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1040x Instructions 2010

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1040x Instructions 2010

1040x instructions 2010 13. 1040x instructions 2010   Basis of Property Table of Contents Introduction Useful Items - You may want to see: Cost BasisReal Property Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostProperty Received for Services Taxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed From Personal to Business or Rental Use Stocks and Bonds Introduction This chapter discusses how to figure your basis in property. 1040x instructions 2010 It is divided into the following sections. 1040x instructions 2010 Cost basis. 1040x instructions 2010 Adjusted basis. 1040x instructions 2010 Basis other than cost. 1040x instructions 2010 Your basis is the amount of your investment in property for tax purposes. 1040x instructions 2010 Use the basis to figure gain or loss on the sale, exchange, or other disposition of property. 1040x instructions 2010 Also use it to figure deductions for depreciation, amortization, depletion, and casualty losses. 1040x instructions 2010 If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. 1040x instructions 2010 Only the basis allocated to the business or investment use of the property can be depreciated. 1040x instructions 2010 Your original basis in property is adjusted (increased or decreased) by certain events. 1040x instructions 2010 For example, if you make improvements to the property, increase your basis. 1040x instructions 2010 If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis. 1040x instructions 2010 Keep accurate records of all items that affect the basis of your property. 1040x instructions 2010 For more information on keeping records, see chapter 1. 1040x instructions 2010 Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 535 Business Expenses 537 Installment Sales 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 551 Basis of Assets 946 How To Depreciate Property Cost Basis The basis of property you buy is usually its cost. 1040x instructions 2010 The cost is the amount you pay in cash, debt obligations, other property, or services. 1040x instructions 2010 Your cost also includes amounts you pay for the following items: Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if you assume liability for the seller). 1040x instructions 2010 In addition, the basis of real estate and business assets may include other items. 1040x instructions 2010 Loans with low or no interest. 1040x instructions 2010    If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price minus any amount considered to be unstated interest. 1040x instructions 2010 You generally have unstated interest if your interest rate is less than the applicable federal rate. 1040x instructions 2010   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. 1040x instructions 2010 Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. 1040x instructions 2010 If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. 1040x instructions 2010 Lump sum purchase. 1040x instructions 2010   If you buy buildings and the land on which they stand for a lump sum, allocate the cost basis among the land and the buildings. 1040x instructions 2010 Allocate the cost basis according to the respective fair market values (FMVs) of the land and buildings at the time of purchase. 1040x instructions 2010 Figure the basis of each asset by multiplying the lump sum by a fraction. 1040x instructions 2010 The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. 1040x instructions 2010    If you are not certain of the FMVs of the land and buildings, you can allocate the basis according to their assessed values for real estate tax purposes. 1040x instructions 2010 Fair market value (FMV). 1040x instructions 2010   FMV is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the necessary facts. 1040x instructions 2010 Sales of similar property on or about the same date may be helpful in figuring the FMV of the property. 1040x instructions 2010 Assumption of mortgage. 1040x instructions 2010   If you buy property and assume (or buy the property subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. 1040x instructions 2010 Settlement costs. 1040x instructions 2010   Your basis includes the settlement fees and closing costs you paid for buying the property. 1040x instructions 2010 (A fee for buying property is a cost that must be paid even if you buy the property for cash. 1040x instructions 2010 ) Do not include fees and costs for getting a loan on the property in your basis. 1040x instructions 2010   The following are some of the settlement fees or closing costs you can include in the basis of your property. 1040x instructions 2010 Abstract fees (abstract of title fees). 1040x instructions 2010 Charges for installing utility services. 1040x instructions 2010 Legal fees (including fees for the title search and preparation of the sales contract and deed). 1040x instructions 2010 Recording fees. 1040x instructions 2010 Survey fees. 1040x instructions 2010 Transfer taxes. 1040x instructions 2010 Owner's title insurance. 1040x instructions 2010 Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. 1040x instructions 2010   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. 1040x instructions 2010   The following are some of the settlement fees and closing costs you cannot include in the basis of property. 1040x instructions 2010 Casualty insurance premiums. 1040x instructions 2010 Rent for occupancy of the property before closing. 1040x instructions 2010 Charges for utilities or other services related to occupancy of the property before closing. 1040x instructions 2010 Charges connected with getting a loan, such as points (discount points, loan origination fees), mortgage insurance premiums, loan assumption fees, cost of a credit report, and fees for an appraisal required by a lender. 1040x instructions 2010 Fees for refinancing a mortgage. 1040x instructions 2010 Real estate taxes. 1040x instructions 2010   If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. 1040x instructions 2010 You cannot deduct them as an expense. 1040x instructions 2010    If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. 1040x instructions 2010 Do not include that amount in the basis of your property. 1040x instructions 2010 If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. 1040x instructions 2010 Points. 1040x instructions 2010   If you pay points to get a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. 1040x instructions 2010 Generally, you deduct the points over the term of the loan. 1040x instructions 2010 For more information on how to deduct points, see chapter 23. 1040x instructions 2010 Points on home mortgage. 1040x instructions 2010   Special rules may apply to points you and the seller pay when you get a mortgage to buy your main home. 1040x instructions 2010 If certain requirements are met, you can deduct the points in full for the year in which they are paid. 1040x instructions 2010 Reduce the basis of your home by any seller-paid points. 1040x instructions 2010 Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments (increases and decreases) to the cost basis or basis other than cost (discussed later) of the property. 1040x instructions 2010 The result is the adjusted basis. 1040x instructions 2010 Increases to Basis Increase the basis of any property by all items properly added to a capital account. 1040x instructions 2010 Examples of items that increase basis are shown in Table 13-1. 1040x instructions 2010 These include the items discussed below. 1040x instructions 2010 Improvements. 1040x instructions 2010   Add to your basis in property the cost of improvements having a useful life of more than 1 year, that increase the value of the property, lengthen its life, or adapt it to a different use. 1040x instructions 2010 For example, improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, or paving your driveway. 1040x instructions 2010 Assessments for local improvements. 1040x instructions 2010   Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. 1040x instructions 2010 Do not deduct them as taxes. 1040x instructions 2010 However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements. 1040x instructions 2010 Example. 1040x instructions 2010 Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected property owners for the cost of the conversion. 1040x instructions 2010 Add the assessment to your property's basis. 1040x instructions 2010 In this example, the assessment is a depreciable asset. 1040x instructions 2010 Decreases to Basis Decrease the basis of any property by all items that represent a return of capital for the period during which you held the property. 1040x instructions 2010 Examples of items that decrease basis are shown in Table 13-1. 1040x instructions 2010 These include the items discussed below. 1040x instructions 2010 Table 13-1. 1040x instructions 2010 Examples of Adjustments to Basis Increases to Basis Decreases to Basis • Capital improvements: • Exclusion from income of   Putting an addition on your home subsidies for energy conservation   Replacing an entire roof measures   Paving your driveway     Installing central air conditioning • Casualty or theft loss deductions   Rewiring your home and insurance reimbursements       • Assessments for local improvements:     Water connections     Extending utility service lines to the property • Postponed gain from the sale of a home   Sidewalks • Alternative motor vehicle credit  (Form 8910)   Roads       • Alternative fuel vehicle refueling     property credit (Form 8911)           • Residential energy credits (Form 5695)       • Casualty losses: • Depreciation and section 179 deduction   Restoring damaged property     • Nontaxable corporate distributions • Legal fees:     Cost of defending and perfecting a title • Certain canceled debt excluded from   Fees for getting a reduction of an assessment income     • Zoning costs • Easements           • Adoption tax benefits Casualty and theft losses. 1040x instructions 2010   If you have a casualty or theft loss, decrease the basis in your property by any insurance proceeds or other reimbursement and by any deductible loss not covered by insurance. 1040x instructions 2010    You must increase your basis in the property by the amount you spend on repairs that restore the property to its pre-casualty condition. 1040x instructions 2010   For more information on casualty and theft losses, see chapter 25. 1040x instructions 2010 Depreciation and section 179 deduction. 1040x instructions 2010   Decrease the basis of your qualifying business property by any section 179 deduction you take and the depreciation you deducted, or could have deducted (including any special depreciation allowance), on your tax returns under the method of depreciation you selected. 1040x instructions 2010   For more information about depreciation and the section 179 deduction, see Publication 946 and the Instructions for Form 4562. 1040x instructions 2010 Example. 1040x instructions 2010 You owned a duplex used as rental property that cost you $40,000, of which $35,000 was allocated to the building and $5,000 to the land. 1040x instructions 2010 You added an improvement to the duplex that cost $10,000. 