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1040x 2012 Tax Form

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1040x 2012 Tax Form

1040x 2012 tax form 12. 1040x 2012 tax form   Other Income Table of Contents Introduction Useful Items - You may want to see: Bartering Canceled DebtsInterest included in canceled debt. 1040x 2012 tax form Exceptions Host or Hostess Life Insurance ProceedsSurviving spouse. 1040x 2012 tax form Endowment Contract Proceeds Accelerated Death Benefits Public Safety Officer Killed in the Line of Duty Partnership Income S Corporation Income RecoveriesItemized Deduction Recoveries Rents from Personal Property RepaymentsMethod 1. 1040x 2012 tax form Method 2. 1040x 2012 tax form RoyaltiesDepletion. 1040x 2012 tax form Coal and iron ore. 1040x 2012 tax form Sale of property interest. 1040x 2012 tax form Part of future production sold. 1040x 2012 tax form Unemployment BenefitsTypes of unemployment compensation. 1040x 2012 tax form Governmental program. 1040x 2012 tax form Repayment of unemployment compensation. 1040x 2012 tax form Tax withholding. 1040x 2012 tax form Repayment of benefits. 1040x 2012 tax form Welfare and Other Public Assistance Benefits Other IncomeEmotional distress. 1040x 2012 tax form Deduction for costs involved in unlawful discrimination suits. 1040x 2012 tax form Energy conservation measure. 1040x 2012 tax form Dwelling unit. 1040x 2012 tax form Current income required to be distributed. 1040x 2012 tax form Current income not required to be distributed. 1040x 2012 tax form How to report. 1040x 2012 tax form Losses. 1040x 2012 tax form Grantor trust. 1040x 2012 tax form Nonemployee compensation. 1040x 2012 tax form Corporate director. 1040x 2012 tax form Personal representatives. 1040x 2012 tax form Manager of trade or business for bankruptcy estate. 1040x 2012 tax form Notary public. 1040x 2012 tax form Election precinct official. 1040x 2012 tax form Difficulty-of-care payments. 1040x 2012 tax form Maintaining space in home. 1040x 2012 tax form Reporting taxable payments. 1040x 2012 tax form Lotteries and raffles. 1040x 2012 tax form Form W-2G. 1040x 2012 tax form Reporting winnings and recordkeeping. 1040x 2012 tax form Inherited pension or IRA. 1040x 2012 tax form Employee awards or bonuses. 1040x 2012 tax form Pulitzer, Nobel, and similar prizes. 1040x 2012 tax form Payment for services. 1040x 2012 tax form VA payments. 1040x 2012 tax form Prizes. 1040x 2012 tax form Strike and lockout benefits. 1040x 2012 tax form Introduction You must include on your return all items of income you receive in the form of money, property, and services unless the tax law states that you do not include them. 1040x 2012 tax form Some items, however, are only partly excluded from income. 1040x 2012 tax form This chapter discusses many kinds of income and explains whether they are taxable or nontaxable. 1040x 2012 tax form Income that is taxable must be reported on your tax return and is subject to tax. 1040x 2012 tax form Income that is nontaxable may have to be shown on your tax return but is not taxable. 1040x 2012 tax form This chapter begins with discussions of the following income items. 1040x 2012 tax form Bartering. 1040x 2012 tax form Canceled debts. 1040x 2012 tax form Sales parties at which you are the host or hostess. 1040x 2012 tax form Life insurance proceeds. 1040x 2012 tax form Partnership income. 1040x 2012 tax form S Corporation income. 1040x 2012 tax form Recoveries (including state income tax refunds). 1040x 2012 tax form Rents from personal property. 1040x 2012 tax form Repayments. 1040x 2012 tax form Royalties. 1040x 2012 tax form Unemployment benefits. 1040x 2012 tax form Welfare and other public assistance benefits. 1040x 2012 tax form These discussions are followed by brief discussions of other income items. 1040x 2012 tax form Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 544 Sales and Other Dispositions of Assets 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Bartering Bartering is an exchange of property or services. 1040x 2012 tax form You must include in your income, at the time received, the fair market value of property or services you receive in bartering. 1040x 2012 tax form If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as fair market value unless the value can be shown to be otherwise. 1040x 2012 tax form Generally, you report this income on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. 1040x 2012 tax form However, if the barter involves an exchange of something other than services, such as in Example 3 below, you may have to use another form or schedule instead. 1040x 2012 tax form Example 1. 1040x 2012 tax form You are a self-employed attorney who performs legal services for a client, a small corporation. 1040x 2012 tax form The corporation gives you shares of its stock as payment for your services. 1040x 2012 tax form You must include the fair market value of the shares in your income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) in the year you receive them. 1040x 2012 tax form Example 2. 1040x 2012 tax form You are self-employed and a member of a barter club. 1040x 2012 tax form The club uses “credit units” as a means of exchange. 1040x 2012 tax form It adds credit units to your account for goods or services you provide to members, which you can use to purchase goods or services offered by other members of the barter club. 1040x 2012 tax form The club subtracts credit units from your account when you receive goods or services from other members. 1040x 2012 tax form You must include in your income the value of the credit units that are added to your account, even though you may not actually receive goods or services from other members until a later tax year. 1040x 2012 tax form Example 3. 1040x 2012 tax form You own a small apartment building. 1040x 2012 tax form In return for 6 months rent-free use of an apartment, an artist gives you a work of art she created. 1040x 2012 tax form You must report as rental income on Schedule E (Form 1040), Supplemental Income and Loss, the fair market value of the artwork, and the artist must report as income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) the fair rental value of the apartment. 1040x 2012 tax form Form 1099-B from barter exchange. 1040x 2012 tax form   If you exchanged property or services through a barter exchange, Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or a similar statement from the barter exchange should be sent to you by February 18, 2014. 1040x 2012 tax form It should show the value of cash, property, services, credits, or scrip you received from exchanges during 2013. 1040x 2012 tax form The IRS also will receive a copy of Form 1099-B. 1040x 2012 tax form Canceled Debts In most cases, if a debt you owe is canceled or forgiven, other than as a gift or bequest, you must include the canceled amount in your income. 1040x 2012 tax form You have no income from the canceled debt if it is intended as a gift to you. 1040x 2012 tax form A debt includes any indebtedness for which you are liable or which attaches to property you hold. 1040x 2012 tax form If the debt is a nonbusiness debt, report the canceled amount on Form 1040, line 21. 1040x 2012 tax form If it is a business debt, report the amount on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) (or on Schedule F (Form 1040), Profit or Loss From Farming, if the debt is farm debt and you are a farmer). 1040x 2012 tax form Form 1099-C. 1040x 2012 tax form   If a Federal Government agency, financial institution, or credit union cancels or forgives a debt you owe of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. 1040x 2012 tax form The amount of the canceled debt is shown in box 2. 1040x 2012 tax form Interest included in canceled debt. 1040x 2012 tax form   If any interest is forgiven and included in the amount of canceled debt in box 2, the amount of interest also will be shown in box 3. 1040x 2012 tax form Whether or not you must include the interest portion of the canceled debt in your income depends on whether the interest would be deductible when you paid it. 1040x 2012 tax form See Deductible debt under Exceptions, later. 1040x 2012 tax form   If the interest would not be deductible (such as interest on a personal loan), include in your income the amount from Form 1099-C, box 2. 1040x 2012 tax form If the interest would be deductible (such as on a business loan), include in your income the net amount of the canceled debt (the amount shown in box 2 less the interest amount shown in box 3). 1040x 2012 tax form Discounted mortgage loan. 1040x 2012 tax form   If your financial institution offers a discount for the early payment of your mortgage loan, the amount of the discount is canceled debt. 1040x 2012 tax form You must include the canceled amount in your income. 1040x 2012 tax form Mortgage relief upon sale or other disposition. 1040x 2012 tax form   If you are personally liable for a mortgage (recourse debt), and you are relieved of the mortgage when you dispose of the property, you may realize gain or loss up to the fair market value of the property. 1040x 2012 tax form To the extent the mortgage discharge exceeds the fair market value of the property, it is income from discharge of indebtedness unless it qualifies for exclusion under Excluded debt , later. 1040x 2012 tax form Report any income from discharge of indebtedness on nonbusiness debt that does not qualify for exclusion as other income on Form 1040, line 21. 1040x 2012 tax form    You may be able to exclude part of the mortgage relief on your principal residence. 1040x 2012 tax form See Excluded debt, later. 1040x 2012 tax form   If you are not personally liable for a mortgage (nonrecourse debt), and you are relieved of the mortgage when you dispose of the property (such as through foreclosure), that relief is included in the amount you realize. 1040x 2012 tax form You may have a taxable gain if the amount you realize exceeds your adjusted basis in the property. 1040x 2012 tax form Report any gain on nonbusiness property as a capital gain. 1040x 2012 tax form   See Publication 4681 for more information. 1040x 2012 tax form Stockholder debt. 1040x 2012 tax form   If you are a stockholder in a corporation and the corporation cancels or forgives your debt to it, the canceled debt is a constructive distribution that is generally dividend income to you. 1040x 2012 tax form For more information, see Publication 542, Corporations. 1040x 2012 tax form   If you are a stockholder in a corporation and you cancel a debt owed to you by the corporation, you generally do not realize income. 1040x 2012 tax form This is because the canceled debt is considered as a contribution to the capital of the corporation equal to the amount of debt principal that you canceled. 1040x 2012 tax form Repayment of canceled debt. 1040x 2012 tax form   If you included a canceled amount in your income and later pay the debt, you may be able to file a claim for refund for the year the amount was included in income. 1040x 2012 tax form You can file a claim on Form 1040X if the statute of limitations for filing a claim is still open. 1040x 2012 tax form The statute of limitations generally does not end until 3 years after the due date of your original return. 1040x 2012 tax form Exceptions There are several exceptions to the inclusion of canceled debt in income. 1040x 2012 tax form These are explained next. 1040x 2012 tax form Student loans. 1040x 2012 tax form   Certain student loans contain a provision that all or part of the debt incurred to attend the qualified educational institution will be canceled if you work for a certain period of time in certain professions for any of a broad class of employers. 1040x 2012 tax form   You do not have income if your student loan is canceled after you agreed to this provision and then performed the services required. 1040x 2012 tax form To qualify, the loan must have been made by: The Federal Government, a state or local government, or an instrumentality, agency, or subdivision thereof, A tax-exempt public benefit corporation that has assumed control of a state, county, or municipal hospital, and whose employees are considered public employees under state law, or An educational institution: Under an agreement with an entity described in (1) or (2) that provided the funds to the institution to make the loan, or As part of a program of the institution designed to encourage its students to serve in occupations with unmet needs or in areas with unmet needs and under which the services provided by the students (or former students) are for or under the direction of a governmental unit or a tax-exempt organization described in section 501(c)(3). 1040x 2012 tax form   A loan to refinance a qualified student loan also will qualify if it was made by an educational institution or a qualified tax-exempt organization under its program designed as described in (3)(b) above. 1040x 2012 tax form Education loan repayment assistance. 1040x 2012 tax form   Education loan repayments made to you by the National Health Service Corps Loan Repayment Program (NHSC Loan Repayment Program), a state education loan repayment program eligible for funds under the Public Health Service Act, or any other state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health services in underserved or health professional shortage areas are not taxable. 1040x 2012 tax form    The provision relating to the “other state loan repayment or loan forgiveness program” was added to this exclusion for amounts received in tax years beginning after December 31, 2008. 1040x 2012 tax form If you included these amounts in income in 2010, 2011, or 2012, you should file an amended tax return to exclude this income. 1040x 2012 tax form See Form 1040X and its instructions for details on filing. 1040x 2012 tax form Deductible debt. 1040x 2012 tax form   You do not have income from the cancellation of a debt if your payment of the debt would be deductible. 1040x 2012 tax form This exception applies only if you use the cash method of accounting. 1040x 2012 tax form For more information, see chapter 5 of Publication 334, Tax Guide for Small Business. 1040x 2012 tax form Price reduced after purchase. 1040x 2012 tax form   In most cases, if the seller reduces the amount of debt you owe for property you purchased, you do not have income from the reduction. 1040x 2012 tax form The reduction of the debt is treated as a purchase price adjustment and reduces your basis in the property. 1040x 2012 tax form Excluded debt. 1040x 2012 tax form   Do not include a canceled debt in your gross income in the following situations. 1040x 2012 tax form The debt is canceled in a bankruptcy case under title 11 of the U. 1040x 2012 tax form S. 1040x 2012 tax form Code. 1040x 2012 tax form See Publication 908, Bankruptcy Tax Guide. 1040x 2012 tax form The debt is canceled when you are insolvent. 1040x 2012 tax form However, you cannot exclude any amount of canceled debt that is more than the amount by which you are insolvent. 1040x 2012 tax form See Publication 908. 1040x 2012 tax form The debt is qualified farm debt and is canceled by a qualified person. 1040x 2012 tax form See chapter 3 of Publication 225, Farmer's Tax Guide. 1040x 2012 tax form The debt is qualified real property business debt. 1040x 2012 tax form See chapter 5 of Publication 334. 1040x 2012 tax form The cancellation is intended as a gift. 1040x 2012 tax form The debt is qualified principal residence indebtedness. 1040x 2012 tax form See Publication 525 for additional information. 1040x 2012 tax form Host or Hostess If you host a party or event at which sales are made, any gift or gratuity you receive for giving the event is a payment for helping a direct seller make sales. 1040x 2012 tax form You must report this item as income at its fair market value. 1040x 2012 tax form Your out-of-pocket party expenses are subject to the 50% limit for meal and entertainment expenses. 1040x 2012 tax form These expenses are deductible as miscellaneous itemized deductions subject to the 2%-of-AGI limit on Schedule A (Form 1040), but only up to the amount of income you receive for giving the party. 1040x 2012 tax form For more information about the 50% limit for meal and entertainment expenses, see chapter 26. 1040x 2012 tax form Life Insurance Proceeds Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. 1040x 2012 tax form This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. 1040x 2012 tax form However, interest income received as a result of life insurance proceeds may be taxable. 1040x 2012 tax form Proceeds not received in installments. 1040x 2012 tax form   If death benefits are paid to you in a lump sum or other than at regular intervals, include in your income only the benefits that are more than the amount payable to you at the time of the insured person's death. 1040x 2012 tax form If the benefit payable at death is not specified, you include in your income the benefit payments that are more than the present value of the payments at the time of death. 1040x 2012 tax form Proceeds received in installments. 1040x 2012 tax form   If you receive life insurance proceeds in installments, you can exclude part of each installment from your income. 1040x 2012 tax form   To determine the excluded part, divide the amount held by the insurance company (generally the total lump sum payable at the death of the insured person) by the number of installments to be paid. 1040x 2012 tax form Include anything over this excluded part in your income as interest. 1040x 2012 tax form Surviving spouse. 1040x 2012 tax form   If your spouse died before October 23, 1986, and insurance proceeds paid to you because of the death of your spouse are received in installments, you can exclude up to $1,000 a year of the interest included in the installments. 1040x 2012 tax form If you remarry, you can continue to take the exclusion. 1040x 2012 tax form Surrender of policy for cash. 1040x 2012 tax form   If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. 1040x 2012 tax form In most cases, your cost (or investment in the contract) is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income. 1040x 2012 tax form    You should receive a Form 1099-R showing the total proceeds and the taxable part. 1040x 2012 tax form Report these amounts on lines 16a and 16b of Form 1040 or lines 12a and 12b of Form 1040A. 1040x 2012 tax form More information. 1040x 2012 tax form   For more information, see Life Insurance Proceeds in Publication 525. 1040x 2012 tax form Endowment Contract Proceeds An endowment contract is a policy under which you are paid a specified amount of money on a certain date unless you die before that date, in which case, the money is paid to your designated beneficiary. 