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1040ez Forms 2012

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1040ez Forms 2012

1040ez forms 2012 27. 1040ez forms 2012   Tax Benefits for Work-Related Education Table of Contents What's New Introduction Useful Items - You may want to see: Qualifying Work-Related EducationEducation Required by Employer or by Law Education To Maintain or Improve Skills Education To Meet Minimum Requirements Education That Qualifies You for a New Trade or Business What Expenses Can Be DeductedUnclaimed reimbursement. 1040ez forms 2012 Transportation Expenses Travel Expenses No Double Benefit Allowed Reimbursements Deducting Business ExpensesSelf-Employed Persons Employees Performing Artists and Fee-Basis Officials Impairment-Related Work Expenses Recordkeeping What's New Standard mileage rate. 1040ez forms 2012  Generally, if you claim a business deduction for work-related education and you drive your car to and from school, the amount you can deduct for miles driven from January 1, 2013, through December 31, 2013, is 56½ cents per mile. 1040ez forms 2012 For more information, see Transportation Expenses under What Expenses Can Be Deducted. 1040ez forms 2012 Introduction This chapter discusses work-related education expenses that you may be able to deduct as business expenses. 1040ez forms 2012 To claim such a deduction, you must: Itemize your deductions on Schedule A (Form 1040) if you are an employee, File Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040) if you are self-employed, and Have expenses for education that meet the requirements discussed under Qualifying Work-Related Education . 1040ez forms 2012 If you are an employee and can itemize your deductions, you may be able to claim a deduction for the expenses you pay for your work-related education. 1040ez forms 2012 Your deduction will be the amount by which your qualifying work-related education expenses plus other job and certain miscellaneous expenses (except for impairment-related work expenses of disabled individuals) is greater than 2% of your adjusted gross income. 1040ez forms 2012 See chapter 28. 1040ez forms 2012 If you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment income. 1040ez forms 2012 Your work-related education expenses may also qualify you for other tax benefits, such as the American opportunity and lifetime learning credits (see chapter 35). 1040ez forms 2012 You may qualify for these other benefits even if you do not meet the requirements listed earlier. 1040ez forms 2012 Also, keep in mind that your work-related education expenses may qualify you to claim more than one tax benefit. 1040ez forms 2012 Generally, you may claim any number of benefits as long as you use different expenses to figure each one. 1040ez forms 2012 When you figure your taxes, you may want to compare these tax benefits so you can choose the method(s) that give you the lowest tax liability. 1040ez forms 2012 Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 970 Tax Benefits for Education Form (and Instructions) 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses Schedule A (Form 1040) Itemized Deductions Qualifying Work-Related Education You can deduct the costs of qualifying work-related education as business expenses. 1040ez forms 2012 This is education that meets at least one of the following two tests. 1040ez forms 2012 The education is required by your employer or the law to keep your present salary, status, or job. 1040ez forms 2012 The required education must serve a bona fide business purpose of your employer. 1040ez forms 2012 The education maintains or improves skills needed in your present work. 1040ez forms 2012 However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it: Is needed to meet the minimum educational requirements of your present trade or business, or Is part of a program of study that will qualify you for a new trade or business. 1040ez forms 2012 You can deduct the costs of qualifying work-related education as a business expense even if the education could lead to a degree. 1040ez forms 2012 Use Figure 27-A, later, as a quick check to see if your education qualifies. 1040ez forms 2012 Education Required by Employer or by Law Once you have met the minimum educational requirements for your job, your employer or the law may require you to get more education. 1040ez forms 2012 This additional education is qualifying work-related education if all three of the following requirements are met. 1040ez forms 2012 It is required for you to keep your present salary, status, or job, The requirement serves a bona fide business purpose of your employer, and The education is not part of a program that will qualify you for a new trade or business. 1040ez forms 2012 When you get more education than your employer or the law requires, the additional education can be qualifying work-related education only if it maintains or improves skills required in your present work. 1040ez forms 2012 See Education To Maintain or Improve Skills , later. 1040ez forms 2012 Example. 1040ez forms 2012 You are a teacher who has satisfied the minimum requirements for teaching. 1040ez forms 2012 Your employer requires you to take an additional college course each year to keep your teaching job. 1040ez forms 2012 If the courses will not qualify you for a new trade or business, they are qualifying work-related education even if you eventually receive a master's degree and an increase in salary because of this extra education. 1040ez forms 2012 Education To Maintain or Improve Skills If your education is not required by your employer or the law, it can be qualifying work-related education only if it maintains or improves skills needed in your present work. 1040ez forms 2012 This could include refresher courses, courses on current developments, and academic or vocational courses. 1040ez forms 2012 Example. 1040ez forms 2012 You repair televisions, radios, and stereo systems for XYZ Store. 1040ez forms 2012 To keep up with the latest changes, you take special courses in radio and stereo service. 1040ez forms 2012 These courses maintain and improve skills required in your work. 1040ez forms 2012 Maintaining skills vs. 1040ez forms 2012 qualifying for new job. 1040ez forms 2012   Education to maintain or improve skills needed in your present work is not qualifying education if it will also qualify you for a new trade or business. 1040ez forms 2012 Education during temporary absence. 1040ez forms 2012   If you stop working for a year or less in order to get education to maintain or improve skills needed in your present work and then return to the same general type of work, your absence is considered temporary. 1040ez forms 2012 Education that you get during a temporary absence is qualifying work-related education if it maintains or improves skills needed in your present work. 1040ez forms 2012 Example. 1040ez forms 2012 You quit your biology research job to become a full-time biology graduate student for one year. 1040ez forms 2012 If you return to work in biology research after completing the courses, the education is related to your present work even if you do not go back to work with the same employer. 1040ez forms 2012 Education during indefinite absence. 1040ez forms 2012   If you stop work for more than a year, your absence from your job is considered indefinite. 1040ez forms 2012 Education during an indefinite absence, even if it maintains or improves skills needed in the work from which you are absent, is considered to qualify you for a new trade or business. 1040ez forms 2012 Therefore, it is not qualifying work-related education. 1040ez forms 2012 Education To Meet Minimum Requirements Education you need to meet the minimum educational requirements for your present trade or business is not qualifying work-related education. 1040ez forms 2012 The minimum educational requirements are determined by: Laws and regulations, Standards of your profession, trade, or business, and Your employer. 1040ez forms 2012 Once you have met the minimum educational requirements that were in effect when you were hired, you do not have to meet any new minimum educational requirements. 1040ez forms 2012 This means that if the minimum requirements change after you were hired, any education you need to meet the new requirements can be qualifying education. 1040ez forms 2012 You have not necessarily met the minimum educational requirements of your trade or business simply because you are already doing the work. 1040ez forms 2012 Example 1. 1040ez forms 2012 You are a full-time engineering student. 1040ez forms 2012 Although you have not received your degree or certification, you work part-time as an engineer for a firm that will employ you as a full-time engineer after you finish college. 1040ez forms 2012 Although your college engineering courses improve your skills in your present job, they are also needed to meet the minimum job requirements for a full-time engineer. 1040ez forms 2012 The education is not qualifying work-related education. 1040ez forms 2012 Example 2. 1040ez forms 2012 You are an accountant and you have met the minimum educational requirements of your employer. 1040ez forms 2012 Your employer later changes the minimum educational requirements and requires you to take college courses to keep your job. 1040ez forms 2012 These additional courses can be qualifying work-related education because you have already satisfied the minimum requirements that were in effect when you were hired. 1040ez forms 2012 Requirements for Teachers States or school districts usually set the minimum educational requirements for teachers. 1040ez forms 2012 The requirement is the college degree or the minimum number of college hours usually required of a person hired for that position. 1040ez forms 2012 If there are no requirements, you will have met the minimum educational requirements when you become a faculty member. 1040ez forms 2012 The determination of whether you are a faculty member of an educational institution must be made on the basis of the particular practices of the institution. 1040ez forms 2012 You generally will be considered a faculty member when one or more of the following occurs. 1040ez forms 2012 You have tenure. 1040ez forms 2012 Your years of service count toward obtaining tenure. 1040ez forms 2012 You have a vote in faculty decisions. 1040ez forms 2012 Your school makes contributions for you to a retirement plan other than social security or a similar program. 1040ez forms 2012 Example 1. 1040ez forms 2012 The law in your state requires beginning secondary school teachers to have a bachelor's degree, including 10 professional education courses. 1040ez forms 2012 In addition, to keep the job a teacher must complete a fifth year of training within 10 years from the date of hire. 1040ez forms 2012 If the employing school certifies to the state Department of Education that qualified teachers cannot be found, the school can hire persons with only 3 years of college. 1040ez forms 2012 However, to keep their jobs, these teachers must get a bachelor's degree and the required professional education courses within 3 years. 1040ez forms 2012 Under these facts, the bachelor's degree, whether or not it includes the 10 professional education courses, is considered the minimum educational requirement for qualification as a teacher in your state. 1040ez forms 2012 If you have all the required education except the fifth year, you have met the minimum educational requirements. 1040ez forms 2012 The fifth year of training is qualifying work-related education unless it is part of a program of study that will qualify you for a new trade or business. 1040ez forms 2012 Figure 27-A Does Your Work-Related Education Qualify? Please click here for the text description of the image. 1040ez forms 2012 Figure 27-A. 1040ez forms 2012 Does Your Work-Related Education Qualify?" Example 2. 1040ez forms 2012 Assume the same facts as in Example 1 except that you have a bachelor's degree and only six professional education courses. 1040ez forms 2012 The additional four education courses can be qualifying work-related education. 1040ez forms 2012 Although you do not have all the required courses, you have already met the minimum educational requirements. 1040ez forms 2012 Example 3. 1040ez forms 2012 Assume the same facts as in Example 1 except that you are hired with only 3 years of college. 1040ez forms 2012 The courses you take that lead to a bachelor's degree (including those in education) are not qualifying work-related education. 1040ez forms 2012 They are needed to meet the minimum educational requirements for employment as a teacher. 1040ez forms 2012 Example 4. 1040ez forms 2012 You have a bachelor's degree and you work as a temporary instructor at a university. 1040ez forms 2012 At the same time, you take graduate courses toward an advanced degree. 1040ez forms 2012 The rules of the university state that you can become a faculty member only if you get a graduate degree. 1040ez forms 2012 Also, you can keep your job as an instructor only as long as you show satisfactory progress toward getting this degree. 1040ez forms 2012 You have not met the minimum educational requirements to qualify you as a faculty member. 1040ez forms 2012 The graduate courses are not qualifying work-related education. 1040ez forms 2012 Certification in a new state. 1040ez forms 2012   Once you have met the minimum educational requirements for teachers for your state, you are considered to have met the minimum educational requirements in all states. 