1040x instructions 2010 In February last year, the duplex was damaged by fire. 1040x instructions 2010 Up to that time, you had been allowed depreciation of $23,000. 1040x instructions 2010 You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. 1040x instructions 2010 You deducted a casualty loss of $1,000 on your income tax return for last year. 1040x instructions 2010 You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. 1040x instructions 2010 You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. 1040x instructions 2010 Figure the adjusted basis of the duplex as follows: Original cost of duplex $35,000 Addition to duplex 10,000 Total cost of duplex $45,000 Minus: Depreciation 23,000 Adjusted basis before casualty $22,000 Minus: Insurance proceeds $19,700     Deducted casualty loss 1,000     Salvage proceeds 1,300 22,000 Adjusted basis after casualty $-0- Add: Cost of restoring duplex 19,000 Adjusted basis after restoration $19,000 Note. 1040x instructions 2010 Your basis in the land is its original cost of $5,000. 1040x instructions 2010 Easements. 1040x instructions 2010   The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. 1040x instructions 2010 It reduces the basis of the affected part of the property. 1040x instructions 2010 If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. 1040x instructions 2010   If the gain is on a capital asset, see chapter 16 for information about how to report it. 1040x instructions 2010 If the gain is on property used in a trade or business, see Publication 544 for information about how to report it. 1040x instructions 2010 Exclusion of subsidies for energy conservation measures. 1040x instructions 2010   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. 1040x instructions 2010 Reduce the basis of the property for which you received the subsidy by the excluded amount. 1040x instructions 2010 For more information about this subsidy, see chapter 12. 1040x instructions 2010 Postponed gain from sale of home. 1040x instructions 2010    If you postponed gain from the sale of your main home under rules in effect before May 7, 1997, you must reduce the basis of the home you acquired as a replacement by the amount of the postponed gain. 1040x instructions 2010 For more information on the rules for the sale of a home, see chapter 15. 1040x instructions 2010 Basis Other Than Cost There are many times when you cannot use cost as basis. 1040x instructions 2010 In these cases, the fair market value or the adjusted basis of the property can be used. 1040x instructions 2010 Fair market value (FMV) and adjusted basis were discussed earlier. 1040x instructions 2010 Property Received for Services If you receive property for your services, include the FMV of the property in income. 1040x instructions 2010 The amount you include in income becomes your basis. 1040x instructions 2010 If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. 1040x instructions 2010 Restricted property. 1040x instructions 2010   If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested. 1040x instructions 2010 However, this rule does not apply if you make an election to include in income the FMV of the property at the time it is transferred to you, less any amount you paid for it. 1040x instructions 2010 Property is substantially vested when it is transferable or when it is not subject to a substantial risk of forfeiture (you do not have a good chance of losing it). 1040x instructions 2010 For more information, see Restricted Property in Publication 525. 1040x instructions 2010 Bargain purchases. 1040x instructions 2010   A bargain purchase is a purchase of an item for less than its FMV. 1040x instructions 2010 If, as compensation for services, you buy goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. 1040x instructions 2010 Your basis in the property is its FMV (your purchase price plus the amount you include in income). 1040x instructions 2010   If the difference between your purchase price and the FMV is a qualified employee discount, do not include the difference in income. 1040x instructions 2010 However, your basis in the property is still its FMV. 1040x instructions 2010 See Employee Discounts in Publication 15-B. 1040x instructions 2010 Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. 1040x instructions 2010 A taxable gain or deductible loss also is known as a recognized gain or loss. 1040x instructions 2010 If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. 1040x instructions 2010 Involuntary Conversions If you receive replacement property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property using the basis of the converted property. 1040x instructions 2010 Similar or related property. 1040x instructions 2010   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the same as the converted property's basis on the date of the conversion, with the following adjustments. 1040x instructions 2010 Decrease the basis by the following. 1040x instructions 2010 Any loss you recognize on the involuntary conversion. 1040x instructions 2010 Any money you receive that you do not spend on similar property. 1040x instructions 2010 Increase the basis by the following. 1040x instructions 2010 Any gain you recognize on the involuntary conversion. 1040x instructions 2010 Any cost of acquiring the replacement property. 1040x instructions 2010 Money or property not similar or related. 1040x instructions 2010    If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the conversion. 1040x instructions 2010 Example. 1040x instructions 2010 The state condemned your property. 1040x instructions 2010 The adjusted basis of the property was $26,000 and the state paid you $31,000 for it. 1040x instructions 2010 You realized a gain of $5,000 ($31,000 − $26,000). 1040x instructions 2010 You bought replacement property similar in use to the converted property for $29,000. 1040x instructions 2010 You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. 1040x instructions 2010 Your unrecognized gain is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. 1040x instructions 2010 The basis of the replacement property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of replacement property $26,000 Allocating the basis. 1040x instructions 2010   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. 1040x instructions 2010 Basis for depreciation. 1040x instructions 2010   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. 1040x instructions 2010 For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. 1040x instructions 2010 Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. 1040x instructions 2010 If you receive property in a nontaxable exchange, its basis is generally the same as the basis of the property you transferred. 1040x instructions 2010 See Nontaxable Trades in chapter 14. 1040x instructions 2010 Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. 1040x instructions 2010 To qualify as a like-kind exchange, the property traded and the property received must be both of the following. 1040x instructions 2010 Qualifying property. 1040x instructions 2010 Like-kind property. 1040x instructions 2010 The basis of the property you receive is generally the same as the adjusted basis of the property you gave up. 1040x instructions 2010 If you trade property in a like-kind exchange and also pay money, the basis of the property received is the adjusted basis of the property you gave up increased by the money you paid. 1040x instructions 2010 Qualifying property. 1040x instructions 2010   In a like-kind exchange, you must hold for investment or for productive use in your trade or business both the property you give up and the property you receive. 1040x instructions 2010 Like-kind property. 1040x instructions 2010   There must be an exchange of like-kind property. 1040x instructions 2010 Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. 1040x instructions 2010 The exchange of real estate for real estate and personal property for similar personal property are exchanges of like-kind property. 1040x instructions 2010 Example. 1040x instructions 2010 You trade in an old truck used in your business with an adjusted basis of $1,700 for a new one costing $6,800. 1040x instructions 2010 The dealer allows you $2,000 on the old truck, and you pay $4,800. 1040x instructions 2010 This is a like-kind exchange. 1040x instructions 2010 The basis of the new truck is $6,500 (the adjusted basis of the old one, $1,700, plus the amount you paid, $4,800). 1040x instructions 2010 If you sell your old truck to a third party for $2,000 instead of trading it in and then buy a new one from the dealer, you have a taxable gain of $300 on the sale (the $2,000 sale price minus the $1,700 adjusted basis). 1040x instructions 2010 The basis of the new truck is the price you pay the dealer. 1040x instructions 2010 Partially nontaxable exchanges. 1040x instructions 2010   A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. 1040x instructions 2010 The basis of the property you receive is the same as the adjusted basis of the property you gave up, with the following adjustments. 1040x instructions 2010 Decrease the basis by the following amounts. 1040x instructions 2010 Any money you receive. 1040x instructions 2010 Any loss you recognize on the exchange. 1040x instructions 2010 Increase the basis by the following amounts. 1040x instructions 2010 Any additional costs you incur. 1040x instructions 2010 Any gain you recognize on the exchange. 1040x instructions 2010 If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. 1040x instructions 2010 Allocation of basis. 1040x instructions 2010   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. 1040x instructions 2010 The rest is the basis of the like-kind property. 1040x instructions 2010 More information. 1040x instructions 2010   See Like-Kind Exchanges in chapter 1 of Publication 544 for more information. 1040x instructions 2010 Basis for depreciation. 1040x instructions 2010   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind exchange. 1040x instructions 2010 For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. 1040x instructions 2010 Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. 1040x instructions 2010 The same rule applies to a transfer by your former spouse that is incident to divorce. 1040x instructions 2010 However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. 1040x instructions 2010 If the property transferred to you is a series E, series EE, or series I U. 1040x instructions 2010 S. 1040x instructions 2010 savings bond, the transferor must include in income the interest accrued to the date of transfer. 1040x instructions 2010 Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. 1040x instructions 2010 For more information on these bonds, see chapter 7. 1040x instructions 2010 At the time of the transfer, the transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. 1040x instructions 2010 For more information about the transfer of property from a spouse, see chapter 14. 1040x instructions 2010 Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. 