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1040ez File

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1040ez File

1040ez file 5. 1040ez file   Manufacturers Taxes Table of Contents Importer. 1040ez file Use considered sale. 1040ez file Lease considered sale. 1040ez file Bonus goods. 1040ez file Taxable Event ExemptionsRequirements for Exempt Sales Credits or Refunds Sport Fishing EquipmentRelated person. 1040ez file Bows, Quivers, Broadheads, and Points Arrow ShaftsExemption for certain wooden arrows. 1040ez file CoalExported. 1040ez file Taxable TiresQualifying intercity or local bus. 1040ez file Qualifying school bus. 1040ez file Gas Guzzler TaxVehicles not subject to tax. 1040ez file Imported automobiles. 1040ez file VaccinesConditions to allowance. 1040ez file Taxable Medical Devices The following discussion of manufacturers taxes applies to the tax on: Sport fishing equipment; Fishing rods and fishing poles; Electric outboard motors; Fishing tackle boxes; Bows, quivers, broadheads, and points; Arrow shafts; Coal; Taxable tires; Gas guzzler automobiles; and Vaccines. 1040ez file Manufacturer. 1040ez file   The term “manufacturer” includes a producer or importer. 1040ez file A manufacturer is any person who produces a taxable article from new or raw material, or from scrap, salvage, or junk material, by processing or changing the form of an article or by combining or assembling two or more articles. 1040ez file If you furnish the materials and keep title to those materials and to the finished article, you are considered the manufacturer even though another person actually manufactures the taxable article. 1040ez file   A manufacturer who sells a taxable article in knockdown (unassembled) condition is liable for the tax. 1040ez file The person who buys these component parts and assembles a taxable article may also be liable for tax as a further manufacturer depending on the labor, material, and overhead required to assemble the completed article if the article is assembled for business use. 1040ez file Importer. 1040ez file   An importer is a person who brings a taxable article into the United States, or withdraws a taxable article from a customs bonded warehouse for sale or use in the United States. 1040ez file Sale. 1040ez file   A sale is the transfer of the title to, or the substantial incidents of ownership in, an article to a buyer for consideration that may consist of money, services, or other things. 1040ez file Use considered sale. 1040ez file   A manufacturer who uses a taxable article is liable for the tax in the same manner as if it were sold. 1040ez file Lease considered sale. 1040ez file   The lease of an article (including any renewal or extension of the lease) by the manufacturer is generally considered a taxable sale. 1040ez file However, for the gas guzzler tax, only the first lease (excluding any renewal or extension) of the automobile by the manufacturer is considered a sale. 1040ez file Manufacturers taxes based on sale price. 1040ez file   The manufacturers taxes imposed on the sale of sport fishing equipment, electric outboard motors, and bows are based on the sale price of the article. 1040ez file The taxes imposed on coal are based either on the sale price or the weight. 1040ez file   The price for which an article is sold includes the total consideration paid for the article, whether that consideration is in the form of money, services, or other things. 1040ez file However, you include certain charges made when a taxable article is sold and you exclude others. 1040ez file To figure the price on which you base the tax, use the following rules. 1040ez file Include both the following charges in the price. 1040ez file Any charge for coverings or containers (regardless of their nature). 1040ez file Any charge incident to placing the article in a condition packed ready for shipment. 1040ez file Exclude all the following amounts from the price. 1040ez file The manufacturers excise tax, whether or not it is stated as a separate charge. 1040ez file The transportation charges pursuant to the sale. 1040ez file The cost of transportation of goods to a warehouse before their bona fide sale is not excludable. 1040ez file Delivery, insurance, installation, retail dealer preparation charges, and other charges you incur in placing the article in the hands of the purchaser under a bona fide sale. 1040ez file Discounts, rebates, and similar allowances actually granted to the purchaser. 1040ez file Local advertising charges. 1040ez file A charge made separately when the article is sold and that qualifies as a charge for “local advertising” may, within certain limits, be excluded from the sale price. 1040ez file Charges for warranty paid at the purchaser's option. 1040ez file However, a charge for a warranty of an article that the manufacturer requires the purchaser to pay to obtain the article is included in the sale price on which the tax is figured. 1040ez file Bonus goods. 1040ez file   Allocate the sale price if you give free nontaxable goods with the purchase of taxable merchandise. 1040ez file Figure the tax only on the sale price attributable to the taxable articles. 1040ez file Example. 1040ez file A manufacturer sells a quantity of taxable articles and gives the purchaser certain nontaxable articles as a bonus. 1040ez file The sale price of the shipment is $1,500. 1040ez file The normal sale price is $2,000: $1,500 for the taxable articles and $500 for the nontaxable articles. 1040ez file Since the taxable items represent 75% of the normal sale price, the tax is based on 75% of the actual sale price, or $1,125 (75% of $1,500). 1040ez file The remaining $375 is allocated to the nontaxable articles. 1040ez file Taxable Event Tax attaches when the title to the article sold passes from the manufacturer to the buyer. 1040ez file When the title passes depends on the intention of the parties as gathered from the contract of sale. 1040ez file In the absence of expressed intention, the legal rules of presumption followed in the jurisdiction where the sale occurs determine when title passes. 1040ez file If the taxable article is used by the manufacturer, the tax attaches at the time use begins. 1040ez file The manufacturer is liable for the tax. 1040ez file Partial payments. 1040ez file   The tax applies to each partial payment received when taxable articles are: Leased, Sold conditionally, Sold on installment with chattel mortgage, or Sold on installment with title to pass in the future. 1040ez file To figure the tax, multiply the partial payment by the tax rate in effect at the time of the payment. 1040ez file Exemptions The following sales by the manufacturer are exempt from the manufacturers tax. 1040ez file Sale of an article to a state or local government for the exclusive use of the state or local government. 1040ez file This exemption does not apply to the taxes on coal, gas guzzlers, and vaccines. 1040ez file State is defined in Definitions in chapter 1. 1040ez file Sale of an article to a nonprofit educational organization for its exclusive use. 1040ez file This exemption does not apply to the taxes on coal, gas guzzlers, and vaccines. 1040ez file Nonprofit educational organization is defined under Communications Tax in chapter 4. 1040ez file Sale of an article to a qualified blood collector organization. 1040ez file This exemption does not apply to gas guzzlers, recreational equipment, and vaccines. 1040ez file Qualified blood collector organizations are defined under Communications Tax in chapter 4. 1040ez file Sale of an article for use by the purchaser as supplies for vessels. 1040ez file This exemption does not apply to the taxes on coal and vaccines. 1040ez file Supplies for vessels means ships' stores, sea stores, or legitimate equipment on vessels of war of the United States or any foreign nation, vessels employed in the fisheries or whaling business, or vessels actually engaged in foreign trade. 1040ez file Sale of an article for use by the purchaser for further manufacture, or for resale by the purchaser to a second purchaser for use by the second purchaser for further manufacture. 1040ez file This exemption does not apply to the tax on coal and tires. 1040ez file Use for further manufacture means use in the manufacture or production of an article subject to the manufacturers excise taxes. 1040ez file If you buy articles tax free and resell or use them other than in the manufacture of another article, you are liable for the tax on their resale or use just as if you had manufactured and sold them. 1040ez file Sale of an article for export or for resale by the purchaser to a second purchaser for export. 1040ez file The article may be exported to a foreign country or to a possession of the United States. 1040ez file A vaccine shipped to a possession of the United States is not considered to be exported. 1040ez file If an article is sold tax free for export and the manufacturer does not receive proof of export, described later, the manufacturer is liable for the tax. 1040ez file Sales of articles of native Indian handicraft, such as bows and arrow shafts, manufactured by Indians on reservations, in Indian schools, or under U. 1040ez file S. 1040ez file jurisdiction in Alaska. 1040ez file For tire exemptions, see section 4221(e)(2). 1040ez file Requirements for Exempt Sales The following requirements must be met for a sale to be exempt from the manufacturers tax. 1040ez file Registration requirements. 1040ez file   The manufacturer, first purchaser, and second purchaser in the case of resales must be registered. 1040ez file See the Form 637 instructions for more information. 1040ez file Exceptions to registration requirements. 1040ez file   Registration is not required for: State or local governments, Foreign purchasers of articles sold or resold for export, The United States, or Parties to a sale of supplies for vessels and aircraft. 1040ez file Certification requirement. 1040ez file   If the purchaser is required to be registered, the purchaser must give the manufacturer its registration number and certify the exempt purpose for which the article will be used. 1040ez file The information must be in writing and may be noted on the purchase order or other document furnished by the purchaser to the seller in connection with the sale. 1040ez file   For a sale to a state or local government, an exemption certificate must be signed by an officer or employee authorized by the state or local government. 1040ez file See Regulations section 48. 1040ez file 4221-5(c) for the certificate requirements. 1040ez file   For sales for use as supplies for vessels and aircraft, if the manufacturer and purchaser are not registered, the owner or agent of the vessel must provide an exemption certificate to the manufacturer before or at the time of sale. 1040ez file See Regulations section 48. 1040ez file 4221-4(d) for the certificate requirements. 1040ez file Proof of export requirement. 1040ez file   Within 6 months of the date of sale or shipment by the manufacturer, whichever is earlier, the manufacturer must receive proof of exportation. 1040ez file See Regulations section 48. 1040ez file 4221-3(d) for evidence that qualifies as proof of exportation. 1040ez file Proof of resale for further manufacture requirement. 1040ez file   Within 6 months of the date of sale or shipment by the manufacturer, whichever is earlier, the manufacturer must receive proof that the article has been resold for use in further manufacture. 1040ez file See Regulations section 48. 1040ez file 4221-2(c) for evidence that qualifies as proof of resale. 1040ez file Information to be furnished to purchaser. 1040ez file   The manufacturer must indicate to the purchaser that the articles normally would be subject to tax and are being sold tax free for an exempt purpose because the purchaser has provided the required certificate. 1040ez file Credits or Refunds The manufacturer may be eligible to obtain a credit or refund of the manufacturers tax for certain uses, sales, exports, and price readjustments. 1040ez file The claim must set forth in detail the facts upon which the claim is based. 1040ez file Uses, sales, and exports. 1040ez file   A credit or refund (without interest) of the manufacturers taxes may be allowable if a tax-paid article is, by any person: Exported, Used or sold for use as supplies for vessels (except for coal and vaccines), Sold to a state or local government for its exclusive use (except for coal, gas guzzlers, and vaccines), Sold to a nonprofit educational organization for its exclusive use (except for coal, gas guzzlers, and vaccines), Sold to a qualified blood collector organization for its exclusive use (except for gas guzzlers, recreational equipment, and vaccines), or Used for further manufacture of another article subject to the manufacturers taxes (except for coal). 1040ez file Export. 1040ez file   If a tax-paid article is exported, the exporter or shipper may claim a credit or refund if the manufacturer waives its right to claim the credit or refund. 1040ez file In the case of a tax-paid article used to make another taxable article, the subsequent manufacturer may claim the credit or refund. 1040ez file Price readjustments. 1040ez file   In addition, a credit or refund (without interest) may be allowable for a tax-paid article for which the price is readjusted by reason of return or repossession of the article or a bona fide discount, rebate, or allowance for taxes based on price. 1040ez file Conditions to allowance. 