Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

1040ezform

2009 Federal Tax Forms2011 1040ez OnlineElderly Filing Income TaxHow Can I File 2012 TaxesH And R Block Free MilitaryEz 40 Tax Form2012 Taxes Online FreeFile State Returns For FreeCan I File My 2012 Taxes LateAmended Michigan Tax ReturnHow Do I File An Amended Return2011 Taxes 2013Penalties For Late Tax ReturnsEz Tax FormFree Tax Filing2012 Irs Forms 1040How Do I File My 2012 TaxesHow To File Taxes Online2009 Free Tax Software2010 Taxes Cheap 1099g Form WTurbotax For MilitaryCan You Refile TaxesTax Forms For 2010Can I File State Taxes For FreeFree Downloadable Irs Tax FormsFree Tax Filing 2014Tax Form For MilitaryFree Online Tax Filing For 20111040a 2011 Tax Form1040 Ez Form 2011I Need To File An Amended Tax Return1040nr Ez 2011How To Do An Amendment On My Tax ReturnFile 2008 Taxes For Free1040 Ez TaxTurbotax 2011 FreeFile Taxes Free State And Federal1040ez Irs GovIrs Vita1040express

1040ezform

1040ezform 1. 1040ezform   Fuel Taxes Table of Contents Definitions Information Returns Registration RequirementsAdditional information. 1040ezform Gasoline and Aviation GasolineTaxable Events Gasoline Blendstocks Diesel Fuel and KeroseneTaxable Events Dyed Diesel Fuel and Dyed Kerosene Alaska and Feedstocks Back-up Tax Diesel-Water Fuel Emulsion Kerosene for Use in AviationTaxable Events Liability For Tax Surtax on any liquid used in a fractional ownership program aircraft as fuel Certificate for Commercial Aviation and Exempt UsesExempt use. 1040ezform Reseller statement. 1040ezform Other Fuels (Including Alternative Fuels)Taxable Events Compressed Natural Gas (CNG)Taxable Events Fuels Used on Inland WaterwaysFishing vessels. 1040ezform Deep-draft ocean-going vessels. 1040ezform Passenger vessels. 1040ezform Ocean-going barges. 1040ezform State or local governments. 1040ezform Cellulosic or Second Generation Biofuel Not Used as Fuel Biodiesel Sold as But Not Used as Fuel Definitions Excise taxes are imposed on all the following fuels. 1040ezform Gasoline, including aviation gasoline and gasoline blendstocks. 1040ezform Diesel fuel, including dyed diesel fuel. 1040ezform Diesel-water fuel emulsion. 1040ezform Kerosene, including dyed kerosene and kerosene used in aviation. 1040ezform Other Fuels (including alternative fuels). 1040ezform Compressed natural gas (CNG). 1040ezform Fuels used in commercial transportation on inland waterways. 1040ezform Any liquid used in a fractional ownership program aircraft as fuel. 1040ezform The following terms are used throughout the discussion of fuel taxes. 1040ezform Other terms are defined in the discussion of the specific fuels to which they pertain. 1040ezform Agri-biodiesel. 1040ezform   Agri-biodiesel means biodiesel derived solely from virgin oils, including esters derived from virgin vegetable oils from corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice bran, mustard seeds, and camelina, and from animal fats. 1040ezform Approved terminal or refinery. 1040ezform   This is a terminal operated by a registrant that is a terminal operator or a refinery operated by a registrant that is a refiner. 1040ezform Biodiesel. 1040ezform   Biodiesel means the monoalkyl esters of long chain fatty acids derived from plant or animal matter that meet the registration requirements for fuels and fuel additives established by the Environmental Protection Agency (EPA) under section 211 of the Clean Air Act, and the requirements of the American Society of Testing Materials (ASTM) D6751. 1040ezform Blended taxable fuel. 1040ezform   This means any taxable fuel produced outside the bulk transfer/terminal system by mixing taxable fuel on which excise tax has been imposed and any other liquid on which excise tax has not been imposed. 1040ezform This does not include a mixture removed or sold during the calendar quarter if all such mixtures removed or sold by the blender contain less than 400 gallons of a liquid on which the tax has not been imposed. 1040ezform Blender. 1040ezform   This is the person that produces blended taxable fuel. 1040ezform Bulk transfer. 1040ezform   This is the transfer of taxable fuel by pipeline or vessel. 1040ezform Bulk transfer/terminal system. 1040ezform   This is the taxable fuel distribution system consisting of refineries, pipelines, vessels, and terminals. 1040ezform Fuel in the supply tank of any engine, or in any tank car, railcar, trailer, truck, or other equipment suitable for ground transportation is not in the bulk transfer/terminal system. 1040ezform Cellulosic biofuel. 1040ezform   Cellulosic biofuel means any liquid fuel produced from any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis that meets the registration requirements for fuels and fuel additives established by the EPA under section 211 of the Clean Air Act. 1040ezform Cellulosic biofuel does not include any alcohol with a proof of less than 150 (without regard to denaturants). 1040ezform For fuels sold or used after December 31, 2009, cellulosic biofuel does not include fuel of which more than 4% (determined by weight) is any combination of water and sediment, fuel of which the ash content is more than 1%, or fuel that has an acid number greater than 25. 1040ezform Also see Second generation biofuel below. 1040ezform Diesel-water fuel emulsion. 1040ezform   A diesel-water fuel emulsion means an emulsion at least 14% of which is water. 1040ezform The emulsion additive used to produce the fuel must be registered by a United States manufacturer with the EPA under section 211 of the Clean Air Act as in effect on March 31, 2003. 1040ezform Dry lease aircraft exchange. 1040ezform   See later, under Surtax on any liquid used in a fractional ownership program aircraft as fuel. 1040ezform Enterer. 1040ezform   This is the importer of record (under customs law) for the taxable fuel. 1040ezform However, if the importer of record is acting as an agent, such as a customs broker, the person for whom the agent is acting is the enterer. 1040ezform If there is no importer of record, the owner at the time of entry into the United States is the enterer. 1040ezform Entry. 1040ezform   Taxable fuel is entered into the United States when it is brought into the United States and applicable customs law requires that it be entered for consumption, use, or warehousing. 1040ezform This does not apply to fuel brought into Puerto Rico (which is part of the U. 1040ezform S. 1040ezform customs territory), but does apply to fuel brought into the United States from Puerto Rico. 1040ezform Fractional ownership aircraft program and fractional program aircraft. 1040ezform   See later, under Surtax on any liquid used in a fractional ownership program aircraft as fuel. 1040ezform Measurement of taxable fuel. 1040ezform   Volumes of taxable fuel can be measured on the basis of actual volumetric gallons or gallons adjusted to 60 degrees Fahrenheit. 1040ezform Other fuels. 1040ezform   See Other Fuels (Including Alternative Fuels), later, and Alternative Fuel Credit and Alternative Fuel Mixture Credit in chapter 2. 1040ezform Pipeline operator. 1040ezform   This is the person that operates a pipeline within the bulk transfer/terminal system. 1040ezform Position holder. 1040ezform   This is the person that holds the inventory position in the taxable fuel in the terminal, as reflected in the records of the terminal operator. 1040ezform You hold the inventory position when you have a contractual agreement with the terminal operator for the use of the storage facilities and terminaling services for the taxable fuel. 1040ezform A terminal operator that owns taxable fuel in its terminal is a position holder. 1040ezform Rack. 1040ezform   This is a mechanism capable of delivering fuel into a means of transport other than a pipeline or vessel. 1040ezform Refiner. 1040ezform   This is any person that owns, operates, or otherwise controls a refinery. 1040ezform Refinery. 1040ezform   This is a facility used to produce taxable fuel and from which taxable fuel may be removed by pipeline, by vessel, or at a rack. 1040ezform However, this term does not include a facility where only blended fuel, and no other type of fuel, is produced. 1040ezform For this purpose, blended fuel is any mixture that would be blended taxable fuel if produced outside the bulk transfer/terminal system. 1040ezform Registrant. 1040ezform   This is a taxable fuel registrant (see Registration Requirements, later). 1040ezform Removal. 1040ezform   This is any physical transfer of taxable fuel. 1040ezform It also means any use of taxable fuel other than as a material in the production of taxable fuel or Other Fuels. 1040ezform However, taxable fuel is not removed when it evaporates or is otherwise lost or destroyed. 1040ezform Renewable diesel. 1040ezform   See Renewable Diesel Credits in chapter 2. 1040ezform Sale. 1040ezform   For taxable fuel not in a terminal, this is the transfer of title to, or substantial incidents of ownership in, taxable fuel to the buyer for money, services, or other property. 1040ezform For taxable fuel in a terminal, this is the transfer of the inventory position if the transferee becomes the position holder for that taxable fuel. 1040ezform Second generation biofuel. 1040ezform   This is any liquid fuel derived by, or from, qualified feedstocks, and meets the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act (42 U. 1040ezform S. 1040ezform C. 1040ezform 7545). 1040ezform It also includes certain liquid fuel which is derived by, or from, any cultivated algae, cyanobacteria, or lemna. 1040ezform It is not alcohol of less than 150 proof (disregard any added denaturants). 1040ezform See Form 6478 for more information. 1040ezform State. 1040ezform   This includes any state, any of its political subdivisions, the District of Columbia, and the American Red Cross. 1040ezform An Indian tribal government is treated as a state only if transactions involve the exercise of an essential tribal government function. 1040ezform Taxable fuel. 1040ezform   This means gasoline, diesel fuel, and kerosene. 1040ezform Terminal. 1040ezform   This is a storage and distribution facility supplied by pipeline or vessel, and from which taxable fuel may be removed at a rack. 1040ezform It does not include a facility at which gasoline blendstocks are used in the manufacture of products other than finished gasoline if no gasoline is removed from the facility. 1040ezform A terminal does not include any facility where finished gasoline, diesel fuel, or kerosene is stored if the facility is operated by a registrant and all such taxable fuel stored at the facility has been previously taxed upon removal from a refinery or terminal. 1040ezform Terminal operator. 1040ezform   This is any person that owns, operates, or otherwise controls a terminal. 1040ezform Throughputter. 1040ezform   This is any person that is a position holder or that owns taxable fuel within the bulk transfer/terminal system (other than in a terminal). 1040ezform Vessel operator. 1040ezform   This is the person that operates a vessel within the bulk transfer/terminal system. 1040ezform However, vessel does not include a deep draft ocean-going vessel. 1040ezform Information Returns Form 720-TO and Form 720-CS are information returns used to report monthly receipts and disbursements of liquid products. 1040ezform A liquid product is any liquid transported into storage at a terminal or delivered out of a terminal. 1040ezform For a list of products, see the product code table in the Instructions for Forms 720-TO and 720-CS. 1040ezform The returns are due the last day of the month following the month in which the transaction occurs. 1040ezform Generally, these returns can be filed on paper or electronically. 1040ezform For information on filing electronically, see Publication 3536, Motor Fuel Excise Tax EDI Guide. 1040ezform Publication 3536 is only available on the IRS website. 1040ezform Form 720-TO. 1040ezform   This information return is used by terminal operators to report receipts and disbursements of all liquid products to and from all approved terminals. 1040ezform Each terminal operator must file a separate form for each approved terminal. 1040ezform Form 720-CS. 1040ezform   This information return must be filed by bulk transport carriers (barges, vessels, and pipelines) who receive liquid product from an approved terminal or deliver liquid product to an approved terminal. 1040ezform Registration Requirements The following discussion applies to excise tax registration requirements for activities relating to fuels only. 1040ezform See Form 637 for other persons who must register and for more information about registration. 1040ezform Persons that are required to be registered. 1040ezform   You are required to be registered if you are a: Blender; Enterer; Pipeline operator; Position holder; Refiner; Terminal operator; Vessel operator; Producer or importer of alcohol, biodiesel, agri-biodiesel, and renewable diesel; or Producer of cellulosic or second generation biofuel. 1040ezform Persons that may register. 1040ezform   You may, but are not required to, register if you are a: Feedstock user, Industrial user, Throughputter that is not a position holder, Ultimate vendor, Diesel-water fuel emulsion producer, Credit card issuer, or Alternative fuel claimant. 1040ezform Ultimate vendors, credit card issuers, and alternative fuel claimants do not need to be registered to buy or sell fuel. 1040ezform However, they must be registered to file claims for certain sales and uses of fuel. 1040ezform See Form 637 for more information. 1040ezform Taxable fuel registrant. 1040ezform   This is an enterer, an industrial user, a refiner, a terminal operator, or a throughputter who received a Letter of Registration under the excise tax registration provisions and whose registration has not been revoked or suspended. 1040ezform The term registrant as used in the discussions of these fuels means a taxable fuel registrant. 1040ezform Additional information. 1040ezform   See the Form 637 instructions for the information you must submit when you apply for registration. 1040ezform Failure to register. 1040ezform   The penalty for failure to register if you must register, unless due to reasonable cause, is $10,000 for the initial failure, and then $1,000 each day thereafter you fail to register. 1040ezform Gasoline and Aviation Gasoline Gasoline. 1040ezform   Gasoline means all products commonly or commercially known or sold as gasoline with an octane rating of 75 or more that are suitable for use as a motor fuel. 1040ezform Gasoline includes any gasoline blend other than: Qualified ethanol and methanol fuel (at least 85 percent of the blend consists of alcohol produced from coal, including peat), Partially exempt ethanol and methanol fuel (at least 85 percent of the blend consists of alcohol produced from natural gas), or Denatured alcohol. 1040ezform Gasoline also includes gasoline blendstocks, discussed later. 1040ezform Aviation gasoline. 1040ezform   This means all special grades of gasoline suitable for use in aviation reciprocating engines and covered by ASTM specification D910 or military specification MIL-G-5572. 1040ezform Taxable Events The tax on gasoline is $. 1040ezform 184 per gallon. 1040ezform The tax on aviation gasoline is $. 1040ezform 194 per gallon. 1040ezform When used in a fractional ownership program aircraft, gasoline also is subject to a surtax of $. 1040ezform 141 per gallon. 1040ezform See Surtax on any liquid used in a fractional ownership program aircraft as fuel, later. 1040ezform Tax is imposed on the removal, entry, or sale of gasoline. 1040ezform Each of these events is discussed later. 1040ezform Also, see the special rules that apply to gasoline blendstocks, later. 1040ezform If the tax is paid on the gasoline in more than one event, a refund may be allowed for the “second” tax paid. 1040ezform See Refunds of Second Tax in chapter 2. 1040ezform Removal from terminal. 1040ezform   All removals of gasoline at a terminal rack are taxable. 1040ezform The position holder for that gasoline is liable for the tax. 1040ezform Two-party exchanges. 1040ezform   In a two-party exchange, the receiving person, not the delivering person, is liable for the tax imposed on the removal of taxable fuel from the terminal at the terminal rack. 1040ezform A two-party exchange means a transaction (other than a sale) where the delivering person and receiving person are both taxable fuel registrants and all of the following apply. 1040ezform The transaction includes a transfer from the delivering person, who holds the inventory position for the taxable fuel in the terminal as reflected in the records of the terminal operator. 1040ezform The exchange transaction occurs before or at the same time as removal across the rack by the receiving person. 1040ezform The terminal operator in its records treats the receiving person as the person that removes the product across the terminal rack for purposes of reporting the transaction on Form 720-TO. 1040ezform The transaction is subject to a written contract. 1040ezform Terminal operator's liability. 1040ezform   The terminal operator is jointly and severally liable for the tax if the position holder is a person other than the terminal operator and is not a registrant. 1040ezform   However, a terminal operator meeting all the following conditions at the time of the removal will not be liable for the tax. 1040ezform The terminal operator is a registrant. 1040ezform The terminal operator has an unexpired notification certificate (discussed later) from the position holder. 1040ezform The terminal operator has no reason to believe any information on the certificate is false. 1040ezform Removal from refinery. 1040ezform   The removal of gasoline from a refinery is taxable if the removal meets either of the following conditions. 1040ezform It is made by bulk transfer and the refiner, the owner of the gasoline immediately before the removal, or the operator of the pipeline or vessel is not a registrant. 1040ezform It is made at the refinery rack. 1040ezform The refiner is liable for the tax. 1040ezform Exception. 