1040x instructions 2010 FMV less than donor's adjusted basis. 1040x instructions 2010   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. 1040x instructions 2010 Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. 1040x instructions 2010 Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. 1040x instructions 2010 See Adjusted Basis , earlier. 1040x instructions 2010 Example. 1040x instructions 2010 You received an acre of land as a gift. 1040x instructions 2010 At the time of the gift, the land had an FMV of $8,000. 1040x instructions 2010 The donor's adjusted basis was $10,000. 1040x instructions 2010 After you received the property, no events occurred to increase or decrease your basis. 1040x instructions 2010 If you later sell the property for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis at the time of the gift ($10,000) as your basis to figure gain. 1040x instructions 2010 If you sell the property for $7,000, you will have a $1,000 loss because you must use the FMV at the time of the gift ($8,000) as your basis to figure loss. 1040x instructions 2010 If the sales price is between $8,000 and $10,000, you have neither gain nor loss. 1040x instructions 2010 Business property. 1040x instructions 2010   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. 1040x instructions 2010 FMV equal to or greater than donor's adjusted basis. 1040x instructions 2010   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. 1040x instructions 2010 Increase your basis by all or part of any gift tax paid, depending on the date of the gift, explained later. 1040x instructions 2010   Also, for figuring gain or loss from a sale or other disposition or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. 1040x instructions 2010 See Adjusted Basis , earlier. 1040x instructions 2010   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. 1040x instructions 2010 Figure the increase by multiplying the gift tax paid by a fraction. 1040x instructions 2010 The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. 1040x instructions 2010   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. 1040x instructions 2010 The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. 1040x instructions 2010 Example. 1040x instructions 2010 In 2013, you received a gift of property from your mother that had an FMV of $50,000. 1040x instructions 2010 Her adjusted basis was $20,000. 1040x instructions 2010 The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). 1040x instructions 2010 She paid a gift tax of $7,320 on the property. 1040x instructions 2010 Your basis is $26,076, figured as follows: Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000     Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . 1040x instructions 2010 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. 1040x instructions 2010 If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. 1040x instructions 2010 However, your basis cannot exceed the FMV of the gift at the time it was given to you. 1040x instructions 2010 Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. 1040x instructions 2010 The FMV on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. 1040x instructions 2010 The value under the special-use valuation method for real property used in farming or a closely held business if elected for estate tax purposes. 1040x instructions 2010 The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. 1040x instructions 2010 If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. 1040x instructions 2010 For more information, see the instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. 1040x instructions 2010 Property inherited from a decedent who died in 2010. 1040x instructions 2010   If you inherited property from a decedent who died in 2010, special rules may apply. 1040x instructions 2010 For more information, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. 1040x instructions 2010 Community property. 1040x instructions 2010   In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. 1040x instructions 2010 When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. 1040x instructions 2010 For this rule to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return. 1040x instructions 2010 Example. 1040x instructions 2010 You and your spouse owned community property that had a basis of $80,000. 1040x instructions 2010 When your spouse died, half the FMV of the community interest was includible in your spouse's estate. 1040x instructions 2010 The FMV of the community interest was $100,000. 1040x instructions 2010 The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). 1040x instructions 2010 The basis of the other half to your spouse's heirs is also $50,000. 1040x instructions 2010 For more information about community property, see Publication 555, Community Property. 1040x instructions 2010 Property Changed From Personal to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you can begin to depreciate the property at the time of the change. 1040x instructions 2010 To do so, you must figure its basis for depreciation at the time of the change. 1040x instructions 2010 An example of changing property held for personal use to business or rental use would be renting out your former personal residence. 1040x instructions 2010 Basis for depreciation. 1040x instructions 2010   The basis for depreciation is the lesser of the following amounts. 1040x instructions 2010 The FMV of the property on the date of the change. 1040x instructions 2010 Your adjusted basis on the date of the change. 1040x instructions 2010 Example. 1040x instructions 2010 Several years ago, you paid $160,000 to have your house built on a lot that cost $25,000. 1040x instructions 2010 You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. 1040x instructions 2010 Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. 1040x instructions 2010 Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). 1040x instructions 2010 On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. 1040x instructions 2010 The basis for figuring depreciation on the house is its FMV on the date of the change ($165,000) because it is less than your adjusted basis ($178,000). 1040x instructions 2010 Sale of property. 1040x instructions 2010   If you later sell or dispose of property changed to business or rental use, the basis you use will depend on whether you are figuring gain or loss. 1040x instructions 2010 Gain. 1040x instructions 2010   The basis for figuring a gain is your adjusted basis in the property when you sell the property. 1040x instructions 2010 Example. 1040x instructions 2010 Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. 1040x instructions 2010 Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). 1040x instructions 2010 Loss. 1040x instructions 2010   Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. 1040x instructions 2010 Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . 1040x instructions 2010 Example. 1040x instructions 2010 Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. 1040x instructions 2010 In this case, you would start with the FMV on the date of the change to rental use ($180,000), because it is less than the adjusted basis of $203,000 ($178,000 + $25,000 (land)) on that date. 1040x instructions 2010 Reduce that amount ($180,000) by the depreciation deductions ($37,500). 1040x instructions 2010 The basis for loss is $142,500 ($180,000 − $37,500). 1040x instructions 2010 Stocks and Bonds The basis of stocks or bonds you buy generally is the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. 1040x instructions 2010 If you get stocks or bonds other than by purchase, your basis is usually determined by the FMV or the previous owner's adjusted basis, as discussed earlier. 1040x instructions 2010 You must adjust the basis of stocks for certain events that occur after purchase. 1040x instructions 2010 For example, if you receive additional stock from nontaxable stock dividends or stock splits, reduce your basis for each share of stock by dividing the adjusted basis of the old stock by the number of shares of old and new stock. 1040x instructions 2010 This rule applies only when the additional stock received is identical to the stock held. 1040x instructions 2010 Also reduce your basis when you receive nontaxable distributions. 1040x instructions 2010 They are a return of capital. 1040x instructions 2010 Example. 1040x instructions 2010 In 2011 you bought 100 shares of XYZ stock for $1,000 or $10 a share. 1040x instructions 2010 In 2012 you bought 100 shares of XYZ stock for $1,600 or $16 a share. 1040x instructions 2010 In 2013 XYZ declared a 2-for-1 stock split. 1040x instructions 2010 You now have 200 shares of stock with a basis of $5 a share and 200 shares with a basis of $8 a share. 1040x instructions 2010 Other basis. 1040x instructions 2010   There are other ways to figure the basis of stocks or bonds depending on how you acquired them. 1040x instructions 2010 For detailed information, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. 1040x instructions 2010 Identifying stocks or bonds sold. 1040x instructions 2010   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stocks or bonds. 1040x instructions 2010 If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. 1040x instructions 2010 For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. 1040x instructions 2010 Mutual fund shares. 1040x instructions 2010   If you sell mutual fund shares you acquired at various times and prices and left on deposit in an account kept by a custodian or agent, you can elect to use an average basis. 1040x instructions 2010 For more information, see Publication 550. 1040x instructions 2010 Bond premium. 1040x instructions 2010   If you buy a taxable bond at a premium and elect to amortize the premium, reduce the basis of the bond by the amortized premium you deduct each year. 1040x instructions 2010 See Bond Premium Amortization in chapter 3 of Publication 550 for more information. 1040x instructions 2010 Although you cannot deduct the premium on a tax-exempt bond, you must amortize the premium each year and reduce your basis in the bond by the amortized amount. 1040x instructions 2010 Original issue discount (OID) on debt instruments. 1040x instructions 2010   You must increase your basis in an OID debt instrument by the OID you include in income for that instrument. 1040x instructions 2010 See Original Issue Discount (OID) in chapter 7 and Publication 1212, Guide To Original Issue Discount (OID) Instruments. 1040x instructions 2010 Tax-exempt obligations. 1040x instructions 2010    OID on tax-exempt obligations is generally not taxable. 1040x instructions 2010 However, when you dispose of a tax-exempt obligation issued after September 3, 1982, and acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. 1040x instructions 2010 The accrued OID is added to the basis of the obligation to determine your gain or loss. 1040x instructions 2010 See chapter 4 of Publication 550. 1040x instructions 2010 Prev  Up  Next   Home   More Online Publications
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Can I Claim My Expenses as Miscellaneous Itemized Deductions on Schedule A (Form 1040)?

