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Turbotax 1040x 2012

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Turbotax 1040x 2012

Turbotax 1040x 2012 23. Turbotax 1040x 2012   Interest Expense Table of Contents Introduction Useful Items - You may want to see: Home Mortgage InterestAmount Deductible Points Mortgage Insurance Premiums Form 1098, Mortgage Interest Statement Investment InterestInvestment Property Allocation of Interest Expense Limit on Deduction Items You Cannot DeductPersonal Interest Allocation of Interest How To ReportMore than one borrower. Turbotax 1040x 2012 Mortgage proceeds used for business or investment. Turbotax 1040x 2012 Introduction This chapter discusses what interest expenses you can deduct. Turbotax 1040x 2012 Interest is the amount you pay for the use of borrowed money. Turbotax 1040x 2012 The following are types of interest you can deduct as itemized deductions on Schedule A (Form 1040). Turbotax 1040x 2012 Home mortgage interest, including certain points and mortgage insurance premiums. Turbotax 1040x 2012 Investment interest. Turbotax 1040x 2012 This chapter explains these deductions. Turbotax 1040x 2012 It also explains where to deduct other types of interest and lists some types of interest you cannot deduct. Turbotax 1040x 2012 Use Table 23-1 to find out where to get more information on various types of interest, including investment interest. Turbotax 1040x 2012 Useful Items - You may want to see: Publication 936 Home Mortgage Interest Deduction 550 Investment Income and Expenses Home Mortgage Interest Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). Turbotax 1040x 2012 The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. Turbotax 1040x 2012 You can deduct home mortgage interest if all the following conditions are met. Turbotax 1040x 2012 You file Form 1040 and itemize deductions on Schedule A (Form 1040). Turbotax 1040x 2012 The mortgage is a secured debt on a qualified home in which you have an ownership interest. Turbotax 1040x 2012 (Generally, your mortgage is a secured debt if you put your home up as collateral to protect the interest of the lender. Turbotax 1040x 2012 The term “qualified home” means your main home or second home. Turbotax 1040x 2012 For details, see Publication 936. Turbotax 1040x 2012 )  Both you and the lender must intend that the loan be repaid. Turbotax 1040x 2012 Amount Deductible In most cases, you can deduct all of your home mortgage interest. Turbotax 1040x 2012 How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. Turbotax 1040x 2012 Fully deductible interest. Turbotax 1040x 2012   If all of your mortgages fit into one or more of the following three categories at all times during the year, you can deduct all of the interest on those mortgages. Turbotax 1040x 2012 (If any one mortgage fits into more than one category, add the debt that fits in each category to your other debt in the same category. Turbotax 1040x 2012 )   The three categories are as follows: Mortgages you took out on or before October 13, 1987 (called grandfathered debt). Turbotax 1040x 2012 Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2013 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately). Turbotax 1040x 2012 Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2013 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2). Turbotax 1040x 2012 The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home. Turbotax 1040x 2012   See Part II of Publication 936 for more detailed definitions of grandfathered, home acquisition, and home equity debt. Turbotax 1040x 2012    You can use Figure 23-A to check whether your home mortgage interest is fully deductible. Turbotax 1040x 2012 Figure 23-A. Turbotax 1040x 2012 Is My Home Mortgage Interest Fully Deductible? Please click here for the text description of the image. Turbotax 1040x 2012 Figure 23-A. Turbotax 1040x 2012 Is My Interest Fully Deductible? Limits on deduction. Turbotax 1040x 2012   You cannot fully deduct interest on a mortgage that does not fit into any of the three categories listed earlier. Turbotax 1040x 2012 If this applies to you, see Part II of Publication 936 to figure the amount of interest you can deduct. Turbotax 1040x 2012 Special Situations This section describes certain items that can be included as home mortgage interest and others that cannot. Turbotax 1040x 2012 It also describes certain special situations that may affect your deduction. Turbotax 1040x 2012 Late payment charge on mortgage payment. Turbotax 1040x 2012   You can deduct as home mortgage interest a late payment charge if it was not for a specific service performed in connection with your mortgage loan. Turbotax 1040x 2012 Mortgage prepayment penalty. Turbotax 1040x 2012   If you pay off your home mortgage early, you may have to pay a penalty. Turbotax 1040x 2012 You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan. Turbotax 1040x 2012 Sale of home. Turbotax 1040x 2012   If you sell your home, you can deduct your home mortgage interest (subject to any limits that apply) paid up to, but not including, the date of sale. Turbotax 1040x 2012 Example. Turbotax 1040x 2012 John and Peggy Harris sold their home on May 7. Turbotax 1040x 2012 Through April 30, they made home mortgage interest payments of $1,220. Turbotax 1040x 2012 The settlement sheet for the sale of the home showed $50 interest for the 6-day period in May up to, but not including, the date of sale. Turbotax 1040x 2012 Their mortgage interest deduction is $1,270 ($1,220 + $50). Turbotax 1040x 2012 Prepaid interest. Turbotax 1040x 2012   If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. Turbotax 1040x 2012 You can deduct in each year only the interest that qualifies as home mortgage interest for that year. Turbotax 1040x 2012 However, there is an exception that applies to points, discussed later. Turbotax 1040x 2012 Mortgage interest credit. Turbotax 1040x 2012   You may be able to claim a mortgage interest credit if you were issued a mortgage credit certificate (MCC) by a state or local government. Turbotax 1040x 2012 Figure the credit on Form 8396, Mortgage Interest Credit. Turbotax 1040x 2012 If you take this credit, you must reduce your mortgage interest deduction by the amount of the credit. Turbotax 1040x 2012   For more information on the credit, see chapter 37. Turbotax 1040x 2012 Ministers' and military housing allowance. Turbotax 1040x 2012   If you are a minister or a member of the uniformed services and receive a housing allowance that is not taxable, you can still deduct your home mortgage interest. Turbotax 1040x 2012 Hardest Hit Fund and Emergency Homeowners' Loan Programs. Turbotax 1040x 2012   You can use a special method to compute your deduction for mortgage interest and real estate taxes on your main home if you meet the following two conditions. Turbotax 1040x 2012 You received assistance under: A State Housing Finance Agency (State HFA) Hardest Hit Fund program in which program payments could be used to pay mortgage interest, or An Emergency Homeowners' Loan Program administered by the Department of Housing and Urban Development (HUD) or a state. Turbotax 1040x 2012 You meet the rules to deduct all of the mortgage interest on your loan and all of the real estate taxes on your main home. Turbotax 1040x 2012 If you meet these tests, then you can deduct all of the payments you actually made during the year to your mortgage servicer, the State HFA, or HUD on the home mortgage (including the amount shown on box 3 of Form 1098-MA, Mortgage Assistance Payments), but not more than the sum of the amounts shown on Form 1098, Mortgage Interest Statement, in box 1 (mortgage interest received from payer(s) / borrower(s)), box 4 (mortgage insurance premiums) and box 5 (real property taxes). Turbotax 1040x 2012 However, you are not required to use this special method to compute your deduction for mortgage interest and real estate taxes on your main home. Turbotax 1040x 2012 Mortgage assistance payments under section 235 of the National Housing Act. Turbotax 1040x 2012   If you qualify for mortgage assistance payments for lower-income families under section 235 of the National Housing Act, part or all of the interest on your mortgage may be paid for you. Turbotax 1040x 2012 You cannot deduct the interest that is paid for you. Turbotax 1040x 2012 No other effect on taxes. Turbotax 1040x 2012   Do not include these mortgage assistance payments in your income. Turbotax 1040x 2012 Also, do not use these payments to reduce other deductions, such as real estate taxes. Turbotax 1040x 2012 Divorced or separated individuals. Turbotax 1040x 2012   If a divorce or separation agreement requires you or your spouse or former spouse to pay home mortgage interest on a home owned by both of you, the payment of interest may be alimony. Turbotax 1040x 2012 See the discussion of Payments for jointly-owned home in chapter 18. Turbotax 1040x 2012 Redeemable ground rents. Turbotax 1040x 2012   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct them as mortgage interest. Turbotax 1040x 2012   Payments made to end the lease and to buy the lessor's entire interest in the land are not deductible as mortgage interest. Turbotax 1040x 2012 For more information, see Publication 936. Turbotax 1040x 2012 Nonredeemable ground rents. Turbotax 1040x 2012   Payments on a nonredeemable ground rent are not mortgage interest. Turbotax 1040x 2012 You can deduct them as rent if they are a business expense or if they are for rental property. Turbotax 1040x 2012 Reverse mortgages. Turbotax 1040x 2012   A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. Turbotax 1040x 2012 With a reverse mortgage, you retain title to your home. Turbotax 1040x 2012 Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. Turbotax 1040x 2012 Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. Turbotax 1040x 2012 Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until the loan is paid in full. Turbotax 1040x 2012 Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Publication 936. Turbotax 1040x 2012 Rental payments. Turbotax 1040x 2012   If you live in a house before final settlement on the purchase, any payments you make for that period are rent and not interest. Turbotax 1040x 2012 This is true even if the settlement papers call them interest. Turbotax 1040x 2012 You cannot deduct these payments as home mortgage interest. Turbotax 1040x 2012 Mortgage proceeds invested in tax-exempt securities. Turbotax 1040x 2012   You cannot deduct the home mortgage interest on grandfathered debt or home equity debt if you used the proceeds of the mortgage to buy securities or certificates that produce tax-free income. Turbotax 1040x 2012 “Grandfathered debt” and “home equity debt” are defined earlier under Amount Deductible. Turbotax 1040x 2012 Refunds of interest. Turbotax 1040x 2012   If you receive a refund of interest in the same tax year you paid it, you must reduce your interest expense by the amount refunded to you. Turbotax 1040x 2012 If you receive a refund of interest you deducted in an earlier year, you generally must include the refund in income in the year you receive it. Turbotax 1040x 2012 However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year. Turbotax 1040x 2012 This is true whether the interest overcharge was refunded to you or was used to reduce the outstanding principal on your mortgage. Turbotax 1040x 2012    If you received a refund of interest you overpaid in an earlier year, you generally will receive a Form 1098, Mortgage Interest Statement, showing the refund in box 3. Turbotax 1040x 2012 For information about Form 1098, see Form 1098, Mortgage Interest Statement , later. Turbotax 1040x 2012   For more information on how to treat refunds of interest deducted in earlier years, see Recoveries in chapter 12. Turbotax 1040x 2012 Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Turbotax 1040x 2012 Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. Turbotax 1040x 2012 A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. Turbotax 1040x 2012 See Points paid by the seller , later. Turbotax 1040x 2012 General Rule You generally cannot deduct the full amount of points in the year paid. Turbotax 1040x 2012 Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. Turbotax 1040x 2012 See Deduction Allowed Ratably , next. Turbotax 1040x 2012 For exceptions to the general rule, see Deduction Allowed in Year Paid , later. Turbotax 1040x 2012 Deduction Allowed Ratably If you do not meet the tests listed under Deduction Allowed in Year Paid , later, the loan is not a home improvement loan, or you choose not to deduct your points in full in the year paid, you can deduct the points ratably (equally) over the life of the loan if you meet all the following tests. Turbotax 1040x 2012 You use the cash method of accounting. Turbotax 1040x 2012 This means you report income in the year you receive it and deduct expenses in the year you pay them. Turbotax 1040x 2012 Most individuals use this method. Turbotax 1040x 2012 Your loan is secured by a home. Turbotax 1040x 2012 (The home does not need to be your main home. Turbotax 1040x 2012 ) Your loan period is not more than 30 years. Turbotax 1040x 2012 If your loan period is more than 10 years, the terms of your loan are the same as other loans offered in your area for the same or longer period. Turbotax 1040x 2012 Either your loan amount is $250,000 or less, or the number of points is not more than: 4, if your loan period is 15 years or less, or 6, if your loan period is more than 15 years. Turbotax 1040x 2012 Deduction Allowed in Year Paid You can fully deduct points in the year paid if you meet all the following tests. Turbotax 1040x 2012 (You can use Figure 23-B as a quick guide to see whether your points are fully deductible in the year paid. Turbotax 1040x 2012 ) Your loan is secured by your main home. Turbotax 1040x 2012 (Your main home is the one you ordinarily live in most of the time. Turbotax 1040x 2012 ) Paying points is an established business practice in the area where the loan was made. Turbotax 1040x 2012 The points paid were not more than the points generally charged in that area. Turbotax 1040x 2012 You use the cash method of accounting. Turbotax 1040x 2012 This means you report income in the year you receive it and deduct expenses in the year you pay them. Turbotax 1040x 2012 (If you want more information about this method, see Accounting Methods in chapter 1. Turbotax 1040x 2012 ) The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes. Turbotax 1040x 2012 The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. Turbotax 