1040x 2012 tax form Endowment proceeds paid in a lump sum to you at maturity are taxable only if the proceeds are more than the cost of the policy. 1040x 2012 tax form To determine your cost, subtract any amount that you previously received under the contract and excluded from your income from the total premiums (or other consideration) paid for the contract. 1040x 2012 tax form Include the part of the lump sum payment that is more than your cost in your income. 1040x 2012 tax form Accelerated Death Benefits Certain amounts paid as accelerated death benefits under a life insurance contract or viatical settlement before the insured's death are excluded from income if the insured is terminally or chronically ill. 1040x 2012 tax form Viatical settlement. 1040x 2012 tax form   This is the sale or assignment of any part of the death benefit under a life insurance contract to a viatical settlement provider. 1040x 2012 tax form A viatical settlement provider is a person who regularly engages in the business of buying or taking assignment of life insurance contracts on the lives of insured individuals who are terminally or chronically ill and who meets the requirements of section 101(g)(2)(B) of the Internal Revenue Code. 1040x 2012 tax form Exclusion for terminal illness. 1040x 2012 tax form    Accelerated death benefits are fully excludable if the insured is a terminally ill individual. 1040x 2012 tax form This is a person who has been certified by a physician as having an illness or physical condition that can reasonably be expected to result in death within 24 months from the date of the certification. 1040x 2012 tax form Exclusion for chronic illness. 1040x 2012 tax form    If the insured is a chronically ill individual who is not terminally ill, accelerated death benefits paid on the basis of costs incurred for qualified long-term care services are fully excludable. 1040x 2012 tax form Accelerated death benefits paid on a per diem or other periodic basis are excludable up to a limit. 1040x 2012 tax form This limit applies to the total of the accelerated death benefits and any periodic payments received from long-term care insurance contracts. 1040x 2012 tax form For information on the limit and the definitions of chronically ill individual, qualified long-term care services, and long-term care insurance contracts, see Long-Term Care Insurance Contracts under Sickness and Injury Benefits in Publication 525. 1040x 2012 tax form Exception. 1040x 2012 tax form   The exclusion does not apply to any amount paid to a person (other than the insured) who has an insurable interest in the life of the insured because the insured: Is a director, officer, or employee of the person, or Has a financial interest in the person's business. 1040x 2012 tax form Form 8853. 1040x 2012 tax form   To claim an exclusion for accelerated death benefits made on a per diem or other periodic basis, you must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your return. 1040x 2012 tax form You do not have to file Form 8853 to exclude accelerated death benefits paid on the basis of actual expenses incurred. 1040x 2012 tax form Public Safety Officer Killed in the Line of Duty If you are a survivor of a public safety officer who was killed in the line of duty, you may be able to exclude from income certain amounts you receive. 1040x 2012 tax form For this purpose, the term public safety officer includes law enforcement officers, firefighters, chaplains, and rescue squad and ambulance crew members. 1040x 2012 tax form For more information, see Publication 559, Survivors, Executors, and Administrators. 1040x 2012 tax form Partnership Income A partnership generally is not a taxable entity. 1040x 2012 tax form The income, gains, losses, deductions, and credits of a partnership are passed through to the partners based on each partner's distributive share of these items. 1040x 2012 tax form Schedule K-1 (Form 1065). 1040x 2012 tax form    Although a partnership generally pays no tax, it must file an information return on Form 1065, U. 1040x 2012 tax form S. 1040x 2012 tax form Return of Partnership Income, and send Schedule K-1 (Form 1065) to each partner. 1040x 2012 tax form In addition, the partnership will send each partner a copy of the Partner's Instructions for Schedule K-1 (Form 1065) to help each partner report his or her share of the partnership's income, deductions, credits, and tax preference items. 1040x 2012 tax form Keep Schedule K-1 (Form 1065) for your records. 1040x 2012 tax form Do not attach it to your Form 1040, unless you are specifically required to do so. 1040x 2012 tax form For more information on partnerships, see Publication 541, Partnerships. 1040x 2012 tax form Qualified joint venture. 1040x 2012 tax form   If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership. 1040x 2012 tax form To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. 1040x 2012 tax form For further information on how to make the election and which schedule(s) to file, see the instructions for your individual tax return. 1040x 2012 tax form S Corporation Income In most cases, an S corporation does not pay tax on its income. 1040x 2012 tax form Instead, the income, losses, deductions, and credits of the corporation are passed through to the shareholders based on each shareholder's pro rata share. 1040x 2012 tax form Schedule K-1 (Form 1120S). 1040x 2012 tax form   An S corporation must file a return on Form 1120S, U. 1040x 2012 tax form S. 1040x 2012 tax form Income Tax Return for an S Corporation, and send Schedule K-1 (Form 1120S) to each shareholder. 1040x 2012 tax form In addition, the S corporation will send each shareholder a copy of the Shareholder's Instructions for Schedule K-1 (Form 1120S) to help each shareholder report his or her share of the S corporation's income, losses, credits, and deductions. 1040x 2012 tax form Keep Schedule K-1 (Form 1120S) for your records. 1040x 2012 tax form Do not attach it to your Form 1040, unless you are specifically required to do so. 1040x 2012 tax form For more information on S corporations and their shareholders, see the Instructions for Form 1120S. 1040x 2012 tax form Recoveries A recovery is a return of an amount you deducted or took a credit for in an earlier year. 1040x 2012 tax form The most common recoveries are refunds, reimbursements, and rebates of deductions itemized on Schedule A (Form 1040). 1040x 2012 tax form You also may have recoveries of non-itemized deductions (such as payments on previously deducted bad debts) and recoveries of items for which you previously claimed a tax credit. 1040x 2012 tax form Tax benefit rule. 1040x 2012 tax form   You must include a recovery in your income in the year you receive it up to the amount by which the deduction or credit you took for the recovered amount reduced your tax in the earlier year. 1040x 2012 tax form For this purpose, any increase to an amount carried over to the current year that resulted from the deduction or credit is considered to have reduced your tax in the earlier year. 1040x 2012 tax form For more information, see Publication 525. 1040x 2012 tax form Federal income tax refund. 1040x 2012 tax form   Refunds of federal income taxes are not included in your income because they are never allowed as a deduction from income. 1040x 2012 tax form State tax refund. 1040x 2012 tax form   If you received a state or local income tax refund (or credit or offset) in 2013, you generally must include it in income if you deducted the tax in an earlier year. 1040x 2012 tax form The payer should send Form 1099-G, Certain Government Payments, to you by January 31, 2014. 1040x 2012 tax form The IRS also will receive a copy of the Form 1099-G. 1040x 2012 tax form If you file Form 1040, use the State and Local Income Tax Refund Worksheet in the 2013 Form 1040 instructions for line 10 to figure the amount (if any) to include in your income. 1040x 2012 tax form See Publication 525 for when you must use another worksheet. 1040x 2012 tax form   If you could choose to deduct for a tax year either: State and local income taxes, or State and local general sales taxes, then the maximum refund that you may have to include in income is limited to the excess of the tax you chose to deduct for that year over the tax you did not choose to deduct for that year. 1040x 2012 tax form For examples, see Publication 525. 1040x 2012 tax form Mortgage interest refund. 1040x 2012 tax form    If you received a refund or credit in 2013 of mortgage interest paid in an earlier year, the amount should be shown in box 3 of your Form 1098, Mortgage Interest Statement. 1040x 2012 tax form Do not subtract the refund amount from the interest you paid in 2013. 1040x 2012 tax form You may have to include it in your income under the rules explained in the following discussions. 1040x 2012 tax form Interest on recovery. 1040x 2012 tax form   Interest on any of the amounts you recover must be reported as interest income in the year received. 1040x 2012 tax form For example, report any interest you received on state or local income tax refunds on Form 1040, line 8a. 1040x 2012 tax form Recovery and expense in same year. 1040x 2012 tax form   If the refund or other recovery and the expense occur in the same year, the recovery reduces the deduction or credit and is not reported as income. 1040x 2012 tax form Recovery for 2 or more years. 1040x 2012 tax form   If you receive a refund or other recovery that is for amounts you paid in 2 or more separate years, you must allocate, on a pro rata basis, the recovered amount between the years in which you paid it. 1040x 2012 tax form This allocation is necessary to determine the amount of recovery from any earlier years and to determine the amount, if any, of your allowable deduction for this item for the current year. 1040x 2012 tax form For information on how to compute the allocation, see Recoveries in Publication 525. 1040x 2012 tax form Itemized Deduction Recoveries If you recover any amount that you deducted in an earlier year on Schedule A (Form 1040), you generally must include the full amount of the recovery in your income in the year you receive it. 1040x 2012 tax form Where to report. 1040x 2012 tax form   Enter your state or local income tax refund on Form 1040, line 10, and the total of all other recoveries as other income on Form 1040, line 21. 1040x 2012 tax form You cannot use Form 1040A or Form 1040EZ. 1040x 2012 tax form Standard deduction limit. 1040x 2012 tax form   You generally are allowed to claim the standard deduction if you do not itemize your deductions. 1040x 2012 tax form Only your itemized deductions that are more than your standard deduction are subject to the recovery rule (unless you are required to itemize your deductions). 1040x 2012 tax form If your total deductions on the earlier year return were not more than your income for that year, include in your income this year the lesser of: Your recoveries, or The amount by which your itemized deductions exceeded the standard deduction. 1040x 2012 tax form Example. 1040x 2012 tax form For 2012, you filed a joint return. 1040x 2012 tax form Your taxable income was $60,000 and you were not entitled to any tax credits. 1040x 2012 tax form Your standard deduction was $11,900, and you had itemized deductions of $14,000. 1040x 2012 tax form In 2013, you received the following recoveries for amounts deducted on your 2012 return: Medical expenses $200 State and local income tax refund 400 Refund of mortgage interest 325 Total recoveries $925 None of the recoveries were more than the deductions taken for 2012. 1040x 2012 tax form The difference between the state and local income tax you deducted and your local general sales tax was more than $400. 1040x 2012 tax form Your total recoveries are less than the amount by which your itemized deductions exceeded the standard deduction ($14,000 − 11,900 = $2,100), so you must include your total recoveries in your income for 2013. 1040x 2012 tax form Report the state and local income tax refund of $400 on Form 1040, line 10, and the balance of your recoveries, $525, on Form 1040, line 21. 1040x 2012 tax form Standard deduction for earlier years. 1040x 2012 tax form   To determine if amounts recovered in 2013 must be included in your income, you must know the standard deduction for your filing status for the year the deduction was claimed. 1040x 2012 tax form Look in the instructions for your tax return from prior years to locate the standard deduction for the filing status for that prior year. 1040x 2012 tax form Example. 1040x 2012 tax form You filed a joint return on Form 1040 for 2012 with taxable income of $45,000. 1040x 2012 tax form Your itemized deductions were $12,350. 1040x 2012 tax form The standard deduction that you could have claimed was $11,900. 1040x 2012 tax form In 2013, you recovered $2,100 of your 2012 itemized deductions. 1040x 2012 tax form None of the recoveries were more than the actual deductions for 2012. 1040x 2012 tax form Include $450 of the recoveries in your 2013 income. 1040x 2012 tax form This is the smaller of your recoveries ($2,100) or the amount by which your itemized deductions were more than the standard deduction ($12,350 − $11,900 = $450). 1040x 2012 tax form Recovery limited to deduction. 1040x 2012 tax form   You do not include in your income any amount of your recovery that is more than the amount you deducted in the earlier year. 1040x 2012 tax form The amount you include in your income is limited to the smaller of: The amount deducted on Schedule A (Form 1040), or The amount recovered. 1040x 2012 tax form Example. 1040x 2012 tax form During 2012 you paid $1,700 for medical expenses. 1040x 2012 tax form From this amount you subtracted $1,500, which was 7. 1040x 2012 tax form 5% of your adjusted gross income. 1040x 2012 tax form Your actual medical expense deduction was $200. 1040x 2012 tax form In 2013, you received a $500 reimbursement from your medical insurance for your 2012 expenses. 1040x 2012 tax form The only amount of the $500 reimbursement that must be included in your income for 2013 is $200—the amount actually deducted. 1040x 2012 tax form Other recoveries. 1040x 2012 tax form   See Recoveries in Publication 525 if: You have recoveries of items other than itemized deductions, or You received a recovery for an item for which you claimed a tax credit (other than investment credit or foreign tax credit) in a prior year. 1040x 2012 tax form Rents from Personal Property If you rent out personal property, such as equipment or vehicles, how you report your income and expenses is in most cases determined by: Whether or not the rental activity is a business, and Whether or not the rental activity is conducted for profit. 1040x 2012 tax form In most cases, if your primary purpose is income or profit and you are involved in the rental activity with continuity and regularity, your rental activity is a business. 1040x 2012 tax form See Publication 535, Business Expenses, for details on deducting expenses for both business and not-for-profit activities. 1040x 2012 tax form Reporting business income and expenses. 1040x 2012 tax form    If you are in the business of renting personal property, report your income and expenses on Schedule C or Schedule C-EZ (Form 1040). 1040x 2012 tax form The form instructions have information on how to complete them. 1040x 2012 tax form Reporting nonbusiness income. 1040x 2012 tax form   If you are not in the business of renting personal property, report your rental income on Form 1040, line 21. 1040x 2012 tax form List the type and amount of the income on the dotted line next to line 21. 1040x 2012 tax form Reporting nonbusiness expenses. 1040x 2012 tax form   If you rent personal property for profit, include your rental expenses in the total amount you enter on Form 1040, line 36. 1040x 2012 tax form Also enter the amount and “PPR” on the dotted line next to line 36. 1040x 2012 tax form   If you do not rent personal property for profit, your deductions are limited and you cannot report a loss to offset other income. 1040x 2012 tax form See Activity not for profit , under Other Income, later. 1040x 2012 tax form Repayments If you had to repay an amount that you included in your income in an earlier year, you may be able to deduct the amount repaid from your income for the year in which you repaid it. 1040x 2012 tax form Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it. 1040x 2012 tax form Generally, you can claim a deduction or credit only if the repayment qualifies as an expense or loss incurred in your trade or business or in a for-profit transaction. 1040x 2012 tax form Type of deduction. 1040x 2012 tax form   The type of deduction you are allowed in the year of repayment depends on the type of income you included in the earlier year. 1040x 2012 tax form You generally deduct the repayment on the same form or schedule on which you previously reported it as income. 1040x 2012 tax form For example, if you reported it as self-employment income, deduct it as a business expense on Schedule C or Schedule C-EZ (Form 1040) or Schedule F (Form 1040). 1040x 2012 tax form If you reported it as a capital gain, deduct it as a capital loss as explained in the Instructions for Schedule D (Form 1040). 1040x 2012 tax form If you reported it as wages, unemployment compensation, or other nonbusiness income, deduct it as a miscellaneous itemized deduction on Schedule A (Form 1040). 1040x 2012 tax form Repaid social security benefits. 1040x 2012 tax form   If you repaid social security benefits or equivalent railroad retirement benefits, see Repayment of benefits in chapter 11. 1040x 2012 tax form Repayment of $3,000 or less. 1040x 2012 tax form   If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. 1040x 2012 tax form If you must deduct it as a miscellaneous itemized deduction, enter it on Schedule A (Form 1040), line 23. 1040x 2012 tax form Repayment over $3,000. 1040x 2012 tax form   If the amount you repaid was more than $3,000, you can deduct the repayment (as explained under Type of deduction , earlier). 1040x 2012 tax form However, you can choose instead to take a tax credit for the year of repayment if you included the income under a claim of right. 1040x 2012 tax form This means that at the time you included the income, it appeared that you had an unrestricted right to it. 1040x 2012 tax form If you qualify for this choice, figure your tax under both methods and compare the results. 1040x 2012 tax form Use the method (deduction or credit) that results in less tax. 1040x 2012 tax form When determining whether the amount you repaid was more or less than $3,000, consider the total amount being repaid on the return. 1040x 2012 tax form Each instance of repayment is not considered separately. 1040x 2012 tax form Method 1. 1040x 2012 tax form   Figure your tax for 2013 claiming a deduction for the repaid amount. 