1040ezform   The tax does not apply to a removal of gasoline at the refinery rack if all the following requirements are met. 1040ezform The gasoline is removed from an approved refinery not served by pipeline (other than for receiving crude oil) or vessel. 1040ezform The gasoline is received at a facility operated by a registrant and located within the bulk transfer/terminal system. 1040ezform The removal from the refinery is by railcar. 1040ezform The same person operates the refinery and the facility at which the gasoline is received. 1040ezform Entry into the United States. 1040ezform   The entry of gasoline into the United States is taxable if the entry meets either of the following conditions. 1040ezform It is made by bulk transfer and the enterer or the operator of the pipeline or vessel is not a registrant. 1040ezform It is not made by bulk transfer. 1040ezform The enterer is liable for the tax. 1040ezform Importer of record's liability. 1040ezform   The importer of record is jointly and severally liable for the tax with the enterer if the importer of record is not the enterer of the taxable fuel and the enterer is not a taxable fuel registrant. 1040ezform   However, an importer of record meeting both of the following conditions at the time of the entry will not be liable for the tax. 1040ezform The importer of record has an unexpired notification certificate (discussed later) from the enterer. 1040ezform The importer of record has no reason to believe any information in the certificate is false. 1040ezform Customs bond. 1040ezform   The customs bond will not be charged for the tax imposed on the entry of the gasoline if at the time of entry the surety has an unexpired notification certificate from the enterer and has no reason to believe any information in the certificate is false. 1040ezform Removal from a terminal by unregistered position holder or unregistered pipeline or vessel operator. 1040ezform   The removal by bulk transfer of gasoline from a terminal is taxable if the position holder for the gasoline or the operator of the pipeline or vessel is not a registrant. 1040ezform The position holder is liable for the tax. 1040ezform The terminal operator is jointly and severally liable for the tax if the position holder is a person other than the terminal operator. 1040ezform However, see Terminal operator's liability under Removal from terminal, earlier, for an exception. 1040ezform Bulk transfers not received at approved terminal or refinery. 1040ezform   The removal by bulk transfer of gasoline from a terminal or refinery, or the entry of gasoline by bulk transfer into the United States, is taxable if the following conditions apply. 1040ezform No tax was previously imposed (as discussed earlier) on any of the following events. 1040ezform The removal from the refinery. 1040ezform The entry into the United States. 1040ezform The removal from a terminal by an unregistered position holder. 1040ezform Upon removal from the pipeline or vessel, the gasoline is not received at an approved terminal or refinery (or at another pipeline or vessel). 1040ezform   The owner of the gasoline when it is removed from the pipeline or vessel is liable for the tax. 1040ezform However, an owner meeting all the following conditions at the time of the removal will not be liable for the tax. 1040ezform The owner is a registrant. 1040ezform The owner has an unexpired notification certificate (discussed later) from the operator of the terminal or refinery where the gasoline is received. 1040ezform The owner has no reason to believe any information on the certificate is false. 1040ezform The operator of the facility where the gasoline is received is liable for the tax if the owner meets these conditions. 1040ezform The operator is jointly and severally liable if the owner does not meet these conditions. 1040ezform Sales to unregistered person. 1040ezform   The sale of gasoline located within the bulk transfer/terminal system to a person that is not a registrant is taxable if tax was not previously imposed under any of the events discussed earlier. 1040ezform   The seller is liable for the tax. 1040ezform However, a seller meeting all the following conditions at the time of the sale will not be liable for the tax. 1040ezform   The seller is a registrant. 1040ezform The seller has an unexpired notification certificate (discussed later) from the buyer. 1040ezform The seller has no reason to believe any information on the certificate is false. 1040ezform The buyer of the gasoline is liable for the tax if the seller meets these conditions. 1040ezform The buyer is jointly and severally liable if the seller does not meet these conditions. 1040ezform Exception. 1040ezform   The tax does not apply to a sale if all of the following apply. 1040ezform The buyer's principal place of business is not in the United States. 1040ezform The sale occurs as the fuel is delivered into a transport vessel with a capacity of at least 20,000 barrels of fuel. 1040ezform The seller is a registrant and the exporter of record. 1040ezform The fuel was exported. 1040ezform Removal or sale of blended gasoline. 1040ezform   The removal or sale of blended gasoline by the blender is taxable. 1040ezform See Blended taxable fuel under Definitions, earlier. 1040ezform   The blender is liable for the tax. 1040ezform The tax is figured on the number of gallons not previously subject to the tax on gasoline. 1040ezform   Persons who blend alcohol with gasoline to produce an alcohol fuel mixture outside the bulk transfer/terminal system must pay the gasoline tax on the volume of alcohol in the mixture. 1040ezform See Form 720 to report this tax. 1040ezform You also must be registered with the IRS as a blender. 1040ezform See Form 637. 1040ezform   However, if an untaxed liquid is sold as taxed taxable fuel and that untaxed liquid is used to produce blended taxable fuel, the person that sold the untaxed liquid is jointly and severally liable for the tax imposed on the blender's sale or removal of the blended taxable fuel. 1040ezform Notification certificate. 1040ezform   The notification certificate is used to notify a person of the registration status of the registrant. 1040ezform A copy of the registrant's letter of registration cannot be used as a notification certificate. 1040ezform A model notification certificate is shown in the Appendix as Model Certificate C. 1040ezform A notification certificate must contain all information necessary to complete the model. 1040ezform   The certificate may be included as part of any business records normally used for a sale. 1040ezform A certificate expires on the earlier of the date the registrant provides a new certificate, or the date the recipient of the certificate is notified that the registrant's registration has been revoked or suspended. 1040ezform The registrant must provide a new certificate if any information on a certificate has changed. 1040ezform Additional persons liable. 1040ezform   When the person liable for the tax willfully fails to pay the tax, joint and several liability for the tax is imposed on: Any officer, employee, or agent of the person who is under a duty to ensure the payment of the tax and who willfully fails to perform that duty, or Anyone who willfully causes the person to fail to pay the tax. 1040ezform Gasoline Blendstocks Gasoline blendstocks may be subject to $. 1040ezform 001 per gallon LUST tax as discussed below. 1040ezform Gasoline includes gasoline blendstocks. 1040ezform The previous discussions apply to these blendstocks. 1040ezform However, if certain conditions are met, the removal, entry, or sale of gasoline blendstocks are taxed at $. 1040ezform 001 per gallon or are not subject to the excise tax. 1040ezform Blendstocks. 1040ezform   Gasoline blendstocks are: Alkylate, Butane, Butene, Catalytically cracked gasoline, Coker gasoline, Ethyl tertiary butyl ether (ETBE), Hexane, Hydrocrackate, Isomerate, Methyl tertiary butyl ether (MTBE), Mixed xylene (not including any separated isomer of xylene), Natural gasoline, Pentane, Pentane mixture, Polymer gasoline, Raffinate, Reformate, Straight-run gasoline, Straight-run naphtha, Tertiary amyl methyl ether (TAME), Tertiary butyl alcohol (gasoline grade) (TBA), Thermally cracked gasoline, and Toluene. 1040ezform   However, gasoline blendstocks do not include any product that cannot be used without further processing in the production of finished gasoline. 1040ezform Not used to produce finished gasoline. 1040ezform   Gasoline blendstocks not used to produce finished gasoline are not taxable (other than LUST) if the following conditions are met. 1040ezform Removals and entries not connected to sale. 1040ezform   Nonbulk removals and entries are not taxable if the person otherwise liable for the tax (position holder, refiner, or enterer) is a registrant. 1040ezform Removals and entries connected to sale. 1040ezform   Nonbulk removals and entries are not taxable if the person otherwise liable for the tax (position holder, refiner, or enterer) is a registrant, and at the time of the sale, meets the following requirements. 1040ezform The person has an unexpired certificate (discussed later) from the buyer. 1040ezform The person has no reason to believe any information in the certificate is false. 1040ezform Sales after removal or entry. 1040ezform   The sale of a gasoline blendstock that was not subject to tax on its nonbulk removal or entry, as discussed earlier, is taxable. 1040ezform The seller is liable for the tax. 1040ezform However, the sale is not taxable if, at the time of the sale, the seller meets the following requirements. 1040ezform The seller has an unexpired certificate (discussed next) from the buyer. 1040ezform The seller has no reason to believe any information in the certificate is false. 1040ezform Certificate of buyer. 1040ezform   The certificate from the buyer certifies the gasoline blendstocks will not be used to produce finished gasoline. 1040ezform The certificate may be included as part of any business records normally used for a sale. 1040ezform A model certificate is shown in the Appendix as Model Certificate D. 1040ezform The certificate must contain all information necessary to complete the model. 1040ezform   A certificate expires on the earliest of the following dates. 1040ezform The date 1 year after the effective date (not earlier than the date signed) of the certificate. 1040ezform The date a new certificate is provided to the seller. 1040ezform The date the seller is notified that the buyer's right to provide a certificate has been withdrawn. 1040ezform The buyer must provide a new certificate if any information on a certificate has changed. 1040ezform   The IRS may withdraw the buyer's right to provide a certificate if that buyer uses the gasoline blendstocks in the production of finished gasoline or resells the blendstocks without getting a certificate from its buyer. 1040ezform Received at approved terminal or refinery. 1040ezform   The nonbulk removal or entry of gasoline blendstocks received at an approved terminal or refinery is not taxable if the person otherwise liable for the tax (position holder, refiner, or enterer) meets all the following requirements. 1040ezform The person is a registrant. 1040ezform The person has an unexpired notification certificate (discussed earlier) from the operator of the terminal or refinery where the gasoline blendstocks are received. 1040ezform The person has no reason to believe any information on the certificate is false. 1040ezform Bulk transfers to registered industrial user. 1040ezform   The removal of gasoline blendstocks from a pipeline or vessel is not taxable (other than LUST) if the blendstocks are received by a registrant that is an industrial user. 1040ezform An industrial user is any person that receives gasoline blendstocks by bulk transfer for its own use in the manufacture of any product other than finished gasoline. 1040ezform Credits or Refunds. 1040ezform   A credit or refund of the gasoline tax may be allowable if gasoline is used for a nontaxable purpose or exempt use. 1040ezform For more information, see chapter 2. 1040ezform Diesel Fuel and Kerosene Generally, diesel fuel and kerosene are taxed in the same manner as gasoline (discussed earlier). 1040ezform However, special rules (discussed later) apply to dyed diesel fuel and dyed kerosene, and to undyed diesel fuel and undyed kerosene sold or used in Alaska for certain nontaxable uses and undyed kerosene used for a feedstock purpose. 1040ezform Diesel fuel means: Any liquid that without further processing or blending is suitable for use as a fuel in a diesel-powered highway vehicle or train, and Transmix. 1040ezform A liquid is suitable for this use if the liquid has practical and commercial fitness for use in the propulsion engine of a diesel-powered highway vehicle or diesel-powered train. 1040ezform A liquid may possess this practical and commercial fitness even though the specified use is not the predominant use of the liquid. 1040ezform However, a liquid does not possess this practical and commercial fitness solely by reason of its possible or rare use as a fuel in the propulsion engine of a diesel-powered highway vehicle or diesel-powered train. 1040ezform Diesel fuel does not include gasoline, kerosene, excluded liquid, No. 1040ezform 5 and No. 1040ezform 6 fuel oils covered by ASTM specification D396, or F-76 (Fuel Naval Distillate) covered by military specification MIL-F-16884. 1040ezform An excluded liquid is either of the following. 1040ezform A liquid that contains less than 4% normal paraffins. 1040ezform A liquid with all the following properties. 1040ezform Distillation range of 125 degrees Fahrenheit or less. 1040ezform Sulfur content of 10 ppm or less. 1040ezform Minimum color of +27 Saybolt. 1040ezform Transmix means a by-product of refined products created by the mixing of different specification products during pipeline transportation. 1040ezform Kerosene. 1040ezform   This means any of the following liquids. 1040ezform One of the two grades of kerosene (No. 1040ezform 1-K and No. 1040ezform 2-K) covered by ASTM specification D3699. 1040ezform Kerosene-type jet fuel covered by ASTM specification D1655 or military specification MIL-DTL-5624T (Grade JP-5) or MIL-DTL-83133E (Grade JP-8). 1040ezform See Kerosene for Use in Aviation, later. 1040ezform   However, kerosene does not include excluded liquid, discussed earlier. 1040ezform   Kerosene also includes any liquid that would be described above but for the presence of a dye of the type used to dye kerosene for a nontaxable use. 1040ezform Diesel-powered highway vehicle. 1040ezform   This is any self-propelled vehicle designed to carry a load over public highways (whether or not also designed to perform other functions) and propelled by a diesel-powered engine. 1040ezform Specially designed mobile machinery for nontransportation functions and vehicles specially designed for off-highway transportation are generally not considered diesel-powered highway vehicles. 1040ezform For more information about these vehicles and for information about vehicles not considered highway vehicles, see Off-Highway Business Use (No. 1040ezform 2) in chapter 2. 1040ezform Diesel-powered train. 1040ezform   This is any diesel-powered equipment or machinery that rides on rails. 1040ezform The term includes a locomotive, work train, switching engine, and track maintenance machine. 1040ezform Taxable Events The tax on diesel fuel and kerosene is $. 1040ezform 244 per gallon. 1040ezform It is imposed on the removal, entry, or sale of diesel fuel and kerosene. 1040ezform Each of these events is discussed later. 1040ezform Only the $. 1040ezform 001 LUST tax applies to dyed diesel fuel and dyed kerosene, discussed later. 1040ezform If the tax is paid on the diesel fuel or kerosene in more than one event, a refund may be allowed for the “second” tax paid. 1040ezform See Refunds of Second Tax in chapter 2. 1040ezform Use in certain intercity and local buses. 1040ezform   Dyed diesel fuel and dyed kerosene cannot be used in certain intercity and local buses. 1040ezform A claim for $. 1040ezform 17 per gallon may be made by the registered ultimate vendor (under certain conditions) or the ultimate purchaser for undyed diesel fuel or undyed kerosene sold for use in certain intercity or local buses. 1040ezform An intercity or local bus is a bus engaged in furnishing (for compensation) passenger land transportation available to the general public. 1040ezform The bus must be engaged in one of the following activities. 1040ezform Scheduled transportation along regular routes regardless of the size of the bus. 1040ezform Nonscheduled transportation if the seating capacity of the bus is at least 20 adults (not including the driver). 1040ezform A bus is available to the general public if the bus is available for hire to more than a limited number of persons, groups, or organizations. 1040ezform Removal from terminal. 1040ezform   All removals of diesel fuel and kerosene at a terminal rack are taxable. 1040ezform The position holder for that fuel is liable for the tax. 1040ezform Two-party exchanges. 1040ezform   In a two-party exchange, the receiving person, not the delivering person, is liable for the tax imposed on the removal of taxable fuel from the terminal at the terminal rack. 1040ezform A two-party exchange means a transaction (other than a sale) where the delivering person and receiving person are both taxable fuel registrants and all of the following apply. 1040ezform The transaction includes a transfer from the delivering person, who holds the inventory position for the taxable fuel in the terminal as reflected in the records of the terminal operator. 1040ezform The exchange transaction occurs before or at the same time as completion of removal across the rack by the receiving person. 1040ezform The terminal operator in its records treats the receiving person as the person that removes the product across the terminal rack for purposes of reporting the transaction on Form 720-TO. 1040ezform The transaction is subject to a written contract. 1040ezform Terminal operator's liability. 