1040ez file   To claim a credit or refund in the case of export; supplies for vessels; or sales to a state or local government, nonprofit educational organization, or qualified blood collector organization; the person who paid the tax must certify on the claim that one of the following applies and that the claimant has the required supporting information. 1040ez file The claimant sold the article at a tax-excluded price. 1040ez file The person has repaid, or agreed to repay, the tax to the ultimate vendor of the article. 1040ez file The person has obtained the written consent of the ultimate vendor to make the claim. 1040ez file The ultimate vendor generally is the seller making the sale that gives rise to the overpayment of tax. 1040ez file Claim for further manufacture. 1040ez file   To claim a credit or refund for further manufacture, the claimant must include a statement that contains the following. 1040ez file The name and address of the manufacturer and the date of payment. 1040ez file An identification of the article for which the credit or refund is claimed. 1040ez file The amount of tax paid on the article and the date on which it was paid. 1040ez file Information indicating that the article was used as material in the manufacture or production of, or as a component part of, a second article manufactured or produced by the manufacturer, or was sold on or in connection with, or with the sale of a second article manufactured or produced by the manufacturer. 1040ez file An identification of the second article. 1040ez file   For claims by the exporter or shipper, the claim must contain the proof of export and a statement signed by the person that paid the tax waiving the right to claim a credit or refund. 1040ez file The statement must include the amount of tax paid, the date of payment, and the office to which it was paid. 1040ez file Claim for price readjustment. 1040ez file   To claim a credit or refund for a price readjustment, the person who paid the tax must include with the claim, a statement that contains the following. 1040ez file A description of the circumstances that gave rise to the price readjustment. 1040ez file An identification of the article whose price was readjusted. 1040ez file The price at which the article was sold. 1040ez file The amount of tax paid on the article and the date on which it was paid. 1040ez file The name and address of the purchaser. 1040ez file The amount repaid to the purchaser or credited to the purchaser's account. 1040ez file Sport Fishing Equipment A tax of 10% of the sale price is imposed on many articles of sport fishing equipment sold by the manufacturer. 1040ez file This includes any parts or accessories sold on or in connection with the sale of those articles. 1040ez file Pay this tax with Form 720. 1040ez file No tax deposits are required. 1040ez file Sport fishing equipment includes all the following items. 1040ez file Fishing rods and poles (and component parts), fishing reels, fly fishing lines, and other fishing lines not over 130 pounds test, fishing spears, spear guns, and spear tips. 1040ez file Items of terminal tackle, including leaders, artificial lures, artificial baits, artificial flies, fishing hooks, bobbers, sinkers, snaps, drayles, and swivels (but not including natural bait or any item of terminal tackle designed for use and ordinarily used on fishing lines not described in (1)). 1040ez file The following items of fishing supplies and accessories: fish stringers, creels, bags, baskets, and other containers designed to hold fish, portable bait containers, fishing vests, landing nets, gaff hooks, fishing hook disgorgers, and dressing for fishing lines and artificial flies. 1040ez file Fishing tip-ups and tilts. 1040ez file Fishing rod belts, fishing rodholders, fishing harnesses, fish fighting chairs, fishing outriggers, and fishing downriggers. 1040ez file See Revenue Ruling 88-52 in Cumulative Bulletin 1988-1 for a more complete description of the items of taxable equipment. 1040ez file Fishing rods and fishing poles. 1040ez file   The tax on fishing rods and fishing poles (and component parts) is 10% of the sales price not to exceed $10 per article. 1040ez file The tax is paid by the manufacturer, producer, or importer. 1040ez file Fishing tackle boxes. 1040ez file   The tax on fishing tackle boxes is 3% of the sales price. 1040ez file The tax is paid by the manufacturer, producer, or importer. 1040ez file Electric outboard boat motors. 1040ez file   A tax of 3% of the sale price is imposed on the sale by the manufacturer of electric outboard motors. 1040ez file This includes any parts or accessories sold on or in connection with the sale of those articles. 1040ez file Certain equipment resale. 1040ez file   The tax on the sale of sport fishing equipment is imposed a second time under the following circumstances. 1040ez file If the manufacturer sells a taxable article to any person, the manufacturer is liable for the tax. 1040ez file If the purchaser or any other person then sells it to a person who is related (discussed next) to the manufacturer, that related person is liable for a second tax on any subsequent sale of the article. 1040ez file The second tax, however, is not imposed if the constructive sale price rules under section 4216(b) apply to the sale by the manufacturer. 1040ez file   If the second tax is imposed, a credit for tax previously paid by the manufacturer is available provided the related person can document the tax paid. 1040ez file The documentation requirement is generally satisfied only through submission of copies of actual records of the person that previously paid the tax. 1040ez file Related person. 1040ez file   For the tax on sport fishing equipment, a person is a related person of the manufacturer if that person and the manufacturer have a relationship described in section 465(b)(3)(C). 1040ez file Bows, Quivers, Broadheads, and Points The tax on bows is 11% (. 1040ez file 11) of the sales price. 1040ez file The tax is paid by the manufacturer, producer, or importer. 1040ez file It applies to bows having a peak draw weight of 30 pounds or more. 1040ez file The tax is also imposed on the sale of any part or accessory suitable for inclusion in or attachment to a taxable bow and any quiver, broadhead, or point suitable for use with arrows described below. 1040ez file Pay this tax with Form 720. 1040ez file No tax deposits are required. 1040ez file Arrow Shafts The tax on arrow shafts is listed on Form 720. 1040ez file The tax is paid by the manufacturer, producer, or importer of any arrow shaft (whether sold separately or incorporated as part of a finished or unfinished product) of a type used in the manufacture of any arrow that after its assembly meets either of the following conditions. 1040ez file It measures 18 inches or more in overall length. 1040ez file It measures less than 18 inches in overall length but is suitable for use with a taxable bow, described earlier. 1040ez file Exemption for certain wooden arrows. 1040ez file   After October 3, 2008, the tax does not apply to any shaft made of all natural wood with no laminations or artificial means of enhancing the spine of such shaft (whether sold separately or incorporated as part of a finished or unfinished product) and used in the manufacture of any arrow that after its assembly meets both of the following conditions. 1040ez file It measures 5/16 of an inch or less in diameter. 1040ez file It is not suitable for use with a taxable bow, described earlier. 1040ez file Pay this tax with Form 720. 1040ez file No tax deposits are required. 1040ez file Coal A tax is imposed on the first sale of coal mined in the United States. 1040ez file The producer of the coal is liable for the tax. 1040ez file The producer is the person who has vested ownership of the coal under state law immediately after the coal is severed from the ground. 1040ez file Determine vested ownership without regard to any contractual arrangement for the sale or other disposition of the coal or the payment of any royalties between the producer and third parties. 1040ez file A producer includes any person who extracts coal from coal waste refuse piles (or from the silt waste product that results from the wet washing of coal). 1040ez file The tax is not imposed on coal extracted from a riverbed by dredging if it can be shown that the coal has been taxed previously. 1040ez file Tax rates. 1040ez file   The tax on underground-mined coal is the lower of: $1. 1040ez file 10 a ton, or 4. 1040ez file 4% of the sale price. 1040ez file   The tax on surface-mined coal is the lower of: 55 cents a ton, or 4. 1040ez file 4% of the sale price. 1040ez file   Coal will be taxed at the 4. 1040ez file 4% rate if the selling price is less than $25 a ton for underground-mined coal and less than $12. 1040ez file 50 a ton for surface-mined coal. 1040ez file Apply the tax proportionately if a sale or use includes a portion of a ton. 1040ez file Example. 1040ez file If you sell 21,000 pounds (10. 1040ez file 5 tons) of coal from an underground mine for $525, the price per ton is $50. 1040ez file The tax is $1. 1040ez file 10 × 10. 1040ez file 5 tons ($11. 1040ez file 55). 1040ez file Coal production. 1040ez file   Coal is produced from surface mines if all geological matter (trees, earth, rock) above the coal is removed before the coal is mined. 1040ez file Treat coal removed by auger and coal reclaimed from coal waste refuse piles as produced from a surface mine. 1040ez file   Treat coal as produced from an underground mine when the coal is not produced from a surface mine. 1040ez file In some cases, a single mine may yield coal from both surface mining and underground mining. 1040ez file Determine if the coal is from a surface mine or an underground mine for each ton of coal produced and not on a mine-by-mine basis. 1040ez file Determining tonnage or selling price. 1040ez file   The producer pays the tax on coal at the time of sale or use. 1040ez file In figuring the selling price for applying the tax, the point of sale is f. 1040ez file o. 1040ez file b. 1040ez file (free on board) mine or f. 1040ez file o. 1040ez file b. 1040ez file cleaning plant if you clean the coal before selling it. 1040ez file This applies even if you sell the coal for a delivered price. 1040ez file The f. 1040ez file o. 1040ez file b. 1040ez file mine or f. 1040ez file o. 1040ez file b. 1040ez file cleaning plant is the point at which you figure the number of tons sold for applying the applicable tonnage rate, and the point at which you figure the sale price for applying the 4. 1040ez file 4% rate. 1040ez file   The tax applies to the full amount of coal sold. 1040ez file However, the IRS allows a calculated reduction of the taxable weight of the coal for the weight of the moisture in excess of the coal's inherent moisture content. 1040ez file Include in the sale price any additional charge for a freeze-conditioning additive in figuring the tax. 1040ez file   Do not include in the sales price the excise tax imposed on coal. 1040ez file Coal used by the producer. 1040ez file   The tax on coal applies if the coal is used by the producer in other than a mining process. 1040ez file A mining process means the same for this purpose as for percentage depletion. 1040ez file For example, the tax does not apply if, before selling the coal, you break it, clean it, size it, or apply any other process considered mining under the rules for depletion. 1040ez file In this case, the tax applies only when you sell the coal. 1040ez file The tax does not apply to coal used as fuel in the coal drying process since it is considered to be used in a mining process. 1040ez file However, the tax does apply when you use the coal as fuel or as an ingredient in making coke since the coal is not used in a mining process. 1040ez file   You must use a constructive sale price to figure the tax under the 4. 1040ez file 4% rate if you use the coal in other than a mining process. 1040ez file Base your constructive sale price on sales of a like kind and grade of coal by you or other producers made f. 1040ez file o. 1040ez file b. 1040ez file mine or cleaning plant. 1040ez file Normally, you use the same constructive price used to figure your percentage depletion deduction. 1040ez file Blending. 1040ez file   If you blend surface-mined coal with underground-mined coal during the cleaning process, you must figure the excise tax on the sale of the blended, cleaned coal. 1040ez file Figure the tax separately for each type of coal in the blend. 1040ez file Base the tax on the amount of each type in the blend if you can determine the proportion of each type of coal contained in the final blend. 1040ez file Base the tax on the ratio of each type originally put into the cleaning process if you cannot determine the proportion of each type of coal in the blend. 1040ez file However, the tax is limited to 4. 1040ez file 4% of the sale price per ton of the blended coal. 1040ez file Exemption from tax. 1040ez file   The tax does not apply to sales of lignite and imported coal. 1040ez file The only other exemption from the tax on the sale of coal is for coal exported as discussed next. 1040ez file Exported. 1040ez file   The tax does not apply to the sale of coal if the coal is in the stream of export when sold by the producer and the coal is actually exported. 1040ez file   Coal is in the stream of export when sold by the producer if the sale is a step in the exportation of the coal to its ultimate destination in a foreign country. 