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State Income Tax Number

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State Income Tax Number

State income tax number 9. State income tax number   Worksheets Table of Contents When Should I Figure MAC?Checking the Previous Year's Contributions Available Worksheets Chapter 2 introduced you to the term maximum amount contributable (MAC). State income tax number Generally, your MAC is the lesser of your: Limit on annual additions (chapter 3), or Limit on elective deferrals (chapter 4). State income tax number The worksheets in this chapter can help you figure the cost of incidental life insurance, your includible compensation, your limit on annual additions, your limit on elective deferrals, your limit on catch-up contributions, and your MAC. State income tax number After completing the worksheets, you should maintain them with your 403(b) records for that year. State income tax number Do not attach them to your tax return. State income tax number At the end of the year or the beginning of the next year, you should compare your estimated compensation figures with your actual figures. State income tax number If your compensation is the same as, or more than, the projected amounts and the calculations are correct, then you should simply file these worksheets with your other tax records for the year. State income tax number If your compensation was lower than your estimated figures, you will need to check the amount contributed during the year to determine if contributions are more than your MAC. State income tax number When Should I Figure MAC? At the beginning of each year, you should figure your MAC using a conservative estimate of your compensation. State income tax number Should your income change during the year, you should refigure your MAC based on a revised conservative estimate. State income tax number By doing this, you will be able to determine if contributions to your 403(b) account should be increased or decreased for the year. State income tax number Checking the Previous Year's Contributions At the beginning of the following year, you should refigure your MAC based on your actual earned income. State income tax number At the end of the current year or the beginning of the next year, you should check your contributions to be sure you did not exceed your MAC. State income tax number This means refiguring your limit based on your actual compensation figures for the year. State income tax number This will allow you to determine if the amount contributed is more than the allowable amounts, and possibly avoid additional taxes. State income tax number Available Worksheets The following worksheets have been provided to help you figure your MAC. State income tax number Worksheet A. State income tax number Cost of Incidental Life Insurance. State income tax number Worksheet B. State income tax number Includible Compensation for Your Most Recent Year of Service Worksheet C. State income tax number Limit on Catch-Up Contributions. State income tax number ??? Worksheet 1. State income tax number Maximum Amount Contributable (MAC). State income tax number Worksheet A. State income tax number Cost of Incidental Life Insurance Note. State income tax number Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. State income tax number This amount will be used to figure includible compensation for your most recent year of service. State income tax number 1. State income tax number Enter the value of the contract (amount payable upon your death) 1. State income tax number   2. State income tax number Enter the cash value in the contract at the end of the year 2. State income tax number   3. State income tax number Subtract line 2 from line 1. State income tax number This is the value of your current life insurance protection 3. State income tax number   4. State income tax number Enter your age on your birthday nearest the beginning of the policy year 4. State income tax number   5. State income tax number Enter the 1-year term premium for $1,000 of life insurance based on your age. State income tax number (From Figure 3-1) 5. State income tax number   6. State income tax number Divide line 3 by $1,000 6. State income tax number   7. State income tax number Multiply line 6 by line 5. State income tax number This is the cost of your incidental life insurance 7. State income tax number   Worksheet B. State income tax number Includible Compensation for Your Most Recent Year of Service1 Note. State income tax number Use this worksheet to figure includible compensation for your most recent year of service. State income tax number 1. State income tax number Enter your includible wages from the employer maintaining your 403(b) account for your most recent year of service 1. State income tax number   2. State income tax number Enter elective deferrals excluded from your gross income for your most recent year of service2 2. State income tax number   3. State income tax number Enter amounts contributed or deferred by your employer under a cafeteria plan for your most recent year of service 3. State income tax number   4. State income tax number Enter amounts contributed or deferred by your employer according to your election to your 457 account (a nonqualified plan of a state or local government or of a tax-exempt organization) for your most recent year of service 4. State income tax number   5. State income tax number Enter pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan for your most recent year of service 5. State income tax number   6. State income tax number Enter your foreign earned income exclusion for your most recent year of service 6. State income tax number   7. State income tax number Add lines 1, 2, 3, 4, 5, and 6 7. State income tax number   8. State income tax number Enter the cost of incidental life insurance that is part of your annuity contract for your most recent year of service 8. State income tax number   9. State income tax number Enter compensation that was both: Earned during your most recent year of service, and