1040ezform   The terminal operator is jointly and severally liable for the tax if the terminal operator provides any person with any bill of lading, shipping paper, or similar document indicating that diesel fuel or kerosene is dyed (discussed later). 1040ezform   The terminal operator is jointly and severally liable for the tax if the position holder is a person other than the terminal operator and is not a registrant. 1040ezform However, a terminal operator will not be liable for the tax in this situation if, at the time of the removal, the following conditions are met. 1040ezform The terminal operator is a registrant. 1040ezform The terminal operator has an unexpired notification certificate (discussed under Gasoline) from the position holder. 1040ezform The terminal operator has no reason to believe any information on the certificate is false. 1040ezform Removal from refinery. 1040ezform   The removal of diesel fuel or kerosene from a refinery is taxable if the removal meets either of the following conditions. 1040ezform It is made by bulk transfer and the refiner, the owner of the fuel immediately before the removal, or the operator of the pipeline or vessel is not a registrant. 1040ezform It is made at the refinery rack. 1040ezform The refiner is liable for the tax. 1040ezform Exception. 1040ezform   The tax does not apply to a removal of diesel fuel or kerosene at the refinery rack if all the following conditions are met. 1040ezform The diesel fuel or kerosene is removed from an approved refinery not served by pipeline (other than for receiving crude oil) or vessel. 1040ezform The diesel fuel or kerosene is received at a facility operated by a registrant and located within the bulk transfer/terminal system. 1040ezform The removal from the refinery is by: Railcar and the same person operates the refinery and the facility at which the diesel fuel or kerosene is received, or For diesel fuel only, a trailer or semi-trailer used exclusively to transport the diesel fuel from a refinery (described in (1)) to a facility (described in (2)) less than 20 miles from the refinery. 1040ezform Entry into the United States. 1040ezform   The entry of diesel fuel or kerosene into the United States is taxable if the entry meets either of the following conditions. 1040ezform It is made by bulk transfer and the enterer or the operator of the pipeline or vessel is not a registrant. 1040ezform It is not made by bulk transfer. 1040ezform The enterer is liable for the tax. 1040ezform Importer of record's liability. 1040ezform   The importer of record is jointly and severally liable for the tax with the enterer if the importer of record is not the enterer of the taxable fuel and the enterer is not a taxable fuel registrant. 1040ezform   However, an importer of record meeting both of the following conditions at the time of the entry will not be liable for the tax. 1040ezform The importer of record has an unexpired notification certificate (discussed under Gasoline) from the enterer. 1040ezform The importer of record has no reason to believe any information in the certificate is false. 1040ezform Customs bond. 1040ezform   The customs bond will not be charged for the tax imposed on the entry of the diesel fuel or kerosene if at the time of entry the surety has an unexpired notification certificate from the enterer and has no reason to believe any information in the certificate is false. 1040ezform Removal from a terminal by unregistered position holder or unregistered pipeline or vessel operator. 1040ezform   The removal by bulk transfer of diesel fuel or kerosene from a terminal is taxable if the position holder for that fuel or the operator of the pipeline or vessel is not a registrant. 1040ezform The position holder is liable for the tax. 1040ezform The terminal operator is jointly and severally liable for the tax if the position holder is a person other than the terminal operator. 1040ezform However, see Terminal operator's liability under Removal from terminal, earlier, for an exception. 1040ezform Bulk transfers not received at approved terminal or refinery. 1040ezform   The removal by bulk transfer of diesel fuel or kerosene from a terminal or refinery or the entry of diesel fuel or kerosene by bulk transfer into the United States is taxable if the following conditions apply. 1040ezform No tax was previously imposed (as discussed earlier) on any of the following events. 1040ezform The removal from the refinery. 1040ezform The entry into the United States. 1040ezform The removal from a terminal by an unregistered position holder. 1040ezform Upon removal from the pipeline or vessel, the diesel fuel or kerosene is not received at an approved terminal or refinery (or at another pipeline or vessel). 1040ezform   The owner of the diesel fuel or kerosene when it is removed from the pipeline or vessel is liable for the tax. 1040ezform However, an owner meeting all the following conditions at the time of the removal will not be liable for the tax. 1040ezform The owner is a registrant. 1040ezform The owner has an unexpired notification certificate (discussed under Gasoline) from the operator of the terminal or refinery where the diesel fuel or kerosene is received. 1040ezform The owner has no reason to believe any information on the certificate is false. 1040ezform The operator of the facility where the diesel fuel or kerosene is received is liable for the tax if the owner meets these conditions. 1040ezform The operator is jointly and severally liable if the owner does not meet these conditions. 1040ezform Sales to unregistered person. 1040ezform   The sale of diesel fuel or kerosene located within the bulk transfer/terminal system to a person that is not a registrant is taxable if tax was not previously imposed under any of the events discussed earlier. 1040ezform   The seller is liable for the tax. 1040ezform However, a seller meeting all the following conditions at the time of the sale will not be liable for the tax. 1040ezform The seller is a registrant. 1040ezform The seller has an unexpired notification certificate (discussed under Gasoline) from the buyer. 1040ezform The seller has no reason to believe any information on the certificate is false. 1040ezform The buyer of the diesel fuel or kerosene is liable for the tax if the seller meets these conditions. 1040ezform The buyer is jointly and severally liable if the seller does not meet these conditions. 1040ezform Exception. 1040ezform   The tax does not apply to a sale if all of the following apply. 1040ezform The buyer's principal place of business is not in the United States. 1040ezform The sale occurs as the fuel is delivered into a transport vessel with a capacity of at least 20,000 barrels of fuel. 1040ezform The seller is a registrant and the exporter of record. 1040ezform The fuel was exported. 1040ezform Removal or sale of blended diesel fuel or kerosene. 1040ezform   The removal or sale of blended diesel fuel or blended kerosene by the blender is taxable. 1040ezform Blended taxable fuel produced using biodiesel is subject to the tax. 1040ezform See Blended taxable fuel under Definitions, earlier. 1040ezform   The blender is liable for the tax. 1040ezform The tax is figured on the number of gallons not previously subject to the tax. 1040ezform   Persons who blend biodiesel with undyed diesel fuel to produce and sell or use a biodiesel mixture outside the bulk transfer/terminal system must pay the diesel fuel tax on the volume of biodiesel in the mixture. 1040ezform Generally, the biodiesel mixture must be diesel fuel (defined earlier). 1040ezform See Form 720 to report this tax. 1040ezform You also must be registered by the IRS as a blender. 1040ezform See Form 637 for more information. 1040ezform   However, if an untaxed liquid is sold as taxable fuel and that untaxed liquid is used to produce blended taxable fuel, the person that sold the untaxed liquid is jointly and severally liable for the tax imposed on the blender's sale or removal of the blended taxable fuel. 1040ezform Additional persons liable. 1040ezform   When the person liable for the tax willfully fails to pay the tax, joint and several liability for the tax applies to: Any officer, employee, or agent of the person who is under a duty to ensure the payment of the tax and who willfully fails to perform that duty; or Anyone who willfully causes the person to fail to pay the tax. 1040ezform Credits or Refunds. 1040ezform   A credit or refund is allowable for the tax on undyed diesel fuel or undyed kerosene used for a nontaxable use. 1040ezform For more information, see chapter 2. 1040ezform Dyed Diesel Fuel and Dyed Kerosene Dyed diesel fuel and dyed kerosene are subject to $. 1040ezform 001 per gallon LUST tax as discussed below, unless the fuel is for export. 1040ezform The excise tax is not imposed on the removal, entry, or sale of diesel fuel or kerosene (other than the LUST tax) if all the following tests are met. 1040ezform The person otherwise liable for tax (for example, the position holder) is a registrant. 1040ezform In the case of a removal from a terminal, the terminal is an approved terminal. 1040ezform The diesel fuel or kerosene satisfies the dyeing requirements (described next). 1040ezform Dyeing requirements. 1040ezform   Diesel fuel or kerosene satisfies the dyeing requirements only if it satisfies the following requirements. 1040ezform It contains the dye Solvent Red 164 (and no other dye) at a concentration spectrally equivalent to at least 3. 1040ezform 9 pounds of the solid dye standard Solvent Red 26 per thousand barrels of fuel or any dye of a type and in a concentration that has been approved by the Commissioner. 1040ezform Is indelibly dyed by mechanical injection. 1040ezform See section 6 of Notice 2005-80 for transition rules that apply until final regulations are issued by the IRS. 1040ezform Notice required. 1040ezform   A legible and conspicuous notice stating either: DYED DIESEL FUEL, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE or DYED KEROSENE, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE must be: Provided by the terminal operator to any person that receives dyed diesel fuel or dyed kerosene at a terminal rack of that operator, and Posted by a seller on any retail pump or other delivery facility where it sells dyed diesel fuel or dyed kerosene for use by its buyer. 1040ezform   The notice under item (1) must be provided by the time of the removal and must appear on all shipping papers, bills of lading, and similar documents accompanying the removal of the fuel. 1040ezform   Any seller that fails to post the required notice under item (2) is presumed to know that the fuel will be used for a taxable use (a use other than a nontaxable use listed later). 1040ezform That seller is subject to the penalty described next. 1040ezform Penalty. 1040ezform   A penalty is imposed on a person if any of the following situations apply. 1040ezform Any dyed fuel is sold or held for sale by the person for a use the person knows or has reason to know is not a nontaxable use of the fuel. 1040ezform Any dyed fuel is held for use or used by the person for a use other than a nontaxable use and the person knew, or had reason to know, that the fuel was dyed. 1040ezform The person willfully alters, chemically or otherwise, or attempts to so alter, the strength or composition of any dye in dyed fuel. 1040ezform The person has knowledge that a dyed fuel that has been altered, as described in (3) above, sells or holds for sale such fuel for any use for which the person knows or has reason to know is not a nontaxable use of the fuel. 1040ezform   The penalty is the greater of $1,000 or $10 per gallon of the dyed diesel fuel or dyed kerosene involved. 1040ezform After the first violation, the $1,000 portion of the penalty increases depending on the number of violations. 1040ezform   This penalty is in addition to any tax imposed on the fuel. 1040ezform   If the penalty is imposed, each officer, employee, or agent of a business entity who willfully participated in any act giving rise to the penalty is jointly and severally liable with that entity for the penalty. 1040ezform   There is no administrative appeal or review allowed for the third and subsequent penalty imposed by section 6715 on any person except for: Fraud or a mistake in the chemical analysis, or Mathematical calculation of the penalty. 1040ezform   If you are liable for the penalty, you may also be liable for the back-up tax, discussed later. 1040ezform However, the penalty applies only to dyed diesel fuel and dyed kerosene, while the back-up tax may apply to other fuels. 1040ezform The penalty may apply if the fuel is held for sale or use for a taxable use while the back-up tax does not apply unless the fuel is delivered into a fuel supply tank. 1040ezform Exception to penalty. 1040ezform   The penalty under item (3) will not apply in any of the following situations. 1040ezform Diesel fuel or kerosene meeting the dyeing requirements (described earlier) is blended with any undyed liquid and the resulting product meets the dyeing requirements. 1040ezform Diesel fuel or kerosene meeting the dyeing requirements (described earlier) is blended with any other liquid (other than diesel fuel or kerosene) that contains the type and amount of dye required to meet the dyeing requirements. 1040ezform The alteration or attempted alteration occurs in an exempt area of Alaska. 1040ezform See Removal for sale or use in Alaska, later. 1040ezform Diesel fuel or kerosene meeting the dyeing requirements (described earlier) is blended with diesel fuel or kerosene not meeting the dyeing requirements and the blending occurs as part of a nontaxable use (other than export), discussed later. 1040ezform Alaska and Feedstocks Tax of $. 1040ezform 001 per gallon is imposed on: Undyed diesel fuel or undyed kerosene sold or used in Alaska for certain nontaxable uses (see Later sales on page 10). 1040ezform Undyed kerosene used for feedstock purposes. 1040ezform Removal for sale or use in Alaska. 1040ezform   No tax is imposed on the removal, entry, or sale of diesel fuel or kerosene in Alaska for ultimate sale or use in certain areas of Alaska for certain nontaxable uses. 1040ezform The removal or entry of any diesel fuel or kerosene is not taxed if all the following requirements are satisfied. 1040ezform The person otherwise liable for the tax (position holder, refiner, or enterer): Is a registrant, Can show satisfactory evidence of the nontaxable nature of the transaction, and Has no reason to believe the evidence is false. 1040ezform In the case of a removal from a terminal, the terminal is an approved terminal. 1040ezform The owner of the fuel immediately after the removal or entry holds the fuel for its own use in a nontaxable use (discussed later) or is a qualified dealer. 1040ezform   If all three of the requirements above are not met, then tax is imposed at $. 1040ezform 244 per gallon. 1040ezform   A qualified dealer is any person that holds a qualified dealer license from the state of Alaska or has been registered by the IRS as a qualified retailer. 1040ezform Satisfactory evidence may include copies of qualified dealer licenses or exemption certificates obtained for state tax purposes. 1040ezform Later sales. 1040ezform   The excise tax applies to diesel fuel or kerosene sold by a qualified dealer after the removal or entry. 1040ezform The tax is imposed at the time of the sale and the qualified dealer is liable for the tax. 1040ezform However, the sale is not taxable (other than the LUST tax at $. 1040ezform 001 per gallon) if all the following requirements are met. 1040ezform The fuel is sold in Alaska for certain nontaxable uses. 1040ezform The buyer buys the fuel for its own use in a nontaxable use or is a qualified dealer. 1040ezform The seller can show satisfactory evidence of the nontaxable nature of the transaction and has no reason to believe the evidence is false. 1040ezform Feedstock purposes. 1040ezform   The $. 1040ezform 001 per gallon LUST tax is imposed on the removal or entry of undyed kerosene if all the following conditions are met. 1040ezform The person otherwise liable for tax (position holder, refiner, or enterer) is a registrant. 1040ezform In the case of a removal from a terminal, the terminal is an approved terminal. 1040ezform Either: The person otherwise liable for tax uses the kerosene for a feedstock purpose, or The kerosene is sold for use by the buyer for a feedstock purpose and, at the time of the sale, the person otherwise liable for tax has an unexpired certificate (described later) from the buyer and has no reason to believe any information on the certificate is false. 1040ezform   If all of the requirements above are not met, then tax is imposed at $. 1040ezform 244 per gallon. 1040ezform   Kerosene is used for a feedstock purpose when it is used for nonfuel purposes in the manufacture or production of any substance other than gasoline, diesel fuel, or Other Fuels. 1040ezform For example, kerosene is used for a feedstock purpose when it is used as an ingredient in the production of paint, but is not used for a feedstock purpose when it is used to power machinery at a factory where paint is produced. 1040ezform A feedstock user is a person that uses kerosene for a feedstock purpose. 1040ezform A registered feedstock user is a person that has been registered by the IRS as a feedstock user. 1040ezform See Registration Requirements, earlier. 1040ezform Later sales. 1040ezform   The excise tax ($. 1040ezform 244 per gallon) applies to kerosene sold for use by the buyer for a feedstock purpose (item (3)(b) above) if the buyer in that sale later sells the kerosene. 1040ezform The tax is imposed at the time of the later sale and that seller is liable for the tax. 1040ezform Certificate. 1040ezform   The certificate from the buyer certifies the buyer is a registered feedstock user and the kerosene will be used by the buyer for a feedstock purpose. 1040ezform The certificate may be included as part of any business records normally used for a sale. 1040ezform A model certificate is shown in the Appendix as Model Certificate G. 1040ezform Your certificate must contain all information necessary to complete the model. 