1040x 2012 tax form If you must deduct it as a miscellaneous itemized deduction, enter it on Schedule A (Form 1040), line 28. 1040x 2012 tax form Method 2. 1040x 2012 tax form   Figure your tax for 2013 claiming a credit for the repaid amount. 1040x 2012 tax form Follow these steps. 1040x 2012 tax form Figure your tax for 2013 without deducting the repaid amount. 1040x 2012 tax form Refigure your tax from the earlier year without including in income the amount you repaid in 2013. 1040x 2012 tax form Subtract the tax in (2) from the tax shown on your return for the earlier year. 1040x 2012 tax form This is the credit. 1040x 2012 tax form Subtract the answer in (3) from the tax for 2013 figured without the deduction (Step 1). 1040x 2012 tax form   If method 1 results in less tax, deduct the amount repaid. 1040x 2012 tax form If method 2 results in less tax, claim the credit figured in (3) above on Form 1040, line 71, by adding the amount of the credit to any other credits on this line, and entering “I. 1040x 2012 tax form R. 1040x 2012 tax form C. 1040x 2012 tax form 1341” in the column to the right of line 71. 1040x 2012 tax form   An example of this computation can be found in Publication 525. 1040x 2012 tax form Repaid wages subject to social security and Medicare taxes. 1040x 2012 tax form   If you had to repay an amount that you included in your wages or compensation in an earlier year on which social security, Medicare, or tier 1 RRTA taxes were paid, ask your employer to refund the excess amount to you. 1040x 2012 tax form If the employer refuses to refund the taxes, ask for a statement indicating the amount of the overcollection to support your claim. 1040x 2012 tax form File a claim for refund using Form 843, Claim for Refund and Request for Abatement. 1040x 2012 tax form Repaid wages subject to Additional Medicare Tax. 1040x 2012 tax form   Employers cannot make an adjustment or file a claim for refund for Additional Medicare Tax withholding when there is a repayment of wages received by an employee in a prior year because the employee determines liability for Additional Medicare Tax on the employee's income tax return for the prior year. 1040x 2012 tax form If you had to repay an amount that you included in your wages or compensation in an earlier year, and on which Additional Medicare Tax was paid, you may be able to recover the Additional Medicare Tax paid on the amount. 1040x 2012 tax form To recover Additional Medicare Tax on the repaid wages or compensation, you must file Form 1040X, Amended U. 1040x 2012 tax form S. 1040x 2012 tax form Individual Income Tax Return, for the prior year in which the wages or compensation were originally received. 1040x 2012 tax form See the Instructions for Form 1040X. 1040x 2012 tax form Royalties Royalties from copyrights, patents, and oil, gas, and mineral properties are taxable as ordinary income. 1040x 2012 tax form In most cases you report royalties in Part I of Schedule E (Form 1040). 1040x 2012 tax form However, if you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventor, artist, etc. 1040x 2012 tax form , report your income and expenses on Schedule C or Schedule C-EZ (Form 1040). 1040x 2012 tax form Copyrights and patents. 1040x 2012 tax form   Royalties from copyrights on literary, musical, or artistic works, and similar property, or from patents on inventions, are amounts paid to you for the right to use your work over a specified period of time. 1040x 2012 tax form Royalties generally are based on the number of units sold, such as the number of books, tickets to a performance, or machines sold. 1040x 2012 tax form Oil, gas, and minerals. 1040x 2012 tax form   Royalty income from oil, gas, and mineral properties is the amount you receive when natural resources are extracted from your property. 1040x 2012 tax form The royalties are based on units, such as barrels, tons, etc. 1040x 2012 tax form , and are paid to you by a person or company who leases the property from you. 1040x 2012 tax form Depletion. 1040x 2012 tax form   If you are the owner of an economic interest in mineral deposits or oil and gas wells, you can recover your investment through the depletion allowance. 1040x 2012 tax form For information on this subject, see chapter 9 of Publication 535. 1040x 2012 tax form Coal and iron ore. 1040x 2012 tax form   Under certain circumstances, you can treat amounts you receive from the disposal of coal and iron ore as payments from the sale of a capital asset, rather than as royalty income. 1040x 2012 tax form For information about gain or loss from the sale of coal and iron ore, see Publication 544. 1040x 2012 tax form Sale of property interest. 1040x 2012 tax form   If you sell your complete interest in oil, gas, or mineral rights, the amount you receive is considered payment for the sale of property used in a trade or business under section 1231, not royalty income. 1040x 2012 tax form Under certain circumstances, the sale is subject to capital gain or loss treatment as explained in the Instructions for Schedule D (Form 1040). 1040x 2012 tax form For more information on selling section 1231 property, see chapter 3 of Publication 544. 1040x 2012 tax form   If you retain a royalty, an overriding royalty, or a net profit interest in a mineral property for the life of the property, you have made a lease or a sublease, and any cash you receive for the assignment of other interests in the property is ordinary income subject to a depletion allowance. 1040x 2012 tax form Part of future production sold. 1040x 2012 tax form   If you own mineral property but sell part of the future production, in most cases you treat the money you receive from the buyer at the time of the sale as a loan from the buyer. 1040x 2012 tax form Do not include it in your income or take depletion based on it. 1040x 2012 tax form   When production begins, you include all the proceeds in your income, deduct all the production expenses, and deduct depletion from that amount to arrive at your taxable income from the property. 1040x 2012 tax form Unemployment Benefits The tax treatment of unemployment benefits you receive depends on the type of program paying the benefits. 1040x 2012 tax form Unemployment compensation. 1040x 2012 tax form   You must include in income all unemployment compensation you receive. 1040x 2012 tax form You should receive a Form 1099-G showing in box 1 the total unemployment compensation paid to you. 1040x 2012 tax form In most cases, you enter unemployment compensation on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. 1040x 2012 tax form Types of unemployment compensation. 1040x 2012 tax form   Unemployment compensation generally includes any amount received under an unemployment compensation law of the United States or of a state. 1040x 2012 tax form It includes the following benefits. 1040x 2012 tax form Benefits paid by a state or the District of Columbia from the Federal Unemployment Trust Fund. 1040x 2012 tax form State unemployment insurance benefits. 1040x 2012 tax form Railroad unemployment compensation benefits. 1040x 2012 tax form Disability payments from a government program paid as a substitute for unemployment compensation. 1040x 2012 tax form (Amounts received as workers' compensation for injuries or illness are not unemployment compensation. 1040x 2012 tax form See chapter 5 for more information. 1040x 2012 tax form ) Trade readjustment allowances under the Trade Act of 1974. 1040x 2012 tax form Unemployment assistance under the Disaster Relief and Emergency Assistance Act. 1040x 2012 tax form Unemployment assistance under the Airline Deregulation Act of 1974 Program. 1040x 2012 tax form Governmental program. 1040x 2012 tax form   If you contribute to a governmental unemployment compensation program and your contributions are not deductible, amounts you receive under the program are not included as unemployment compensation until you recover your contributions. 1040x 2012 tax form If you deducted all of your contributions to the program, the entire amount you receive under the program is included in your income. 1040x 2012 tax form Repayment of unemployment compensation. 1040x 2012 tax form   If you repaid in 2013 unemployment compensation you received in 2013, subtract the amount you repaid from the total amount you received and enter the difference on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. 1040x 2012 tax form On the dotted line next to your entry enter “Repaid” and the amount you repaid. 1040x 2012 tax form If you repaid unemployment compensation in 2013 that you included in income in an earlier year, you can deduct the amount repaid on Schedule A (Form 1040), line 23, if you itemize deductions. 1040x 2012 tax form If the amount is more than $3,000, see Repayments , earlier. 1040x 2012 tax form Tax withholding. 1040x 2012 tax form   You can choose to have federal income tax withheld from your unemployment compensation. 1040x 2012 tax form To make this choice, complete Form W-4V, Voluntary Withholding Request, and give it to the paying office. 1040x 2012 tax form Tax will be withheld at 10% of your payment. 1040x 2012 tax form    If you do not choose to have tax withheld from your unemployment compensation, you may be liable for estimated tax. 1040x 2012 tax form If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. 1040x 2012 tax form For more information on estimated tax, see chapter 4. 1040x 2012 tax form Supplemental unemployment benefits. 1040x 2012 tax form   Benefits received from an employer-financed fund (to which the employees did not contribute) are not unemployment compensation. 1040x 2012 tax form They are taxable as wages and are subject to withholding for income tax. 1040x 2012 tax form They may be subject to social security and Medicare taxes. 1040x 2012 tax form For more information, see Supplemental Unemployment Benefits in section 5 of Publication 15-A, Employer's Supplemental Tax Guide. 1040x 2012 tax form Report these payments on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ. 1040x 2012 tax form Repayment of benefits. 1040x 2012 tax form   You may have to repay some of your supplemental unemployment benefits to qualify for trade readjustment allowances under the Trade Act of 1974. 1040x 2012 tax form If you repay supplemental unemployment benefits in the same year you receive them, reduce the total benefits by the amount you repay. 1040x 2012 tax form If you repay the benefits in a later year, you must include the full amount of the benefits received in your income for the year you received them. 1040x 2012 tax form   Deduct the repayment in the later year as an adjustment to gross income on Form 1040. 1040x 2012 tax form (You cannot use Form 1040A or Form 1040EZ. 1040x 2012 tax form ) Include the repayment on Form 1040, line 36, and enter “Sub-Pay TRA” and the amount on the dotted line next to line 36. 1040x 2012 tax form If the amount you repay in a later year is more than $3,000, you may be able to take a credit against your tax for the later year instead of deducting the amount repaid. 1040x 2012 tax form For more information on this, see Repayments , earlier. 1040x 2012 tax form Private unemployment fund. 1040x 2012 tax form   Unemployment benefit payments from a private (nonunion) fund to which you voluntarily contribute are taxable only if the amounts you receive are more than your total payments into the fund. 1040x 2012 tax form Report the taxable amount on Form 1040, line 21. 1040x 2012 tax form Payments by a union. 1040x 2012 tax form   Benefits paid to you as an unemployed member of a union from regular union dues are included in your income on Form 1040, line 21. 1040x 2012 tax form However, if you contribute to a special union fund and your payments to the fund are not deductible, the unemployment benefits you receive from the fund are includible in your income only to the extent they are more than your contributions. 1040x 2012 tax form Guaranteed annual wage. 1040x 2012 tax form   Payments you receive from your employer during periods of unemployment, under a union agreement that guarantees you full pay during the year, are taxable as wages. 1040x 2012 tax form Include them on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ. 1040x 2012 tax form State employees. 1040x 2012 tax form   Payments similar to a state's unemployment compensation may be made by the state to its employees who are not covered by the state's unemployment compensation law. 1040x 2012 tax form Although the payments are fully taxable, do not report them as unemployment compensation. 1040x 2012 tax form Report these payments on Form 1040, line 21. 1040x 2012 tax form Welfare and Other Public Assistance Benefits Do not include in your income governmental benefit payments from a public welfare fund based upon need, such as payments to blind individuals under a state public assistance law. 1040x 2012 tax form Payments from a state fund for the victims of crime should not be included in the victims' incomes if they are in the nature of welfare payments. 1040x 2012 tax form Do not deduct medical expenses that are reimbursed by such a fund. 1040x 2012 tax form You must include in your income any welfare payments that are compensation for services or that are obtained fraudulently. 1040x 2012 tax form Reemployment Trade Adjustment Assistance (RTAA) payments. 1040x 2012 tax form   RTAA payments received from a state must be included in your income. 1040x 2012 tax form The state must send you Form 1099-G to advise you of the amount you should include in income. 1040x 2012 tax form The amount should be reported on Form 1040, line 21. 1040x 2012 tax form Persons with disabilities. 1040x 2012 tax form   If you have a disability, you must include in income compensation you receive for services you perform unless the compensation is otherwise excluded. 1040x 2012 tax form However, you do not include in income the value of goods, services, and cash that you receive, not in return for your services, but for your training and rehabilitation because you have a disability. 1040x 2012 tax form Excludable amounts include payments for transportation and attendant care, such as interpreter services for the deaf, reader services for the blind, and services to help individuals with an intellectual disability do their work. 1040x 2012 tax form Disaster relief grants. 1040x 2012 tax form    Do not include post-disaster grants received under the Robert T. 1040x 2012 tax form Stafford Disaster Relief and Emergency Assistance Act in your income if the grant payments are made to help you meet necessary expenses or serious needs for medical, dental, housing, personal property, transportation, child care, or funeral expenses. 1040x 2012 tax form Do not deduct casualty losses or medical expenses that are specifically reimbursed by these disaster relief grants. 1040x 2012 tax form If you have deducted a casualty loss for the loss of your personal residence and you later receive a disaster relief grant for the loss of the same residence, you may have to include part or all of the grant in your taxable income. 1040x 2012 tax form See Recoveries , earlier. 1040x 2012 tax form Unemployment assistance payments under the Act are taxable unemployment compensation. 1040x 2012 tax form See Unemployment compensation under Unemployment Benefits, earlier. 1040x 2012 tax form Disaster relief payments. 1040x 2012 tax form   You can exclude from income any amount you receive that is a qualified disaster relief payment. 1040x 2012 tax form A qualified disaster relief payment is an amount paid to you: To reimburse or pay reasonable and necessary personal, family, living, or funeral expenses that result from a qualified disaster; To reimburse or pay reasonable and necessary expenses incurred for the repair or rehabilitation of your home or repair or replacement of its contents to the extent it is due to a qualified disaster; By a person engaged in the furnishing or sale of transportation as a common carrier because of the death or personal physical injuries incurred as a result of a qualified disaster; or By a federal, state, or local government, or agency, or instrumentality in connection with a qualified disaster in order to promote the general welfare. 1040x 2012 tax form You can exclude this amount only to the extent any expense it pays for is not paid for by insurance or otherwise. 1040x 2012 tax form The exclusion does not apply if you were a participant or conspirator in a terrorist action or a representative of one. 1040x 2012 tax form   A qualified disaster is: A disaster which results from a terrorist or military action; A federally declared disaster; or A disaster which results from an accident involving a common carrier, or from any other event, which is determined to be catastrophic by the Secretary of the Treasury or his or her delegate. 1040x 2012 tax form   For amounts paid under item (4), a disaster is qualified if it is determined by an applicable federal, state, or local authority to warrant assistance from the federal, state, or local government, agency, or instrumentality. 1040x 2012 tax form Disaster mitigation payments. 1040x 2012 tax form   You also can exclude from income any amount you receive that is a qualified disaster mitigation payment. 1040x 2012 tax form Qualified disaster mitigation payments are also most commonly paid to you in the period immediately following damage to property as a result of a natural disaster. 1040x 2012 tax form However, disaster mitigation payments are used to mitigate (reduce the severity of) potential damage from future natural disasters. 1040x 2012 tax form They are paid to you through state and local governments based on the provisions of the Robert T. 1040x 2012 tax form Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act. 1040x 2012 tax form   You cannot increase the basis or adjusted basis of your property for improvements made with nontaxable disaster mitigation payments. 1040x 2012 tax form Home Affordable Modification Program (HAMP). 1040x 2012 tax form   If you benefit from Pay-for-Performance Success Payments under HAMP, the payments are not taxable. 1040x 2012 tax form Mortgage assistance payments under section 235 of the National Housing Act. 1040x 2012 tax form   Payments made under section 235 of the National Housing Act for mortgage assistance are not included in the homeowner's income. 1040x 2012 tax form Interest paid for the homeowner under the mortgage assistance program cannot be deducted. 1040x 2012 tax form Medicare. 1040x 2012 tax form   Medicare benefits received under title XVIII of the Social Security Act are not includible in the gross income of the individuals for whom they are paid. 1040x 2012 tax form This includes basic (part A (Hospital Insurance Benefits for the Aged)) and supplementary (part B (Supplementary Medical Insurance Benefits for the Aged)). 