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State tax preparation free Publication 514 - Main Content Table of Contents Choosing To Take Credit or DeductionChoice Applies to All Qualified Foreign Taxes Making or Changing Your Choice Why Choose the Credit?Credit for Taxes Paid or Accrued Foreign Currency and Exchange Rates Foreign Tax Redetermination Who Can Take the Credit?U. State tax preparation free S. State tax preparation free Citizens Resident Aliens Nonresident Aliens What Foreign Taxes Qualify for the Credit?Tax Must Be Imposed on You You Must Have Paid or Accrued the Tax Tax Must Be the Legal and Actual Foreign Tax Liability Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) Foreign Taxes for Which You Cannot Take a CreditTaxes on Excluded Income Taxes for Which You Can Only Take an Itemized Deduction Taxes on Foreign Mineral Income Taxes From International Boycott Operations Taxes on Combined Foreign Oil and Gas Income Taxes of U. State tax preparation free S. State tax preparation free Persons Controlling Foreign Corporations and Partnerships Taxes Related to a Foreign Tax Credit Splitting Event How To Figure the CreditLimit on the Credit Separate Limit Income Allocation of Foreign Taxes Foreign Taxes From a Partnership or an S Corporation Figuring the Limit Qualified Dividends Capital Gains and Losses Allocation of Foreign and U. State tax preparation free S. State tax preparation free Losses Tax Treaties Carryback and CarryoverTime Limit on Tax Assessment Claim for Refund Taxes All Credited or All Deducted Married Couples How To Claim the CreditForm 1116 Records To Keep Simple Example — Filled-In Form 1116Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Comprehensive Example — Filled-In Form 1116Foreign earned income. State tax preparation free Employee business expenses. State tax preparation free Forms 1116 Computation of Taxable Income Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Unused Foreign Taxes How To Get Tax HelpLow Income Taxpayer Clinics Choosing To Take Credit or Deduction You can choose whether to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction. State tax preparation free You can change your choice for each year's taxes. State tax preparation free To choose the foreign tax credit, in most cases you must complete Form 1116 and attach it to your U. State tax preparation free S. State tax preparation free tax return. State tax preparation free However, you may qualify for the exception that allows you to claim the foreign tax credit without using Form 1116. State tax preparation free See How To Figure the Credit , later. State tax preparation free To choose to claim the taxes as an itemized deduction, use Schedule A (Form 1040), Itemized Deductions. State tax preparation free Figure your tax both ways—claiming the credit and claiming the deduction. State tax preparation free Then fill out your return the way that benefits you more. State tax preparation free See Why Choose the Credit, later. State tax preparation free Choice Applies to All Qualified Foreign Taxes As a general rule, you must choose to take either a credit or a deduction for all qualified foreign taxes. State tax preparation free If you choose to take a credit for qualified foreign taxes, you must take the credit for all of them. State tax preparation free You cannot deduct any of them. State tax preparation free Conversely, if you choose to deduct qualified foreign taxes, you must deduct all of them. State tax preparation free You cannot take a credit for any of them. State tax preparation free See What Foreign Taxes Qualify for the Credit , later, for the meaning of qualified foreign taxes. State tax preparation free There are exceptions to this general rule, which are described next. State tax preparation free Exceptions for foreign taxes not allowed as a credit. State tax preparation free   Even if you claim a credit for other foreign taxes, you can deduct any foreign tax that is not allowed as a credit if: You paid the tax to a country for which a credit is not allowed because it provides support for acts of international terrorism, or because the United States does not have or does not conduct diplomatic relations with it or recognize its government and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act, You paid withholding tax on dividends from foreign corporations whose stock you did not hold for the required period of time, You paid withholding tax on income or gain (other than dividends) from property you did not hold for the required period of time, You paid withholding tax on income or gain to the extent you had to make related payments on positions in substantially similar or related property, You participated in or cooperated with an international boycott, You paid taxes in connection with the purchase or sale of oil or gas, or You paid or accrued taxes on income or gain in connection with a covered asset acquisition. State tax preparation free Covered asset acquisitions include certain acquisitions that result in a stepped-up basis for U. State tax preparation free S. State tax preparation free tax purposes. State tax preparation free For more information, see Internal Revenue Code section 901(m). State tax preparation free The IRS intends to issue guidance that will explain this provision in greater detail. State tax preparation free   For more information on these items, see Taxes for Which You Can Only Take an Itemized Deduction , later, under Foreign Taxes for Which You Cannot Take a Credit. State tax preparation free Foreign taxes that are not income taxes. State tax preparation free   In most cases, only foreign income taxes qualify for the foreign tax credit. State tax preparation free Other taxes, such as foreign real and personal property taxes, do not qualify. State tax preparation free But you may be able to deduct these other taxes even if you claim the foreign tax credit for foreign income taxes. State tax preparation free   In most cases, you can deduct these other taxes only if they are expenses incurred in a trade or business or in the production of income. State tax preparation free However, you can deduct foreign real property taxes that are not trade or business expenses as an itemized deduction on Schedule A (Form 1040). State tax preparation free Carrybacks and carryovers. State tax preparation free   There is a limit on the credit you can claim in a tax year. State tax preparation free If your qualified foreign taxes exceed the credit limit, you may be able to carry over or carry back the excess to another tax year. State tax preparation free If you deduct qualified foreign taxes in a tax year, you cannot use a carryback or carryover in that year. State tax preparation free That is because you cannot take both a deduction and a credit for qualified foreign taxes in the same tax year. State tax preparation free   For more information on the limit, see How To Figure the Credit , later. State tax preparation free For more information on carrybacks and carryovers, see Carryback and Carryover , later. State tax preparation free Making or Changing Your Choice You can make or change your choice to claim a deduction or credit at any time during the period within 10 years from the regular due date for filing the return (without regard to any extension of time to file) for the tax year in which the taxes were actually paid or accrued. State tax preparation free You make or change your choice on your tax return (or on an amended return) for the year your choice is to be effective. State tax preparation free Example. State tax preparation free You paid foreign taxes for the last 13 years and chose to deduct them on your U. State tax preparation free S. State tax preparation free income tax returns. State tax preparation free You were timely in both filing your returns and paying your U. State tax preparation free S. State tax preparation free tax liability. State tax preparation free In February 2013, you file an amended return for tax year 2002 choosing to take a credit for your 2002 foreign taxes because you now realize that the credit is more advantageous than the deduction for that year. State tax preparation free Because the regular due date of your 2002 return was April 15, 2003, this choice is timely (within 10 years). State tax preparation free Because there is a limit on the credit for your 2002 foreign tax, you have unused 2002 foreign taxes. State tax preparation free Ordinarily, you first carry back unused foreign taxes arising in 2002 to, and claim them as a credit in, the 2 preceding tax years. State tax preparation free If you are unable to claim all of them in those 2 years, you carry them forward to the 10 years following the year in which they arose. State tax preparation free Because you originally chose to deduct your foreign taxes and the 10-year period for changing the choice for 2000 and 2001 has passed, you cannot change your choice and carry the unused 2002 foreign taxes back to tax years 2000 and 2001. State tax preparation free Because the 10-year periods for changing the choice have not passed for your 2003 through 2012 income tax returns, you can still choose to claim the credit for those years and carry forward any unused 2002 foreign taxes. State tax preparation free However, you must reduce the unused 2002 foreign taxes that you carry forward by the amount that would have been allowed as a carryback if you had timely carried back the foreign tax to tax years 2000 and 2001. State tax preparation free You cannot take a credit or a deduction for foreign taxes paid on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. State tax preparation free See Foreign Earned Income and Housing Exclusions under Foreign Taxes for Which You Cannot Take a Credit, later. State tax preparation free Why Choose the Credit? The foreign tax credit is intended to relieve you of a double tax burden when your foreign source income is taxed by both the United States and the foreign country. State tax preparation free In most cases, if the foreign tax rate is higher than the U. State tax preparation free S. State tax preparation free rate, there will be no U. State tax preparation free S. State tax preparation free tax on the foreign income. State tax preparation free If the foreign tax rate is lower than the U. State tax preparation free S. State tax preparation free rate, U. State tax preparation free S. State tax preparation free tax on the foreign income will be limited to the difference between the rates. State tax preparation free The foreign tax credit can only reduce U. State tax preparation free S. State tax preparation free taxes on foreign source income; it cannot reduce U. State tax preparation free S. State tax preparation free taxes on U. State tax preparation free S. State tax preparation free source income. State tax preparation free Although no one rule covers all situations, in most cases it is better to take a credit for qualified foreign taxes than to deduct them as an itemized deduction. State tax preparation free This is because: A credit reduces your actual U. State tax preparation free S. State tax preparation free income tax on a dollar-for-dollar basis, while a deduction reduces only your income subject to tax, You can choose to take the foreign tax credit even if you do not itemize your deductions. State tax preparation free You then are allowed the standard deduction in addition to the credit, and If you choose to take the foreign tax credit, and the taxes paid or accrued exceed the credit limit for the tax year, you may be able to carry over or carry back the excess to another tax year. State tax preparation free (See Limit on credit under How To Figure the Credit, later. State tax preparation free ) Example 1. State tax preparation free For 2013, you and your spouse have adjusted gross income of $80,300, including $20,000 of dividend income from foreign sources. State tax preparation free None of the dividends are qualified dividends. State tax preparation free You file a joint return and can claim two $3,900 exemptions. State tax preparation free You had to pay $2,000 in foreign income taxes on the dividend income. State tax preparation free If you take the foreign taxes as an itemized deduction, your total itemized deductions are $15,000. State tax preparation free Your taxable income then is $57,500 and your tax is $7,736. State tax preparation free If you take the credit instead, your itemized deductions are only $13,000. State tax preparation free Your taxable income then is $59,500 and your tax before the credit is $8,036. State tax preparation free After the credit, however, your tax is only $6,036. State tax preparation free Therefore, your tax is $1,700 lower ($7,736 − $6,036) by taking the credit. State tax preparation free Example 2. State tax preparation free In 2013, you receive investment income of $5,000 from a foreign country, which imposes a tax of $1,500 on that income. State tax preparation free You report on your U. State tax preparation free S. State tax preparation free return this income