1040ez forms 2012 This is true even if you must get additional education to be certified in another state. 1040ez forms 2012 Any additional education you need is qualifying work-related education. 1040ez forms 2012 You have already met the minimum requirements for teaching. 1040ez forms 2012 Teaching in another state is not a new trade or business. 1040ez forms 2012 Example. 1040ez forms 2012 You hold a permanent teaching certificate in State A and are employed as a teacher in that state for several years. 1040ez forms 2012 You move to State B and are promptly hired as a teacher. 1040ez forms 2012 You are required, however, to complete certain prescribed courses to get a permanent teaching certificate in State B. 1040ez forms 2012 These additional courses are qualifying work-related education because the teaching position in State B involves the same general kind of work for which you were qualified in State A. 1040ez forms 2012 Education That Qualifies You for a New Trade or Business Education that is part of a program of study that will qualify you for a new trade or business is not qualifying work-related education. 1040ez forms 2012 This is true even if you do not plan to enter that trade or business. 1040ez forms 2012 If you are an employee, a change of duties that involves the same general kind of work is not a new trade or business. 1040ez forms 2012 Example 1. 1040ez forms 2012 You are an accountant. 1040ez forms 2012 Your employer requires you to get a law degree at your own expense. 1040ez forms 2012 You register at a law school for the regular curriculum that leads to a law degree. 1040ez forms 2012 Even if you do not intend to become a lawyer, the education is not qualifying because the law degree will qualify you for a new trade or business. 1040ez forms 2012 Example 2. 1040ez forms 2012 You are a general practitioner of medicine. 1040ez forms 2012 You take a 2-week course to review developments in several specialized fields of medicine. 1040ez forms 2012 The course does not qualify you for a new profession. 1040ez forms 2012 It is qualifying work-related education because it maintains or improves skills required in your present profession. 1040ez forms 2012 Example 3. 1040ez forms 2012 While working in the private practice of psychiatry, you enter a program to study and train at an accredited psychoanalytic institute. 1040ez forms 2012 The program will lead to qualifying you to practice psychoanalysis. 1040ez forms 2012 The psychoanalytic training does not qualify you for a new profession. 1040ez forms 2012 It is qualifying work-related education because it maintains or improves skills required in your present profession. 1040ez forms 2012 Bar or CPA Review Course Review courses to prepare for the bar examination or the certified public accountant (CPA) examination are not qualifying work-related education. 1040ez forms 2012 They are part of a program of study that can qualify you for a new profession. 1040ez forms 2012 Teaching and Related Duties All teaching and related duties are considered the same general kind of work. 1040ez forms 2012 A change in duties in any of the following ways is not considered a change to a new business. 1040ez forms 2012 Elementary school teacher to secondary school teacher. 1040ez forms 2012 Teacher of one subject, such as biology, to teacher of another subject, such as art. 1040ez forms 2012 Classroom teacher to guidance counselor. 1040ez forms 2012 Classroom teacher to school administrator. 1040ez forms 2012 What Expenses Can Be Deducted If your education meets the requirements described earlier under Qualifying Work-Related Education , you can generally deduct your education expenses as business expenses. 1040ez forms 2012 If you are not self-employed, you can deduct business expenses only if you itemize your deductions. 1040ez forms 2012 You cannot deduct expenses related to tax-exempt and excluded income. 1040ez forms 2012 Deductible expenses. 1040ez forms 2012   The following education expenses can be deducted. 1040ez forms 2012 Tuition, books, supplies, lab fees, and similar items. 1040ez forms 2012 Certain transportation and travel costs. 1040ez forms 2012 Other education expenses, such as costs of research and typing when writing a paper as part of an educational program. 1040ez forms 2012 Nondeductible expenses. 1040ez forms 2012   You cannot deduct personal or capital expenses. 1040ez forms 2012 For example, you cannot deduct the dollar value of vacation time or annual leave you take to attend classes. 1040ez forms 2012 This amount is a personal expense. 1040ez forms 2012 Unclaimed reimbursement. 1040ez forms 2012   If you do not claim reimbursement that you are entitled to receive from your employer, you cannot deduct the expenses that apply to that unclaimed reimbursement. 1040ez forms 2012 Example. 1040ez forms 2012 Your employer agrees to pay your education expenses if you file a voucher showing your expenses. 1040ez forms 2012 You do not file a voucher, and you do not get reimbursed. 1040ez forms 2012 Because you did not file a voucher, you cannot deduct the expenses on your tax return. 1040ez forms 2012 Transportation Expenses If your education qualifies, you can deduct local transportation costs of going directly from work to school. 1040ez forms 2012 If you are regularly employed and go to school on a temporary basis, you can also deduct the costs of returning from school to home. 1040ez forms 2012 Temporary basis. 1040ez forms 2012   You go to school on a temporary basis if either of the following situations applies to you. 1040ez forms 2012 Your attendance at school is realistically expected to last 1 year or less and does indeed last for 1 year or less. 1040ez forms 2012 Initially, your attendance at school is realistically expected to last 1 year or less, but at a later date your attendance is reasonably expected to last more than 1 year. 1040ez forms 2012 Your attendance is temporary up to the date you determine it will last more than 1 year. 1040ez forms 2012 Note. 1040ez forms 2012 If you are in either situation (1) or (2), your attendance is not temporary if facts and circumstances indicate otherwise. 1040ez forms 2012 Attendance not on a temporary basis. 1040ez forms 2012   You do not go to school on a temporary basis if either of the following situations apply to you. 1040ez forms 2012 Your attendance at school is realistically expected to last more than 1 year. 1040ez forms 2012 It does not matter how long you actually attend. 1040ez forms 2012 Initially, your attendance at school is realistically expected to last 1 year or less, but at a later date your attendance is reasonably expected to last more than 1 year. 1040ez forms 2012 Your attendance is not temporary after the date you determine it will last more than 1 year. 1040ez forms 2012 Deductible Transportation Expenses If you are regularly employed and go directly from home to school on a temporary basis, you can deduct the round-trip costs of transportation between your home and school. 1040ez forms 2012 This is true regardless of the location of the school, the distance traveled, or whether you attend school on nonwork days. 1040ez forms 2012 Transportation expenses include the actual costs of bus, subway, cab, or other fares, as well as the costs of using your car. 1040ez forms 2012 Transportation expenses do not include amounts spent for travel, meals, or lodging while you are away from home overnight. 1040ez forms 2012 Example 1. 1040ez forms 2012 You regularly work in a nearby town, and go directly from work to home. 1040ez forms 2012 You also attend school every work night for 3 months to take a course that improves your job skills. 1040ez forms 2012 Since you are attending school on a temporary basis, you can deduct your daily round-trip transportation expenses in going between home and school. 1040ez forms 2012 This is true regardless of the distance traveled. 1040ez forms 2012 Example 2. 1040ez forms 2012 Assume the same facts as in Example 1 except that on certain nights you go directly from work to school and then home. 1040ez forms 2012 You can deduct your transportation expenses from your regular work site to school and then home. 1040ez forms 2012 Example 3. 1040ez forms 2012 Assume the same facts as in Example 1 except that you attend the school for 9 months on Saturdays, nonwork days. 1040ez forms 2012 Since you are attending school on a temporary basis, you can deduct your round-trip transportation expenses in going between home and school. 1040ez forms 2012 Example 4. 1040ez forms 2012 Assume the same facts as in Example 1 except that you attend classes twice a week for 15 months. 1040ez forms 2012 Since your attendance in school is not considered temporary, you cannot deduct your transportation expenses in going between home and school. 1040ez forms 2012 If you go directly from work to school, you can deduct the one-way transportation expenses of going from work to school. 1040ez forms 2012 If you go from work to home to school and return home, your transportation expenses cannot be more than if you had gone directly from work to school. 1040ez forms 2012 Using your car. 1040ez forms 2012   If you use your car (whether you own or lease it) for transportation to school, you can deduct your actual expenses or use the standard mileage rate to figure the amount you can deduct. 1040ez forms 2012 The standard mileage rate for miles driven from January 1, 2013, through December 31, 2013 is 56½ cents per mile. 1040ez forms 2012 Whichever method you use, you can also deduct parking fees and tolls. 1040ez forms 2012 See chapter 26 for information on deducting your actual expenses of using a car. 1040ez forms 2012 Travel Expenses You can deduct expenses for travel, meals (see 50% limit on meals , later), and lodging if you travel overnight mainly to obtain qualifying work-related education. 1040ez forms 2012 Travel expenses for qualifying work-related education are treated the same as travel expenses for other employee business purposes. 1040ez forms 2012 For more information, see chapter 26. 1040ez forms 2012 You cannot deduct expenses for personal activities, such as sightseeing, visiting, or entertaining. 1040ez forms 2012 Mainly personal travel. 1040ez forms 2012   If your travel away from home is mainly personal, you cannot deduct all of your expenses for travel, meals, and lodging. 1040ez forms 2012 You can deduct only your expenses for lodging and 50% of your expenses for meals during the time you attend the qualified educational activities. 1040ez forms 2012   Whether a trip's purpose is mainly personal or educational depends upon the facts and circumstances. 1040ez forms 2012 An important factor is the comparison of time spent on personal activities with time spent on educational activities. 1040ez forms 2012 If you spend more time on personal activities, the trip is considered mainly educational only if you can show a substantial nonpersonal reason for traveling to a particular location. 1040ez forms 2012 Example 1. 1040ez forms 2012 John works in Newark, New Jersey. 1040ez forms 2012 He traveled to Chicago to take a deductible 1-week course at the request of his employer. 1040ez forms 2012 His main reason for going to Chicago was to take the course. 1040ez forms 2012 While there, he took a sight-seeing trip, entertained some friends, and took a side trip to Pleasantville for a day. 1040ez forms 2012 Since the trip was mainly for business, John can deduct his round-trip airfare to Chicago. 1040ez forms 2012 He cannot deduct his transportation expenses of going to Pleasantville. 1040ez forms 2012 He can deduct only the meals (subject to the 50% limit) and lodging connected with his educational activities. 1040ez forms 2012 Example 2. 1040ez forms 2012 Sue works in Boston. 1040ez forms 2012 She went to a university in Michigan to take a course for work. 1040ez forms 2012 The course is qualifying work-related education. 1040ez forms 2012 She took one course, which is one-fourth of a full course load of study. 1040ez forms 2012 She spent the rest of the time on personal activities. 1040ez forms 2012 Her reasons for taking the course in Michigan were all personal. 1040ez forms 2012 Sue's trip is mainly personal because three-fourths of her time is considered personal time. 1040ez forms 2012 She cannot deduct the cost of her round-trip train ticket to Michigan. 1040ez forms 2012 She can deduct one-fourth of the meals (subject to the 50% limit) and lodging costs for the time she attended the university. 1040ez forms 2012 Example 3. 1040ez forms 2012 Dave works in Nashville and recently traveled to California to take a 2-week seminar. 1040ez forms 2012 The seminar is qualifying work-related education. 1040ez forms 2012 While there, he spent an extra 8 weeks on personal activities. 1040ez forms 2012 The facts, including the extra 8-week stay, show that his main purpose was to take a vacation. 1040ez forms 2012 Dave cannot deduct his round-trip airfare or his meals and lodging for the 8 weeks. 1040ez forms 2012 He can deduct only his expenses for meals (subject to the 50% limit) and lodging for the 2 weeks he attended the seminar. 1040ez forms 2012 Cruises and conventions. 1040ez forms 2012   Certain cruises and conventions offer seminars or courses as part of their itinerary. 1040ez forms 2012 Even if the seminars or courses are work-related, your deduction for travel may be limited. 