1040x 2012 The funds you provided are not required to have been applied to the points. Turbotax 1040x 2012 They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. Turbotax 1040x 2012 You cannot have borrowed these funds from your lender or mortgage broker. Turbotax 1040x 2012 You use your loan to buy or build your main home. Turbotax 1040x 2012 The points were computed as a percentage of the principal amount of the mortgage. Turbotax 1040x 2012 The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. Turbotax 1040x 2012 The points may be shown as paid from either your funds or the seller's. Turbotax 1040x 2012 Figure 23-B. Turbotax 1040x 2012 Are My Points Fully Deductible This Year? Please click here for the text description of the image. Turbotax 1040x 2012 Figure 23-B. Turbotax 1040x 2012 Are My Points Fully Deductible This Year? Note. Turbotax 1040x 2012 If you meet all of these tests, you can choose to either fully deduct the points in the year paid, or deduct them over the life of the loan. Turbotax 1040x 2012 Home improvement loan. Turbotax 1040x 2012   You can also fully deduct in the year paid points paid on a loan to improve your main home, if tests (1) through (6) are met. Turbotax 1040x 2012 Second home. Turbotax 1040x 2012 You cannot fully deduct in the year paid points you pay on loans secured by your second home. Turbotax 1040x 2012 You can deduct these points only over the life of the loan. Turbotax 1040x 2012 Refinancing. Turbotax 1040x 2012   Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. Turbotax 1040x 2012 This is true even if the new mortgage is secured by your main home. Turbotax 1040x 2012   However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first 6 tests listed under Deduction Allowed in Year Paid , earlier, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. Turbotax 1040x 2012 You can deduct the rest of the points over the life of the loan. Turbotax 1040x 2012 Example 1. Turbotax 1040x 2012 In 1998, Bill Fields got a mortgage to buy a home. Turbotax 1040x 2012 In 2013, Bill refinanced that mortgage with a 15-year $100,000 mortgage loan. Turbotax 1040x 2012 The mortgage is secured by his home. Turbotax 1040x 2012 To get the new loan, he had to pay three points ($3,000). Turbotax 1040x 2012 Two points ($2,000) were for prepaid interest, and one point ($1,000) was charged for services, in place of amounts that ordinarily are stated separately on the settlement statement. Turbotax 1040x 2012 Bill paid the points out of his private funds, rather than out of the proceeds of the new loan. Turbotax 1040x 2012 The payment of points is an established practice in the area, and the points charged are not more than the amount generally charged there. Turbotax 1040x 2012 Bill's first payment on the new loan was due July 1. Turbotax 1040x 2012 He made six payments on the loan in 2013 and is a cash basis taxpayer. Turbotax 1040x 2012 Bill used the funds from the new mortgage to repay his existing mortgage. Turbotax 1040x 2012 Although the new mortgage loan was for Bill's continued ownership of his main home, it was not for the purchase or improvement of that home. Turbotax 1040x 2012 He cannot deduct all of the points in 2013. Turbotax 1040x 2012 He can deduct two points ($2,000) ratably over the life of the loan. Turbotax 1040x 2012 He deducts $67 [($2,000 ÷ 180 months) × 6 payments] of the points in 2013. Turbotax 1040x 2012 The other point ($1,000) was a fee for services and is not deductible. Turbotax 1040x 2012 Example 2. Turbotax 1040x 2012 The facts are the same as in Example 1, except that Bill used $25,000 of the loan proceeds to improve his home and $75,000 to repay his existing mortgage. Turbotax 1040x 2012 Bill deducts 25% ($25,000 ÷ $100,000) of the points ($2,000) in 2013. Turbotax 1040x 2012 His deduction is $500 ($2,000 × 25%). Turbotax 1040x 2012 Bill also deducts the ratable part of the remaining $1,500 ($2,000 − $500) that must be spread over the life of the loan. Turbotax 1040x 2012 This is $50 [($1,500 ÷ 180 months) × 6 payments] in 2013. Turbotax 1040x 2012 The total amount Bill deducts in 2013 is $550 ($500 + $50). Turbotax 1040x 2012 Special Situations This section describes certain special situations that may affect your deduction of points. Turbotax 1040x 2012 Original issue discount. Turbotax 1040x 2012   If you do not qualify to either deduct the points in the year paid or deduct them ratably over the life of the loan, or if you choose not to use either of these methods, the points reduce the issue price of the loan. Turbotax 1040x 2012 This reduction results in original issue discount, which is discussed in chapter 4 of Publication 535. Turbotax 1040x 2012 Amounts charged for services. Turbotax 1040x 2012   Amounts charged by the lender for specific services connected to the loan are not interest. Turbotax 1040x 2012 Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. Turbotax 1040x 2012 You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. Turbotax 1040x 2012 Points paid by the seller. Turbotax 1040x 2012   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. Turbotax 1040x 2012 Treatment by seller. Turbotax 1040x 2012   The seller cannot deduct these fees as interest. Turbotax 1040x 2012 But they are a selling expense that reduces the amount realized by the seller. Turbotax 1040x 2012 See chapter 15 for information on selling your home. Turbotax 1040x 2012 Treatment by buyer. Turbotax 1040x 2012    The buyer reduces the basis of the home by the amount of the seller-paid points and treats the points as if he or she had paid them. Turbotax 1040x 2012 If all the tests under Deduction Allowed in Year Paid , earlier, are met, the buyer can deduct the points in the year paid. Turbotax 1040x 2012 If any of those tests are not met, the buyer deducts the points over the life of the loan. Turbotax 1040x 2012   For information about basis, see chapter 13. Turbotax 1040x 2012 Funds provided are less than points. Turbotax 1040x 2012   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the funds you provided were less than the points charged to you (test (6)), you can deduct the points in the year paid, up to the amount of funds you provided. Turbotax 1040x 2012 In addition, you can deduct any points paid by the seller. Turbotax 1040x 2012 Example 1. Turbotax 1040x 2012 When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). Turbotax 1040x 2012 You meet all the tests for deducting points in the year paid, except the only funds you provided were a $750 down payment. Turbotax 1040x 2012 Of the $1,000 charged for points, you can deduct $750 in the year paid. Turbotax 1040x 2012 You spread the remaining $250 over the life of the mortgage. Turbotax 1040x 2012 Example 2. Turbotax 1040x 2012 The facts are the same as in Example 1, except that the person who sold you your home also paid one point ($1,000) to help you get your mortgage. Turbotax 1040x 2012 In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). Turbotax 1040x 2012 You spread the remaining $250 over the life of the mortgage. Turbotax 1040x 2012 You must reduce the basis of your home by the $1,000 paid by the seller. Turbotax 1040x 2012 Excess points. Turbotax 1040x 2012   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the points paid were more than generally paid in your area (test (3)), you deduct in the year paid only the points that are generally charged. Turbotax 1040x 2012 You must spread any additional points over the life of the mortgage. Turbotax 1040x 2012 Mortgage ending early. Turbotax 1040x 2012   If you spread your deduction for points over the life of the mortgage, you can deduct any remaining balance in the year the mortgage ends. Turbotax 1040x 2012 However, if you refinance the mortgage with the same lender, you cannot deduct any remaining balance of spread points. Turbotax 1040x 2012 Instead, deduct the remaining balance over the term of the new loan. Turbotax 1040x 2012    A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. Turbotax 1040x 2012 Example. Turbotax 1040x 2012 Dan paid $3,000 in points in 2002 that he had to spread out over the 15-year life of the mortgage. Turbotax 1040x 2012 He deducts $200 points per year. Turbotax 1040x 2012 Through 2012, Dan has deducted $2,200 of the points. Turbotax 1040x 2012 Dan prepaid his mortgage in full in 2013. Turbotax 1040x 2012 He can deduct the remaining $800 of points in 2013. Turbotax 1040x 2012 Limits on deduction. Turbotax 1040x 2012   You cannot fully deduct points paid on a mortgage unless the mortgage fits into one of the categories listed earlier under Fully deductible interest . Turbotax 1040x 2012 See Publication 936 for details. Turbotax 1040x 2012 Mortgage Insurance Premiums You can treat amounts you paid during 2013 for qualified mortgage insurance as home mortgage interest. Turbotax 1040x 2012 The insurance must be in connection with home acquisition debt and the insurance contract must have been issued after 2006. Turbotax 1040x 2012 Qualified mortgage insurance. Turbotax 1040x 2012   Qualified mortgage insurance is mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). Turbotax 1040x 2012   Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. Turbotax 1040x 2012 If provided by the Rural Housing Service, it is commonly known as a guarantee fee. Turbotax 1040x 2012 These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013. Turbotax 1040x 2012 Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098. Turbotax 1040x 2012 Special rules for prepaid mortgage insurance. Turbotax 1040x 2012   Generally, if you paid premiums for qualified mortgage insurance that are allocable to periods after the close of the tax year, such premiums are treated as paid in the period to which they are allocated. Turbotax 1040x 2012 You must allocate the premiums over the shorter of the stated term of the mortgage or 84 months, beginning with the month the insurance was obtained. Turbotax 1040x 2012 No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term. Turbotax 1040x 2012 This paragraph does not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. Turbotax 1040x 2012 See the Example below. Turbotax 1040x 2012 Example. Turbotax 1040x 2012 Ryan purchased a home in May of 2012 and financed the home with a 15-year mortgage. Turbotax 1040x 2012 Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May. Turbotax 1040x 2012 Since the $9,240 in private mortgage insurance is allocable to periods after 2012, Ryan must allocate the $9,240 over the shorter of the life of the mortgage or 84 months. Turbotax 1040x 2012 Ryan's adjusted gross income (AGI) for 2012 is $76,000. Turbotax 1040x 2012 Ryan can deduct $880 ($9,240 ÷ 84 × 8 months) for qualified mortgage insurance premiums in 2012. Turbotax 1040x 2012 For 2013, Ryan can deduct $1,320 ($9,240 ÷ 84 × 12 months) if his AGI is $100,000 or less. Turbotax 1040x 2012 In this example, the mortgage insurance premiums are allocated over 84 months, which is shorter than the life of the mortgage of 15 years (180 months). Turbotax 1040x 2012 Limit on deduction. Turbotax 1040x 2012   If your adjusted gross income on Form 1040, line 38, is more than $100,000 ($50,000 if your filing status is married filing separately), the amount of your mortgage insurance premiums that are otherwise deductible is reduced and may be eliminated. Turbotax 1040x 2012 See Line 13 in the instructions for Schedule A (Form 1040) and complete the Mortgage Insurance Premiums Deduction Worksheet to figure the amount you can deduct. Turbotax 1040x 2012 If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. Turbotax 1040x 2012 Form 1098, Mortgage Interest Statement If you paid $600 or more of mortgage interest (including certain points and mortgage insurance premiums) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement from the mortgage holder. Turbotax 1040x 2012 You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. Turbotax 1040x 2012 A governmental unit is a person for purposes of furnishing the statement. Turbotax 1040x 2012 The statement for each year should be sent to you by January 31 of the following year. Turbotax 1040x 2012 A copy of this form will also be sent to the IRS. Turbotax 1040x 2012 The statement will show the total interest you paid during the year, any mortgage insurance premiums you paid, and if you purchased a main home during the year, it also will show the deductible points paid during the year, including seller-paid points. Turbotax 1040x 2012 However, it should not show any interest that was paid for you by a government agency. Turbotax 1040x 2012 As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. Turbotax 1040x 2012 However, certain points not included on Form 1098 also may be deductible, either in the year paid or over the life of the loan. Turbotax 1040x 2012 See Points , earlier, to determine whether you can deduct points not shown on Form 1098. Turbotax 1040x 2012 Prepaid interest on Form 1098. Turbotax 1040x 2012   If you prepaid interest in 2013 that accrued in full by January 15, 2014, this prepaid interest may be included in box 1 of Form 1098. Turbotax 1040x 2012 However, you cannot deduct the prepaid amount for January 2014 in 2013. Turbotax 1040x 2012 (See Prepaid interest , earlier. Turbotax 1040x 2012 ) You will have to figure the interest that accrued for 2014 and subtract it from the amount in box 1. Turbotax 1040x 2012 You will include the interest for January 2014 with the other interest you pay for 2014. Turbotax 1040x 2012 See How To Report , later. Turbotax 1040x 2012 Refunded interest. Turbotax 1040x 2012   If you received a refund of mortgage interest you overpaid in an earlier year, you generally will receive a Form 1098 showing the refund in box 3. Turbotax 1040x 2012 See Refunds of interest , earlier. Turbotax 1040x 2012 Mortgage insurance premiums. Turbotax 1040x 2012   The amount of mortgage insurance premiums you paid during 2013 may be shown in box 4 of Form 1098. Turbotax 1040x 2012 See Mortgage Insurance Premiums, earlier. Turbotax 1040x 2012 Investment Interest This section discusses interest expenses you may be able to deduct as an investor. Turbotax 1040x 2012 If you borrow money to buy property you hold for investment, the interest you pay is investment interest. Turbotax 1040x 2012 You can deduct investment interest subject to the limit discussed later. Turbotax 1040x 2012 However, you cannot deduct interest you incurred to produce tax-exempt income. Turbotax 1040x 2012 Nor can you deduct interest expenses on straddles. Turbotax 1040x 2012 Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. Turbotax 