1040x 2012 tax form Old-age, survivors, and disability insurance benefits (OASDI). 1040x 2012 tax form   Generally, OASDI payments under section 202 of title II of the Social Security Act are not includible in the gross income of the individuals to whom they are paid. 1040x 2012 tax form This applies to old-age insurance benefits, and insurance benefits for wives, husbands, children, widows, widowers, mothers and fathers, and parents, as well as the lump-sum death payment. 1040x 2012 tax form Nutrition Program for the Elderly. 1040x 2012 tax form    Food benefits you receive under the Nutrition Program for the Elderly are not taxable. 1040x 2012 tax form If you prepare and serve free meals for the program, include in your income as wages the cash pay you receive, even if you are also eligible for food benefits. 1040x 2012 tax form Payments to reduce cost of winter energy. 1040x 2012 tax form   Payments made by a state to qualified people to reduce their cost of winter energy use are not taxable. 1040x 2012 tax form Other Income The following brief discussions are arranged in alphabetical order. 1040x 2012 tax form Other income items briefly discussed below are referenced to publications which provide more topical information. 1040x 2012 tax form Activity not for profit. 1040x 2012 tax form   You must include on your return income from an activity from which you do not expect to make a profit. 1040x 2012 tax form An example of this type of activity is a hobby or a farm you operate mostly for recreation and pleasure. 1040x 2012 tax form Enter this income on Form 1040, line 21. 1040x 2012 tax form Deductions for expenses related to the activity are limited. 1040x 2012 tax form They cannot total more than the income you report and can be taken only if you itemize deductions on Schedule A (Form 1040). 1040x 2012 tax form See Not-for-Profit Activities in chapter 1 of Publication 535 for information on whether an activity is considered carried on for a profit. 1040x 2012 tax form Alaska Permanent Fund dividend. 1040x 2012 tax form   If you received a payment from Alaska's mineral income fund (Alaska Permanent Fund dividend), report it as income on line 21 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. 1040x 2012 tax form The state of Alaska sends each recipient a document that shows the amount of the payment with the check. 1040x 2012 tax form The amount also is reported to IRS. 1040x 2012 tax form Alimony. 1040x 2012 tax form   Include in your income on Form 1040, line 11, any alimony payments you receive. 1040x 2012 tax form Amounts you receive for child support are not income to you. 1040x 2012 tax form Alimony and child support payments are discussed in chapter 18. 1040x 2012 tax form Bribes. 1040x 2012 tax form   If you receive a bribe, include it in your income. 1040x 2012 tax form Campaign contributions. 1040x 2012 tax form   These contributions are not income to a candidate unless they are diverted to his or her personal use. 1040x 2012 tax form To be exempt from tax, the contributions must be spent for campaign purposes or kept in a fund for use in future campaigns. 1040x 2012 tax form However, interest earned on bank deposits, dividends received on contributed securities, and net gains realized on sales of contributed securities are taxable and must be reported on Form 1120-POL, U. 1040x 2012 tax form S. 1040x 2012 tax form Income Tax Return for Certain Political Organizations. 1040x 2012 tax form Excess campaign funds transferred to an office account must be included in the officeholder's income on Form 1040, line 21, in the year transferred. 1040x 2012 tax form Car pools. 1040x 2012 tax form   Do not include in your income amounts you receive from the passengers for driving a car in a car pool to and from work. 1040x 2012 tax form These amounts are considered reimbursement for your expenses. 1040x 2012 tax form However, this rule does not apply if you have developed car pool arrangements into a profit-making business of transporting workers for hire. 1040x 2012 tax form Cash rebates. 1040x 2012 tax form   A cash rebate you receive from a dealer or manufacturer of an item you buy is not income, but you must reduce your basis by the amount of the rebate. 1040x 2012 tax form Example. 1040x 2012 tax form You buy a new car for $24,000 cash and receive a $2,000 rebate check from the manufacturer. 1040x 2012 tax form The $2,000 is not income to you. 1040x 2012 tax form Your basis in the car is $22,000. 1040x 2012 tax form This is the basis on which you figure gain or loss if you sell the car and depreciation if you use it for business. 1040x 2012 tax form Casualty insurance and other reimbursements. 1040x 2012 tax form   You generally should not report these reimbursements on your return unless you are figuring gain or loss from the casualty or theft. 1040x 2012 tax form See chapter 25 for more information. 1040x 2012 tax form Child support payments. 1040x 2012 tax form   You should not report these payments on your return. 1040x 2012 tax form See chapter 18 for more information. 1040x 2012 tax form Court awards and damages. 1040x 2012 tax form   To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces. 1040x 2012 tax form The character of the income as ordinary income or capital gain depends on the nature of the underlying claim. 1040x 2012 tax form Include the following as ordinary income. 1040x 2012 tax form Interest on any award. 1040x 2012 tax form Compensation for lost wages or lost profits in most cases. 1040x 2012 tax form Punitive damages, in most cases. 1040x 2012 tax form It does not matter if they relate to a physical injury or physical sickness. 1040x 2012 tax form Amounts received in settlement of pension rights (if you did not contribute to the plan). 1040x 2012 tax form Damages for: Patent or copyright infringement, Breach of contract, or Interference with business operations. 1040x 2012 tax form Back pay and damages for emotional distress received to satisfy a claim under title VII of the Civil Rights Act of 1964. 1040x 2012 tax form Attorney fees and costs (including contingent fees) where the underlying recovery is included in gross income. 1040x 2012 tax form   Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments). 1040x 2012 tax form Emotional distress. 1040x 2012 tax form   Emotional distress itself is not a physical injury or physical sickness, but damages you receive for emotional distress due to a physical injury or sickness are treated as received for the physical injury or sickness. 1040x 2012 tax form Do not include them in your income. 1040x 2012 tax form   If the emotional distress is due to a personal injury that is not due to a physical injury or sickness (for example, employment discrimination or injury to reputation), you must include the damages in your income, except for any damages you receive for medical care due to that emotional distress. 1040x 2012 tax form Emotional distress includes physical symptoms that result from emotional distress, such as headaches, insomnia, and stomach disorders. 1040x 2012 tax form Deduction for costs involved in unlawful discrimination suits. 1040x 2012 tax form   You may be able to deduct attorney fees and court costs paid to recover a judgment or settlement for a claim of unlawful discrimination under various provisions of federal, state, and local law listed in Internal Revenue Code section 62(e), a claim against the United States government, or a claim under section 1862(b)(3)(A) of the Social Security Act. 1040x 2012 tax form For more information, see Publication 525. 1040x 2012 tax form Credit card insurance. 1040x 2012 tax form   In most cases, if you receive benefits under a credit card disability or unemployment insurance plan, the benefits are taxable to you. 1040x 2012 tax form These plans make the minimum monthly payment on your credit card account if you cannot make the payment due to injury, illness, disability, or unemployment. 1040x 2012 tax form Report on Form 1040, line 21, the amount of benefits you received during the year that is more than the amount of the premiums you paid during the year. 1040x 2012 tax form Down payment assistance. 1040x 2012 tax form   If you purchase a home and receive assistance from a nonprofit corporation to make the down payment, that assistance is not included in your income. 1040x 2012 tax form If the corporation qualifies as a tax-exempt charitable organization, the assistance is treated as a gift and is included in your basis of the house. 1040x 2012 tax form If the corporation does not qualify, the assistance is treated as a rebate or reduction of the purchase price and is not included in your basis. 1040x 2012 tax form Employment agency fees. 1040x 2012 tax form   If you get a job through an employment agency, and the fee is paid by your employer, the fee is not includible in your income if you are not liable for it. 1040x 2012 tax form However, if you pay it and your employer reimburses you for it, it is includible in your income. 1040x 2012 tax form Energy conservation subsidies. 1040x 2012 tax form   You can exclude from gross income any subsidy provided, either directly or indirectly, by public utilities for the purchase or installation of an energy conservation measure for a dwelling unit. 1040x 2012 tax form Energy conservation measure. 1040x 2012 tax form   This includes installations or modifications that are primarily designed to reduce consumption of electricity or natural gas, or improve the management of energy demand. 1040x 2012 tax form Dwelling unit. 1040x 2012 tax form   This includes a house, apartment, condominium, mobile home, boat, or similar property. 1040x 2012 tax form If a building or structure contains both dwelling and other units, any subsidy must be properly allocated. 1040x 2012 tax form Estate and trust income. 1040x 2012 tax form    An estate or trust, unlike a partnership, may have to pay federal income tax. 1040x 2012 tax form If you are a beneficiary of an estate or trust, you may be taxed on your share of its income distributed or required to be distributed to you. 1040x 2012 tax form However, there is never a double tax. 1040x 2012 tax form Estates and trusts file their returns on Form 1041, U. 1040x 2012 tax form S. 1040x 2012 tax form Income Tax Return for Estates and Trusts, and your share of the income is reported to you on Schedule K-1 (Form 1041). 1040x 2012 tax form Current income required to be distributed. 1040x 2012 tax form   If you are the beneficiary of an estate or trust that must distribute all of its current income, you must report your share of the distributable net income, whether or not you actually received it. 1040x 2012 tax form Current income not required to be distributed. 1040x 2012 tax form    If you are the beneficiary of an estate or trust and the fiduciary has the choice of whether to distribute all or part of the current income, you must report: All income that is required to be distributed to you, whether or not it is actually distributed, plus All other amounts actually paid or credited to you, up to the amount of your share of distributable net income. 1040x 2012 tax form How to report. 1040x 2012 tax form   Treat each item of income the same way that the estate or trust would treat it. 1040x 2012 tax form For example, if a trust's dividend income is distributed to you, you report the distribution as dividend income on your return. 1040x 2012 tax form The same rule applies to distributions of tax-exempt interest and capital gains. 1040x 2012 tax form   The fiduciary of the estate or trust must tell you the type of items making up your share of the estate or trust income and any credits you are allowed on your individual income tax return. 1040x 2012 tax form Losses. 1040x 2012 tax form   Losses of estates and trusts generally are not deductible by the beneficiaries. 1040x 2012 tax form Grantor trust. 1040x 2012 tax form   Income earned by a grantor trust is taxable to the grantor, not the beneficiary, if the grantor keeps certain control over the trust. 1040x 2012 tax form (The grantor is the one who transferred property to the trust. 1040x 2012 tax form ) This rule applies if the property (or income from the property) put into the trust will or may revert (be returned) to the grantor or the grantor's spouse. 1040x 2012 tax form   Generally, a trust is a grantor trust if the grantor has a reversionary interest valued (at the date of transfer) at more than 5% of the value of the transferred property. 1040x 2012 tax form Expenses paid by another. 1040x 2012 tax form   If your personal expenses are paid for by another person, such as a corporation, the payment may be taxable to you depending upon your relationship with that person and the nature of the payment. 1040x 2012 tax form But if the payment makes up for a loss caused by that person, and only restores you to the position you were in before the loss, the payment is not includible in your income. 1040x 2012 tax form Fees for services. 1040x 2012 tax form   Include all fees for your services in your income. 1040x 2012 tax form Examples of these fees are amounts you receive for services you perform as: A corporate director, An executor, administrator, or personal representative of an estate, A manager of a trade or business you operated before declaring Chapter 11 bankruptcy, A notary public, or An election precinct official. 1040x 2012 tax form Nonemployee compensation. 1040x 2012 tax form   If you are not an employee and the fees for your services from the same payer total $600 or more for the year, you may receive a Form 1099-MISC. 1040x 2012 tax form You may need to report your fees as self-employment income. 1040x 2012 tax form See Self-Employed Persons , in chapter 1, for a discussion of when you are considered self-employed. 1040x 2012 tax form Corporate director. 1040x 2012 tax form   Corporate director fees are self-employment income. 1040x 2012 tax form Report these payments on Schedule C or Schedule C-EZ (Form 1040). 1040x 2012 tax form Personal representatives. 1040x 2012 tax form   All personal representatives must include in their gross income fees paid to them from an estate. 1040x 2012 tax form If you are not in the trade or business of being an executor (for instance, you are the executor of a friend's or relative's estate), report these fees on Form 1040, line 21. 1040x 2012 tax form If you are in the trade or business of being an executor, report these fees as self-employment income on Schedule C or Schedule C-EZ (Form 1040). 1040x 2012 tax form The fee is not includible in income if it is waived. 1040x 2012 tax form Manager of trade or business for bankruptcy estate. 1040x 2012 tax form   Include in your income all payments received from your bankruptcy estate for managing or operating a trade or business that you operated before you filed for bankruptcy. 1040x 2012 tax form Report this income on Form 1040, line 21. 1040x 2012 tax form Notary public. 1040x 2012 tax form    Report payments for these services on Schedule C or Schedule C-EZ (Form 1040). 1040x 2012 tax form These payments are not subject to self-employment tax. 1040x 2012 tax form See the separate instructions for Schedule SE (Form 1040) for details. 1040x 2012 tax form Election precinct official. 1040x 2012 tax form    You should receive a Form W-2 showing payments for services performed as an election official or election worker. 1040x 2012 tax form Report these payments on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ. 1040x 2012 tax form Foster care providers. 1040x 2012 tax form   Payments you receive from a state, political subdivision, or a qualified foster care placement agency for providing care to qualified foster individuals in your home generally are not included in your income. 1040x 2012 tax form However, you must include in your income payments received for the care of more than 5 individuals age 19 or older and certain difficulty-of-care payments. 1040x 2012 tax form   A qualified foster individual is a person who: Is living in a foster family home, and Was placed there by: An agency of a state or one of its political subdivisions, or A qualified foster care placement agency. 1040x 2012 tax form Difficulty-of-care payments. 1040x 2012 tax form   These are additional payments that are designated by the payer as compensation for providing the additional care that is required for physically, mentally, or emotionally handicapped qualified foster individuals. 1040x 2012 tax form A state must determine that the additional compensation is needed, and the care for which the payments are made must be provided in your home. 1040x 2012 tax form   You must include in your income difficulty-of-care payments received for more than: 10 qualified foster individuals under age 19, or 5 qualified foster individuals age 19 or older. 1040x 2012 tax form Maintaining space in home. 1040x 2012 tax form   If you are paid to maintain space in your home for emergency foster care, you must include the payment in your income. 1040x 2012 tax form Reporting taxable payments. 1040x 2012 tax form    If you receive payments that you must include in your income, you are in business as a foster care provider and you are self-employed. 1040x 2012 tax form Report the payments on Schedule C or Schedule C-EZ (Form 1040). 1040x 2012 tax form See Publication 587, Business Use of Your Home, to help you determine the amount you can deduct for the use of your home. 1040x 2012 tax form Found property. 1040x 2012 tax form   If you find and keep property that does not belong to you that has been lost or abandoned (treasure-trove), it is taxable to you at its fair market value in the first year it is your undisputed possession. 1040x 2012 tax form Free tour. 1040x 2012 tax form   If you received a free tour from a travel agency for organizing a group of tourists, you must include its value in your income. 1040x 2012 tax form Report the fair market value of the tour on Form 1040, line 21, if you are not in the trade or business of organizing tours. 1040x 2012 tax form You cannot deduct your expenses in serving as the voluntary leader of the group at the group's request. 1040x 2012 tax form If you organize tours as a trade or business, report the tour's value on Schedule C or Schedule C-EZ (Form 1040). 1040x 2012 tax form Gambling winnings. 1040x 2012 tax form   You must include your gambling winnings in income on Form 1040, line 21. 1040x 2012 tax form If you itemize your deductions on Schedule A (Form 1040), you can deduct gambling losses you had during the year, but only up to the amount of your winnings. 1040x 2012 tax form Lotteries and raffles. 1040x 2012 tax form   Winnings from lotteries and raffles are gambling winnings. 1040x 2012 tax form In addition to cash winnings, you must include in your income the fair market value of bonds, cars, houses, and other noncash prizes. 1040x 2012 tax form    If you win a state lottery prize payable in installments, see Publication 525 for more information. 1040x 2012 tax form Form W-2G. 1040x 2012 tax form   You may have received a Form W-2G, Certain Gambling Winnings, showing the amount of your gambling winnings and any tax taken out of them. 1040x 2012 tax form Include the amount from box 1 on Form 1040, line 21. 1040x 2012 tax form Include the amount shown in box 4 on Form 1040, line 62, as federal income tax withheld. 1040x 2012 tax form Reporting winnings and recordkeeping. 1040x 2012 tax form   For more information on reporting 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The 1040x 2012 Tax Form