1040ez forms 2012 This applies to: Travel by ocean liner, cruise ship, or other form of luxury water transportation, and Conventions outside the North American area. 1040ez forms 2012   For a discussion of the limits on travel expense deductions that apply to cruises and conventions, see Luxury Water Travel and Conventions in chapter 1 of Publication 463. 1040ez forms 2012 50% limit on meals. 1040ez forms 2012   You can deduct only 50% of the cost of your meals while traveling away from home to obtain qualifying work-related education. 1040ez forms 2012 You cannot have been reimbursed for the meals. 1040ez forms 2012   Employees must use Form 2106 or Form 2106-EZ to apply the 50% limit. 1040ez forms 2012 Travel as Education You cannot deduct the cost of travel as a form of education even if it is directly related to your duties in your work or business. 1040ez forms 2012 Example. 1040ez forms 2012 You are a French language teacher. 1040ez forms 2012 While on sabbatical leave granted for travel, you traveled through France to improve your knowledge of the French language. 1040ez forms 2012 You chose your itinerary and most of your activities to improve your French language skills. 1040ez forms 2012 You cannot deduct your travel expenses as education expenses. 1040ez forms 2012 This is true even if you spent most of your time learning French by visiting French schools and families, attending movies or plays, and engaging in similar activities. 1040ez forms 2012 No Double Benefit Allowed You cannot do either of the following. 1040ez forms 2012 Deduct work-related education expenses as business expenses if you benefit from these expenses under any other provision of the law, for example, the tuition and fees deduction (see chapter 35). 1040ez forms 2012 Deduct work-related education expenses paid with tax-free scholarship, grant, or employer-provided educational assistance. 1040ez forms 2012 See Adjustments to Qualifying Work-Related Education Expenses , next. 1040ez forms 2012 Adjustments to Qualifying Work-Related Education Expenses If you pay qualifying work-related education expenses with certain tax-free funds, you cannot claim a deduction for those amounts. 1040ez forms 2012 You must reduce the qualifying expenses by the amount of such expenses allocable to the tax-free educational assistance. 1040ez forms 2012 For more information, see chapter 12 of Publication 970. 1040ez forms 2012 Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see chapter 1 of Publication 970), The tax-free part of Pell grants (see chapter 1 of Publication 970), The tax-free part of employer-provided educational assistance (see chapter 11 of Publication 970), Veterans' educational assistance (see chapter 1 of Publication 970), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received for education assistance. 1040ez forms 2012 Amounts that do not reduce qualifying work-related education expenses. 1040ez forms 2012   Do not reduce the qualifying work-related education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. 1040ez forms 2012   Also, do not reduce the qualifying work-related education expenses by any scholarship or fellowship reported as income on the student's return or any scholarship which, by its terms, cannot be applied to qualifying work-related education expenses. 1040ez forms 2012 Reimbursements How you treat reimbursements depends on the arrangement you have with your employer. 1040ez forms 2012 There are two basic types of reimbursement arrangements—accountable plans and nonaccountable plans. 1040ez forms 2012 You can tell the type of plan you are reimbursed under by the way the reimbursement is reported on your Form W-2. 1040ez forms 2012 For information on how to treat reimbursements under both accountable and nonaccountable plans, see Reimbursements in chapter 26. 1040ez forms 2012 Deducting Business Expenses Self-employed persons and employees report business expenses differently. 1040ez forms 2012 The following information explains what forms you must use to deduct the cost of your qualifying work-related education as a business expense. 1040ez forms 2012 Self-Employed Persons If you are self-employed, report the cost of your qualifying work-related education on the appropriate form used to report your business income and expenses (generally Schedule C, C-EZ, or F). 1040ez forms 2012 If your educational expenses include expenses for a car or truck, travel, or meals, report those expenses the same way you report other business expenses for those items. 1040ez forms 2012 See the instructions for the form you file for information on how to complete it. 1040ez forms 2012 Employees If you are an employee, you can deduct the cost of qualifying work-related education only if you: Did not receive (and were not entitled to receive) any reimbursement from your employer, Were reimbursed under a nonaccountable plan (amount is included in box 1 of Form W-2), or Received reimbursement under an accountable plan, but the amount received was less than your expenses for which you claimed reimbursement. 1040ez forms 2012 If either (1) or (2) applies, you can deduct the total qualifying cost. 1040ez forms 2012 If (3) applies, you can deduct only the qualifying costs that were more than your reimbursement. 1040ez forms 2012 In order to deduct the cost of your qualifying work-related education as a business expense, include the amount with your deduction for any other employee business expenses on Schedule A (Form 1040), line 21. 1040ez forms 2012 (Special rules for expenses of certain performing artists and fee-basis officials and for impairment-related work expenses are explained later. 1040ez forms 2012 ) This deduction (except for impairment-related work expenses of disabled individuals) is subject to the 2%-of-adjusted-gross-income limit that applies to most miscellaneous itemized deductions. 1040ez forms 2012 See chapter 28. 1040ez forms 2012 Form 2106 or 2106-EZ. 1040ez forms 2012   To figure your deduction for employee business expenses, including qualifying work-related education, you generally must complete Form 2106 or Form 2106-EZ. 1040ez forms 2012 Form not required. 1040ez forms 2012   Do not complete either Form 2106 or Form 2106-EZ if: If amounts included in box 1 of your Form W-2, are not considered reimbursements, and You are not claiming travel, transportation, meal, or entertainment expenses. 1040ez forms 2012   If you meet both of these requirements, enter the expenses directly on Schedule A (Form 1040), line 21. 1040ez forms 2012 (Special rules for expenses of certain performing artists and fee-basis officials and for impairment-related work expenses are explained later. 1040ez forms 2012 ) Using Form 2106-EZ. 1040ez forms 2012   This form is shorter and easier to use than Form 2106. 1040ez forms 2012 Generally, you can use this form if: All reimbursements, if any, are included in box 1 of your Form W-2, and You are using the standard mileage rate if you are claiming vehicle expenses. 1040ez forms 2012   If you do not meet both of these requirements, use Form 2106. 1040ez forms 2012 Performing Artists and Fee-Basis Officials If you are a qualified performing artist, or a state (or local) government official who is paid in whole or in part on a fee basis, you can deduct the cost of your qualifying work-related education as an adjustment to gross income rather than as an itemized deduction. 1040ez forms 2012 Include the cost of your qualifying work-related education with any other employee business expenses on Form 1040, line 24. 1040ez forms 2012 You do not have to itemize your deductions on Schedule A (Form 1040), and, therefore, the deduction is not subject to the 2%-of-adjusted-gross-income limit. 1040ez forms 2012 You must complete Form 2106 or 2106-EZ to figure your deduction, even if you meet the requirements described earlier under Form not required . 1040ez forms 2012 For more information on qualified performing artists, see chapter 6 of Publication 463. 1040ez forms 2012 Impairment-Related Work Expenses If you are disabled and have impairment-related work expenses that are necessary for you to be able to get qualifying work-related education, you can deduct these expenses on Schedule A (Form 1040), line 28. 1040ez forms 2012 They are not subject to the 2%-of-adjusted-gross-income limit. 1040ez forms 2012 To deduct these expenses, you must complete Form 2106 or 2106-EZ even if you meet the requirements described earlier under Form not required . 1040ez forms 2012 For more information on impairment-related work expenses, see chapter 6 of Publication 463. 1040ez forms 2012 Recordkeeping You must keep records as proof of any deduction claimed on your tax return. 1040ez forms 2012 Generally, you should keep your records for 3 years from the date of filing the tax return and claiming the deduction. 1040ez forms 2012 For specific information about keeping records of business expenses, see Recordkeeping in chapter 26. 1040ez forms 2012 Prev  Up  Next   Home   More Online Publications
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The 1040ez Forms 2012

1040ez forms 2012 Publication 530 - Main Content Table of Contents What You Can and Cannot DeductHardest Hit Fund and Emergency Homeowners' Loan Programs Real Estate Taxes Sales Taxes Home Mortgage Interest Mortgage Insurance Premiums Mortgage Interest CreditFiguring the Credit BasisFiguring Your Basis Adjusted Basis Keeping Records How To Get Tax HelpLow Income Taxpayer Clinics What You Can and Cannot Deduct To deduct expenses of owning a home, you must file Form 1040, U. 1040ez forms 2012 S. 1040ez forms 2012 Individual Income Tax Return, and itemize your deductions on Schedule A (Form 1040). 1040ez forms 2012 If you itemize, you cannot take the standard deduction. 1040ez forms 2012 This section explains what expenses you can deduct as a homeowner. 1040ez forms 2012 It also points out expenses that you cannot deduct. 1040ez forms 2012 There are four primary discussions: real estate taxes, sales taxes, home mortgage interest, and mortgage insurance premiums. 1040ez forms 2012 Generally, your real estate taxes, home mortgage interest, and mortgage insurance premiums are included in your house payment. 1040ez forms 2012 Your house payment. 1040ez forms 2012   If you took out a mortgage (loan) to finance the purchase of your home, you probably have to make monthly house payments. 1040ez forms 2012 Your house payment may include several costs of owning a home. 1040ez forms 2012 The only costs you can deduct are real estate taxes actually paid to the taxing authority, interest that qualifies as home mortgage interest, and mortgage insurance premiums. 1040ez forms 2012 These are discussed in more detail later. 1040ez forms 2012   Some nondeductible expenses that may be included in your house payment include: Fire or homeowner's insurance premiums, and The amount applied to reduce the principal of the mortgage. 1040ez forms 2012 Minister's or military housing allowance. 1040ez forms 2012   If you are a minister or a member of the uniformed services and receive a housing allowance that is not taxable, you still can deduct your real estate taxes and your home mortgage interest. 1040ez forms 2012 You do not have to reduce your deductions by your nontaxable allowance. 1040ez forms 2012 For more information see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers, and Publication 3, Armed Forces' Tax Guide. 1040ez forms 2012 Nondeductible payments. 1040ez forms 2012   You cannot deduct any of the following items. 1040ez forms 2012 Insurance (other than mortgage insurance premiums), including fire and comprehensive coverage, and title insurance. 1040ez forms 2012 Wages you pay for domestic help. 1040ez forms 2012 Depreciation. 1040ez forms 2012 The cost of utilities, such as gas, electricity, or water. 1040ez forms 2012 Most settlement costs. 1040ez forms 2012 See Settlement or closing costs under Cost as Basis, later, for more information. 1040ez forms 2012 Forfeited deposits, down payments, or earnest money. 1040ez forms 2012 Hardest Hit Fund and Emergency Homeowners' Loan Programs 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 forms 2012 You received assistance under: A State Housing Finance Agency (State HFA) Hardest Hit Fund program in which program payments could be used to pay mortgage interest, or An Emergency Homeowners' Loan Program administered by the Department of Housing and Urban Development (HUD) or a state. 1040ez forms 2012 You meet the rules to deduct all of the mortgage interest on your loan and all of the real estate taxes on your main home. 1040ez forms 2012 If you meet these tests, then you can deduct all of the payments you actually made during the year to your mortgage servicer, the State HFA, or HUD on the home mortgage (including the amount shown on box 3 of Form 1098-MA, Mortgage Assistance Payments), but not more than the sum of the amounts shown on Form 1098, Mortgage Interest Statement, in box 1 (mortgage interest received), box 4 (mortgage insurance premiums) and box 5 (real property taxes). 1040ez forms 2012 However, you are not required to use this special method to compute your deduction for mortgage interest and real estate taxes on your main home. 1040ez forms 2012 Real Estate Taxes Most state and local governments charge an annual tax on the value of real property. 1040ez forms 2012 This is called a real estate tax. 1040ez forms 2012 You can deduct the tax if it is assessed uniformly at a like rate on all real property throughout the community. 