1040x 2012 Investment Property Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. Turbotax 1040x 2012 It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). Turbotax 1040x 2012 Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity). Turbotax 1040x 2012 Partners, shareholders, and beneficiaries. Turbotax 1040x 2012   To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest. Turbotax 1040x 2012 Allocation of Interest Expense If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. Turbotax 1040x 2012 Only the interest expense on the part of the debt used for investment purposes is treated as investment interest. Turbotax 1040x 2012 The allocation is not affected by the use of property that secures the debt. Turbotax 1040x 2012 Limit on Deduction Generally, your deduction for investment interest expense is limited to the amount of your net investment income. Turbotax 1040x 2012 You can carry over the amount of investment interest that you could not deduct because of this limit to the next tax year. Turbotax 1040x 2012 The interest carried over is treated as investment interest paid or accrued in that next year. Turbotax 1040x 2012 You can carry over disallowed investment interest to the next tax year even if it is more than your taxable income in the year the interest was paid or accrued. Turbotax 1040x 2012 Net Investment Income Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income. Turbotax 1040x 2012 Investment income. Turbotax 1040x 2012    This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). Turbotax 1040x 2012 Investment income does not include Alaska Permanent Fund dividends. Turbotax 1040x 2012 It also does not include qualified dividends or net capital gain unless you choose to include them. Turbotax 1040x 2012 Choosing to include qualified dividends. Turbotax 1040x 2012   Investment income generally does not include qualified dividends, discussed in chapter 8. Turbotax 1040x 2012 However, you can choose to include all or part of your qualified dividends in investment income. Turbotax 1040x 2012   You make this choice by completing Form 4952, line 4g, according to its instructions. Turbotax 1040x 2012   If you choose to include any amount of your qualified dividends in investment income, you must reduce your qualified dividends that are eligible for the lower capital gains tax rates by the same amount. Turbotax 1040x 2012 Choosing to include net capital gain. Turbotax 1040x 2012   Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). Turbotax 1040x 2012 However, you can choose to include all or part of your net capital gain in investment income. Turbotax 1040x 2012    You make this choice by completing Form 4952, line 4g, according to its instructions. Turbotax 1040x 2012   If you choose to include any amount of your net capital gain in investment income, you must reduce your net capital gain that is eligible for the lower capital gains tax rates by the same amount. Turbotax 1040x 2012    Before making either choice, consider the overall effect on your tax liability. Turbotax 1040x 2012 Compare your tax if you make one or both of these choices with your tax if you do not. Turbotax 1040x 2012 Investment income of child reported on parent's return. Turbotax 1040x 2012    Investment income includes the part of your child's interest and dividend income that you choose to report on your return. Turbotax 1040x 2012 If the child does not have qualified dividends, Alaska Permanent Fund dividends, or capital gain distributions, this is the amount on line 6 of Form 8814, Parents' Election To Report Child's Interest and Dividends. Turbotax 1040x 2012 Child's qualified dividends. Turbotax 1040x 2012   If part of the amount you report is your child's qualified dividends, that part (which is reported on Form 1040, line 9b) generally does not count as investment income. Turbotax 1040x 2012 However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. Turbotax 1040x 2012   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends). Turbotax 1040x 2012 Child's Alaska Permanent Fund dividends. Turbotax 1040x 2012   If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. Turbotax 1040x 2012 To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. Turbotax 1040x 2012 Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. Turbotax 1040x 2012 Subtract the result from the amount on Form 8814, line 12. Turbotax 1040x 2012 Child's capital gain distributions. Turbotax 1040x 2012    If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D, line 13, or Form 1040, line 13) generally does not count as investment income. Turbotax 1040x 2012 However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. Turbotax 1040x 2012   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends , earlier). Turbotax 1040x 2012 Investment expenses. Turbotax 1040x 2012   Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. Turbotax 1040x 2012 Investment expenses that are included as a miscellaneous itemized deduction on Schedule A (Form 1040) are allowable deductions after applying the 2% limit that applies to miscellaneous itemized deductions. Turbotax 1040x 2012 Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A, line 27. Turbotax 1040x 2012 Losses from passive activities. Turbotax 1040x 2012   Income or expenses that you used in computing income or loss from a passive activity are not included in determining your investment income or investment expenses (including investment interest expense). Turbotax 1040x 2012 See Publication 925, Passive Activity and At-Risk Rules, for information about passive activities. Turbotax 1040x 2012 Form 4952 Use Form 4952, Investment Interest Expense Deduction, to figure your deduction for investment interest. Turbotax 1040x 2012 Exception to use of Form 4952. Turbotax 1040x 2012   You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. Turbotax 1040x 2012 Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. Turbotax 1040x 2012 You do not have any other deductible investment expenses. Turbotax 1040x 2012 You have no carryover of investment interest expense from 2012. Turbotax 1040x 2012 If you meet all of these tests, you can deduct all of your investment interest. Turbotax 1040x 2012 More Information For more information on investment interest, see Interest Expenses in chapter 3 of Publication 550. Turbotax 1040x 2012 Items You Cannot Deduct Some interest payments are not deductible. Turbotax 1040x 2012 Certain expenses similar to interest also are not deductible. Turbotax 1040x 2012 Nondeductible expenses include the following items. Turbotax 1040x 2012 Personal interest (discussed later). Turbotax 1040x 2012 Service charges (however, see Other Expenses (Line 23) in chapter 28). Turbotax 1040x 2012 Annual fees for credit cards. Turbotax 1040x 2012 Loan fees. Turbotax 1040x 2012 Credit investigation fees. Turbotax 1040x 2012 Interest to purchase or carry tax-exempt securities. Turbotax 1040x 2012 Penalties. Turbotax 1040x 2012   You cannot deduct fines and penalties paid to a government for violations of law, regardless of their nature. Turbotax 1040x 2012 Personal Interest Personal interest is not deductible. Turbotax 1040x 2012 Personal interest is any interest that is not home mortgage interest, investment interest, business interest, or other deductible interest. Turbotax 1040x 2012 It includes the following items. Turbotax 1040x 2012 Interest on car loans (unless you use the car for business). Turbotax 1040x 2012 Interest on federal, state, or local income tax. Turbotax 1040x 2012 Finance charges on credit cards, retail installment contracts, and revolving charge accounts incurred for personal expenses. Turbotax 1040x 2012 Late payment charges by a public utility. Turbotax 1040x 2012 You may be able to deduct interest you pay on a qualified student loan. Turbotax 1040x 2012 For details, see Publication 970, Tax Benefits for Education. Turbotax 1040x 2012 Allocation of Interest If you use the proceeds of a loan for more than one purpose (for example, personal and business), you must allocate the interest on the loan to each use. Turbotax 1040x 2012 However, you do not have to allocate home mortgage interest if it is fully deductible, regardless of how the funds are used. Turbotax 1040x 2012 You allocate interest (other than fully deductible home mortgage interest) on a loan in the same way as the loan itself is allocated. Turbotax 1040x 2012 You do this by tracing disbursements of the debt proceeds to specific uses. Turbotax 1040x 2012 For details on how to do this, see chapter 4 of Publication 535. Turbotax 1040x 2012 How To Report You must file Form 1040 to deduct any home mortgage interest expense on your tax return. Turbotax 1040x 2012 Where you deduct your interest expense generally depends on how you use the loan proceeds. Turbotax 1040x 2012 See Table 23-1 for a summary of where to deduct your interest expense. Turbotax 1040x 2012 Home mortgage interest and points. Turbotax 1040x 2012   Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. Turbotax 1040x 2012 If you paid more deductible interest to the financial institution than the amount shown on Form 1098, show the larger deductible amount on line 10. Turbotax 1040x 2012 Attach a statement explaining the difference and print “See attached” next to line 10. Turbotax 1040x 2012    Deduct home mortgage interest that was not reported to you on Form 1098 on Schedule A (Form 1040), line 11. Turbotax 1040x 2012 If you paid home mortgage interest to the person from whom you bought your home, show that person's name, address, and taxpayer identification number (TIN) on the dotted lines next to line 11. Turbotax 1040x 2012 The seller must give you this number and you must give the seller your TIN. Turbotax 1040x 2012 A Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. Turbotax 1040x 2012 Failure to meet any of these requirements may result in a $50 penalty for each failure. Turbotax 1040x 2012 The TIN can be either a social security number, an individual taxpayer identification number (issued by the Internal Revenue Service), or an employer identification number. Turbotax 1040x 2012 See Social Security Number (SSN) in chapter 1 for more information about TINs. Turbotax 1040x 2012    If you can take a deduction for points that were not reported to you on Form 1098, deduct those points on Schedule A (Form 1040), line 12. Turbotax 1040x 2012   Deduct mortgage insurance premiums on Schedule A (Form 1040), line 13. Turbotax 1040x 2012 More than one borrower. Turbotax 1040x 2012   If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return explaining this. Turbotax 1040x 2012 Show how much of the interest each of you paid, and give the name and address of the person who received the form. Turbotax 1040x 2012 Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. Turbotax 1040x 2012 Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13. Turbotax 1040x 2012   Similarly, if you are the payer of record on a mortgage on which there are other borrowers entitled to a deduction for the interest shown on the Form 1098 you received, deduct only your share of the interest on Schedule A (Form 1040), line 10. Turbotax 1040x 2012 You should let each of the other borrowers know what his or her share is. Turbotax 1040x 2012 Mortgage proceeds used for business or investment. Turbotax 1040x 2012    If your home mortgage interest deduction is limited, but all or part of the mortgage proceeds were used for business, investment, or other deductible activities, see Table 23-1. Turbotax 1040x 2012 It shows where to deduct the part of your excess interest that is for those activities. Turbotax 1040x 2012 Investment interest. Turbotax 1040x 2012    Deduct investment interest, subject to certain limits discussed in Publication 550, on Schedule A (Form 1040), line 14. Turbotax 1040x 2012 Amortization of bond premium. Turbotax 1040x 2012   There are various ways to treat the premium you pay to buy taxable bonds. Turbotax 1040x 2012 See Bond Premium Amortization in Publication 550. Turbotax 1040x 2012 Income-producing rental or royalty interest. Turbotax 1040x 2012   Deduct interest on a loan for income-producing rental or royalty property that is not used in your business in Part I of Schedule E (Form 1040). Turbotax 1040x 2012 Example. Turbotax 1040x 2012 You rent out part of your home and borrow money to make repairs. Turbotax 1040x 2012 You can deduct only the interest payment for the rented part in Part I of Schedule E (Form 1040). Turbotax 1040x 2012 Deduct the rest of the interest payment on Schedule A (Form 1040) if it is deductible home mortgage interest. Turbotax 1040x 2012 Table 23-1. Turbotax 1040x 2012 Where To Deduct Your Interest Expense IF you have . Turbotax 1040x 2012 . Turbotax 1040x 2012 . Turbotax 1040x 2012 THEN deduct it on . Turbotax 1040x 2012 . Turbotax 1040x 2012 . Turbotax 1040x 2012 AND for more information go to . Turbotax 1040x 2012 . Turbotax 1040x 2012 . Turbotax 1040x 2012 deductible student loan interest Form 1040, line 33, or Form 1040A, line 18 Publication 970. Turbotax 1040x 2012 deductible home mortgage interest and points reported on Form 1098 Schedule A (Form 1040), line 10 Publication 936. Turbotax 1040x 2012 deductible home mortgage interest not reported on Form 1098 Schedule A (Form 1040), line 11 Publication 936. Turbotax 1040x 2012 deductible points not reported on Form 1098 Schedule A (Form 1040), line 12 Publication 936. Turbotax 1040x 2012 deductible mortgage insurance premiums Schedule A (Form 1040), line 13 Publication 936. Turbotax 1040x 2012 deductible investment interest (other than incurred to produce rents or royalties) Schedule A (Form 1040), line 14 Publication 550. Turbotax 1040x 2012 deductible business interest (non-farm) Schedule C or C-EZ (Form 1040) Publication 535. Turbotax 1040x 2012 deductible farm business interest Schedule F (Form 1040) Publications 225 and 535. Turbotax 1040x 2012 deductible interest incurred to produce rents or royalties Schedule E (Form 1040) Publications 527 and 535. Turbotax 1040x 2012 personal interest not deductible. Turbotax 1040x 2012 Prev  Up  Next   Home   More Online Publications
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The Turbotax 1040x 2012