as well as $56,000 of U. State tax preparation free S. State tax preparation free source wages and an allowable $49,000 partnership loss from a U. State tax preparation free S. State tax preparation free partnership. State tax preparation free Your share of the partnership's gross income is $25,000 and your share of its expenses is $74,000. State tax preparation free You are single, entitled to one $3,900 exemption, and have other itemized deductions of $6,850. State tax preparation free If you deduct the foreign tax on your U. State tax preparation free S. State tax preparation free return, your taxable income is a negative $250 ($5,000 + $56,000 − $49,000 − $1,500 − $6,850 − $3,900) and your tax is $0. State tax preparation free If you take the credit instead, your taxable income is $1,250 ($5,000 + $56,000 − $49,000 − $3,900 − $6,850) and your tax before the credit is $126. State tax preparation free You can take a credit of only $113 because of limits discussed later. State tax preparation free Your tax after the credit is $13 ($126 − $113), which is $13 more than if you deduct the foreign tax. State tax preparation free If you choose the credit, you will have unused foreign taxes of $1,387 ($1,500 − $113). State tax preparation free When deciding whether to take the credit or the deduction this year, you will need to consider whether you can benefit from a carryback or carryover of that unused foreign tax. State tax preparation free Credit for Taxes Paid or Accrued You can claim the credit for a qualified foreign tax in the tax year in which you pay it or accrue it, depending on your method of accounting. State tax preparation free “Tax year” refers to the tax year for which your U. State tax preparation free S. State tax preparation free return is filed, not the tax year for which your foreign return is filed. State tax preparation free Accrual method of accounting. State tax preparation free   If you use an accrual method of accounting, you can claim the credit only in the year in which you accrue the tax. State tax preparation free You are using an accrual method of accounting if you report income when you earn it, rather than when you receive it, and you deduct your expenses when you incur them, rather than when you pay them. State tax preparation free   In most cases, foreign taxes accrue when all the events have taken place that fix the amount of the tax and your liability to pay it. State tax preparation free Generally, this occurs on the last day of the tax year for which your foreign return is filed. State tax preparation free Contesting your foreign tax liability. State tax preparation free   If you are contesting your foreign tax liability, you cannot accrue it and take a credit until the amount of foreign tax due is finally determined. State tax preparation free However, if you choose to pay the tax liability you are contesting, you can take a credit for the amount you pay before a final determination of foreign tax liability is made. State tax preparation free Once your liability is determined, the foreign tax credit is allowable for the year to which the foreign tax relates. State tax preparation free If the amount of foreign taxes taken as a credit differs from the final foreign tax liability, you may have to adjust the credit, as discussed later under Foreign Tax Redetermination . State tax preparation free You may have to post a bond. State tax preparation free   If you claim a credit for taxes accrued but not paid, you may have to post an income tax bond to guarantee your payment of any tax due in the event the amount of foreign tax paid differs from the amount claimed. State tax preparation free   The IRS can request this bond at any time without regard to the Time Limit on Tax Assessment discussed later under Carryback and Carryover. State tax preparation free Cash method of accounting. State tax preparation free   If you use the cash method of accounting, you can choose to take the credit either in the year you pay the tax or in the year you accrue it. State tax preparation free You are using the cash method of accounting if you report income in the year you actually or constructively receive it, and deduct expenses in the year you pay them. State tax preparation free Choosing to take credit in the year taxes accrue. State tax preparation free   Even if you use the cash method of accounting, you can choose to take a credit for foreign taxes in the year they accrue. State tax preparation free You make the choice by checking the box in Part II of Form 1116. State tax preparation free Once you make that choice, you must follow it in all later years and take a credit for foreign taxes in the year they accrue. State tax preparation free   In addition, the choice to take the credit when foreign taxes accrue applies to all foreign taxes qualifying for the credit. State tax preparation free You cannot take a credit for some foreign taxes when paid and take a credit for others when accrued. State tax preparation free   If you make the choice to take the credit when foreign taxes accrue and pay them in a later year, you cannot claim a deduction for any part of the previously accrued taxes. State tax preparation free Credit based on taxes paid in earlier year. State tax preparation free   If, in earlier years, you took the credit based on taxes paid, and this year you choose to take the credit based on taxes accrued, you may be able to take the credit this year for taxes from more than one year. State tax preparation free Example. State tax preparation free Last year you took the credit based on taxes paid. State tax preparation free This year you chose to take the credit based on taxes accrued. State tax preparation free During the year you paid foreign income taxes owed for last year. State tax preparation free You also accrued foreign income taxes for this year that you did not pay by the end of the year. State tax preparation free You can base the credit on your return for this year on both last year's taxes that you paid and this year's taxes that you accrued. State tax preparation free Foreign Currency and Exchange Rates U. State tax preparation free S. State tax preparation free income tax is imposed on income expressed in U. State tax preparation free S. State tax preparation free dollars, while in most cases the foreign tax is imposed on income expressed in foreign currency. State tax preparation free Therefore, fluctuations in the value of the foreign currency relative to the U. State tax preparation free S. State tax preparation free dollar may affect the foreign tax credit. State tax preparation free Translating foreign currency into U. State tax preparation free S. State tax preparation free dollars. State tax preparation free   If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U. State tax preparation free S. State tax preparation free dollars. State tax preparation free How and when you do this depends on your functional currency. State tax preparation free In most cases, your functional currency is the U. State tax preparation free S. State tax preparation free dollar unless you are required to use the currency of a foreign country. State tax preparation free   You must make all federal income tax determinations in your functional currency. State tax preparation free The U. State tax preparation free S. State tax preparation free dollar is the functional currency for all taxpayers except some qualified business units. State tax preparation free A qualified business unit is a separate and clearly identified unit of a trade or business that maintains separate books and records. State tax preparation free Unless you are self-employed, your functional currency is the U. State tax preparation free S. State tax preparation free dollar. State tax preparation free   Even if you are self-employed and have a qualified business unit, your functional currency is the U. State tax preparation free S. State tax preparation free dollar if any of the following apply. State tax preparation free You conduct the business primarily in dollars. State tax preparation free The principal place of business is located in the United States. State tax preparation free You choose to or are required to use the dollar as your functional currency. State tax preparation free The business books and records are not kept in the currency of the economic environment in which a significant part of the business activities is conducted. State tax preparation free   If your functional currency is the U. State tax preparation free S. State tax preparation free dollar, you must immediately translate into dollars all items of income, expense, etc. State tax preparation free , that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. State tax preparation free If there is more than one exchange rate, use the one that most properly reflects your income. State tax preparation free In most cases, you can get exchange rates from banks and U. State tax preparation free S. State tax preparation free Embassies. State tax preparation free   If your functional currency is not the U. State tax preparation free S. State tax preparation free dollar, make all income tax determinations in your functional currency. State tax preparation free At the end of the year, translate the results, such as income or loss, into U. State tax preparation free S. State tax preparation free dollars to report on your income tax return. State tax preparation free    For more information, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Rate of exchange for foreign taxes paid. State tax preparation free   Use the rate of exchange in effect on the date you paid the foreign taxes to the foreign country unless you meet the exception discussed next. State tax preparation free If your tax was withheld in foreign currency, use the rate of exchange in effect for the date on which the tax was withheld. State tax preparation free If you make foreign estimated tax payments, you use the rate of exchange in effect for the date on which you made the estimated tax payment. State tax preparation free   The exchange rate rules discussed here apply even if the foreign taxes are paid or accrued with respect to a foreign tax credit splitting event (discussed later). State tax preparation free Exception. State tax preparation free   If you claim the credit for foreign taxes on an accrual basis, in most cases you must use the average exchange rate for the tax year to which the taxes relate. State tax preparation free This rule applies to accrued taxes relating to tax years beginning after 1997 and only under the following conditions. State tax preparation free The foreign taxes are paid on or after the first day of the tax year to which they relate. State tax preparation free The foreign taxes are paid not later than 2 years after the close of the tax year to which they relate. State tax preparation free The foreign tax liability is not denominated in an inflationary currency (defined in the Form 1116 instructions). State tax preparation free (This condition applies to taxes paid or accrued in tax years beginning after November 6, 2007. State tax preparation free )   For all other foreign taxes, you should use the exchange rate in effect on the date you paid them. State tax preparation free Election to use exchange rate on date paid. State tax preparation free   If you have accrued foreign taxes that you are otherwise required to convert using the average exchange rate, you may elect to use the exchange rate in effect on the date the foreign taxes are paid if the taxes are denominated in a nonfunctional foreign currency. State tax preparation free If any of the accrued taxes are unpaid, you must translate them into U. State tax preparation free S. State tax preparation free dollars using the exchange rate on the last day of the U. State tax preparation free S. State tax preparation free tax year to which those taxes relate. State tax preparation free You may make the election for all nonfunctional currency foreign income taxes or only those nonfunctional currency foreign income taxes that are attributable to qualified business units with a U. State tax preparation free S. State tax preparation free dollar functional currency. State tax preparation free Once made, the election applies to the tax year for which made and all subsequent tax years unless revoked with the consent of the IRS. State tax preparation free The election is available for tax years beginning after 2004. State tax preparation free It must be made by the due date (including extensions) for filing the tax return for the first tax year to which the election applies. State tax preparation free Make the election by attaching a statement to the applicable tax return. State tax preparation free The statement must identify whether the election is made for all foreign taxes or only for foreign taxes attributable to qualified business units with a U. State tax preparation free S. State tax preparation free dollar functional currency. State tax preparation free Foreign Tax Redetermination A foreign