1040ez forms 2012 The proceeds must be for general community or governmental purposes and not be a payment for a special privilege granted or service rendered to you. 1040ez forms 2012 Deductible Real Estate Taxes You can deduct real estate taxes imposed on you. 1040ez forms 2012 You must have paid them either at settlement or closing, or to a taxing authority (either directly or through an escrow account) during the year. 1040ez forms 2012 If you own a cooperative apartment, see Special Rules for Cooperatives , later. 1040ez forms 2012 Where to deduct real estate taxes. 1040ez forms 2012   Enter the amount of your deductible real estate taxes on Schedule A (Form 1040), line 6. 1040ez forms 2012 Real estate taxes paid at settlement or closing. 1040ez forms 2012   Real estate taxes are generally divided so that you and the seller each pay taxes for the part of the property tax year you owned the home. 1040ez forms 2012 Your share of these taxes is fully deductible if you itemize your deductions. 1040ez forms 2012 Division of real estate taxes. 1040ez forms 2012   For federal income tax purposes, the seller is treated as paying the property taxes up to, but not including, the date of sale. 1040ez forms 2012 You (the buyer) are treated as paying the taxes beginning with the date of sale. 1040ez forms 2012 This applies regardless of the lien dates under local law. 1040ez forms 2012 Generally, this information is included on the settlement statement you get at closing. 1040ez forms 2012   You and the seller each are considered to have paid your own share of the taxes, even if one or the other paid the entire amount. 1040ez forms 2012 You each can deduct your own share, if you itemize deductions, for the year the property is sold. 1040ez forms 2012 Example. 1040ez forms 2012 You bought your home on September 1. 1040ez forms 2012 The property tax year (the period to which the tax relates) in your area is the calendar year. 1040ez forms 2012 The tax for the year was $730 and was due and paid by the seller on August 15. 1040ez forms 2012 You owned your new home during the property tax year for 122 days (September 1 to December 31, including your date of purchase). 1040ez forms 2012 You figure your deduction for real estate taxes on your home as follows. 1040ez forms 2012 1. 1040ez forms 2012 Enter the total real estate taxes for the real property tax year $730 2. 1040ez forms 2012 Enter the number of days in the property tax year that you owned the property 122 3. 1040ez forms 2012 Divide line 2 by 365 . 1040ez forms 2012 3342 4. 1040ez forms 2012 Multiply line 1 by line 3. 1040ez forms 2012 This is your deduction. 1040ez forms 2012 Enter it on Schedule A (Form 1040), line 6 $244   You can deduct $244 on your return for the year if you itemize your deductions. 1040ez forms 2012 You are considered to have paid this amount and can deduct it on your return even if, under the contract, you did not have to reimburse the seller. 1040ez forms 2012 Delinquent taxes. 1040ez forms 2012   Delinquent taxes are unpaid taxes that were imposed on the seller for an earlier tax year. 1040ez forms 2012 If you agree to pay delinquent taxes when you buy your home, you cannot deduct them. 1040ez forms 2012 You treat them as part of the cost of your home. 1040ez forms 2012 See Real estate taxes , later, under Basis. 1040ez forms 2012 Escrow accounts. 1040ez forms 2012   Many monthly house payments include an amount placed in escrow (put in the care of a third party) for real estate taxes. 1040ez forms 2012 You may not be able to deduct the total you pay into the escrow account. 1040ez forms 2012 You can deduct only the real estate taxes that the lender actually paid from escrow to the taxing authority. 1040ez forms 2012 Your real estate tax bill will show this amount. 1040ez forms 2012 Refund or rebate of real estate taxes. 1040ez forms 2012   If you receive a refund or rebate of real estate taxes this year for amounts you paid this year, you must reduce your real estate tax deduction by the amount refunded to you. 1040ez forms 2012 If the refund or rebate was for real estate taxes paid for a prior year, you may have to include some or all of the refund in your income. 1040ez forms 2012 For more information, see Recoveries in Publication 525, Taxable and Nontaxable Income. 1040ez forms 2012 Items You Cannot Deduct as Real Estate Taxes The following items are not deductible as real estate taxes. 1040ez forms 2012 Charges for services. 1040ez forms 2012   An itemized charge for services to specific property or people is not a tax, even if the charge is paid to the taxing authority. 1040ez forms 2012 You cannot deduct the charge as a real estate tax if it is: A unit fee for the delivery of a service (such as a $5 fee charged for every 1,000 gallons of water you use), A periodic charge for a residential service (such as a $20 per month or $240 annual fee charged for trash collection), or A flat fee charged for a single service provided by your local government (such as a $30 charge for mowing your lawn because it had grown higher than permitted under a local ordinance). 1040ez forms 2012    You must look at your real estate tax bill to decide if any nondeductible itemized charges, such as those listed above, are included in the bill. 1040ez forms 2012 If your taxing authority (or lender) does not furnish you a copy of your real estate tax bill, ask for it. 1040ez forms 2012 Contact the taxing authority if you need additional information about a specific charge on your real estate tax bill. 1040ez forms 2012 Assessments for local benefits. 1040ez forms 2012   You cannot deduct amounts you pay for local benefits that tend to increase the value of your property. 1040ez forms 2012 Local benefits include the construction of streets, sidewalks, or water and sewer systems. 1040ez forms 2012 You must add these amounts to the basis of your property. 1040ez forms 2012   You can, however, deduct assessments (or taxes) for local benefits if they are for maintenance, repair, or interest charges related to those benefits. 1040ez forms 2012 An example is a charge to repair an existing sidewalk and any interest included in that charge. 1040ez forms 2012   If only a part of the assessment is for maintenance, repair, or interest charges, you must be able to show the amount of that part to claim the deduction. 1040ez forms 2012 If you cannot show what part of the assessment is for maintenance, repair, or interest charges, you cannot deduct any of it. 1040ez forms 2012   An assessment for a local benefit may be listed as an item in your real estate tax bill. 1040ez forms 2012 If so, use the rules in this section to find how much of it, if any, you can deduct. 1040ez forms 2012 Transfer taxes (or stamp taxes). 1040ez forms 2012   You cannot deduct transfer taxes and similar taxes and charges on the sale of a personal home. 1040ez forms 2012 If you are the buyer and you pay them, include them in the cost basis of the property. 1040ez forms 2012 If you are the seller and you pay them, they are expenses of the sale and reduce the amount realized on the sale. 1040ez forms 2012 Homeowners association assessments. 1040ez forms 2012   You cannot deduct these assessments because the homeowners association, rather than a state or local government, imposes them. 1040ez forms 2012 Special Rules for Cooperatives If you own a cooperative apartment, some special rules apply to you, though you generally receive the same tax treatment as other homeowners. 1040ez forms 2012 As an owner of a cooperative apartment, you own shares of stock in a corporation that owns or leases housing facilities. 1040ez forms 2012 You can deduct your share of the corporation's deductible real estate taxes if the cooperative housing corporation meets the following conditions: The corporation has only one class of stock outstanding, Each stockholder, solely because of ownership of the stock, can live in a house, apartment, or house trailer owned or leased by the corporation, No stockholder can receive any distribution out of capital, except on a partial or complete liquidation of the corporation, and At least one of the following: At least 80% of the corporation's gross income for the tax year was paid by the tenant-stockholders. 1040ez forms 2012 For this purpose, gross income means all income received during the entire tax year, including any received before the corporation changed to cooperative ownership. 1040ez forms 2012 At least 80% of the total square footage of the corporation's property must be available for use by the tenant-stockholders during the entire tax year. 1040ez forms 2012 At least 90% of the expenditures paid or incurred by the corporation were used for the acquisition, construction, management, maintenance, or care of the property for the benefit of the tenant-shareholders during the entire tax year. 1040ez forms 2012 Tenant-stockholders. 1040ez forms 2012   A tenant-stockholder can be any entity (such as a corporation, trust, estate, partnership, or association) as well as an individual. 1040ez forms 2012 The tenant-stockholder does not have to live in any of the cooperative's dwelling units. 1040ez forms 2012 The units that the tenant-stockholder has the right to occupy can be rented to others. 1040ez forms 2012 Deductible taxes. 1040ez forms 2012   You figure your share of real estate taxes in the following way. 1040ez forms 2012 Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. 1040ez forms 2012 Multiply the corporation's deductible real estate taxes by the number you figured in (1). 1040ez forms 2012 This is your share of the real estate taxes. 1040ez forms 2012   Generally, the corporation will tell you your share of its real estate tax. 1040ez forms 2012 This is the amount you can deduct if it reasonably reflects the cost of real estate taxes for your dwelling unit. 1040ez forms 2012 Refund of real estate taxes. 1040ez forms 2012   If the corporation receives a refund of real estate taxes it paid in an earlier year, it must reduce the amount of real estate taxes paid this year when it allocates the tax expense to you. 1040ez forms 2012 Your deduction for real estate taxes the corporation paid this year is reduced by your share of the refund the corporation received. 1040ez forms 2012 Sales Taxes Generally, you can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). 1040ez forms 2012 Deductible sales taxes may include sales taxes paid on your home (including mobile and prefabricated), or home building materials if the tax rate was the same as the general sales tax rate. 1040ez forms 2012 For information on figuring your deduction, see the Instructions for Schedule A (Form 1040). 1040ez forms 2012 If you elect to deduct the sales taxes paid on your home, or home building materials, you cannot include them as part of your cost basis in the home. 1040ez forms 2012 Home Mortgage Interest This section of the publication gives you basic information about home mortgage interest, including information on interest paid at settlement, points, and Form 1098, Mortgage Interest Statement. 1040ez forms 2012 Most home buyers take out a mortgage (loan) to buy their home. 1040ez forms 2012 They then make monthly payments to either the mortgage holder or someone collecting the payments for the mortgage holder. 1040ez forms 2012 Usually, you can deduct the entire part of your payment that is for mortgage interest, if you itemize your deductions on Schedule A (Form 1040). 1040ez forms 2012 However, your deduction may be limited if: Your total mortgage balance is more than $1 million ($500,000 if married filing separately), or You took out a mortgage for reasons other than to buy, build, or improve your home. 1040ez forms 2012 If either of these situations applies to you, see Publication 936 for more information. 1040ez forms 2012 Also see Publication 936 if you later refinance your mortgage or buy a second home. 1040ez forms 2012 Refund of home mortgage interest. 1040ez forms 2012   If you receive a refund of home mortgage interest that you deducted in an earlier year and that reduced your tax, you generally must include the refund in income in the year you receive it. 1040ez forms 2012 For more information, see Recoveries in Publication 525. 1040ez forms 2012 The amount of the refund will usually be shown on the mortgage interest statement you receive from your mortgage lender. 1040ez forms 2012 See Mortgage Interest Statement , later. 1040ez forms 2012 Deductible Mortgage Interest To be deductible, the interest you pay must be on a loan secured by your main home or a second home. 1040ez forms 2012 The loan can be a first or second mortgage, a home improvement loan, or a home equity loan. 1040ez forms 2012 Prepaid interest. 1040ez forms 2012   If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. 1040ez forms 2012 Generally, you can deduct in each year only the interest that qualifies as home mortgage interest for that year. 1040ez forms 2012 An exception (discussed later) applies to points. 1040ez forms 2012 Late payment charge on mortgage payment. 1040ez forms 2012   You can deduct as home mortgage interest a late payment charge if it was not for a specific service in connection with your mortgage loan. 1040ez forms 2012 Mortgage prepayment penalty. 1040ez forms 2012   If you pay off your home mortgage early, you may have to pay a penalty. 1040ez forms 2012 You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan. 1040ez forms 2012 Ground rent. 1040ez forms 2012   In some states (such as Maryland), you may buy your home subject to a ground rent. 1040ez forms 2012 A ground rent is an obligation you assume to pay a fixed amount per year on the property. 