 square feet using the simplified method and Lindsey could claim 150 square feet. Irs forms More than one qualified business use. Irs forms   If you conduct more than one business qualifying for the deduction, you are limited to a maximum of 300 square feet for all of the businesses. Irs forms Allocate the actual square footage used (up to the maximum of 300 square feet) among your qualified business uses in a reasonable manner. Irs forms However, do not allocate more square feet to a qualified business use than you actually use for that business. Irs forms Rental use. Irs forms   The simplified method does not apply to rental use. Irs forms A rental use that qualifies for the deduction must be figured using actual expenses. Irs forms If the rental use and a qualified business use share the same area, you will have to allocate the actual area used between the two uses. Irs forms You cannot use the same area to figure a deduction for the qualified business use as you are using to figure the deduction for the rental use. Irs forms Part-year use or area changes. Irs forms   If your qualified business use was for a portion of the taxable year (for example, a seasonal business or a business that begins during the taxable year) or you changed the square footage of your qualified business use, your deduction is limited to the average monthly allowable square footage. Irs forms You calculate the average monthly allowable square footage by adding the amount of allowable square feet you used in each month and dividing the sum by 12. Irs forms When determining the average monthly allowable square footage, you cannot take more than 300 square feet into account for any one month. Irs forms Additionally, if your qualified business use was less than 15 days in a month, you must use -0- for that month. Irs forms Example 1. Irs forms Andy files his federal income tax return on a calendar year basis. Irs forms On July 20, he began using 420 square feet of his home for a qualified business use. Irs forms He continued to use the 420 square feet until the end of the year. Irs forms His average monthly allowable square footage is 125 square feet, which is figured using 300 square feet for each month August through December divided by the number of months in the taxable year ((0 + 0 + 0 + 0 + 0 + 0 + 0 + 300 + 300 + 300 + 300 + 300)/12). Irs forms Example 2. Irs forms Amy files her federal income tax return on a calendar year basis. Irs forms On April 20, she began using 100 square feet of her home for a qualified business use. Irs forms On August 5, she expanded the area of her qualified use to 330 square feet. Irs forms Amy continued to use the 330 square feet until the end of the year. Irs forms Her average monthly allowable square footage is 150 square feet, which is figured using 100 square feet for May through July and 300 square feet for August through December divided by the number of months in the taxable year ((0 + 0 + 0 + 0 + 100 + 100 +100 + 300 + 300 + 300 + 300 + 300)/12). Irs forms Gross income limitation. Irs forms   Your deduction for business use of the home is limited to an amount equal to the gross income derived from the qualified business use of the home reduced by the business deductions that are unrelated to the use of your home. Irs forms If the business deductions that are unrelated to the use of your home are greater than the gross income derived from the qualified business use of your home, then you cannot take a deduction for this qualified business use of your home. Irs forms Business expenses not related to use of the home. Irs forms   These expenses relate to the business activity in the home, but not to the use of the home itself. Irs forms You can still deduct business expenses that are unrelated to the use of the home. Irs forms See Where To Deduct , later. Irs forms Examples of business expenses that are unrelated to the use of the home are advertising, wages, supplies, dues, and depreciation for equipment. Irs forms Space used regularly for daycare. Irs forms   If you do not use the area of your home exclusively for daycare, you must reduce the prescribed rate (maximum $5 per square foot) before figuring your deduction. Irs forms The reduced rate will equal the prescribed rate times a fraction. Irs forms The numerator of the fraction is the number of hours that the space was used during the year for daycare and the denominator is the total number of hours during the year that the space was available for all uses. Irs forms You can use the Daycare Facility Worksheet (for simplified method), near the end of this publication, to help you figure the reduced rate. Irs forms    If you used at least 300 square feet for daycare regularly and exclusively during the year, then you do not need to reduce the prescribed rate or complete the Daycare Facility Worksheet. Irs forms Daycare Facility If you use space in your home on a regular basis for providing daycare, you may be able to claim a deduction for that part of your home even if you use the same space for nonbusiness purposes. Irs forms To qualify for this exception to the exclusive use rule, you must meet both of the following requirements. Irs forms You must be in the trade or business of providing daycare for children, persons age 65 or older, or persons who are physically or mentally unable to care for themselves. Irs forms You must have applied for, been granted, or be exempt from having, a license, certification, registration, or approval as a daycare center or as a family or group daycare home under state law. Irs forms You do not meet this requirement if your application was rejected or your license or other authorization was revoked. Irs forms Figuring the deduction. Irs forms   If you elect to use the