1040x 2012 tax form Publication 559 - Main Content Table of Contents Personal RepresentativeDuties Fees Received by Personal Representatives Final Income Tax Return for Decedent—Form 1040Name, Address, and Signature When and Where To File Filing Requirements Income To Include Exemptions and Deductions Credits, Other Taxes, and Payments Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Filing Reminders Other Tax InformationTax Benefits for Survivors Income in Respect of a Decedent Deductions in Respect of a Decedent Estate Tax Deduction Gifts, Insurance, and Inheritances Other Items of Income Income Tax Return of an Estate— Form 1041Filing Requirements Income To Include Exemption and Deductions Credits, Tax, and Payments Name, Address, and Signature When and Where To File Distributions to BeneficiariesIncome That Must Be Distributed Currently Other Amounts Distributed Discharge of a Legal Obligation Character of Distributions How and When To Report Bequest Termination of Estate Estate and Gift TaxesApplicable Credit Amount Gift Tax Estate Tax Generation-Skipping Transfer Tax Comprehensive ExampleFinal Return for Decedent—Form 1040 Income Tax Return of an Estate—Form 1041 How To Get Tax HelpLow Income Taxpayer Clinics Personal Representative A personal representative of an estate is an executor, administrator, or anyone who is in charge of the decedent's property. 1040x 2012 tax form Generally, an executor (or executrix) is named in a decedent's will to administer the estate and distribute properties as the decedent has directed. 1040x 2012 tax form An administrator (or administratrix) is usually appointed by the court if no will exists, if no executor was named in the will, or if the named executor cannot or will not serve. 1040x 2012 tax form In general, an executor and an administrator perform the same duties and have the same responsibilities. 1040x 2012 tax form For estate tax purposes, if there is no executor or administrator appointed, qualified, and acting within the United States, the term “executor” includes anyone in actual or constructive possession of any property of the decedent. 1040x 2012 tax form It includes, among others, the decedent's agents and representatives; safe-deposit companies, warehouse companies, and other custodians of property in this country; brokers holding securities of the decedent as collateral; and the debtors of the decedent who are in this country. 1040x 2012 tax form Duties The primary duties of a personal representative are to collect all the decedent's assets, pay his or her creditors, and distribute the remaining assets to the heirs or other beneficiaries. 1040x 2012 tax form The personal representative also must perform the following duties. 1040x 2012 tax form Apply for an employer identification number (EIN) for the estate. 1040x 2012 tax form File all tax returns, including income, estate and gift tax returns, when due. 1040x 2012 tax form Pay the tax determined up to the date of discharge from duties. 1040x 2012 tax form Other duties of the personal representative in federal tax matters are discussed in other sections of this publication. 1040x 2012 tax form If any beneficiary is a nonresident alien, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for information on the personal representative's duties as a withholding agent. 1040x 2012 tax form Penalty. 1040x 2012 tax form   There is a penalty for failure to file a tax return when due unless the failure is due to reasonable cause. 1040x 2012 tax form Reliance on an agent (attorney, accountant, etc. 1040x 2012 tax form ) is not reasonable cause for late filing. 1040x 2012 tax form It is the personal representative's duty to file the returns for the decedent and the estate when due. 1040x 2012 tax form Identification number. 1040x 2012 tax form   The first action you should take if you are the personal representative for the decedent is to apply for an EIN for the estate. 1040x 2012 tax form You should apply for this number as soon as possible because you need to enter it on returns, statements, and other documents you file concerning the estate. 1040x 2012 tax form You also must give the number to payers of interest and dividends and other payers who must file a return concerning the estate. 1040x 2012 tax form   You can get an EIN by applying online at www. 1040x 2012 tax form irs. 1040x 2012 tax form gov (click on "Apply for an EIN Online" under the Tools heading). 1040x 2012 tax form Generally, if you apply online, you will receive your EIN immediately upon completing the application. 1040x 2012 tax form You can also apply using Form SS-4, Application for Employer Identification Number. 1040x 2012 tax form Generally, if you apply by mail, it takes about 4 weeks to get your EIN. 1040x 2012 tax form See the form instructions for other ways to apply. 1040x 2012 tax form   Payers of interest and dividends report amounts on Forms 1099 using the identification number of the person to whom the account is payable. 1040x 2012 tax form After a decedent's death, Forms 1099 must reflect the identification number of the estate or beneficiary to whom the amounts are payable. 1040x 2012 tax form As the personal representative handling the estate, you must furnish this identification number to the payer. 1040x 2012 tax form For example, if interest is payable to the estate, the estate's EIN must be provided to the payer and used to report the interest on Form 1099-INT, Interest Income. 1040x 2012 tax form If the interest is payable to a surviving joint owner, the survivor's identification number, such as an SSN or ITIN, must be provided to the payer and used to report the interest. 1040x 2012 tax form   If the estate or a survivor may receive interest or dividends after you inform the payer of the decedent's death, the payer should give you (or the survivor) a Form W-9, Request for Taxpayer Identification Number and Certification (or a similar substitute form). 1040x 2012 tax form Complete this form to inform the payer of the estate's (or if completed by the survivor, the survivor's) identification number and return it to the payer. 1040x 2012 tax form    Do not use the deceased individual's identifying number to file an individual income tax return after the decedent's final tax return. 1040x 2012 tax form Also do not use it to make estimated tax payments for a tax year after the year of death. 1040x 2012 tax form Penalty. 1040x 2012 tax form   If you do not include the EIN or the taxpayer identification number of another person where it is required on a return, statement, or other document, you are liable for a penalty for each failure, unless you can show reasonable cause. 1040x 2012 tax form You also are liable for a penalty if you do not give the taxpayer identification number of another person when required on a return, statement, or other document. 1040x 2012 tax form Notice of fiduciary relationship. 1040x 2012 tax form   The term fiduciary means any person acting for another person. 1040x 2012 tax form It applies to persons who have positions of trust on behalf of others. 1040x 2012 tax form A personal representative for a decedent's estate is a fiduciary. 1040x 2012 tax form Form 56. 1040x 2012 tax form   If you are appointed to act in a fiduciary capacity for another, you must file a written notice with the IRS stating this. 1040x 2012 tax form Form 56, Notice Concerning Fiduciary Relationship, is used for this purpose. 1040x 2012 tax form See the Instructions for Form 56 for filing requirements and other information. 1040x 2012 tax form   File Form 56 as soon as all the necessary information (including the EIN) is available. 1040x 2012 tax form It notifies the IRS that you, as the fiduciary, are assuming the powers, rights, duties, and privileges of the decedent. 1040x 2012 tax form The notice remains in effect until you notify the IRS (by filing another Form 56) that your fiduciary relationship with the estate has terminated. 1040x 2012 tax form Termination of fiduciary relationship. 1040x 2012 tax form   Form 56 should also be filed to notify the IRS if your fiduciary relationship is terminated or when a successor fiduciary is appointed if the estate has not been terminated. 1040x 2012 tax form See Form 56 and its instructions for more information. 1040x 2012 tax form   At the time of termination of the fiduciary relationship, you may want to file Form 4810, Request for Prompt Assessment Under Internal Revenue Code Section 6501(d), and Form 5495, Request for Discharge From Personal Liability Under Internal Revenue Code Section 2204 or 6905, to wind up your duties as fiduciary. 1040x 2012 tax form See below for a discussion of these forms. 1040x 2012 tax form Request for prompt assessment (charge) of tax. 1040x 2012 tax form   The IRS ordinarily has 3 years from the date an income tax return is filed, or its due date, whichever is later, to charge any additional tax due. 1040x 2012 tax form However, as a personal representative, you may request a prompt assessment of tax after the return has been filed. 1040x 2012 tax form This reduces the time for making the assessment to 18 months from the date the written request for prompt assessment was received. 1040x 2012 tax form This request can be made for any tax return (except the estate tax return) of the decedent or the decedent's estate. 1040x 2012 tax form This may permit a quicker settlement of the tax liability of the estate and an earlier final distribution of the assets to the beneficiaries. 1040x 2012 tax form Form 4810. 1040x 2012 tax form   Form 4810 can be used for making this request. 1040x 2012 tax form It must be filed separately from any other document. 1040x 2012 tax form   As the personal representative for the decedent's estate, you are responsible for any additional taxes that may be due. 1040x 2012 tax form You can request prompt assessment of any of the decedent's taxes (other than federal estate taxes) for any years for which the statutory period for assessment is open. 1040x 2012 tax form This applies even though the returns were filed before the decedent's death. 1040x 2012 tax form Failure to report income. 1040x 2012 tax form   If you or the decedent failed to report substantial amounts of gross income (more than 25% of the gross income reported on the return) or filed a false or fraudulent return, your request for prompt assessment will not shorten the period during which the IRS may assess the additional tax. 1040x 2012 tax form However, such a request may relieve you of personal liability for the tax if you did not have knowledge of the unpaid tax. 1040x 2012 tax form Request for discharge from personal liability for tax. 1040x 2012 tax form   An executor can make a request for discharge from personal liability for a decedent's income, gift, and estate taxes. 1040x 2012 tax form The request must be made after the returns for those taxes are filed. 1040x 2012 tax form To make the request, file Form 5495. 1040x 2012 tax form For this purpose, an executor is an executor or administrator that is appointed, qualified, and acting within the United States. 1040x 2012 tax form   Within 9 months after receipt of the request, the IRS will notify the executor of the amount of taxes due. 1040x 2012 tax form If this amount is paid, the executor will be discharged from personal liability for any future deficiencies. 1040x 2012 tax form If the IRS has not notified the executor, he or she will be discharged from personal liability at the end of the 9-month period. 1040x 2012 tax form    Even if the executor is discharged from personal liability, the IRS will still be able to assess tax deficiencies against the executor to the extent he or she still has any of the decedent's property. 1040x 2012 tax form Insolvent estate. 1040x 2012 tax form   Generally, if a decedent's estate is insufficient to pay all the decedent's debts, the debts due to the United States must be paid first. 1040x 2012 tax form Both the decedent's federal income tax liabilities at the time of death and the estate's income tax liability are debts due to the United States. 1040x 2012 tax form The personal representative of an insolvent estate is personally responsible for any tax liability of the decedent or of the estate if he or she had notice of such tax obligations or failed to exercise due care in determining if such obligations existed before distribution of the estate's assets and before being discharged from duties. 1040x 2012 tax form The extent of such personal responsibility is the amount of any other payments made before paying the debts due to the United States, except where such other debt paid has priority over the debts due to the United States. 1040x 2012 tax form Income tax liabilities need not be formally assessed for the personal representative to be liable if he or she was aware or should have been aware of their existence. 1040x 2012 tax form Fees Received by Personal Representatives All personal representatives must include fees paid to them from an estate in their gross income. 1040x 2012 tax form If you are not in the trade or business of being an executor (for instance, you are the executor of a friend's or relative's estate), report these fees on your Form 1040, line 21. 1040x 2012 tax form If you are in the trade or business of being an executor, report fees received from the estate as self-employment income on Schedule C or Schedule C-EZ of your Form 1040. 1040x 2012 tax form If the estate operates a trade or business and you, as executor, actively participate in the trade or business while fulfilling your duties, any fees you receive related to the operation of the trade or business must be reported as self-employment income on Schedule C (or Schedule C-EZ) of your Form 1040. 1040x 2012 tax form Final Income Tax Return for Decedent—Form 1040 The personal representative (defined earlier) must file the final income tax return (Form 1040) of the decedent for the year of death and any returns not filed for preceding years. 1040x 2012 tax form A surviving spouse, under certain circumstances, may have to file the returns for the decedent. 1040x 2012 tax form See Joint Return, later. 1040x 2012 tax form Return for preceding year. 1040x 2012 tax form   If an individual died after the close of the tax year, but before the return for that year was filed, the return for the year just closed will not be the final return. 1040x 2012 tax form The return for that year will be a regular return and the personal representative must file it. 1040x 2012 tax form Example. 1040x 2012 tax form Samantha Smith died on March 21, 2013, before filing her 2012 tax return. 1040x 2012 tax form Her personal representative must file her 2012 return by April 15, 2013. 1040x 2012 tax form Her final tax return covering the period from January 1, 2013, to March 20, 2013, is due April 15, 2014. 1040x 2012 tax form Name, Address, and Signature Write the word “DECEASED,” the decedent's name, and the date of death across the top of the tax return. 1040x 2012 tax form If filing a joint return, write the name and address of the decedent and the surviving spouse in the name and address fields. 1040x 2012 tax form If a joint return is not being filed, write the decedent's name in the name field and the personal representative's name and address in the address field. 1040x 2012 tax form Third party designee. 1040x 2012 tax form   You can check the “Yes” box in the Third Party Designee area on page 2 of the return to authorize the IRS to discuss the return with a friend, family member, or any other person you choose. 1040x 2012 tax form This allows the IRS to call the person you identified as the designee to answer any questions that may arise during the processing of the return. 1040x 2012 tax form It also allows the designee to perform certain actions. 1040x 2012 tax form See the Instructions for Form 1040 for details. 1040x 2012 tax form Signature. 1040x 2012 tax form   If a personal representative has been appointed, that person must sign the return. 1040x 2012 tax form If it is a joint return, the surviving spouse must also sign it. 1040x 2012 tax form If no personal representative has been appointed, the surviving spouse (on a joint return) signs the return and writes in the signature area “Filing as surviving spouse. 1040x 2012 tax form ” If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. 1040x 2012 tax form ” Paid preparer. 1040x 2012 tax form   If you pay someone to prepare, assist in preparing, or review the tax return, that person must sign the return and fill in the other blanks in the Paid Preparer Use Only area of the return. 1040x 2012 tax form See the Form 1040 instructions for details. 1040x 2012 tax form When and Where To File The final income tax return is due at the same time the decedent's return would have been due had death not occurred. 1040x 2012 tax form A final return for a decedent who was a calendar year taxpayer is generally due on April 15 following the year of death, regardless of when during that year death occurred. 1040x 2012 tax form However, when the due date falls on a Saturday, Sunday, or legal holiday, the return is filed timely if filed by the next business day. 1040x 2012 tax form The tax return must be prepared for the year of death regardless of when during the year death occurred. 1040x 2012 tax form Generally, you must file the final income tax return of the decedent with the Internal Revenue Service Center for the place where you live. 1040x 2012 tax form A tax return for a decedent can be electronically filed. 1040x 2012 tax form A personal representative may also obtain an income tax filing extension on behalf of a decedent. 1040x 2012 tax form Filing Requirements The gross income, age, and filing status of a decedent generally determine whether a return must be filed. 1040x 2012 tax form Gross income is all income received by an individual from any source in the form of money, goods, property, and services that is not tax-exempt. 1040x 2012 tax form It includes gross receipts from self-employment, but if the business involves manufacturing, merchandising, or mining, subtract any cost of goods sold. 1040x 2012 tax form In general, filing status depends on whether the decedent was considered single or married at the time of death. 