1040ez forms 2012 Under this arrangement, you are leasing (rather than buying) the land on which your home is located. 1040ez forms 2012 Redeemable ground rents. 1040ez forms 2012   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct the payments as mortgage interest. 1040ez forms 2012 The ground rent is a redeemable ground rent only if all of the following are true. 1040ez forms 2012 Your lease, including renewal periods, is for more than 15 years. 1040ez forms 2012 You can freely assign the lease. 1040ez forms 2012 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 specified amount. 1040ez forms 2012 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 forms 2012   Payments made to end the lease and buy the lessor's entire interest in the land are not redeemable ground rents. 1040ez forms 2012 You cannot deduct them. 1040ez forms 2012 Nonredeemable ground rents. 1040ez forms 2012   Payments on a nonredeemable ground rent are not mortgage interest. 1040ez forms 2012 You can deduct them as rent only if they are a business expense or if they are for rental property. 1040ez forms 2012 Cooperative apartment. 1040ez forms 2012   You can usually treat the interest on a loan you took out to buy stock in a cooperative housing corporation as home mortgage interest if you own a cooperative apartment, and the cooperative housing corporation meets the conditions described earlier under Special Rules for Cooperatives . 1040ez forms 2012 In addition, you can treat as home mortgage interest your share of the corporation's deductible mortgage interest. 1040ez forms 2012 Figure your share of mortgage interest the same way that is shown for figuring your share of real estate taxes in the Example under Division of real estate taxes, earlier. 1040ez forms 2012 For more information on cooperatives, see Special Rule for Tenant-Stockholders in Cooperative Housing Corporations in Publication 936. 1040ez forms 2012 Refund of cooperative's mortgage interest. 1040ez forms 2012   You must reduce your mortgage interest deduction by your share of any cash portion of a patronage dividend that the cooperative receives. 1040ez forms 2012 The patronage dividend is a partial refund to the cooperative housing corporation of mortgage interest it paid in a prior year. 1040ez forms 2012   If you receive a Form 1098 from the cooperative housing corporation, the form should show only the amount you can deduct. 1040ez forms 2012 Mortgage Interest Paid at Settlement One item that normally appears on a settlement or closing statement is home mortgage interest. 1040ez forms 2012 You can deduct the interest that you pay at settlement if you itemize your deductions on Schedule A (Form 1040). 1040ez forms 2012 This amount should be included in the mortgage interest statement provided by your lender. 1040ez forms 2012 See the discussion under Mortgage Interest Statement , later. 1040ez forms 2012 Also, if you pay interest in advance, see Prepaid interest , earlier, and Points , next. 1040ez forms 2012 Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. 1040ez forms 2012 Points also may be called loan origination fees, maximum loan charges, loan discount, or discount points. 1040ez forms 2012 A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. 1040ez forms 2012 See Points paid by the seller , later. 1040ez forms 2012 General rule. 1040ez forms 2012   You cannot deduct the full amount of points in the year paid. 1040ez forms 2012 They are prepaid interest, so you generally must deduct them over the life (term) of the mortgage. 1040ez forms 2012 Exception. 1040ez forms 2012   You can deduct the full amount of points in the year paid if you meet all the following tests. 1040ez forms 2012 Your loan is secured by your main home. 1040ez forms 2012 (Generally, your main home is the one you live in most of the time. 1040ez forms 2012 ) Paying points is an established business practice in the area where the loan was made. 1040ez forms 2012 The points paid were not more than the points generally charged in that area. 1040ez forms 2012 You use the cash method of accounting. 1040ez forms 2012 This means you report income in the year you receive it and deduct expenses in the year you pay them. 1040ez forms 2012 Most individuals use this method. 1040ez forms 2012 The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes. 1040ez forms 2012 The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. 1040ez forms 2012 The funds you provided are not required to have been applied to the points. 1040ez forms 2012 They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. 1040ez forms 2012 You cannot have borrowed these funds. 1040ez forms 2012 You use your loan to buy or build your main home. 1040ez forms 2012 The points were computed as a percentage of the principal amount of the mortgage. 1040ez forms 2012 The amount is clearly shown on the settlement statement (such as the Uniform Settlement Statement, Form HUD-1) as points charged for the mortgage. 1040ez forms 2012 The points may be shown as paid from either your funds or the seller's. 1040ez forms 2012 Note. 1040ez forms 2012 If you meet all of the tests listed above and you itemize your deductions in the year you get the loan, you can either deduct the full amount of points in the year paid or deduct them over the life of the loan, beginning in the year you get the loan. 1040ez forms 2012 If you do not itemize your deductions in the year you get the loan, you can spread the points over the life of the loan and deduct the appropriate amount in each future year, if any, when you do itemize your deductions. 1040ez forms 2012 Home improvement loan. 1040ez forms 2012   You can also fully deduct in the year paid points paid on a loan to improve your main home, if you meet the first six tests listed earlier. 1040ez forms 2012 Refinanced loan. 1040ez forms 2012   If you use part of the refinanced mortgage proceeds to improve your main home and you meet the first six tests listed earlier, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. 1040ez forms 2012 You can deduct the rest of the points over the life of the loan. 1040ez forms 2012 Points not fully deductible in year paid. 1040ez forms 2012    If you do not qualify under the exception to deduct the full amount of points in the year paid (or choose not to do so), see Points in Publication 936 for the rules on when and how much you can deduct. 1040ez forms 2012 Figure A. 1040ez forms 2012   You can use Figure A, next, as a quick guide to see whether your points are fully deductible in the year paid. 1040ez forms 2012    Please click here for the text description of the image. 1040ez forms 2012 Figure A. 1040ez forms 2012 Are my points fully deductible this year? Amounts charged for services. 1040ez forms 2012   Amounts charged by the lender for specific services connected to the loan are not interest. 1040ez forms 2012 Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. 1040ez forms 2012 You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. 1040ez forms 2012 For information about the tax treatment of these amounts and other settlement fees and closing costs, see Basis , later. 1040ez forms 2012 Points paid by the seller. 1040ez forms 2012   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. 1040ez forms 2012 Treatment by seller. 1040ez forms 2012   The seller cannot deduct these fees as interest. 1040ez forms 2012 However, they are a selling expense that reduces the seller's amount realized. 1040ez forms 2012 See Publication 523 for more information. 1040ez forms 2012 Treatment by buyer. 1040ez forms 2012   The buyer treats seller-paid points as if he or she had paid them. 1040ez forms 2012 If all the tests listed earlier under Exception are met, the buyer can deduct the points in the year paid. 1040ez forms 2012 If any of those tests are not met, the buyer must deduct the points over the life of the loan. 1040ez forms 2012   The buyer must also reduce the basis of the home by the amount of the seller-paid points. 1040ez forms 2012 For more information about the basis of your home, see Basis , later. 1040ez forms 2012 Funds provided are less than points. 1040ez forms 2012   If you meet all the tests listed earlier under Exception 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 forms 2012 In addition, you can deduct any points paid by the seller. 1040ez forms 2012 Example 1. 1040ez forms 2012 When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). 1040ez forms 2012 You meet all the tests for deducting points in the year paid (see Exception , earlier), except the only funds you provided were a $750 down payment. 1040ez forms 2012 Of the $1,000 you were charged for points, you can deduct $750 in the year paid. 1040ez forms 2012 You spread the remaining $250 over the life of the mortgage. 1040ez forms 2012 Example 2. 1040ez forms 2012 The facts are the same as in Example 1 , except that the person who sold you your home also paid one point ($1,000) to help you get your mortgage. 1040ez forms 2012 In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). 1040ez forms 2012 You spread the remaining $250 over the life of the mortgage. 1040ez forms 2012 You must reduce the basis of your home by the $1,000 paid by the seller. 1040ez forms 2012 Excess points. 1040ez forms 2012   If you meet all the tests under Exception , earlier, except that the points paid were more than are generally charged in your area (test 3), you can deduct in the year paid only the points that are generally charged. 1040ez forms 2012 You must spread any additional points over the life of the mortgage. 1040ez forms 2012 Mortgage ending early. 1040ez forms 2012   If you spread your deduction for points over the life of the mortgage, you can deduct any remaining balance in the year the mortgage ends. 1040ez forms 2012 A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. 1040ez forms 2012 Example. 1040ez forms 2012 Dan paid $3,000 in points in 2006 that he had to spread out over the 15-year life of the mortgage. 1040ez forms 2012 He had deducted $1,400 of these points through 2012. 1040ez forms 2012 Dan prepaid his mortgage in full in 2013. 1040ez forms 2012 He can deduct the remaining $1,600 of points in 2013. 1040ez forms 2012 Exception. 1040ez forms 2012   If you refinance the mortgage with the same lender, you cannot deduct any remaining points for the year. 1040ez forms 2012 Instead, deduct them over the term of the new loan. 1040ez forms 2012 Form 1098. 1040ez forms 2012   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 forms 2012 See Mortgage Interest Statement , later. 1040ez forms 2012 Where To Deduct Home Mortgage Interest Enter on Schedule A (Form 1040), line 10, the home mortgage interest and points reported to you on Form 1098 (discussed next). 1040ez forms 2012 If you did not receive a Form 1098, enter your deductible interest on line 11, and any deductible points on line 12. 1040ez forms 2012 See Table 1 below for a summary of where to deduct home mortgage interest and real estate taxes. 1040ez forms 2012 If you paid home mortgage interest to the person from whom you bought your home, show that person's name, address, and social security number (SSN) or employer identification number (EIN) on the dotted lines next to line 11. 1040ez forms 2012 The seller must give you this number and you must give the seller your SSN. 1040ez forms 2012 Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. 1040ez forms 2012 Failure to meet either of these requirements may result in a $50 penalty for each failure. 1040ez forms 2012 Table 1. 1040ez forms 2012 Where To Deduct Interest and Taxes Paid on Your Home See the text for information on what expenses are eligible. 1040ez forms 2012 IF you are eligible to deduct . 1040ez forms 2012 . 1040ez forms 2012 . 1040ez forms 2012 THEN report the amount  on Schedule A (Form 1040) . 1040ez forms 2012 . 1040ez forms 2012 . 1040ez forms 2012 real estate taxes line 6. 1040ez forms 2012 home mortgage interest and points reported on Form 1098 line 10. 1040ez forms 2012 home mortgage interest not reported on  Form 1098 line 11. 1040ez forms 2012 points not reported on Form 1098 line 12. 1040ez forms 2012 qualified mortgage insurance premiums line 13. 1040ez forms 2012 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 to a mortgage holder in the course of that holder's trade or business, you should receive a Form 1098 or similar statement from the mortgage holder. 1040ez forms 2012 The statement will show the total interest paid on your mortgage during the year. 1040ez forms 2012 If you bought a main home during the year, it also will show the deductible points you paid and any points you can deduct that were paid by the person who sold you your home. 1040ez forms 2012 See Points , earlier. 1040ez forms 2012 The interest you paid at settlement should be included on the statement. 1040ez forms 2012 If it is not, add the interest from the settlement sheet that qualifies as home mortgage interest to the total shown on Form 1098 or similar statement. 1040ez forms 2012 Put the total on Schedule A (Form 1040), line 10, and attach a statement to your return explaining the difference. 1040ez forms 2012 Write “See attached” to the right of line 10. 1040ez forms 2012 A mortgage holder can be a financial institution, a governmental unit, or a cooperative housing corporation. 1040ez forms 2012 If a statement comes from a cooperative housing corporation, it generally will show your share of interest. 