Turbotax 1040x 2012 36. Turbotax 1040x 2012   Earned Income Credit (EIC) Table of Contents What's New Reminders Introduction Useful Items - You may want to see: Do You Qualify for the Credit?If Improper Claim Made in Prior Year Part A. Turbotax 1040x 2012 Rules for EveryoneRule 1. Turbotax 1040x 2012 Your AGI Must Be Less Than: Rule 2. Turbotax 1040x 2012 You Must Have a Valid Social Security Number (SSN) Rule 3. Turbotax 1040x 2012 Your Filing Status Cannot Be Married Filing Separately Rule 4. Turbotax 1040x 2012 You Must Be a U. Turbotax 1040x 2012 S. Turbotax 1040x 2012 Citizen or Resident Alien All Year Rule 5. Turbotax 1040x 2012 You Cannot File Form 2555 or Form 2555-EZ Rule 6. Turbotax 1040x 2012 Your Investment Income Must Be $3,300 or Less Rule 7. Turbotax 1040x 2012 You Must Have Earned Income Part B. Turbotax 1040x 2012 Rules If You Have a Qualifying ChildRule 8. Turbotax 1040x 2012 Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Rule 9. Turbotax 1040x 2012 Your Qualifying Child Cannot Be Used By More Than One Person To Claim the EIC Rule 10. Turbotax 1040x 2012 You Cannot Be a Qualifying Child of Another Taxpayer Part C. Turbotax 1040x 2012 Rules If You Do Not Have a Qualifying ChildRule 11. Turbotax 1040x 2012 You Must Be at Least Age 25 but Under Age 65 Rule 12. Turbotax 1040x 2012 You Cannot Be the Dependent of Another Person Rule 13. Turbotax 1040x 2012 You Cannot Be a Qualifying Child of Another Taxpayer Rule 14. Turbotax 1040x 2012 You Must Have Lived in the United States More Than Half of the Year Part D. Turbotax 1040x 2012 Figuring and Claiming the EICRule 15. Turbotax 1040x 2012 Your Earned Income Must Be Less Than: IRS Will Figure the EIC for You How To Figure the EIC Yourself ExamplesExample 1. Turbotax 1040x 2012 John and Janet Smith (Form 1040A) Example 2. Turbotax 1040x 2012 Kelly Green (Form 1040EZ) What's New Earned income amount is more. Turbotax 1040x 2012  The maximum amount of income you can earn and still get the credit has increased. Turbotax 1040x 2012 You may be able to take the credit if: You have three or more qualifying children and you earned less than $46,227 ($51,567 if married filing jointly), You have two qualifying children and you earned less than $43,038 ($48,378 if married filing jointly), You have one qualifying child and you earned less than $37,870 ($43,210 if married filing jointly), or You do not have a qualifying child and you earned less than $14,340 ($19,680 if married filing jointly). Turbotax 1040x 2012 Your adjusted gross income also must be less than the amount in the above list that applies to you. Turbotax 1040x 2012 For details, see Rules 1 and 15. Turbotax 1040x 2012 Investment income amount is more. Turbotax 1040x 2012  The maximum amount of investment income you can have and still get the credit has increased to $3,300. Turbotax 1040x 2012 See Rule 6. Turbotax 1040x 2012 Reminders Increased EIC on certain joint returns. Turbotax 1040x 2012  A married person filing a joint return may get more EIC than someone with the same income but a different filing status. Turbotax 1040x 2012 As a result, the EIC table has different columns for married persons filing jointly than for everyone else. Turbotax 1040x 2012 When you look up your EIC in the EIC Table, be sure to use the correct column for your filing status and the number of children you have. Turbotax 1040x 2012 Online help. Turbotax 1040x 2012  You can use the EITC Assistant at www. Turbotax 1040x 2012 irs. Turbotax 1040x 2012 gov/eitc to find out if you are eligible for the credit. Turbotax 1040x 2012 The EITC Assistant is available in English and Spanish. Turbotax 1040x 2012 EIC questioned by IRS. Turbotax 1040x 2012  The IRS may ask you to provide documents to prove you are entitled to claim the EIC. Turbotax 1040x 2012 We will tell you what documents to send us. Turbotax 1040x 2012 These may include: birth certificates, school records, medical records, etc. Turbotax 1040x 2012 The process of establishing your eligibility will delay your refund. Turbotax 1040x 2012 Introduction The earned income credit (EIC) is a tax credit for certain people who work and have less than $51,567 of earned income. Turbotax 1040x 2012 A tax credit usually means more money in your pocket. Turbotax 1040x 2012 It reduces the amount of tax you owe. Turbotax 1040x 2012 The EIC may also give you a refund. Turbotax 1040x 2012 How do you get the earned income credit?   To claim the EIC, you must: Qualify by meeting certain rules, and File a tax return, even if you: Do not owe any tax, Did not earn enough money to file a return, or Did not have income taxes withheld from your pay. Turbotax 1040x 2012 When you complete your return, you can figure your EIC by using a worksheet in the instructions for Form 1040, Form 1040A, or Form 1040EZ. Turbotax 1040x 2012 Or, if you prefer, you can let the IRS figure the credit for you. Turbotax 1040x 2012 How will this chapter help you?   This chapter will explain the following. Turbotax 1040x 2012 The rules you must meet to qualify for the EIC. Turbotax 1040x 2012 How to figure the EIC. Turbotax 1040x 2012 Useful Items - You may want to see: Publication 596 Earned Income Credit (EIC) Form (and Instructions) Schedule EIC Earned Income Credit (Qualifying Child Information) 8862 Information To Claim Earned Income Credit After Disallowance Do You Qualify for the Credit? To qualify to claim the EIC, you must first meet all of the rules explained in Part A, Rules for Everyone . Turbotax 1040x 2012 Then you must meet the rules in Part B, Rules If You Have a Qualifying Child , or Part C, Rules If You Do Not Have a Qualifying Child . Turbotax 1040x 2012 There is one final rule you must meet in Part D, Figuring and Claiming the EIC . Turbotax 1040x 2012 You qualify for the credit if you meet all the rules in each part that applies to you. Turbotax 1040x 2012 If you have a qualifying child, the rules in Parts A, B, and D apply to you. Turbotax 1040x 2012 If you do not have a qualifying child, the rules in Parts A, C, and D apply to you. Turbotax 1040x 2012 Table 36-1, Earned Income Credit in a Nutshell. Turbotax 1040x 2012   Use Table 36–1 as a guide to Parts A, B, C, and D. Turbotax 1040x 2012 The table is a summary of all the rules in each part. Turbotax 1040x 2012 Do you have a qualifying child?   You have a qualifying child only if you have a child who meets the four tests described in Rule 8 and illustrated in Figure 36–1. Turbotax 1040x 2012 If Improper Claim Made in Prior Year If your EIC for any year after 1996 was denied or reduced for any reason other than a math or clerical error, you must attach a completed Form 8862 to your next tax return to claim the EIC. Turbotax 1040x 2012 You must also qualify to claim the EIC by meeting all the rules described in this chapter. Turbotax 1040x 2012 However, if your EIC was denied or reduced as a result of a math or clerical error, do not attach Form 8862 to your next tax return. Turbotax 1040x 2012 For example, if your arithmetic is incorrect, the IRS can correct it. Turbotax 1040x 2012 If you do not provide a correct social security number, the IRS can deny the EIC. Turbotax 1040x 2012 These kinds of errors are called math or clerical errors. Turbotax 1040x 2012 If your EIC for any year after 1996 was denied and it was determined that your error was due to reckless or intentional disregard of the EIC rules, then you cannot claim the EIC for the next 2 years. Turbotax 1040x 2012 If your error was due to fraud, then you cannot claim the EIC for the next 10 years. Turbotax 1040x 2012 More information. Turbotax 1040x 2012   See chapter 5 in Publication 596 for more detailed information about the disallowance period and Form 8862. Turbotax 1040x 2012 Part A. Turbotax 1040x 2012 Rules for Everyone This part of the chapter discusses Rules 1 through 7. Turbotax 1040x 2012 You must meet all seven rules to qualify for the earned income credit. Turbotax 1040x 2012 If you do not meet all seven rules, you cannot get the credit and you do not need to read the rest of the chapter. Turbotax 1040x 2012 If you meet all seven rules in this part, then read either Part B or Part C (whichever applies) for more rules you must meet. Turbotax 1040x 2012 Rule 1. Turbotax 1040x 2012 Your AGI Must Be Less Than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. Turbotax 1040x 2012 Adjusted gross income (AGI). Turbotax 1040x 2012   AGI is the amount on line 38 (Form 1040), line 22 (Form 1040A), or line 4 (Form 1040EZ). Turbotax 1040x 2012 If your AGI is equal to or more than the applicable limit listed above, you cannot claim the EIC. Turbotax 1040x 2012 Example. Turbotax 1040x 2012 Your AGI is $38,550, you are single, and you have one qualifying child. Turbotax 1040x 2012 You cannot claim the EIC because your AGI is not less than $37,870. Turbotax 1040x 2012 However, if your filing status was married filing jointly, you might be able to claim the EIC because your AGI is less than $43,210. Turbotax 1040x 2012 Community property. Turbotax 1040x 2012   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3 ), and live in a state that has community property laws, your AGI includes that portion of both your and your spouse's wages that you are required to include in gross income. Turbotax 1040x 2012 This is different from the community property rules that apply under Rule 7 . Turbotax 1040x 2012 Rule 2. Turbotax 1040x 2012 You Must Have a Valid Social Security Number (SSN) To claim the EIC, you (and your spouse, if filing a joint return) must have a valid SSN issued by the Social Security Administration (SSA). Turbotax 1040x 2012 Any qualifying child listed on Schedule EIC also must have a valid SSN. Turbotax 1040x 2012 (See Rule 8 if you have a qualifying child. Turbotax 1040x 2012 ) If your social security card (or your spouse's, if filing a joint return) says “Not valid for employment” and your SSN was issued so that you (or your spouse) could get a federally funded benefit, you cannot get the EIC. Turbotax 1040x 2012 An example of a federally funded benefit is Medicaid. Turbotax 1040x 2012 If you have a card with the legend “Not valid for employment” and your immigration status has changed so that you are now a U. Turbotax 1040x 2012 S. Turbotax 1040x 2012 citizen or permanent resident, ask the SSA for a new social security card without the legend. Turbotax 1040x 2012 U. Turbotax 1040x 2012 S. Turbotax 1040x 2012 citizen. Turbotax 1040x 2012   If you were a U. Turbotax 1040x 2012 S. Turbotax 1040x 2012 citizen when you received your SSN, you have a valid SSN. Turbotax 1040x 2012 Valid for work only with INS or DHS authorization. Turbotax 1040x 2012   If your social security card reads “Valid for work only with INS authorization” or “Valid for work only with DHS authorization,” you have a valid SSN, but only if that authorization is still valid. Turbotax 1040x 2012 SSN missing or incorrect. Turbotax 1040x 2012   If an SSN for you or your spouse is missing from your tax return or is incorrect, you may not get the EIC. Turbotax 1040x 2012 Other taxpayer identification number. Turbotax 1040x 2012   You cannot get the EIC if, instead of an SSN, you (or your spouse, if filing a joint return) have an individual taxpayer identification number (ITIN). Turbotax 1040x 2012 ITINs are issued by the Internal Revenue Service to noncitizens who cannot get an SSN. Turbotax 1040x 2012 No SSN. Turbotax 1040x 2012   If you do not have a valid SSN, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Turbotax 1040x 2012 You cannot claim the EIC. Turbotax 1040x 2012 Getting an SSN. Turbotax 1040x 2012   If you (or your spouse, if filing a joint return) do not have an SSN, you can apply for one by filing Form SS-5, Application for a Social Security Card, with the SSA. Turbotax 1040x 2012 You can get Form SS-5 online at www. Turbotax 1040x 2012 socialsecurity. Turbotax 1040x 2012 gov, from your local SSA office, or by calling the SSA at 1-800-772-1213. Turbotax 1040x 2012 Filing deadline approaching and still no SSN. Turbotax 1040x 2012   If the filing deadline is approaching and you still do not have an SSN, you have two choices. Turbotax 1040x 2012 Request an automatic 6-month extension of time to file your return. Turbotax 1040x 2012 You can get this extension by filing Form 4868, Application for Automatic Extension of Time to File U. Turbotax 1040x 2012 S. Turbotax 1040x 2012 Individual Income Tax Return. Turbotax 1040x 2012 For more information, see chapter 1 . Turbotax 1040x 2012 File the return on time without claiming the EIC. Turbotax 1040x 2012 After receiving the SSN, file an amended return (Form 1040X, Amended U. Turbotax 1040x 2012 S. Turbotax 1040x 2012 Individual Income Tax Return) claiming the EIC. Turbotax 1040x 2012 Attach a filled-in Schedule EIC if you have a qualifying child. Turbotax 1040x 2012 Table 36-1. Turbotax 1040x 2012 Earned Income Credit in a Nutshell First, you must meet all the rules in this column. Turbotax 1040x 2012 Second, you must meet all the rules in one of these columns, whichever applies. Turbotax 1040x 2012 Third, you must meet the rule in this column. Turbotax 1040x 2012 Part A. Turbotax 1040x 2012  Rules for Everyone Part B. Turbotax 1040x 2012  Rules If You Have a Qualifying Child Part C. Turbotax 1040x 2012  Rules If You Do Not Have a Qualifying Child Part D. Turbotax 1040x 2012  Figuring and Claiming the EIC 1. Turbotax 1040x 2012 Your adjusted gross income (AGI) must be less than: • $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children,  • $43,038 ($48,378 for married filing jointly) if you have two qualifying children,  • $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or   • $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. Turbotax 1040x 2012 2. Turbotax 1040x 2012 You must have a valid social security number. Turbotax 1040x 2012  3. Turbotax 1040x 2012 Your filing status cannot be “Married filing separately. Turbotax 1040x 2012 ” 4. Turbotax 1040x 2012 You must be a U. Turbotax 1040x 2012 S. Turbotax 1040x 2012 citizen or resident alien all year. Turbotax 1040x 2012  5. Turbotax 1040x 2012 You cannot file Form 2555 or Form 2555-EZ (relating to foreign earned income). Turbotax 1040x 2012  6. Turbotax 1040x 2012 Your investment income must be $3,300 or less. Turbotax 1040x 2012  7. Turbotax 1040x 2012 You must have earned income. Turbotax 1040x 2012 8. Turbotax 1040x 2012 Your child must meet the relationship, age, residency, and joint return tests. Turbotax 1040x 2012  9. Turbotax 1040x 2012 Your qualifying child cannot be used by more than one person to claim the EIC. Turbotax 1040x 2012  10. Turbotax 1040x 2012 You cannot be a qualifying child of another person. Turbotax 1040x 2012 11. Turbotax 1040x 2012 You must be at least age 25 but under age 65. Turbotax 1040x 2012  12. Turbotax 1040x 2012 You cannot be the dependent of another person. Turbotax 1040x 2012  13. Turbotax 1040x 2012 You cannot be a qualifying child of another person. Turbotax 1040x 2012  14. Turbotax 1040x 2012 You must have