1040ez file For example, coal is in the stream of export when: The coal is loaded on an export vessel and title is transferred from the producer to a foreign purchaser, or The producer sells the coal to an export broker in the United States under terms of a contract showing that the coal is to be shipped to a foreign country. 1040ez file   Proof of export includes any of the following items. 1040ez file A copy of the export bill of lading issued by the delivering carrier. 1040ez file A certificate signed by the export carrier's agent or representative showing actual exportation of the coal. 1040ez file A certificate of landing signed by a customs officer of the foreign country to which the coal is exported. 1040ez file If the foreign country does not have a customs administrator, a statement of the foreign consignee showing receipt of the coal. 1040ez file Taxable Tires Taxable tires are divided into three categories for reporting and figuring the tax as described below. 1040ez file A tax is imposed on taxable tires sold by the manufacturer, producer, or importer at the rate of $. 1040ez file 0945 ($. 1040ez file 04725 in the case of a biasply tire or super single tire) for each 10 pounds of the maximum rated load capacity over 3,500 pounds. 1040ez file The three categories for reporting the tax and the tax rate are listed below. 1040ez file Taxable tires other than biasply or super single tires at $. 1040ez file 0945. 1040ez file Taxable tires, biasply or super single tires (other than super single tires designed for steering) at $. 1040ez file 04725. 1040ez file Taxable tires, super single tires designed for steering at $. 1040ez file 0945. 1040ez file A taxable tire is any tire of the type used on highway vehicles if wholly or partially made of rubber and if marked according to federal regulations for highway use. 1040ez file A biasply tire is a pneumatic tire on which the ply cords that extend to the beads are laid at alternate angles substantially less than 90 degrees to the centerline of the tread. 1040ez file A super single tire is a tire greater than 13 inches in cross section width designed to replace 2 tires in a dual fitment. 1040ez file Special rule, manufacturer's retail stores. 1040ez file   The excise tax on taxable tires is imposed at the time the taxable tires are delivered to the manufacturer-owned retail stores, not at the time of sale. 1040ez file Tires on imported articles. 1040ez file   The importer of an article equipped with taxable tires is treated as the manufacturer of the tires and is liable for the taxable tire excise tax when the article is sold (except in the case of an automobile bus chassis or body with tires). 1040ez file Tires exempt from tax. 1040ez file   The tax on taxable tires does not apply to the following items. 1040ez file Domestically recapped or retreaded tires if the tires have been sold previously in the United States and were taxable tires at the time of sale. 1040ez file Tire carcasses not suitable for commercial use. 1040ez file Tires for use on qualifying intercity, local, and school buses. 1040ez file For tax-free treatment, the registration requirements discussed earlier under Requirements for Exempt Sales apply. 1040ez file Tires sold for the exclusive use of the Department of Defense or the Coast Guard. 1040ez file Tires of a type used exclusively on mobile machinery. 1040ez file A taxable tire used on mobile machinery is not exempt from tax. 1040ez file Qualifying intercity or local bus. 1040ez file   This is any bus used mainly (more than 50%) to transport the general public for a fee and that either operates on a schedule along regular routes or seats at least 20 adults (excluding the driver). 1040ez file Qualifying school bus. 1040ez file   This is any bus substantially all the use (85% or more) of which is to transport students and employees of schools. 1040ez file Credit or refund. 1040ez file   A credit or refund (without interest) is allowable on tax-paid tires if the tires have been: Exported; Sold to a state or local government for its exclusive use; Sold to a nonprofit educational organization for its exclusive use (as defined under Communications Tax in chapter 4); Sold to a qualified blood collector organization (as defined under Communications Tax in chapter 4) for its exclusive use in connection with a vehicle the organization certifies will be primarily used in the collection, storage, or transportation of blood; Used or sold for use as supplies for vessels; or Sold in connection with qualified intercity, local, or school buses. 1040ez file   Also, a credit or refund (without interest) is allowable on tax-paid tires sold by any person on, or in connection with, any other article that is sold or used in an activity listed above. 1040ez file   The person who paid the tax is eligible to make the claim. 1040ez file Gas Guzzler Tax Tax is imposed on the sale by the manufacturer of automobiles of a model type that has a fuel economy standard as measured by the Environmental Protection Agency (EPA) of less than 22. 1040ez file 5 miles per gallon. 1040ez file If you import an automobile for personal use, you may be liable for this tax. 1040ez file Figure the tax on Form 6197, as discussed later. 1040ez file The tax rate is based on fuel economy rating. 1040ez file The tax rates for the gas guzzler tax are shown on Form 6197. 1040ez file A person that lengthens an existing automobile is the manufacturer of an automobile. 1040ez file Automobiles. 1040ez file   An automobile (including limousines) means any four-wheeled vehicle that is: Rated at an unloaded gross vehicle weight of 6,000 pounds or less, Propelled by an engine powered by gasoline or diesel fuel, and Intended for use mainly on public streets, roads, and highways. 1040ez file Vehicles not subject to tax. 1040ez file   For the gas guzzler tax, the following vehicles are not considered automobiles. 1040ez file Limousines with a gross unloaded vehicle weight of more than 6,000 pounds. 1040ez file Vehicles operated exclusively on a rail or rails. 1040ez file Vehicles sold for use and used primarily: As ambulances or combination ambulance-hearses, For police or other law enforcement purposes by federal, state, or local governments, or For firefighting purposes. 1040ez file Vehicles treated under 49 U. 1040ez file S. 1040ez file C. 1040ez file 32901 (1978) as non-passenger automobiles. 1040ez file This includes limousines manufactured primarily to transport more than 10 persons. 1040ez file   The manufacturer can sell a vehicle described in item (3) tax free only when the sale is made directly to a purchaser for the described emergency use and the manufacturer and purchaser (other than a state or local government) are registered. 1040ez file   Treat an Indian tribal government as a state only if the police or other law enforcement purposes are an essential tribal government function. 1040ez file Model type. 1040ez file   Model type is a particular class of automobile as determined by EPA regulations. 1040ez file Fuel economy. 1040ez file   Fuel economy is the average number of miles an automobile travels on a gallon of gasoline (or diesel fuel) rounded to the nearest 0. 1040ez file 1 mile as figured by the EPA. 1040ez file Imported automobiles. 1040ez file   The tax also applies to automobiles that do not have a prototype-based fuel economy rating assigned by the EPA. 1040ez file An automobile imported into the United States without a certificate of conformity to United States emission standards and that has no assigned fuel economy rating must be either: Converted by installation of emission controls to conform in all material respects to an automobile already certified for sale in the United States, or Modified by installation of emission control components and individually tested to demonstrate emission compliance. 1040ez file   An imported automobile that has been converted to conform to an automobile already certified for sale in the United States may use the fuel economy rating assigned to that certified automobile. 1040ez file   A fuel economy rating is not generally available for modified imported automobiles because the EPA does not require a highway fuel economy test on them. 1040ez file A separate highway fuel economy test would be required to devise a fuel economy rating (otherwise the automobile is presumed to fall within the lowest fuel economy rating category). 1040ez file   For more information about fuel economy ratings for imported automobiles, see Revenue Ruling 86-20 and Revenue Procedure 86-9 in Cumulative Bulletin 1986-1, and Revenue Procedure 87-10 in Cumulative Bulletin 1987-1. 1040ez file Exemptions. 1040ez file   No one is exempt from the gas guzzler tax, including the federal government, state and local governments, qualified blood collector organizations, and nonprofit educational organizations. 1040ez file However, see Vehicles not subject to tax, earlier. 1040ez file Form 6197. 1040ez file   Use Form 6197 to figure your tax liability for each quarter. 1040ez file Attach Form 6197 to your Form 720 for the quarter. 1040ez file See the Form 6197 instructions for more information and the one-time filing rules. 1040ez file Credit or refund. 1040ez file   If the manufacturer paid the tax on a vehicle that is used or resold for an emergency use (see item (3) under Vehicles not subject to tax), the manufacturer can claim a credit or refund. 1040ez file For information about how to file for credits or refunds, see the Instructions for Form 720 or Form 8849. 1040ez file Vaccines Tax is imposed on certain vaccines sold by the manufacturer in the United States. 1040ez file A taxable vaccine means any of the following vaccines. 1040ez file Any vaccine containing diphtheria toxoid. 1040ez file Any vaccine containing tetanus toxoid. 1040ez file Any vaccine containing pertussis bacteria, extracted or partial cell bacteria, or specific pertussis antigens. 1040ez file Any vaccine containing polio virus. 1040ez file Any vaccine against measles. 1040ez file Any vaccine against mumps. 1040ez file Any vaccine against rubella. 1040ez file Any vaccine against hepatitis A. 1040ez file Any vaccine against hepatitis B. 1040ez file Any vaccine against chicken pox. 1040ez file Any vaccine against rotavirus gastroenteritis. 1040ez file Any HIB vaccine. 1040ez file Any conjugate vaccine against streptococcus pneumoniae. 1040ez file Any trivalent vaccine against influenza or any other vaccine against influenza. 1040ez file Any meningococcal vaccine. 1040ez file Any vaccine against the human papillomavirus. 1040ez file The effective date for the tax on any vaccine against influenza, other than trivalent influenza vaccines, is the later of August 1, 2013, or the date the Secretary of Health and Human Services lists a vaccine against seasonal influenza for purposes of compensation for any vaccine-related injury or death through the Vaccine Injury Compensation Trust Fund. 1040ez file The tax is $. 1040ez file 75 per dose of each taxable vaccine. 1040ez file The tax per dose on a vaccine that contains more than one taxable vaccine is $. 1040ez file 75 times the number of taxable vaccines. 1040ez file Taxable use. 1040ez file   Any manufacturer (including a governmental entity) that uses a taxable vaccine before it is sold will be liable for the tax in the same manner as if the vaccine was sold by the manufacturer. 1040ez file Credit or refund. 1040ez file   A credit or refund (without interest) is available if the vaccine is: Returned to the person who paid the tax (other than for resale), or Destroyed. 1040ez file The claim for a credit or refund must be filed within 6 months after the vaccine is returned or destroyed. 1040ez file Conditions to allowance. 1040ez file   To claim a credit or refund, the person who paid the tax must have repaid or agreed to repay the tax to the ultimate purchaser of the vaccine or obtained the written consent of such purchaser to allowance of the credit or refund. 1040ez file Taxable Medical Devices Taxable medical devices. 1040ez file   The tax on the sale of certain medical devices by the manufacturer, producer, or importer of the device is 2. 1040ez file 3% (. 1040ez file 023) of the sales price. 1040ez file A taxable medical device is a device that is listed as a device with the Food and Drug Administration (FDA) under section 510(j) of the Federal Food, Drug, and Cosmetic Act and 21 CFR part 807, pursuant to FDA requirements. 1040ez file There are specific exemptions for eyeglasses, contact lenses, and hearing aids. 1040ez file There is also an exemption for devices that are determined by the Secretary to be of a type that are generally purchased by the general public at retail for individual use (this exemption is known as the retail exemption). 1040ez file See T. 1040ez file D. 1040ez file 9604 for information on how to determine whether a device falls within the retail exemption, and examples of how a taxpayer might evaluate a given device. 1040ez file More information. 1040ez file   For more information on the medical device tax, see section 4191, T. 1040ez file D. 1040ez file 9604, and Notice 2012-77. 1040ez file You can find T. 1040ez file D. 1040ez file 9604 and Notice 2012-77 on pages 730 and 781, respectively, of I. 1040ez file R. 1040ez file B. 1040ez file 2012-52 at www. 1040ez file irs. 1040ez file gov/pub/irs-irbs/irb12-52. 1040ez file pdf. 1040ez file Prev  Up  Next   Home   More Online Publications
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Understanding Your CP282 Notice

You received this notice because you indicated on your Form 1065, U.S. Return of Partnership Income, or Form1065-B, U.S. Return of Income for Electing Large Partnerships, that you have foreign partners.