You may be able to deduct certain expenses related to producing or collecting taxable income. This topic addresses many of these expenses. It does not address employment related expenses other than expenses for job search, work clothes, uniforms and union dues.

For more information regarding employment related expenses, refer to Publication 529, Miscellaneous Deductions.

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The 1040x Instructions 2010

1040x instructions 2010 37. 1040x instructions 2010   Other Credits Table of Contents What's New Introduction Useful Items - You may want to see: Nonrefundable CreditsAdoption Credit Alternative Motor Vehicle Credit Alternative Fuel Vehicle Refueling Property Credit Credit to Holders of Tax Credit Bonds Foreign Tax Credit Mortgage Interest Credit Nonrefundable Credit for Prior Year Minimum Tax Plug-in Electric Drive Motor Vehicle Credit Residential Energy Credits Retirement Savings Contributions Credit (Saver's Credit) Refundable CreditsCredit for Tax on Undistributed Capital Gain Health Coverage Tax Credit Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld What's New Adoption credit. 1040x instructions 2010  The maximum adoption credit is $12,970 for 2013. 1040x instructions 2010 See Adoption Credit . 1040x instructions 2010 Plug-in electric vehicle credit. 1040x instructions 2010  This credit has expired. 1040x instructions 2010 Credit for prior year minimum tax. 1040x instructions 2010  The refundable portion of the credit for prior year minimum tax has expired. 1040x instructions 2010 Excess withholding of social security and railroad retirement tax. 1040x instructions 2010  Social security tax and tier 1 railroad retirement (RRTA) tax were both withheld during 2013 at a rate of 6. 1040x instructions 2010 2% of wages up to $113,700. 1040x instructions 2010 If you worked for more than one employer and had too much social security or RRTA tax withheld during 2013, you may be entitled to a credit for the excess withholding. 1040x instructions 2010 See Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld . 1040x instructions 2010 Introduction This chapter discusses the following nonrefundable credits. 1040x instructions 2010 Adoption credit. 1040x instructions 2010 Alternative motor vehicle credit. 1040x instructions 2010 Alternative fuel vehicle refueling property credit. 1040x instructions 2010 Credit to holders of tax credit bonds. 1040x instructions 2010 Foreign tax credit. 1040x instructions 2010 Mortgage interest credit. 1040x instructions 2010 Nonrefundable credit for prior year minimum tax. 1040x instructions 2010 Plug-in electric drive motor vehicle credit. 1040x instructions 2010 Residential energy credits. 1040x instructions 2010 Retirement savings contributions credit. 1040x instructions 2010 This chapter also discusses the following refundable credits. 1040x instructions 2010 Credit for tax on undistributed capital gain. 1040x instructions 2010 Health coverage tax credit. 1040x instructions 2010 Credit for excess social security tax or railroad retirement tax withheld. 1040x instructions 2010 Several other credits are discussed in other chapters in this publication. 1040x instructions 2010 Child and dependent care credit (chapter 32). 1040x instructions 2010 Credit for the elderly or the disabled (chapter 33). 1040x instructions 2010 Child tax credit (chapter 34). 1040x instructions 2010 Education credits (chapter 35). 1040x instructions 2010 Earned income credit (chapter 36). 1040x instructions 2010 Nonrefundable credits. 1040x instructions 2010   The first part of this chapter, Nonrefundable Credits , covers ten credits that you subtract from your tax. 1040x instructions 2010 These credits may reduce your tax to zero. 1040x instructions 2010 If these credits are more than your tax, the excess is not refunded to you. 1040x instructions 2010 Refundable credits. 1040x instructions 2010   The second part of this chapter, Refundable Credits , covers three credits that are treated as payments and are refundable to you. 1040x instructions 2010 These credits are added to the federal income tax withheld and any estimated tax payments you made. 1040x instructions 2010 If this total is more than your total tax, the excess will be refunded to you. 1040x instructions 2010 Useful Items - You may want to see: Publication 502 Medical and Dental Expenses 514 Foreign Tax Credit for  Individuals 530 Tax Information for Homeowners 590 Individual Retirement Arrangements (IRAs) Form (and Instructions) 1116 Foreign Tax Credit 2439 Notice to Shareholder of Undistributed Long-Term Capital Gains 5695 Residential Energy Credits 8396 Mortgage Interest Credit 8801 Credit For Prior Year Minimum Tax — Individuals, Estates, and Trusts 8828 Recapture of Federal Mortgage Subsidy 8839 Qualified Adoption Expenses 8880 Credit for Qualified Retirement Savings Contributions 8885 Health Coverage Tax Credit 8910 Alternative Motor Vehicle Credit 8911 Alternative Fuel Vehicle Refueling Property Credit 8912 Credit to Holders of Tax Credit Bonds 8936 Qualified Plug-in Electric Drive Motor Vehicle Credit Nonrefundable Credits The credits discussed in this part of the chapter can reduce your tax. 1040x instructions 2010 However, if the total of these credits is more than your tax, the excess is not refunded to you. 1040x instructions 2010 Adoption Credit You may be able to take a tax credit of up to $12,970 for qualified expenses paid to adopt an eligible child. 1040x instructions 2010 The credit may be allowed for the adoption of a child with special needs even if you do not have any qualified expenses. 1040x instructions 2010 If your modified adjusted gross income (AGI) is more than $194,580, your credit is reduced. 1040x instructions 2010 If your modified AGI is $234,580 or more, you cannot take the credit. 1040x instructions 2010 Qualified adoption expenses. 1040x instructions 2010   Qualified adoption expenses are reasonable and necessary expenses directly related to, and whose principal purpose is for, the legal adoption of an eligible child. 1040x instructions 2010 These expenses include: Adoption fees, Court costs, Attorney fees, Travel expenses (including amounts spent for meals and lodging) while away from home, and Re-adoption expenses to adopt a foreign child. 1040x instructions 2010 Nonqualified expenses. 1040x instructions 2010   Qualified adoption expenses do not include expenses: That violate state or federal law, For carrying out any surrogate parenting arrangement, For the adoption of your spouse's child, For which you received funds under any federal, state, or local program, Allowed as a credit or deduction under any other federal income tax rule, or Paid or reimbursed by your employer or any other person or organization. 1040x instructions 2010 Eligible child. 1040x instructions 2010   The term “eligible child” means any individual: Under 18 years old, or Physically or mentally incapable of caring for himself or herself. 1040x instructions 2010 Child with special needs. 1040x instructions 2010   An eligible child is a child with special needs if all three of the following apply. 1040x instructions 2010 The child was a citizen or resident of the United States (including U. 1040x instructions 2010 S. 1040x instructions 2010 possessions) at the time the adoption process began. 1040x instructions 2010 A state (including the District of Columbia) has determined that the child cannot or should not be returned to his or her parents' home. 1040x instructions 2010 The state has determined that the child will not be adopted unless assistance is provided to the adoptive parents. 1040x instructions 2010 Factors used by states to make this determination include: The child's ethnic background, The child's age, Whether the child is a member of a minority or sibling group, and Whether the child has a medical condition or a physical, mental, or emotional handicap. 1040x instructions 2010 When to take the credit. 1040x instructions 2010   Generally, until the adoption becomes final, you take the credit in the year after your qualified expenses were paid or incurred. 1040x instructions 2010 If the adoption becomes final, you take the credit in the year your expenses were paid or incurred. 1040x instructions 2010 See the Instructions for Form 8839 for more specific information on when to take the credit. 1040x instructions 2010 Foreign child. 1040x instructions 2010   If the child is not a U. 1040x instructions 2010 S. 1040x instructions 2010 citizen or resident at the time the adoption process began, you cannot take the credit unless the adoption becomes final. 1040x instructions 2010 You treat all adoption expenses paid or incurred in years before the adoption becomes final as paid or incurred in the year it becomes final. 1040x instructions 2010 How to take the credit. 1040x instructions 2010   Figure your 2013 nonrefundable credit and any carryforward to 2014 on Form 8839 and attach it to your Form 1040. 