1040x 2012 tax form See the income tax return instructions or Publication 501, Exemptions, Standard Deduction, and Filing Information. 1040x 2012 tax form Refund A return must be filed to obtain a refund if tax was withheld from salaries, wages, pensions, or annuities, or if estimated tax was paid, even if a return is not otherwise required to be filed. 1040x 2012 tax form Also, the decedent may be entitled to other credits that result in a refund. 1040x 2012 tax form These advance payments of tax and credits are discussed later under Credits, Other Taxes, and Payments. 1040x 2012 tax form Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer. 1040x 2012 tax form   Form 1310 does not have to be filed if you are claiming a refund and you are: A surviving spouse filing an original or amended joint return with the decedent, or A court-appointed or certified personal representative filing the decedent’s original return and a copy of the court certificate showing your appointment is attached to the return. 1040x 2012 tax form   If the personal representative is filing a claim for refund on Form 1040X, Amended U. 1040x 2012 tax form S. 1040x 2012 tax form Individual Income Tax Return, or Form 843, Claim for Refund and Request for Abatement, and the court certificate has already been filed with the IRS, attach Form 1310 and write “Certificate Previously Filed” at the bottom of the form. 1040x 2012 tax form Example. 1040x 2012 tax form Edward Green died before filing his tax return. 1040x 2012 tax form You were appointed the personal representative for Edward's estate, and you file his Form 1040 showing a refund due. 1040x 2012 tax form You do not need Form 1310 to claim the refund if you attach a copy of the court certificate showing you were appointed the personal representative. 1040x 2012 tax form    If you are a surviving spouse and you receive a tax refund check in both your name and your deceased spouse's name, you can have the check reissued in your name alone. 1040x 2012 tax form Return the joint-name check marked “VOID” to your local IRS office or the service center where you mailed your return, along with a written request for reissuance of the refund check. 1040x 2012 tax form A new check will be issued in your name and mailed to you. 1040x 2012 tax form Death certificate. 1040x 2012 tax form   When filing the decedent's final income tax return, do not attach the death certificate or other proof of death to the final return. 1040x 2012 tax form Instead, keep it for your records and provide it if requested. 1040x 2012 tax form Nonresident Alien If the decedent was a nonresident alien who would have had to file Form 1040NR, U. 1040x 2012 tax form S. 1040x 2012 tax form Nonresident Alien Income Tax Return, you must file that form for the decedent's final tax year. 1040x 2012 tax form See the Instructions for Form 1040NR for the filing requirements, due date, and where to file. 1040x 2012 tax form Joint Return Generally, the personal representative and the surviving spouse can file a joint return for the decedent and the surviving spouse. 1040x 2012 tax form However, the surviving spouse alone can file the joint return if no personal representative has been appointed before the due date for filing the final joint return for the year of death. 1040x 2012 tax form This also applies to the return for the preceding year if the decedent died after the close of the preceding tax year and before filing the return for that year. 1040x 2012 tax form The income of the decedent that was includible on his or her return for the year up to the date of death (see Income To Include, later) and the income of the surviving spouse for the entire year must be included in the final joint return. 1040x 2012 tax form A final joint return with the decedent cannot be filed if the surviving spouse remarried before the end of the year of the decedent's death. 1040x 2012 tax form The filing status of the decedent in this instance is married filing a separate return. 1040x 2012 tax form For information about tax benefits to which a surviving spouse may be entitled, see Tax Benefits for Survivors, later, under Other Tax Information. 1040x 2012 tax form Personal representative may revoke joint return election. 1040x 2012 tax form   A court-appointed personal representative may revoke an election to file a joint return previously made by the surviving spouse alone. 1040x 2012 tax form This is done by filing a separate return for the decedent within one year from the due date of the return (including any extensions). 1040x 2012 tax form The joint return made by the surviving spouse will then be regarded as the separate return of that spouse by excluding the decedent's items and refiguring the tax liability. 1040x 2012 tax form Relief from joint liability. 1040x 2012 tax form   In some cases, one spouse may be relieved of joint liability for tax, interest, and penalties on a joint return for items of the other spouse that were incorrectly reported on the joint return. 1040x 2012 tax form If the decedent qualified for this relief while alive, the personal representative can pursue an existing request, or file a request, for relief from joint liability. 1040x 2012 tax form For information on requesting this relief, see Publication 971, Innocent Spouse Relief. 1040x 2012 tax form Income To Include The decedent's income includible on the final return is generally determined as if the person were still alive except that the taxable period is usually shorter because it ends on the date of death. 1040x 2012 tax form The method of accounting regularly used by the decedent before death also determines the income includible on the final return. 1040x 2012 tax form This section explains how some types of income are reported on the final return. 1040x 2012 tax form For more information about accounting methods, see Publication 538, Accounting Periods and Methods. 1040x 2012 tax form Cash Method If the decedent accounted for income under the cash method, only those items actually or constructively received before death are included on the final return. 1040x 2012 tax form Constructive receipt of income. 1040x 2012 tax form   Interest from coupons on the decedent's bonds is constructively received by the decedent if the coupons matured in the decedent's final tax year, but had not been cashed. 1040x 2012 tax form Include the interest income on the final return. 1040x 2012 tax form   Generally, a dividend is considered constructively received if it was available for use by the decedent without restriction. 1040x 2012 tax form If the corporation customarily mailed its dividend checks, the dividend was includible when received. 1040x 2012 tax form If the individual died between the time the dividend was declared and the time it was received in the mail, the decedent did not constructively receive it before death. 1040x 2012 tax form Do not include the dividend in the final return. 1040x 2012 tax form Accrual Method Generally, under an accrual method of accounting, income is reported when earned. 1040x 2012 tax form If the decedent used an accrual method, only the income items normally accrued before death are included on the final return. 1040x 2012 tax form Interest and Dividend Income (Forms 1099) Form(s) 1099 reporting interest and dividends earned by the decedent before death should be received and the amounts included on the decedent's final return. 1040x 2012 tax form A separate Form 1099 should show the interest and dividends earned after the date of the decedent's death and paid to the estate or other recipient that must include those amounts on its return. 1040x 2012 tax form You can request corrected Forms 1099 if these forms do not properly reflect the right recipient or amounts. 1040x 2012 tax form For example, a Form 1099-INT, reporting interest payable to the decedent, may include income that should be reported on the final income tax return of the decedent, as well as income that the estate or other recipient should report, either as income earned after death or as income in respect of the decedent (discussed later). 1040x 2012 tax form For income earned after death, you should ask the payer for a Form 1099 that properly identifies the recipient (by name and identification number) and the proper amount. 1040x 2012 tax form If that is not possible, or if the form includes an amount that represents income in respect of the decedent, report the interest as shown next under How to report. 1040x 2012 tax form See U. 1040x 2012 tax form S. 1040x 2012 tax form savings bonds acquired from decedent under Income in Respect of a Decedent, later, for information on savings bond interest that may have to be reported on the final return. 1040x 2012 tax form How to report. 1040x 2012 tax form   If you are preparing the decedent's final return and you have received a Form 1099-INT for the decedent that includes amounts belonging to the decedent and to another recipient (the decedent's estate or another beneficiary), report the total interest shown on Form 1099-INT on Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. 1040x 2012 tax form Next, enter a subtotal of the interest shown on Forms 1099, and the interest reportable from other sources for which you did not receive Forms 1099. 1040x 2012 tax form Then, show any interest (including any interest you receive as a nominee) belonging to another recipient separately and subtract it from the subtotal. 1040x 2012 tax form Identify the amount of this adjustment as “Nominee Distribution” or other appropriate designation. 1040x 2012 tax form   Report dividend income for which you received a Form 1099-DIV, Dividends and Distributions, on the appropriate schedule using the same procedure. 1040x 2012 tax form    Note. 1040x 2012 tax form If the decedent received amounts as a nominee, you must give the actual owner a Form 1099, unless the owner is the decedent's spouse. 1040x 2012 tax form See General Instructions for Certain Information Returns (Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G) for more information on filing Forms 1099. 1040x 2012 tax form Partnership Income The death of a partner closes the partnership's tax year for that partner. 1040x 2012 tax form Generally, it does not close the partnership's tax year for the remaining partners. 1040x 2012 tax form The decedent's distributive share of partnership items must be figured as if the partnership's tax year ended on the date the partner died. 1040x 2012 tax form To avoid an interim closing of the partnership books, the partners can agree to estimate the decedent's distributive share by prorating the amounts the partner would have included for the entire partnership tax year. 1040x 2012 tax form On the decedent's final return, include the decedent's distributive share of partnership items for the following periods. 1040x 2012 tax form The partnership's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). 1040x 2012 tax form The period, if any, from the end of the partnership's tax year in (1) to the decedent's date of death. 1040x 2012 tax form Example. 1040x 2012 tax form Mary Smith was a partner in XYZ partnership and reported her income on a tax year ending December 31. 1040x 2012 tax form The partnership uses a tax year ending June 30. 1040x 2012 tax form Mary died August 31, 2013, and her estate established its tax year through August 31. 1040x 2012 tax form The distributive share of partnership items based on the decedent's partnership interest is reported as follows. 1040x 2012 tax form Final Return for the Decedent—January 1 through August 31, 2013, includes XYZ partnership items from (a) the partnership tax year ending June 30, 2013, and (b) the partnership tax year beginning July 1, 2013, and ending August 31, 2013 (the date of death). 1040x 2012 tax form Income Tax Return of the Estate—September 1, 2013, through August 31, 2014, includes XYZ partnership items for the period September 1, 2013, through June 30, 2014. 1040x 2012 tax form S Corporation Income If the decedent was a shareholder in an S corporation, include on the final return the decedent's share of the S corporation's items of income, loss, deduction, and credit for the following periods. 1040x 2012 tax form The corporation's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). 1040x 2012 tax form The period, if any, from the end of the corporation's tax year in (1) to the decedent's date of death. 1040x 2012 tax form Self-Employment Income Include self-employment income actually or constructively received or accrued, depending on the decedent's accounting method. 1040x 2012 tax form For self-employment tax purposes only, the decedent's self-employment income will include the decedent's distributive share of a partnership's income or loss through the end of the month in which death occurred. 1040x 2012 tax form For this purpose, the partnership's income or loss is considered to be earned ratably over the partnership's tax year. 1040x 2012 tax form Community Income If the decedent was married and domiciled in a community property state, half of the income received and half of the expenses paid during the decedent's tax year by either the decedent or spouse may be considered to be the income and expenses of the other. 1040x 2012 tax form For more information, see Publication 555, Community Property. 1040x 2012 tax form HSA, Archer MSA, or Medicare Advantage MSA The treatment of an HSA (health savings account), an Archer MSA (medical savings account), or a Medicare Advantage MSA at the death of the account holder, depends on who acquires the interest in the account. 1040x 2012 tax form If the decedent's estate acquires the interest, the fair market value (FMV) of the assets in the account on the date of death is included in income on the decedent's final return. 1040x 2012 tax form The estate tax deduction, discussed later, does not apply to this amount. 1040x 2012 tax form If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. 1040x 2012 tax form For other information on HSAs, Archer MSAs, or Medicare Advantage MSAs, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. 1040x 2012 tax form Coverdell Education Savings Account (ESA) Generally, the balance in a Coverdell ESA must be distributed within 30 days after the individual for whom the account was established reaches age 30, or dies, whichever is earlier. 1040x 2012 tax form The treatment of the Coverdell ESA at the death of an individual under age 30 depends on who acquires the interest in the account. 1040x 2012 tax form If the decedent's estate acquires the interest, the earnings on the account must be included on the final income tax return of the decedent. 1040x 2012 tax form The estate tax deduction, discussed later, does not apply to this amount. 1040x 2012 tax form If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. 1040x 2012 tax form The age 30 limitation does not apply if the individual for whom the account was established or the beneficiary that acquires the account is an individual with special needs. 1040x 2012 tax form This includes an individual who, because of a physical, mental, or emotional condition (including a learning disability), requires additional time to complete his or her education. 1040x 2012 tax form For more information on Coverdell ESAs, see Publication 970, Tax Benefits for Education. 1040x 2012 tax form Accelerated Death Benefits Accelerated death benefits are amounts received under a life insurance contract before the death of the insured individual. 1040x 2012 tax form These benefits also include amounts received on the sale or assignment of the contract to a viatical settlement provider. 1040x 2012 tax form Generally, if the decedent received accelerated death benefits on the life of a terminally or chronically ill individual, whether on his or her own life or on the life of another person, those benefits are not included in the decedent's income. 1040x 2012 tax form For more information, see the discussion under Gifts, Insurance, and Inheritances under Other Tax Information, later. 1040x 2012 tax form Exemptions and Deductions Generally, the rules for exemptions and deductions allowed to an individual also apply to the decedent's final income tax return. 1040x 2012 tax form Show on the final return deductible items the decedent paid (or accrued, if the decedent reported deductions on an accrual method) before death. 1040x 2012 tax form This section contains a detailed discussion of medical expenses because the tax treatment of the decedent's medical expenses can be different. 1040x 2012 tax form See Medical Expenses, later. 1040x 2012 tax form Exemptions You can claim the decedent's personal exemption on the final income tax return. 1040x 2012 tax form If the decedent was another person's dependent (for example, a parent's), you cannot claim the personal exemption on the decedent's final return. 1040x 2012 tax form Standard Deduction If you do not itemize deductions on the final return, the full amount of the appropriate standard deduction is allowed regardless of the date of death. 1040x 2012 tax form For information on the appropriate standard deduction, see the Form 1040 income tax return instructions or Publication 501. 1040x 2012 tax form Medical Expenses Medical expenses paid before death by the decedent are deductible, subject to limits, on the final income tax return if deductions are itemized. 1040x 2012 tax form This includes expenses for the decedent, as well as for the decedent's spouse and dependents. 1040x 2012 tax form Beginning in 2013, medical expenses exceeding 10% of adjusted gross income (AGI) may be deducted, unless the decedent or their spouse is age 65 or older. 1040x 2012 tax form In that case medical expenses exceeding 7. 1040x 2012 tax form 5% of AGI may be deducted. 1040x 2012 tax form Qualified medical expenses are not deductible if paid with a tax-free distribution from an HSA or an Archer MSA. 1040x 2012 tax form Election for decedent's expenses. 1040x 2012 tax form   Medical expenses not paid before death are liabilities of the estate and are shown on the federal estate tax return (Form 706). 1040x 2012 tax form However, if medical expenses for the decedent are paid out of the estate during the 1-year period beginning with the day after death, you can elect to treat all or part of the expenses as paid by the decedent at the time they were incurred. 1040x 2012 tax form   If you make the election, you can claim all or part of the expenses on the decedent's income tax return (if deductions are itemized) rather than on the federal estate tax return (Form 706). 1040x 2012 tax form You can deduct expenses incurred in the year of death on the final income tax return. 1040x 2012 tax form You should file an amended return (Form 1040X) for medical expenses incurred in an earlier year, unless the statutory period for filing a claim for that year has expired. 