Generally, when a foreign person engages in a trade or business in the United States, all income from sources in the United States connected with the conduct of that trade or business is considered to be Effectively Connected Taxable Income (ECTI). A partnership (foreign or domestic) that has income effectively connected with a U.S. trade or business (or income treated as effectively connected) must pay a withholding tax on the ECTI that it allocates to its foreign partners (Section 1446 of the Internal Revenue Code). The partnership, or a withholding agent for the partnership, must pay the withholding tax. A partnership that must pay the withholding tax but fails to do so may be liable for the payment of the tax plus any penalties and interest.


What you need to do if you determine you are liable for withholding:

Page Last Reviewed or Updated: 30-Jan-2014

How to get help

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

The 1040ez File

1040ez file Publication 936 - Main Content Table of Contents Part I. 1040ez file Home Mortgage InterestSecured Debt Qualified Home Special Situations Points Mortgage Insurance Premiums Form 1098, Mortgage Interest Statement How To Report Special Rule for Tenant-Stockholders in Cooperative Housing Corporations Part II. 1040ez file Limits on Home Mortgage Interest DeductionHome Acquisition Debt Home Equity Debt Grandfathered Debt Table 1 Instructions How To Get Tax HelpLow Income Taxpayer Clinics Part I. 1040ez file Home Mortgage Interest This part explains what you can deduct as home mortgage interest. 1040ez file It includes discussions on points, mortgage insurance premiums, and how to report deductible interest on your tax return. 1040ez file Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). 1040ez file The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. 1040ez file You can deduct home mortgage interest if all the following conditions are met. 1040ez file You file Form 1040 and itemize deductions on Schedule A (Form 1040). 1040ez file The mortgage is a secured debt on a qualified home in which you have an ownership interest. 1040ez file Secured Debt and Qualified Home are explained later. 1040ez file  Both you and the lender must intend that the loan be repaid. 1040ez file Fully deductible interest. 1040ez file   In most cases, you can deduct all of your home mortgage interest. 1040ez file How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. 1040ez file   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. 1040ez file (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. 1040ez file ) If one or more of your mortgages does not fit into any of these categories, use Part II of this publication to figure the amount of interest you can deduct. 1040ez file   The three categories are as follows. 1040ez file Mortgages you took out on or before October 13, 1987 (called grandfathered debt). 1040ez file 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). 1040ez file 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). 1040ez file The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home. 1040ez file   See Part II for more detailed definitions of grandfathered, home acquisition, and home equity debt. 1040ez file    You can use Figure A to check whether your home mortgage interest is fully deductible. 1040ez file This image is too large to be displayed in the current screen. 1040ez file Please click the link to view the image. 1040ez file Figure A. 1040ez file Is My Home Mortgage Interest Fully Deductible? Secured Debt You can deduct your home mortgage interest only if your mortgage is a secured debt. 1040ez file A secured debt is one in which you sign an instrument (such as a mortgage, deed of trust, or land contract) that: Makes your ownership in a qualified home security for payment of the debt, Provides, in case of default, that your home could satisfy the debt, and Is recorded or is otherwise perfected under any state or local law that applies. 1040ez file In other words, your mortgage is a secured debt if you put your home up as collateral to protect the interests of the lender. 1040ez file If you cannot pay the debt, your home can then serve as payment to the lender to satisfy (pay) the debt. 1040ez file In this publication, mortgage will refer to secured debt. 1040ez file Debt not secured by home. 1040ez file   A debt is not secured by your home if it is secured solely because of a lien on your general assets or if it is a security interest that attaches to the property without your consent (such as a mechanic's lien or judgment lien). 1040ez file   A debt is not secured by your home if it once was, but is no longer secured by your home. 1040ez file Wraparound mortgage. 1040ez file   This is not a secured debt unless it is recorded or otherwise perfected under state law. 1040ez file Example. 1040ez file Beth owns a home subject to a mortgage of $40,000. 1040ez file She sells the home for $100,000 to John, who takes it subject to the $40,000 mortgage. 1040ez file Beth continues to make the payments on the $40,000 note. 1040ez file John pays $10,000 down and gives Beth a $90,000 note secured by a wraparound mortgage on the home. 1040ez file Beth does not record or otherwise perfect the $90,000 mortgage under the state law that applies. 1040ez file Therefore, the mortgage is not a secured debt and John cannot deduct any of the interest he pays on it as home mortgage interest. 1040ez file Choice to treat the debt as not secured by your home. 1040ez file   You can choose to treat any debt secured by your qualified home as not secured by the home. 1040ez file This treatment begins with the tax year for which you make the choice and continues for all later tax years. 1040ez file You can revoke your choice only with the consent of the Internal Revenue Service (IRS). 1040ez file   You may want to treat a debt as not secured by your home if the interest on that debt is fully deductible (for example, as a business expense) whether or not it qualifies as home mortgage interest. 1040ez file This may allow you, if the limits in Part II apply, more of a deduction for interest on other debts that are deductible only as home mortgage interest. 1040ez file Cooperative apartment owner. 1040ez file   If you own stock in a cooperative housing corporation, see the Special Rule for Tenant-Stockholders in Cooperative Housing Corporations , near the end of this Part I. 1040ez file Qualified Home For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. 1040ez file This means your main home or your second home. 1040ez file A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. 1040ez file The interest you pay on a mortgage on a home other than your main or second home may be deductible if the proceeds of the loan were used for business, investment, or other deductible purposes. 1040ez file Otherwise, it is considered personal interest and is not deductible. 1040ez file Main home. 1040ez file   You can have only one main home at any one time. 1040ez file This is the home where you ordinarily live most of the time. 1040ez file Second home. 1040ez file   A second home is a home that you choose to treat as your second home. 1040ez file Second home not rented out. 1040ez file   If you have a second home that you do not hold out for rent or resale to others at any time during the year, you can treat it as a qualified home. 1040ez file You do not have to use the home during the year. 1040ez file Second home rented out. 1040ez file   If you have a second home and rent it out part of the year, you also must use it as a home during the year for it to be a qualified home. 1040ez file You must use this home more than 14 days or more than 10% of the number of days during the year that the home is rented at a fair rental, whichever is longer. 1040ez file If you do not use the home long enough, it is considered rental property and not a second home. 1040ez file For information on residential rental property, see Publication 527. 1040ez file More than one second home. 1040ez file   If you have more than one second home, you can treat only one as the qualified second home during any year. 1040ez file However, you can change the home you treat as a second home during the year in the following situations. 1040ez file If you get a new home during the year, you can choose to treat the new home as your second home as of the day you buy it. 1040ez file If your main home no longer qualifies as your main home, you can choose to treat it as your second home as of the day you stop using it as your main home. 1040ez file If your second home is sold during the year or becomes your main home, you can choose a new second home as of the day you sell the old one or begin using it as your main home. 1040ez file Divided use of your home. 1040ez file   The only part of your home that is considered a qualified home is the part you use for residential living. 1040ez file If you use part of your home for other than residential living, such as a home office, you must allocate the use of your home. 1040ez file You must then divide both the cost and fair market value of your home between the part that is a qualified home and the part that is not. 1040ez file Dividing the cost may affect the amount of your home acquisition debt, which is limited to the cost of your home plus the cost of any improvements. 1040ez file (See Home Acquisition Debt in Part II. 1040ez file ) Dividing the fair market value may affect your home equity debt limit, also explained in Part II . 1040ez file Renting out part of home. 1040ez file   If you rent out part of a qualified home to another person (tenant), you can treat the rented part as being used by you for residential living only if all of the following conditions apply. 1040ez file The rented part of your home is used by the tenant primarily for residential living. 1040ez file The rented part of your home is not a self-contained residential unit having separate sleeping, cooking, and toilet facilities. 1040ez file You do not rent (directly or by sublease) the same or different parts of your home to more than two tenants at any time during the tax year. 1040ez file If two persons (and dependents of either) share the same sleeping quarters, they are treated as one tenant. 1040ez file Office in home. 1040ez file   If you have an office in your home that you use in your business, see Publication 587, Business Use of Your Home. 1040ez file It explains how to figure your deduction for the business use of your home, which includes the business part of your home mortgage interest. 1040ez file Home under construction. 1040ez file   You can treat a home under construction as a qualified home for a period of up to 24 months, but only if it becomes your qualified home at the time it is ready for occupancy. 1040ez file   The 24-month period can start any time on or after the day construction begins. 1040ez file Home destroyed. 1040ez file   You may be able to continue treating your home as a qualified home even after it is destroyed in a fire, storm, tornado, earthquake, or other casualty. 1040ez file This means you can continue to deduct the interest you pay on your home mortgage, subject to the limits described in this publication. 1040ez file   You can continue treating a destroyed home as a qualified home if, within a reasonable period of time after the home is destroyed, you: Rebuild the destroyed home and move into it, or Sell the land on which the home was located. 1040ez file   This rule applies to your main home and to a second home that you treat as a qualified home. 1040ez file Time-sharing arrangements. 1040ez file   You can treat a home you own under a time-sharing plan as a qualified home if it meets all the requirements. 1040ez file A time-sharing plan is an arrangement between two or more people that limits each person's interest in the home or right to use it to a certain part of the year. 1040ez file Rental of time-share. 1040ez file   If you rent out your time-share, it qualifies as a second home only if you also use it as a home during the year. 1040ez file See Second home rented out , earlier, for the use requirement. 1040ez file To know whether you meet that requirement, count your days of use and rental of the home only during the time you have a right to use it or to receive any benefits from the rental of it. 1040ez file Married taxpayers. 1040ez file   If you are married and file a joint return, your qualified home(s) can be owned either jointly or by only one spouse. 1040ez file Separate returns. 1040ez file   If you are married filing separately and you and your spouse own more than one home, you can each take into account only one home as a qualified home. 1040ez file However, if you both consent in writing, then one spouse can take both the main home and a second home into account. 