tax redetermination is any change in your foreign tax liability that may affect your U. State tax preparation free S. State tax preparation free foreign tax credit claimed. State tax preparation free The year in which to claim the credit remains the year to which the foreign taxes paid or accrued relate, even if the change in foreign tax liability occurs in a later year. State tax preparation free If a foreign tax redetermination occurs, a redetermination of your U. State tax preparation free S. State tax preparation free tax liability is required if any of the following conditions apply. State tax preparation free The accrued taxes when paid differ from the amounts claimed as a credit. State tax preparation free The accrued taxes you claimed as a credit in one tax year are not paid within 2 years after the end of that tax year. State tax preparation free If this applies to you, you must reduce the credit previously claimed by the amount of the unpaid taxes. State tax preparation free You will not be allowed a credit for the unpaid taxes until you pay them. State tax preparation free When you pay the accrued taxes, a new foreign tax redetermination occurs and you must translate the taxes into U. State tax preparation free S. State tax preparation free dollars using the exchange rate as of the date they were paid. State tax preparation free The foreign tax credit is allowed for the year to which the foreign tax relates. State tax preparation free See Rate of exchange for foreign taxes paid , earlier, under Foreign Currency and Exchange Rates. State tax preparation free The foreign taxes you paid are refunded in whole or in part. State tax preparation free For taxes taken into account when accrued but translated into dollars on the date of payment, the dollar value of the accrued tax differs from the dollar value of the tax paid because of fluctuations in the exchange rate between the date of accrual and the date of payment. State tax preparation free However, no redetermination is required if the change in foreign tax liability for each foreign country is solely attributable to exchange rate fluctuations and is less than the smaller of: $10,000, or 2% of the total dollar amount of the foreign tax initially accrued for that foreign country for the U. State tax preparation free S. State tax preparation free tax year. State tax preparation free In this case, you must adjust your U. State tax preparation free S. State tax preparation free tax in the tax year in which the accrued foreign taxes are paid. State tax preparation free Notice to the Internal Revenue Service (IRS) of Redetermination You are required to notify the IRS about a foreign tax credit redetermination that affects your U. State tax preparation free S. State tax preparation free tax liability for each tax year affected by the redetermination. State tax preparation free In most cases, you must file Form 1040X, Amended U. State tax preparation free S. State tax preparation free Individual Income Tax Return, with a revised Form 1116 and a statement that contains information sufficient for the IRS to redetermine your U. State tax preparation free S. State tax preparation free tax liability for the year or years affected. State tax preparation free See Contents of statement , later. State tax preparation free You are not required to attach Form 1116 for a tax year affected by a redetermination if: The amount of your creditable taxes paid or accrued during the tax year is not more than $300 ($600 if married filing a joint return) as a result of the foreign tax redetermination, and You meet the requirements listed under Exemption from foreign tax credit limit under How To Figure the Credit, later. State tax preparation free There are other exceptions to this requirement. State tax preparation free They are discussed later under Due date of notification to IRS . State tax preparation free Contents of statement. State tax preparation free   The statement must include all of the following. State tax preparation free Your name, address, and taxpayer identification number. State tax preparation free The tax year or years that are affected by the foreign tax redetermination. State tax preparation free The date or dates the foreign taxes were accrued, if applicable. State tax preparation free The date or dates the foreign taxes were paid. State tax preparation free The amount of foreign taxes paid or accrued on each date (in foreign currency) and the exchange rate used to translate each amount. State tax preparation free Information sufficient to determine any interest due from or owing to you, including the amount of any interest paid to you by the foreign government and the dates received. State tax preparation free   In the case of any foreign taxes that were not paid before the date two years after the close of the tax year to which those taxes relate, you must provide the amount of those taxes in foreign currency and the exchange rate that was used to translate that amount when originally claimed as a credit. State tax preparation free   If any foreign tax was refunded in whole or in part, you must provide the date and amount (in foreign currency) of each refund, the exchange rate that was used to translate each amount when originally claimed as a credit, and the exchange rate for the date the refund was received (for purposes of computing foreign currency gain or loss under Internal Revenue Code section 988). State tax preparation free Due date of notification to IRS. State tax preparation free   If you pay less foreign tax than you originally claimed a credit for, in most cases you must file a notification by the due date (with extensions) of your original return for your tax year in which the foreign tax redetermination occurred. State tax preparation free There is no limit on the time the IRS has to redetermine and assess the correct U. State tax preparation free S. State tax preparation free tax due. State tax preparation free If you pay more foreign tax than you originally claimed a credit for, you have 10 years to file a claim for refund of U. State tax preparation free S. State tax preparation free taxes. State tax preparation free See Time Limit on Refund Claims , later. State tax preparation free   Exceptions to this due date are explained in the next two paragraphs. State tax preparation free Multiple redeterminations of U. State tax preparation free S. State tax preparation free tax liability for same tax year. State tax preparation free   Where more than one foreign tax redetermination requires a redetermination of U. State tax preparation free S. State tax preparation free tax liability for the same tax year and those redeterminations occur in the same tax year or within two consecutive tax years, you can file for that tax year one notification (Form 1040X with a Form 1116 and the required statement) that reflects all those tax redeterminations. State tax preparation free If you choose to file one notification, the due date for that notification is the due date of the original return (with extensions) for the year in which the first foreign tax redetermination that reduced your foreign tax liability occurred. State tax preparation free However, foreign tax redeterminations with respect to the tax year for which a redetermination of U. State tax preparation free S. State tax preparation free tax liability is required may occur after the due date for providing that notification. State tax preparation free In this situation, you may have to file more than one Form 1040X for that tax year. State tax preparation free Additional U. State tax preparation free S. State tax preparation free tax due eliminated by foreign tax credit carryback or carryover. State tax preparation free   If a foreign tax redetermination requires a redetermination of U. State tax preparation free S. State tax preparation free tax liability that would otherwise result in an additional amount of U. State tax preparation free S. State tax preparation free tax due, but the additional tax is eliminated by a carryback or carryover of an unused foreign tax, you do not have to amend your tax return for the year affected by the redetermination. State tax preparation free Instead, you can notify the IRS by attaching a statement to the original return for the tax year in which the foreign tax redetermination occurred. State tax preparation free You must file the statement by the due date (with extensions) of that return. State tax preparation free The statement must show the amount of the unused foreign taxes paid or accrued and a detailed schedule showing the computation of the carryback or carryover (including the amounts carried back or over to the year for which a redetermination on U. State tax preparation free S. State tax preparation free tax liability is required). State tax preparation free Failure-to-notify penalty. State tax preparation free   If you fail to notify the IRS of a foreign tax redetermination and cannot show reasonable cause for the failure, you may have to pay a penalty. State tax preparation free   For each month, or part of a month, that the failure continues, you pay a penalty of 5% of the tax due resulting from a redetermination of your U. State tax preparation free S. State tax preparation free tax. State tax preparation free This penalty cannot be more than 25% of the tax due. State tax preparation free Foreign tax refund. State tax preparation free   If you receive a foreign tax refund without interest from the foreign government, you will not have to pay interest on the amount of tax due resulting from the adjustment to your U. State tax preparation free S. State tax preparation free tax for the time before the date of the refund. State tax preparation free   However, if you receive a foreign tax refund with interest, you must pay interest to the IRS up to the amount of the interest paid to you by the foreign government. State tax preparation free The interest you must pay cannot be more than the interest you would have had to pay on taxes that were unpaid for any other reason for the same period. State tax preparation free Interest also is owed from the time you receive a refund until you pay the additional tax due. State tax preparation free Foreign tax imposed on foreign refund. State tax preparation free   If your foreign tax refund is taxed by the foreign country, you cannot take a separate credit or deduction for this additional foreign tax. State tax preparation free However, when you refigure the foreign tax credit taken for the original foreign tax, reduce the amount of the refund by the foreign tax paid on the refund. State tax preparation free Example. State tax preparation free You paid a foreign income tax of $3,000 in 2011, and received a foreign tax refund of $500 in 2013 on which a foreign tax of $100 was imposed. State tax preparation free When you refigure your credit for 2011, you must reduce the $3,000 you paid by $400. State tax preparation free Time Limit on Refund Claims You have 10 years to file a claim for refund of U. State tax preparation free S. State tax preparation free tax if you find that you paid or accrued a larger foreign tax than you claimed a credit for. State tax preparation free The 10-year period begins the day after the regular due date for filing the return (without extensions) for the year in which the taxes were actually paid or accrued. State tax preparation free You have 10 years to file your claim regardless of whether you claim the credit for taxes paid or taxes accrued. State tax preparation free The 10-year period applies to claims for refund or credit based on: Fixing math errors in figuring qualified foreign taxes, Reporting qualified foreign taxes not originally reported on the return, or Any other change in the size of the credit (including one caused by correcting the foreign tax credit limit). State tax preparation free The special 10-year period also applies to making or changing your choice to claim a deduction or credit for foreign taxes. State tax preparation free See Making or Changing Your Choice discussed earlier under Choosing To Take Credit or Deduction. State tax preparation free Who Can Take the Credit? U. State tax preparation free S. State tax preparation free citizens, resident aliens, and nonresident aliens who paid foreign income tax and are subject to U. State tax preparation free S. State tax preparation free tax on foreign source income may be able to take a foreign tax credit. State tax preparation free U. State tax preparation free S. State tax preparation free Citizens If you are a U. State tax preparation free S. State tax preparation free citizen, you are taxed by the United States on your worldwide income wherever you live. State tax preparation free You are normally entitled to take a credit for foreign taxes you pay or accrue. State tax preparation free Resident Aliens If you are a resident alien of the United States, you can take a credit for foreign taxes subject to the same general rules as U. State tax preparation free S. State tax preparation free