Earned while your employer was not qualified to maintain a 403(b) plan 9. State income tax number   10. State income tax number Add lines 8 and 9 10. State income tax number   11. State income tax number Subtract line 10 from line 7. State income tax number This is your includible compensation for your most recent year of service 11. State income tax number   1Use estimated amounts if figuring includible compensation before the end of the year. State income tax number  2Elective deferrals made to a designated Roth account are not excluded from your gross income and should not be included on this line. State income tax number Worksheet C. State income tax number Limit on Catch-Up Contributions Note. State income tax number If you will be age 50 or older by the end of the year, use this worksheet to figure your limit on catch-up contributions. State income tax number 1. State income tax number Maximum catch-up contributions 1. State income tax number $5,500 2. State income tax number Enter your includible compensation for your most recent year of service 2. State income tax number   3. State income tax number Enter your elective deferrals 3. State income tax number   4. State income tax number Subtract line 3 from line 2 4. State income tax number   5. State income tax number Enter the lesser of line 1 or line 4. State income tax number This is your limit on catch-up contributions 5. State income tax number   Worksheet 1. State income tax number Maximum Amount Contributable (MAC) Note. State income tax number Use this worksheet to figure your MAC. State income tax number Part I. State income tax number Limit on Annual Additions     1. State income tax number Enter your includible compensation for your most recent year of service 1. State income tax number   2. State income tax number Maximum1: For 2013, enter $51,000 For 2014, enter $52,000 2. State income tax number   3. State income tax number Enter the lesser of line 1 or line 2. State income tax number This is your limit on annual additions 3. State income tax number     Caution: If you had only nonelective contributions, skip Part II and enter the amount from line 3 on line 18. State income tax number     Part II. State income tax number Limit on Elective Deferrals     4. State income tax number Maximum contribution: For 2013, enter $17,500 For 2014, enter $17,500 4. State income tax number     Note. State income tax number If you have at least 15 years of service with a qualifying organization, complete lines 5 through 17. State income tax number If not, enter zero (-0-) on line 16 and go to line 17. State income tax number     5. State income tax number Amount per year of service 5. State income tax number $ 5,000 6. State income tax number Enter your years of service 6. State income tax number   7. State income tax number Multiply line 5 by line 6 7. State income tax number   8. State income tax number Enter the total of all elective deferrals made for you by the qualifying organization for prior years 8. State income tax number   9. State income tax number Subtract line 8 from line 7. State income tax number If zero or less, enter zero (-0-) 9. State income tax number   10. State income tax number Maximum increase in limit for long service 10. State income tax number $15,000 11. State income tax number Enter the total of additional pre-tax elective deferrals made in prior years under the 15-year rule 11. State income tax number   12. State income tax number Enter the aggregate amount of all designated Roth contributions permitted for prior years under the 15-year rule 12. State income tax number   13. State income tax number Add line 11 and line 12 13. State income tax number   14. State income tax number Subtract line 13 from line 10 14. State income tax number   15. State income tax number Maximum additional contributions 15. State income tax number $ 3,000 16. State income tax number Enter the least of lines 9, 14, or 15. State income tax number This is your increase in the limit for long service 16. State income tax number   17. State income tax number Add lines 4 and 16. State income tax number This is your limit on elective deferrals 17. State income tax number     Part III. State income tax number Maximum Amount Contributable     18. State income tax number If you had only nonelective contributions, enter the amount from line 3. State income tax number This is your MAC. State income tax number    If you had only elective deferrals, enter the lesser of lines 3 or 17. State income tax number This is your MAC. State income tax number    If you had both elective deferrals and nonelective contributions, enter the amount from line 3. State income tax number This is your MAC. State income tax number (Use the amount on line 17 to determine if you have excess elective deferrals as explained in chapter 7. State income tax number ) 18. State income tax number   1If you participate in a 403(b) plan and a qualified plan, you must combine contributions made to your 403(b) account with contributions to a qualified plan and simplified employee pension plans of all corporations, partnerships, and sole proprietorships in which you have more than 50% control. State income tax number You must also combine the contributions made to all 403(b) accounts on your behalf by your employer. State income tax number Prev  Up  Next   Home   More Online Publications
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Credits

Am I Eligible for the Child Tax Credit?
Determine if you qualify to claim the Child Tax Credit and the Additional Child Tax Credit.

Am I Eligible for the Making Work Pay Credit or Government Retiree Credit?
Determine if you qualify to claim the Making Work Pay and Government Retiree Credit.

Do I Qualify for the Credit For The Elderly or Disabled?
Determine who may claim the Credit for the Elderly or Disabled.

Am I Eligible to Claim an Education Credit?
Determine if you are eligible for certain educational credits or deductions including the American Opportunity Credit, the Lifetime Learning Credit and the Tuition and Fees Deduction.