1040ez file Special Situations This section describes certain items that can be included as home mortgage interest and others that cannot. 1040ez file It also describes certain special situations that may affect your deduction. 1040ez file Late payment charge on mortgage payment. 1040ez file   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. 1040ez file Mortgage prepayment penalty. 1040ez file   If you pay off your home mortgage early, you may have to pay a penalty. 1040ez file 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. 1040ez file Sale of home. 1040ez file   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 the sale. 1040ez file Example. 1040ez file John and Peggy Harris sold their home on May 7. 1040ez file Through April 30, they made home mortgage interest payments of $1,220. 1040ez file 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. 1040ez file Their mortgage interest deduction is $1,270 ($1,220 + $50). 1040ez file Prepaid interest. 1040ez file   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. 1040ez file You can deduct in each year only the interest that qualifies as home mortgage interest for that year. 1040ez file However, there is an exception that applies to points, discussed later. 1040ez file Mortgage interest credit. 1040ez file    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. 1040ez file Figure the credit on Form 8396, Mortgage Interest Credit. 1040ez file If you take this credit, you must reduce your mortgage interest deduction by the amount of the credit. 1040ez file   See Form 8396 and Publication 530 for more information on the mortgage interest credit. 1040ez file Ministers' and military housing allowance. 1040ez file   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. 1040ez file Hardest Hit Fund and Emergency Homeowners' Loan Programs. 1040ez file   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. 1040ez file 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. 1040ez file 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. 1040ez file 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 (other information including real property taxes paid). 1040ez file 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. 1040ez file Mortgage assistance payments under section 235 of the National Housing Act. 1040ez file   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. 1040ez file You cannot deduct the interest that is paid for you. 1040ez file No other effect on taxes. 1040ez file   Do not include these mortgage assistance payments in your income. 1040ez file Also, do not use these payments to reduce other deductions, such as real estate taxes. 1040ez file Divorced or separated individuals. 1040ez file   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. 1040ez file See the discussion of Payments for jointly-owned home under Alimony in Publication 504, Divorced or Separated Individuals. 1040ez file Redeemable ground rents. 1040ez file   In some states (such as Maryland), you can buy your home subject to a ground rent. 1040ez file A ground rent is an obligation you assume to pay a fixed amount per year on the property. 1040ez file Under this arrangement, you are leasing (rather than buying) the land on which your home is located. 1040ez file   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct them as mortgage interest. 1040ez file   A ground rent is a redeemable ground rent if all of the following are true. 1040ez file Your lease, including renewal periods, is for more than 15 years. 1040ez file You can freely assign the lease. 1040ez file You have a present or future right (under state or local law) to end the lease and buy the lessor's entire interest in the land by paying a specific amount. 1040ez file The lessor's interest in the land is primarily a security interest to protect the rental payments to which he or she is entitled. 1040ez file   Payments made to end the lease and to buy the lessor's entire interest in the land are not deductible as mortgage interest. 1040ez file Nonredeemable ground rents. 1040ez file   Payments on a nonredeemable ground rent are not mortgage interest. 1040ez file You can deduct them as rent if they are a business expense or if they are for rental property. 1040ez file Reverse mortgages. 1040ez file   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. 1040ez file With a reverse mortgage, you retain title to your home. 1040ez file 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. 1040ez file Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. 1040ez file Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until you actually pay it, which is usually when you pay off the loan in full. 1040ez file Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Part II. 1040ez file Rental payments. 1040ez file   If you live in a house before final settlement on the purchase, any payments you make for that period are rent and not interest. 1040ez file This is true even if the settlement papers call them interest. 1040ez file You cannot deduct these payments as home mortgage interest. 1040ez file Mortgage proceeds invested in tax-exempt securities. 1040ez file   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. 1040ez file “Grandfathered debt” and “home equity debt” are defined in Part II of this publication. 1040ez file Refunds of interest. 1040ez file   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. 1040ez file 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. 1040ez file However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year. 1040ez file This is true whether the interest overcharge was refunded to you or was used to reduce the outstanding principal on your mortgage. 1040ez file If you need to include the refund in income, report it on Form 1040, line 21. 1040ez file   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. 1040ez file For information about Form 1098, see Form 1098, Mortgage Interest Statement , later. 1040ez file   For more information on how to treat refunds of interest deducted in earlier years, see Recoveries in Publication 525, Taxable and Nontaxable Income. 1040ez file Cooperative apartment owner. 1040ez file   If you own a cooperative apartment, you must reduce your home mortgage interest deduction by your share of any cash portion of a patronage dividend that the cooperative receives. 1040ez file The patronage dividend is a partial refund to the cooperative housing corporation of mortgage interest it paid in a prior year. 1040ez file   If you receive a Form 1098 from the cooperative housing corporation, the form should show only the amount you can deduct. 1040ez file Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. 1040ez file Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. 1040ez file This image is too large to be displayed in the current screen. 1040ez file Please click the link to view the image. 1040ez file Figure B. 1040ez file Are My Points Fully Deductible This Year? A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. 1040ez file See Points paid by the seller , later. 1040ez file General Rule You generally cannot deduct the full amount of points in the year paid. 1040ez file Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. 1040ez file See Deduction Allowed Ratably , next. 1040ez file For exceptions to the general rule, see Deduction Allowed in Year Paid , later. 1040ez file 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. 1040ez file You use the cash method of accounting. 1040ez file This means you report income in the year you receive it and deduct expenses in the year you pay them. 1040ez file Most individuals use this method. 1040ez file Your loan is secured by a home. 1040ez file (The home does not need to be your main home. 1040ez file ) Your loan period is not more than 30 years. 1040ez file 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. 1040ez file 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. 1040ez file Example. 1040ez file You use the cash method of accounting. 1040ez file In 2013, you took out a $100,000 loan payable over 20 years. 1040ez file The terms of the loan are the same as for other 20-year loans offered in your area. 1040ez file You paid $4,800 in points. 1040ez file You made 3 monthly payments on the loan in 2013. 1040ez file You can deduct $60 [($4,800 ÷ 240 months) x 3 payments] in 2013. 1040ez file In 2014, if you make all twelve payments, you will be able to deduct $240 ($20 x 12). 1040ez file Deduction Allowed in Year Paid You can fully deduct points in the year paid if you meet all the following tests. 1040ez file (You can use Figure B as a quick guide to see whether your points are fully deductible in the year paid. 1040ez file ) Your loan is secured by your main home. 1040ez file (Your main home is the one you ordinarily live in most of the time. 1040ez file ) Paying points is an established business practice in the area where the loan was made. 1040ez file The points paid were not more than the points generally charged in that area. 1040ez file You use the cash method of accounting. 1040ez file This means you report income in the year you receive it and deduct expenses in the year you pay them. 1040ez file Most individuals use this method. 1040ez file 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. 1040ez file The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. 1040ez file The funds you provided are not required to have been applied to the points. 1040ez file They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. 1040ez file You cannot have borrowed these funds from your lender or mortgage broker. 1040ez file You use your loan to buy or build your main home. 1040ez file The points were computed as a percentage of the principal amount of the mortgage. 1040ez file The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. 1040ez file The points may be shown as paid from either your funds or the seller's. 1040ez file Note. 1040ez file 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. 1040ez file Home improvement loan. 1040ez file   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. 1040ez file Second home. 1040ez file You cannot fully deduct in the year paid points you pay on loans secured by your second home. 1040ez file You can deduct these points only over the life of the loan. 1040ez file Refinancing. 1040ez file   Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. 1040ez file This is true even if the new mortgage is secured by your main home. 1040ez file   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 , you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. 1040ez file You can deduct the rest of the points over the life of the loan. 1040ez file Example 1. 1040ez file In 1998, Bill Fields got a mortgage to buy a home. 1040ez file In 2013, Bill refinanced that mortgage with a 15-year $100,000 mortgage loan. 1040ez file The mortgage is secured by his home. 1040ez file To get the new loan, he had to pay three points ($3,000). 1040ez file 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. 1040ez file Bill paid the points out of his private funds, rather than out of the proceeds of the new loan. 1040ez file The payment of points is an established practice in the area, and the points charged are not more than the amount generally charged there. 1040ez file Bill's first payment on the new loan was due July 1. 1040ez file He made six payments on the loan in 2013 and is a cash basis taxpayer. 1040ez file Bill used the funds from the new mortgage to repay his existing mortgage. 1040ez file 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. 1040ez file He cannot deduct all of the points in 2013. 1040ez file He can deduct two points ($2,000) ratably over the life of the loan. 1040ez file He deducts $67 [($2,000 ÷ 180 months) × 6 payments] of the points in 2013. 1040ez file The other point ($1,000) was a fee for services and is not deductible. 1040ez file Example 2. 1040ez file 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. 1040ez file Bill deducts 25% ($25,000 ÷ $100,000) of the points ($2,000) in 2013. 1040ez file His deduction is $500 ($2,000 × 25%). 1040ez file Bill also deducts the ratable part of the remaining $1,500 ($2,000 − $500) that must be spread over the life of the loan. 1040ez file This is $50 [($1,500 ÷ 180 months) × 6 payments] in 2013. 1040ez file The total amount Bill deducts in 2013 is $550 ($500 + $50). 1040ez file Special Situations This section describes certain special situations that may affect your deduction of points. 1040ez file Original issue discount. 1040ez file   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. 1040ez file This reduction results in original issue discount, which is discussed in chapter 4 of Publication 535. 