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2011 Tax Forms And Instructions 1040

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2011 Tax Forms And Instructions 1040

2011 tax forms and instructions 1040 31. 2011 tax forms and instructions 1040   Tax on Unearned Income of Certain Children Table of Contents What's New Introduction Useful Items - You may want to see: Which Parent's Return To UseParents Who Do Not File a Joint Return Parent's Election To Report Child's Interest and DividendsEffect of Making the Election Figuring Child's Income Figuring Additional Tax Tax for Certain Children Who Have Unearned IncomeProviding Parental Information (Form 8615, lines A–C) Step 1. 2011 tax forms and instructions 1040 Figuring the Child's Net Unearned Income (Form 8615, Part I) Step 2. 2011 tax forms and instructions 1040 Figuring Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) Step 3. 2011 tax forms and instructions 1040 Figuring the Child's Tax (Form 8615, Part III) What's New Net Investment Income Tax. 2011 tax forms and instructions 1040 . 2011 tax forms and instructions 1040  For tax years beginning after December 31, 2012, a child whose tax is figured on Form 8615 may be subject to the Net Investment Income Tax (NIIT). 2011 tax forms and instructions 1040 NIIT is a 3. 2011 tax forms and instructions 1040 8% tax on the lesser of the net investment income or the excess of the child's modified adjusted gross income (MAGI) over the threshold amount. 2011 tax forms and instructions 1040 Use Form 8960, Net Investment Income Tax, to figure this tax. 2011 tax forms and instructions 1040 For more information on NIIT, go to www. 2011 tax forms and instructions 1040 irs. 2011 tax forms and instructions 1040 gov and enter “Net Investment Income Tax” in the search box. 2011 tax forms and instructions 1040 Introduction This chapter discusses the following two rules that may affect the tax on unearned income of certain children. 2011 tax forms and instructions 1040 If the child's interest and dividend income (including capital gain distributions) total less than $10,000, the child's parent may be able to choose to include that income on the parent's return rather than file a return for the child. 2011 tax forms and instructions 1040 (See Parent's Election To Report Child's Interest and Dividends , later. 2011 tax forms and instructions 1040 ) If the child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. 2011 tax forms and instructions 1040 (See Tax for Certain Children Who Have Unearned Income , later. 2011 tax forms and instructions 1040 ) For these rules, the term “child” includes a legally adopted child and a stepchild. 2011 tax forms and instructions 1040 These rules apply whether or not the child is a dependent. 2011 tax forms and instructions 1040 Useful Items - You may want to see: Publication 929 Tax Rules for Children and Dependents Form (and Instructions) 8615 Tax for Certain Children Who Have Unearned Income 8814 Parents' Election To Report Child's Interest and Dividends Which Parent's Return To Use If a child's parents are married to each other and file a joint return, use the joint return to figure the tax on the child's unearned income. 2011 tax forms and instructions 1040 The tax rate and other return information from that return are used to figure the child's tax as explained later under Tax for Certain Children Who Have Unearned Income . 2011 tax forms and instructions 1040 Parents Who Do Not File a Joint Return For parents who do not file a joint return, the following discussions explain which parent's tax return must be used to figure the tax. 2011 tax forms and instructions 1040 Only the parent whose tax return is used can make the election described under Parent's Election To Report Child's Interest and Dividends . 2011 tax forms and instructions 1040 Parents are married. 2011 tax forms and instructions 1040   If the child's parents file separate returns, use the return of the parent with the greater taxable income. 2011 tax forms and instructions 1040 Parents not living together. 2011 tax forms and instructions 1040   If the child's parents are married to each other but not living together, and the parent with whom the child lives (the custodial parent) is considered unmarried, use the return of the custodial parent. 2011 tax forms and instructions 1040 If the custodial parent is not considered unmarried, use the return of the parent with the greater taxable income. 2011 tax forms and instructions 1040   For an explanation of when a married person living apart from his or her spouse is considered unmarried, see Head of Household in chapter 2. 2011 tax forms and instructions 1040 Parents are divorced. 2011 tax forms and instructions 1040   If the child's parents are divorced or legally separated, and the parent who had custody of the child for the greater part of the year (the custodial parent) has not remarried, use the return of the custodial parent. 2011 tax forms and instructions 1040 Custodial parent remarried. 2011 tax forms and instructions 1040   If the custodial parent has remarried, the stepparent (rather than the noncustodial parent) is treated as the child's other parent. 