Page Last Reviewed or Updated: 14-Feb-2014

The State Income Tax Number

State income tax number 4. State income tax number   Interest Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Allocation of InterestOrder of funds spent. State income tax number Payments from checking accounts. State income tax number Amounts paid within 30 days. State income tax number Optional method for determining date of reallocation. State income tax number Interest on a segregated account. State income tax number How to report. State income tax number Interest You Can DeductStatement. State income tax number Expenses paid to obtain a mortgage. State income tax number Prepayment penalty. State income tax number De minimis OID. State income tax number Constant-yield method. State income tax number Loan or mortgage ends. State income tax number Interest You Cannot DeductPenalties. State income tax number Who is a key person? Exceptions for pre-June 1997 contracts. State income tax number Interest allocated to unborrowed policy cash value. State income tax number Capitalization of Interest When To Deduct InterestPrepaid interest. State income tax number Discounted loan. State income tax number Refunds of interest. State income tax number Prepaid interest. State income tax number Discounted loan. State income tax number Tax deficiency. State income tax number Related person. State income tax number Below-Market LoansLimit on forgone interest for gift loans of $100,000 or less. State income tax number Introduction This chapter discusses the tax treatment of business interest expense. State income tax number Business interest expense is an amount charged for the use of money you borrowed for business activities. State income tax number Topics - This chapter discusses: Allocation of interest Interest you can deduct Interest you cannot deduct Capitalization of interest When to deduct interest Below-market loans Useful Items - You may want to see: Publication 537 Installment Sales 550 Investment Income and Expenses 936 Home Mortgage Interest Deduction Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch E (Form 1040) Supplemental Income and Loss Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. State income tax number Sch K-1 (Form 1120S) Shareholder's Share of Income, Deductions, Credits, etc. State income tax number 1098 Mortgage Interest Statement 3115 Application for Change in Accounting Method 4952 Investment Interest Expense Deduction 8582 Passive Activity Loss Limitations See chapter 12 for information about getting publications and forms. State income tax number Allocation of Interest The rules for deducting interest vary, depending on whether the loan proceeds are used for business, personal, or investment activities. State income tax number If you use the proceeds of a loan for more than one type of expense, you must allocate the interest based on the use of the loan's proceeds. State income tax number Allocate your interest expense to the following categories. State income tax number Nonpassive trade or business activity interest Passive trade or business activity interest Investment interest Portfolio interest Personal interest In general, you allocate interest on a loan the same way you allocate the loan proceeds. State income tax number You allocate loan proceeds by tracing disbursements to specific uses. State income tax number The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. State income tax number Secured loan. State income tax number   The allocation of loan proceeds and the related interest is not generally affected by the use of property that secures the loan. State income tax number Example. State income tax number You secure a loan with property used in your business. State income tax number You use the loan proceeds to buy an automobile for personal use. State income tax number You must allocate interest expense on the loan to personal use (purchase of the automobile) even though the loan is secured by business property. State income tax number    If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. State income tax number The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. State income tax number For more information, see Publication 936. State income tax number Allocation period. State income tax number   The period for which a loan is allocated to a particular use begins on the date the proceeds are used and ends on the earlier of the following dates. State income tax number The date the loan is repaid. State income tax number The date the loan is reallocated to another use. State income tax number Proceeds not disbursed to borrower. State income tax number   Even if the lender disburses the loan proceeds to a third party, the allocation of the loan is still based on your use of the funds. State income tax number This applies whether you pay for property, services, or anything else by incurring a loan, or you take property subject to a debt. State income tax number Proceeds deposited in borrower's account. State income tax number   Treat loan proceeds deposited in an account as property held for investment. State income tax number It does not matter whether the account pays interest. State income tax number Any interest you pay on the loan is investment interest expense. State income tax number If you withdraw the proceeds of the loan, you must reallocate the loan based on the use of the funds. State income tax number Example. State income tax number Celina, a calendar-year taxpayer, borrows $100,000 on January 4 and immediately uses the proceeds to open a checking account. State income tax number No other amounts are deposited in the account during the year and no part of the loan principal is repaid during the year. State income tax number On April 2, Celina uses $20,000 from the checking account for a passive activity expenditure. State income tax number On September 4, Celina uses an additional $40,000 from the account for personal purposes. State income tax number Under the interest allocation rules, the entire $100,000 loan is treated as property held for investment for the period from January 4 through April 1. State income tax number From April 2 through September 3, Celina must treat $20,000 of the loan as used in the passive activity and $80,000 of the loan as property held for investment. State income tax number From September 4 through December 31, she must treat $40,000 of the loan as used for personal purposes, $20,000 as used in the passive activity, and $40,000 as property held for investment. State income tax number Order of funds spent. State income tax number   Generally, you treat loan proceeds deposited in an account as used (spent) before either of the following amounts. State income tax number Any unborrowed amounts held in the same account. State income tax number Any amounts deposited after these loan proceeds. State income tax number Example. State income tax number On January 9, Olena opened a checking account, depositing $500 of the proceeds of Loan A and $1,000 of unborrowed funds. State income tax number The following table shows the transactions in her account during the tax year. State income tax number Date Transaction January 9 $500 proceeds of Loan A and $1,000 unborrowed funds deposited January 14 $500 proceeds of Loan B  deposited February 19 $800 used for personal purposes February 27 $700 used for passive activity June 19 $1,000 proceeds of Loan C  deposited November 20 $800 used for an investment December 18 $600 used for personal purposes Olena treats the $800 used for personal purposes as made from the $500 proceeds of Loan A and $300 of the proceeds of Loan B. State income tax number She treats the $700 used for a passive activity as made from the