lived in the United States more than half of the year. Turbotax 1040x 2012 15. Turbotax 1040x 2012 Your earned income must be less than: • $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children,  • $43,038 ($48,378 for married filing jointly) if you have two qualifying children,  • $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or   • $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. Turbotax 1040x 2012 Rule 3. Turbotax 1040x 2012 Your Filing Status Cannot Be Married Filing Separately If you are married, you usually must file a joint return to claim the EIC. Turbotax 1040x 2012 Your filing status cannot be “Married filing separately. Turbotax 1040x 2012 ” Spouse did not live with you. Turbotax 1040x 2012   If you are married and your spouse did not live in your home at any time during the last 6 months of the year, you may be able to file as head of household, instead of married filing separately. Turbotax 1040x 2012 In that case, you may be able to claim the EIC. Turbotax 1040x 2012 For detailed information about filing as head of household, see chapter 2 . Turbotax 1040x 2012 Rule 4. Turbotax 1040x 2012 You Must Be a U. Turbotax 1040x 2012 S. Turbotax 1040x 2012 Citizen or Resident Alien All Year If you (or your spouse, if married) were a nonresident alien for any part of the year, you cannot claim the earned income credit unless your filing status is married filing jointly. Turbotax 1040x 2012 You can use that filing status only if one spouse is a U. Turbotax 1040x 2012 S. Turbotax 1040x 2012 citizen or resident alien and you choose to treat the nonresident spouse as a U. Turbotax 1040x 2012 S. Turbotax 1040x 2012 resident. Turbotax 1040x 2012 If you make this choice, you and your spouse are taxed on your worldwide income. Turbotax 1040x 2012 If you (or your spouse, if married) were a nonresident alien for any part of the year and your filing status is not married filing jointly, enter “No” on the dotted line next to line 64a (Form 1040) or in the space to the left of line 38a (Form 1040A). Turbotax 1040x 2012 If you need more information on making this choice, get Publication 519, U. Turbotax 1040x 2012 S. Turbotax 1040x 2012 Tax Guide for Aliens. Turbotax 1040x 2012 Rule 5. Turbotax 1040x 2012 You Cannot File Form 2555 or Form 2555-EZ You cannot claim the earned income credit if you file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. Turbotax 1040x 2012 You file these forms to exclude income earned in foreign countries from your gross income, or to deduct or exclude a foreign housing amount. Turbotax 1040x 2012 U. Turbotax 1040x 2012 S. Turbotax 1040x 2012 possessions are not foreign countries. Turbotax 1040x 2012 See Publication 54, Tax Guide for U. Turbotax 1040x 2012 S. Turbotax 1040x 2012 Citizens and Resident Aliens Abroad, for more detailed information. Turbotax 1040x 2012 Rule 6. Turbotax 1040x 2012 Your Investment Income Must Be $3,300 or Less You cannot claim the earned income credit unless your investment income is $3,300 or less. Turbotax 1040x 2012 If your investment income is more than $3,300, you cannot claim the credit. Turbotax 1040x 2012 For most people, investment income is the total of the following amounts. Turbotax 1040x 2012 Taxable interest (line 8a of Form 1040 or 1040A). Turbotax 1040x 2012 Tax-exempt interest (line 8b of Form 1040 or 1040A). Turbotax 1040x 2012 Dividend income (line 9a of Form 1040 or 1040A). Turbotax 1040x 2012 Capital gain net income (line 13 of Form 1040, if more than zero, or line 10 of Form 1040A). Turbotax 1040x 2012 If you file Form 1040EZ, your investment income is the total of the amount of line 2 and the amount of any tax-exempt interest you wrote to the right of the words “Form 1040EZ” on line 2. Turbotax 1040x 2012 However, see Rule 6 in chapter 1 of Publication 596 if: You are filing Schedule E (Form 1040), Form 4797, or Form 8814, or You are reporting income from the rental of personal property on Form 1040, line 21. Turbotax 1040x 2012 Rule 7. Turbotax 1040x 2012 You Must Have Earned Income This credit is called the “earned income” credit because, to qualify, you must work and have earned income. Turbotax 1040x 2012 If you are married and file a joint return, you meet this rule if at least one spouse works and has earned income. Turbotax 1040x 2012 If you are an employee, earned income includes all the taxable income you get from your employer. Turbotax 1040x 2012 If you are self-employed or a statutory employee, you will figure your earned income on EIC Worksheet B in the instructions for Form 1040. Turbotax 1040x 2012 Earned Income Earned income includes all of the following types of income. Turbotax 1040x 2012 Wages, salaries, tips, and other taxable employee pay. Turbotax 1040x 2012 Employee pay is earned income only if it is taxable. Turbotax 1040x 2012 Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. Turbotax 1040x 2012 But there is an exception for nontaxable combat pay, which you can choose to include in earned income, as explained below. Turbotax 1040x 2012 Net earnings from self-employment. Turbotax 1040x 2012 Gross income received as a statutory employee. Turbotax 1040x 2012 Wages, salaries, and tips. Turbotax 1040x 2012   Wages, salaries, and tips you receive for working are reported to you on Form W-2, in box 1. Turbotax 1040x 2012 You should report these on line 1 (Form 1040EZ) or line 7 (Forms 1040A and 1040). Turbotax 1040x 2012 Nontaxable combat pay election. Turbotax 1040x 2012   You can elect to include your nontaxable combat pay in earned income for the earned income credit. Turbotax 1040x 2012 Electing to include nontaxable combat pay in earned income may increase or decrease your EIC. Turbotax 1040x 2012 Figure the credit with and without your nontaxable combat pay before making the election. Turbotax 1040x 2012   If you make the election, you must include in earned income all nontaxable combat pay you received. Turbotax 1040x 2012 If you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election. Turbotax 1040x 2012 In other words, if one of you makes the election, the other one can also make it but does not have to. Turbotax 1040x 2012   The amount of your nontaxable combat pay should be shown in box 12 of your Form W-2 with code “Q. Turbotax 1040x 2012 ” Self-employed persons and statutory employees. Turbotax 1040x 2012   If you are self-employed or received income as a statutory employee, you must use the Form 1040 instructions to see if you qualify to get the EIC. Turbotax 1040x 2012 Approved Form 4361 or Form 4029 This section is for persons who have an approved: Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, or Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits. Turbotax 1040x 2012 Each approved form exempts certain income from social security taxes. Turbotax 1040x 2012 Each form is discussed here in terms of what is or is not earned income for the EIC. Turbotax 1040x 2012 Form 4361. Turbotax 1040x 2012   Whether or not you have an approved Form 4361, amounts you received for performing ministerial duties as an employee count as earned income. Turbotax 1040x 2012 This includes wages, salaries, tips, and other taxable employee compensation. Turbotax 1040x 2012 A nontaxable housing allowance or the nontaxable rental value of a home is not earned income. Turbotax 1040x 2012 Also, amounts you received for performing ministerial duties, but not as an employee, do not count as earned income. Turbotax 1040x 2012 Examples include fees for performing marriages and honoraria for delivering speeches. Turbotax 1040x 2012 Form 4029. Turbotax 1040x 2012   Whether or not you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation count as earned income. Turbotax 1040x 2012 However, amounts you received as a self-employed individual do not count as earned income. Turbotax 1040x 2012 Also, in figuring earned income, do not subtract losses on Schedule C, C-EZ, or F from wages on line 7 of Form 1040. Turbotax 1040x 2012 Disability Benefits If you retired on disability, taxable benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. Turbotax 1040x 2012 Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. Turbotax 1040x 2012 You must report your taxable disability payments on line 7 of either Form 1040 or Form 1040A until you reach minimum retirement age. Turbotax 1040x 2012 Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income. Turbotax 1040x 2012 Report taxable pension payments on Form 1040, lines 16a and 16b (or Form 1040A, lines 12a and 12b). Turbotax 1040x 2012 Disability insurance payments. Turbotax 1040x 2012   Payments you received from a disability insurance policy that you paid the premiums for are not earned income. Turbotax 1040x 2012 It does not matter whether you have reached minimum retirement age. Turbotax 1040x 2012 If this policy is through your employer, the amount may be shown in box 12 of your Form W-2 with code “J. Turbotax 1040x 2012 ” Income That Is Not Earned Income Examples of items that are not earned income include interest and dividends, pensions and annuities, social security and railroad retirement benefits (including disability benefits), alimony and child support, welfare benefits, workers' compensation benefits, unemployment compensation (insurance), nontaxable foster care payments, and veterans' benefits, including VA rehabilitation payments. Turbotax 1040x 2012 Do not include any of these items in your earned income. Turbotax 1040x 2012 Earnings while an inmate. Turbotax 1040x 2012   Amounts received for work performed while an inmate in a penal institution are not earned income when figuring the earned income credit. Turbotax 1040x 2012 This includes amounts for work performed while in a work release program or while in a halfway house. Turbotax 1040x 2012 Workfare payments. Turbotax 1040x 2012   Nontaxable workfare payments are not earned income for the EIC. Turbotax 1040x 2012 These are cash payments certain people receive from a state or local agency that administers public assistance programs funded under the federal Temporary Assistance for Needy Families (TANF) program in return for certain work activities such as (1) work experience activities (including remodeling or repairing public housing) if private sector employment is not available, or (2) community service program activities. Turbotax 1040x 2012 Community property. Turbotax 1040x 2012   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3 ), and live in a state that has community property laws, your earned income for the EIC does not include any amount earned by your spouse that is treated as belonging to you under those laws. Turbotax 1040x 2012 That amount is not earned income for the EIC, even though you must include it in your gross income on your income tax return. Turbotax 1040x 2012 Your earned income includes the entire amount you earned, even if part of it is treated as belonging to your spouse under your state's community property laws. Turbotax 1040x 2012 Nevada, Washington, and California domestic partners. Turbotax 1040x 2012   If you are a registered domestic partner in Nevada, Washington, or California, the same rules apply. Turbotax 1040x 2012 Your earned income for the EIC does not include any amount earned by your partner. Turbotax 1040x 2012 Your earned income includes the entire amount you earned. Turbotax 1040x 2012 For details, see Publication 555. Turbotax 1040x 2012 Conservation Reserve Program (CRP) payments. Turbotax 1040x 2012   If you were receiving social security retirement benefits or social security disability benefits at the time you received any CRP payments, your CRP payments are not earned income for the EIC. Turbotax 1040x 2012 Nontaxable military pay. Turbotax 1040x 2012   Nontaxable pay for members of the Armed Forces is not considered earned income for the EIC. Turbotax 1040x 2012 Examples of nontaxable military pay are combat pay, the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS). Turbotax 1040x 2012 See Publication 3, Armed Forces' Tax Guide, for more information. Turbotax 1040x 2012    Combat pay. Turbotax 1040x 2012 You can elect to include your nontaxable combat pay in earned income for the EIC. Turbotax 1040x 2012 See Nontaxable combat pay election, earlier. Turbotax 1040x 2012 Part B. Turbotax 1040x 2012 Rules If You Have a Qualifying Child If you have met all of the rules in Part A , read Part B to see if you have a qualifying child. Turbotax 1040x 2012 Part B discusses Rules 8 through 10. Turbotax 1040x 2012 You must meet all three of these rules, in addition to the rules in Parts A and D , to qualify for the earned income credit with a qualifying child. Turbotax 1040x 2012 You must file Form 1040 or Form 1040A to claim the EIC with a qualifying child. Turbotax 1040x 2012 (You cannot file Form 1040EZ. Turbotax 1040x 2012 ) You also must complete Schedule EIC and attach it to your return. Turbotax 1040x 2012 If you meet all the rules in Part A and this part, read Part D to find out what to do next. Turbotax 1040x 2012 If you do not meet Rule 8, you do not have a qualifying child. Turbotax 1040x 2012 Read Part C to find out if you can get the earned income credit without a qualifying child. Turbotax 1040x 2012 Rule 8. Turbotax 1040x 2012 Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Your child is a qualifying child if your child meets four tests. Turbotax 1040x 2012 The four tests are: Relationship, Age, Residency, and Joint return. Turbotax 1040x 2012 The four tests are illustrated in Figure 36–1. Turbotax 1040x 2012 The paragraphs that follow contain more information about each test. Turbotax 1040x 2012 Relationship Test To be your qualifying child, a child must be your: Son, daughter, stepchild, foster child, or a descendant of any of them (for example, your grandchild), or Brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them (for example, your niece or nephew). Turbotax 1040x 2012 The following definitions clarify the relationship test. Turbotax 1040x 2012 Adopted child. Turbotax 1040x 2012   An adopted child is always treated as your own child. Turbotax 1040x 2012 The term “adopted child” includes a child who was lawfully placed with you for legal adoption. Turbotax 1040x 2012 Foster child. Turbotax 1040x 2012   For the EIC, a person is your foster child if the child is placed with you by an authorized placement agency or by judgement, decree, or other order of any court of competent jurisdiction. Turbotax 1040x 2012 An authorized placement agency includes a state or local government agency. Turbotax 1040x 2012 It also includes a tax-exempt organization licensed by a state. Turbotax 1040x 2012 In