1040ezform   A certificate expires on the earliest of the following dates. 1040ezform The date 1 year after the effective date (not earlier than the date signed) of the certificate. 1040ezform The date the seller is provided a new certificate or notice that the current certificate is invalid. 1040ezform The date the seller is notified the buyer's registration has been revoked or suspended. 1040ezform   The buyer must provide a new certificate if any information on a certificate has changed. 1040ezform Back-up Tax Tax is imposed on the delivery of any of the following into the fuel supply tank of a diesel-powered highway vehicle. 1040ezform Any dyed diesel fuel or dyed kerosene for other than a nontaxable use. 1040ezform Any undyed diesel fuel or undyed kerosene on which a credit or refund (for fuel used for a nontaxable purpose) has been allowed. 1040ezform Any liquid other than gasoline, diesel fuel, or kerosene. 1040ezform Generally, this back-up tax is imposed at a rate of $. 1040ezform 244 per gallon. 1040ezform Liability for tax. 1040ezform   Generally, the operator of the vehicle into which the fuel is delivered is liable for the tax. 1040ezform In addition, the seller of the diesel fuel or kerosene is jointly and severally liable for the tax if the seller knows or has reason to know that the fuel will be used for other than a nontaxable use. 1040ezform Exemptions from the back-up tax. 1040ezform   The back-up tax does not apply to a delivery of diesel fuel or kerosene for uses 1, 2, 6, 7, 12, 13, 14, and 15 listed under Definitions of Nontaxable Uses in chapter 2. 1040ezform   In addition, since the back-up tax is imposed only on the delivery into the fuel supply tank of a diesel-powered vehicle or train, the tax does not apply to diesel fuel or kerosene used as heating oil or in stationary engines. 1040ezform Diesel-Water Fuel Emulsion Diesel-water fuel emulsion means diesel fuel at least 14% of which is water and for which the emulsion additive is registered by a United States manufacturer with the EPA under section 211 of the Clean Air Act as in effect on March 31, 2003. 1040ezform A reduced tax rate of $. 1040ezform 198 per gallon is imposed on a diesel-water fuel emulsion. 1040ezform To be eligible for the reduced rate, the person who sells, removes, or uses the diesel-water fuel emulsion must be registered by the IRS. 1040ezform If the diesel-water fuel emulsion does not meet the requirements above, or if the person who sells, removes, or uses the fuel is not registered, the diesel-water fuel emulsion is taxed at $. 1040ezform 244 per gallon. 1040ezform Credits or refunds. 1040ezform   The allowance for a credit or refund on a diesel-water fuel emulsion is discussed in chapter 2. 1040ezform Kerosene for Use in Aviation Taxable Events Generally, kerosene is taxed at $. 1040ezform 244 per gallon unless a reduced rate applies (see Diesel Fuel and Kerosene, earlier). 1040ezform For kerosene removed directly from a terminal into the fuel tank of an aircraft for use in noncommercial aviation, the tax rate is $. 1040ezform 219. 1040ezform The rate of $. 1040ezform 219 also applies if kerosene is removed into any aircraft from a qualified refueler truck, tanker, or tank wagon that is loaded with the kerosene from a terminal that is located within an airport. 1040ezform The airport terminal does not need to be a secured airport terminal for this rate to apply. 1040ezform However, the refueler truck, tanker, or tank wagon must meet the requirements discussed under Certain refueler trucks, tankers, and tank wagons, treated as terminals, later. 1040ezform For kerosene removed directly into the fuel tank of an aircraft for use in commercial aviation, the rate of tax is $. 1040ezform 044 per gallon. 1040ezform For kerosene removed into an aircraft from a qualified refueler truck, tanker, or tank wagon, the $. 1040ezform 044 rate applies only if the truck, tanker, or tank wagon is loaded at a terminal that is located in a secured area of the airport. 1040ezform See Terminal located within a secured area of an airport, later. 1040ezform In addition, the operator must provide the position holder with a certificate similar to Model Certificate K in the Appendix. 1040ezform For kerosene removed directly into the fuel tank of an aircraft for a use exempt from tax under section 4041(c) (such as use in an aircraft for the exclusive use of a state or local government), the rate of tax is $. 1040ezform 001. 1040ezform There is no tax on kerosene removed directly into the fuel tank of an aircraft for use in foreign trade. 1040ezform The kerosene must be removed from a qualifying refueler truck, tanker, or tank wagon loaded at a terminal located within a secured area of an airport. 1040ezform See Terminal located within a secured area of an airport, later. 1040ezform In addition, the operator must provide the position holder with a certificate similar to Model Certificate K in the Appendix. 1040ezform The position holder is liable for the $. 1040ezform 001 per gallon tax. 1040ezform For kerosene removed directly from a terminal into the fuel tank of an fractional ownership program aircraft after March 31, 2012, a surtax of $. 1040ezform 141 per gallon applies. 1040ezform Certain refueler trucks, tankers, and tank wagons treated as terminals. 1040ezform   For purposes of the tax imposed on kerosene for use in aviation removed directly into the fuel tank of an aircraft for use in commercial aviation, certain refueler trucks, tankers, and tank wagons are treated as part of a terminal if the following conditions are met. 1040ezform Such terminal is located within an area of an airport. 1040ezform Any kerosene for use in aviation that is loaded in a refueler truck, tanker, or tank wagon at a terminal is for delivery into aircraft at the airport in which the terminal is located. 1040ezform Except in exigent circumstances, such as those identified in Notice 2005-80, no vehicle registered for highway use is loaded with kerosene for use in aviation at the terminal. 1040ezform The refueler truck, tanker, or tank wagon meets the following requirements: Has storage tanks, hose, and coupling equipment designed and used for fueling aircraft, Is not registered for highway use, and Is operated by the terminal operator or a person that makes a daily accounting to the terminal operator of each delivery of fuel from the refueler truck, tanker, or tank wagon. 1040ezform Information reporting will be required by terminal operators regarding this provision. 1040ezform Until the format of this information reporting is issued, taxpayers are required to retain records regarding the daily accounting, but are not required to report such information. 1040ezform Terminal located within a secured area of an airport. 1040ezform   See Notice 2005-4 and Notice 2005-80 for the list of terminals located within a secured area of an airport. 1040ezform This list refers to fueling operations at airport terminals as it applies to the federal excise tax on kerosene for use in aviation, and has nothing to do with the general security of airports either included or not included in the list. 1040ezform Liability For Tax If the kerosene is removed directly into the fuel tank of an aircraft for use in commercial aviation, the operator of the aircraft in commercial aviation is liable for the tax on the removal at the rate of $. 1040ezform 044 per gallon. 1040ezform However, the position holder is liable for the LUST tax for kerosene for use in aviation removed directly into the fuel tank of an aircraft for use exempt from tax under section 4041(c) (except foreign trade). 1040ezform For example, for kerosene removed directly into the aircraft for use in military aircraft, the position holder is liable for the tax. 1040ezform For the aircraft operator to be liable for the tax $. 1040ezform 044 rate, the position holder must meet the following requirements: Is a taxable fuel registrant, Has an unexpired certificate (a model certificate is shown in the Appendix as Model Certificate K) from the operator of the aircraft, and Has no reason to believe any of the information in the certificate is false. 1040ezform Commercial aviation. 1040ezform   Commercial aviation is any use of an aircraft in the business of transporting persons or property by air for pay. 1040ezform However, commercial aviation does not include any of the following uses. 1040ezform Any use exclusively for the purpose of skydiving. 1040ezform Certain air transportation by seaplane. 1040ezform See Seaplanes under Transportation of Persons by Air in chapter 4. 1040ezform Any use of an aircraft owned or leased by a member of an affiliated group and unavailable for hire by nonmembers. 1040ezform For more information, see Aircraft used by affiliated corporations under Special Rules on Transportation Taxes in chapter 4. 1040ezform Any use of an aircraft that has a maximum certificated takeoff weight of 6,000 pounds or less, unless the aircraft is operated on an established line. 1040ezform For more information, see Small aircraft under Special Rules on Transportation Taxes in chapter 4. 1040ezform Any use where the surtax on fuel used in a fractional ownership program aircraft is imposed. 1040ezform See Surtax on any liquid used in a fractional ownership program aircraft as fuel below. 1040ezform Surtax on any liquid used in a fractional ownership program aircraft as fuel Fuel used in a fractional ownership program aircraft (as defined below) after March 31, 2012, is subject to a surtax of $. 1040ezform 141 per gallon. 1040ezform The fractional ownership program manager is liable for the tax. 1040ezform The surtax applies in addition to any other taxes imposed on the removal, entry, use, or sale of the fuel. 1040ezform If the surtax is imposed, the following air transportation taxes do not apply. 1040ezform Transportation of persons by air. 1040ezform Transportation of property by air. 1040ezform Use of international air travel facilities. 1040ezform These taxes are described under Air Transportation Taxes, later. 1040ezform A fractional ownership program aircraft flight is considered noncommercial aviation, for the rules for kerosene used in noncommercial aviation, see Kerosene for Use in Aviation above. 1040ezform Fractional ownership aircraft program    is a program under which:  A single fractional ownership program manager provides fractional ownership program management services on behalf of the fractional owners; There are one or more fractional owners per fractional program aircraft, with at least one fractional program aircraft having more than one owner; For at least two fractional program aircraft, none of the ownership interests in the aircraft are less than the minimum fractional ownership interest or held by the program manager; There exists a dry-lease aircraft exchange arrangement among all of the fractional owners; and There are multi-year program agreements covering the fractional ownership, fractional ownership program management services, and dry-lease aircraft exchange aspects of the program. 1040ezform Fractional program aircraft. 1040ezform   Any aircraft that, in any fractional ownership aircraft program, is listed as a fractional program aircraft in the management specifications issued to the manager of such program by Federal Aviation Administration under subpart K of part 91 title 14, Code of Federal Regulations, and is registered in the U. 1040ezform S. 1040ezform   Fractional program aircraft are not considered used for transportation of a qualified fractional owner, or on account of such qualified fractional owner when they are used for flight demonstration, maintenance or crew training. 1040ezform In such situations, the flight is not commercial aviation. 1040ezform Instead, the tax on the fuel used in the flight is imposed at the non-commercial aviation rate. 1040ezform Fractional owner. 1040ezform   Any person owning any interest (including the entire interest) in a fractional program aircraft. 1040ezform Dry lease aircraft exchange. 1040ezform   An agreement, documented by the written program agreements, under which the fractional program aircraft are available, on an as-needed basis without crew, to each fractional owner. 1040ezform Special rule relating to deadhead service. 1040ezform   A fractional program aircraft will not be considered to be used on account of a qualified fractional owner when it is used in deadhead service and a person other than a qualified fractional owner is separately charged for such service. 1040ezform More information. 1040ezform   See section 4043 for more information on the surtax. 1040ezform Certificate for Commercial Aviation and Exempt Uses A certificate is required from the aircraft operator: To support aircraft operator liability for tax on removal of kerosene for use in aviation directly into the fuel tank of an aircraft in commercial aviation, or For exempt uses. 1040ezform Certificate. 1040ezform   The certificate may be included as part of any business records normally used for a sale. 1040ezform See Model Certificate K in the Appendix. 1040ezform   A certificate expires on the earliest of the following dates. 1040ezform The date 1 year after the effective date (not earlier than the date signed) of the certificate. 1040ezform The date the buyer provides the seller a new certificate or notice that the current certificate is invalid. 1040ezform The date the IRS or the buyer notifies the seller that the buyer's right to provide a certificate has been withdrawn. 1040ezform   The buyer must provide a new certificate if any information on a certificate has changed. 1040ezform   The IRS may withdraw the buyer's right to provide a certificate if the buyer uses the kerosene for use in aviation to which a certificate relates other than as stated in the certificate. 1040ezform Exempt use. 1040ezform   The rate on kerosene for use in aviation is $. 1040ezform 001 (LUST tax) if it is removed from any refinery or terminal directly into the fuel tank of an aircraft for an exempt use. 1040ezform An exempt use includes kerosene for the exclusive use of a state or local government. 1040ezform There is no tax on kerosene removed directly into the fuel tank of an aircraft for use in foreign trade. 1040ezform Flash title transaction. 1040ezform   A position holder is not liable for tax if, among other conditions, it obtains a certificate (described above) from the operator of the aircraft into which the kerosene is delivered. 1040ezform In a “flash title transaction” the position holder sells the kerosene to a wholesale distributor (reseller) that in turn sells the kerosene to the aircraft operator as the kerosene is being removed from a terminal into the fuel tank of an aircraft. 1040ezform In this case, the position holder will be treated as having a certificate from the operator of the aircraft if: The aircraft operator puts the reseller's name, address, and EIN on the certificate in place of the position holder's information; and The reseller provides the position holder with a statement of the kerosene reseller. 1040ezform Reseller statement. 1040ezform   This is a statement that is signed under penalties of perjury by a person with authority to bind the reseller; is provided at the bottom or on the back of the certificate (or in an attached document); and contains: The reseller's name, address, and EIN; The position holder's name, address, and EIN; and A statement that the reseller has no reason to believe that any information in the accompanying aircraft operator's certificate is false. 1040ezform Credits or Refunds. 1040ezform   A claim may be made by the ultimate purchaser (the operator) for taxed kerosene for use in aviation used in commercial aviation (other than foreign trade) and noncommercial aviation (other than nonexempt, noncommercial aviation and exclusive use by a state, political subdivision of a state, or the District of Columbia). 1040ezform A claim may be made by a registered ultimate vendor for certain sales. 1040ezform For more information, see chapter 2. 1040ezform Other Fuels (Including Alternative Fuels) Other Fuels means any liquid except gas oil, fuel oil, or any product taxable under section 4081. 1040ezform Other Fuels include alternative fuels. 1040ezform Alternative fuels are: Liquefied petroleum gas (LPG), “P Series” fuels, Compressed natural gas (CNG) (discussed later), Liquefied hydrogen, Any liquid fuel derived from coal (including peat) through the Fischer-Tropsch process, Liquid fuel derived from biomass, Liquefied natural gas (LNG), and Liquefied gas derived from biomass. 1040ezform Liquefied petroleum gas includes propane, butane, pentane, or mixtures of those products. 1040ezform Qualified methanol and ethanol fuels. 1040ezform   Qualified ethanol and methanol means any liquid at least 85 percent of which consists of alcohol produced from coal, including peat. 1040ezform The tax rates are listed in the Instructions for Form 720. 1040ezform Partially exempt methanol and ethanol fuels. 1040ezform   A reduced tax rate applies to these fuels. 1040ezform Partially exempt ethanol and methanol means any liquid at least 85 percent of which consists of alcohol produced from natural gas. 1040ezform The tax rates are listed in the Instructions for Form 720. 1040ezform Motor vehicles. 1040ezform   Motor vehicles include all types of vehicles, whether or not registered (or required to be registered) for highway use, that have both the following characteristics. 1040ezform They are propelled by a motor. 1040ezform They are designed for carrying or towing loads from one place to another, regardless of the type of material or load carried or t
Print - Click this link to Print this page

Affordable Care Act Tax Provisions for Individuals and Families

The Affordable Care Act, or health care law, contains health insurance coverage and financial assistance options for individuals and families. The IRS administers the tax provisions included in the law. Visit HealthCare.gov for more information on coverage options and financial assistance.