1040ez file Amounts charged for services. 1040ez file    Amounts charged by the lender for specific services connected to the loan are not interest. 1040ez file Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. 1040ez file  You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. 1040ez file Points paid by the seller. 1040ez file   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. 1040ez file Treatment by seller. 1040ez file   The seller cannot deduct these fees as interest. 1040ez file But they are a selling expense that reduces the amount realized by the seller. 1040ez file See Publication 523 for information on selling your home. 1040ez file Treatment by buyer. 1040ez file   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. 1040ez file If all the tests under Deduction Allowed in Year Paid , earlier, are met, the buyer can deduct the points in the year paid. 1040ez file If any of those tests are not met, the buyer deducts the points over the life of the loan. 1040ez file   If you need information about the basis of your home, see Publication 523 or Publication 530. 1040ez file Funds provided are less than points. 1040ez file   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. 1040ez file In addition, you can deduct any points paid by the seller. 1040ez file Example 1. 1040ez file When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). 1040ez file You meet all the tests for deducting points in the year paid, except the only funds you provided were a $750 down payment. 1040ez file Of the $1,000 charged for points, you can deduct $750 in the year paid. 1040ez file You spread the remaining $250 over the life of the mortgage. 1040ez file Example 2. 1040ez file 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. 1040ez file In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). 1040ez file You spread the remaining $250 over the life of the mortgage. 1040ez file You must reduce the basis of your home by the $1,000 paid by the seller. 1040ez file Excess points. 1040ez file   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. 1040ez file You must spread any additional points over the life of the mortgage. 1040ez file Mortgage ending early. 1040ez file   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. 1040ez file However, if you refinance the mortgage with the same lender, you cannot deduct any remaining balance of spread points. 1040ez file Instead, deduct the remaining balance over the term of the new loan. 1040ez file   A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. 1040ez file Example. 1040ez file Dan paid $3,000 in points in 2002 that he had to spread out over the 15-year life of the mortgage. 1040ez file He deducts $200 points per year. 1040ez file Through 2012, Dan has deducted $2,200 of the points. 1040ez file Dan prepaid his mortgage in full in 2013. 1040ez file He can deduct the remaining $800 of points in 2013. 1040ez file Limits on deduction. 1040ez file   You cannot fully deduct points paid on a mortgage that exceeds the limits discussed in Part II . 1040ez file See the Table 1 Instructions for line 10. 1040ez file Form 1098. 1040ez file    The mortgage interest statement you receive should show not only the total interest paid during the year, but also your deductible points paid during the year. 1040ez file See Form 1098, Mortgage Interest Statement , later. 1040ez file Mortgage Insurance Premiums You can treat amounts you paid during 2013 for qualified mortgage insurance as home mortgage interest. 1040ez file The insurance must be in connection with home acquisition debt, and the insurance contract must have been issued after 2006. 1040ez file Qualified mortgage insurance. 1040ez file   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). 1040ez file   Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. 1040ez file If provided by the Rural Housing Service, it is commonly known as a guarantee fee. 1040ez file The funding fee and guarantee fee can either be included in the amount of the loan or paid in full at the time of closing. 1040ez file These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013. 1040ez file Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098. 1040ez file Special rules for prepaid mortgage insurance. 1040ez file   Generally, if you paid premiums for qualified mortgage insurance that are properly allocable to periods after the close of the tax year, such premiums are treated as paid in the period to which they are allocated. 1040ez file 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. 1040ez file No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term. 1040ez file This paragraph does not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. 1040ez file Example. 1040ez file Ryan purchased a home in May of 2012 and financed the home with a 15-year mortgage. 1040ez file Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May. 1040ez file 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. 1040ez file Ryan's adjusted gross income (AGI) for 2012 is $76,000. 1040ez file Ryan can deduct $880 ($9,240 ÷ 84 x 8 months) for qualified mortgage insurance premiums in 2012. 1040ez file For 2013, Ryan can deduct $1,320 ($9,240 ÷ 84 x 12 months) if his AGI is $100,000 or less. 1040ez file 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). 1040ez file Limit on deduction. 1040ez file   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. 1040ez file 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. 1040ez file If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. 1040ez file Form 1098. 1040ez file   The mortgage interest statement you receive should show not only the total interest paid during the year, but also your mortgage insurance premiums paid during the year, which may qualify to be treated as deductible mortgage interest. 1040ez file See Form 1098, Mortgage Interest Statement, next. 1040ez file 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. 1040ez file You will receive the statement if you pay interest to a person (including a financial institution or cooperative housing corporation) in the course of that person's trade or business. 1040ez file A governmental unit is a person for purposes of furnishing the statement. 1040ez file The statement for each year should be sent to you by January 31 of the following year. 1040ez file A copy of this form will also be sent to the IRS. 1040ez file 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. 1040ez file However, it should not show any interest that was paid for you by a government agency. 1040ez file As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. 1040ez file However, certain points not included on Form 1098 also may be deductible, either in the year paid or over the life of the loan. 1040ez file See the earlier discussion of Points to determine whether you can deduct points not shown on Form 1098. 1040ez file Prepaid interest on Form 1098. 1040ez file   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. 1040ez file However, you cannot deduct the prepaid amount for January 2014 in 2013. 1040ez file (See Prepaid interest , earlier. 1040ez file ) You will have to figure the interest that accrued for 2014 and subtract it from the amount in box 1. 1040ez file You will include the interest for January 2014 with other interest you pay for 2014. 1040ez file Refunded interest. 1040ez file   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. 1040ez file See Refunds of interest , earlier. 1040ez file Mortgage insurance premiums. 1040ez file   The amount of mortgage insurance premiums you paid during 2013 may be shown in Box 4 of Form 1098. 1040ez file See Mortgage Insurance Premiums , earlier. 1040ez file How To Report Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. 1040ez file 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. 1040ez file Attach a statement explaining the difference and print “See attached” next to line 10. 1040ez file Deduct home mortgage interest that was not reported to you on Form 1098 on Schedule A (Form 1040), line 11. 1040ez file 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. 1040ez file The seller must give you this number and you must give the seller your TIN. 1040ez file A Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. 1040ez file Failure to meet any of these requirements may result in a $50 penalty for each failure. 1040ez file 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. 1040ez file 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. 1040ez file Deduct mortgage insurance premiums on Schedule A (Form 1040), line 13. 1040ez file More than one borrower. 1040ez file   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. 1040ez file Show how much of the interest each of you paid, and give the name and address of the person who received the form. 1040ez file Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. 1040ez file Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13. 1040ez file   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. 1040ez file Let each of the other borrowers know what his or her share is. 1040ez file Mortgage proceeds used for business or investment. 1040ez file   If your home mortgage interest deduction is limited under the rules explained in Part II , but all or part of the mortgage proceeds were used for business, investment, or other deductible activities, see Table 2 near the end of this publication. 1040ez file It shows where to deduct the part of your excess interest that is for those activities. 1040ez file The Table 1 Instructions for line 13 in Part II explain how to divide the excess interest among the activities for which the mortgage proceeds were used. 1040ez file Special Rule for Tenant-Stockholders in Cooperative Housing Corporations A qualified home includes stock in a cooperative housing corporation owned by a tenant-stockholder. 1040ez file This applies only if the tenant-stockholder is entitled to live in the house or apartment because of owning stock in the cooperative. 1040ez file Cooperative housing corporation. 1040ez file   This is a corporation that meets all of the following conditions. 1040ez file Has only one class of stock outstanding, Has no stockholders other than those who own the stock that can live in a house, apartment, or house trailer owned or leased by the corporation, Has no stockholders who can receive any distribution out of capital other than on a liquidation of the corporation, and Meets at least one of the following requirements. 1040ez file Receives at least 80% of its gross income for the year in which the mortgage interest is paid or incurred from tenant-stockholders. 1040ez file For this purpose, gross income is all income received during the entire year, including amounts received before the corporation changed to cooperative ownership. 1040ez file At all times during the year, at least 80% of the total square footage of the corporation's property is used or available for use by the tenant-stockholders for residential or residential-related use. 1040ez file At least 90% of the corporation's expenditures paid or incurred during the year are for the acquisition, construction, management, maintenance, or care of corporate property for the benefit of the tenant-stockholders. 1040ez file Stock used to secure debt. 1040ez file   In some cases, you cannot use your cooperative housing stock to secure a debt because of either: Restrictions under local or state law, or Restrictions in the cooperative agreement (other than restrictions in which the main purpose is to permit the tenant- stockholder to treat unsecured debt as secured debt). 1040ez file However, you can treat a debt as secured by the stock to the extent that the proceeds are used to buy the stock under the allocation of interest rules. 1040ez file See chapter 4 of Publication 535 for details on these rules. 1040ez file Figuring deductible home mortgage interest. 1040ez file   Generally, if you are a tenant-stockholder, you can deduct payments you make for your share of the interest paid or incurred by the cooperative. 1040ez file The interest must be on a debt to buy, build, change, improve, or maintain the cooperative's housing, or on a debt to buy the land. 1040ez file   Figure your share of this interest by multiplying the total by the following fraction. 1040ez file      Your shares of stock in the cooperative   The total shares of stock in the cooperative Limits on deduction. 1040ez file   To figure how the limits discussed in Part II apply to you, treat your share of the cooperative's debt as debt incurred by you. 1040ez file The cooperative should determine your share of its grandfathered debt, its home acquisition debt, and its home equity debt. 1040ez file (Your share of each of these types of debt is equal to the average balance of each debt multiplied by the fraction just given. 