citizens. State tax preparation free If you are a bona fide resident of Puerto Rico for the entire tax year, you also come under the same rules. State tax preparation free Usually, you can take a credit only for those foreign taxes imposed on income you actually or constructively received while you had resident alien status. State tax preparation free For information on alien status, see Publication 519. State tax preparation free Nonresident Aliens If you are a nonresident alien, you cannot take the credit in most cases. State tax preparation free However, you may be able to take the credit if: You were a bona fide resident of Puerto Rico during your entire tax year, or You pay or accrue tax to a foreign country or U. State tax preparation free S. State tax preparation free possession on income from foreign sources that is effectively connected with a trade or business in the United States. State tax preparation free But if you must pay tax to a foreign country or U. State tax preparation free S. State tax preparation free possession on income from U. State tax preparation free S. State tax preparation free sources only because you are a citizen or a resident of that country or U. State tax preparation free S. State tax preparation free possession, do not use that tax in figuring the amount of your credit. State tax preparation free For information on alien status and effectively connected income, see Publication 519. State tax preparation free What Foreign Taxes Qualify for the Credit? In most cases, the following four tests must be met for any foreign tax to qualify for the credit. State tax preparation free The tax must be imposed on you. State tax preparation free You must have paid or accrued the tax. State tax preparation free The tax must be the legal and actual foreign tax liability. State tax preparation free The tax must be an income tax (or a tax in lieu of an income tax). State tax preparation free Certain foreign taxes do not qualify for the credit even if the four tests are met. State tax preparation free See Foreign Taxes for Which You Cannot Take a Credit, later. State tax preparation free Tax Must Be Imposed on You You can claim a credit only for foreign taxes that are imposed on you by a foreign country or U. State tax preparation free S. State tax preparation free possession. State tax preparation free For example, a tax that is deducted from your wages is considered to be imposed on you. State tax preparation free You cannot shift the right to claim the credit by contract or other means. State tax preparation free Foreign country. State tax preparation free   A foreign country includes any foreign state and its political subdivisions. State tax preparation free Income, war profits, and excess profits taxes paid or accrued to a foreign city or province qualify for the foreign tax credit. State tax preparation free U. State tax preparation free S. State tax preparation free possessions. State tax preparation free   For foreign tax credit purposes, all qualified taxes paid to U. State tax preparation free S. State tax preparation free possessions are considered foreign taxes. State tax preparation free For this purpose, U. State tax preparation free S. State tax preparation free possessions include Puerto Rico and American Samoa. State tax preparation free   When the term “foreign country” is used in this publication, it includes U. State tax preparation free S. State tax preparation free possessions unless otherwise stated. State tax preparation free You Must Have Paid or Accrued the Tax In most cases, you can claim the credit only if you paid or accrued the foreign tax to a foreign country or U. State tax preparation free S. State tax preparation free possession. State tax preparation free However, the paragraphs that follow describe some instances in which you can claim the credit even if you did not directly pay or accrue the tax yourself. State tax preparation free Joint return. State tax preparation free   If you file a joint return, you can claim the credit based on the total foreign income taxes paid or accrued by you and your spouse. State tax preparation free Combined income. State tax preparation free   If foreign tax is imposed on the combined income of two or more persons (for example, spouses), the tax is allocated among, and considered paid by, these persons on a pro rata basis in proportion to each person's portion of the combined income, as determined under foreign law and Regulations section 1. State tax preparation free 901-2(f)(3)(iii). State tax preparation free Combined income with respect to each foreign tax that is imposed on a combined basis (and combined income subject to tax exemption or preferential tax rates) is computed separately, and the tax on that combined income is allocated separately. State tax preparation free   These rules apply to foreign taxes paid or accrued in tax years beginning after February 14, 2012. State tax preparation free However, you can choose to apply the new rules to foreign taxes paid or accrued in tax years beginning after December 31, 2010, and before February 15, 2012. State tax preparation free For more details, see paragraphs (f) and (h) of Regulations section 1. State tax preparation free 901-2. State tax preparation free For similar rules applicable to prior tax years, see Regulations section 1. State tax preparation free 901-2 (revised as of April 1, 2011). State tax preparation free Example. State tax preparation free You and your spouse reside in Country X, which imposes income tax on your combined incomes. State tax preparation free Both of you use the “u” as your functional currency. State tax preparation free Country X apportions tax based on income. State tax preparation free You had income of 30,000u and your spouse had income of 20,000u. State tax preparation free Your filing status on your U. State tax preparation free S. State tax preparation free income tax return is married filing separately. State tax preparation free You can claim only 60% (30,000u/50,000u) of the foreign taxes imposed on your income on your U. State tax preparation free S income tax return. State tax preparation free Your spouse can claim only 40% (20,000u/50,000u). State tax preparation free Partner or S corporation shareholder. State tax preparation free   If you are a member of a partnership, or a shareholder in an S corporation, you can claim the credit based on your proportionate share of the foreign income taxes paid or accrued by the partnership or the S corporation. State tax preparation free These amounts will be shown on the Schedule K-1 you receive from the partnership or S corporation. State tax preparation free However, if you are a shareholder in an S corporation that in turn owns stock in a foreign corporation, you cannot claim a credit for your share of foreign taxes paid by the foreign corporation. State tax preparation free Beneficiary. State tax preparation free   If you are a beneficiary of an estate or trust, you may be able to claim the credit based on your proportionate share of foreign income taxes paid or accrued by the estate or trust. State tax preparation free This amount will be shown on the Schedule K-1 you receive from the estate or trust. State tax preparation free However, you must show that the tax was imposed on income of the estate and not on income received by the decedent. State tax preparation free Mutual fund shareholder. State tax preparation free   If you are a shareholder of a mutual fund or other regulated investment company (RIC), you may be able to claim the credit based on your share of foreign income taxes paid by the fund if it chooses to pass the credit on to its shareholders. State tax preparation free You should receive from the mutual fund or other RIC a Form 1099-DIV, or similar statement, showing your share of the foreign income, and your share of the foreign taxes paid. State tax preparation free If you do not receive this information, you will need to contact the fund. State tax preparation free Controlled foreign corporation shareholder. State tax preparation free   If you are a shareholder of a controlled foreign corporation and choose to be taxed at corporate rates on the amount you must include in gross income from that corporation, you can claim the credit based on your share of foreign taxes paid or accrued by the controlled foreign corporation. State tax preparation free If you make this election, you must claim the credit by filing Form 1118, Foreign Tax Credit—Corporations. State tax preparation free Controlled foreign corporation. State tax preparation free   A controlled foreign corporation is a foreign corporation in which U. State tax preparation free S. State tax preparation free shareholders own more than 50% of the voting power or value of the stock. State tax preparation free You are considered a U. State tax preparation free S. State tax preparation free shareholder if you own, directly or indirectly, 10% or more of the total voting power of all classes of the foreign corporation's stock. State tax preparation free See Internal Revenue Code sections 951(b) and 958(b) for more information. State tax preparation free Tax Must Be the Legal and Actual Foreign Tax Liability The amount of foreign tax that qualifies is not necessarily the amount of tax withheld by the foreign country. State tax preparation free Only the legal and actual foreign tax liability that you paid or accrued during the year qualifies for the credit. State tax preparation free Foreign tax refund. State tax preparation free   You cannot take a foreign tax credit for income taxes paid to a foreign country if it is reasonably certain the amount would be refunded, credited, rebated, abated, or forgiven if you made a claim. State tax preparation free   For example, the United States has tax treaties with many countries allowing U. State tax preparation free S. State tax preparation free citizens and residents reductions in the rates of tax of those foreign countries. State tax preparation free However, some treaty countries require U. State tax preparation free S. State tax preparation free citizens and residents to pay the tax figured without regard to the lower treaty rates and then claim a refund for the amount by which the tax actually paid is more than the amount of tax figured using the lower treaty rate. State tax preparation free The qualified foreign tax is the amount figured using the lower treaty rate and not the amount actually paid, because the excess tax is refundable. State tax preparation free Subsidy received. State tax preparation free   Tax payments a foreign country returns to you in the form of a subsidy do not qualify for the foreign tax credit. State tax preparation free This rule applies even if the subsidy is given to a person related to you, or persons who participated with you in a transaction or a related transaction. State tax preparation free A subsidy can be provided by any means but must be determined, directly or indirectly, in relation to the amount of tax, or to the base used to figure the tax. State tax preparation free   The term “subsidy” includes any type of benefit. State tax preparation free Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. State tax preparation free Shareholder receiving refund for corporate tax in integrated system. State tax preparation free   Under some foreign tax laws and treaties, a shareholder is considered to have paid part of the tax that is imposed on the corporation. State tax preparation free You may be able to claim a refund of these taxes from the foreign government. State tax preparation free You must include the refund (including any amount withheld) in your income in the year received. State tax preparation free Any tax withheld from the refund is a qualified foreign tax. State tax preparation free Example. State tax preparation free You are a shareholder of a French corporation. State tax preparation free You receive a $100 refund of the tax paid to France by the corporation on the earnings distributed to you as a dividend. State tax preparation free The French government imposes a 15% withholding tax ($15) on the refund you received. State tax preparation free You receive a check for $85. State tax preparation free You include $100 in your income. State tax preparation free The $15 of tax withheld is a qualified foreign tax. State tax preparation free Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) In most cases, only income, war profits, and excess profits taxes (income taxes) qualify for the foreign tax credit. State tax preparation free Foreign taxes on wages, dividends, interest, and royalties qualify for the credit in most cases. State tax preparation free Furthermore, foreign taxes on income can qualify even though they are not imposed under an income tax law if the tax is in lieu of an income, war profits, or excess profits tax. State tax preparation free See Taxes in Lieu of Income Taxes , later. State tax preparation free Income Tax Simply because the levy is called an income tax by the foreign taxing