1040ez forms 2012 Your mortgage interest statement for 2013 should be provided or sent to you by January 31, 2014. 1040ez forms 2012 If it is mailed, you should allow adequate time to receive it before contacting the mortgage holder. 1040ez forms 2012 A copy of this form will be sent to the IRS also. 1040ez forms 2012 Example. 1040ez forms 2012 You bought a new home on May 3. 1040ez forms 2012 You paid no points on the purchase. 1040ez forms 2012 During the year, you made mortgage payments which included $4,480 deductible interest on your new home. 1040ez forms 2012 The settlement sheet for the purchase of the home included interest of $620 for 29 days in May. 1040ez forms 2012 The mortgage statement you receive from the lender includes total interest of $5,100 ($4,480 + $620). 1040ez forms 2012 You can deduct the $5,100 if you itemize your deductions. 1040ez forms 2012 Refund of overpaid interest. 1040ez forms 2012   If you receive a refund of mortgage interest you overpaid in a prior year, you generally will receive a Form 1098 showing the refund in box 3. 1040ez forms 2012 Generally, you must include the refund in income in the year you receive it. 1040ez forms 2012 See Refund of home mortgage interest , earlier, under Home Mortgage Interest. 1040ez forms 2012 More than one borrower. 1040ez forms 2012   If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return explaining this. 1040ez forms 2012 Show how much of the interest each of you paid, and give the name and address of the person who received the form. 1040ez forms 2012 Deduct your share of the interest on Schedule A (Form 1040), line 11, and write “See attached” to the right of that line. 1040ez forms 2012 Mortgage Insurance Premiums You may be able to take an itemized deduction on Schedule A (Form 1040), line 13, for premiums you pay or accrue during 2013 for qualified mortgage insurance in connection with home acquisition debt on your qualified home. 1040ez forms 2012 Mortgage insurance premiums you paid or accrued on any mortgage insurance contract issued before January 1, 2007, are not deductible as an itemized deduction. 1040ez forms 2012 Qualified Mortgage Insurance Qualified mortgage insurance is mortgage insurance provided by the Veterans Administration, the Federal Housing Administration, or the Rural Housing Administration, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). 1040ez forms 2012 Prepaid mortgage insurance premiums. 1040ez forms 2012   If you paid premiums that are allocable to periods after 2013, you must allocate them over the shorter of: The stated term of the mortgage, or 84 months, beginning with the month the insurance was obtained. 1040ez forms 2012 The premiums are treated as paid in the year to which they were allocated. 1040ez forms 2012 If the mortgage is satisfied before its term, no deduction is allowed for the unamortized balance. 1040ez forms 2012 See Publication 936 for details. 1040ez forms 2012 Exception for certain mortgage insurance. 1040ez forms 2012   The allocation rules, explained above, do not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or Rural Housing Service. 1040ez forms 2012 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. 1040ez forms 2012 It also must be secured by that home. 1040ez forms 2012 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 forms 2012 Home acquisition debt limit. 1040ez forms 2012   The total amount you can treat as home acquisition debt at any time on your home cannot be more than $1 million ($500,000 if married filing separately). 1040ez forms 2012 Discharges of qualified principal residence indebtedness. 1040ez forms 2012   You can exclude from gross income any discharges of qualified principal residence indebtedness made after 2006 and before 2014. 1040ez forms 2012 You must reduce the basis of your principal residence (but not below zero) by the amount you exclude. 1040ez forms 2012 Principal residence. 1040ez forms 2012   Your principal residence is the home where you ordinarily live most of the time. 1040ez forms 2012 You can have only one principal residence at any one time. 1040ez forms 2012 Qualified principal residence indebtedness. 1040ez forms 2012   This is a mortgage that you took out to buy, build, or substantially improve your principal residence and that is secured by that residence. 1040ez forms 2012 If the amount of your original mortgage is more than the cost of your principal residence plus the cost of substantial improvements, qualified principal residence indebtedness cannot be more than the cost of your principal residence plus improvements. 1040ez forms 2012   Any debt secured by your principal residence that you use to refinance qualified principal residence indebtedness is qualified principal residence indebtedness up to the amount of your old mortgage principal just before the refinancing. 1040ez forms 2012 Additional debt incurred to substantially improve your principal residence is also qualified principal residence indebtedness. 1040ez forms 2012 Amount you can exclude. 1040ez forms 2012   You can only exclude debt discharged after 2006 and before 2014. 1040ez forms 2012 The most you can exclude is $2 million ($1 million if married filing separately). 1040ez forms 2012 You cannot exclude any amount that was discharged because of services performed for the lender or on account of any other factor not directly related either to a decline in the value of your residence or to your financial condition. 1040ez forms 2012 Ordering rule. 1040ez forms 2012   If only a part of a loan is qualified principal residence indebtedness, you can exclude only the amount of the discharge that is more than the amount of the loan (immediately before the discharge) that is not qualified principal residence indebtedness. 1040ez forms 2012 Qualified Home This means your main home or your second home. 1040ez forms 2012 A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. 1040ez forms 2012 Main home. 1040ez forms 2012   You can have only one main home at any one time. 1040ez forms 2012 This is the home where you ordinarily live most of the time. 1040ez forms 2012 Second home and other special situations. 1040ez forms 2012   If you have a second home, use part of your home for other than residential living (such as a home office), rent out part of your home, or are having your home constructed, see Qualified Home in Publication 936. 1040ez forms 2012 Limit on Deduction If your adjusted gross income (AGI) 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 deductible is reduced and may be eliminated. 1040ez forms 2012 See Line 13 in the instructions for Schedule A (Form 1040) and complete the Mortgage Insurance Premiums Deduction Worksheet to figure the amount you can deduct. 1040ez forms 2012 If your AGI is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. 1040ez forms 2012 Form 1098. 1040ez forms 2012   The amount of mortgage insurance premiums you paid during 2013 should be reported in box 4. 1040ez forms 2012 See Form 1098, Mortgage Interest Statement in Publication 936. 1040ez forms 2012 Mortgage Interest Credit The mortgage interest credit is intended to help lower-income individuals afford home ownership. 1040ez forms 2012 If you qualify, you can claim the credit on Form 8396 each year for part of the home mortgage interest you pay. 1040ez forms 2012 Who qualifies. 1040ez forms 2012   You may be eligible for the credit if you were issued a qualified Mortgage Credit Certificate (MCC) from your state or local government. 1040ez forms 2012 Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home. 1040ez forms 2012 The MCC will show the certificate credit rate you will use to figure your credit. 1040ez forms 2012 It also will show the certified indebtedness amount. 1040ez forms 2012 Only the interest on that amount qualifies for the credit. 1040ez forms 2012 See Figuring the Credit , later. 1040ez forms 2012 You must contact the appropriate government agency about getting an MCC before you get a mortgage and buy your home. 1040ez forms 2012 Contact your state or local housing finance agency for information about the availability of MCCs in your area. 1040ez forms 2012 How to claim the credit. 1040ez forms 2012   To claim the credit, complete Form 8396 and attach it to your Form 1040 or Form 1040NR, U. 1040ez forms 2012 S. 1040ez forms 2012 Nonresident Alien Income Tax Return. 1040ez forms 2012 Include the credit in your total for Form 1040, line 53, or Form 1040NR, line 50; be sure to check box c and write “Form 8396” on that line. 1040ez forms 2012 Reducing your home mortgage interest deduction. 1040ez forms 2012   If you itemize your deductions on Schedule A (Form 1040), you must reduce your home mortgage interest deduction by the amount of the mortgage interest credit shown on Form 8396, line 3. 1040ez forms 2012 You must do this even if part of that amount is to be carried forward to 2014. 1040ez forms 2012 Selling your home. 1040ez forms 2012   If you purchase a home after 1990 using an MCC, and you sell that home within 9 years, you may have to recapture (repay) all or part of the benefit you received from the MCC program. 1040ez forms 2012 For additional information, see Recapturing (Paying Back) a Federal Mortgage Subsidy, in Publication 523. 1040ez forms 2012 Figuring the Credit Figure your credit on Form 8396. 1040ez forms 2012 Mortgage not more than certified indebtedness. 1040ez forms 2012   If your mortgage loan amount is equal to (or smaller than) the certified indebtedness amount shown on your MCC, enter on Form 8396, line 1, all the interest you paid on your mortgage during the year. 1040ez forms 2012 Mortgage more than certified indebtedness. 1040ez forms 2012   If your mortgage loan amount is larger than the certified indebtedness amount shown on your MCC, you can figure the credit on only part of the interest you paid. 1040ez forms 2012 To find the amount to enter on line 1, multiply the total interest you paid during the year on your mortgage by the following fraction. 1040ez forms 2012 Certified indebtedness amount on your MCC Original amount of your mortgage   The fraction will not change as long as you are entitled to take the mortgage interest credit. 1040ez forms 2012 Example. 1040ez forms 2012 Emily bought a home this year. 1040ez forms 2012 Her mortgage loan is $125,000. 1040ez forms 2012 The certified indebtedness amount on her MCC is $100,000. 1040ez forms 2012 She paid $7,500 interest this year. 1040ez forms 2012 Emily figures the interest to enter on Form 8396, line 1, as follows:   $100,000 = 80% (. 1040ez forms 2012 80)       $125,000       $7,500 x . 1040ez forms 2012 80 = $6,000   Emily enters $6,000 on Form 8396, line 1. 1040ez forms 2012 In each later year, she will figure her credit using only 80% of the interest she pays for that year. 1040ez forms 2012 Limits Two limits may apply to your credit. 1040ez forms 2012 A limit based on the credit rate, and A limit based on your tax. 1040ez forms 2012 Limit based on credit rate. 1040ez forms 2012   If the certificate credit rate is higher than 20%, the credit you are allowed cannot be more than $2,000. 1040ez forms 2012 Limit based on tax. 1040ez forms 2012   After applying the limit based on the credit rate, your credit generally cannot be more than your tax liability. 1040ez forms 2012 See the Credit Limit Worksheet in the Form 8396 instructions to calculate the limit based on tax. 1040ez forms 2012 Dividing the Credit If two or more persons (other than a married couple filing a joint return) hold an interest in the home to which the MCC relates, the credit must be divided based on the interest held by each person. 1040ez forms 2012 Example. 1040ez forms 2012 John and his brother, George, were issued an MCC. 1040ez forms 2012 They used it to get a mortgage on their main home. 1040ez forms 2012 John has a 60% ownership interest in the home, and George has a 40% ownership interest in the home. 1040ez forms 2012 John paid $5,400 mortgage interest this year and George paid $3,600. 1040ez forms 2012 The MCC shows a credit rate of 25% and a certified indebtedness amount of $130,000. 1040ez forms 2012 The loan amount (mortgage) on their home is $120,000. 1040ez forms 2012 The credit is limited to $2,000 because the credit rate is more than 20%. 1040ez forms 2012 John figures the credit by multiplying the mortgage interest he paid this year ($5,400) by the certificate credit rate (25%) for a total of $1,350. 1040ez forms 2012 His credit is limited to $1,200 ($2,000 × 60%). 1040ez forms 2012 George figures the credit by multiplying the mortgage interest he paid this year ($3,600) by the certificate credit rate (25%) for a total of $900. 1040ez forms 2012 His credit is limited to $800 ($2,000 × 40%). 1040ez forms 2012 Carryforward If your allowable credit is reduced because of the limit based on your tax, you can carry forward the unused portion of the credit to the next 3 years or until used, whichever comes first. 1040ez forms 2012 Example. 1040ez forms 2012 You receive a mortgage credit certificate from State X. 1040ez forms 2012 This year, your regular tax liability is $1,100, you owe no alternative minimum tax, and your mortgage interest credit is $1,700. 1040ez forms 2012 You claim no other credits. 1040ez forms 2012 Your unused mortgage interest credit for this year is $600 ($1,700 − $1,100). 1040ez forms 2012 You can carry forward this amount to the next 3 years or until used, whichever comes first. 1040ez forms 2012 Credit rate more than 20%. 