 

What do I need to know for my 2013 tax return?

Considerations for 2014

  • Open Enrollment for the Health Insurance Marketplace: The open enrollment period to purchase health care coverage through the Health Insurance Marketplace for 2014 began Oct. 1, 2013 and runs through March 31, 2014. When you get health insurance through the marketplace, you may be able to get advance payments of the premium tax credit that will immediately help lower your monthly premium. Learn more at HealthCare.gov.
  • Premium Tax Credit: If you get insurance through the Marketplace, you may be eligible to claim the premium tax credit. You can elect to have advance payments of the tax credit sent directly to your insurer during 2014, or wait to claim the credit when you file your tax return in 2015. If you choose to have advance payments sent to your insurer, you will have to reconcile the payments on your 2014 tax return, which will be filed in 2015. If you’re already receiving advance payments of the credit, you need do nothing at this time unless you have a change in circumstance. Learn More.
  • Change in Circumstances: If you're receiving advance payments of the premium tax credit to help pay for your insurance coverage, you should report life changes, such as income, marital status or family size changes, to your marketplace. Reporting changes will help to make sure you are getting the proper amount of advance payments.
  • Individual Shared Responsibility Payment: Starting January 2014, you and your family must have health care coverage, have an exemption from coverage, or make a payment when you file your 2014 tax return in 2015. Most people already have qualifying health care coverage and will not need to do anything more than maintain that coverage throughout 2014. Learn More.

 

Page Last Reviewed or Updated: 24-Mar-2014

The 1040ezform

1040ezform Publication 936 - Main Content Table of Contents Part I. 1040ezform Home Mortgage InterestSecured Debt Qualified Home Special Situations Points Mortgage Insurance Premiums Form 1098, Mortgage Interest Statement How To Report Special Rule for Tenant-Stockholders in Cooperative Housing Corporations Part II. 1040ezform Limits on Home Mortgage Interest DeductionHome Acquisition Debt Home Equity Debt Grandfathered Debt Table 1 Instructions How To Get Tax HelpLow Income Taxpayer Clinics Part I. 1040ezform Home Mortgage Interest This part explains what you can deduct as home mortgage interest. 1040ezform It includes discussions on points, mortgage insurance premiums, and how to report deductible interest on your tax return. 1040ezform Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). 1040ezform The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. 1040ezform You can deduct home mortgage interest if all the following conditions are met. 1040ezform You file Form 1040 and itemize deductions on Schedule A (Form 1040). 1040ezform The mortgage is a secured debt on a qualified home in which you have an ownership interest. 1040ezform Secured Debt and Qualified Home are explained later. 1040ezform  Both you and the lender must intend that the loan be repaid. 1040ezform Fully deductible interest. 1040ezform   In most cases, you can deduct all of your home mortgage interest. 1040ezform How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. 1040ezform   If all of your mortgages fit into one or more of the following three categories at all times during the year, you can deduct all of the interest on those mortgages. 1040ezform (If any one mortgage fits into more than one category, add the debt that fits in each category to your other debt in the same category. 1040ezform ) If one or more of your mortgages does not fit into any of these categories, use Part II of this publication to figure the amount of interest you can deduct. 1040ezform   The three categories are as follows. 1040ezform Mortgages you took out on or before October 13, 1987 (called grandfathered debt). 1040ezform Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2013 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately). 1040ezform Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2013 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2). 1040ezform The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home. 1040ezform   See Part II for more detailed definitions of grandfathered, home acquisition, and home equity debt. 1040ezform    You can use Figure A to check whether your home mortgage interest is fully deductible. 1040ezform This image is too large to be displayed in the current screen. 1040ezform Please click the link to view the image. 1040ezform Figure A. 1040ezform Is My Home Mortgage Interest Fully Deductible? Secured Debt You can deduct your home mortgage interest only if your mortgage is a secured debt. 1040ezform A secured debt is one in which you sign an instrument (such as a mortgage, deed of trust, or land contract) that: Makes your ownership in a qualified home security for payment of the debt, Provides, in case of default, that your home could satisfy the debt, and Is recorded or is otherwise perfected under any state or local law that applies. 1040ezform In other words, your mortgage is a secured debt if you put your home up as collateral to protect the interests of the lender. 1040ezform If you cannot pay the debt, your home can then serve as payment to the lender to satisfy (pay) the debt. 1040ezform In this publication, mortgage will refer to secured debt. 1040ezform Debt not secured by home. 1040ezform   A debt is not secured by your home if it is secured solely because of a lien on your general assets or if it is a security interest that attaches to the property without your consent (such as a mechanic's lien or judgment lien). 1040ezform   A debt is not secured by your home if it once was, but is no longer secured by your home. 1040ezform Wraparound mortgage. 1040ezform   This is not a secured debt unless it is recorded or otherwise perfected under state law. 1040ezform Example. 1040ezform Beth owns a home subject to a mortgage of $40,000. 1040ezform She sells the home for $100,000 to John, who takes it subject to the $40,000 mortgage. 1040ezform Beth continues to make the payments on the $40,000 note. 1040ezform John pays $10,000 down and gives Beth a $90,000 note secured by a wraparound mortgage on the home. 1040ezform Beth does not record or otherwise perfect the $90,000 mortgage under the state law that applies. 1040ezform Therefore, the mortgage is not a secured debt and John cannot deduct any of the interest he pays on it as home mortgage interest. 1040ezform Choice to treat the debt as not secured by your home. 1040ezform   You can choose to treat any debt secured by your qualified home as not secured by the home. 1040ezform This treatment begins with the tax year for which you make the choice and continues for all later tax years. 1040ezform You can revoke your choice only with the consent of the Internal Revenue Service (IRS). 1040ezform   You may want to treat a debt as not secured by your home if the interest on that debt is fully deductible (for example, as a business expense) whether or not it qualifies as home mortgage interest. 1040ezform This may allow you, if the limits in Part II apply, more of a deduction for interest on other debts that are deductible only as home mortgage interest. 1040ezform Cooperative apartment owner. 1040ezform   If you own stock in a cooperative housing corporation, see the Special Rule for Tenant-Stockholders in Cooperative Housing Corporations , near the end of this Part I. 1040ezform Qualified Home For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. 1040ezform This means your main home or your second home. 1040ezform A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. 1040ezform The interest you pay on a mortgage on a home other than your main or second home may be deductible if the proceeds of the loan were used for business, investment, or other deductible purposes. 1040ezform Otherwise, it is considered personal interest and is not deductible. 1040ezform Main home. 1040ezform   You can have only one main home at any one time. 1040ezform This is the home where you ordinarily live most of the time. 1040ezform Second home. 1040ezform   A second home is a home that you choose to treat as your second home. 1040ezform Second home not rented out. 1040ezform   If you have a second home that you do not hold out for rent or resale to others at any time during the year, you can treat it as a qualified home. 1040ezform You do not have to use the home during the year. 1040ezform Second home rented out. 1040ezform   If you have a second home and rent it out part of the year, you also must use it as a home during the year for it to be a qualified home. 1040ezform You must use this home more than 14 days or more than 10% of the number of days during the year that the home is rented at a fair rental, whichever is longer. 1040ezform If you do not use the home long enough, it is considered rental property and not a second home. 1040ezform For information on residential rental property, see Publication 527. 1040ezform More than one second home. 1040ezform   If you have more than one second home, you can treat only one as the qualified second home during any year. 1040ezform However, you can change the home you treat as a second home during the year in the following situations. 1040ezform If you get a new home during the year, you can choose to treat the new home as your second home as of the day you buy it. 1040ezform If your main home no longer qualifies as your main home, you can choose to treat it as your second home as of the day you stop using it as your main home. 1040ezform If your second home is sold during the year or becomes your main home, you can choose a new second home as of the day you sell the old one or begin using it as your main home. 1040ezform Divided use of your home. 1040ezform   The only part of your home that is considered a qualified home is the part you use for residential living. 1040ezform If you use part of your home for other than residential living, such as a home office, you must allocate the use of your home. 1040ezform You must then divide both the cost and fair market value of your home between the part that is a qualified home and the part that is not. 1040ezform Dividing the cost may affect the amount of your home acquisition debt, which is limited to the cost of your home plus the cost of any improvements. 1040ezform (See Home Acquisition Debt in Part II. 1040ezform ) Dividing the fair market value may affect your home equity debt limit, also explained in Part II . 1040ezform Renting out part of home. 1040ezform   If you rent out part of a qualified home to another person (tenant), you can treat the rented part as being used by you for residential living only if all of the following conditions apply. 1040ezform The rented part of your home is used by the tenant primarily for residential living. 1040ezform The rented part of your home is not a self-contained residential unit having separate sleeping, cooking, and toilet facilities. 1040ezform You do not rent (directly or by sublease) the same or different parts of your home to more than two tenants at any time during the tax year. 1040ezform If two persons (and dependents of either) share the same sleeping quarters, they are treated as one tenant. 1040ezform Office in home. 1040ezform   If you have an office in your home that you use in your business, see Publication 587, Business Use of Your Home. 1040ezform It explains how to figure your deduction for the business use of your home, which includes the business part of your home mortgage interest. 1040ezform Home under construction. 1040ezform   You can treat a home under construction as a qualified home for a period of up to 24 months, but only if it becomes your qualified home at the time it is ready for occupancy. 1040ezform   The 24-month period can start any time on or after the day construction begins. 1040ezform Home destroyed. 1040ezform   You may be able to continue treating your home as a qualified home even after it is destroyed in a fire, storm, tornado, earthquake, or other casualty. 1040ezform This means you can continue to deduct the interest you pay on your home mortgage, subject to the limits described in this publication. 1040ezform   You can continue treating a destroyed home as a qualified home if, within a reasonable period of time after the home is destroyed, you: Rebuild the destroyed home and move into it, or Sell the land on which the home was located. 1040ezform   This rule applies to your main home and to a second home that you treat as a qualified home. 1040ezform Time-sharing arrangements. 1040ezform   You can treat a home you own under a time-sharing plan as a qualified home if it meets all the requirements. 1040ezform A time-sharing plan is an arrangement between two or more people that limits each person's interest in the home or right to use it to a certain part of the year. 1040ezform Rental of time-share. 1040ezform   If you rent out your time-share, it qualifies as a second home only if you also use it as a home during the year. 1040ezform See Second home rented out , earlier, for the use requirement. 1040ezform To know whether you meet that requirement, count your days of use and rental of the home only during the time you have a right to use it or to receive any benefits from the rental of it. 1040ezform Married taxpayers. 1040ezform   If you are married and file a joint return, your qualified home(s) can be owned either jointly or by only one spouse. 1040ezform Separate returns. 1040ezform   If you are married filing separately and you and your spouse own more than one home, you can each take into account only one home as a qualified home. 1040ezform However, if you both consent in writing, then one spouse can take both the main home and a second home into account. 1040ezform Special Situations This section describes certain items that can be included as home mortgage interest and others that cannot. 1040ezform It also describes certain special situations that may affect your deduction. 1040ezform Late payment charge on mortgage payment. 1040ezform   You can deduct as home mortgage interest a late payment charge if it was not for a specific service performed in connection with your mortgage loan. 1040ezform Mortgage prepayment penalty. 1040ezform   If you pay off your home mortgage early, you may have to pay a penalty. 1040ezform 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. 1040ezform Sale of home. 1040ezform   If you sell your home, you can deduct your home mortgage interest (subject to any limits that apply) paid up to, but not including, the date of the sale. 1040ezform Example. 1040ezform John and Peggy Harris sold their home on May 7. 1040ezform Through April 30, they made home mortgage interest payments of $1,220. 1040ezform The settlement sheet for the sale of the home showed $50 interest for the 6-day period in May up to, but not including, the date of sale. 1040ezform Their mortgage interest deduction is $1,270 ($1,220 + $50). 1040ezform Prepaid interest. 1040ezform   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. 1040ezform You can deduct in each year only the interest that qualifies as home mortgage interest for that year. 1040ezform However, there is an exception that applies to points, discussed later. 1040ezform Mortgage interest credit. 1040ezform    You may be able to claim a mortgage interest credit if you were issued a mortgage credit certificate (MCC) by a state or local government. 1040ezform Figure the credit on Form 8396, Mortgage Interest Credit. 1040ezform If you take this credit, you must reduce your mortgage interest deduction by the amount of the credit. 1040ezform   See Form 8396 and Publication 530 for more information on the mortgage interest credit. 1040ezform Ministers' and military housing allowance. 1040ezform   If you are a minister or a member of the uniformed services and receive a housing allowance that is not taxable, you can still deduct your home mortgage interest. 1040ezform Hardest Hit Fund and Emergency Homeowners' Loan Programs. 1040ezform   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. 1040ezform 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. 1040ezform 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. 1040ezform If you meet these tests, then you can deduct all of the payments you actually made during the year to your mortgage servicer, the State HFA, or HUD on the home mortgage (including the amount shown on box 3 of Form 1098–MA, Mortgage Assistance Payments), but not more than the sum of the amounts shown on Form 1098, Mortgage Interest Statement, in box 1 (mortgage interest received from payer(s) / borrower(s)), box 4 (mortgage insurance premiums), and box 5 (other information including real property taxes paid). 1040ezform 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. 1040ezform Mortgage assistance payments under section 235 of the National Housing Act. 1040ezform   If you qualify for mortgage assistance payments for lower-income families under section 235 of the National Housing Act, part or all of the interest on your mortgage may be paid for you. 1040ezform You cannot deduct the interest that is paid for you. 1040ezform No other effect on taxes. 