1040x instructions 2010 Include the credit in your total for Form 1040, line 53. 1040x instructions 2010 Check box c and enter “8839” on the line next to that box. 1040x instructions 2010 More information. 1040x instructions 2010   For more information, see the Instructions for Form 8839. 1040x instructions 2010 Alternative Motor Vehicle Credit You may be able to take this credit if you place a qualified fuel cell vehicle in service in 2013. 1040x instructions 2010 Amount of credit. 1040x instructions 2010   Generally, you can rely on the manufacturer's certification to the IRS that a specific make, model, and model year vehicle qualifies for the credit and the amount of the credit for which it qualifies. 1040x instructions 2010 In the case of a foreign manufacturer, you generally can rely on its domestic distributor's certification to the IRS. 1040x instructions 2010   Ordinarily the amount of the credit is 100% of the manufacturer's (or domestic distributor's) certification to the IRS of the maximum credit allowable. 1040x instructions 2010 How to take the credit. 1040x instructions 2010   To take the credit, you must complete Form 8910 and attach it to your Form 1040. 1040x instructions 2010 Include the credit in your total for Form 1040, line 53. 1040x instructions 2010 Check box c and enter “8910” on the line next to that box. 1040x instructions 2010 More information. 1040x instructions 2010   For more information on the credit, see the Instructions for Form 8910. 1040x instructions 2010 Alternative Fuel Vehicle Refueling Property Credit You may be able to take a credit if you place qualified alternative fuel vehicle refueling property in service in 2013. 1040x instructions 2010 Qualified alternative fuel vehicle refueling property. 1040x instructions 2010   Qualified alternative fuel vehicle refueling property is any property (other than a building or its structural components) used for either of the following. 1040x instructions 2010 To store or dispense alternative fuel into the fuel tank of a motor vehicle propelled by the fuel, but only if the storage or dispensing is at the point where the fuel is delivered into that tank. 1040x instructions 2010 To recharge an electric vehicle, but only if the recharging property is located at the point where the vehicle is recharged. 1040x instructions 2010   The following are alternative fuels. 1040x instructions 2010 Any fuel at least 85% of the volume of which consists of one or more of the following: ethanol, natural gas, compressed natural gas, liquefied natural gas, liquefied petroleum gas, or hydrogen. 1040x instructions 2010 Any mixture which consists of two or more of the following: biodiesel, diesel fuel, or kerosene, and at least 20% of the volume of which consists of biodiesel determined without regard to any kerosene. 1040x instructions 2010 Electricity. 1040x instructions 2010 Amount of the credit. 1040x instructions 2010   For personal use property, the credit is generally the smaller of 30% of the property's cost or $1,000. 1040x instructions 2010 For business use property, the credit is generally the smaller of 30% of the property's cost or $30,000. 1040x instructions 2010 How to take the credit. 1040x instructions 2010   To take the credit, you must complete Form 8911 and attach it to your Form 1040. 1040x instructions 2010 Include the credit in your total for Form 1040, line 53. 1040x instructions 2010 Check box c and enter “8911” on the line next to that box. 1040x instructions 2010 More information. 1040x instructions 2010   For more information on the credit, see the Form 8911 instructions. 1040x instructions 2010 Credit to Holders of Tax Credit Bonds Tax credit bonds are bonds in which the holder receives a tax credit in lieu of some or all of the interest on the bond. 1040x instructions 2010 You may be able to take a credit if you are a holder of one of the following bonds. 1040x instructions 2010 Clean renewable energy bonds (issued before 2010). 1040x instructions 2010 New clean renewable energy bonds. 1040x instructions 2010 Qualified energy conservation bonds. 1040x instructions 2010 Qualified school construction bonds. 1040x instructions 2010 Qualified zone academy bonds. 1040x instructions 2010 Build America bonds. 1040x instructions 2010 In some instances, an issuer may elect to receive a credit for interest paid on the bond. 1040x instructions 2010 If the issuer makes this election, you cannot also claim a credit. 1040x instructions 2010 Interest income. 1040x instructions 2010   The amount of any tax credit allowed (figured before applying tax liability limits) must be included as interest income on your tax return. 1040x instructions 2010 How to take the credit. 1040x instructions 2010   Complete Form 8912 and attach it to your Form 1040. 1040x instructions 2010 Include the credit in your total for Form 1040, line 53. 1040x instructions 2010 Check box c and enter “8912” on the line next to that box. 1040x instructions 2010 More information. 1040x instructions 2010   For more information, see the Instructions for Form 8912. 1040x instructions 2010 Foreign Tax Credit You generally can choose to take income taxes you paid or accrued during the year to a foreign country or U. 1040x instructions 2010 S. 1040x instructions 2010 possession as a credit against your U. 1040x instructions 2010 S. 1040x instructions 2010 income tax. 1040x instructions 2010 Or, you can deduct them as an itemized deduction (see chapter 22). 1040x instructions 2010 You cannot take a credit (or deduction) for foreign income taxes paid on income that you exclude from U. 1040x instructions 2010 S. 1040x instructions 2010 tax under any of the following. 1040x instructions 2010 Foreign earned income exclusion. 1040x instructions 2010 Foreign housing exclusion. 1040x instructions 2010 Income from Puerto Rico exempt from U. 1040x instructions 2010 S. 1040x instructions 2010 tax. 1040x instructions 2010 Possession exclusion. 1040x instructions 2010 Limit on the credit. 1040x instructions 2010   Unless you can elect not to file Form 1116 (see Exception , later), your foreign tax credit cannot be more than your U. 1040x instructions 2010 S. 1040x instructions 2010 tax liability (Form 1040, line 44), multiplied by a fraction. 1040x instructions 2010 The numerator of the fraction is your taxable income from sources outside the United States. 1040x instructions 2010 The denominator is your total taxable income from U. 1040x instructions 2010 S. 1040x instructions 2010 and foreign sources. 1040x instructions 2010 See Publication 514 for more information. 1040x instructions 2010 How to take the credit. 1040x instructions 2010   Complete Form 1116 and attach it to your Form 1040. 1040x instructions 2010 Enter the credit on Form 1040, line 47. 1040x instructions 2010 Exception. 1040x instructions 2010   You do not have to complete Form 1116 to take the credit if all of the following apply. 1040x instructions 2010 All of your gross foreign source income was from interest and dividends and all of that income and the foreign tax paid on it were reported to you on Form 1099-INT, Form 1099-DIV, or Schedule K-1 (or substitute statement). 1040x instructions 2010 If you had dividend income from shares of stock, you held those shares for at least 16 days. 1040x instructions 2010 You are not filing Form 4563 or excluding income from sources within Puerto Rico. 1040x instructions 2010 The total of your foreign taxes was not more than $300 (not more than $600 if married filing jointly). 1040x instructions 2010 All of your foreign taxes were: Legally owed and not eligible for a refund, and Paid to countries that are recognized by the United States and do not support terrorism. 1040x instructions 2010 More information. 1040x instructions 2010   For more information on the credit and these requirements, see the Instructions for Form 1116. 1040x instructions 2010 Mortgage Interest Credit The mortgage interest credit is intended to help lower-income individuals own a home. 1040x instructions 2010 If you qualify, you can take the credit each year for part of the home mortgage interest you pay. 1040x instructions 2010 Who qualifies. 1040x instructions 2010   You may be eligible for the credit if you were issued a qualified mortgage credit certificate (MCC) from your state or local government. 1040x instructions 2010 Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home. 1040x instructions 2010 Amount of credit. 1040x instructions 2010   Figure your credit on Form 8396. 1040x instructions 2010 If your mortgage loan amount is equal to (or smaller than) the certified indebtedness (loan) amount shown on your MCC, enter on Form 8396, line 1, all the interest you paid on your mortgage during the year. 1040x instructions 2010   If your mortgage loan amount is larger than the certified indebtedness amount shown on your MCC, you can figure the credit on only part of the interest you paid. 1040x instructions 2010 To find the amount to enter on line 1, multiply the total interest you paid during the year on your mortgage by the following fraction. 