addition, it includes an Indian tribal government or an organization authorized by an Indian tribal government to place Indian children. Turbotax 1040x 2012 Example. Turbotax 1040x 2012 Debbie, who is 12 years old, was placed in your care 2 years ago by an authorized agency responsible for placing children in foster homes. Turbotax 1040x 2012 Debbie is your foster child. Turbotax 1040x 2012 Age Test Your child must be: Under age 19 at the end of 2013 and younger than you (or your spouse, if filing jointly), Under age 24 at the end of 2013, a student, and younger than you (or your spouse, if filing jointly), or Permanently and totally disabled at any time during 2013, regardless of age. Turbotax 1040x 2012    The following examples and definitions clarify the age test. Turbotax 1040x 2012 Example 1—child not under age 19. Turbotax 1040x 2012 Your son turned 19 on December 10. Turbotax 1040x 2012 Unless he was permanently and totally disabled or a student, he is not a qualifying child because, at the end of the year, he was not under age 19. Turbotax 1040x 2012 Example 2—child not younger than you or your spouse. Turbotax 1040x 2012 Your 23-year-old brother, who is a full-time student and unmarried, lives with you and your spouse. Turbotax 1040x 2012 He is not disabled. Turbotax 1040x 2012 Both you and your spouse are 21 years old and you file a joint return. Turbotax 1040x 2012 Your brother is not your qualifying child because he is not younger than you or your spouse. Turbotax 1040x 2012 Example 3—child younger than your spouse but not younger than you. Turbotax 1040x 2012 The facts are the same as in Example 2 except that your spouse is 25 years old. Turbotax 1040x 2012 Because your brother is younger than your spouse, he is your qualifying child even though he is not younger than you. Turbotax 1040x 2012 Student defined. Turbotax 1040x 2012   To qualify as a student, your child must be, during some part of each of any 5 calendar months during the calendar year: A full-time student at a school that has a regular teaching staff, course of study, and regular student body at the school, or A student taking a full-time, on-farm training course given by a school described in (1), or a state, county, or local government. Turbotax 1040x 2012 The 5 calendar months need not be consecutive. Turbotax 1040x 2012   A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance. Turbotax 1040x 2012 School defined. Turbotax 1040x 2012   A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. Turbotax 1040x 2012 However, on-the-job training courses, correspondence schools, and schools offering courses only through the Internet do not count as schools for the EIC. Turbotax 1040x 2012 Vocational high school students. Turbotax 1040x 2012   Students who work in co-op jobs in private industry as a part of a school's regular course of classroom and practical training are considered full-time students. Turbotax 1040x 2012 Permanently and totally disabled. Turbotax 1040x 2012   Your child is permanently and totally disabled if both of the following apply. Turbotax 1040x 2012 He or she cannot engage in any substantial gainful activity because of a physical or mental condition. Turbotax 1040x 2012 A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death. Turbotax 1040x 2012 Residency Test Your child must have lived with you in the United States for more than half of 2013. Turbotax 1040x 2012 The following definitions clarify the residency test. Turbotax 1040x 2012 United States. Turbotax 1040x 2012   This means the 50 states and the District of Columbia. Turbotax 1040x 2012 It does not include Puerto Rico or U. Turbotax 1040x 2012 S. Turbotax 1040x 2012 possessions such as Guam. Turbotax 1040x 2012 Homeless shelter. Turbotax 1040x 2012   Your home can be any location where you regularly live. Turbotax 1040x 2012 You do not need a traditional home. Turbotax 1040x 2012 For example, if your child lived with you for more than half the year in one or more homeless shelters, your child meets the residency test. Turbotax 1040x 2012 Military personnel stationed outside the United States. Turbotax 1040x 2012    U. Turbotax 1040x 2012 S. Turbotax 1040x 2012 military personnel stationed outside the United States on extended active duty are considered to live in the United States during that duty period for purposes of the EIC. Turbotax 1040x 2012 Figure 36-1. Turbotax 1040x 2012 Tests for Qualifying Child Please click here for the text description of the image. Turbotax 1040x 2012 Qualifying child Extended active duty. Turbotax 1040x 2012   Extended active duty means you are called or ordered to duty for an indefinite period or for a period of more than 90 days. Turbotax 1040x 2012 Once you begin serving your extended active duty, you are still considered to have been on extended active duty even if you do not serve more than 90 days. Turbotax 1040x 2012 Birth or death of a child. Turbotax 1040x 2012   A child who was born or died in 2013 is treated as having lived with you for more than half of 2013 if your home was the child's home for more than half the time he or she was alive in 2013. Turbotax 1040x 2012 Temporary absences. Turbotax 1040x 2012   Count time that you or your child is away from home on a temporary absence due to a special circumstance as time the child lived with you. Turbotax 1040x 2012 Examples of a special circumstance include illness, school attendance, business, vacation, military service, and detention in a juvenile facility. Turbotax 1040x 2012 Kidnapped child. Turbotax 1040x 2012    A kidnapped child is treated as living with you for more than half of the year if the child lived with you for more than half the part of the year before the date of the kidnapping. Turbotax 1040x 2012 The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or your child's family. Turbotax 1040x 2012 This treatment applies for all years until the child is returned. Turbotax 1040x 2012 However, the last year this treatment can apply is the earlier of: The year there is a determination that the child is dead, or The year the child would have reached age 18. Turbotax 1040x 2012   If your qualifying child has been kidnapped and meets these requirements, enter “KC,” instead of a number, on line 6 of Schedule EIC. Turbotax 1040x 2012 Joint Return Test To meet this test, the child cannot file a joint return for the year. Turbotax 1040x 2012 Exception. Turbotax 1040x 2012   An exception to the joint return test applies if your child and his or her spouse file a joint return only to claim a refund of income tax withheld or estimated tax paid. Turbotax 1040x 2012 Example 1—child files joint return. Turbotax 1040x 2012 You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. Turbotax 1040x 2012 He earned $25,000 for the year. Turbotax 1040x 2012 The couple files a joint return. Turbotax 1040x 2012 Because your daughter and her husband filed a joint return, she is not your qualifying child. Turbotax 1040x 2012 Example 2—child files joint return only to claim a refund of withheld tax. Turbotax 1040x 2012 Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. Turbotax 1040x 2012 They do not have a child. Turbotax 1040x 2012 Neither is required to file a tax return. Turbotax 1040x 2012 Taxes were taken out of their pay, so they filed a joint return only to get a refund of the withheld taxes. Turbotax 1040x 2012 The exception to the joint return test applies, so your son may be your qualifying child if all the other tests are met. Turbotax 1040x 2012 Example 3—child files joint return to claim American opportunity credit. Turbotax 1040x 2012 The facts are the same as in Example 2 except no taxes were taken out of your son's pay. Turbotax 1040x 2012 He and his wife are not required to file a tax return, but they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. Turbotax 1040x 2012 Because claiming the American opportunity credit is their reason for filing the return, they are not filing it only to get a refund of income tax withheld or estimated tax paid. Turbotax 1040x 2012 The exception to the joint return test does not apply, so your son is not your qualifying child. Turbotax 1040x 2012 Married child. Turbotax 1040x 2012   Even if your child does not file a joint return, if your child was married at the end of the year, he or she cannot be your qualifying child unless: You can claim an exemption for the child, or The reason you cannot claim an exemption for the child is that you let the child's other parent claim the exemption under the Special rule for divorced or separated parents (or parents who live apart) , described later. Turbotax 1040x 2012 Social security number. Turbotax 1040x 2012   The qualifying child must have a valid social security number (SSN) unless the child was born and died in 2013 and you attach to your return a copy of the child's birth certificate, death certificate, or hospital records showing a live birth. Turbotax 1040x 2012 You cannot claim the EIC on the basis of a qualifying child if: The qualifying child's SSN is missing from your tax return or is incorrect, The qualifying child's social security card says “Not valid for employment” and was issued for use in getting a federally funded benefit, or Instead of an SSN, the qualifying child has: An individual taxpayer identification number (ITIN), which is issued to a noncitizen who cannot get an SSN, or An adoption taxpayer identification number (ATIN), which is issued to adopting parents who cannot get an SSN for the child being adopted until the adoption is final. Turbotax 1040x 2012   If you have more than one qualifying child and only one has a valid SSN, you can use only that child to claim the EIC. Turbotax 1040x 2012 For more information about SSNs, see Rule 2 . Turbotax 1040x 2012 Rule 9. Turbotax 1040x 2012 Your Qualifying Child Cannot Be Used By More Than One Person To Claim the EIC Sometimes a child meets the tests to be a qualifying child of more than one person. Turbotax 1040x 2012 However, only one of these persons can actually treat the child as a qualifying child. Turbotax 1040x 2012 Only that person can use the child as a qualifying child to take all of the following tax benefits (provided the person is eligible for each benefit). Turbotax 1040x 2012 The exemption for the child. Turbotax 1040x 2012 The child tax credit. Turbotax 1040x 2012 Head of household filing status. Turbotax 1040x 2012 The credit for child and dependent care expenses. Turbotax 1040x 2012 The exclusion for dependent care benefits. Turbotax 1040x 2012 The EIC. Turbotax 1040x 2012 The other person cannot take any of these benefits based on this qualifying child. Turbotax 1040x 2012 In other words, you and the other person cannot agree to divide these tax benefits between you. Turbotax 1040x 2012 The other person cannot take any of these tax benefits unless he or she has a different qualifying child. Turbotax 1040x 2012 The tiebreaker rules explained next explain who, if anyone, can claim the EIC when more than one person has the same qualifying child. Turbotax 1040x 2012 However, the tiebreaker rules do not apply if the other person is your spouse and you file a joint return. Turbotax 1040x 2012 Tiebreaker rules. Turbotax 1040x 2012   To determine which person can treat the child as a qualifying child to claim the six tax benefits just listed, the following tiebreaker rules apply. Turbotax 1040x 2012 If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. Turbotax 1040x 2012 If the parents file a joint return together and can claim the child as a qualifying child, the child is treated as the qualifying child of the parents. Turbotax 1040x 2012 If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. Turbotax 1040x 2012 If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year. Turbotax 1040x 2012 If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year. Turbotax 1040x 2012 If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. Turbotax 1040x 2012 If the child's parents file a joint return with each other, this rule can be applied by treating the parents' total AGI as divided evenly between them. Turbotax 1040x 2012 See Example 8 . Turbotax 1040x 2012   Subject to these tiebreaker rules, you and the other person may be able to choose which of you claims the child as a qualifying child. Turbotax 1040x 2012 See Examples 1 through 13 . Turbotax 1040x 2012   If you cannot claim the EIC because your qualifying child is treated under the tiebreaker rules as the qualifying child of another person for 2013, you may be able to take the EIC using a different qualifying child, but you cannot take the EIC using the rules in Part C for people who do not have a qualifying child. Turbotax 1040x 2012 If the other person cannot claim the EIC. Turbotax 1040x 2012   If you and someone else have the same qualifying child but the other person cannot claim the EIC because he or she is not eligible or his or her earned income or AGI is too high, you may be able to treat the child as a qualifying child. Turbotax 1040x 2012 See Examples 6 and 7 . Turbotax 1040x 2012 But you cannot treat the child as a qualifying child to claim the EIC if the other person uses the child to claim any of the other six tax benefits listed earlier. Turbotax 1040x 2012 Examples. Turbotax 1040x 2012 The following examples may help you in determining whether you can claim the EIC when you and someone else have the same qualifying child. Turbotax 1040x 2012 Example 1. Turbotax 1040x 2012 You and your 2-year-old son Jimmy lived with your mother all year. Turbotax 1040x 2012 You are 25 years old, unmarried, and your AGI is $9,000. Turbotax 1040x 2012 Your only income was $9,000 from a part-time job. Turbotax 1040x 2012 Your mother's only income was $20,000 from her job, and her AGI is $20,000. Turbotax 1040x 2012 Jimmy's father did not live with you or Jimmy. Turbotax 1040x 2012 The special rule explained later for divorced or separated parents (or parents who live apart) does not apply. Turbotax 1040x 2012 Jimmy is a qualifying child of both you and your mother because he meets the relationship, age, residency, and joint return tests for both you and your mother. Turbotax 1040x 2012 However, only one of you can treat him as a qualifying child to claim the EIC (and the other tax benefits listed earlier for which that person qualifies). Turbotax 1040x 2012 He is not a qualifying child of anyone else, including his father. Turbotax 1040x 2012 If you do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can treat him as a qualifying child to claim the EIC (and any of the other tax benefits listed earlier for which she qualifies). Turbotax 