1040ez forms 2012   If you are subject to the $2,000 limit because your certificate credit rate is more than 20%, you cannot carry forward any amount more than $2,000 (or your share of the $2,000 if you must divide the credit). 1040ez forms 2012 Example. 1040ez forms 2012 In the earlier example under Dividing the Credit , John and George used the entire $2,000 credit. 1040ez forms 2012 The excess   John $1,350 − $1,200 = $150     George $900 − $800 = $100   $150 for John ($1,350 − $1,200) and $100 for George ($900 − $800) cannot be carried forward to future years, despite the respective tax liabilities for John and George. 1040ez forms 2012 Refinancing If you refinance your original mortgage loan on which you had been given an MCC, you must get a new MCC to be able to claim the credit on the new loan. 1040ez forms 2012 The amount of credit you can claim on the new loan may change. 1040ez forms 2012 Table 2 below summarizes how to figure your credit if you refinance your original mortgage loan. 1040ez forms 2012 Table 2. 1040ez forms 2012 Effect of Refinancing on Your Credit IF you get a new (reissued) MCC and the amount of your new mortgage is . 1040ez forms 2012 . 1040ez forms 2012 . 1040ez forms 2012 THEN the interest you claim on Form 8396, line 1, is* . 1040ez forms 2012 . 1040ez forms 2012 . 1040ez forms 2012 smaller than or equal to the certified indebtedness amount on the new MCC all the interest paid during the year on your new mortgage. 1040ez forms 2012 larger than the certified indebtedness amount on the new MCC interest paid during the year on your new mortgage multiplied by the following fraction. 1040ez forms 2012         certified indebtedness  amount on your new MCC       original amount of your  mortgage   *The credit using the new MCC cannot be more than the credit using the old MCC. 1040ez forms 2012  See New MCC cannot increase your credit above. 1040ez forms 2012 An issuer may reissue an MCC after you refinance your mortgage. 1040ez forms 2012 If you did not get a new MCC, you may want to contact the state or local housing finance agency that issued your original MCC for information about whether you can get a reissued MCC. 1040ez forms 2012 Year of refinancing. 1040ez forms 2012   In the year of refinancing, add the applicable amount of interest paid on the old mortgage and the applicable amount of interest paid on the new mortgage, and enter the total on Form 8396, line 1. 1040ez forms 2012   If your new MCC has a credit rate different from the rate on the old MCC, you must attach a statement to Form 8396. 1040ez forms 2012 The statement must show the calculation for lines 1, 2, and 3 for the part of the year when the old MCC was in effect. 1040ez forms 2012 It must show a separate calculation for the part of the year when the new MCC was in effect. 1040ez forms 2012 Combine the amounts from both calculations for line 3, enter the total on line 3 of the form, and write “See attached” on the dotted line next to line 2. 1040ez forms 2012 New MCC cannot increase your credit. 1040ez forms 2012   The credit that you claim with your new MCC cannot be more than the credit that you could have claimed with your old MCC. 1040ez forms 2012   In most cases, the agency that issues your new MCC will make sure that it does not increase your credit. 1040ez forms 2012 However, if either your old loan or your new loan has a variable (adjustable) interest rate, you will need to check this yourself. 1040ez forms 2012 In that case, you will need to know the amount of the credit you could have claimed using the old MCC. 1040ez forms 2012   There are two methods for figuring the credit you could have claimed. 1040ez forms 2012 Under one method, you figure the actual credit that would have been allowed. 1040ez forms 2012 This means you use the credit rate on the old MCC and the interest you would have paid on the old loan. 1040ez forms 2012   If your old loan was a variable rate mortgage, you can use another method to determine the credit that you could have claimed. 1040ez forms 2012 Under this method, you figure the credit using a payment schedule of a hypothetical self-amortizing mortgage with level payments projected to the final maturity date of the old mortgage. 1040ez forms 2012 The interest rate of the hypothetical mortgage is the annual percentage rate (APR) of the new mortgage for purposes of the Federal Truth in Lending Act. 1040ez forms 2012 The principal of the hypothetical mortgage is the remaining outstanding balance of the certified mortgage indebtedness shown on the old MCC. 1040ez forms 2012    You must choose one method and use it consistently beginning with the first tax year for which you claim the credit based on the new MCC. 1040ez forms 2012    As part of your tax records, you should keep your old MCC and the schedule of payments for your old mortgage. 1040ez forms 2012 Basis Basis is your starting point for figuring a gain or loss if you later sell your home, or for figuring depreciation if you later use part of your home for business purposes or for rent. 1040ez forms 2012 While you own your home, you may add certain items to your basis. 1040ez forms 2012 You may subtract certain other items from your basis. 1040ez forms 2012 These items are called adjustments to basis and are explained later under Adjusted Basis . 1040ez forms 2012 It is important that you understand these terms when you first acquire your home because you must keep track of your basis and adjusted basis during the period you own your home. 1040ez forms 2012 You also must keep records of the events that affect basis or adjusted basis. 1040ez forms 2012 See Keeping Records , below. 1040ez forms 2012 Figuring Your Basis How you figure your basis depends on how you acquire your home. 1040ez forms 2012 If you buy or build your home, your cost is your basis. 1040ez forms 2012 If you receive your home as a gift, your basis is usually the same as the adjusted basis of the person who gave you the property. 1040ez forms 2012 If you inherit your home from a decedent, different rules apply depending on the date of the decedent's death. 1040ez forms 2012 Each of these topics is discussed later. 1040ez forms 2012 Property transferred from a spouse. 1040ez forms 2012   If your home is transferred to you from your spouse, or from your former spouse as a result of a divorce, your basis is the same as your spouse's (or former spouse's) adjusted basis just before the transfer. 1040ez forms 2012 Publication 504, Divorced or Separated Individuals, fully discusses transfers between spouses. 1040ez forms 2012 Cost as Basis The cost of your home, whether you purchased it or constructed it, is the amount you paid for it, including any debt you assumed. 1040ez forms 2012 The cost of your home includes most settlement or closing costs you paid when you bought the home. 1040ez forms 2012 If you built your home, your cost includes most closing costs paid when you bought the land or settled on your mortgage. 1040ez forms 2012 See Settlement or closing costs , later. 1040ez forms 2012 If you elect to deduct the sales taxes on the purchase or construction of your home as an itemized deduction on Schedule A (Form 1040), you cannot include the sales taxes as part of your cost basis in the home. 1040ez forms 2012 Purchase. 1040ez forms 2012   The basis of a home you bought is the amount you paid for it. 1040ez forms 2012 This usually includes your down payment and any debt you assumed. 1040ez forms 2012 The basis of a cooperative apartment is the amount you paid for your shares in the corporation that owns or controls the property. 1040ez forms 2012 This amount includes any purchase commissions or other costs of acquiring the shares. 1040ez forms 2012 Construction. 1040ez forms 2012   If you contracted to have your home built on land that you own, your basis in the home is your basis in the land plus the amount you paid to have the home built. 1040ez forms 2012 This includes the cost of labor and materials, the amount you paid the contractor, any architect's fees, building permit charges, utility meter and connection charges, and legal fees that are directly connected with building your home. 1040ez forms 2012 If you built all or part of your home yourself, your basis is the total amount it cost you to build it. 1040ez forms 2012 You cannot include in basis the value of your own labor or any other labor for which you did not pay. 1040ez forms 2012 Real estate taxes. 1040ez forms 2012   Real estate taxes are usually divided so that you and the seller each pay taxes for the part of the property tax year that each owned the home. 1040ez forms 2012 See the earlier discussion of Real estate taxes paid at settlement or closing , under Real Estate Taxes, earlier, to figure the real estate taxes you paid or are considered to have paid. 1040ez forms 2012   If you pay any part of the seller's share of the real estate taxes (the taxes up to the date of sale), and the seller did not reimburse you, add those taxes to your basis in the home. 1040ez forms 2012 You cannot deduct them as taxes paid. 1040ez forms 2012   If the seller paid any of your share of the real estate taxes (the taxes beginning with the date of sale), you can still deduct those taxes. 1040ez forms 2012 Do not include those taxes in your basis. 1040ez forms 2012 If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. 1040ez forms 2012 Example 1. 1040ez forms 2012 You bought your home on September 1. 1040ez forms 2012 The property tax year in your area is the calendar year, and the tax is due on August 15. 1040ez forms 2012 The real estate taxes on the home you bought were $1,275 for the year and had been paid by the seller on August 15. 1040ez forms 2012 You did not reimburse the seller for your share of the real estate taxes from September 1 through December 31. 1040ez forms 2012 You must reduce the basis of your home by the $426 [(122 ÷ 365) × $1,275] the seller paid for you. 1040ez forms 2012 You can deduct your $426 share of real estate taxes on your return for the year you purchased your home. 1040ez forms 2012 Example 2. 1040ez forms 2012 You bought your home on May 3, 2013. 1040ez forms 2012 The property tax year in your area is the calendar year. 1040ez forms 2012 The taxes for the previous year are assessed on January 2 and are due on May 31 and November 30. 1040ez forms 2012 Under state law, the taxes become a lien on May 31. 1040ez forms 2012 You agreed to pay all taxes due after the date of sale. 1040ez forms 2012 The taxes due in 2013 for 2012 were $1,375. 1040ez forms 2012 The taxes due in 2014 for 2013 will be $1,425. 1040ez forms 2012 You cannot deduct any of the taxes paid in 2013 because they relate to the 2012 property tax year and you did not own the home until 2013. 1040ez forms 2012 Instead, you add the $1,375 to the cost (basis) of your home. 1040ez forms 2012 You owned the home in 2013 for 243 days (May 3 to December 31), so you can take a tax deduction on your 2014 return of $949 [(243 ÷ 365) × $1,425] paid in 2014 for 2013. 1040ez forms 2012 You add the remaining $476 ($1,425 − $949) of taxes paid in 2014 to the cost (basis) of your home. 1040ez forms 2012 Settlement or closing costs. 1040ez forms 2012   If you bought your home, you probably paid settlement or closing costs in addition to the contract price. 1040ez forms 2012 These costs are divided between you and the seller according to the sales contract, local custom, or understanding of the parties. 1040ez forms 2012 If you built your home, you probably paid these costs when you bought the land or settled on your mortgage. 1040ez forms 2012   The only settlement or closing costs you can deduct are home mortgage interest and certain real estate taxes. 1040ez forms 2012 You deduct them in the year you buy your home if you itemize your deductions. 1040ez forms 2012 You can add certain other settlement or closing costs to the basis of your home. 1040ez forms 2012 Items added to basis. 1040ez forms 2012   You can include in your basis the settlement fees and closing costs you paid for buying your home. 1040ez forms 2012 A fee is for buying the home if you would have had to pay it even if you paid cash for the home. 1040ez forms 2012   The following are some of the settlement fees and closing costs that you can include in the original basis of your home. 1040ez forms 2012 Abstract fees (abstract of title fees). 1040ez forms 2012 Charges for installing utility services. 1040ez forms 2012 Legal fees (including fees for the title search and preparation of the sales contract and deed). 1040ez forms 2012 Recording fees. 1040ez forms 2012 Surveys. 1040ez forms 2012 Transfer or stamp taxes. 1040ez forms 2012 Owner's title insurance. 1040ez forms 2012 Any amount the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, cost for improvements or repairs, and sales commissions. 1040ez forms 2012   If the seller actually paid for any item for which you are liable and for which you can take a deduction (such as your share of the real estate taxes for the year of sale), you must reduce your basis by that amount unless you are charged for it in the settlement. 1040ez forms 2012 Items not added to basis and not deductible. 1040ez forms 2012   Here are some settlement and closing costs that you cannot deduct or add to your basis. 1040ez forms 2012 Fire insurance premiums. 1040ez forms 2012 Charges for using utilities or other services related to occupancy of the home before closing. 1040ez forms 2012 Rent for occupying the home before closing. 