1040x 2012 tax form   The amount you can deduct on the income tax return is the amount above 10% of adjusted gross income (or 7. 1040x 2012 tax form 5% of adjusted gross income if the decedent or the decedent's spouse was born before January 2, 1949). 1040x 2012 tax form Amounts not deductible because of this percentage cannot be claimed on the federal estate tax return. 1040x 2012 tax form Making the election. 1040x 2012 tax form   You make the election by attaching a statement, in duplicate, to the decedent's income tax return or amended return. 1040x 2012 tax form The statement must state that you have not claimed the amount as an estate tax deduction, and that the estate waives the right to claim the amount as a deduction. 1040x 2012 tax form This election applies only to expenses incurred for the decedent, not to expenses incurred to provide medical care for dependents. 1040x 2012 tax form Example. 1040x 2012 tax form Richard Brown used the cash method of accounting and filed his income tax return on a calendar year basis. 1040x 2012 tax form Richard died on June 1, 2013, at the age of 78, after incurring $800 in medical expenses. 1040x 2012 tax form Of that amount, $500 was incurred in 2012 and $300 was incurred in 2013. 1040x 2012 tax form Richard itemized his deductions when he filed his 2012 income tax return. 1040x 2012 tax form The personal representative of the estate paid the entire $800 liability in August 2013. 1040x 2012 tax form The personal representative may file an amended return (Form 1040X) for 2012 claiming the $500 medical expense as a deduction, subject to the 7. 1040x 2012 tax form 5% limit. 1040x 2012 tax form The $300 of expenses incurred in 2013 can be deducted on the final income tax return if deductions are itemized, subject to the 7. 1040x 2012 tax form 5% limit. 1040x 2012 tax form The personal representative must file a statement in duplicate with each return stating that these amounts have not been claimed on the federal estate tax return (Form 706), and waiving the right to claim such a deduction on Form 706 in the future. 1040x 2012 tax form Medical expenses not paid by estate. 1040x 2012 tax form   If you paid medical expenses for your deceased spouse or dependent, claim the expenses on your tax return for the year in which you paid them, whether they are paid before or after the decedent's death. 1040x 2012 tax form If the decedent was a child of divorced or separated parents, the medical expenses can usually be claimed by both the custodial and noncustodial parent to the extent paid by that parent during the year. 1040x 2012 tax form Insurance reimbursements. 1040x 2012 tax form   Insurance reimbursements of previously deducted medical expenses due a decedent at the time of death and later received by the decedent's estate are includible in the income tax return of the estate (Form 1041) for the year the reimbursements are received. 1040x 2012 tax form The reimbursements are also includible in the decedent's gross estate. 1040x 2012 tax form No deduction for funeral expenses can be taken on the final Form 1040 of a decedent. 1040x 2012 tax form These expenses may be deductible for estate tax purposes on Form 706. 1040x 2012 tax form Deduction for Losses A decedent's net operating loss deduction from a prior year and any capital losses (including capital loss carryovers) can be deducted only on the decedent's final income tax return. 1040x 2012 tax form A net operating loss on the decedent's final income tax return can be carried back to prior years. 1040x 2012 tax form (See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. 1040x 2012 tax form ) You cannot deduct any unused net operating loss or capital loss on the estate's income tax return. 1040x 2012 tax form At-risk loss limits. 1040x 2012 tax form   Special at-risk rules apply to most activities that are engaged in as a trade or business or for the production of income. 1040x 2012 tax form   These rules limit the deductible loss to the amount which the individual was considered at-risk in the activity. 1040x 2012 tax form An individual generally will be considered at-risk to the extent of the money and the adjusted basis of property that he or she contributed to the activity and certain amounts the individual borrowed for use in the activity. 1040x 2012 tax form An individual will be considered at-risk for amounts borrowed only if he or she was personally liable for the repayment or if the amounts borrowed were secured by property other than that used in the activity. 1040x 2012 tax form The individual is not considered at-risk for borrowed amounts if the lender has an interest in the activity or if the lender is related to a person who has an interest in the activity. 1040x 2012 tax form For more information, see Publication 925, Passive Activity and At-Risk Rules. 1040x 2012 tax form Passive activity rules. 1040x 2012 tax form   A passive activity is any trade or business activity in which the taxpayer does not materially participate. 1040x 2012 tax form To determine material participation, see Publication 925. 1040x 2012 tax form Rental activities are passive activities regardless of the taxpayer's participation, unless the taxpayer meets certain eligibility requirements. 1040x 2012 tax form   Individuals, estates, and trusts can offset passive activity losses only against passive activity income. 1040x 2012 tax form Passive activity losses or credits not allowed in one tax year can be carried forward to the next year. 1040x 2012 tax form   If a passive activity interest is transferred because a taxpayer dies, the accumulated unused passive activity losses are allowed as a deduction against the decedent's income in the year of death. 1040x 2012 tax form Losses are allowed only to the extent they are greater than the excess of the transferee's (recipient of the interest transferred) basis in the property over the decedent's adjusted basis in the property immediately before death. 1040x 2012 tax form The part of the accumulated losses equal to the excess is not allowed as a deduction for any tax year. 1040x 2012 tax form   Use Form 8582, Passive Activity Loss Limitations, to summarize losses and income from passive activities and to figure the amounts allowed. 1040x 2012 tax form For more information, see Publication 925. 1040x 2012 tax form Credits, Other Taxes, and Payments Discussed below are some of the tax credits, types of taxes that may be owed, income tax withheld, and estimated tax payments reported on the final return of a decedent. 1040x 2012 tax form Credits On the final income tax return, you can claim any tax credits that applied to the decedent before death. 1040x 2012 tax form Some of these credits are discussed next. 1040x 2012 tax form Earned income credit. 1040x 2012 tax form   If the decedent was an eligible individual, you can claim the earned income credit on the decedent's final return even though the return covers less than 12 months. 1040x 2012 tax form If the allowable credit is more than the tax liability for the year, the excess is refunded. 1040x 2012 tax form   For more information, see Publication 596, Earned Income Credit (EIC). 1040x 2012 tax form Credit for the elderly or the disabled. 1040x 2012 tax form   This credit is allowable on a decedent's final income tax return if the decedent met both of the following requirements in the year of death. 1040x 2012 tax form The decedent: Was a “qualified individual,” and Had income (adjusted gross income (AGI) and nontaxable social security and pensions) less than certain limits. 1040x 2012 tax form   For details on qualifying for or figuring the credit, see Publication 524, Credit for the Elderly or the Disabled. 1040x 2012 tax form Child tax credit. 1040x 2012 tax form   If the decedent had a qualifying child, you may be able to claim the child tax credit on the decedent's final return even though the return covers less than 12 months. 1040x 2012 tax form You may be able to claim the additional child tax credit and get a refund if the credit is more than the decedent's liability. 1040x 2012 tax form For more information, see the Instructions for Form 1040. 1040x 2012 tax form Adoption credit. 1040x 2012 tax form   Depending upon when the adoption was finalized, this credit may be taken on a decedent's final income tax return if the decedent: Adopted an eligible child and paid qualified adoption expenses, or Has a carryforward of an adoption credit from a prior year. 1040x 2012 tax form   Also, if the decedent is survived by a spouse who meets the filing status of qualifying widow(er), unused adoption credit may be carried forward and used following the death of the decedent. 1040x 2012 tax form See Form 8839, Qualified Adoption Expenses, and its instructions for more details. 1040x 2012 tax form General business tax credit. 1040x 2012 tax form   The general business credit available to a taxpayer is limited. 1040x 2012 tax form Any credit arising in a tax year beginning before 1998 that has not been used up can be carried forward for up to 15 years. 1040x 2012 tax form Any unused credit arising in a tax year beginning after 1997 has a 1-year carryback and a 20-year carryforward period. 1040x 2012 tax form   After the carryforward period, a deduction may be allowed for any unused business credit. 1040x 2012 tax form If the taxpayer dies before the end of the carryforward period, the deduction generally is allowed in the year of death. 1040x 2012 tax form   For more information on the general business credit, see Publication 334, Tax Guide for Small Business. 1040x 2012 tax form Other Taxes Taxes other than income tax that may be owed on the final return of a decedent include self-employment tax and alternative minimum tax, which are reported on Form 1040. 1040x 2012 tax form Self-employment tax. 1040x 2012 tax form   Self-employment tax may be owed on the final return if either of the following applied to the decedent in the year of death: Net earnings from self-employment (excluding income described in (2)) were $400 or more; or Wages from services performed as a church employee were $108. 1040x 2012 tax form 28 or more. 1040x 2012 tax form Alternative minimum tax (AMT). 1040x 2012 tax form   The tax laws give special treatment to certain types of income and allow special deductions and credits for certain types of expenses. 1040x 2012 tax form The alternative minimum tax (AMT) was enacted so taxpayers who benefit from these laws still pay at least a minimum amount of tax. 1040x 2012 tax form In general, the AMT is the excess of the tentative minimum tax over the regular tax shown on the return. 1040x 2012 tax form Form 6251. 1040x 2012 tax form    Use Form 6251, Alternative Minimum Tax—Individuals, to determine if this tax applies to the decedent. 1040x 2012 tax form See the form instructions for information on when you must attach Form 6251 to Form 1040. 1040x 2012 tax form Form 8801. 1040x 2012 tax form   If the decedent paid AMT in a previous year or had a credit carryforward, the decedent may be eligible for a minimum tax credit. 1040x 2012 tax form See Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts. 1040x 2012 tax form Payments of Tax The income tax withheld from the decedent's salary, wages, pensions, or annuities, and the amount paid as estimated tax are credits (advance payments of tax) that must be claimed on the final return. 1040x 2012 tax form Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Income tax liability may be forgiven for a decedent who dies due to service in a combat zone, due to military or terrorist actions, as a result of a terrorist attack, or while serving in the line of duty as an astronaut. 1040x 2012 tax form Combat Zone If a member of the Armed Forces of the United States dies while in active service in a combat zone or from wounds, disease, or injury incurred in a combat zone, the decedent's income tax liability is abated (forgiven) for the entire year in which death occurred and for any prior tax year ending on or after the first day the person served in a combat zone in active service. 1040x 2012 tax form For this purpose, a qualified hazardous duty area is treated as a combat zone. 1040x 2012 tax form If the tax (including interest, additions to the tax, and additional amounts) for these years has been assessed, the assessment will be forgiven. 1040x 2012 tax form If the tax has been collected (regardless of the date of collection), that tax will be credited or refunded. 1040x 2012 tax form Any of the decedent's income tax for tax years before those mentioned above that remains unpaid as of the actual (or presumptive) date of death will not be assessed. 1040x 2012 tax form If any unpaid tax (including interest, additions to the tax, and additional amounts) has been assessed, this assessment will be forgiven. 1040x 2012 tax form Also, if any tax was collected after the date of death, that amount will be credited or refunded. 1040x 2012 tax form The date of death of a member of the Armed Forces reported as missing in action or as a prisoner of war is the date his or her name is removed from missing status for military pay purposes. 1040x 2012 tax form This is true even if death actually occurred earlier. 1040x 2012 tax form For other tax information for members of the Armed Forces, see Publication 3, Armed Forces' Tax Guide. 1040x 2012 tax form Military or Terrorist Actions The decedent's income tax liability is forgiven if, at death, he or she was a military or civilian employee of the United States who died because of wounds or injury incurred: While a U. 1040x 2012 tax form S. 1040x 2012 tax form employee, and In a military or terrorist action. 1040x 2012 tax form The forgiveness applies to the tax year in which death occurred and for any earlier tax year, beginning with the year before the year in which the wounds or injury occurred. 1040x 2012 tax form Example. 1040x 2012 tax form The income tax liability of a civilian employee of the United States who died in 2013 because of wounds incurred while a U. 1040x 2012 tax form S. 1040x 2012 tax form employee in a terrorist attack that occurred in 2008 will be forgiven for 2013 and for all prior tax years in the period 2007 through 2012. 1040x 2012 tax form Refunds are allowed for the tax years for which the period for filing a claim for refund has not ended, as discussed later. 1040x 2012 tax form Military or terrorist action defined. 1040x 2012 tax form   A military or terrorist action means the following. 1040x 2012 tax form Any terrorist activity that most of the evidence indicates was directed against the United States or any of its allies. 1040x 2012 tax form Any military action involving the U. 1040x 2012 tax form S. 1040x 2012 tax form Armed Forces and resulting from violence or aggression against the United States or any of its allies, or the threat of such violence or aggression. 1040x 2012 tax form   Terrorist activity includes criminal offenses intended to coerce, intimidate, or retaliate against the government or civilian population. 1040x 2012 tax form Military action does not include training exercises. 1040x 2012 tax form Any multinational force in which the United States is participating is treated as an ally of the United States. 1040x 2012 tax form Determining if a terrorist activity or military action has occurred. 1040x 2012 tax form   You may rely on published guidance from the IRS to determine if a particular event is considered a terrorist activity or military action. 1040x 2012 tax form Specified Terrorist Victim The Victims of Terrorism Tax Relief Act of 2001 (the Act) provides tax relief for those injured or killed as a result of terrorist attacks, certain survivors of those killed as a result of terrorist attacks, and others who were affected by terrorist attacks. 1040x 2012 tax form Under the Act, the federal income tax liability of those killed in the following attacks (specified terrorist victim) is forgiven for certain tax years. 1040x 2012 tax form The April 19, 1995, terrorist attack on the Alfred P. 1040x 2012 tax form Murrah Federal Building (Oklahoma City). 1040x 2012 tax form The September 11, 2001, terrorist attacks. 1040x 2012 tax form The terrorist attacks involving anthrax occurring after September 10, 2001, and before January 1, 2002. 1040x 2012 tax form The Act also exempts from federal income tax the following types of income. 1040x 2012 tax form Qualified disaster relief payments made after September 10, 2001, to cover personal, family, living, or funeral expenses incurred because of a terrorist attack. 1040x 2012 tax form Certain disability payments received in tax years ending after September 10, 2001, for injuries sustained in a terrorist attack. 1040x 2012 tax form Certain death benefits paid by an employer to the survivor of an employee because the employee died as a result of a terrorist attack. 1040x 2012 tax form Payments from the September 11th Victim Compensation Fund 2001. 1040x 2012 tax form The Act also reduces the estate tax of individuals who die as a result of a terrorist attack. 1040x 2012 tax form See Publication 3920, Tax Relief for Victims of Terrorist Attacks, for more information. 1040x 2012 tax form Astronauts Legislation extended the tax relief available under the Victims of Terrorism Tax Relief Act of 2001 (the Act) to astronauts who died in the line of duty after December 31, 2002. 1040x 2012 tax form The decedent's income tax liability is forgiven for the tax year in which death occurs, and for the tax year prior to death. 1040x 2012 tax form For information on death benefit payments and the reduction of federal estate taxes, see Publication 3920. 1040x 2012 tax form However, the discussions in that publication under Death Benefits and Estate Tax Reduction should be modified for astronauts (for example, by using the date of death of the astronaut instead of September 11, 2001). 1040x 2012 tax form For more information on the Act, see Publication 3920. 1040x 2012 tax form Claim for Credit or Refund If any of these tax-forgiveness situations applies to a prior year tax, any tax paid for which the period for filing a claim has not ended will be credited or refunded. 1040x 2012 tax form If any tax is still due, it will be canceled. 1040x 2012 tax form The normal period for filing a claim for credit or refund is 3 years after the return was filed or 2 years after the tax was paid, whichever is later. 1040x 2012 tax form If death occurred in a combat zone or from wounds, disease, or injury incurred in a combat zone, the period for filing the claim is extended by: The amount of time served in the combat zone (including any period in which the individual was in missing status), plus The period of continuous qualified hospitalization for injury from service in the combat zone, if any, plus The next 180 days. 1040x 2012 tax form Qualified hospitalization means any hospitalization outside the United States and any hospitalization in the United States of not more than 5 years. 