remaining $200 proceeds of Loan B and $500 of unborrowed funds. State income tax number She treats the $800 used for an investment as made entirely from the proceeds of Loan C. State income tax number She treats the $600 used for personal purposes as made from the remaining $200 proceeds of Loan C and $400 of unborrowed funds. State income tax number For the periods during which loan proceeds are held in the account, Olena treats them as property held for investment. State income tax number Payments from checking accounts. State income tax number   Generally, you treat a payment from a checking or similar account as made at the time the check is written if you mail or deliver it to the payee within a reasonable period after you write it. State income tax number You can treat checks written on the same day as written in any order. State income tax number Amounts paid within 30 days. State income tax number   If you receive loan proceeds in cash or if the loan proceeds are deposited in an account, you can treat any payment (up to the amount of the proceeds) made from any account you own, or from cash, as made from those proceeds. State income tax number This applies to any payment made within 30 days before or after the proceeds are received in cash or deposited in your account. State income tax number   If the loan proceeds are deposited in an account, you can apply this rule even if the rules stated earlier under Order of funds spent would otherwise require you to treat the proceeds as used for other purposes. State income tax number If you apply this rule to any payments, disregard those payments (and the proceeds from which they are made) when applying the rules stated under Order of funds spent. State income tax number   If you received the loan proceeds in cash, you can treat the payment as made on the date you received the cash instead of the date you actually made the payment. State income tax number Example. State income tax number Giovanni gets a loan of $1,000 on August 4 and receives the proceeds in cash. State income tax number Giovanni deposits $1,500 in an account on August 18 and on August 28 writes a check on the account for a passive activity expense. State income tax number Also, Giovanni deposits his paycheck, deposits other loan proceeds, and pays his bills during the same period. State income tax number Regardless of these other transactions, Giovanni can treat $1,000 of the deposit he made on August 18 as being paid on August 4 from the loan proceeds. State income tax number In addition, Giovanni can treat the passive activity expense he paid on August 28 as made from the $1,000 loan proceeds treated as deposited in the account. State income tax number Optional method for determining date of reallocation. State income tax number   You can use the following method to determine the date loan proceeds are reallocated to another use. State income tax number You can treat all payments from loan proceeds in the account during any month as taking place on the later of the following dates. State income tax number The first day of that month. State income tax number The date the loan proceeds are deposited in the account. State income tax number However, you can use this optional method only if you treat all payments from the account during the same calendar month in the same way. State income tax number Interest on a segregated account. State income tax number   If you have an account that contains only loan proceeds and interest earned on the account, you can treat any payment from that account as being made first from the interest. State income tax number When the interest earned is used up, any remaining payments are from loan proceeds. State income tax number Example. State income tax number You borrowed $20,000 and used the proceeds of this loan to open a new savings account. State income tax number When the account had earned interest of $867, you withdrew $20,000 for personal purposes. State income tax number You can treat the withdrawal as coming first from the interest earned on the account, $867, and then from the loan proceeds, $19,133 ($20,000 − $867). State income tax number All the interest charged on the loan from the time it was deposited in the account until the time of the withdrawal is investment interest expense. State income tax number The interest charged on the part of the proceeds used for personal purposes ($19,133) from the time you withdrew it until you either repay it or reallocate it to another use is personal interest expense. State income tax number The interest charged on the loan proceeds you left in the account ($867) continues to be investment interest expense until you either repay it or reallocate it to another use. State income tax number Loan repayment. State income tax number   When you repay any part of a loan allocated to more than one use, treat it as being repaid in the following order. State income tax number Personal use. State income tax number Investments and passive activities (other than those included in (3)). State income tax number Passive activities in connection with a rental real estate activity in which you actively participate. State income tax number Former passive activities. State income tax number Trade or business use and expenses for certain low-income housing projects. State income tax number Line of credit (continuous borrowings). State income tax number   The following rules apply if you have a line of credit or similar arrangement. State income tax number Treat all borrowed funds on which interest accrues at the same fixed or variable rate as a single loan. State income tax number Treat borrowed funds or parts of borrowed funds on which interest accrues at different fixed or variable rates as different loans. State income tax number Treat these loans as repaid in the order shown on the loan agreement. State income tax number Loan refinancing. State income tax number   Allocate the replacement loan to the same uses to which the repaid loan was allocated. State income tax number Make the allocation only to the extent you use the proceeds of the new loan to repay any part of the original loan. State income tax number Debt-financed distribution. State income tax number   A debt-financed distribution occurs when a partnership or S corporation borrows funds and allocates those funds to distributions made to partners or shareholders. State income tax number The manner in which you report the interest expense associated with the distributed debt proceeds depends on your use of those proceeds. State income tax number How to report. State income tax number   If the proceeds were used in a nonpassive trade or business activity, report the interest on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership or S corporation in column (a) and the amount in column (h). State income tax number If the proceeds were used in a passive activity, follow the Instructions for Form 8582, Passive Activity Loss Limitations, to determine the amount of interest expense that can be reported on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership in column (a) and the amount in column (f). State income tax number If the proceeds were used in an investment activity, enter the interest on Form 4952. State income tax number If the proceeds are used for personal purposes, the interest is generally not deductible. State income tax number Interest You Can Deduct You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your trade or business. State income tax number Interest relates to your trade or business if you use the proceeds of the loan for a trade or business expense. State income tax number It does not matter what type of property secures the loan. State