2011 tax forms and instructions 1040 Therefore, if the custodial parent and the stepparent file a joint return, use that joint return. 2011 tax forms and instructions 1040 Do not use the return of the noncustodial parent. 2011 tax forms and instructions 1040   If the custodial parent and the stepparent are married, but file separate returns, use the return of the one with the greater taxable income. 2011 tax forms and instructions 1040 If the custodial parent and the stepparent are married but not living together, the earlier discussion under Parents not living together applies. 2011 tax forms and instructions 1040 Parents never married. 2011 tax forms and instructions 1040   If a child's parents have never been married to each other, but lived together all year, use the return of the parent with the greater taxable income. 2011 tax forms and instructions 1040 If the parents did not live together all year, the rules explained earlier under Parents are divorced apply. 2011 tax forms and instructions 1040 Widowed parent remarried. 2011 tax forms and instructions 1040   If a widow or widower remarries, the new spouse is treated as the child's other parent. 2011 tax forms and instructions 1040 The rules explained earlier under Custodial parent remarried apply. 2011 tax forms and instructions 1040 Parent's Election To Report Child's Interest and Dividends You may be able to elect to include your child's interest and dividend income (including capital gain distributions) on your tax return. 2011 tax forms and instructions 1040 If you do, your child will not have to file a return. 2011 tax forms and instructions 1040 You can make this election only if all the following conditions are met. 2011 tax forms and instructions 1040 Your child was under age 19 (or under age 24 if a full-time student) at the end of the year. 2011 tax forms and instructions 1040 Your child had income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends). 2011 tax forms and instructions 1040 The child's gross income was less than $10,000. 2011 tax forms and instructions 1040 The child is required to file a return unless you make this election. 2011 tax forms and instructions 1040 The child does not file a joint return for the year. 2011 tax forms and instructions 1040 No estimated tax payment was made for the year, and no overpayment from the previous year (or from any amended return) was applied to this year under your child's name and social security number. 2011 tax forms and instructions 1040 No federal income tax was taken out of your child's income under the backup withholding rules. 2011 tax forms and instructions 1040 You are the parent whose return must be used when applying the special tax rules for children. 2011 tax forms and instructions 1040 (See Which Parent's Return To Use , earlier. 2011 tax forms and instructions 1040 ) These conditions are also shown in Figure 31-A. 2011 tax forms and instructions 1040 Certain January 1 birthdays. 2011 tax forms and instructions 1040   A child born on January 1, 1995, is considered to be age 19 at the end of 2013. 2011 tax forms and instructions 1040 You cannot make this election for such a child unless the child was a full-time student. 2011 tax forms and instructions 1040   A child born on January 1, 1990, is considered to be age 24 at the end of 2013. 2011 tax forms and instructions 1040 You cannot make this election for such a child. 2011 tax forms and instructions 1040 Full-time student. 2011 tax forms and instructions 1040   A full-time student is a child who during some part of each of any 5 calendar months of the year was 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. 2011 tax forms and instructions 1040 A school includes a technical, trade, or mechanical school. 2011 tax forms and instructions 1040 It does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet. 2011 tax forms and instructions 1040 How to make the election. 2011 tax forms and instructions 1040   Make the election by attaching Form 8814 to your Form 1040. 2011 tax forms and instructions 1040 (If you make this election, you cannot file Form 1040A or Form 1040EZ. 2011 tax forms and instructions 1040 ) Attach a separate Form 8814 for each child for whom you make the election. 2011 tax forms and instructions 1040 You can make the election for one or more children and not for others. 2011 tax forms and instructions 1040 Effect of Making the Election The federal income tax on your child's income may be more if you make the Form 8814 election. 2011 tax forms and instructions 1040 Rate may be higher. 2011 tax forms and instructions 1040   If your child received qualified dividends or capital gain distributions, you may pay up to $100 more tax if you make this election instead of filing a separate tax return for the child. 2011 tax forms and instructions 1040 This is because the tax rate on the child's income between $1,000 and $2,000 is 10% if you make this election. 