1040x instructions 2010      Certified indebtedness amount on your MCC     Original amount of your mortgage   Limit based on credit rate. 1040x instructions 2010   If the certificate credit rate is more than 20%, the credit you are allowed cannot be more than $2,000. 1040x instructions 2010 If two or more persons (other than a married couple filing a joint return) hold an interest in the home to which the MCC relates, this $2,000 limit must be divided based on the interest held by each person. 1040x instructions 2010 See Publication 530 for more information. 1040x instructions 2010 Carryforward. 1040x instructions 2010   Your credit (after applying the limit based on the credit rate) is also subject to a limit based on your tax that is figured using Form 8396. 1040x instructions 2010 If your allowable credit is reduced because of this tax liability limit, you can carry forward the unused portion of the credit to the next 3 years or until used, whichever comes first. 1040x instructions 2010   If you are subject to the $2,000 limit because your certificate credit rate is more than 20%, you cannot carry forward any amount more than $2,000 (or your share of the $2,000 if you must divide the credit). 1040x instructions 2010 How to take the credit. 1040x instructions 2010    Figure your 2013 credit and any carryforward to 2014 on Form 8396, and attach it to your Form 1040. 1040x instructions 2010 Be sure to include any credit carryforward from 2010, 2011, and 2012. 1040x instructions 2010   Include the credit in your total for Form 1040, line 53. 1040x instructions 2010 Check box c and enter “8396” on the line next to that box. 1040x instructions 2010 Reduced home mortgage interest deduction. 1040x instructions 2010   If you itemize your deductions on Schedule A (Form 1040), you must reduce your home mortgage interest deduction by the amount of the mortgage interest credit shown on Form 8396, line 3. 1040x instructions 2010 You must do this even if part of that amount is to be carried forward to 2014. 1040x instructions 2010 For more information about the home mortgage interest deduction, see chapter 23. 1040x instructions 2010 Recapture of federal mortgage subsidy. 1040x instructions 2010   If you received an MCC with your mortgage loan, you may have to recapture (pay back) all or part of the benefit you received from that program. 1040x instructions 2010 The recapture may be required if you sell or dispose of your home at a gain during the first 9 years after the date you closed your mortgage loan. 1040x instructions 2010 See the Instructions for Form 8828 and chapter 15 for more information. 1040x instructions 2010 More information. 1040x instructions 2010   For more information on the credit, see the Form 8396 instructions. 1040x instructions 2010 Nonrefundable Credit for Prior Year Minimum Tax The tax laws give special treatment to some kinds of income and allow special deductions and credits for some kinds of expenses. 1040x instructions 2010 If you benefit from these laws, you may have to pay at least a minimum amount of tax in addition to any other tax on these items. 1040x instructions 2010 This is called the alternative minimum tax. 1040x instructions 2010 The special treatment of some items of income and expenses only allows you to postpone paying tax until a later year. 1040x instructions 2010 If in prior years you paid alternative minimum tax because of these tax postponement items, you may be able to take a credit for prior year minimum tax against your current year's regular tax. 1040x instructions 2010 You may be able to take a credit against your regular tax if for 2012 you had: An alternative minimum tax liability and adjustments or preferences other than exclusion items, A minimum tax credit that you are carrying forward to 2013, or An unallowed qualified electric vehicle credit. 1040x instructions 2010 How to take the credit. 1040x instructions 2010    Figure your 2013 nonrefundable credit (if any), and any carryforward to 2014 on Form 8801, and attach it to your Form 1040. 1040x instructions 2010 Include the credit in your total for Form 1040, line 53, and check box b. 1040x instructions 2010 You can carry forward any unused credit for prior year minimum tax to later years until it is completely used. 1040x instructions 2010 More information. 1040x instructions 2010   For more information on the credit, see the Instructions for Form 8801. 1040x instructions 2010 Plug-in Electric Drive Motor Vehicle Credit You may be able to take this credit if you placed in service for business or personal use a qualified plug-in electric drive motor vehicle or a qualified two- or three-wheeled plug-in electric vehicle in 2013 and you meet some other requirements. 1040x instructions 2010 Qualified plug-in electric drive motor vehicle. 1040x instructions 2010   This is a new vehicle with at least four wheels that: Is propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of not less than 4 kilowatt hours and is capable of being recharged from an external source of electricity, and Has a gross vehicle weight of less than 14,000 pounds. 1040x instructions 2010 Qualified two- or three-wheeled plug-in electric vehicle. 1040x instructions 2010   This is a new vehicle with two or three wheels that: Is capable of achieving a speed of 45 miles per hour or greater, Is propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of not less than 2. 1040x instructions 2010 5 kilowatt hours and is capable of being recharged from an external source of electricity, and Has a gross vehicle weight of less than 14,000 pounds. 1040x instructions 2010 Certification and other requirements. 1040x instructions 2010   Generally, you can rely on the manufacturer's (or, in the case of a foreign manufacturer, its domestic distributor's) certification to the IRS that a specific make, model, and model year vehicle qualifies for the credit and, if applicable, the amount of the credit for which it qualifies. 1040x instructions 2010 However, if the IRS publishes an announcement that the certification for any specific make, model, and model year vehicle has been withdrawn, you cannot rely on the certification for such a vehicle purchased after the date of publication of the withdrawal announcement. 1040x instructions 2010   The following requirements must also be met to qualify for the credit. 1040x instructions 2010 You are the owner of the vehicle. 1040x instructions 2010 If the vehicle is leased, only the lessor, and not the lessee, is entitled to the credit. 1040x instructions 2010 You placed the vehicle in service during 2013. 1040x instructions 2010 The vehicle is manufactured primarily for use on public streets, roads, and highways. 1040x instructions 2010 The original use of the vehicle began with you. 1040x instructions 2010 You acquired the vehicle for your use or to lease to others, and not for resale. 1040x instructions 2010 In the case of the qualified two- or three-wheeled plug-in electric vehicle, the vehicle is acquired after 2011 and before 2014. 1040x instructions 2010 You use the vehicle primarily in the United States. 1040x instructions 2010 How to take the credit. 1040x instructions 2010   To take the credit, you must complete Form 8936 and attach it to your Form 1040. 1040x instructions 2010 Include the credit in your total for Form 1040, line 53. 1040x instructions 2010 Check box c and enter “8936” on the line next to that box. 1040x instructions 2010 More information. 1040x instructions 2010   For more information on the credit, see the Form 8936 instructions. 1040x instructions 2010 Residential Energy Credits You may be able to take one or both of the following credits if you made energy saving improvements to your home located in the United States in 2013. 1040x instructions 2010 Nonbusiness energy property credit. 1040x instructions 2010 Residential energy efficient property credit. 1040x instructions 2010 If you are a member of a condominium management association for a condominium you own or a tenant-stockholder in a cooperative housing corporation, you are treated as having paid your proportionate share of any costs of the association or corporation for purposes of these credits. 1040x instructions 2010 Nonbusiness energy property credit. 1040x instructions 2010   You may be able to take a credit equal to the sum of: 10% of the amount paid or incurred for qualified energy efficiency improvements installed during 2013, and Any residential energy property costs paid or incurred in 2013. 1040x instructions 2010   There is a lifetime limit of $500 for all years after 2005, of which only $200 can be for windows; $50 for any advanced main air circulating fan; $150 for any qualified natural gas, propane, or oil furnace or hot water boiler; and $300 for any item of energy efficient building property. 