1040x 2012 Example 2. Turbotax 1040x 2012 The facts are the same as in Example 1 except your AGI is $25,000. Turbotax 1040x 2012 Because your mother's AGI is not higher than yours, she cannot claim Jimmy as a qualifying child. Turbotax 1040x 2012 Only you can claim him. Turbotax 1040x 2012 Example 3. Turbotax 1040x 2012 The facts are the same as in Example 1 except that you and your mother both claim Jimmy as a qualifying child. Turbotax 1040x 2012 In this case, you as the child's parent will be the only one allowed to claim Jimmy as a qualifying child for the EIC and the other tax benefits listed earlier for which you qualify. Turbotax 1040x 2012 The IRS will disallow your mother's claim to the EIC and any of the other tax benefits listed earlier unless she has another qualifying child. Turbotax 1040x 2012 Example 4. Turbotax 1040x 2012 The facts are the same as in Example 1 except that you also have two other young children who are qualifying children of both you and your mother. Turbotax 1040x 2012 Only one of you can claim each child. Turbotax 1040x 2012 However, if your mother's AGI is higher than yours, you can allow your mother to claim one or more of the children. Turbotax 1040x 2012 For example, if you claim one child, your mother can claim the other two. Turbotax 1040x 2012 Example 5. Turbotax 1040x 2012 The facts are the same as in Example 1 except that you are only 18 years old. Turbotax 1040x 2012 This means you are a qualifying child of your mother. Turbotax 1040x 2012 Because of Rule 10 , discussed next, you cannot claim the EIC and cannot claim Jimmy as a qualifying child. Turbotax 1040x 2012 Only your mother may be able to treat Jimmy as a qualifying child to claim the EIC. Turbotax 1040x 2012 If your mother meets all the other requirements for claiming the EIC and you do not claim Jimmy as a qualifying child for any of the other tax benefits listed earlier, your mother can claim both you and Jimmy as qualifying children for the EIC. Turbotax 1040x 2012 Example 6. Turbotax 1040x 2012 The facts are the same as in Example 1 except that your mother earned $50,000 from her job. Turbotax 1040x 2012 Because your mother's earned income is too high for her to claim the EIC, only you can claim the EIC using your son. Turbotax 1040x 2012 Example 7. Turbotax 1040x 2012 The facts are the same as in Example 1 except that you earned $50,000 from your job and your AGI is $50,500. Turbotax 1040x 2012 Your earned income is too high for you to claim the EIC. Turbotax 1040x 2012 But your mother cannot claim the EIC either, because her AGI is not higher than yours. Turbotax 1040x 2012 Example 8. Turbotax 1040x 2012 The facts are the same as in Example 1 except that you and Jimmy's father are married to each other, live with Jimmy and your mother, and have an AGI of $30,000 on a joint return. Turbotax 1040x 2012 If you and your husband do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can claim him instead. Turbotax 1040x 2012 Even though the AGI on your joint return, $30,000, is more than your mother's AGI of $20,000, for this purpose half of the joint AGI can be treated as yours and half as your husband's. Turbotax 1040x 2012 In other words, each parent's AGI can be treated as $15,000. Turbotax 1040x 2012 Example 9. Turbotax 1040x 2012 You, your husband, and your 10-year-old son Joey lived together until August 1, 2013, when your husband moved out of the household. Turbotax 1040x 2012 In August and September, Joey lived with you. Turbotax 1040x 2012 For the rest of the year, Joey lived with your husband, who is Joey's father. Turbotax 1040x 2012 Joey is a qualifying child of both you and your husband because he lived with each of you for more than half the year and because he met the relationship, age, and joint return tests for both of you. Turbotax 1040x 2012 At the end of the year, you and your husband still were not divorced, legally separated, or separated under a written separation agreement, so the special rule for divorced or separated parents (or parents who live apart) does not apply. Turbotax 1040x 2012 You and your husband will file separate returns. Turbotax 1040x 2012 Your husband agrees to let you treat Joey as a qualifying child. Turbotax 1040x 2012 This means, if your husband does not claim Joey as a qualifying child for any of the tax benefits listed earlier, you can claim him as a qualifying child for any tax benefit listed earlier for which you qualify. Turbotax 1040x 2012 However, your filing status is married filing separately, so you cannot claim the EIC or the credit for child and dependent care expenses. Turbotax 1040x 2012 See Rule 3 . Turbotax 1040x 2012 Example 10. Turbotax 1040x 2012 The facts are the same as in Example 9 except that you and your husband both claim Joey as a qualifying child. Turbotax 1040x 2012 In this case, only your husband will be allowed to treat Joey as a qualifying child. Turbotax 1040x 2012 This is because, during 2013, the boy lived with him longer than with you. Turbotax 1040x 2012 You cannot claim the EIC (either with or without a qualifying child). Turbotax 1040x 2012 However, your husband's filing status is married filing separately, so he cannot claim the EIC or the credit for child and dependent care expenses. Turbotax 1040x 2012 See Rule 3 . Turbotax 1040x 2012 Example 11. Turbotax 1040x 2012 You, your 5-year-old son and your son's father lived together all year. Turbotax 1040x 2012 You and your son's father are not married. Turbotax 1040x 2012 Your son is a qualifying child of both you and his father because he meets the relationship, age, residency, and joint return tests for both you and his father. Turbotax 1040x 2012 Your earned income and AGI are $12,000, and your son's father's earned income and AGI are $14,000. Turbotax 1040x 2012 Neither of you had any other income. Turbotax 1040x 2012 Your son's father agrees to let you treat the child as a qualifying child. Turbotax 1040x 2012 This means, if your son's father does not claim your son as a qualifying child for the EIC or any of the other tax benefits listed earlier, you can claim him as a qualifying child for the EIC and any of the other tax benefits listed earlier for which you qualify. Turbotax 1040x 2012 Example 12. Turbotax 1040x 2012 The facts are the same as in Example 11 except that you and your son's father both claim your son as a qualifying child. Turbotax 1040x 2012 In this case, only your son's father will be allowed to treat your son as a qualifying child. Turbotax 1040x 2012 This is because his AGI, $14,000, is more than your AGI, $12,000. Turbotax 1040x 2012 You cannot claim the EIC (either with or without a qualifying child). Turbotax 1040x 2012 Example 13. Turbotax 1040x 2012 You and your 7-year-old niece, your sister's child, lived with your mother all year. Turbotax 1040x 2012 You are 25 years old, and your AGI is $9,300. Turbotax 1040x 2012 Your only income was from a part-time job. Turbotax 1040x 2012 Your mother's AGI is $15,000. Turbotax 1040x 2012 Her only income was from her job. Turbotax 1040x 2012 Your niece's parents file jointly, have an AGI of less than $9,000, and do not live with you or their child. Turbotax 1040x 2012 Your niece is a qualifying child of both you and your mother because she meets the relationship, age, residency, and joint return tests for both you and your mother. Turbotax 1040x 2012 However, only your mother can treat her as a qualifying child. Turbotax 1040x 2012 This is because your mother's AGI, $15,000, is more than your AGI, $9,300. Turbotax 1040x 2012 Special rule for divorced or separated parents (or parents who live apart). Turbotax 1040x 2012   A child will be treated as the qualifying child of his or her noncustodial parent (for purposes of claiming an exemption and the child tax credit, but not for the EIC) if all of the following statements are true. Turbotax 1040x 2012 The parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Lived apart at all times during the last 6 months of 2013, whether or not they are or were married. Turbotax 1040x 2012 The child received over half of his or her support for the year from the parents. Turbotax 1040x 2012 The child is in the custody of one or both parents for more than half of 2013. Turbotax 1040x 2012 Either of the following statements is true. Turbotax 1040x 2012 The custodial parent signs Form 8332 or a substantially similar statement that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches the form or statement to his or her return. Turbotax 1040x 2012 If the divorce decree or separation agreement went into effect after 1984 and before 2009, the noncustodial parent may be able to attach certain pages from the decree or agreement instead of Form 8332. Turbotax 1040x 2012 A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2013 provides that the noncustodial parent can claim the child as a dependent, and the noncustodial parent provides at least $600 for support of the child during 2013. Turbotax 1040x 2012  For details, see chapter 3. Turbotax 1040x 2012 Also see Applying Rule 9 to divorced or separated parents (or parents who live apart) , next. Turbotax 1040x 2012 Applying Rule 9 to divorced or separated parents (or parents who live apart). Turbotax 1040x 2012   If a child is treated as the qualifying child of the noncustodial parent under the special rule just described for children of divorced or separated parents (or parents who live apart), only the noncustodial parent can claim an exemption and the child tax credit for the child. Turbotax 1040x 2012 However, the custodial parent, if eligible, or another eligible taxpayer can claim the child as a qualifying child for the EIC and other tax benefits listed earlier in this chapter. Turbotax 1040x 2012 If the child is the qualifying child of more than one person for these benefits, then the tiebreaker rules determine which person can treat the child as a qualifying child. Turbotax 1040x 2012 Example 1. Turbotax 1040x 2012 You and your 5-year-old son lived all year with your mother, who paid the entire cost of keeping up the home. Turbotax 1040x 2012 Your AGI is $10,000. Turbotax 1040x 2012 Your mother’s AGI is $25,000. Turbotax 1040x 2012 Your son's father did not live with you or your son. Turbotax 1040x 2012 Under the special rule for children of divorced or separated parents (or parents who live apart), your son is treated as the qualifying child of his father, who can claim an exemption and the child tax credit for the child. Turbotax 1040x 2012 However, your son's father cannot claim your son as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the EIC. Turbotax 1040x 2012 You and your mother did not have any child care expenses or dependent care benefits. Turbotax 1040x 2012 If you do not claim your son as a qualifying child, your mother can claim him as a qualifying child for the EIC and head of household filing status, if she qualifies for these tax benefits. Turbotax 1040x 2012 Example 2. Turbotax 1040x 2012 The facts are the same as in Example 1 except that your AGI is $25,000 and your mother's AGI is $21,000. Turbotax 1040x 2012 Your mother cannot claim your son as a qualifying child for any purpose because her AGI is not higher than yours. Turbotax 1040x 2012 Example 3. Turbotax 1040x 2012 The facts are the same as in Example 1 except that you and your mother both claim your son as a qualifying child for the EIC. Turbotax 1040x 2012 Your mother also claims him as a qualifying child for head of household filing status. Turbotax 1040x 2012 You as the child's parent will be the only one allowed to claim your son as a qualifying child for the EIC. Turbotax 1040x 2012 The IRS will disallow your mother's claim to the EIC and head of household filing status unless she has another qualifying child. Turbotax 1040x 2012 Rule 10. Turbotax 1040x 2012 You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. Turbotax 1040x 2012 ) if all of the following statements are true. Turbotax 1040x 2012 You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. Turbotax 1040x 2012 Or, you are that person's brother, sister, half brother, half sister, stepbrother, or stepsister (or a descendant of any of them). Turbotax 1040x 2012 You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student, and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. Turbotax 1040x 2012 You lived with that person in the United States for more than half of the year. Turbotax 1040x 2012 You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). Turbotax 1040x 2012 For more details about the tests to be a qualifying child, see Rule 8 . Turbotax 1040x 2012 If you are a qualifying child of another taxpayer, you cannot claim the EIC. Turbotax 1040x 2012 This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. Turbotax 1040x 2012 Put “No” beside line 64a (Form 1040) or line 38a (Form 1040A). Turbotax 1040x 2012 Example. Turbotax 1040x 2012 You and your daughter lived with your mother all year. Turbotax 1040x 2012 You are 22 years old, unmarried, and attended a trade school full time. Turbotax 1040x 2012 You had a part-time job and earned $5,700. Turbotax 1040x 2012 You had no other income. Turbotax 1040x 2012 Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother. Turbotax 1040x 2012 She can claim the EIC if she meets all the other requirements. Turbotax 1040x 2012 Because you are your mother's qualifying child, you cannot claim the EIC. Turbotax 1040x 2012 This is so even if your mother cannot or does not claim the EIC. Turbotax 1040x 2012 Child of person not required to file a return. Turbotax 1040x 2012   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you meet the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. Turbotax 1040x 2012 Example. Turbotax 1040x 2012 The facts are the same as in the last example except your mother had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. Turbotax 1040x 2012 As a result, you are not your mother's qualifying child. Turbotax 1040x 2012 You can claim the EIC if you meet all the other requirements to do so. Turbotax 1040x 2012   See Rule 10 in Publication 596 for additional examples. Turbotax 1040x 2012 Part C. Turbotax 1040x 2012 Rules If You Do Not Have a Qualifying Child Read this part if you: Do not have a qualifying child, and Have met all the rules in Part A . Turbotax 1040x 2012  Part C discusses Rules 11 through 14. Turbotax 1040x 2012 You must meet all four of these rules, in addition to the rules in Parts A and D , to qualify for the earned income credit without a qualifying child. Turbotax 1040x 2012 If you have a qualifying child, the rules in this part do not apply to