2011 tax forms and instructions 1040 However, if you file a separate return for the child, the tax rate may be as low as 0% (zero percent) because of the preferential tax rates for qualified dividends and capital gain distributions. 2011 tax forms and instructions 1040 Deductions you cannot take. 2011 tax forms and instructions 1040   By making the Form 8814 election, you cannot take any of the following deductions that the child would be entitled to on his or her return. 2011 tax forms and instructions 1040 The additional standard deduction if the child is blind. 2011 tax forms and instructions 1040 The deduction for a penalty on an early withdrawal of your child's savings. 2011 tax forms and instructions 1040 Itemized deductions (such as your child's investment expenses or charitable contributions). 2011 tax forms and instructions 1040 Reduced deductions or credits. 2011 tax forms and instructions 1040   If you use Form 8814, your increased adjusted gross income may reduce certain deductions or credits on your return including the following. 2011 tax forms and instructions 1040 Deduction for contributions to a traditional individual retirement arrangement (IRA). 2011 tax forms and instructions 1040 Deduction for student loan interest. 2011 tax forms and instructions 1040 Itemized deductions for medical expenses, casualty and theft losses, and certain miscellaneous expenses. 2011 tax forms and instructions 1040 Credit for child and dependent care expenses. 2011 tax forms and instructions 1040 Child tax credit. 2011 tax forms and instructions 1040 Education tax credits. 2011 tax forms and instructions 1040 Earned income credit. 2011 tax forms and instructions 1040 Penalty for underpayment of estimated tax. 2011 tax forms and instructions 1040   If you make this election for 2013 and did not have enough tax withheld or pay enough estimated tax to cover the tax you owe, you may be subject to a penalty. 2011 tax forms and instructions 1040 If you plan to make this election for 2014, you may need to increase your federal income tax withholding or your estimated tax payments to avoid the penalty. 2011 tax forms and instructions 1040 See chapter 4 for more information. 2011 tax forms and instructions 1040 Figuring Child's Income Use Form 8814, Part I, to figure your child's interest and dividend income to report on your return. 2011 tax forms and instructions 1040 Only the amount over $2,000 is added to your income. 2011 tax forms and instructions 1040 The amount over $2,000 is shown on Form 8814, line 6. 2011 tax forms and instructions 1040 Unless the child's income includes qualified dividends or capital gain distributions (discussed next), the same amount is shown on Form 8814, line 12. 2011 tax forms and instructions 1040 Include the amount from Form 8814, line 12, on Form 1040, line 21. 2011 tax forms and instructions 1040 Enter “Form 8814” on the dotted line next to line 21. 2011 tax forms and instructions 1040 If you file more than one Form 8814, include the total amounts from line 12 of all your Forms 8814 on Form 1040, line 21. 2011 tax forms and instructions 1040 Capital gain distributions and qualified dividends. 2011 tax forms and instructions 1040   If your child's dividend income included any capital gain distributions, see Capital gain distributions under Figuring Child's Income in Publication 929, Part 2. 2011 tax forms and instructions 1040 If your child's dividend income included any qualified dividends, see Qualified dividends under Figuring Child's Income in Publication 929, Part 2. 2011 tax forms and instructions 1040 Figuring Additional Tax Use Form 8814, Part II, to figure the tax on the $2,000 of your child's interest and dividends that you do not include in your income. 2011 tax forms and instructions 1040 This tax is added to the tax figured on your income. 2011 tax forms and instructions 1040 This additional tax is the smaller of: 10% × (your child's gross income − $1,000), or $100. 2011 tax forms and instructions 1040 Include the amount from line 15 of all your Forms 8814 in the total on Form 1040, line 44. 2011 tax forms and instructions 1040 Check box a on Form 1040, line 44. 2011 tax forms and instructions 1040 Figure 31-A. 2011 tax forms and instructions 1040 Can You Include Your Child's Income On Your Tax Return? Please click here for the text description of the image. 2011 tax forms and instructions 1040 Figure 31–A. 2011 tax forms and instructions 1040 Can You Include Your Child's Income On Your Tax Return? Tax for Certain Children Who Have Unearned Income If a child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. 2011 tax forms and instructions 1040 If the parent does not or cannot choose to include the child's income on the parent's return, use Form 8615 to figure the child's tax. 2011 tax forms and instructions 1040 Attach the completed form to the child's Form 1040 or Form 1040A. 2011 tax forms and instructions 1040 When Form 8615 must be filed. 2011 tax forms and instructions 1040   Form 8615 must be filed for a child if all of the following statements are true. 2011 tax forms and instructions 1040 The child's investment income was more than $2,000. 