1040ezform   Do not include these mortgage assistance payments in your income. 1040ezform Also, do not use these payments to reduce other deductions, such as real estate taxes. 1040ezform Divorced or separated individuals. 1040ezform   If a divorce or separation agreement requires you or your spouse or former spouse to pay home mortgage interest on a home owned by both of you, the payment of interest may be alimony. 1040ezform See the discussion of Payments for jointly-owned home under Alimony in Publication 504, Divorced or Separated Individuals. 1040ezform Redeemable ground rents. 1040ezform   In some states (such as Maryland), you can buy your home subject to a ground rent. 1040ezform A ground rent is an obligation you assume to pay a fixed amount per year on the property. 1040ezform Under this arrangement, you are leasing (rather than buying) the land on which your home is located. 1040ezform   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct them as mortgage interest. 1040ezform   A ground rent is a redeemable ground rent if all of the following are true. 1040ezform Your lease, including renewal periods, is for more than 15 years. 1040ezform You can freely assign the lease. 1040ezform You have a present or future right (under state or local law) to end the lease and buy the lessor's entire interest in the land by paying a specific amount. 1040ezform The lessor's interest in the land is primarily a security interest to protect the rental payments to which he or she is entitled. 1040ezform   Payments made to end the lease and to buy the lessor's entire interest in the land are not deductible as mortgage interest. 1040ezform Nonredeemable ground rents. 1040ezform   Payments on a nonredeemable ground rent are not mortgage interest. 1040ezform You can deduct them as rent if they are a business expense or if they are for rental property. 1040ezform Reverse mortgages. 1040ezform   A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. 1040ezform With a reverse mortgage, you retain title to your home. 1040ezform Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. 1040ezform Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. 1040ezform Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until you actually pay it, which is usually when you pay off the loan in full. 1040ezform Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Part II. 1040ezform Rental payments. 1040ezform   If you live in a house before final settlement on the purchase, any payments you make for that period are rent and not interest. 1040ezform This is true even if the settlement papers call them interest. 1040ezform You cannot deduct these payments as home mortgage interest. 1040ezform Mortgage proceeds invested in tax-exempt securities. 1040ezform   You cannot deduct the home mortgage interest on grandfathered debt or home equity debt if you used the proceeds of the mortgage to buy securities or certificates that produce tax-free income. 1040ezform “Grandfathered debt” and “home equity debt” are defined in Part II of this publication. 1040ezform Refunds of interest. 1040ezform   If you receive a refund of interest in the same tax year you paid it, you must reduce your interest expense by the amount refunded to you. 1040ezform If you receive a refund of interest you deducted in an earlier year, you generally must include the refund in income in the year you receive it. 1040ezform However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year. 1040ezform This is true whether the interest overcharge was refunded to you or was used to reduce the outstanding principal on your mortgage. 1040ezform If you need to include the refund in income, report it on Form 1040, line 21. 1040ezform   If you received a refund of interest you overpaid in an earlier year, you generally will receive a Form 1098, Mortgage Interest Statement, showing the refund in box 3. 1040ezform For information about Form 1098, see Form 1098, Mortgage Interest Statement , later. 1040ezform   For more information on how to treat refunds of interest deducted in earlier years, see Recoveries in Publication 525, Taxable and Nontaxable Income. 1040ezform Cooperative apartment owner. 1040ezform   If you own a cooperative apartment, you must reduce your home mortgage interest deduction by your share of any cash portion of a patronage dividend that the cooperative receives. 1040ezform The patronage dividend is a partial refund to the cooperative housing corporation of mortgage interest it paid in a prior year. 1040ezform   If you receive a Form 1098 from the cooperative housing corporation, the form should show only the amount you can deduct. 1040ezform Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. 1040ezform Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. 1040ezform This image is too large to be displayed in the current screen. 1040ezform Please click the link to view the image. 1040ezform Figure B. 1040ezform Are My Points Fully Deductible This Year? A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. 1040ezform See Points paid by the seller , later. 1040ezform General Rule You generally cannot deduct the full amount of points in the year paid. 1040ezform Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. 1040ezform See Deduction Allowed Ratably , next. 1040ezform For exceptions to the general rule, see Deduction Allowed in Year Paid , later. 1040ezform Deduction Allowed Ratably If you do not meet the tests listed under Deduction Allowed in Year Paid , later, the loan is not a home improvement loan, or you choose not to deduct your points in full in the year paid, you can deduct the points ratably (equally) over the life of the loan if you meet all the following tests. 1040ezform You use the cash method of accounting. 1040ezform This means you report income in the year you receive it and deduct expenses in the year you pay them. 1040ezform Most individuals use this method. 1040ezform Your loan is secured by a home. 1040ezform (The home does not need to be your main home. 1040ezform ) Your loan period is not more than 30 years. 1040ezform If your loan period is more than 10 years, the terms of your loan are the same as other loans offered in your area for the same or longer period. 1040ezform Either your loan amount is $250,000 or less, or the number of points is not more than: 4, if your loan period is 15 years or less, or 6, if your loan period is more than 15 years. 1040ezform Example. 1040ezform You use the cash method of accounting. 1040ezform In 2013, you took out a $100,000 loan payable over 20 years. 1040ezform The terms of the loan are the same as for other 20-year loans offered in your area. 1040ezform You paid $4,800 in points. 1040ezform You made 3 monthly payments on the loan in 2013. 1040ezform You can deduct $60 [($4,800 ÷ 240 months) x 3 payments] in 2013. 1040ezform In 2014, if you make all twelve payments, you will be able to deduct $240 ($20 x 12). 1040ezform Deduction Allowed in Year Paid You can fully deduct points in the year paid if you meet all the following tests. 1040ezform (You can use Figure B as a quick guide to see whether your points are fully deductible in the year paid. 1040ezform ) Your loan is secured by your main home. 1040ezform (Your main home is the one you ordinarily live in most of the time. 1040ezform ) Paying points is an established business practice in the area where the loan was made. 1040ezform The points paid were not more than the points generally charged in that area. 1040ezform You use the cash method of accounting. 1040ezform This means you report income in the year you receive it and deduct expenses in the year you pay them. 1040ezform Most individuals use this method. 1040ezform 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. 1040ezform The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. 1040ezform The funds you provided are not required to have been applied to the points. 1040ezform They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. 1040ezform You cannot have borrowed these funds from your lender or mortgage broker. 1040ezform You use your loan to buy or build your main home. 1040ezform The points were computed as a percentage of the principal amount of the mortgage. 1040ezform The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. 1040ezform The points may be shown as paid from either your funds or the seller's. 1040ezform Note. 1040ezform If you meet all of these tests, you can choose to either fully deduct the points in the year paid, or deduct them over the life of the loan. 1040ezform Home improvement loan. 1040ezform   You can also fully deduct in the year paid points paid on a loan to improve your main home, if tests (1) through (6) are met. 1040ezform Second home. 1040ezform You cannot fully deduct in the year paid points you pay on loans secured by your second home. 1040ezform You can deduct these points only over the life of the loan. 1040ezform Refinancing. 1040ezform   Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. 1040ezform This is true even if the new mortgage is secured by your main home. 1040ezform   However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first 6 tests listed under Deduction Allowed in Year Paid , you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. 1040ezform You can deduct the rest of the points over the life of the loan. 1040ezform Example 1. 1040ezform In 1998, Bill Fields got a mortgage to buy a home. 1040ezform In 2013, Bill refinanced that mortgage with a 15-year $100,000 mortgage loan. 1040ezform The mortgage is secured by his home. 1040ezform To get the new loan, he had to pay three points ($3,000). 1040ezform Two points ($2,000) were for prepaid interest, and one point ($1,000) was charged for services, in place of amounts that ordinarily are stated separately on the settlement statement. 1040ezform Bill paid the points out of his private funds, rather than out of the proceeds of the new loan. 1040ezform The payment of points is an established practice in the area, and the points charged are not more than the amount generally charged there. 1040ezform Bill's first payment on the new loan was due July 1. 1040ezform He made six payments on the loan in 2013 and is a cash basis taxpayer. 1040ezform Bill used the funds from the new mortgage to repay his existing mortgage. 1040ezform Although the new mortgage loan was for Bill's continued ownership of his main home, it was not for the purchase or improvement of that home. 1040ezform He cannot deduct all of the points in 2013. 1040ezform He can deduct two points ($2,000) ratably over the life of the loan. 1040ezform He deducts $67 [($2,000 ÷ 180 months) × 6 payments] of the points in 2013. 1040ezform The other point ($1,000) was a fee for services and is not deductible. 1040ezform Example 2. 1040ezform The facts are the same as in Example 1, except that Bill used $25,000 of the loan proceeds to improve his home and $75,000 to repay his existing mortgage. 1040ezform Bill deducts 25% ($25,000 ÷ $100,000) of the points ($2,000) in 2013. 1040ezform His deduction is $500 ($2,000 × 25%). 1040ezform Bill also deducts the ratable part of the remaining $1,500 ($2,000 − $500) that must be spread over the life of the loan. 1040ezform This is $50 [($1,500 ÷ 180 months) × 6 payments] in 2013. 1040ezform The total amount Bill deducts in 2013 is $550 ($500 + $50). 1040ezform Special Situations This section describes certain special situations that may affect your deduction of points. 1040ezform Original issue discount. 1040ezform   If you do not qualify to either deduct the points in the year paid or deduct them ratably over the life of the loan, or if you choose not to use either of these methods, the points reduce the issue price of the loan. 1040ezform This reduction results in original issue discount, which is discussed in chapter 4 of Publication 535. 1040ezform Amounts charged for services. 1040ezform    Amounts charged by the lender for specific services connected to the loan are not interest. 1040ezform Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. 1040ezform  You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. 1040ezform Points paid by the seller. 1040ezform   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. 1040ezform Treatment by seller. 1040ezform   The seller cannot deduct these fees as interest. 1040ezform But they are a selling expense that reduces the amount realized by the seller. 1040ezform See Publication 523 for information on selling your home. 1040ezform Treatment by buyer. 1040ezform   The buyer reduces the basis of the home by the amount of the seller-paid points and treats the points as if he or she had paid them. 1040ezform If all the tests under Deduction Allowed in Year Paid , earlier, are met, the buyer can deduct the points in the year paid. 1040ezform If any of those tests are not met, the buyer deducts the points over the life of the loan. 1040ezform   If you need information about the basis of your home, see Publication 523 or Publication 530. 1040ezform Funds provided are less than points. 1040ezform   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the funds you provided were less than the points charged to you (test (6)), you can deduct the points in the year paid, up to the amount of funds you provided. 1040ezform In addition, you can deduct any points paid by the seller. 1040ezform Example 1. 1040ezform When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). 1040ezform You meet all the tests for deducting points in the year paid, except the only funds you provided were a $750 down payment. 1040ezform Of the $1,000 charged for points, you can deduct $750 in the year paid. 1040ezform You spread the remaining $250 over the life of the mortgage. 1040ezform Example 2. 1040ezform 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. 1040ezform In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). 1040ezform You spread the remaining $250 over the life of the mortgage. 1040ezform You must reduce the basis of your home by the $1,000 paid by the seller. 1040ezform Excess points. 1040ezform   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the points paid were more than generally paid in your area (test (3)), you deduct in the year paid only the points that are generally charged. 1040ezform You must spread any additional points over the life of the mortgage. 1040ezform Mortgage ending early. 1040ezform   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. 1040ezform However, if you refinance the mortgage with the same lender, you cannot deduct any remaining balance of spread points. 1040ezform Instead, deduct the remaining balance over the term of the new loan. 1040ezform   A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. 1040ezform Example. 1040ezform Dan paid $3,000 in points in 2002 that he had to spread out over the 15-year life of the mortgage. 1040ezform He deducts $200 points per year. 1040ezform Through 2012, Dan has deducted $2,200 of the points. 1040ezform Dan prepaid his mortgage in full in 2013. 1040ezform He can deduct the remaining $800 of points in 2013. 1040ezform Limits on deduction. 1040ezform   You cannot fully deduct points paid on a mortgage that exceeds the limits discussed in Part II . 1040ezform See the Table 1 Instructions for line 10. 1040ezform Form 1098. 1040ezform    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. 1040ezform See Form 1098, Mortgage Interest Statement , later. 1040ezform Mortgage Insurance Premiums You can treat amounts you paid during 2013 for qualified mortgage insurance as home mortgage interest. 1040ezform The insurance must be in connection with home acquisition debt, and the insurance contract must have been issued after 2006. 1040ezform Qualified mortgage insurance. 1040ezform   Qualified mortgage insurance is mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). 1040ezform   Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. 1040ezform If provided by the Rural Housing Service, it is commonly known as a guarantee fee. 1040ezform The funding fee and guarantee fee can either be included in the amount of the loan or paid in full at the time of closing. 1040ezform These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013. 1040ezform Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098. 1040ezform Special rules for prepaid mortgage insurance. 1040ezform   Generally, if you paid premiums for qualified mortgage insurance that are properly allocable to periods after the close of the tax year, such premiums are treated as paid in the period to which they are allocated. 1040ezform You must allocate the premiums over the shorter of the stated term of the mortgage or 84 months, beginning with the month the insurance was obtained. 1040ezform No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term. 1040ezform This paragraph does not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. 1040ezform Example. 1040ezform Ryan purchased a home in May of 2012 and financed the home with a 15-year mortgage. 