simplified method for your home, figure your deduction as described earlier in Using the Simplified Method under Figuring the Deduction. Irs forms    If you are figuring your deduction using actual expenses and you regularly use part of your home for daycare, figure what part is used for daycare, as explained in Business Percentage , earlier, under Figuring the Deduction. Irs forms If you also use that part exclusively for daycare, deduct all the allocable expenses, subject to the deduction limit, as explained earlier. Irs forms   If the use of part of your home as a daycare facility is regular, but not exclusive, you must figure the percentage of time that part of your home is used for daycare. Irs forms A room that is available for use throughout each business day and that you regularly use in your business is considered to be used for daycare throughout each business day. Irs forms You do not have to keep records to show the specific hours the area was used for business. Irs forms You can use the area occasionally for personal reasons. Irs forms However, a room you use only occasionally for business does not qualify for the deduction. Irs forms To find the percentage of time you actually use your home for business, compare the total time used for business to the total time that part of your home can be used for all purposes. Irs forms You can compare the hours of business use in a week with the number of hours in a week (168). Irs forms Or you can compare the hours of business use for the year with the number of hours in the year (8,760 in 2013). Irs forms If you started or stopped using your home for daycare in 2013, you must prorate the number of hours based on the number of days the home was available for daycare. Irs forms Example 1. Irs forms Mary Lake used her basement to operate a daycare business for children. Irs forms She figures the business percentage of the basement as follows. Irs forms Square footage of the basement Square footage of her home = 1,600 3,200 = 50%           She used the basement for daycare an average of 12 hours a day, 5 days a week, for 50 weeks a year. Irs forms During the other 12 hours a day, the family could use the basement. Irs forms She figures the percentage of time the basement was used for daycare as follows. Irs forms Number of hours used for daycare (12 x 5 x 50) Total number of hours in the year (24 x 365) = 3,000 8,760 = 34. Irs forms 25%           Mary can deduct 34. Irs forms 25% of any direct expenses for the basement. Irs forms However, because her indirect expenses are for the entire house, she can deduct only 17. Irs forms 13% of the indirect expenses. Irs forms She figures the percentage for her indirect expenses as follows. Irs forms Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 34. Irs forms 25% Percentage for indirect expenses 17. Irs forms 13% Mary completes Form 8829, Part I, figuring the percentage of her home used for business, including the percentage of time the basement was used. Irs forms In Part II, Mary figures her deductible expenses. Irs forms She uses the following information to complete Part II. Irs forms Gross income from her daycare business $50,000 Expenses not related to the business use of the home $25,000 Tentative profit $25,000 Rent $8,400 Utilities $850 Painting the basement $500 Mary enters her tentative profit, $25,000, on line 8. Irs forms (This figure is the same as the amount on line 29 of her Schedule C (Form 1040). Irs forms ) The expenses she paid for rent and utilities relate to her entire home. Irs forms Therefore, she enters the amount paid for rent on line 18, column (b), and the amount paid for utilities on line 20, column (b). Irs forms She shows the total of these expenses on line 22, column (b). Irs forms For line 23, she multiplies the amount on line 22, column (b) by the percentage on line 7 and enters the result, $1,585. Irs forms Mary paid $500 to have the basement painted. Irs forms The painting is a direct expense. Irs forms However, because she did not use the basement exclusively for daycare, she must multiply $500 by the percentage of time the basement was used for daycare (34. Irs forms 25% – line 6). Irs forms She enters $171 (34. Irs forms 25% × $500) on line 19, column (a). Irs forms She adds line 22, column (a), and line 23 and enters $1,756 ($171 + $1,585) on line 25. Irs forms This is less than her deduction limit (line 15), so she can deduct the entire amount. Irs forms She follows the instructions to complete the rest of Part II and enters $1,756 on lines 33 and 35. Irs forms She then carries the $1,756 to line 30 of her Schedule C (Form 1040). Irs forms Example 2. Irs forms Assume the same facts as in Example 1 except that Mary also has another room that was available each business day for children to take naps in. Irs forms Although she did not keep a record of the number of hours the room was actually used for naps, it was used for part of each business day. Irs forms Since the room was available for business use during regular operating hours each business day and was used regularly in the business, it is considered used for daycare throughout each business day. Irs forms The basement and room are 60% of the total area of her home. Irs forms In figuring her expenses, 34. Irs forms 25% of any direct expenses for the basement and room are deductible. Irs forms In addition, 20. Irs forms 55% (34. Irs forms 25% × 60%) of her indirect expenses are deductible. Irs forms Example 3. Irs forms Assume the same facts as in Example 1 except that Mary stopped using her home for a daycare facility on June 24, 2013. Irs forms She used the basement for daycare an average of 12 hours a day, 5 days a week, but for only 25 weeks of the year. Irs forms During the other 12 