1040ez file ) After your share of the average balance of each type of debt is determined, you include it with the average balance of that type of debt secured by your stock. 1040ez file Form 1098. 1040ez file    The cooperative should give you a Form 1098 showing your share of the interest. 1040ez file Use the rules in this publication to determine your deductible mortgage interest. 1040ez file Part II. 1040ez file Limits on Home Mortgage Interest Deduction This part of the publication discusses the limits on deductible home mortgage interest. 1040ez file These limits apply to your home mortgage interest expense if you have a home mortgage that does not fit into any of the three categories listed at the beginning of Part I under Fully deductible interest . 1040ez file Your home mortgage interest deduction is limited to the interest on the part of your home mortgage debt that is not more than your qualified loan limit. 1040ez file This is the part of your home mortgage debt that is grandfathered debt or that is not more than the limits for home acquisition debt and home equity debt. 1040ez file Table 1 can help you figure your qualified loan limit and your deductible home mortgage interest. 1040ez file Home Acquisition Debt Home acquisition debt is a mortgage you took out after October 13, 1987, to buy, build, or substantially improve a qualified home (your main or second home). 1040ez file It also must be secured by that home. 1040ez file If the amount of your mortgage is more than the cost of the home plus the cost of any substantial improvements, only the debt that is not more than the cost of the home plus improvements qualifies as home acquisition debt. 1040ez file The additional debt may qualify as home equity debt (discussed later). 1040ez file Home acquisition debt limit. 1040ez file   The total amount you can treat as home acquisition debt at any time on your main home and second home cannot be more than $1 million ($500,000 if married filing separately). 1040ez file This limit is reduced (but not below zero) by the amount of your grandfathered debt (discussed later). 1040ez file Debt over this limit may qualify as home equity debt (also discussed later). 1040ez file Refinanced home acquisition debt. 1040ez file   Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. 1040ez file However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing. 1040ez file Any additional debt not used to buy, build, or substantially improve a qualified home is not home acquisition debt, but may qualify as home equity debt (discussed later). 1040ez file Mortgage that qualifies later. 1040ez file   A mortgage that does not qualify as home acquisition debt because it does not meet all the requirements may qualify at a later time. 1040ez file For example, a debt that you use to buy your home may not qualify as home acquisition debt because it is not secured by the home. 1040ez file However, if the debt is later secured by the home, it may qualify as home acquisition debt after that time. 1040ez file Similarly, a debt that you use to buy property may not qualify because the property is not a qualified home. 1040ez file However, if the property later becomes a qualified home, the debt may qualify after that time. 1040ez file Mortgage treated as used to buy, build, or improve home. 1040ez file   A mortgage secured by a qualified home may be treated as home acquisition debt, even if you do not actually use the proceeds to buy, build, or substantially improve the home. 1040ez file This applies in the following situations. 1040ez file You buy your home within 90 days before or after the date you take out the mortgage. 1040ez file The home acquisition debt is limited to the home's cost, plus the cost of any substantial improvements within the limit described below in (2) or (3). 1040ez file (See Example 1 later. 1040ez file ) You build or improve your home and take out the mortgage before the work is completed. 1040ez file The home acquisition debt is limited to the amount of the expenses incurred within 24 months before the date of the mortgage. 1040ez file You build or improve your home and take out the mortgage within 90 days after the work is completed. 1040ez file The home acquisition debt is limited to the amount of the expenses incurred within the period beginning 24 months before the work is completed and ending on the date of the mortgage. 1040ez file (See Example 2 later. 1040ez file ) Example 1. 1040ez file You bought your main home on June 3 for $175,000. 1040ez file You paid for the home with cash you got from the sale of your old home. 1040ez file On July 15, you took out a mortgage of $150,000 secured by your main home. 1040ez file You used the $150,000 to invest in stocks. 1040ez file You can treat the mortgage as taken out to buy your home because you bought the home within 90 days before you took out the mortgage. 1040ez file The entire mortgage qualifies as home acquisition debt because it was not more than the home's cost. 1040ez file Example 2. 1040ez file On January 31, John began building a home on the lot that he owned. 1040ez file He used $45,000 of his personal funds to build the home. 1040ez file The home was completed on October 31. 1040ez file On November 21, John took out a $36,000 mortgage that was secured by the home. 1040ez file The mortgage can be treated as used to build the home because it was taken out within 90 days after the home was completed. 1040ez file The entire mortgage qualifies as home acquisition debt because it was not more than the expenses incurred within the period beginning 24 months before the home was completed. 1040ez file This is illustrated by Figure C. 1040ez file   Please click here for the text description of the image. 1040ez file Figure C. 1040ez file John's example Date of the mortgage. 1040ez file   The date you take out your mortgage is the day the loan proceeds are disbursed. 1040ez file This is generally the closing date. 1040ez file You can treat the day you apply in writing for your mortgage as the date you take it out. 1040ez file However, this applies only if you receive the loan proceeds within a reasonable time (such as within 30 days) after your application is approved. 1040ez file If a timely application you make is rejected, a reasonable additional time will be allowed to make a new application. 1040ez file Cost of home or improvements. 1040ez file   To determine your cost, include amounts paid to acquire any interest in a qualified home or to substantially improve the home. 1040ez file   The cost of building or substantially improving a qualified home includes the costs to acquire real property and building materials, fees for architects and design plans, and required building permits. 1040ez file Substantial improvement. 1040ez file   An improvement is substantial if it: Adds to the value of your home, Prolongs your home's useful life, or Adapts your home to new uses. 1040ez file    Repairs that maintain your home in good condition, such as repainting your home, are not substantial improvements. 1040ez file However, if you paint your home as part of a renovation that substantially improves your qualified home, you can include the painting costs in the cost of the improvements. 1040ez file Acquiring an interest in a home because of a divorce. 1040ez file   If you incur debt to acquire the interest of a spouse or former spouse in a home, because of a divorce or legal separation, you can treat that debt as home acquisition debt. 1040ez file Part of home not a qualified home. 1040ez file    To figure your home acquisition debt, you must divide the cost of your home and improvements between the part of your home that is a qualified home and any part that is not a qualified home. 1040ez file See Divided use of your home under Qualified Home in Part I. 1040ez file Home Equity Debt If you took out a loan for reasons other than to buy, build, or substantially improve your home, it may qualify as home equity debt. 1040ez file In addition, debt you incurred to buy, build, or substantially improve your home, to the extent it is more than the home acquisition debt limit (discussed earlier), may qualify as home equity debt. 1040ez file Home equity debt is a mortgage you took out after October 13, 1987, that: Does not qualify as home acquisition debt or as grandfathered debt, and Is secured by your qualified home. 1040ez file Example. 1040ez file You bought your home for cash 10 years ago. 1040ez file You did not have a mortgage on your home until last year, when you took out a $50,000 loan, secured by your home, to pay for your daughter's college tuition and your father's medical bills. 1040ez file This loan is home equity debt. 1040ez file Home equity debt limit. 1040ez file   There is a limit on the amount of debt that can be treated as home equity debt. 1040ez file The total home equity debt on your main home and second home is limited to the smaller of: $100,000 ($50,000 if married filing separately), or The total of each home's fair market value (FMV) reduced (but not below zero) by the amount of its home acquisition debt and grandfathered debt. 1040ez file Determine the FMV and the outstanding home acquisition and grandfathered debt for each home on the date that the last debt was secured by the home. 1040ez file Example. 1040ez file You own one home that you bought in 2000. 1040ez file Its FMV now is $110,000, and the current balance on your original mortgage (home acquisition debt) is $95,000. 1040ez file Bank M offers you a home mortgage loan of 125% of the FMV of the home less any outstanding mortgages or other liens. 1040ez file To consolidate some of your other debts, you take out a $42,500 home mortgage loan [(125% × $110,000) − $95,000] with Bank M. 1040ez file Your home equity debt is limited to $15,000. 1040ez file This is the smaller of: $100,000, the maximum limit, or $15,000, the amount that the FMV of $110,000 exceeds the amount of home acquisition debt of $95,000. 1040ez file Debt higher than limit. 1040ez file   Interest on amounts over the home equity debt limit (such as the interest on $27,500 [$42,500 − $15,000] in the preceding example) generally is treated as personal interest and is not deductible. 1040ez file But if the proceeds of the loan were used for investment, business, or other deductible purposes, the interest may be deductible. 1040ez file If it is, see the Table 1 Instructions for line 13 for an explanation of how to allocate the excess interest. 1040ez file Part of home not a qualified home. 1040ez file   To figure the limit on your home equity debt, you must divide the FMV of your home between the part that is a qualified home and any part that is not a qualified home. 1040ez file See Divided use of your home under Qualified Home in Part I. 1040ez file Fair market value (FMV). 1040ez file    This is the price at which the home would change hands between you and a buyer, neither having to sell or buy, and both having reasonable knowledge of all relevant facts. 1040ez file Sales of similar homes in your area, on about the same date your last debt was secured by the home, may be helpful in figuring the FMV. 1040ez file Grandfathered Debt If you took out a mortgage on your home before October 14, 1987, or you refinanced such a mortgage, it may qualify as grandfathered debt. 1040ez file To qualify, it must have been secured by your qualified home on October 13, 1987, and at all times after that date. 1040ez file How you used the proceeds does not matter. 1040ez file Grandfathered debt is not limited. 1040ez file All of the interest you paid on grandfathered debt is fully deductible home mortgage interest. 1040ez file However, the amount of your grandfathered debt reduces the $1 million limit for home acquisition debt and the limit based on your home's fair market value for home equity debt. 1040ez file Refinanced grandfathered debt. 1040ez file   If you refinanced grandfathered debt after October 13, 1987, for an amount that was not more than the mortgage principal left on the debt, then you still treat it as grandfathered debt. 1040ez file To the extent the new debt is more than that mortgage principal, it is treated as home acquisition or home equity debt, and the mortgage is a mixed-use mortgage (discussed later under Average Mortgage Balance in the Table 1 instructions). 1040ez file The debt must be secured by the qualified home. 1040ez file   You treat grandfathered debt that was refinanced after October 13, 1987, as grandfathered debt only for the term left on the debt that was refinanced. 1040ez file After that, you treat it as home acquisition debt or home equity debt, depending on how you used the proceeds. 