1040ezform Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May. 1040ezform Since the $9,240 in private mortgage insurance is allocable to periods after 2012, Ryan must allocate the $9,240 over the shorter of the life of the mortgage or 84 months. 1040ezform Ryan's adjusted gross income (AGI) for 2012 is $76,000. 1040ezform Ryan can deduct $880 ($9,240 ÷ 84 x 8 months) for qualified mortgage insurance premiums in 2012. 1040ezform For 2013, Ryan can deduct $1,320 ($9,240 ÷ 84 x 12 months) if his AGI is $100,000 or less. 1040ezform In this example, the mortgage insurance premiums are allocated over 84 months, which is shorter than the life of the mortgage of 15 years (180 months). 1040ezform Limit on deduction. 1040ezform   If your adjusted gross income on Form 1040, line 38, is more than $100,000 ($50,000 if your filing status is married filing separately), the amount of your mortgage insurance premiums that are otherwise deductible is reduced and may be eliminated. 1040ezform 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. 1040ezform If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. 1040ezform Form 1098. 1040ezform   The mortgage interest statement you receive should show not only the total interest paid during the year, but also your mortgage insurance premiums paid during the year, which may qualify to be treated as deductible mortgage interest. 1040ezform See Form 1098, Mortgage Interest Statement, next. 1040ezform Form 1098, Mortgage Interest Statement If you paid $600 or more of mortgage interest (including certain points and mortgage insurance premiums) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement from the mortgage holder. 1040ezform You will receive the statement if you pay interest to a person (including a financial institution or cooperative housing corporation) in the course of that person's trade or business. 1040ezform A governmental unit is a person for purposes of furnishing the statement. 1040ezform The statement for each year should be sent to you by January 31 of the following year. 1040ezform A copy of this form will also be sent to the IRS. 1040ezform The statement will show the total interest you paid during the year, any mortgage insurance premiums you paid, and if you purchased a main home during the year, it also will show the deductible points paid during the year, including seller-paid points. 1040ezform However, it should not show any interest that was paid for you by a government agency. 1040ezform As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. 1040ezform However, certain points not included on Form 1098 also may be deductible, either in the year paid or over the life of the loan. 1040ezform See the earlier discussion of Points to determine whether you can deduct points not shown on Form 1098. 1040ezform Prepaid interest on Form 1098. 1040ezform   If you prepaid interest in 2013 that accrued in full by January 15, 2014, this prepaid interest may be included in box 1 of Form 1098. 1040ezform However, you cannot deduct the prepaid amount for January 2014 in 2013. 1040ezform (See Prepaid interest , earlier. 1040ezform ) You will have to figure the interest that accrued for 2014 and subtract it from the amount in box 1. 1040ezform You will include the interest for January 2014 with other interest you pay for 2014. 1040ezform Refunded interest. 1040ezform   If you received a refund of mortgage interest you overpaid in an earlier year, you generally will receive a Form 1098 showing the refund in box 3. 1040ezform See Refunds of interest , earlier. 1040ezform Mortgage insurance premiums. 1040ezform   The amount of mortgage insurance premiums you paid during 2013 may be shown in Box 4 of Form 1098. 1040ezform See Mortgage Insurance Premiums , earlier. 1040ezform How To Report Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. 1040ezform If you paid more deductible interest to the financial institution than the amount shown on Form 1098, show the larger deductible amount on line 10. 1040ezform Attach a statement explaining the difference and print “See attached” next to line 10. 1040ezform Deduct home mortgage interest that was not reported to you on Form 1098 on Schedule A (Form 1040), line 11. 1040ezform If you paid home mortgage interest to the person from whom you bought your home, show that person's name, address, and taxpayer identification number (TIN) on the dotted lines next to line 11. 1040ezform The seller must give you this number and you must give the seller your TIN. 1040ezform A Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. 1040ezform Failure to meet any of these requirements may result in a $50 penalty for each failure. 1040ezform The TIN can be either a social security number, an individual taxpayer identification number (issued by the Internal Revenue Service), or an employer identification number. 1040ezform If you can take a deduction for points that were not reported to you on Form 1098, deduct those points on Schedule A (Form 1040), line 12. 1040ezform Deduct mortgage insurance premiums on Schedule A (Form 1040), line 13. 1040ezform More than one borrower. 1040ezform   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. 1040ezform Show how much of the interest each of you paid, and give the name and address of the person who received the form. 1040ezform Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. 1040ezform Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13. 1040ezform   Similarly, if you are the payer of record on a mortgage on which there are other borrowers entitled to a deduction for the interest shown on the Form 1098 you received, deduct only your share of the interest on Schedule A (Form 1040), line 10. 1040ezform Let each of the other borrowers know what his or her share is. 1040ezform Mortgage proceeds used for business or investment. 1040ezform   If your home mortgage interest deduction is limited under the rules explained in Part II , but all or part of the mortgage proceeds were used for business, investment, or other deductible activities, see Table 2 near the end of this publication. 1040ezform It shows where to deduct the part of your excess interest that is for those activities. 1040ezform The Table 1 Instructions for line 13 in Part II explain how to divide the excess interest among the activities for which the mortgage proceeds were used. 1040ezform Special Rule for Tenant-Stockholders in Cooperative Housing Corporations A qualified home includes stock in a cooperative housing corporation owned by a tenant-stockholder. 1040ezform This applies only if the tenant-stockholder is entitled to live in the house or apartment because of owning stock in the cooperative. 1040ezform Cooperative housing corporation. 1040ezform   This is a corporation that meets all of the following conditions. 1040ezform Has only one class of stock outstanding, Has no stockholders other than those who own the stock that can live in a house, apartment, or house trailer owned or leased by the corporation, Has no stockholders who can receive any distribution out of capital other than on a liquidation of the corporation, and Meets at least one of the following requirements. 1040ezform Receives at least 80% of its gross income for the year in which the mortgage interest is paid or incurred from tenant-stockholders. 1040ezform For this purpose, gross income is all income received during the entire year, including amounts received before the corporation changed to cooperative ownership. 1040ezform At all times during the year, at least 80% of the total square footage of the corporation's property is used or available for use by the tenant-stockholders for residential or residential-related use. 1040ezform At least 90% of the corporation's expenditures paid or incurred during the year are for the acquisition, construction, management, maintenance, or care of corporate property for the benefit of the tenant-stockholders. 1040ezform Stock used to secure debt. 1040ezform   In some cases, you cannot use your cooperative housing stock to secure a debt because of either: Restrictions under local or state law, or Restrictions in the cooperative agreement (other than restrictions in which the main purpose is to permit the tenant- stockholder to treat unsecured debt as secured debt). 1040ezform However, you can treat a debt as secured by the stock to the extent that the proceeds are used to buy the stock under the allocation of interest rules. 1040ezform See chapter 4 of Publication 535 for details on these rules. 1040ezform Figuring deductible home mortgage interest. 1040ezform   Generally, if you are a tenant-stockholder, you can deduct payments you make for your share of the interest paid or incurred by the cooperative. 1040ezform The interest must be on a debt to buy, build, change, improve, or maintain the cooperative's housing, or on a debt to buy the land. 1040ezform   Figure your share of this interest by multiplying the total by the following fraction. 1040ezform      Your shares of stock in the cooperative   The total shares of stock in the cooperative Limits on deduction. 1040ezform   To figure how the limits discussed in Part II apply to you, treat your share of the cooperative's debt as debt incurred by you. 1040ezform The cooperative should determine your share of its grandfathered debt, its home acquisition debt, and its home equity debt. 1040ezform (Your share of each of these types of debt is equal to the average balance of each debt multiplied by the fraction just given. 1040ezform ) After your share of the average balance of each type of debt is determined, you include it with the average balance of that type of debt secured by your stock. 1040ezform Form 1098. 1040ezform    The cooperative should give you a Form 1098 showing your share of the interest. 1040ezform Use the rules in this publication to determine your deductible mortgage interest. 1040ezform Part II. 1040ezform Limits on Home Mortgage Interest Deduction This part of the publication discusses the limits on deductible home mortgage interest. 1040ezform These limits apply to your home mortgage interest expense if you have a home mortgage that does not fit into any of the three categories listed at the beginning of Part I under Fully deductible interest . 1040ezform Your home mortgage interest deduction is limited to the interest on the part of your home mortgage debt that is not more than your qualified loan limit. 1040ezform This is the part of your home mortgage debt that is grandfathered debt or that is not more than the limits for home acquisition debt and home equity debt. 1040ezform Table 1 can help you figure your qualified loan limit and your deductible home mortgage interest. 1040ezform Home Acquisition Debt Home acquisition debt is a mortgage you took out after October 13, 1987, to buy, build, or substantially improve a qualified home (your main or second home). 1040ezform It also must be secured by that home. 1040ezform 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. 1040ezform The additional debt may qualify as home equity debt (discussed later). 1040ezform Home acquisition debt limit. 1040ezform   The total amount you can treat as home acquisition debt at any time on your main home and second home cannot be more than $1 million ($500,000 if married filing separately). 1040ezform This limit is reduced (but not below zero) by the amount of your grandfathered debt (discussed later). 1040ezform Debt over this limit may qualify as home equity debt (also discussed later). 1040ezform Refinanced home acquisition debt. 1040ezform   Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. 1040ezform However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing. 1040ezform Any additional debt not used to buy, build, or substantially improve a qualified home is not home acquisition debt, but may qualify as home equity debt (discussed later). 1040ezform Mortgage that qualifies later. 1040ezform   A mortgage that does not qualify as home acquisition debt because it does not meet all the requirements may qualify at a later time. 1040ezform For example, a debt that you use to buy your home may not qualify as home acquisition debt because it is not secured by the home. 1040ezform However, if the debt is later secured by the home, it may qualify as home acquisition debt after that time. 1040ezform Similarly, a debt that you use to buy property may not qualify because the property is not a qualified home. 1040ezform However, if the property later becomes a qualified home, the debt may qualify after that time. 1040ezform Mortgage treated as used to buy, build, or improve home. 1040ezform   A mortgage secured by a qualified home may be treated as home acquisition debt, even if you do not actually use the proceeds to buy, build, or substantially improve the home. 1040ezform This applies in the following situations. 1040ezform You buy your home within 90 days before or after the date you take out the mortgage. 1040ezform The home acquisition debt is limited to the home's cost, plus the cost of any substantial improvements within the limit described below in (2) or (3). 1040ezform (See Example 1 later. 1040ezform ) You build or improve your home and take out the mortgage before the work is completed. 1040ezform The home acquisition debt is limited to the amount of the expenses incurred within 24 months before the date of the mortgage. 1040ezform You build or improve your home and take out the mortgage within 90 days after the work is completed. 1040ezform The home acquisition debt is limited to the amount of the expenses incurred within the period beginning 24 months before the work is completed and ending on the date of the mortgage. 1040ezform (See Example 2 later. 1040ezform ) Example 1. 1040ezform You bought your main home on June 3 for $175,000. 1040ezform You paid for the home with cash you got from the sale of your old home. 1040ezform On July 15, you took out a mortgage of $150,000 secured by your main home. 1040ezform You used the $150,000 to invest in stocks. 1040ezform You can treat the mortgage as taken out to buy your home because you bought the home within 90 days before you took out the mortgage. 1040ezform The entire mortgage qualifies as home acquisition debt because it was not more than the home's cost. 1040ezform Example 2. 1040ezform On January 31, John began building a home on the lot that he owned. 1040ezform He used $45,000 of his personal funds to build the home. 1040ezform The home was completed on October 31. 1040ezform On November 21, John took out a $36,000 mortgage that was secured by the home. 1040ezform The mortgage can be treated as used to build the home because it was taken out within 90 days after the home was completed. 1040ezform The entire mortgage qualifies as home acquisition debt because it was not more than the expenses incurred within the period beginning 24 months before the home was completed. 1040ezform This is illustrated by Figure C. 1040ezform   Please click here for the text description of the image. 1040ezform Figure C. 1040ezform John's example Date of the mortgage. 1040ezform   The date you take out your mortgage is the day the loan proceeds are disbursed. 1040ezform This is generally the closing date. 1040ezform You can treat the day you apply in writing for your mortgage as the date you take it out. 1040ezform However, this applies only if you receive the loan proceeds within a reasonable time (such as within 30 days) after your application is approved. 1040ezform If a timely application you make is rejected, a reasonable additional time will be allowed to make a new application. 1040ezform Cost of home or improvements. 1040ezform   To determine your cost, include amounts paid to acquire any interest in a qualified home or to substantially improve the home. 1040ezform   The cost of building or substantially improving a qualified home includes the costs to acquire real property and building materials, fees for architects and design plans, and required building permits. 1040ezform Substantial improvement. 1040ezform   An improvement is substantial if it: Adds to the value of your home, Prolongs your home's useful life, or Adapts your home to new uses. 1040ezform    Repairs that maintain your home in good condition, such as repainting your home, are not substantial improvements. 1040ezform However, if you paint your home as part of a renovation that substantially improves your qualified home, you can include the painting costs in the cost of the improvements. 1040ezform Acquiring an interest in a home because of a divorce. 1040ezform   If you incur debt to acquire the interest of a spouse or former spouse in a home, because of a divorce or legal separation, you can treat that debt as home acquisition debt. 1040ezform Part of home not a qualified home. 1040ezform    To figure your home acquisition debt, you must divide the cost of your home and improvements between the part of your home that is a qualified home and any part that is not a qualified home. 1040ezform See Divided use of your home under Qualified Home in Part I. 1040ezform Home Equity Debt If you took out a loan for reasons other than to buy, build, or substantially improve your home, it may qualify as home equity debt. 1040ezform In addition, debt you incurred to buy, build, or substantially improve your home, to the extent it is more than the home acquisition debt limit (discussed earlier), may qualify as home equity debt. 1040ezform Home equity debt is a mortgage you took out after October 13, 1987, that: Does not qualify as home acquisition debt or as grandfathered debt, and Is secured by your qualified home. 1040ezform Example. 