authority does not make it an income tax for this purpose. State tax preparation free A foreign levy is an income tax only if it meets both of the following requirements. State tax preparation free It is a tax; that is, you have to pay it and you get no specific economic benefit (discussed below) from paying it. State tax preparation free The predominant character of the tax is that of an income tax in the U. State tax preparation free S. State tax preparation free sense. State tax preparation free A foreign levy may meet these requirements even if the foreign tax law differs from U. State tax preparation free S. State tax preparation free tax law. State tax preparation free The foreign law may include in income items that U. State tax preparation free S. State tax preparation free law does not include, or it may allow certain exclusions or deductions that U. State tax preparation free S. State tax preparation free law does not allow. State tax preparation free Specific economic benefit. State tax preparation free   In most cases, you get a specific economic benefit if you receive, or are considered to receive, an economic benefit from the foreign country imposing the levy, and: If there is a generally imposed income tax, the economic benefit is not available on substantially the same terms to all persons subject to the income tax, or If there is no generally imposed income tax, the economic benefit is not available on substantially the same terms to the population of the foreign country in general. State tax preparation free   You are considered to receive a specific economic benefit if you have a business transaction with a person who receives a specific economic benefit from the foreign country and, under the terms and conditions of the transaction, you receive directly or indirectly all or part of the benefit. State tax preparation free   However, see the exception discussed later under Pension, unemployment, and disability fund payments . State tax preparation free Economic benefits. State tax preparation free   Economic benefits include the following. State tax preparation free Goods. State tax preparation free Services. State tax preparation free Fees or other payments. State tax preparation free Rights to use, acquire, or extract resources, patents, or other property the foreign country owns or controls. State tax preparation free Discharges of contractual obligations. State tax preparation free   In most cases, the right or privilege merely to engage in business is not an economic benefit. State tax preparation free Dual-capacity taxpayers. State tax preparation free   If you are subject to a foreign country's levy and you also receive a specific economic benefit from that foreign country, you are a “dual-capacity taxpayer. State tax preparation free ” As a dual-capacity taxpayer, you cannot claim a credit for any part of the foreign levy, unless you establish that the amount paid under a distinct element of the foreign levy is a tax, rather than a compulsory payment for a direct or indirect specific economic benefit. State tax preparation free    For more information on how to establish amounts paid under separate elements of a levy, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Pension, unemployment, and disability fund payments. State tax preparation free   A foreign tax imposed on an individual to pay for retirement, old-age, death, survivor, unemployment, illness, or disability benefits, or for substantially similar purposes, is not payment for a specific economic benefit if the amount of the tax does not depend on the age, life expectancy, or similar characteristics of that individual. State tax preparation free    No deduction or credit is allowed, however, for social security taxes paid or accrued to a foreign country with which the United States has a social security agreement. State tax preparation free For more information about these agreements, see Publication 54. State tax preparation free Soak-up taxes. State tax preparation free   A foreign tax is not predominantly an income tax and does not qualify for credit to the extent it is a soak-up tax. State tax preparation free A tax is a soak-up tax to the extent that liability for it depends on the availability of a credit for it against income tax imposed by another country. State tax preparation free This rule applies only if and to the extent that the foreign tax would not be imposed if the credit were not available. State tax preparation free Penalties and interest. State tax preparation free   Amounts paid to a foreign government to satisfy a liability for interest, fines, penalties, or any similar obligation are not taxes and do not qualify for the credit. State tax preparation free Taxes not based on income. State tax preparation free   Foreign taxes based on gross receipts or the number of units produced, rather than on realized net income, do not qualify unless they are imposed in lieu of an income tax, as discussed next. State tax preparation free Taxes based on assets, such as property taxes, do not qualify for the credit. State tax preparation free Taxes in Lieu of Income Taxes A tax paid or accrued to a foreign country qualifies for the credit if it is imposed in lieu of an income tax otherwise generally imposed. State tax preparation free A foreign levy is a tax in lieu of an income tax only if: It is not payment for a specific economic benefit as discussed earlier, and The tax is imposed in place of, and not in addition to, an income tax otherwise generally imposed. State tax preparation free A tax in lieu of an income tax does not have to be based on realized net income. State tax preparation free A foreign tax imposed on gross income, gross receipts or sales, or the number of units produced or exported can qualify for the credit. State tax preparation free In most cases, a soak-up tax (discussed earlier) does not qualify as a tax in lieu of an income tax. State tax preparation free However, if the foreign country imposes a soak-up tax in lieu of an income tax, the amount that does not qualify for foreign tax credit is the lesser of the following amounts. State tax preparation free The soak-up tax. State tax preparation free The foreign tax you paid that is more than the amount you would have paid if you had been subject to the generally imposed income tax. State tax preparation free Foreign Taxes for Which You Cannot Take a Credit This part discusses the foreign taxes for which you cannot take a credit. State tax preparation free These are: Taxes on excluded income, Taxes for which you can only take an itemized deduction, Taxes on foreign mineral income, Taxes from international boycott operations, A portion of taxes on combined foreign oil and gas income, Taxes of U. State tax preparation free S. State tax preparation free persons controlling foreign corporations and partnerships who fail to file required information returns, and Taxes related to a foreign tax splitting event. State tax preparation free Taxes on Excluded Income You cannot take a credit for foreign taxes paid or accrued on certain income that is excluded from U. State tax preparation free S. State tax preparation free gross income. State tax preparation free Foreign Earned Income and Housing Exclusions You must reduce your foreign taxes available for the credit by the amount of those taxes paid or accrued on income that is excluded from U. State tax preparation free S. State tax preparation free income under the foreign earned income exclusion or the foreign housing exclusion. State tax preparation free See Publication 54 for more information on the foreign earned income and housing exclusions. State tax preparation free Wages completely excluded. State tax preparation free   If your wages are completely excluded, you cannot take a credit for any of the foreign taxes paid or accrued on these wages. State tax preparation free Wages partly excluded. State tax preparation free   If only part of your wages is excluded, you cannot take a credit for the foreign income taxes allocable to the excluded part. State tax preparation free You find the amount allocable to your excluded wages by multiplying the foreign tax paid or accrued on foreign earned income received or accrued during the tax year by a fraction. State tax preparation free   The numerator of the fraction is your foreign earned income and housing amounts excluded under the foreign earned income and housing exclusions for the tax year minus otherwise deductible expenses definitely related and properly apportioned to that income. State tax preparation free Deductible expenses do not include the foreign housing deduction. State tax preparation free   The denominator is your total foreign earned income received or accrued during the tax year minus all deductible expenses allocable to that income (including the foreign housing deduction). State tax preparation free If the foreign law taxes foreign earned income and some other income (for example, earned income from U. State tax preparation free S. State tax preparation free sources or a type of income not subject to U. State tax preparation free S. State tax preparation free tax), and the taxes on the other income cannot be segregated, the denominator of the fraction is the total amount of income subject to the foreign tax minus deductible expenses allocable to that income. State tax preparation free Example. State tax preparation free You are a U. State tax preparation free S. State tax preparation free citizen and a cash basis taxpayer, employed by Company X and living in Country A. State tax preparation free Your records show the following: Foreign earned income received $125,000 Unreimbursed business travel expenses 20,000 Income tax paid to Country A 30,000 Exclusion of foreign earned  income and housing allowance 97,600     Because you can exclude part of your wages, you cannot claim a credit for part of the foreign taxes. State tax preparation free To find that part, do the following. State tax preparation free First, find the amount of business expenses allocable to excluded wages and therefore not deductible. State tax preparation free To do this, multiply the otherwise deductible expenses by a fraction. State tax preparation free That fraction is the excluded wages over your foreign earned income. State tax preparation free   $20,000 × $97,600 $125,000 = $15,616             Next, find the numerator of the fraction by which you will multiply the foreign taxes paid. State tax preparation free To do this, subtract business expenses allocable to excluded wages ($15,616) from excluded wages ($97,600). State tax preparation free The result is $81,984. State tax preparation free Then, find the denominator of the fraction by subtracting all your deductible expenses from all your foreign earned income ($125,000 − $20,000 = $105,000). State tax preparation free Finally, multiply the foreign tax you paid by the resulting fraction. State tax preparation free   $30,000 × $81,984  $105,000 = $23,424 The amount of Country A tax you cannot take a credit for is $23,424. State tax preparation free Taxes on Income From Puerto Rico Exempt From U. State tax preparation free S. State tax preparation free Tax If you have income from Puerto Rican sources that is not taxable, you must reduce your foreign taxes paid or accrued by the taxes allocable to the exempt income. State tax preparation free For information on figuring the reduction, see Publication 570. State tax preparation free Possession Exclusion If you are a bona fide resident of American Samoa and exclude income from sources in American Samoa, you cannot take a credit for the taxes you pay or accrue on the excluded income. State tax preparation free For more information on this exclusion, see Publication 570. State tax preparation free Extraterritorial Income Exclusion You cannot take a credit for taxes you pay on qualifying foreign trade income excluded on Form 8873, Extraterritorial Income Exclusion. State tax preparation free However, see Internal Revenue Code section 943(d) for an exception for certain withholding taxes. State tax preparation free Taxes for Which You Can Only Take an Itemized Deduction You cannot claim a foreign tax credit for foreign income taxes paid or accrued under the following circumstances. State tax preparation free However, you can claim an itemized deduction for these taxes. State tax preparation free See Choosing To Take Credit or Deduction , earlier. State tax preparation free Taxes Imposed By Sanctioned Countries (Section 901(j) Income) You cannot claim a foreign tax credit for income taxes paid or accrued to any country if the income giving rise to the tax is for a period (the sanction period) during which: The Secretary of State has designated the country as one that repeatedly provides support for acts of international terrorism, The United States has severed or does not conduct diplomatic relations with the country, or The United States does not recognize the country's government, and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act. State tax