1040x instructions 2010    If the total of nonbusiness energy property credits you have taken in previous years (after 2005) is more than $500, you cannot take this credit in 2013. 1040x instructions 2010   Qualified energy efficiency improvements are the following improvements that are new, can be expected to remain in use at least 5 years, and meet certain requirements for energy efficiency. 1040x instructions 2010 Any insulation material or system that is specifically and primarily designed to reduce heat loss or gain of a home. 1040x instructions 2010 Exterior window (including skylights). 1040x instructions 2010 Exterior doors. 1040x instructions 2010 Any metal or asphalt roof that has appropriate pigmented coatings or cooling granules specifically and primarily designed to reduce heat gain of the home. 1040x instructions 2010   Residential energy property is any of the following. 1040x instructions 2010 Certain electric heat pump water heaters; electric heat pumps; central air conditioners; natural gas, propane, or oil water heater; and stoves that use biomass fuel. 1040x instructions 2010 Qualified natural gas, propane, or oil furnaces; and qualified natural gas, propane, or oil hot water boilers. 1040x instructions 2010 Certain advanced main air circulating fans used in natural gas, propane, or oil furnaces. 1040x instructions 2010 Residential energy efficient property credit. 1040x instructions 2010   You may be able to take a credit of 30% of your costs of qualified solar electric property, solar water heating property, fuel cell property, small wind energy property, and geothermal heat pump property. 1040x instructions 2010 The credit amount for costs paid for qualified fuel cell property is limited to $500 for each one-half kilowatt of capacity of the property. 1040x instructions 2010 Basis reduction. 1040x instructions 2010   You must reduce the basis of your home by the amount of any credit allowed. 1040x instructions 2010 How to take the credit. 1040x instructions 2010   Complete Form 5695 and attach it to your Form 1040. 1040x instructions 2010 Enter the credit on Form 1040, line 52. 1040x instructions 2010 More information. 1040x instructions 2010   For more information on these credits, see the Form 5695 instructions. 1040x instructions 2010 Retirement Savings Contributions Credit (Saver's Credit) You may be able to take this credit if you, or your spouse if filing jointly, made: Contributions (other than rollover contributions) to a traditional or Roth IRA, Elective deferrals to a 401(k) or 403(b) plan (including designated Roth contributions) or to a governmental 457, SEP, or SIMPLE plan, Voluntary employee contributions to a qualified retirement plan (including the federal Thrift Savings Plan), or Contributions to a 501(c)(18)(D) plan. 1040x instructions 2010 However, you cannot take the credit if either of the following applies. 1040x instructions 2010 The amount on Form 1040, line 38, or Form 1040A, line 22, is more than $29,500 ($44,250 if head of household; $59,000 if married filing jointly). 1040x instructions 2010 The person(s) who made the qualified contribution or elective deferral (a) was born after January 1, 1996, (b) is claimed as a dependent on someone else's 2013 tax return, or (c) was a student (defined next). 1040x instructions 2010 Student. 1040x instructions 2010   You were a student if during any part of 5 calendar months of 2013 you: Were enrolled as a full-time student at a school, or Took a full-time, on-farm training course given by a school or a state, county, or local government agency. 1040x instructions 2010 School. 1040x instructions 2010   A school includes a technical, trade, or mechanical school. 1040x instructions 2010 It does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet. 1040x instructions 2010 How to take the credit. 1040x instructions 2010   Figure the credit on Form 8880. 1040x instructions 2010 Enter the credit on your Form 1040, line 50, or your Form 1040A, line 32, and attach Form 8880 to your return. 1040x instructions 2010 More information. 1040x instructions 2010   For more information on the credit, see the Form 8880 instructions. 1040x instructions 2010 Refundable Credits The credits discussed in this part of the chapter are treated as payments of tax. 1040x instructions 2010 If the total of these credits, withheld federal income tax, and estimated tax payments is more than your total tax, the excess can be refunded to you. 1040x instructions 2010 Credit for Tax on Undistributed Capital Gain You must include in your income any amounts that regulated investment companies (commonly called mutual funds) or real estate investment trusts (REITs) allocated to you as capital gain distributions, even if you did not actually receive them. 1040x instructions 2010 If the mutual fund or REIT paid a tax on the capital gain, you are allowed a credit for the tax since it is considered paid by you. 1040x instructions 2010 The mutual fund or REIT will send you Form 2439 showing your share of the undistributed capital gains and the tax paid, if any. 1040x instructions 2010 How to take the credit. 1040x instructions 2010   To take the credit, attach Copy B of Form 2439 to your Form 1040. 1040x instructions 2010 Include the amount from box 2 of your Form 2439 in the total for Form 1040, line 71, and check box a. 1040x instructions 2010 More information. 1040x instructions 2010   See Capital Gain Distributions in chapter 8 for more information on undistributed capital gains. 1040x instructions 2010 Health Coverage Tax Credit You may be able to take this credit for any month in which all the following statements were true on the first day of the month. 1040x instructions 2010 You were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment TAA (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient (defined later); or you were a qualified family member of one of these individuals when the individual died or you finalized a divorce with one of these individuals. 1040x instructions 2010 You and/or your family members were covered by a qualified health insurance plan for which you paid the entire premiums, or your portion of the premiums, directly to your health plan or to “U. 1040x instructions 2010 S. 1040x instructions 2010 Treasury–HCTC. 1040x instructions 2010 ” You were not enrolled in Medicare Part A, B, or C, or you were enrolled in Medicare but your family member(s) qualified for the HCTC. 1040x instructions 2010 You were not enrolled in Medicaid or the Children's Health Insurance Program (CHIP). 1040x instructions 2010 You were not enrolled in the Federal Employees Health Benefits program (FEHBP) or eligible to receive benefits under the U. 1040x instructions 2010 S. 1040x instructions 2010 military health system (TRICARE). 1040x instructions 2010 You were not imprisoned under federal, state, or local authority. 1040x instructions 2010 Your employer did not pay 50% or more of the cost of coverage. 1040x instructions 2010 You did not receive a 65% COBRA premium reduction from your former employer or COBRA administrator. 1040x instructions 2010 But, you cannot take the credit if you can be claimed as a dependent on someone else's 2013 tax return. 1040x instructions 2010 If you meet all of these conditions, you may be able to take a credit of up to 72. 1040x instructions 2010 5% of the amount you paid directly to a qualified health plan for you and any qualifying family members. 1040x instructions 2010 You cannot take the credit for insurance premiums on coverage that was actually paid for with a National Emergency Grant. 1040x instructions 2010 The amount you paid for qualified health insurance coverage must be reduced by any Archer MSA and health savings account distributions used to pay for the coverage. 1040x instructions 2010 You can take this credit on your tax return or have it paid on your behalf in advance to your insurance company. 1040x instructions 2010 If the credit is paid on your behalf in advance, that amount will reduce the amount of the credit you can take on your tax return. 1040x instructions 2010 TAA recipient. 1040x instructions 2010   You were an eligible TAA recipient on the first day of the month if, for any day in that month or the prior month, you: Received a trade readjustment allowance, or Would have been entitled to receive such an allowance except that you had not exhausted all rights to any unemployment insurance (except additional compensation that is funded by a state and is not reimbursed from any federal funds) to which you were entitled (or would be entitled if you applied). 1040x instructions 2010 Example. 1040x instructions 2010 You received a trade adjustment allowance for January 2013. 1040x instructions 2010 You were an eligible TAA recipient on the first day of January and February. 1040x instructions 2010 Alternative TAA recipient. 