1040ezform You bought your home for cash 10 years ago. 1040ezform You did not have a mortgage on your home until last year, when you took out a $50,000 loan, secured by your home, to pay for your daughter's college tuition and your father's medical bills. 1040ezform This loan is home equity debt. 1040ezform Home equity debt limit. 1040ezform   There is a limit on the amount of debt that can be treated as home equity debt. 1040ezform The total home equity debt on your main home and second home is limited to the smaller of: $100,000 ($50,000 if married filing separately), or The total of each home's fair market value (FMV) reduced (but not below zero) by the amount of its home acquisition debt and grandfathered debt. 1040ezform Determine the FMV and the outstanding home acquisition and grandfathered debt for each home on the date that the last debt was secured by the home. 1040ezform Example. 1040ezform You own one home that you bought in 2000. 1040ezform Its FMV now is $110,000, and the current balance on your original mortgage (home acquisition debt) is $95,000. 1040ezform Bank M offers you a home mortgage loan of 125% of the FMV of the home less any outstanding mortgages or other liens. 1040ezform To consolidate some of your other debts, you take out a $42,500 home mortgage loan [(125% × $110,000) − $95,000] with Bank M. 1040ezform Your home equity debt is limited to $15,000. 1040ezform This is the smaller of: $100,000, the maximum limit, or $15,000, the amount that the FMV of $110,000 exceeds the amount of home acquisition debt of $95,000. 1040ezform Debt higher than limit. 1040ezform   Interest on amounts over the home equity debt limit (such as the interest on $27,500 [$42,500 − $15,000] in the preceding example) generally is treated as personal interest and is not deductible. 1040ezform But if the proceeds of the loan were used for investment, business, or other deductible purposes, the interest may be deductible. 1040ezform If it is, see the Table 1 Instructions for line 13 for an explanation of how to allocate the excess interest. 1040ezform Part of home not a qualified home. 1040ezform   To figure the limit on your home equity debt, you must divide the FMV of your home between the part that is a qualified home and any part that is not a qualified home. 1040ezform See Divided use of your home under Qualified Home in Part I. 1040ezform Fair market value (FMV). 1040ezform    This is the price at which the home would change hands between you and a buyer, neither having to sell or buy, and both having reasonable knowledge of all relevant facts. 1040ezform Sales of similar homes in your area, on about the same date your last debt was secured by the home, may be helpful in figuring the FMV. 1040ezform Grandfathered Debt If you took out a mortgage on your home before October 14, 1987, or you refinanced such a mortgage, it may qualify as grandfathered debt. 1040ezform To qualify, it must have been secured by your qualified home on October 13, 1987, and at all times after that date. 1040ezform How you used the proceeds does not matter. 1040ezform Grandfathered debt is not limited. 1040ezform All of the interest you paid on grandfathered debt is fully deductible home mortgage interest. 1040ezform However, the amount of your grandfathered debt reduces the $1 million limit for home acquisition debt and the limit based on your home's fair market value for home equity debt. 1040ezform Refinanced grandfathered debt. 1040ezform   If you refinanced grandfathered debt after October 13, 1987, for an amount that was not more than the mortgage principal left on the debt, then you still treat it as grandfathered debt. 1040ezform To the extent the new debt is more than that mortgage principal, it is treated as home acquisition or home equity debt, and the mortgage is a mixed-use mortgage (discussed later under Average Mortgage Balance in the Table 1 instructions). 1040ezform The debt must be secured by the qualified home. 1040ezform   You treat grandfathered debt that was refinanced after October 13, 1987, as grandfathered debt only for the term left on the debt that was refinanced. 1040ezform After that, you treat it as home acquisition debt or home equity debt, depending on how you used the proceeds. 1040ezform Exception. 1040ezform   If the debt before refinancing was like a balloon note (the principal on the debt was not amortized over the term of the debt), then you treat the refinanced debt as grandfathered debt for the term of the first refinancing. 1040ezform This term cannot be more than 30 years. 1040ezform Example. 1040ezform Chester took out a $200,000 first mortgage on his home in 1986. 1040ezform The mortgage was a five-year balloon note and the entire balance on the note was due in 1991. 1040ezform Chester refinanced the debt in 1991 with a new 20-year mortgage. 1040ezform The refinanced debt is treated as grandfathered debt for its entire term (20 years). 1040ezform Line-of-credit mortgage. 1040ezform    If you had a line-of-credit mortgage on October 13, 1987, and borrowed additional amounts against it after that date, then the additional amounts are either home acquisition debt or home equity debt depending on how you used the proceeds. 1040ezform The balance on the mortgage before you borrowed the additional amounts is grandfathered debt. 1040ezform The newly borrowed amounts are not grandfathered debt because the funds were borrowed after October 13, 1987. 1040ezform See Average Mortgage Balance in the Table 1 Instructions that follow. 1040ezform Table 1 Instructions Unless you are subject to the overall limit on itemized deductions, you can deduct all of the interest you paid during the year on mortgages secured by your main home or second home in either of the following two situations. 1040ezform All the mortgages are grandfathered debt. 1040ezform The total of the mortgage balances for the entire year is within the limits discussed earlier under Home Acquisition Debt and Home Equity Debt . 1040ezform In either of those cases, you do not need Table 1. 1040ezform Otherwise, you can use Table 1 to determine your qualified loan limit and deductible home mortgage interest. 1040ezform Fill out only one Table 1 for both your main and second home regardless of how many mortgages you have. 1040ezform Table 1. 1040ezform Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. 1040ezform Part I Qualified Loan Limit 1. 1040ezform Enter the average balance of all your grandfathered debt. 1040ezform See line 1 instructions 1. 1040ezform   2. 1040ezform Enter the average balance of all your home acquisition debt. 1040ezform See line 2 instructions 2. 1040ezform   3. 1040ezform Enter $1,000,000 ($500,000 if married filing separately) 3. 1040ezform   4. 1040ezform Enter the larger of the amount on line 1 or the amount on line 3 4. 1040ezform   5. 1040ezform Add the amounts on lines 1 and 2. 1040ezform Enter the total here 5. 1040ezform   6. 1040ezform Enter the smaller of the amount on line 4 or the amount on line 5 6. 1040ezform   7. 1040ezform If you have home equity debt, enter the smaller of $100,000 ($50,000 if married filing separately) or your limited amount. 1040ezform See the line 7 instructions for the limit which may apply to you. 1040ezform 7. 1040ezform   8. 1040ezform Add the amounts on lines 6 and 7. 1040ezform Enter the total. 1040ezform This is your qualified loan limit. 1040ezform 8. 1040ezform   Part II Deductible Home Mortgage Interest 9. 1040ezform Enter the total of the average balances of all mortgages on all qualified homes. 1040ezform  See line 9 instructions 9. 1040ezform     If line 8 is less than line 9, go on to line 10. 1040ezform If line 8 is equal to or more than line 9, stop here. 1040ezform All of your interest on all the mortgages included on line 9 is deductible as home mortgage interest on Schedule A (Form 1040). 1040ezform     10. 1040ezform Enter the total amount of interest that you paid. 1040ezform See line 10 instructions 10. 1040ezform   11. 1040ezform Divide the amount on line 8 by the amount on line 9. 1040ezform Enter the result as a decimal amount (rounded to three places) 11. 1040ezform × . 1040ezform 12. 1040ezform Multiply the amount on line 10 by the decimal amount on line 11. 1040ezform Enter the result. 1040ezform This is your deductible home mortgage interest. 1040ezform Enter this amount on Schedule A (Form 1040) 12. 1040ezform   13. 1040ezform Subtract the amount on line 12 from the amount on line 10. 1040ezform Enter the result. 1040ezform This is not home mortgage interest. 1040ezform See line 13 instructions 13. 1040ezform   Home equity debt only. 1040ezform   If all of your mortgages are home equity debt, do not fill in lines 1 through 5. 1040ezform Enter zero on line 6 and complete the rest of Table 1. 1040ezform Average Mortgage Balance You have to figure the average balance of each mortgage to determine your qualified loan limit. 1040ezform You need these amounts to complete lines 1, 2, and 9 of Table 1. 1040ezform You can use the highest mortgage balances during the year, but you may benefit most by using the average balances. 1040ezform The following are methods you can use to figure your average mortgage balances. 1040ezform However, if a mortgage has more than one category of debt, see Mixed-use mortgages , later, in this section. 1040ezform Average of first and last balance method. 1040ezform   You can use this method if all the following apply. 1040ezform You did not borrow any new amounts on the mortgage during the year. 1040ezform (This does not include borrowing the original mortgage amount. 1040ezform ) You did not prepay more than one month's principal during the year. 1040ezform (This includes prepayment by refinancing your home or by applying proceeds from its sale. 1040ezform ) You had to make level payments at fixed equal intervals on at least a semi-annual basis. 1040ezform You treat your payments as level even if they were adjusted from time to time because of changes in the interest rate. 1040ezform    To figure your average balance, complete the following worksheet. 1040ezform    1. 1040ezform Enter the balance as of the first day of the year that the mortgage was secured by your qualified home during the year (generally January 1)   2. 1040ezform Enter the balance as of the last day of the year that the mortgage was secured by your qualified home during the year (generally December 31)   3. 1040ezform Add amounts on lines 1 and 2   4. 1040ezform Divide the amount on line 3 by 2. 1040ezform Enter the result   Interest paid divided by interest rate method. 1040ezform   You can use this method if at all times in 2013 the mortgage was secured by your qualified home and the interest was paid at least monthly. 1040ezform    Complete the following worksheet to figure your average balance. 1040ezform    1. 1040ezform Enter the interest paid in 2013. 1040ezform Do not include points, mortgage insurance premiums, or any interest paid in 2013 that is for a year after 2013. 1040ezform However, do include interest that is for 2013 but was paid in an earlier year   2. 1040ezform Enter the annual interest rate on the mortgage. 1040ezform If the interest rate varied in 2013, use the lowest rate for the year   3. 1040ezform Divide the amount on line 1 by the amount on line 2. 1040ezform Enter the result   Example. 1040ezform Mr. 1040ezform Blue had a line of credit secured by his main home all year. 1040ezform He paid interest of $2,500 on this loan. 1040ezform The interest rate on the loan was 9% (. 1040ezform 09) all year. 1040ezform His average balance using this method is $27,778, figured as follows. 1040ezform 1. 1040ezform Enter the interest paid in 2013. 1040ezform Do not include points, mortgage insurance premiums, or any interest paid in 2013 that is for a year after 2013. 1040ezform However, do include interest that is for 2013 but was paid in an earlier year $2,500 2. 1040ezform Enter the annual interest rate on the mortgage. 1040ezform If the interest rate varied in 2013, use the lowest rate for the year . 1040ezform 09 3. 1040ezform Divide the amount on line 1 by the amount on line 2. 1040ezform Enter the result $27,778 Statements provided by your lender. 1040ezform   If you receive monthly statements showing the closing balance or the average balance for the month, you can use either to figure your average balance for the year. 1040ezform You can treat the balance as zero for any month the mortgage was not secured by your qualified home. 1040ezform   For each mortgage, figure your average balance by adding your monthly closing or average balances and dividing that total by the number of months the home secured by that mortgage was a qualified home during the year. 1040ezform   If your lender can give you your average balance for the year, you can use that amount. 1040ezform Example. 1040ezform Ms. 1040ezform Brown had a home equity loan secured by her main home all year. 1040ezform She received monthly statements showing her average balance for each month. 1040ezform She can figure her average balance for the year by adding her monthly average balances and dividing the total by 12. 1040ezform Mixed-use mortgages. 1040ezform   A mixed-use mortgage is a loan that consists of more than one of the three categories of debt (grandfathered debt, home acquisition debt, and home equity debt). 1040ezform For example, a mortgage you took out during the year is a mixed-use mortgage if you used its proceeds partly to refinance a mortgage that you took out in an earlier year to buy your home (home acquisition debt) and partly to buy a car (home equity debt). 1040ezform   Complete lines 1 and 2 of Table 1 by including the separate average balances of any grandfathered debt and home acquisition debt in your mixed-use mortgage. 1040ezform Do not use the methods described earlier in this section to figure the average balance of either category. 1040ezform Instead, for each category, use the following method. 1040ezform Figure the balance of that category of debt for each month. 1040ezform This is the amount of the loan proceeds allocated to that category, reduced by your principal payments on the mortgage previously applied to that category. 1040ezform Principal payments on a mixed-use mortgage are applied in full to each category of debt, until its balance is zero, in the following order: First, any home equity debt, Next, any grandfathered debt, and Finally, any home acquisition debt. 1040ezform Add together the monthly balances figured in (1). 1040ezform Divide the result in (2) by 12. 1040ezform   Complete line 9 of Table 1 by including the average balance of the entire mixed-use mortgage, figured under one of the methods described earlier in this section. 1040ezform Example 1. 1040ezform In 1986, Sharon took out a $1,400,000 mortgage to buy her main home (grandfathered debt). 1040ezform On March 2, 2013, when the home had a fair market value of $1,700,000 and she owed $1,100,000 on the mortgage, Sharon took out a second mortgage for $200,000. 1040ezform She used $180,000 of the proceeds to make substantial improvements to her home (home acquisition debt) and the remaining $20,000 to buy a car (home equity debt). 1040ezform Under the loan agreement, Sharon must make principal payments of $1,000 at the end of each month. 1040ezform During 2013, her principal payments on the second mortgage totaled $10,000. 1040ezform To complete Table 1, line 2, Sharon must figure a separate average balance for the part of her second mortgage that is home acquisition debt. 1040ezform The January and February balances were zero. 1040ezform The March through December balances were all $180,000, because none of her principal payments are applied to the home acquisition debt. 1040ezform (They are all applied to the home equity debt, reducing it to $10,000 [$20,000 − $10,000]. 1040ezform ) The monthly balances of the home acquisition debt total $1,800,000 ($180,000 × 10). 1040ezform Therefore, the average balance of the home acquisition debt for 2013 was $150,000 ($1,800,000 ÷ 12). 1040ezform Example 2. 1040ezform The facts are the same as in Example 1. 1040ezform In 2014, Sharon's January through October principal payments on her second mortgage are applied to the home equity debt, reducing it to zero. 1040ezform The balance of the home acquisition debt remains $180,000 for each of those months. 1040ezform Because her November and December principal payments are applied to the home acquisition debt, the November balance is $179,000 ($180,000 − $1,000) and the December balance is $178,000 ($180,000 − $2,000). 1040ezform The monthly balances total $2,157,000 [($180,000 × 10) + $179,000 + $178,000]. 1040ezform Therefore, the average balance of the home acquisition debt for 2014 is $179,750 ($2,157,000 ÷ 12). 1040ezform L