hours a day, the family could still use the basement. Irs forms She figures the percentage of time the basement was used for business as follows. Irs forms Number of hours used for daycare (12 x 5 x 25) Total number of hours during period used (24 x 175) = 1,500 4,200 = 35. Irs forms 71%           Mary can deduct 35. Irs forms 71% of any direct expenses for the basement. Irs forms However, because her indirect expenses are for the entire house, she can deduct only 17. Irs forms 86% of the indirect expenses. Irs forms She figures the percentage for her indirect expenses as follows. Irs forms Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 35. Irs forms 71% Percentage for indirect expenses 17. Irs forms 86% Meals. Irs forms   If you provide food for your daycare recipients, do not include the expense as a cost of using your home for business. Irs forms Claim it as a separate deduction on your Schedule C (Form 1040). Irs forms You can never deduct the cost of food consumed by you or your family. Irs forms You can deduct as a business expense 100% of the actual cost of food consumed by your daycare recipients (see Standard meal and snack rates , later, for an optional method for eligible children) and generally only 50% of the cost of food consumed by your employees. Irs forms However, you can deduct 100% of the cost of food consumed by your employees if its value can be excluded from their wages as a de minimis fringe benefit. Irs forms For more information on meals that meet these requirements, see Meals in chapter 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits. Irs forms   If you deduct the actual cost of food for your daycare business, keep a separate record (with receipts) of your family's food costs. Irs forms   Reimbursements you receive from a sponsor under the Child and Adult Care Food Program of the Department of Agriculture are taxable only to the extent they exceed your expenses for food for eligible children. Irs forms If your reimbursements are more than your expenses for food, show the difference as income in Part I of Schedule C (Form 1040). Irs forms If your food expenses are greater than the reimbursements, show the difference as an expense in Part V of Schedule C (Form 1040). Irs forms Do not include payments or expenses for your own children if they are eligible for the program. Irs forms Follow this procedure even if you receive a Form 1099-MISC, Miscellaneous Income, reporting a payment from the sponsor. Irs forms Standard meal and snack rates. Irs forms   If you qualify as a family daycare provider, you can use the standard meal and snack rates, instead of actual costs, to compute the deductible cost of meals and snacks provided to eligible children. Irs forms For these purposes: A family daycare provider is a person engaged in the business of providing family daycare. Irs forms Family daycare is childcare provided to eligible children in the home of the family daycare provider. Irs forms The care must be non-medical, not involve a transfer of legal custody, and generally last less than 24 hours each day. Irs forms Eligible children are minor children receiving family daycare in the home of the family daycare provider. Irs forms Eligible children do not include children who are full-time or part-time residents in the home where the childcare is provided or children whose parents or guardians are residents of the same home. Irs forms Eligible children do not include children who receive daycare services for personal reasons of the provider. Irs forms For example, if a provider provides daycare services for a relative as a favor to that relative, that child is not an eligible child. Irs forms   You can compute the deductible cost of each meal and snack you actually purchased and served to an eligible child during the time period you provided family daycare using the standard meal and snack rates shown in Table 3, later. Irs forms You can use the standard meal and snack rates for a maximum of one breakfast, one lunch, one dinner, and three snacks per eligible child per day. Irs forms If you receive reimbursement for a particular meal or snack, you can deduct only the portion of the applicable standard meal or snack rate that is more than the amount of the reimbursement. Irs forms   You can use either the standard meal and snack rates or actual costs to calculate the deductible cost of food provided to eligible children in the family daycare for any particular tax year. Irs forms If you choose to use the standard meal and snack rates for a particular tax year, you must use the rates for all your deductible food costs for eligible children during that tax year. Irs forms However, if you use the standard meal and snack rates in any tax year, you can use actual costs to compute the deductible cost of food in any other tax year. Irs forms   If you use the standard meal and snack rates, you must maintain records to substantiate the computation of the total amount deducted for the cost of food provided to eligible children. Irs forms The records kept should include the name of each child, dates and hours of attendance in the daycare, and the type and quantity of meals and snacks served. Irs forms This information can be recorded in a log similar to the one shown in Exhibit A, near the end of this publication. Irs forms   The standard meal and snack rates include beverages, but do not include non-food supplies used for food preparation, service, or storage, such as containers, paper products, or utensils. Irs forms These expenses can be claimed as a separate deduction on your Schedule C (Form 1040). Irs forms     Table 3. Irs forms Standard Meal and Snack Rates1 Location of Family Daycare Provider Breakfast Lunch Dinner Snack States other than Alaska an