preparation free The following countries meet this description for 2013. State tax preparation free Income taxes paid or accrued to these countries in 2013 do not qualify for the credit. State tax preparation free Cuba. State tax preparation free Iran. State tax preparation free Libya (but see Note later). State tax preparation free North Korea. State tax preparation free Sudan. State tax preparation free Syria. State tax preparation free Waiver of denial of the credit. State tax preparation free   A waiver can be granted to a sanctioned country if the President of the United States determines that granting the waiver is in the national interest of the United States and will expand trade and investment opportunities for U. State tax preparation free S. State tax preparation free companies in the sanctioned country. State tax preparation free The President must report to Congress his intentions to grant the waiver and his reasons for granting the waiver not less than 30 days before the date on which the waiver is granted. State tax preparation free Note. State tax preparation free Effective December 10, 2004, the President granted a waiver to Libya. State tax preparation free Income taxes arising on or after this date qualify for the credit if they meet the other requirements in this publication. State tax preparation free Limit on credit. State tax preparation free   In figuring the foreign tax credit limit, discussed later, income from a sanctioned country is a separate category of foreign income unless a Presidential waiver is granted. State tax preparation free You must fill out a separate Form 1116 for this income. State tax preparation free This will prevent you from claiming a credit for foreign taxes paid or accrued to the sanctioned country. State tax preparation free Example. State tax preparation free You lived and worked in Iran until August, when you were transferred to Italy. State tax preparation free You paid taxes to each country on the income earned in that country. State tax preparation free You cannot claim a foreign tax credit for the foreign taxes paid on the income earned in Iran. State tax preparation free Because the income earned in Iran is a separate category of foreign income, you must fill out a separate Form 1116 for that income. State tax preparation free You cannot take a credit for taxes paid on the income earned in Iran, but that income is taxable by the United States. State tax preparation free Figuring the credit when a sanction ends. State tax preparation free    Table 1 lists the countries for which sanctions have ended or for which a Presidential waiver has been granted. State tax preparation free For any of these countries, you can claim a foreign tax credit for the taxes paid or accrued to that country on the income for the period that begins after the end of the sanction period or the date the Presidential waiver was granted. State tax preparation free Example. State tax preparation free The sanctions against Country X ended on July 31. State tax preparation free On August 19, you receive a distribution from a mutual fund of Country X income. State tax preparation free The fund paid Country X income tax for you on the distribution. State tax preparation free Because the distribution was made after the sanction ended, you may include the foreign tax paid on the distribution to compute your foreign tax credit. State tax preparation free Amounts for the nonsanctioned period. State tax preparation free   If a sanction period ends (or a Presidential waiver is granted) during your tax year and you are not able to determine the actual income and taxes for that period, you can allocate amounts to that period based on the number of days in the period that fall in your tax year. State tax preparation free Multiply the income or taxes for the year by the following fraction to determine the amounts allocable to that period. State tax preparation free   Number of nonsanctioned days in year  Number of days in year Example. State tax preparation free You are a calendar year filer and received $20,000 of income from Country X in 2013 on which you paid tax of $4,500. State tax preparation free Sanctions against Country X ended on July 11, 2013. State tax preparation free You are unable to determine how much of the income or tax is for the nonsanctioned period. State tax preparation free Because your tax year starts on January 1, and the Country X sanction ended on July 11, 2013, 173 days of your tax year are in the nonsanctioned period. State tax preparation free You would compute the income for the nonsanctioned period as follows. State tax preparation free 173 365 × $20,000 = $9,479             You would figure the tax for the nonsanctioned period as follows. State tax preparation free 173 365 × $4,500 = $2,133 To figure your foreign tax credit, you would use $9,479 as the income from Country X and $2,133 as the tax. State tax preparation free Further information. State tax preparation free   The rules for figuring the foreign tax credit after a country's sanction period ends are more fully explained in Revenue Ruling 92-62, Cumulative Bulletin 1992-2, page 193. State tax preparation free This Cumulative Bulletin can be found in many libraries and IRS offices. State tax preparation free Table 1. State tax preparation free Countries Removed From the Sanction List or Granted Presidential Waiver   Sanction Period Country Starting Date Ending Date Iraq February 1, 1991 June 27, 2004 Libya January 1, 1987 December 9, 2004* *Presidential waiver granted for qualified income taxes arising after December 9, 2004. State tax preparation free Taxes Imposed on Certain Dividends You cannot claim a foreign tax credit for withholding tax (defined later ) on dividends paid or accrued if either of the following applies to the dividends. State tax preparation free The dividends are on stock you held for less than 16 days during the 31-day period that begins 15 days before the ex-dividend date (defined later). State tax preparation free The dividends are for a period or periods totaling more than 366 days on preferred stock you held for less than 46 days during the 91-day period that begins 45 days before the ex-dividend date. State tax preparation free If the dividend is not for more than 366 days, rule (1) applies to the preferred stock. State tax preparation free When figuring how long you held the stock, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. State tax preparation free Regardless of how long you held the stock, you cannot claim the credit to the extent you have an obligation under a short sale or otherwise to make payments related to the dividend for positions in substantially similar or related property. State tax preparation free Withholding tax. State tax preparation free   For this purpose, withholding tax includes any tax determined on a gross basis. State tax preparation free It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. State tax preparation free Ex-dividend date. State tax preparation free   The ex-dividend date is the first date following the declaration of a dividend on which the purchaser of a stock is not entitled to receive the next dividend payment. State tax preparation free Example 1. State tax preparation free You bought common stock from a foreign corporation on November 3. State tax preparation free You sold the stock on November 19. State tax preparation free You received a dividend on this stock because you owned it on the ex-dividend date of November 5. State tax preparation free To claim the credit, you must have held the stock for at least 16 days within the 31-day period that began on October 21 (15 days before the ex-dividend date). State tax preparation free Because you held the stock for 16 days, from November 4 until November 19, you are entitled to the credit. State tax preparation free Example 2. State tax preparation free The facts are the same as in Example 1 except that you sold the stock on November 14. State tax preparation free You held the stock for only 11 days. State tax preparation free You are not entitled to the credit. State tax preparation free Exception. State tax preparation free   If you are a securities dealer who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes paid on dividends regardless of how long you held the stock or whether you were obligated to make payments for positions in substantially similar or related property. State tax preparation free See section 901(k)(4) of the Internal Revenue Code for more information. State tax preparation free Taxes Withheld on Income or Gain (Other Than Dividends) For income or gain (other than dividends) paid or accrued on property, you cannot claim a foreign tax credit for withholding tax (defined later): If you have not held the property for at least 16 days during the 31-day period that begins 15 days before the date on which the right to receive the payment arises, or To the extent you have to make related payments on positions in substantially similar or related property. State tax preparation free When figuring how long you held the property, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. State tax preparation free Withholding tax. State tax preparation free   For this purpose, withholding tax includes any tax determined on a gross basis. State tax preparation free It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. State tax preparation free Exception for dealers. State tax preparation free   If you are a dealer in property who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes withheld on income or gain from that property regardless of how long you held it or whether you have to make related payments on positions in substantially similar or related property. State tax preparation free See section 901(I)(2) of the Internal Revenue Code for more information. State tax preparation free Covered Asset Acquisition ???You cannot take a credit for the disqualified portion of any foreign tax paid or accrued in connection with a covered asset acquisition. State tax preparation free A covered asset acquisition includes certain acquisitions that result in a stepped-up basis for U. State tax preparation free S. State tax preparation free tax purposes but not for foreign tax purposes. State tax preparation free For more information, see Internal Revenue Code section 901(m). State tax preparation free The IRS intends to issue guidance that will explain this provision in greater detail. State tax preparation free Taxes in Connection With the Purchase or Sale of Oil or Gas You cannot claim a foreign tax credit for taxes paid or accrued to a foreign country in connection with the purchase or sale of oil or gas extracted in that country if you do not have an economic interest in the oil or gas, and the purchase price or sales price is different from the fair market value of the oil or gas at the time of purchase or sale. State tax preparation free Taxes on Foreign Mineral Income You must reduce any taxes paid or accrued to a foreign country or possession on mineral income from that country or possession if you were allowed a deduction for percentage depletion for any part of the mineral income. State tax preparation free For details, see Regulations section 1. State tax preparation free 901-3. State tax preparation free Taxes From International Boycott Operations If you participate in or cooperate with an international boycott during the tax year, your foreign taxes resulting from boycott activities will reduce the total taxes available for credit. State tax preparation free See the instructions for line 12 in the Form 1116 instructions to figure this reduction. State tax preparation free In most cases, this rule does not apply to employees with wages who are working and living in boycotting countries, or to retirees with pensions who are living in these countries. State tax preparation free List of boycotting countries. State tax preparation free   A list of the countries which may require participation in or cooperation with an international boycott is published by the Department of the Treasury. State tax preparation free As of November 2013, the following countries are listed. State tax preparation free Iraq. State tax preparation free Kuwait. State tax preparation free Lebanon. State tax preparation free Libya. State tax preparation free Qatar. State tax preparation free Saudi Arabia. State tax preparation free Syria. State tax preparation free United Arab Emirates. State tax preparation free Yemen. State tax preparation free    For information concerning changes to the list, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Determinations of whether the boycott rule applies. State tax preparation free   You may request a determination from the Internal Revenue Service as to whether a particular operation constitutes participation in or cooperation with an international boycott. State tax preparation free The procedures for obtaining a determination from the Service are outlined in Revenue Procedure 77-9 in Cumulative Bulletin 1977-1. State tax preparation