income tax number You can deduct interest on a debt only if you meet all the following requirements. State income tax number You are legally liable for that debt. State income tax number Both you and the lender intend that the debt be repaid. State income tax number You and the lender have a true debtor-creditor relationship. State income tax number Partial liability. State income tax number   If you are liable for part of a business debt, you can deduct only your share of the total interest paid or accrued. State income tax number Example. State income tax number You and your brother borrow money. State income tax number You are liable for 50% of the note. State income tax number You use your half of the loan in your business, and you make one-half of the loan payments. State income tax number You can deduct your half of the total interest payments as a business deduction. State income tax number Mortgage. State income tax number   Generally, mortgage interest paid or accrued on real estate you own legally or equitably is deductible. State income tax number However, rather than deducting the interest currently, you may have to add it to the cost basis of the property as explained later under Capitalization of Interest. State income tax number Statement. State income tax number   If you paid $600 or more of mortgage interest (including certain points) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement. State income tax number You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. State income tax number A governmental unit is a person for purposes of furnishing the statement. State income tax number   If you receive a refund of interest you overpaid in an earlier year, this amount will be reported in box 3 of Form 1098. State income tax number You cannot deduct this amount. State income tax number For information on how to report this refund, see Refunds of interest, later in this chapter. State income tax number Expenses paid to obtain a mortgage. State income tax number   Certain expenses you pay to obtain a mortgage cannot be deducted as interest. State income tax number These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses. State income tax number If the property mortgaged is business or income-producing property, you can amortize the costs over the life of the mortgage. State income tax number Prepayment penalty. State income tax number   If you pay off your mortgage early and pay the lender a penalty for doing this, you can deduct the penalty as interest. State income tax number Interest on employment tax deficiency. State income tax number   Interest charged on employment taxes assessed on your business is deductible. State income tax number Original issue discount (OID). State income tax number   OID is a form of interest. State income tax number A loan (mortgage or other debt) generally has OID when its proceeds are less than its principal amount. State income tax number The OID is the difference between the stated redemption price at maturity and the issue price of the loan. State income tax number   A loan's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on it other than qualified stated interest. State income tax number Qualified stated interest is stated interest that is unconditionally payable in cash or property (other than another loan of the issuer) at least annually over the term of the loan at a single fixed rate. State income tax number You generally deduct OID over the term of the loan. State income tax number Figure the amount to deduct each year using the constant-yield method, unless the OID on the loan is de minimis. State income tax number De minimis OID. State income tax number   The OID is de minimis if it is less than one-fourth of 1% (. State income tax number 0025) of the stated redemption price of the loan at maturity multiplied by the number of full years from the date of original issue to maturity (the term of the loan). State income tax number   If the OID is de minimis, you can choose one of the following ways to figure the amount you can deduct each year. State income tax number On a constant-yield basis over the term of the loan. State income tax number On a straight-line basis over the term of the loan. State income tax number In proportion to stated interest payments. State income tax number In its entirety at maturity of the loan. State income tax number You make this choice by deducting the OID in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued. State income tax number Example. State income tax number On January 1, 2013, you took out a $100,000 discounted loan and received $98,500 in proceeds. State income tax number The loan will mature on January 1, 2023 (a 10-year term), and the $100,000 principal is payable on that date. State income tax number Interest of $10,000 is payable on January 1 of each year, beginning January 1, 2014. State income tax number The $1,500 OID on the loan is de minimis because it is less than $2,500 ($100,000 × . State income tax number 0025 × 10). State income tax number You choose to deduct the OID on a straight-line basis over the term of the loan. State income tax number Beginning in 2013, you can deduct $150 each year for 10 years. State income tax number Constant-yield method. State income tax number   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. State income tax number You figure your deduction for the first year using the following steps. State income tax number Determine the issue price of the loan. State income tax number Generally, this equals the proceeds of the loan. State income tax number If you paid points on the loan (as discussed later), the issue price generally is the difference between the proceeds and the points. State income tax number Multiply the result in (1) by the yield to maturity. State income tax number Subtract any qualified stated interest payments from the result in (2). State income tax number This is the OID you can deduct in the first year. State income tax number   To figure your deduction in any subsequent year, follow the above steps, except determine the adjusted issue price in step (1). State income tax number To get the adjusted issue price, add to the issue price any OID previously deducted. State income tax number Then follow steps (2) and (3) above. State income tax number   The yield to maturity is generally shown in the literature you receive from your lender. State income tax number If you do not have this information, consult your lender or tax advisor. State income tax number In general, the yield to maturity is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the principal amount of the loan. State income tax number Example. State income tax number The facts are the same as in the previous example, except that you deduct the OID on a constant yield basis over the term of the loan. State income tax number The yield to maturity on your loan is 10. State income tax number 2467%, compounded annually. State income tax number For 2013, you can deduct $93 [($98,500 × . State income tax number 102467) − $10,000]. State income tax number For 2014, you can deduct $103 [($98,593 × . State income tax number 102467) − $10,000]. State income tax number Loan or mortgage ends. State income tax number   If your loan or mortgage ends, you may be able to deduct any remaining OID in the tax year in which the loan or mortgage ends. State income tax number A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. State income tax number If you refinance with the original lender, you generally cannot deduct the remaining OID in the year in which the refinancing occurs, but you may be able to deduct it over the term of the new mortgage or loan. State income tax number See Interest