1040x instructions 2010   You were an eligible alternative TAA recipient on the first day of the month if, for that month or the prior month, you received benefits under an alternative trade adjustment assistance program for older workers established by the Department of Labor. 1040x instructions 2010 Example. 1040x instructions 2010 You received benefits under an alternative trade adjustment assistance program for older workers for October 2013. 1040x instructions 2010 The program was established by the Department of Labor. 1040x instructions 2010 You were an eligible alternative TAA recipient on the first day of October and November. 1040x instructions 2010 RTAA recipient. 1040x instructions 2010   You were an eligible RTAA recipient on the first day of the month if, for that month or the prior month, you received benefits under a reemployment trade adjustment assistance program for older workers established by the Department of Labor. 1040x instructions 2010 PBGC pension recipient. 1040x instructions 2010   You were an eligible PBGC pension recipient on the first day of the month, if both of the following apply. 1040x instructions 2010 You were age 55 or older on the first day of the month. 1040x instructions 2010 You received a benefit for that month paid by the PBGC under title IV of the Employee Retirement Income Security Act of 1974 (ERISA). 1040x instructions 2010 If you received a lump-sum payment from the PBGC after August 5, 2002, you meet item (2) above for any month that you would have received a PBGC benefit if you had not received the lump-sum payment. 1040x instructions 2010 How to take the credit. 1040x instructions 2010   To take the credit, complete Form 8885 and attach it to your Form 1040. 1040x instructions 2010 Include your credit in the total for Form 1040, line 71, and check box c. 1040x instructions 2010   You must attach health insurance bills (or COBRA payment coupons) and proof of payment for any amounts you include on Form 8885, line 2. 1040x instructions 2010 For details, see Publication 502 or Form 8885. 1040x instructions 2010 More information. 1040x instructions 2010   For definitions and special rules, including those relating to qualified health insurance plans, qualifying family members, the effect of certain life events, and employer-sponsored health insurance plans, see Publication 502 and the Form 8885 instructions. 1040x instructions 2010 Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld Most employers must withhold social security tax from your wages. 1040x instructions 2010 If you work for a railroad employer, that employer must withhold tier 1 railroad retirement (RRTA) tax and tier 2 RRTA tax. 1040x instructions 2010 If you worked for two or more employers in 2013, you may have had too much social security tax withheld from your pay. 1040x instructions 2010 If one or more of those employers was a railroad employer, too much tier 1 RRTA tax may also have been withheld at the 6. 1040x instructions 2010 2% rate. 1040x instructions 2010 You can claim the excess social security or tier 1 RRTA tax as a credit against your income tax when you file your return. 1040x instructions 2010 For the tier 1 RRTA tax, only use the portion of the tier 1 RRTA tax that was taxed at the 6. 1040x instructions 2010 2% rate when figuring if excess tier 1 RRTA tax was withheld; do not include any portion of the tier 1 RRTA tax that was withheld at the Medicare tax rate (1. 1040x instructions 2010 45%) or the Additional Medicare Tax rate (. 1040x instructions 2010 9%). 1040x instructions 2010 The following table shows the maximum amount of wages subject to tax and the maximum amount of tax that should have been withheld for 2013. 1040x instructions 2010 Type of tax Maximum  wages subject to tax Maximum tax that should have been withheld Social security or RRTA tier 1 $113,700 $7,049. 1040x instructions 2010 40 RRTA tier 2 $84,300 $3,709. 1040x instructions 2010 20 All wages are subject to Medicare tax withholding. 1040x instructions 2010   Use Form 843, Claim for Refund and Request for Abatement, to claim a refund of excess tier 2 RRTA tax. 1040x instructions 2010 Be sure to attach a copy of all of your W-2 forms. 1040x instructions 2010 Use Worksheet 3-3 in Publication 505, Tax Withholding and Estimated Tax, to help you figure the excess amount. 1040x instructions 2010 Employer's error. 1040x instructions 2010   If any one employer withheld too much social security or tier 1 RRTA tax, you cannot take the excess as a credit against your income tax. 1040x instructions 2010 The employer should adjust the tax for you. 1040x instructions 2010 If the employer does not adjust the overcollection, you can file a claim for refund using Form 843. 1040x instructions 2010 Joint return. 1040x instructions 2010   If you are filing a joint return, you cannot add the social security or tier 1 RRTA tax withheld from your spouse's wages to the amount withheld from your wages. 1040x instructions 2010 Figure the withholding separately for you and your spouse to determine if either of you has excess withholding. 1040x instructions 2010 How to figure the credit if you did not work for a railroad. 1040x instructions 2010   If you did not work for a railroad during 2013, figure the credit as follows: 1. 1040x instructions 2010 Add all social security tax withheld (but not more than $7,049. 1040x instructions 2010 40 for each employer). 1040x instructions 2010 Enter the total here   2. 1040x instructions 2010 Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 60, identified by “UT”   3. 1040x instructions 2010 Add lines 1 and 2. 1040x instructions 2010 If $7,049. 1040x instructions 2010 40 or less, stop here. 1040x instructions 2010 You cannot take  the credit   4. 1040x instructions 2010 Social security tax limit 7,049. 1040x instructions 2010 40 5. 1040x instructions 2010 Credit. 1040x instructions 2010 Subtract line 4 from line 3. 1040x instructions 2010 Enter the result here and on Form 1040, line 69 (or Form 1040A, line 41) $ Example. 1040x instructions 2010 You are married and file a joint return with your spouse who had no gross income in 2013. 1040x instructions 2010 During 2013, you worked for the Brown Technology Company and earned $60,000 in wages. 1040x instructions 2010 Social security tax of $3,720 was withheld. 1040x instructions 2010 You also worked for another employer in 2013 and earned $55,000 in wages. 1040x instructions 2010 $3,410 of social security tax was withheld from these wages. 1040x instructions 2010 Because you worked for more than one employer and your total wages were more than $113,700, you can take a credit of $80. 1040x instructions 2010 60 for the excess social security tax withheld. 1040x instructions 2010 1. 1040x instructions 2010 Add all social security tax withheld (but not more than $7,049. 1040x instructions 2010 40 for each employer). 1040x instructions 2010 Enter the total here $7,130. 1040x instructions 2010 00 2. 1040x instructions 2010 Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 60, identified by “UT” -0- 3. 1040x instructions 2010 Add lines 1 and 2. 1040x instructions 2010 If $7,049. 1040x instructions 2010 40 or less, stop here. 1040x instructions 2010 You cannot take the credit 7,130. 1040x instructions 2010 00 4. 1040x instructions 2010 Social security tax limit 7,049. 1040x instructions 2010 40 5. 1040x instructions 2010 Credit. 1040x instructions 2010 Subtract line 4 from line 3. 1040x instructions 2010 Enter the result here and on Form 1040, line 69 (or Form 1040A, line 41) $80. 1040x instructions 2010 60 How to figure the credit if you worked for a railroad. 1040x instructions 2010   If you were a railroad employee at any time during 2013, figure the credit as follows: 1. 1040x instructions 2010 Add all social security and tier 1 RRTA tax withheld at the 6. 1040x instructions 2010 2% rate (but not more than $7,049. 1040x instructions 2010 40 for each employer). 1040x instructions 2010 Enter the total here   2. 1040x instructions 2010 Enter any uncollected social security and tier 1 RRTA tax on tips or group-term life insurance included in the total on Form 1040, line 60, identified by “UT”   3. 1040x instructions 2010 Add lines 1 and 2. 1040x instructions 2010 If $7,049. 1040x instructions 2010 40 or less, stop here. 1040x instructions 2010 You cannot take  the credit   4. 1040x instructions 2010 Social security and tier 1 RRTA  tax limit 7,049. 1040x instructions 2010 40 5. 1040x instructions 2010 Credit. 1040x instructions 2010 Subtract line 4 from line 3. 1040x instructions 2010 Enter the result here and on Form 1040, line 69 (or Form 1040A, line 41) $ How to take the credit. 1040x instructions 2010   Enter the credit on Form 1040, line 69, or include it in the total for Form 1040A, line 41. 1040x instructions 2010 More information. 1040x instructions 2010   For more information on the credit, see Publication 505. 1040x instructions 2010 Prev  Up  Next   Home   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