1040ez file Exception. 1040ez file   If the debt before refinancing was like a balloon note (the principal on the debt was not amortized over the term of the debt), then you treat the refinanced debt as grandfathered debt for the term of the first refinancing. 1040ez file This term cannot be more than 30 years. 1040ez file Example. 1040ez file Chester took out a $200,000 first mortgage on his home in 1986. 1040ez file The mortgage was a five-year balloon note and the entire balance on the note was due in 1991. 1040ez file Chester refinanced the debt in 1991 with a new 20-year mortgage. 1040ez file The refinanced debt is treated as grandfathered debt for its entire term (20 years). 1040ez file Line-of-credit mortgage. 1040ez file    If you had a line-of-credit mortgage on October 13, 1987, and borrowed additional amounts against it after that date, then the additional amounts are either home acquisition debt or home equity debt depending on how you used the proceeds. 1040ez file The balance on the mortgage before you borrowed the additional amounts is grandfathered debt. 1040ez file The newly borrowed amounts are not grandfathered debt because the funds were borrowed after October 13, 1987. 1040ez file See Average Mortgage Balance in the Table 1 Instructions that follow. 1040ez file Table 1 Instructions Unless you are subject to the overall limit on itemized deductions, you can deduct all of the interest you paid during the year on mortgages secured by your main home or second home in either of the following two situations. 1040ez file All the mortgages are grandfathered debt. 1040ez file The total of the mortgage balances for the entire year is within the limits discussed earlier under Home Acquisition Debt and Home Equity Debt . 1040ez file In either of those cases, you do not need Table 1. 1040ez file Otherwise, you can use Table 1 to determine your qualified loan limit and deductible home mortgage interest. 1040ez file Fill out only one Table 1 for both your main and second home regardless of how many mortgages you have. 1040ez file Table 1. 1040ez file Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. 1040ez file Part I Qualified Loan Limit 1. 1040ez file Enter the average balance of all your grandfathered debt. 1040ez file See line 1 instructions 1. 1040ez file   2. 1040ez file Enter the average balance of all your home acquisition debt. 1040ez file See line 2 instructions 2. 1040ez file   3. 1040ez file Enter $1,000,000 ($500,000 if married filing separately) 3. 1040ez file   4. 1040ez file Enter the larger of the amount on line 1 or the amount on line 3 4. 1040ez file   5. 1040ez file Add the amounts on lines 1 and 2. 1040ez file Enter the total here 5. 1040ez file   6. 1040ez file Enter the smaller of the amount on line 4 or the amount on line 5 6. 1040ez file   7. 1040ez file If you have home equity debt, enter the smaller of $100,000 ($50,000 if married filing separately) or your limited amount. 1040ez file See the line 7 instructions for the limit which may apply to you. 1040ez file 7. 1040ez file   8. 1040ez file Add the amounts on lines 6 and 7. 1040ez file Enter the total. 1040ez file This is your qualified loan limit. 1040ez file 8. 1040ez file   Part II Deductible Home Mortgage Interest 9. 1040ez file Enter the total of the average balances of all mortgages on all qualified homes. 1040ez file  See line 9 instructions 9. 1040ez file     If line 8 is less than line 9, go on to line 10. 1040ez file If line 8 is equal to or more than line 9, stop here. 1040ez file All of your interest on all the mortgages included on line 9 is deductible as home mortgage interest on Schedule A (Form 1040). 1040ez file     10. 1040ez file Enter the total amount of interest that you paid. 1040ez file See line 10 instructions 10. 1040ez file   11. 1040ez file Divide the amount on line 8 by the amount on line 9. 1040ez file Enter the result as a decimal amount (rounded to three places) 11. 1040ez file × . 1040ez file 12. 1040ez file Multiply the amount on line 10 by the decimal amount on line 11. 1040ez file Enter the result. 1040ez file This is your deductible home mortgage interest. 1040ez file Enter this amount on Schedule A (Form 1040) 12. 1040ez file   13. 1040ez file Subtract the amount on line 12 from the amount on line 10. 1040ez file Enter the result. 1040ez file This is not home mortgage interest. 1040ez file See line 13 instructions 13. 1040ez file   Home equity debt only. 1040ez file   If all of your mortgages are home equity debt, do not fill in lines 1 through 5. 1040ez file Enter zero on line 6 and complete the rest of Table 1. 1040ez file Average Mortgage Balance You have to figure the average balance of each mortgage to determine your qualified loan limit. 1040ez file You need these amounts to complete lines 1, 2, and 9 of Table 1. 1040ez file You can use the highest mortgage balances during the year, but you may benefit most by using the average balances. 1040ez file The following are methods you can use to figure your average mortgage balances. 1040ez file However, if a mortgage has more than one category of debt, see Mixed-use mortgages , later, in this section. 1040ez file Average of first and last balance method. 1040ez file   You can use this method if all the following apply. 1040ez file You did not borrow any new amounts on the mortgage during the year. 1040ez file (This does not include borrowing the original mortgage amount. 1040ez file ) You did not prepay more than one month's principal during the year. 1040ez file (This includes prepayment by refinancing your home or by applying proceeds from its sale. 1040ez file ) You had to make level payments at fixed equal intervals on at least a semi-annual basis. 1040ez file You treat your payments as level even if they were adjusted from time to time because of changes in the interest rate. 1040ez file    To figure your average balance, complete the following worksheet. 1040ez file    1. 1040ez file Enter the balance as of the first day of the year that the mortgage was secured by your qualified home during the year (generally January 1)   2. 1040ez file Enter the balance as of the last day of the year that the mortgage was secured by your qualified home during the year (generally December 31)   3. 1040ez file Add amounts on lines 1 and 2   4. 1040ez file Divide the amount on line 3 by 2. 1040ez file Enter the result   Interest paid divided by interest rate method. 1040ez file   You can use this method if at all times in 2013 the mortgage was secured by your qualified home and the interest was paid at least monthly. 1040ez file    Complete the following worksheet to figure your average balance. 1040ez file    1. 1040ez file Enter the interest paid in 2013. 1040ez file Do not include points, mortgage insurance premiums, or any interest paid in 2013 that is for a year after 2013. 1040ez file However, do include interest that is for 2013 but was paid in an earlier year   2. 1040ez file Enter the annual interest rate on the mortgage. 1040ez file If the interest rate varied in 2013, use the lowest rate for the year   3. 1040ez file Divide the amount on line 1 by the amount on line 2. 1040ez file Enter the result   Example. 1040ez file Mr. 1040ez file Blue had a line of credit secured by his main home all year. 1040ez file He paid interest of $2,500 on this loan. 1040ez file The interest rate on the loan was 9% (. 1040ez file 09) all year. 1040ez file His average balance using this method is $27,778, figured as follows. 1040ez file 1. 1040ez file Enter the interest paid in 2013. 1040ez file Do not include points, mortgage insurance premiums, or any interest paid in 2013 that is for a year after 2013. 1040ez file However, do include interest that is for 2013 but was paid in an earlier year $2,500 2. 1040ez file Enter the annual interest rate on the mortgage. 1040ez file If the interest rate varied in 2013, use the lowest rate for the year . 1040ez file 09 3. 1040ez file Divide the amount on line 1 by the amount on line 2. 1040ez file Enter the result $27,778 Statements provided by your lender. 1040ez file   If you receive monthly statements showing the closing balance or the average balance for the month, you can use either to figure your average balance for the year. 1040ez file You can treat the balance as zero for any month the mortgage was not secured by your qualified home. 1040ez file   For each mortgage, figure your average balance by adding your monthly closing or average balances and dividing that total by the number of months the home secured by that mortgage was a qualified home during the year. 1040ez file   If your lender can give you your average balance for the year, you can use that amount. 1040ez file Example. 1040ez file Ms. 1040ez file Brown had a home equity loan secured by her main home all year. 1040ez file She received monthly statements showing her average balance for each month. 1040ez file She can figure her average balance for the year by adding her monthly average balances and dividing the total by 12. 1040ez file Mixed-use mortgages. 1040ez file   A mixed-use mortgage is a loan that consists of more than one of the three categories of debt (grandfathered debt, home acquisition debt, and home equity debt). 1040ez file For example, a mortgage you took out during the year is a mixed-use mortgage if you used its proceeds partly to refinance a mortgage that you took out in an earlier year to buy your home (home acquisition debt) and partly to buy a car (home equity debt). 1040ez file   Complete lines 1 and 2 of Table 1 by including the separate average balances of any grandfathered debt and home acquisition debt in your mixed-use mortgage. 1040ez file Do not use the methods described earlier in this section to figure the average balance of either category. 1040ez file Instead, for each category, use the following method. 1040ez file Figure the balance of that category of debt for each month. 1040ez file This is the amount of the loan proceeds allocated to that category, reduced by your principal payments on the mortgage previously applied to that category. 1040ez file Principal payments on a mixed-use mortgage are applied in full to each category of debt, until its balance is zero, in the following order: First, any home equity debt, Next, any grandfathered debt, and Finally, any home acquisition debt. 1040ez file Add together the monthly balances figured in (1). 1040ez file Divide the result in (2) by 12. 1040ez file   Complete line 9 of Table 1 by including the average balance of the entire mixed-use mortgage, figured under one of the methods described earlier in this section. 1040ez file Example 1. 1040ez file In 1986, Sharon took out a $1,400,000 mortgage to buy her main home (grandfathered debt). 1040ez file On March 2, 2013, when the home had a fair market value of $1,700,000 and she owed $1,100,000 on the mortgage, Sharon took out a second mortgage for $200,000. 1040ez file She used $180,000 of the proceeds to make substantial improvements to her home (home acquisition debt) and the remaining $20,000 to buy a car (home equity debt). 1040ez file Under the loan agreement, Sharon must make principal payments of $1,000 at the end of each month. 1040ez file During 2013, her principal payments on the second mortgage totaled $10,000. 1040ez file To complete Table 1, line 2, Sharon must figure a separate average balance for the part of her second mortgage that is home acquisition debt. 1040ez file The January and February balances were zero. 1040ez file The March through December balances were all $180,000, because none of her principal payments are applied to the home acquisition debt. 1040ez file (They are all applied to the home equity debt, reducing it to $10,000 [$20,000 − $10,000]. 1040ez file ) The monthly balances of the home acquisition debt total $1,800,000 ($180,000 × 10). 1040ez file Therefore, the average balance of the home acquisition debt for 2013 was $150,000 ($1,800,000 ÷ 12). 1040ez file Example 2. 1040ez file The facts are the same as in Example 1. 1040ez file In 2014, Sharon's January through October principal payments on her second mortgage are applied to the home equity debt, reducing it to zero. 1040ez file The balance of the home acquisition debt remains $180,000 for each of those months. 1040ez file Because her November and December principal payments are applied to the home acquisition debt, the November balance is $179,000 ($180,000 − $1,000) and the December balance is $178,000 ($180,000 − $2,000). 1040ez file The monthly balances total $2,157,000 [($180,000 × 10) + $179,000 + $178,000]. 1040ez file Therefore, the average balance of the home acquisition debt for 2014 is $179,750 ($2,157,000 ÷ 12). 1040ez file L