paid with funds borrowed from original lender under Interest You Cannot Deduct, later. State income tax number Points. State income tax number   The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a loan or a mortgage. State income tax number These charges are also called loan origination fees, maximum loan charges, discount points, or premium charges. State income tax number If any of these charges (points) are solely for the use of money, they are interest. State income tax number   Because points are prepaid interest, you generally cannot deduct the full amount in the year paid. State income tax number However, you can choose to fully deduct points in the year paid if you meet certain tests. State income tax number For exceptions to the general rule, see Publication 936. State income tax number The points reduce the issue price of the loan and result in original issue discount (OID), deductible as explained in the preceding discussion. State income tax number Partial payments on a nontax debt. State income tax number   If you make partial payments on a debt (other than a debt owed the IRS), the payments are applied, in general, first to interest and any remainder to principal. State income tax number You can deduct only the interest. State income tax number This rule does not apply when it can be inferred that the borrower and lender understood that a different allocation of the payments would be made. State income tax number Installment purchase. State income tax number   If you make an installment purchase of business property, the contract between you and the seller generally provides for the payment of interest. State income tax number If no interest or a low rate of interest is charged under the contract, a portion of the stated principal amount payable under the contract may be recharacterized as interest (unstated interest). State income tax number The amount recharacterized as interest reduces your basis in the property and increases your interest expense. State income tax number For more information on installment sales and unstated interest, see Publication 537. State income tax number Interest You Cannot Deduct Certain interest payments cannot be deducted. State income tax number In addition, certain other expenses that may seem to be interest but are not, cannot be deducted as interest. State income tax number You cannot currently deduct interest that must be capitalized, and you generally cannot deduct personal interest. State income tax number Interest paid with funds borrowed from original lender. State income tax number   If you use the cash method of accounting, you cannot deduct interest you pay with funds borrowed from the original lender through a second loan, an advance, or any other arrangement similar to a loan. State income tax number You can deduct the interest expense once you start making payments on the new loan. State income tax number   When you make a payment on the new loan, you first apply the payment to interest and then to the principal. State income tax number All amounts you apply to the interest on the first loan are deductible, along with any interest you pay on the second loan, subject to any limits that apply. State income tax number Capitalized interest. State income tax number   You cannot currently deduct interest you are required to capitalize under the uniform capitalization rules. State income tax number See Capitalization of Interest, later. State income tax number In addition, if you buy property and pay interest owed by the seller (for example, by assuming the debt and any interest accrued on the property), you cannot deduct the interest. State income tax number Add this interest to the basis of the property. State income tax number Commitment fees or standby charges. State income tax number   Fees you incur to have business funds available on a standby basis, but not for the actual use of the funds, are not deductible as interest payments. State income tax number You may be able to deduct them as business expenses. State income tax number   If the funds are for inventory or certain property used in your business, the fees are indirect costs and you generally must capitalize them under the uniform capitalization rules. State income tax number See Capitalization of Interest, later. State income tax number Interest on income tax. State income tax number   Interest charged on income tax assessed on your individual income tax return is not a business deduction even though the tax due is related to income from your trade or business. State income tax number Treat this interest as a business deduction only in figuring a net operating loss deduction. State income tax number Penalties. State income tax number   Penalties on underpaid deficiencies and underpaid estimated tax are not interest. State income tax number You cannot deduct them. State income tax number Generally, you cannot deduct any fines or penalties. State income tax number Interest on loans with respect to life insurance policies. State income tax number   You generally cannot deduct interest on a debt incurred with respect to any life insurance, annuity, or endowment contract that covers any individual unless that individual is a key person. State income tax number   If the policy or contract covers a key person, you can deduct the interest on up to $50,000 of debt for that person. State income tax number However, the deduction for any month cannot be more than the interest figured using Moody's Composite Yield on Seasoned Corporate Bonds (formerly known as Moody's Corporate Bond Yield Average-Monthly Average Corporates) (Moody's rate) for that month. State income tax number Who is a key person?   A key person is an officer or 20% owner. State income tax number However, the number of individuals you can treat as key persons is limited to the greater of the following. State income tax number Five individuals. State income tax number The lesser of 5% of the total officers and employees of the company or 20 individuals. State income tax number Exceptions for pre-June 1997 contracts. State income tax number   You can generally deduct the interest if the contract was issued before June 9, 1997, and the covered individual is someone other than an employee, officer, or someone financially interested in your business. State income tax number If the contract was purchased before June 21, 1986, you can generally deduct the interest no matter who is covered by the contract. State income tax number Interest allocated to unborrowed policy cash value. State income tax number   Corporations and partnerships generally cannot deduct any interest expense allocable to unborrowed cash values of life insurance, annuity, or endowment contracts. State income tax number This rule applies to contracts issued after June 8, 1997, that cover someone other than an officer, director, employee, or 20% owner. State income tax number For more information, see section 264(f) of the Internal Revenue Code. State income tax number Capitalization of Interest Under the uniform capitalization rules, you generally must capitalize interest on debt equal to your expenditures to produce real property or certain tangible personal property. State income tax number The property must be produced by you for use in your trade or business or for sale to customers. State income tax number You cannot capitalize interest related to property that you acquire in any other manner. State income tax number Interest you paid or incurred during the production period must be capitalized if the property produced is designated property. State income tax number Designated property is any of the following. State income tax number Real property. State income tax