2011 tax forms and instructions 1040 The child is required to file a return for 2013. 2011 tax forms and instructions 1040 The child either: Was under age 18 at the end of the year, Was age 18 at the end of the year and did not have earned income that was more than half of his or her support, or Was over age 18 and under age 24 at the end of the year, was a full-time student, and did not have earned income that was more than half of his or her support. 2011 tax forms and instructions 1040 At least one of the child's parents was alive at the end of 2013. 2011 tax forms and instructions 1040 The child does not file a joint return for 2013. 2011 tax forms and instructions 1040 These conditions are also shown in  Figure 31-B. 2011 tax forms and instructions 1040 Earned income. 2011 tax forms and instructions 1040   Earned income includes salaries, wages, tips, and other payments received for personal services performed. 2011 tax forms and instructions 1040 It does not include unearned income as defined later in this chapter. 2011 tax forms and instructions 1040 Support. 2011 tax forms and instructions 1040   Your child's support includes all amounts spent to provide the child with food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. 2011 tax forms and instructions 1040 To figure your child's support, count support provided by you, your child, and others. 2011 tax forms and instructions 1040 However, a scholarship received by your child is not considered support if your child is a full-time student. 2011 tax forms and instructions 1040 See chapter 3 for details about support. 2011 tax forms and instructions 1040 Certain January 1 birthdays. 2011 tax forms and instructions 1040   Use the following chart to determine whether certain children with January 1 birthdays meet condition 3 under When Form 8615 must be filed. 2011 tax forms and instructions 1040 Figure 31-B. 2011 tax forms and instructions 1040 Do You Have To Use Form 8615 To Figure Your Child's Tax? Please click here for the text description of the image. 2011 tax forms and instructions 1040 Figure 31-B. 2011 tax forms and instructions 1040 Do You Have To Use Form 8615 To Figure Your Child's Tax?    IF a child was born on. 2011 tax forms and instructions 1040 . 2011 tax forms and instructions 1040 . 2011 tax forms and instructions 1040 THEN, at the end of 2013, the child is considered to be. 2011 tax forms and instructions 1040 . 2011 tax forms and instructions 1040 . 2011 tax forms and instructions 1040 January 1, 1996 18* January 1, 1995 19** January 1, 1990 24*** *This child is not under age 18. 2011 tax forms and instructions 1040 The child meets condition 3 only if the child did not have earned income that was more than half of the child's support. 2011 tax forms and instructions 1040  **This child meets condition 3 only if the child was a full-time student who did not have earned income that was more than half of the child's support. 2011 tax forms and instructions 1040  ***Do not use Form 8615 for this child. 2011 tax forms and instructions 1040 Providing Parental Information (Form 8615, lines A–C) On Form 8615, lines A and B, enter the parent's name and social security number. 2011 tax forms and instructions 1040 (If the parents filed a joint return, enter the name and social security number listed first on the joint return. 2011 tax forms and instructions 1040 ) On line C, check the box for the parent's filing status. 2011 tax forms and instructions 1040 See Which Parent's Return To Use at the beginning of this chapter for information on which parent's return information must be used on Form 8615. 2011 tax forms and instructions 1040 Parent with different tax year. 2011 tax forms and instructions 1040   If the parent and the child do not have the same tax year, complete Form 8615 using the information on the parent's return for the tax year that ends in the child's tax year. 2011 tax forms and instructions 1040 Parent's return information not known timely. 2011 tax forms and instructions 1040   If the information needed from the parent's return is not known by the time the child's return is due (usually April 15), you can file the return using estimates. 2011 tax forms and instructions 1040   You can use any reasonable estimate. 2011 tax forms and instructions 1040 This includes using information from last year's return. 2011 tax forms and instructions 1040 If you use an estimated amount on Form 8615, enter “Estimated” on the line next to the amount. 2011 tax forms and instructions 1040    When you get the correct information, file an amended return on Form 1040X, Amended U. 2011 tax forms and instructions 1040 S. 2011 tax forms and instructions 1040 Individual Income Tax Return. 2011 tax forms and instructions 1040   Instead of using estimates, you can get an automatic 6-month extension of time to file if, by the date your return is due, you file Form 4868, Application for Automatic Extension of Time To File U. 2011 tax forms and instructions 1040 S. 2011 tax forms and instructions 1040 Individual Income Tax Return. 2011 tax forms and instructions 1040 Extensions are discussed in chapter 1. 