free Cumulative Bulletins are available in most IRS offices and you are welcome to read them there. State tax preparation free Public inspection. State tax preparation free   A determination and any related background file is open to public inspection. State tax preparation free However, your identity and certain other information will remain confidential. State tax preparation free Reporting requirements. State tax preparation free   You must file a report with the IRS if you or any of the following persons have operations in or related to a boycotting country or with the government, a company, or a national of a boycotting country. State tax preparation free A foreign corporation in which you own 10% or more of the voting power of all voting stock but only if you own the stock of the foreign corporation directly or through foreign entities. State tax preparation free A partnership in which you are a partner. State tax preparation free A trust you are treated as owning. State tax preparation free Form 5713 required. State tax preparation free   If you have to file a report, you must use Form 5713, International Boycott Report, and attach all supporting schedules. State tax preparation free See the Instructions for Form 5713 for information on when and where to file the form. State tax preparation free Penalty for failure to file. State tax preparation free   If you willfully fail to make a report, in addition to other penalties, you may be fined $25,000 or imprisoned for no more than one year, or both. State tax preparation free Taxes on Combined Foreign Oil and Gas Income You must reduce your foreign taxes by a portion of any foreign taxes imposed on combined foreign oil and gas income. State tax preparation free The amount of the reduction is the amount by which your foreign oil and gas taxes exceed the amount of your combined foreign oil and gas income multiplied by a fraction equal to your pre-credit U. State tax preparation free S. State tax preparation free tax liability (Form 1040, line 44) divided by your worldwide taxable income. State tax preparation free You may be entitled to carry over to other years taxes reduced under this rule. State tax preparation free See Internal Revenue Code section 907(f). State tax preparation free Combined foreign oil and gas income means the sum of foreign oil related income and foreign oil and gas extraction income. State tax preparation free Foreign oil and gas taxes are the sum of foreign oil and gas extraction taxes and foreign oil related taxes. State tax preparation free Taxes of U. State tax preparation free S. State tax preparation free Persons Controlling Foreign Corporations and Partnerships If you had control of a foreign corporation or a foreign partnership for the annual accounting period of that corporation or partnership that ended with or within your tax year, you may have to file an annual information return. State tax preparation free If you do not file the required information return, you may have to reduce the foreign taxes that may be used for the foreign tax credit. State tax preparation free See Penalty for not filing Form 5471 or Form 8865 , later. State tax preparation free U. State tax preparation free S. State tax preparation free persons controlling foreign corporations. State tax preparation free   If you are a U. State tax preparation free S. State tax preparation free citizen or resident who had control of a foreign corporation for an uninterrupted period of at least 30 days during the annual accounting period of that corporation, you may have to file an annual information return on Form 5471, Information Return of U. State tax preparation free S. State tax preparation free Persons With Respect To Certain Foreign Corporations. State tax preparation free Under this rule, you generally had control of a foreign corporation if at any time during your tax year you owned: Stock possessing more than 50% of the total combined voting power of all classes of stock entitled to vote, or More than 50% of the total value of shares of all classes of stock of the foreign corporation. State tax preparation free U. State tax preparation free S. State tax preparation free persons controlling foreign partnerships. State tax preparation free   If you are a U. State tax preparation free S. State tax preparation free citizen or resident who had control of a foreign partnership at any time during the partnership's tax year, you may have to file
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State tax preparation free Internal Revenue Bulletin:  2009-17  April 27, 2009  Rev. State tax preparation free Proc. State tax preparation free 2009-24 Table of Contents SECTION 1. State tax preparation free PURPOSE SECTION 2. State tax preparation free BACKGROUND SECTION 3. State tax preparation free SCOPE SECTION 4. State tax preparation free APPLICATION. State tax preparation free 01 In General. State tax preparation free . State tax preparation free 02 Limitations on Depreciation Deductions for Certain Automobiles. State tax preparation free . State tax preparation free 03 Inclusions in Income of Lessees of Passenger Automobiles. State tax preparation free SECTION 5. State tax preparation free EFFECTIVE DATE SECTION 6. State tax preparation free DRAFTING INFORMATION SECTION 1. State tax preparation free PURPOSE . State tax preparation free 01 This revenue procedure provides: (1) limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2009, including a separate table of limitations on depreciation deductions for trucks and vans; and (2) the amounts to be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2009, including a separate table of inclusion amounts for lessees of trucks and vans. State tax preparation free . State tax preparation free 02 The tables detailing these depreciation limitations and lessee inclusion amounts reflect the automobile price inflation adjustments required by § 280F(d)(7) of the Internal Revenue Code. State tax preparation free SECTION 2. State tax preparation free BACKGROUND . State tax preparation free 01 For owners of passenger automobiles, § 280F(a) imposes dollar limitations on the depreciation deduction for the year that the passenger automobile is placed in service by the taxpayer and each succeeding year. State tax preparation free Section 280F(d)(7) requires the amounts allowable as depreciation deductions to be increased by a price inflation adjustment amount for passenger automobiles placed in service after 1988. State tax preparation free The method of calculating this price inflation amount for trucks and vans placed in service in or after calendar year 2003 uses a different CPI “automobile component” (the “new trucks” component) than that used in the price inflation amount calculation for other passenger automobiles (the “new cars” component), resulting in somewhat higher depreciation deductions for trucks and vans. State tax preparation free This change reflects the higher rate of price inflation that trucks and vans have been subject to since 1988. State tax preparation free . State tax preparation free 02 Section 168(k)(1)(A) provides a 50 percent additional first year depreciation deduction for certain new property acquired by a taxpayer after December 31, 2007, and before January 1, 2010, if no written binding contract for the acquisition of the property existed before January 1, 2008. State tax preparation free Section 168(k)(2)(F)(i) increases the first year depreciation allowed under § 280F(a)(1)(A) by $8,000 for passenger automobiles to which the 50 percent additional first year depreciation deduction applies. State tax preparation free . State tax preparation free 03 Section 168(k)(2)(D)(i) provides that the 50 percent additional first year depreciation deduction does not apply to any property required to be depreciated under the alternative depreciation system of § 168(g), including property described in § 280F(b)(1). State tax preparation free Section 168(k)(2)(D)(iii) permits a taxpayer to elect to not claim the 50 percent additional first year depreciation deduction for any class of property. State tax preparation free Section 168(k)(4) permits a corporation to elect to not claim the 50 percent additional first year depreciation deduction for all eligible qualified property (that is extension property or that is not extension property, as applicable) and instead to increase the business credit limitation under § 38(c) or the alternative minimum tax credit limitation under § 53(c). State tax preparation free Accordingly, this revenue procedure provides tables for passenger automobiles for which the 50 percent additional depreciation deduction applies and tables for passenger automobiles for which the 50 percent additional first year depreciation deduction does not apply, including passenger automobiles in a class of property for which the taxpayer “elects out” of the 50 percent additional first year depreciation deduction or passenger automobiles that are eligible qualified property to which the § 168(k)(4) election applies. State tax preparation free . State tax preparation free 04 For leased passenger automobiles, § 280F(c) requires a reduction in the deduction allowed to the lessee of the passenger automobile. State tax preparation free The reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. State tax preparation free Under § 1. State tax preparation free 280F-7(a) of the Income Tax Regulations, this reduction requires a lessee to include in gross income an inclusion amount determined by applying a formula to the amount obtained from a table. State tax preparation free One table applies to lessees of trucks and vans and another table applies to all other passenger automobiles. State tax preparation free Each table shows inclusion amounts for a range of fair market values for each taxable year after the passenger automobile is first leased. State tax preparation free SECTION 3. State tax preparation free SCOPE . State tax preparation free 01 The limitations on depreciation deductions in section 4. State tax preparation free 02(2) of this revenue procedure apply to passenger automobiles (other than leased passenger automobiles) that are placed in service by the taxpayer in calendar year 2009, and continue to apply for each taxable year that the passenger automobile remains in service. State tax preparation free . State tax preparation free 02 The tables in section 4. State tax preparation free 03 of this revenue procedure apply to leased passenger automobiles for which the lease term begins during calendar year 2009. State tax preparation free Lessees of these passenger automobiles must use these tables to determine the inclusion amount for each taxable year during which the passenger automobile is leased. State tax preparation free See Rev. State tax preparation free Proc. State tax preparation free 2002-14, 2002-1 C. State tax preparation free B. State tax preparation free 450, for passenger automobiles first leased before January 1, 2003, Rev. State tax preparation free Proc. State tax preparation free 2003-75, 2003-2 C. State tax preparation free B. State tax preparation free 1018, for passenger automobiles first leased during calendar year 2003, Rev. State tax preparation free Proc. State tax preparation free 2004-20, 2004-1 C. State tax preparation free B. State tax preparation free 642, for passenger automobiles first leased during calendar year 2004, Rev. State tax preparation free Proc. State tax preparation free 2005-13, 2005-1 C. State tax preparation free B. State tax preparation free 759, for passenger automobiles first leased during calendar year 2005, Rev. State tax preparation free Proc. State tax preparation free 2006-18, 2006-1 C. State tax preparation free B. State tax preparation free 645, for passenger automobiles first leased during calendar year 2006, Rev. State tax preparation free Proc. State tax preparation free 2007-30, 2007-1 C. State tax preparation free B. State tax preparation free 1104, for passenger automobiles first leased during calendar year 2007, and Rev. State tax preparation free Proc. State tax preparation free 2008-22, 2008-12 I. State tax preparation free R. State tax preparation free B. State tax preparation free 658, for passenger automobiles first leased during calendar year 2008. State tax preparation free SECTION 4. State tax preparation free APPLICATION . State tax preparation free 01 In General. State tax preparation free (1) Limitations on depreciation deductions for certain automobiles. State tax preparation free The limitations on depreciation deductions for passenger automobiles placed in service by the taxpayer for the first time during calendar year 2009 are in Tables 1 through 4 in section 4. State tax preparation free 02(2) of this revenue procedure. State tax preparation free (2) Inclusions in income of lessees of passenger automobiles. State tax preparation free A taxpayer first leasing a passenger automobile during calendar year 2009 must determine the inclusion amount that is added to gross income using Tables 5 and 6 in section 