number Tangible personal property with a class life of 20 years or more. State income tax number Tangible personal property with an estimated production period of more than 2 years. State income tax number Tangible personal property with an estimated production period of more than 1 year if the estimated cost of production is more than $1 million. State income tax number Property you produce. State income tax number   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow it. State income tax number Treat property produced for you under a contract as produced by you up to the amount you pay or incur for the property. State income tax number Carrying charges. State income tax number   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. State income tax number You can choose to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. State income tax number For more information, see chapter 7. State income tax number Capitalized interest. State income tax number   Treat capitalized interest as a cost of the property produced. State income tax number You recover your interest when you sell or use the property. State income tax number If the property is inventory, recover capitalized interest through cost of goods sold. State income tax number If the property is used in your trade or business, recover capitalized interest through an adjustment to basis, depreciation, amortization, or other method. State income tax number Partnerships and S corporations. State income tax number   The interest capitalization rules are applied first at the partnership or S corporation level. State income tax number The rules are then applied at the partners' or shareholders' level to the extent the partnership or S corporation has insufficient debt to support the production or construction costs. State income tax number   If you are a partner or a shareholder, you may have to capitalize interest you incur during the tax year for the production costs of the partnership or S corporation. State income tax number You may also have to capitalize interest incurred by the partnership or S corporation for your own production costs. State income tax number To properly capitalize interest under these rules, you must be given the required information in an attachment to the Schedule K-1 you receive from the partnership or S corporation. State income tax number Additional information. State income tax number   The procedures for applying the uniform capitalization rules are beyond the scope of this publication. State income tax number For more information, see sections 1. State income tax number 263A-8 through 1. State income tax number 263A-15 of the regulations and Notice 88-99. State income tax number Notice 88-99 is in Cumulative Bulletin 1988-2. State income tax number When To Deduct Interest If the uniform capitalization rules, discussed under Capitalization of Interest, earlier, do not apply to you, deduct interest as follows. State income tax number Cash method. State income tax number   Under the cash method, you can generally deduct only the interest you actually paid during the tax year. State income tax number You cannot deduct a promissory note you gave as payment because it is a promise to pay and not an actual payment. State income tax number Prepaid interest. State income tax number   You generally cannot deduct any interest paid before the year it is due. State income tax number Interest paid in advance can be deducted only in the tax year in which it is due. State income tax number Discounted loan. State income tax number   If interest or a discount is subtracted from your loan proceeds, it is not a payment of interest and you cannot deduct it when you get the loan. State income tax number For more information, see Original issue discount (OID) under Interest You Can Deduct, earlier. State income tax number Refunds of interest. State income tax number   If you pay interest and then receive a refund in the same tax year of any part of the interest, reduce your interest deduction by the refund. State income tax number If you receive the refund in a later tax year, include the refund in your income to the extent the deduction for the interest reduced your tax. State income tax number Accrual method. State income tax number   Under an accrual method, you can deduct only interest that has accrued during the tax year. State income tax number Prepaid interest. State income tax number   See Prepaid interest, earlier. State income tax number Discounted loan. State income tax number   See Discounted loan, earlier. State income tax number Tax deficiency. State income tax number   If you contest a federal income tax deficiency, interest does not accrue until the tax year the final determination of liability is made. State income tax number If you do not contest the deficiency, then the interest accrues in the year the tax was asserted and agreed to by you. State income tax number   However, if you contest but pay the proposed tax deficiency and interest, and you do not designate the payment as a cash bond, then the interest is deductible in the year paid. State income tax number Related person. State income tax number   If you use an accrual method, you cannot deduct interest owed to a related person who uses the cash method until payment is made and the interest is includible in the gross income of that person. State income tax number The relationship is determined as of the end of the tax year for which the interest would otherwise be deductible. State income tax number See section 267 of the Internal Revenue Code for more information. State income tax number Below-Market Loans If you receive a below-market gift or demand loan and use the proceeds in your trade or business, you may be able to deduct the forgone interest. State income tax number See Treatment of gift and demand loans, later, in this discussion. State income tax number A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. State income tax number A gift or demand loan that is a below-market loan generally is considered an arm's-length transaction in which you, the borrower, are considered as having received both the following. State income tax number A loan in exchange for a note that requires the payment of interest at the applicable federal rate. State income tax number An additional payment in an amount equal to the forgone interest. State income tax number The additional payment is treated as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. State income tax number Forgone interest. State income tax number   For any period, forgone interest is The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. State income tax number Applicable federal rates are published by the IRS each month in the Internal Revenue Bulletin. State income tax number Internal Revenue Bulletins are available on the IRS web site at www. State income tax number irs. State income tax number gov/irb. State income tax number You can also contact an IRS office to get these rates. State income tax number Loans subject to the rules. State income tax number   The rules for below-market loans apply to the following. State income tax number Gift loans (below-market loans where the forgone interest is in the nature of a gift). State income tax number Compensation-related loans (below-market loans between an employer and an employee or between an independent contractor and a person for whom the contractor provides services). State income tax number Corporation-shareholder loans. State income tax number Tax avoidance loans (below-market loans where the avoidance of federal tax is one of the main purposes of the interest arrangement). State income tax number Loans to qualified continuing care facilities under a