you. Turbotax 1040x 2012 You can claim the credit only if you meet all the rules in Parts A, B, and D. Turbotax 1040x 2012 See Rule 8 to find out if you have a qualifying child. Turbotax 1040x 2012 Rule 11. Turbotax 1040x 2012 You Must Be at Least Age 25 but Under Age 65 You must be at least age 25 but under age 65 at the end of 2013. Turbotax 1040x 2012 If you are married filing a joint return, either you or your spouse must be at least age 25 but under age 65 at the end of 2013. Turbotax 1040x 2012 It does not matter which spouse meets the age test, as long as one of the spouses does. Turbotax 1040x 2012 You meet the age test if you were born after December 31, 1948, and before January 2, 1989. Turbotax 1040x 2012 If you are married filing a joint return, you meet the age test if either you or your spouse was born after December 31, 1948, and before January 2, 1989. Turbotax 1040x 2012 If neither you nor your spouse meets the age test, you cannot claim the EIC. Turbotax 1040x 2012 Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Turbotax 1040x 2012 Death of spouse. Turbotax 1040x 2012   If you are filing a joint return with your spouse who died in 2013, you meet the age test if your spouse was at least age 25 but under age 65 at the time of death. Turbotax 1040x 2012 Example 1. Turbotax 1040x 2012 You are age 28 and unmarried. Turbotax 1040x 2012 You meet the age test. Turbotax 1040x 2012 Example 2—spouse meets age test. Turbotax 1040x 2012 You are married and filing a joint return. Turbotax 1040x 2012 You are age 23 and your spouse is age 27. Turbotax 1040x 2012 You meet the age test because your spouse is at least age 25 but under age 65. Turbotax 1040x 2012 Example 3—spouse dies in 2013. Turbotax 1040x 2012 You are married and filing a joint return with your spouse who died in August 2013. Turbotax 1040x 2012 You are age 67. Turbotax 1040x 2012 Your spouse would have become age 65 in November 2013. Turbotax 1040x 2012 Because your spouse was under age 65 when she died, you meet the age test. Turbotax 1040x 2012 Rule 12. Turbotax 1040x 2012 You Cannot Be the Dependent of Another Person If you are not filing a joint return, you meet this rule if: You checked box 6a on Form 1040 or 1040A, or You did not check the “You” box on line 5 of Form 1040EZ, and you entered $10,000 on that line. Turbotax 1040x 2012 If you are filing a joint return, you meet this rule if: You checked both box 6a and box 6b on Form 1040 or 1040A, or You and your spouse did not check either the “You” box or the “Spouse” box on line 5 of Form 1040EZ, and you entered $20,000 on that line. Turbotax 1040x 2012 If you are not sure whether someone else can claim you (or your spouse, if filing a joint return) as a dependent, read the rules for claiming a dependent in chapter 3. Turbotax 1040x 2012 If someone else can claim you (or your spouse, if filing a joint return) as a dependent on his or her return, but does not, you still cannot claim the credit. Turbotax 1040x 2012 Example 1. Turbotax 1040x 2012 In 2013, you were age 25, single, and living at home with your parents. Turbotax 1040x 2012 You worked and were not a student. Turbotax 1040x 2012 You earned $7,500. Turbotax 1040x 2012 Your parents cannot claim you as a dependent. Turbotax 1040x 2012 When you file your return, you claim an exemption for yourself by not checking the “You” box on line 5 of your Form 1040EZ and by entering $10,000 on that line. Turbotax 1040x 2012 You meet this rule. Turbotax 1040x 2012 You can claim the EIC if you meet all the other requirements. Turbotax 1040x 2012 Example 2. Turbotax 1040x 2012 The facts are the same as in Example 1 , except that you earned $2,000. Turbotax 1040x 2012 Your parents can claim you as a dependent but decide not to. Turbotax 1040x 2012 You do not meet this rule. Turbotax 1040x 2012 You cannot claim the credit because your parents could have claimed you as a dependent. Turbotax 1040x 2012 Joint returns. Turbotax 1040x 2012   You generally cannot be claimed as a dependent by another person if you are married and file a joint return. Turbotax 1040x 2012   However, another person may be able to claim you as a dependent if you and your spouse file a joint return only to get a refund of income tax withheld or estimated tax paid. Turbotax 1040x 2012 But neither you nor your spouse can be claimed as a dependent by another person if you claim the EIC on your joint return. Turbotax 1040x 2012 Example 1. Turbotax 1040x 2012 You are 26 years old. Turbotax 1040x 2012 You and your wife live with your parents and had $800 of wages from part-time jobs and no other income. Turbotax 1040x 2012 Neither you nor your wife is required to file a tax return. Turbotax 1040x 2012 You do not have a child. Turbotax 1040x 2012 Taxes were taken out of your pay, so you file a joint return only to get a refund of the withheld taxes. Turbotax 1040x 2012 Your parents are not disqualified from claiming an exemption for you just because you filed a joint return. Turbotax 1040x 2012 They can claim exemptions for you and your wife if all the other tests to do so are met. Turbotax 1040x 2012 Example 2. Turbotax 1040x 2012 The facts are the same as in Example 1 except no taxes were taken out of your pay. Turbotax 1040x 2012 Also, you and your wife are not required to file a tax return, but you file a joint return to claim an EIC of $63 and get a refund of that amount. Turbotax 1040x 2012 Because claiming the EIC is your reason for filing the return, you are not filing it only to get a refund of income tax withheld or estimated tax paid. Turbotax 1040x 2012 Your parents cannot claim an exemption for either you or your wife. Turbotax 1040x 2012 Rule 13. Turbotax 1040x 2012 You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. Turbotax 1040x 2012 ) if all of the following statements are true. Turbotax 1040x 2012 You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. Turbotax 1040x 2012 Or, you are that person's brother, sister, half brother, half sister, stepbrother, or stepsister (or a descendant of any of them). Turbotax 1040x 2012 You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student (as defined in Rule 8 ), and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. Turbotax 1040x 2012 You lived with that person in the United States for more than half of the year. Turbotax 1040x 2012 You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). Turbotax 1040x 2012 For more details about the tests to be a qualifying child, see Rule 8 . Turbotax 1040x 2012 If you are a qualifying child of another taxpayer, you cannot claim the EIC. Turbotax 1040x 2012 This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. Turbotax 1040x 2012 Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Turbotax 1040x 2012 Example. Turbotax 1040x 2012 You lived with your mother all year. Turbotax 1040x 2012 You are age 26, unmarried, and permanently and totally disabled. Turbotax 1040x 2012 Your only income was from a community center where you went three days a week to answer telephones. Turbotax 1040x 2012 You earned $5,000 for the year and provided more than half of your own support. Turbotax 1040x 2012 Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother for the EIC. Turbotax 1040x 2012 She can claim the EIC if she meets all the other requirements. Turbotax 1040x 2012 Because you are a qualifying child of your mother, you cannot claim the EIC. Turbotax 1040x 2012 This is so even if your mother cannot or does not claim the EIC. Turbotax 1040x 2012 Joint returns. Turbotax 1040x 2012   You generally cannot be a qualifying child of another taxpayer if you are married and file a joint return. Turbotax 1040x 2012   However, you may be a qualifying child of another taxpayer if you and your spouse file a joint return for the year only to get a refund of income tax withheld or estimated tax paid. Turbotax 1040x 2012 But neither you nor your spouse can be a qualifying child of another taxpayer if you claim the EIC on your joint return. Turbotax 1040x 2012 Child of person not required to file a return. Turbotax 1040x 2012   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you meet the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. Turbotax 1040x 2012 Example. Turbotax 1040x 2012 You lived all year with your father. Turbotax 1040x 2012 You are 27 years old, unmarried, permanently and totally disabled, and earned $13,000. Turbotax 1040x 2012 You have no other income, no children, and provided more than half of your own support. Turbotax 1040x 2012 Your father had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. Turbotax 1040x 2012 As a result, you are not your father's qualifying child. Turbotax 1040x 2012 You can claim the EIC if you meet all the other requirements to do so. Turbotax 1040x 2012   See Rule 13 in Publication 596 for additional examples. Turbotax 1040x 2012 Rule 14. Turbotax 1040x 2012 You Must Have Lived in the United States More Than Half of the Year Your home (and your spouse's, if filing a joint return) must have been in the United States for more than half the year. Turbotax 1040x 2012 If it was not, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Turbotax 1040x 2012 United States. Turbotax 1040x 2012   This means the 50 states and the District of Columbia. Turbotax 1040x 2012 It does not include Puerto Rico or U. Turbotax 1040x 2012 S. Turbotax 1040x 2012 possessions such as Guam. Turbotax 1040x 2012 Homeless shelter. Turbotax 1040x 2012   Your home can be any location where you regularly live. Turbotax 1040x 2012 You do not need a traditional home. Turbotax 1040x 2012 If you lived in one or more homeless shelters in the United States for more than half the year, you meet this rule. Turbotax 1040x 2012 Military personnel stationed outside the United States. Turbotax 1040x 2012   U. Turbotax 1040x 2012 S. Turbotax 1040x 2012 military personnel stationed outside the United States on extended active duty (defined in Rule 8 ) are considered to live in the United States during that duty period for purposes of the EIC. Turbotax 1040x 2012 Part D. Turbotax 1040x 2012 Figuring and Claiming the EIC Read this part if you have met all the rules in Parts A and B, or all the rules in Parts A and C. Turbotax 1040x 2012 Part D discusses Rule 15 . Turbotax 1040x 2012 You must meet this rule, in addition to the rules in Parts A and B , or Parts A and C , to qualify for the earned income credit. Turbotax 1040x 2012 This part of the chapter also explains how to figure the amount of your credit. Turbotax 1040x 2012 You have two choices. Turbotax 1040x 2012 Have the IRS figure the EIC for you. Turbotax 1040x 2012 If you want to do this, see IRS Will Figure the EIC for You . Turbotax 1040x 2012 Figure the EIC yourself. Turbotax 1040x 2012 If you want to do this, see How To Figure the EIC Yourself . Turbotax 1040x 2012 Rule 15. Turbotax 1040x 2012 Your Earned Income Must Be Less Than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. Turbotax 1040x 2012 Earned income generally means wages, salaries, tips, other taxable employee pay, and net earnings from self-employment. Turbotax 1040x 2012 Employee pay is earned income only if it is taxable. Turbotax 1040x 2012 Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. Turbotax 1040x 2012 But there is an exception for nontaxable combat pay, which you can choose to include in earned income. Turbotax 1040x 2012 Earned income is explained in detail in Rule 7 . Turbotax 1040x 2012 Figuring earned income. Turbotax 1040x 2012   If you are self-employed, a statutory employee, or a member of the clergy or a church employee who files Schedule SE (Form 1040), you will figure your earned income when you fill out Part 4 of EIC Worksheet B in the Form 1040 instructions. Turbotax 1040x 2012   Otherwise, figure your earned income by using the worksheet in Step 5 of the Form 1040 instructions for lines 64a and 64b or the Form 1040A instructions for lines 38a and 38b, or the worksheet in Step 2 of the Form 1040EZ instructions for lines 8a and 8b. Turbotax 1040x 2012   When using one of those worksheets to figure your earned income, you will start with the amount on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). Turbotax 1040x 2012 You will then reduce that amount by any amount included on that line and described in the following list: Scholarship or fellowship grants not reported on a Form W-2, Inmate's income, and Pension or annuity from deferred compensation plans. Turbotax 1040x 2012 Scholarship or fellowship grants not reported on a Form W-2. Turbotax 1040x 2012   A scholarship or fellowship grant that was not reported to you on a Form W-2 is not considered earned income for the earned income credit. Turbotax 1040x 2012 Inmate's income. Turbotax 1040x 2012   Amounts received for work performed while an inmate in a penal institution are not earned income for the earned income credit. Turbotax 1040x 2012 This includes amounts received for work performed while in a work release program or while in a halfway house. Turbotax 1040x 2012 If you received any amount for work done while an inmate in a penal institution and that amount is included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “PRI” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). Turbotax 1040x 2012 Pension or annuity from deferred compensation plans. Turbotax 1040x 2012   A pension or annuity from a nonqualified deferred compensation plan or a nongovernmental section 457 plan is not considered earned income for the earned income credit. Turbotax 1040x 2012 If you received such an amount and it was included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “DFC” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). Turbotax 1040x 2012 This amount may be reported in box 11 of your Form W-2. Turbotax 1040x 2012 If you received such an amount but box 11 is blank, contact your employer for the amount received as a pension or annuity. Turbotax 1040x 2012 Clergy. Turbotax 1040x 2012   If you are a member of the clergy who files Schedule SE and the amount on line 2 of that schedule includes an amount that was also reported on line 7 (Form 1040), subtract that amount from the amount on line 7 (Form 1040) and enter the result in the first space of the worksheet in Step 5 of the Form 1040 instructions for lines 64a and 64b. Turbotax 1040x 2012 Put “Clergy” on the dotted line next to line 64a (Form 1040). Turbotax 1040x 2012 Church employees. Turbotax 1040x 2012    A church employee means an employee (other than a minister or member of a religious order) of a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes. Turbotax 1040x 2012 If you received wages as a