2011 tax forms and instructions 1040 Step 1. 2011 tax forms and instructions 1040 Figuring the Child's Net Unearned Income (Form 8615, Part I) The first step in figuring a child's tax using Form 8615 is to figure the child's net unearned income. 2011 tax forms and instructions 1040 To do that, use Form 8615, Part I. 2011 tax forms and instructions 1040 Line 1 (unearned income). 2011 tax forms and instructions 1040   If the child had no earned income, enter on this line the adjusted gross income shown on the child's return. 2011 tax forms and instructions 1040 Adjusted gross income is shown on Form 1040, line 38, or Form 1040A, line 22. 2011 tax forms and instructions 1040 Form 1040EZ cannot be used if Form 8615 must be filed. 2011 tax forms and instructions 1040   If the child had earned income, figure the amount to enter on Form 8615, line 1, by using the worksheet in the instructions for the form. 2011 tax forms and instructions 1040   However, if the child has: excluded any foreign earned income, deducted either a loss from self-employment, or deducted a net operating loss from another year, then use the Alternate Worksheet for Form 8615, Line 1, in Publication 929 to figure the amount to enter on Form 8615, line 1. 2011 tax forms and instructions 1040 Unearned income defined. 2011 tax forms and instructions 1040   Unearned income is generally all income other than salaries, wages, and other amounts received as pay for work actually done. 2011 tax forms and instructions 1040 It includes taxable interest, dividends (including capital gain distributions), capital gains, unemployment compensation, the taxable part of social security and pension payments, and certain distributions from trusts. 2011 tax forms and instructions 1040 Unearned income includes amounts produced by assets the child obtained with earned income (such as interest on a savings account into which the child deposited wages). 2011 tax forms and instructions 1040 Nontaxable income. 2011 tax forms and instructions 1040   For this purpose, unearned income includes only amounts the child must include in total income. 2011 tax forms and instructions 1040 Nontaxable unearned income, such as tax-exempt interest and the nontaxable part of social security and pension payments, is not included. 2011 tax forms and instructions 1040 Income from property received as a gift. 2011 tax forms and instructions 1040   A child's unearned income includes all income produced by property belonging to the child. 2011 tax forms and instructions 1040 This is true even if the property was transferred to the child, regardless of when the property was transferred or purchased or who transferred it. 2011 tax forms and instructions 1040   A child's unearned income includes income produced by property given as a gift to the child. 2011 tax forms and instructions 1040 This includes gifts to the child from grandparents or any other person and gifts made under the Uniform Gift to Minors Act. 2011 tax forms and instructions 1040 Example. 2011 tax forms and instructions 1040 Amanda Black, age 13, received the following income. 2011 tax forms and instructions 1040 Dividends — $800 Wages — $2,100 Taxable interest — $1,200 Tax-exempt interest — $100 Net capital gains — $100 The dividends were qualified dividends on stock given to her by her grandparents. 2011 tax forms and instructions 1040 Amanda's unearned income is $2,100. 2011 tax forms and instructions 1040 This is the total of the dividends ($800), taxable interest ($1,200), and net capital gains ($100). 2011 tax forms and instructions 1040 Her wages are earned (not unearned) income because they are received for work actually done. 2011 tax forms and instructions 1040 Her tax-exempt interest is not included because it is nontaxable. 2011 tax forms and instructions 1040 Trust income. 2011 tax forms and instructions 1040   If a child is the beneficiary of a trust, distributions of taxable interest, dividends, capital gains, and other unearned income from the trust are unearned income to the child. 2011 tax forms and instructions 1040   However, for purposes of completing Form 8615, a taxable distribution from a qualified disability trust is considered earned income, not unearned income. 2011 tax forms and instructions 1040 Line 2 (deductions). 2011 tax forms and instructions 1040   If the child does not itemize deductions on Schedule A (Form 1040), enter $2,000 on line 2. 2011 tax forms and instructions 1040   If the child does itemize deductions, enter on line 2 the larger of: $1,000 plus the portion of the child's itemized deductions on Schedule A (Form 1040), line 29, that are directly connected with the production of unearned income entered on line 1, or $2,000. 2011 tax forms and instructions 1040 Directly connected. 2011 tax forms and instructions 1040   Itemized deductions are directly connected with the production of unearned income if they are for expenses paid to produce or collect taxable income or to manage, conserve, or maintain property held for producing income. 