continuing care contract (made after October 11, 1985). State income tax number   Except as noted in (5) above, these rules apply to demand loans (loans payable in full at any time upon the lender's demand) outstanding after June 6, 1984, and to term loans (loans that are not demand loans) made after that date. State income tax number Treatment of gift and demand loans. State income tax number   If you receive a below-market gift loan or demand loan, you are treated as receiving an additional payment (as a gift, dividend, etc. State income tax number ) equal to the forgone interest on the loan. State income tax number You are then treated as transferring this amount back to the lender as interest. State income tax number These transfers are considered to occur annually, generally on December 31. State income tax number If you use the loan proceeds in your trade or business, you can deduct the forgone interest each year as a business interest expense. State income tax number The lender must report it as interest income. State income tax number Limit on forgone interest for gift loans of $100,000 or less. State income tax number   For gift loans between individuals, forgone interest treated as transferred back to the lender is limited to the borrower's net investment income for the year. State income tax number This limit applies if the outstanding loans between the lender and borrower total $100,000 or less. State income tax number If the borrower's net investment income is $1,000 or less, it is treated as zero. State income tax number This limit does not apply to a loan if the avoidance of any federal tax is one of the main purposes of the interest arrangement. State income tax number Treatment of term loans. State income tax number   If you receive a below-market term loan other than a gift or demand loan, you are treated as receiving an additional cash payment (as a dividend, etc. State income tax number ) on the date the loan is made. State income tax number This payment is equal to the loan amount minus the present value, at the applicable federal rate, of all payments due under the loan. State income tax number The same amount is treated as original issue discount on the loan. State income tax number See Original issue discount (OID) under Interest You Can Deduct, earlier. State income tax number Exceptions for loans of $10,000 or less. State income tax number   The rules for below-market loans do not apply to any day on which the total outstanding loans between the borrower and lender is $10,000 or less. State income tax number This exception applies only to the following. State income tax number Gift loans between individuals if the loan is not directly used to buy or carry income-producing assets. State income tax number Compensation-related loans or corporation-shareholder loans if the avoidance of any federal tax is not a principal purpose of the interest arrangement. State income tax number This exception does not apply to a term loan described in (2) above that was previously subject to the below-market loan rules. State income tax number Those rules will continue to apply even if the outstanding balance is reduced to $10,000 or less. State income tax number Exceptions for loans without significant tax effect. State income tax number   The following loans are specifically exempted from the rules for below-market loans because their interest arrangements do not have a significant effect on the federal tax liability of the borrower or the lender. State income tax number Loans made available by lenders to the general public on the same terms and conditions that are consistent with the lender's customary business practices. State income tax number Loans subsidized by a federal, state, or municipal government that are made available under a program of general application to the public. State income tax number Certain employee-relocation loans. State income tax number Certain loans to or from a foreign person, unless the interest income would be effectively connected with the conduct of a U. State income tax number S. State income tax number trade or business and not exempt from U. State income tax number S. State income tax number tax under an income tax treaty. State income tax number Any other loan if the taxpayer can show that the interest arrangement has no significant effect on the federal tax liability of the lender or the borrower. State income tax number Whether an interest arrangement has a significant effect on the federal tax liability of the lender or the borrower will be determined by all the facts and circumstances. State income tax number Consider all the following factors. State income tax number Whether items of income and deduction generated by the loan offset each other. State income tax number The amount of the items. State income tax number The cost of complying with the below-market loan provisions if they were to apply. State income tax number Any reasons, other than taxes, for structuring the transaction as a below-market loan. State income tax number Exception for loans to qualified continuing care facilities. State income tax number   The below-market interest rules do not apply to a loan owed by a qualified continuing care facility under a continuing care contract if the lender or lender's spouse is age 62 or older by the end of the calendar year. State income tax number A qualified continuing care facility is one or more facilities (excluding nursing homes) meeting the requirements listed below. State income tax number Designed to provide services under continuing care contracts (defined below). State income tax number Includes an independent living unit, and either an assisted living or nursing facility, or both. State income tax number Substantially all of the independent living unit residents are covered by continuing care contracts. State income tax number A continuing care contract is a written contract between an individual and a qualified continuing care facility that includes all of the following conditions. State income tax number The individual or individual's spouse must be entitled to use the facility for the rest of their life or lives. State income tax number The individual or individual's spouse will be provided with housing, as appropriate for the health of the individual or individual's spouse in an: independent living unit (which has additional available facilities outside the unit for the provision of meals and other personal care), and assisted living or nursing facility available in the continuing care facility. State income tax number The individual or individual's spouse will be provided with assisted living or nursing care available in the continuing care facility, as required for the health of the individual or the individual's spouse. State income tax number For more information, see section 7872(h) of the Internal Revenue Code. State income tax number Sale or exchange of property. State income tax number   Different rules generally apply to a loan connected with the sale or exchange of property. State income tax number If the loan does not provide adequate stated interest, part of the principal payment may be considered interest. State income tax number However, there are exceptions that may require you to apply the below-market interest rate rules to these loans. State income tax number See Unstated Interest and Original Issue Discount (OID) in Publication 537. State income tax number More information. State income tax number   For more information on below-market loans, see section 7872 of the Internal Revenue Code and section 1. State income tax number 7872-5 of the regulations. State income tax number Prev  Up  Next   Home   More Online Publications