1040ez forms 2012 Charges connected with getting or refinancing a mortgage loan, such as: Loan assumption fees, Cost of a credit report, and Fee for an appraisal required by a lender. 1040ez forms 2012 Points paid by seller. 1040ez forms 2012   If you bought your home after April 3, 1994, you must reduce your basis by any points paid for your mortgage by the person who sold you your home. 1040ez forms 2012   If you bought your home after 1990 but before April 4, 1994, you must reduce your basis by seller-paid points only if you deducted them. 1040ez forms 2012 See Points , earlier, for the rules on deducting points. 1040ez forms 2012 Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined later) to the donor just before it was given to you, its fair market value (FMV) at the time it was given to you, and any gift tax paid on it. 1040ez forms 2012 Fair market value. 1040ez forms 2012   Fair market value (FMV) is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and who both have a reasonable knowledge of all the necessary facts. 1040ez forms 2012 Donor's adjusted basis is more than FMV. 1040ez forms 2012   If someone gave you your home and the donor's adjusted basis, when it was given to you, was more than the FMV, your basis at the time of receipt is the same as the donor's adjusted basis. 1040ez forms 2012 Disposition basis. 1040ez forms 2012   If the donor's adjusted basis at the time of the gift is more than the FMV, your basis (plus or minus any required adjustments, see Adjusted Basis , later) when you dispose of the property will depend on whether you have a gain or a loss. 1040ez forms 2012 Your basis for figuring a gain is the same as the donor's adjusted basis. 1040ez forms 2012 Your basis for figuring a loss is the FMV when you received the gift. 1040ez forms 2012 If you use the donor's adjusted basis to figure a gain and it results in a loss, then you must use the FMV (at the time of the gift) to refigure the loss. 1040ez forms 2012 However, if using the FMV results in a gain, then you neither have a gain nor a loss. 1040ez forms 2012 Example 1. 1040ez forms 2012 Andrew received a house as a gift from Ishmael (the donor). 1040ez forms 2012 At the time of the gift, the home had an FMV of $80,000. 1040ez forms 2012 Ishmael's adjusted basis was $100,000. 1040ez forms 2012 After he received the house, no events occurred to increase or decrease the basis. 1040ez forms 2012 If Andrew sells the house for $120,000, he will have a $20,000 gain because he must use the donor's adjusted basis ($100,000) at the time of the gift as his basis to figure the gain. 1040ez forms 2012 Example 2. 1040ez forms 2012 Same facts as Example 1 , except this time Andrew sells the house for $70,000. 1040ez forms 2012 He will have a loss of $10,000 because he must use the FMV ($80,000) at the time of the gift as his basis to figure the loss. 1040ez forms 2012 Example 3. 1040ez forms 2012 Same facts as Example 1 , except this time Andrew sells the house for $90,000. 1040ez forms 2012 Initially, he figures the gain using Ishmael's adjusted basis ($100,000), which results in a loss of $10,000. 1040ez forms 2012 Since it is a loss, Andrew must now recalculate the loss using the FMV ($80,000), which results in a gain of $10,000. 1040ez forms 2012 So in this situation, Andrew will neither have a gain nor a loss. 1040ez forms 2012 Donor's adjusted basis equal to or less than the FMV. 1040ez forms 2012   If someone gave you your home after 1976 and the donor's adjusted basis, when it was given to you, was equal to or less than the FMV, your basis at the time of receipt is the same as the donor's adjusted basis, plus the part of any federal gift tax paid that is due to the net increase in value of the home. 1040ez forms 2012 Part of federal gift tax due to net increase in value. 1040ez forms 2012   Figure the part of the federal gift tax paid that is due to the net increase in value of the home by multiplying the total federal gift tax paid by a fraction. 1040ez forms 2012 The numerator (top part) of the fraction is the net increase in the value of the home, and the denominator (bottom part) is the value of the home for gift tax purposes after reduction for any annual exclusion and marital or charitable deduction that applies to the gift. 1040ez forms 2012 The net increase in the value of the home is its FMV minus the adjusted basis of the donor. 1040ez forms 2012 Publication 551 gives more information, including examples, on figuring your basis when you receive property as a gift. 1040ez forms 2012 Inheritance Your basis in a home you inherited is generally the fair market value of the home on the date of the decedent's death or on the alternative valuation date if the personal representative for the estate chooses to use alternative valuation. 1040ez forms 2012 If an estate tax return was filed, your basis is generally the value of the home listed on the estate tax return. 1040ez forms 2012 If an estate tax return was not filed, your basis is the appraised value of the home at the decedent's date of death for state inheritance or transmission taxes. 1040ez forms 2012 Publication 551 and Publication 559, Survivors, Executors, and Administrators, have more information on the basis of inherited property. 1040ez forms 2012 If you inherited your home from someone who died in 2010, and the executor of the decedent's estate made the election to file Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, refer to the information provided by the executor or see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. 1040ez forms 2012 Adjusted Basis While you own your home, various events may take place that can change the original basis of your home. 1040ez forms 2012 These events can increase or decrease your original basis. 1040ez forms 2012 The result is called adjusted basis. 1040ez forms 2012 See Table 3, on this page, for a list of some of the items that can adjust your basis. 1040ez forms 2012 Table 3. 1040ez forms 2012 Adjusted Basis This table lists examples of some items that generally will increase or decrease your basis in your home. 1040ez forms 2012 It is not intended to be all-inclusive. 1040ez forms 2012 Increases to Basis Decreases to Basis Improvements: Putting an addition on your home Replacing an entire roof Paving your driveway Installing central air conditioning Rewiring your home Assessments for local improvements (see Assessments for local benefits , under What You Can and Cannot Deduct, earlier) Amounts spent to restore damaged property Insurance or other reimbursement for casualty losses Deductible casualty loss not covered by insurance Payments received for easement or right-of-way granted Depreciation allowed or allowable if home is used for business or rental purposes Value of subsidy for energy conservation measure excluded from income Improvements. 1040ez forms 2012   An improvement materially adds to the value of your home, considerably prolongs its useful life, or adapts it to new uses. 1040ez forms 2012 You must add the cost of any improvements to the basis of your home. 1040ez forms 2012 You cannot deduct these costs. 1040ez forms 2012   Improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, and paving your driveway. 1040ez forms 2012 Amount added to basis. 1040ez forms 2012   The amount you add to your basis for improvements is your actual cost. 1040ez forms 2012 This includes all costs for material and labor, except your own labor, and all expenses related to the improvement. 1040ez forms 2012 For example, if you had your lot surveyed to put up a fence, the cost of the survey is a part of the cost of the fence. 1040ez forms 2012   You also must add to your basis state and local assessments for improvements such as streets and sidewalks if they increase the value of the property. 1040ez forms 2012 These assessments are discussed earlier under Real Estate Taxes . 1040ez forms 2012 Improvements no longer part of home. 1040ez forms 2012    Your home's adjusted basis does not include the cost of any improvements that are replaced and are no longer part of the home. 1040ez forms 2012 Example. 1040ez forms 2012 You put wall-to-wall carpeting in your home 15 years ago. 1040ez forms 2012 Later, you replaced that carpeting with new wall-to-wall carpeting. 1040ez forms 2012 The cost of the old carpeting you replaced is no longer part of your home's adjusted basis. 1040ez forms 2012 Repairs versus improvements. 1040ez forms 2012   A repair keeps your home in an ordinary, efficient operating condition. 1040ez forms 2012 It does not add to the value of your home or prolong its life. 1040ez forms 2012 Repairs include repainting your home inside or outside, fixing your gutters or floors, fixing leaks or plastering, and replacing broken window panes. 1040ez forms 2012 You cannot deduct repair costs and generally cannot add them to the basis of your home. 1040ez forms 2012   However, repairs that are done as part of an extensive remodeling or restoration of your home are considered improvements. 1040ez forms 2012 You add them to the basis of your home. 1040ez forms 2012 Records to keep. 1040ez forms 2012   You can use Table 4 (at the end of the publication) as a guide to help you keep track of improvements to your home. 1040ez forms 2012 Also see Keeping Records , below. 1040ez forms 2012 Energy conservation subsidy. 1040ez forms 2012   If a public utility gives you (directly or indirectly) a subsidy for the purchase or installation of an energy conservation measure for your home, do not include the value of that subsidy in your income. 1040ez forms 2012 You must reduce the basis of your home by that value. 1040ez forms 2012   An energy conservation measure is an installation or modification primarily designed to reduce consumption of electricity or natural gas or to improve the management of energy demand. 1040ez forms 2012 Keeping Records Keeping full and accurate records is vital to properly report your income and expenses, to support your deductions and credits, and to know the basis or adjusted basis of your home. 1040ez forms 2012 These records include your purchase contract and settlement papers if you bought the property, or other objective evidence if you acquired it by gift, inheritance, or similar means. 1040ez forms 2012 You should keep any receipts, canceled checks, and similar evidence for improvements or other additions to the basis. 1040ez forms 2012 In addition, you should keep track of any decreases to the basis such as those listed in Table 3, earlier. 1040ez forms 2012 How to keep records. 1040ez forms 2012   How you keep records is up to you, but they must be clear and accurate and must be available to the IRS. 1040ez forms 2012 How long to keep records. 1040ez forms 2012   You must keep your records for as long as they are important for meeting any provision of the federal tax law. 1040ez forms 2012   Keep records that support an item of income, a deduction, or a credit appearing on a return until the period of limitations for the return runs out. 1040ez forms 2012 (A period of limitations is the period of time after which no legal action can be brought. 1040ez forms 2012 ) For assessment of tax you owe, this is generally 3 years from the date you filed the return. 1040ez forms 2012 For filing a claim for credit or refund, this is generally 3 years from the date you filed the original return, or 2 years from the date you paid the tax, whichever is later. 1040ez forms 2012 Returns filed before the due date are treated as filed on the due date. 1040ez forms 2012   You may need to keep records relating to the basis of property (discussed earlier) for longer than the period of limitations. 1040ez forms 2012 Keep those records as long as they are important in figuring the basis of the original or replacement property. 1040ez forms 2012 Generally, this means for as long as you own the property and, after you dispose of it, for the period of limitations that applies to you. 1040ez forms 2012 Table 4. 1040ez forms 2012 Record of Home Improvements Keep this for your records. 1040ez forms 2012 Also, keep receipts or other proof of improvements. 1040ez forms 2012 Remove from this record any improvements that are no longer part of your main home. 1040ez forms 2012 For example, if you put wall-to-wall carpeting in your home and later replace it with new wall-to-wall carpeting, remove the cost of the first carpeting. 1040ez forms 2012 (a) Type of Improvement (b) Date (c) Amount   (a) Type of Improvement (b) Date (c) Amount Additions:       Heating & Air  Conditioning:     Bedroom       Heating system     Bathroom       Central air conditioning     Deck       Furnace     Garage       Duct work     Porch       Central humidifier     Patio       Filtration system     Storage shed       Other     Fireplace       Electrical:     Other           Lawn & Grounds:       Lighting fixtures           Wiring upgrades     Landscaping       Other     Driveway       Plumbing:     Walkway           Fences       Water heater     Retaining wall       Soft water system     Sprinkler system       Filtration system     Swimming pool       Other     Exterior lighting       Insulation:     Other           Communications:       Attic           Walls     Satellite dish       Floors     Intercom       Pipes and duct work     Security system       Other     Other             Miscellaneous:       Interior  Improvements:     Storm windows and doors       Built-in appliances     Roof       Kitchen modernization     Central vacuum       Bathroom modernization     Other       Flooring             Wall-to-wall carpeting             Other     How To