1040x 2012 tax form This extended period for filing the claim also applies to a member of the Armed Forces who was deployed outside the United States in a designated contingency operation. 1040x 2012 tax form Filing a claim. 1040x 2012 tax form   Use the following procedures to file a claim. 1040x 2012 tax form If a U. 1040x 2012 tax form S. 1040x 2012 tax form individual income tax return (Form 1040, 1040A, or 1040EZ) has not been filed, you should make a claim for refund of any withheld income tax or estimated tax payments by filing Form 1040. 1040x 2012 tax form Form W-2, Wage and Tax Statement, must accompany all returns. 1040x 2012 tax form If a U. 1040x 2012 tax form S. 1040x 2012 tax form individual income tax return has been filed, you should make a claim for refund by filing Form 1040X. 1040x 2012 tax form You must file a separate Form 1040X for each year in question. 1040x 2012 tax form   You must file these returns and claims at the following address for regular mail (U. 1040x 2012 tax form S. 1040x 2012 tax form Postal Service). 1040x 2012 tax form    Internal Revenue Service 333 W. 1040x 2012 tax form Pershing, P5–6503 Kansas City, MO 64108   Identify all returns and claims for refund by writing “Iraq—KIA,” “Enduring Freedom—KIA,” “Kosovo Operation—KIA,” “Desert Storm—KIA,” or “Former Yugoslavia—KIA” in bold letters on the top of page 1 of the return or claim. 1040x 2012 tax form On the applicable return, write the same phrase on the line for total tax. 1040x 2012 tax form If the individual was killed in a terrorist or military action, put “KITA” on the front of the return and on the line for total tax. 1040x 2012 tax form   Include an attachment showing the computation of the decedent's tax liability and a computation of the amount to be forgiven. 1040x 2012 tax form On joint returns, make an allocation of the tax as described below under Joint returns. 1040x 2012 tax form If you cannot make a proper allocation, attach a statement of all income and deductions allocable to each spouse and the IRS will make the proper allocation. 1040x 2012 tax form   You must attach Form 1310 to all returns and claims for refund. 1040x 2012 tax form However, for exceptions to filing Form 1310, see Form 1310. 1040x 2012 tax form Statement of Person Claiming Refund Due a Deceased Taxpayer, under Refund, earlier. 1040x 2012 tax form   You must also attach proof of death that includes a statement that the individual was a U. 1040x 2012 tax form S. 1040x 2012 tax form employee on the date of injury and on the date of death and died as the result of a military or terrorist action. 1040x 2012 tax form For military and civilian employees of the Department of Defense, attach DD Form 1300, Report of Casualty. 1040x 2012 tax form For other U. 1040x 2012 tax form S. 1040x 2012 tax form civilian employees killed in the United States, attach a death certificate and a certification (letter) from the federal employer. 1040x 2012 tax form For other U. 1040x 2012 tax form S. 1040x 2012 tax form civilian employees killed overseas, attach a certification from the Department of State. 1040x 2012 tax form   If you do not have enough tax information to file a timely claim for refund, you can suspend the period for filing a claim by filing Form 1040X. 1040x 2012 tax form Attach Form 1310, any required documentation currently available, and a statement that you will file an amended claim as soon as you have the required tax information. 1040x 2012 tax form Joint returns. 1040x 2012 tax form   If a joint return was filed, only the decedent's part of the income tax liability is eligible for forgiveness. 1040x 2012 tax form Determine the decedent's tax liability as follows. 1040x 2012 tax form Figure the income tax for which the decedent would have been liable if a separate return had been filed. 1040x 2012 tax form Figure the income tax for which the spouse would have been liable if a separate return had been filed. 1040x 2012 tax form Multiply the joint tax liability by a fraction. 1040x 2012 tax form The numerator of the fraction is the amount in (1), above. 1040x 2012 tax form The denominator of the fraction is the total of (1) and (2). 1040x 2012 tax form   The resulting amount from (3) above is the decedent's tax liability eligible for forgiveness. 1040x 2012 tax form Filing Reminders To minimize the time needed to process the decedent's final return and issue any refund, be sure to follow these procedures. 1040x 2012 tax form Write “DECEASED,” the decedent's name, and the date of death across the top of the tax return. 1040x 2012 tax form If a personal representative has been appointed, the personal representative must sign the return. 1040x 2012 tax form If it is a joint return, the surviving spouse must also sign it. 1040x 2012 tax form If you are the decedent's spouse filing a joint return with the decedent and no personal representative has been appointed, write “Filing as surviving spouse” in the area where you sign the return. 1040x 2012 tax form If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. 1040x 2012 tax form ” To claim a refund for the decedent, do the following. 1040x 2012 tax form If you are the decedent's spouse filing a joint return with the decedent, file only the tax return to claim the refund. 1040x 2012 tax form If you are the personal representative and the return is not a joint return filed with the decedent's surviving spouse, file the return and attach a copy of the certificate that shows your appointment by the court. 1040x 2012 tax form (A power of attorney or a copy of the decedent's will is not acceptable evidence of your appointment as the personal representative. 1040x 2012 tax form ) If you are filing an amended return, attach Form 1310 and a copy of the certificate of appointment (or, if you have already sent the certificate of appointment to IRS, write “Certificate Previously Filed” at the bottom of Form 1310). 1040x 2012 tax form If you are not filing a joint return as the surviving spouse and a personal representative has not been appointed, file the return and attach Form 1310. 1040x 2012 tax form Other Tax Information Discussed below is information about the effect of an individual's death on the income tax liability of the survivors (including widows and widowers), the beneficiaries, and the estate. 1040x 2012 tax form Tax Benefits for Survivors Survivors can qualify for certain benefits when filing their own income tax returns. 1040x 2012 tax form Joint return by surviving spouse. 1040x 2012 tax form   A surviving spouse can file a joint return for the year of death and may qualify for special tax rates for the following 2 years, as explained under Qualifying widows and widowers, later. 1040x 2012 tax form Decedent as your dependent. 1040x 2012 tax form   If the decedent qualified as your dependent for a part of the year before death, you can claim the exemption for the dependent on your tax return, regardless of when death occurred during the year. 1040x 2012 tax form   If the decedent was your qualifying child, you may be able to claim the child tax credit or the earned income credit. 1040x 2012 tax form To determine if you qualify for the child tax credit, see the instructions for Form 1040, line 51; Form 1040A, line 33; or Form 1040NR, line 48. 1040x 2012 tax form To determine if you qualify for the earned income credit, see the instructions for Form 1040, lines 64a and 64b or Form 1040A, lines 38a and 38b. 1040x 2012 tax form Qualifying widows and widowers. 1040x 2012 tax form   If your spouse died within the 2 tax years preceding the year for which your return is being filed, you may be eligible to claim the filing status of qualifying widow(er) with dependent child and qualify to use the married-filing-jointly tax rates. 1040x 2012 tax form Requirements. 1040x 2012 tax form   Generally, you qualify for this special benefit if you meet all of the following requirements. 1040x 2012 tax form You were entitled to file a joint return with your spouse for the year of death—whether or not you actually filed jointly. 1040x 2012 tax form You did not remarry before the end of the current tax year. 1040x 2012 tax form You have a child, stepchild, or foster child who qualifies as your dependent for the tax year. 1040x 2012 tax form You provide more than half the cost of maintaining your home, which is the principal residence of that child for the entire year except for temporary absences. 1040x 2012 tax form Example. 1040x 2012 tax form William Burns' wife died in 2010. 1040x 2012 tax form William has not remarried and continued throughout 2011 and 2012 to maintain a home for himself and his dependent child. 1040x 2012 tax form For 2010, he was entitled to file a joint return for himself and his deceased wife. 1040x 2012 tax form For 2011 and 2012, he qualifies to file as a qualifying widower with dependent child. 1040x 2012 tax form For later years, he may qualify to file as a head of household. 1040x 2012 tax form Figuring your tax. 1040x 2012 tax form   Check the box on line 5 (Form 1040 or 1040A) under Filing Status on your tax return. 1040x 2012 tax form Use the Tax Rate Schedule or the column in the Tax Table for Married filing jointly, which gives you the split-income benefits. 1040x 2012 tax form   The last year you can file jointly with, or claim an exemption for, your deceased spouse is the year of death. 1040x 2012 tax form Joint return filing rules. 1040x 2012 tax form   If you are the surviving spouse and a personal representative is handling the estate for the decedent, you should coordinate filing your return for the year of death with this personal representative. 1040x 2012 tax form See Joint Return under Final Income Tax Return for Decedent—Form 1040, earlier. 1040x 2012 tax form Income in Respect of a Decedent All income the decedent would have received had death not occurred that was not properly includible on the final return, discussed earlier, is income in respect of a decedent. 1040x 2012 tax form If the decedent is a specified terrorist victim (see Specified Terrorist Victim, earlier), income received after the date of death and before the end of the decedent's tax year (determined without regard to death) is excluded from the recipient's gross income. 1040x 2012 tax form This exclusion does not apply to certain income. 1040x 2012 tax form For more information, see Publication 3920. 1040x 2012 tax form How To Report Income in respect of a decedent must be included in the income of one of the following. 1040x 2012 tax form The decedent's estate, if the estate receives it. 1040x 2012 tax form The beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it. 1040x 2012 tax form Any person to whom the estate properly distributes the right to receive it. 1040x 2012 tax form If you have to include income in respect of a decedent in your gross income and an estate tax return (Form 706) was filed for the decedent, you may be able to claim a deduction for the estate tax paid on that income. 1040x 2012 tax form See Estate Tax Deduction, later. 1040x 2012 tax form Example 1. 1040x 2012 tax form Frank Johnson owned and operated an apple orchard. 1040x 2012 tax form He used the cash method of accounting. 1040x 2012 tax form He sold and delivered 1,000 bushels of apples to a canning factory for $2,000, but did not receive payment before his death. 1040x 2012 tax form The proceeds from the sale are income in respect of a decedent. 1040x 2012 tax form When the estate was settled, payment had not been made and the estate transferred the right to the payment to his widow. 1040x 2012 tax form When Frank's widow collects the $2,000, she must include that amount in her return. 1040x 2012 tax form It is not reported on the final return of the decedent or on the return of the estate. 1040x 2012 tax form Example 2. 1040x 2012 tax form Assume the same facts as in Example 1, except that Frank used the accrual method of accounting. 1040x 2012 tax form The amount accrued from the sale of the apples would be included on his final return. 1040x 2012 tax form Neither the estate nor the widow would realize income in respect of a decedent when the money is later paid. 1040x 2012 tax form Example 3. 1040x 2012 tax form On February 1, George High, a cash method taxpayer, sold his tractor for $3,000, payable March 1 of the same year. 1040x 2012 tax form His adjusted basis in the tractor was $2,000. 1040x 2012 tax form George died on February 15, before receiving payment. 1040x 2012 tax form The gain to be reported as income in respect of a decedent is the $1,000 difference between the decedent's basis in the property and the sale proceeds. 1040x 2012 tax form In other words, the income in respect of a decedent is the gain the decedent would have realized had he lived. 1040x 2012 tax form Example 4. 1040x 2012 tax form Cathy O'Neil was entitled to a large salary payment at the date of her death. 1040x 2012 tax form The amount was to be paid in five annual installments. 1040x 2012 tax form The estate, after collecting two installments, distributed the right to the remaining installments to you, the beneficiary. 1040x 2012 tax form The payments are income in respect of a decedent. 1040x 2012 tax form None of the payments were includible on Cathy's final return. 1040x 2012 tax form The estate must include in its income the two installments it received, and you must include in your income each of the three installments as you receive them. 1040x 2012 tax form Example 5. 1040x 2012 tax form You inherited the right to receive renewal commissions on life insurance sold by your father before his death. 1040x 2012 tax form You inherited the right from your mother, who acquired it by bequest from your father. 1040x 2012 tax form Your mother died before she received all the commissions she had the right to receive, so you received the rest. 1040x 2012 tax form The commissions are income in respect of a decedent. 1040x 2012 tax form None of these commissions were includible in your father's final return. 1040x 2012 tax form The commissions received by your mother were included in her income. 1040x 2012 tax form The commissions you received are not includible in your mother's income, even on her final return. 1040x 2012 tax form You must include them in your income. 1040x 2012 tax form Character of income. 1040x 2012 tax form   The character of the income you receive in respect of a decedent remains the same as it would have been to the decedent if he or she were alive. 1040x 2012 tax form If the income would have been a capital gain to the decedent, it will be a capital gain to you. 1040x 2012 tax form Transfer of right to income. 1040x 2012 tax form   If you transfer your right to income in respect of a decedent, you must include in your income the greater of: The amount you receive for the right, or The fair market value of the right you transfer. 1040x 2012 tax form   If you make a gift of such a right, you must include in your income the fair market value of the right at the time of the gift. 1040x 2012 tax form   If the right to income from an installment obligation is transferred, the amount you must include in income is reduced by the basis of the obligation. 1040x 2012 tax form See Installment obligations, later. 1040x 2012 tax form Transfer defined. 1040x 2012 tax form   A transfer for this purpose includes a sale, exchange, or other disposition, the satisfaction of an installment obligation at other than face value, or the cancellation of an installment obligation. 1040x 2012 tax form Installment obligations. 1040x 2012 tax form   If the decedent sold property using the installment method and you are collecting payments on an installment obligation acquired from the decedent, use the same gross profit percentage the decedent used to figure the part of each payment that represents profit. 1040x 2012 tax form Include in your income the same profit the decedent would have included had death not occurred. 1040x 2012 tax form For more information, see Publication 537, Installment Sales. 1040x 2012 tax form   If you dispose of an installment obligation acquired from a decedent (other than by transfer to the obligor), the rules explained in Publication 537 for figuring gain or loss on the disposition apply to you. 1040x 2012 tax form Transfer to obligor. 1040x 2012 tax form   A transfer of a right to income, discussed earlier, has occurred if the decedent (seller) sold property using the installment method and the installment obligation was transferred to the obligor (buyer or person legally obligated to pay the installments). 1040x 2012 tax form A transfer also occurs if the obligation was canceled either at death or by the estate or person receiving the obligation from the decedent. 1040x 2012 tax form An obligation that becomes unenforceable is treated as having been canceled. 1040x 2012 tax form   If such a transfer occurs, the amount included in the income of the transferor (the estate or beneficiary) is the greater of the amount received or the fair market value of the installment obligation at the time of transfer, reduced by the basis of the obligation. 1040x 2012 tax form The basis of the obligation is the decedent's basis, adjusted for all installment payments received after the decedent's death and before the transfer. 1040x 2012 tax form   If the decedent and obligor were related persons, the fair market value of the obligation cannot be less than its face value. 1040x 2012 tax form Specific Types of Income in Respect of a Decedent This section explains and provides examples of some specific types of income in respect of a decedent. 1040x 2012 tax form Wages. 1040x 2012 tax form   The entire amount of wages or other employee compensation earned by the decedent but unpaid at the time of death is income in respect of a decedent. 1040x 2012 tax form The income is not reduced by any amounts withheld by the employer. 1040x 2012 tax form If the income is $600 or more, the employer should report it in box 3 of Form 1099-MISC, Miscellaneous Income, and give the recipient a copy of the form or a similar statement. 1040x 2012 tax form   Wages paid as income in respect of a decedent are not subject to federal income tax withholding. 1040x 2012 tax form However, if paid during the calendar year of death, they are subject to withholding for social security and Medicare taxes. 1040x 2012 tax form These taxes should be included on the decedent's Form W-2 along with the taxes withheld before death. 1040x 2012 tax form These wages are not included in box 1 of Form W-2. 1040x 2012 tax form   Wages paid as income in respect of a decedent after the year of death generally are not subject to withholding for any federal taxe