4. State tax preparation free 03 of this revenue procedure. State tax preparation free In addition, the taxpayer must follow the procedures of § 1. State tax preparation free 280F-7(a). State tax preparation free . State tax preparation free 02 Limitations on Depreciation Deductions for Certain Automobiles. State tax preparation free (1) Amount of the inflation adjustment. State tax preparation free (a) Passenger automobiles (other than trucks or vans). State tax preparation free Under § 280F(d)(7)(B)(i), the automobile price inflation adjustment for any calendar year is the percentage (if any) by which the CPI automobile component for October of the preceding calendar year exceeds the CPI automobile component for October 1987. State tax preparation free The term “CPI automobile component” is defined in § 280F(d)(7)(B)(ii) as the “automobile component” of the Consumer Price Index for all Urban Consumers published by the Department of Labor. State tax preparation free The new car component of the CPI was 115. State tax preparation free 2 for October 1987 and 134. State tax preparation free 837 for October 2008. State tax preparation free The October 2008 index exceeded the October 1987 index by 19. State tax preparation free 637. State tax preparation free The Internal Revenue Service has, therefore, determined that the automobile price inflation adjustment for 2009 for passenger automobiles (other than trucks and vans) is 17. State tax preparation free 05 percent (19. State tax preparation free 637/115. State tax preparation free 2 x 100%). State tax preparation free This adjustment is applicable to all passenger automobiles (other than trucks and vans) that are first placed in service in calendar year 2009. State tax preparation free The dollar limitations in § 280F(a) therefore must be multiplied by a factor of 0. State tax preparation free 1705, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to passenger automobiles (other than trucks and vans) for calendar year 2009. State tax preparation free (b) Trucks and vans. State tax preparation free To determine the dollar limitations applicable to trucks and vans first placed in service during calendar year 2009, the new truck component of the CPI is used instead of the new car component. State tax preparation free The new truck component of the CPI was 112. State tax preparation free 4 for October 1987 and 133. State tax preparation free 640 for October 2008. State tax preparation free The October 2008 index exceeded the October 1987 index by 21. State tax preparation free 24. State tax preparation free The Service has, therefore, determined that the automobile price inflation adjustment for 2009 for trucks and vans is 18. State tax preparation free 90 percent (21. State tax preparation free 24/112. State tax preparation free 4 x 100%). State tax preparation free This adjustment is applicable to all trucks and vans that are first placed in service in calendar year 2009. State tax preparation free The dollar limitations in § 280F(a) therefore must be multiplied by a factor of 0. State tax preparation free 1890, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to trucks and vans. State tax preparation free (2) Amount of the limitation. State tax preparation free For passenger automobiles placed in service by the taxpayer in calendar year 2009, Tables 1 through 4 contain the dollar amount of the depreciation limitation for each taxable year. State tax preparation free Use Table 1 for a passenger automobile (other than a truck or van) placed in service by the taxpayer in calendar year 2009, for which the 50 percent additional first year depreciation deduction does not apply, including a passenger automobile (other than a truck or van) in a class of property for which the taxpayer elects out of the 50 percent additional first year depreciation deduction or a passenger automobile that is eligible qualified property to which the § 168(k)(4) election applies. State tax preparation free Use Table 2 for a passenger automobile (other than a truck or van) placed in service by the taxpayer in calendar year 2009, for which the 50 percent additional first year depreciation deduction applies. State tax preparation free Use Table 3 for a truck or van placed in service by the taxpayer in calendar year 2009, for which the 50 percent additional first year depreciation deduction does not apply, including a truck or van in a class of property for which the taxpayer elects out of the 50 percent additional first year depreciation deduction or a truck or van that is eligible qualified property to which the § 168(k)(4) election applies. State tax preparation free Use Table 4 for a truck or van placed in service by the taxpayer in calendar year 2009, for which the 50 percent additional first year depreciation deduction applies. State tax preparation free REV. State tax preparation free PROC. State tax preparation free 2009-24 TABLE 1 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE BY THE TAXPAYER IN CALENDAR YEAR 2009, FOR WHICH THE 50 PERCENT ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $2,960 2nd Tax Year $4,800 3rd Tax Year $2,850 Each Succeeding Year $1,775 REV. State tax preparation free PROC. State tax preparation free 2009-24 TABLE 2 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE BY THE TAXPAYER IN CALENDAR YEAR 2009, FOR WHICH THE 50 PERCENT ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $10,960 2nd Tax Year $4,800 3rd Tax Year $2,850 Each Succeeding Year $1,775 REV. State tax preparation free PROC. State tax preparation free 2009-24 TABLE 3 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE BY THE TAXPAYER IN CALENDAR YEAR 2009, FOR WHICH THE 50 PERCENT ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $3,060 2nd Tax Year $4,900 3rd Tax Year $2,950 Each Succeeding Year $1,775 REV. State tax preparation free PROC. State tax preparation free 2009-24 TABLE 4 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE BY THE TAXPAYER IN CALENDAR YEAR 2009, FOR WHICH THE 50 PERCENT ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,060 2nd Tax Year $4,900 3rd Tax Year $2,950 Each Succeeding Year $1,775 . State tax preparation free 03 Inclusions in Income of Lessees of Passenger Automobiles. State tax preparation free The inclusion amounts for passenger automobiles first leased in calendar year 2009 are calculated under the procedures described in § 1. State tax preparation free 280F-7(a). State tax preparation free Lessees of passenger automobiles other than trucks and vans should use Table 5 of this revenue procedure in applying these procedures, while lessees of trucks and vans should use Table 6 of this revenue procedure. State tax preparation free REV. State tax preparation free PROC. State tax preparation free 2009-24 TABLE 5 DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2009 Fair Market Value of Passenger Automobile Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & Later $18,500 $19,000 9 19 28 34 38 19,000 19,500 10 21 32 38 43 19,500 20,000 11 24 36 42 48 20,000 20,500 12 27 39 46 54 20,500 21,000 13 29 43 51 58 21,000 21,500 15 31 47 55 64 21,500 22,000 16 34 50 60 68 22,000 23,000 17 38 56 66 76 23,000 24,000 20 42 64 75 86 24,000 25,000 22 47 71 84 96 25,000 26,000 24 52 78 93 107 26,000 27,000 26 58 85 101 117 27,000 28,000 29 62 93 110 127 28,000 29,000 31 67 100 119 138 29,000 30,000 33 72 108 128 147 30,000 31,000 35 77 115 137 157 31,000 32,000 38 82 122 146 167 32,000 33,000 40 87 129 155 178 33,000 34,000 42 92 137 163 188 34,000 35,000 44 97 144 172 199 35,000 36,000 47 102 151 181 208 36,000 37,000 49 107 159 189 219 37,000 38,000 51 112 166 199 228 38,000 39,000 53 117 173 208 239 39,000 40,000 56 122 180 216 250 40,000 41,000 58 127 188 225 259 41,000 42,000 60 132 195 234 269 42,000 43,000 62 137 203 242 280 43,000 44,000 65 141 210 252 290 44,000 45,000 67 146 218 260 300 45,000 46,000 69 151 225 269 311 46,000 47,000 71 157 232 278 320 47,000 48,000 74 161 240 286 331 48,000 49,000 76 166 247 296 340 49,000 50,000 78 171 255 304 351 50,000 51,000 80 176 262 313 361 51,000 52,000 83 181 269 322 371 52,000 53,000 85 186 276 331 381 53,000 54,000 87 191 284 339 392 54,000 55,000 89 196 291 349 401 55,000 56,000 92 201 298 357 412 56,000 57,000 94 206 306 365 423 57,000 58,000 96 211 313 375 432 58,000 59,000 98 216 320 384 442 59,000 60,000 101 221 327 393 452 60,000 62,000 104 228 339 406 467 62,000 64,000 109 238 353 424 488 64,000 66,000 113 248 368 441 509 66,000 68,000 118 258 382 459 529 68,000 70,000 122 268 397 476 550 70,000 72,000 127 277 413 493 570 72,000 74,000 131 288 427 511 590 74,000 76,000 136 297 442 529 610 76,000 78,000 140 307 457 546 631 78,000 80,000 145 317 471 564 651 80,000 85,000 152 335 497 595 686 85,000 90,000 164 359 534 639 737 90,000 95,000 175 384 570 683 789 95,000 100,000 186 409 607 727 839 100,000 110,000 203 446 662 793 916 110,000 120,000 226 495 736 881 1,018 120,000 130,000 248 545 809 970 1,119 130,000 140,000 271 594 883 1,058 1,220 140,000 150,000 293 644 956 1,146 1,322 150,000 160,000 316 693 1,030 1,234 1,424 160,000 170,000 338 743 1,103 1,322 1,526 170,000 180,000 361 792 1,177 1,410 1,628 180,000 190,000 383 842 1,250 1,498 1,730 190,000 200,000 406 891 1,324 1,586 1,831 200,000 210,000 428 941 1,397 1,675 1,932 210,000 220,000 451 990 1,471 1,762 2,035 220,000 230,000 473 1,040 1,544 1,851 2,136 230,000 240,000 496 1,089 1,618 1,939 2,238 240,000 And up 518 1,139 1,691 2,027 2,340 REV. State tax preparation free PROC. State tax preparation free 2009-24 TABLE 6 DOLLAR AMOUNTS FOR TRUCKS AND VANS WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2009 Fair Market Value of Electric Automobile Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th and Later $18,500 $19,000 8 17 25 30 35 19,000 19,500 9 19 29 35 40 19,500 20,000 10 22 33 38 45 20,000 20,500 11 25 36 43 50 20,500 21,000 12 27 40 48 55 21,000 21,500 13 30 43 52 60 21,500 22,000 15 32 47 56 66 22,000 23,000 16 36 52 64 72 23,000 24,000 18 41 60 72 83 24,000 25,000 21 45 68 81 93 25,000 26,000 23 50 75 90 103 26,000 27,000 25 56 82 98 114 27,000 28,000 27 61 89 107 124 28,000 29,000 30 65 97 116 134 29,000 30,000 32 70 104 125 144 30,000 31,000 34 75 112 134 154 31,000 32,000 36 80 119 143 164 32,000 33,000 39 85 126 151 175 33,000 34,000 41 90 134 160 184 34,000 35,000 43 95 141 169 195 35,000 36,000 45 100 148 178 205 36,000 37,000 48 105 155 187 215 37,000 38,000 50 110 163 195 226 38,000 39,000 52 115 170 204 236 39,000 40,000 55 120 177 213 246 40,000 41,000 57 125 185 221 256 41,000 42,000 59 130 192 231 266 42,000 43,000 61 135 199 240 276 43,000 44,000 64 139 207 249 286 44,000 45,000 66 144 215 257 296 45,000 46,000 68 149 222 266 307 46,000 47,000 70 155 229 274 317 47,000 48,000 73 159 237 283 327 48,000 49,000 75 164 244 292 338 49,000 50,000 77 169 251 301 348 50,000 51,000 79 174 259 310 357 51,000 52,000 82 179 266 318 368 52,000 53,000 84 184 273 328 378 53,000 54,000 86 189 281 336 388 54,000 55,000 88 194 288 345 399 55,000 56,000 91 199 295 354 408 56,000 57,000 93 204 302 363 419 57,000 58,000 95 209 310 371 429 58,000 59,000 97 214 317 381 439 59,000 60,000 100 219 324 389 450 60,000 62,000 103 226 336 402 465 62,000 64,000 107 236 351 420 485 64,000 66,000 112 246 365 438 505 66,000 68,000 116 256 380 455 526 68,000 70,000 121 266 394 473 546 70,000 72,000 125 276 409 491 566 72,000 74,000 130 286 423 509 586 74,000 76,000 134 296 438 526 607 76,000 78,000 139 305 454 543 627 78,000 80,000 143 316 467 561 648 80,000 85,000 151 333 493 592 684 85,000 90,000 163 357 531 635 735 90,000 95,000 174 382 567 680 785 95,000 100,000 185 407 604 724 836 100,000 110,000 202 444 659 790 912 110,000 120,000 225 493 733 878 1,014 120,000 130,000 247 543 806 966 1,116 130,000 140,000 270 592 880 1,054 1,218 140,000 150,000 292 642 953 1,143 1,319 150,000 160,000 315 691 1,027 1,230 1,421 160,000 170,000 337 741 1,100 1,319 1,522 170,000 180,000 360 790 1,174 1,407 1,624 180,000 190,000 382 840 1,247 1,495 1,726 190,000 200,000 405 889 1,321 1,583 1,828 200,000 210,000 427 939 1,394 1,671 1,930 210,000 220,000 450 988 1,468 1,759 2,031 220,000 230,000 472 1,038 1,541 1,847 2,134 230,000 240,000 495 1,087 1,615 1,935 2,235 240,000 and up 517 1,137 1,688 2,024 2,336 SECTION 5. State tax preparation free EFFECTIVE DATE This revenue procedure applies to passenger automobiles (other than leased passenger automobiles) that are first placed in service by a taxpayer during calendar year 2009, and to leased passenger automobiles that are first leased by a taxpayer during calendar year 2009. State tax preparation free SECTION 6. State tax preparation free DRAFTING INFORMATION The principal author of this revenue procedure is Bernard P. State tax preparation free Harvey of the Office of Associate Chief Counsel (Income Tax & Accounting). State tax preparation free For further information regarding this revenue procedure, contact Mr. State tax preparation free Harvey at (202) 622-4930 (not a toll-free call). State tax preparation free Prev  Up  Next   Home   More Internal Revenue Bulletins