2011 tax forms and instructions 1040 These expenses include custodian fees and service charges, service fees to collect taxable interest and dividends, and certain investment counsel fees. 2011 tax forms and instructions 1040   These expenses are added to certain other miscellaneous itemized deductions on Schedule A (Form 1040). 2011 tax forms and instructions 1040 Only the amount greater than 2% of the child's adjusted gross income can be deducted. 2011 tax forms and instructions 1040 See chapter 28 for more information. 2011 tax forms and instructions 1040 Example 1. 2011 tax forms and instructions 1040 Roger, age 12, has unearned income of $8,000, no other income, no adjustments to income, and itemized deductions of $300 (net of the 2% limit) that are directly connected with his unearned income. 2011 tax forms and instructions 1040 His adjusted gross income is $8,000, which is entered on Form 1040, line 38, and on Form 8615, line 1. 2011 tax forms and instructions 1040 Roger enters $2,000 on line 2 because that is more than the total of $1,000 plus his directly connected itemized deductions of $300. 2011 tax forms and instructions 1040 Example 2. 2011 tax forms and instructions 1040 Eleanor, age 8, has unearned income of $16,000 and an early withdrawal penalty of $100. 2011 tax forms and instructions 1040 She has no other income. 2011 tax forms and instructions 1040 She has itemized deductions of $1,050 (net of the 2% limit) that are directly connected with the production of her unearned income. 2011 tax forms and instructions 1040 Her adjusted gross income, entered on line 1, is $15,900 ($16,000 − $100). 2011 tax forms and instructions 1040 The amount on line 2 is $2,050. 2011 tax forms and instructions 1040 This is the larger of: $1,000 plus the $1,050 of directly connected itemized deductions, or $2,000. 2011 tax forms and instructions 1040 Line 3. 2011 tax forms and instructions 1040   Subtract line 2 from line 1 and enter the result on this line. 2011 tax forms and instructions 1040 If zero or less, do not complete the rest of the form. 2011 tax forms and instructions 1040 However, you must still attach Form 8615 to the child's tax return. 2011 tax forms and instructions 1040 Figure the tax on the child's taxable income in the normal manner. 2011 tax forms and instructions 1040 Line 4 (child's taxable income). 2011 tax forms and instructions 1040   Enter on line 4 the child's taxable income from Form 1040, line 43, or Form 1040A, line 27. 2011 tax forms and instructions 1040   However, if the child files Form 2555 or 2555-EZ to claim the foreign earned income exclusion, housing exclusion, or housing deduction, see the Form 8615 instructions or Pub. 2011 tax forms and instructions 1040 929. 2011 tax forms and instructions 1040 Line 5 (net unearned income). 2011 tax forms and instructions 1040   A child's net unearned income cannot be more than his or her taxable income. 2011 tax forms and instructions 1040 Enter on Form 8615, line 5, the smaller of line 3 or line 4. 2011 tax forms and instructions 1040 This is the child's net unearned income. 2011 tax forms and instructions 1040   If zero or less, do not complete the rest of the form. 2011 tax forms and instructions 1040 However, you must still attach Form 8615 to the child's tax return. 2011 tax forms and instructions 1040 Figure the tax on the child's taxable income in the normal manner. 2011 tax forms and instructions 1040 Step 2. 2011 tax forms and instructions 1040 Figuring Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) The next step in completing Form 8615 is to figure a tentative tax on the child's net unearned income at the parent's tax rate. 2011 tax forms and instructions 1040 The tentative tax at the parent's tax rate is the difference between the tax on the parent's taxable income figured with the child's net unearned income (plus the net unearned income of any other child whose Form 8615 includes the tax return information of that parent) and the tax figured without it. 2011 tax forms and instructions 1040 When figuring the tentative tax at the parent's tax rate on Form 8615, do not refigure any of the exclusions, deductions, or credits on the parent's return because of the child's net unearned income. 2011 tax forms and instructions 1040 For example, do not refigure the medical expense deduction. 2011 tax forms and instructions 1040 Figure the tentative tax on Form 8615, lines 6 through 13. 2011 tax forms and instructions 1040 Note. 2011 tax forms and instructions 1040 If the child or parent has any capital gains or losses, get Publication 929 for help in completing Form 8615, Part II. 2011 tax forms and instructions 1040 Line 6 (parent's taxable income). 2011 tax forms and instructions 1040   Enter on line 6 the parent's taxable income from Form 1040, line 43, Form 1040A, line 27, or Form 1040EZ, line 6. 2011 tax forms and instructions 1040   If the Foreign Earned Income Tax Worksheet (in the Form 1040 instructions) was used to figure the parent's tax, enter the amount from line 3 of that worksheet instead of the parent's taxable income. 2011 tax forms and instructions 1040 Line 7 (net unearned income of other children). 2011 tax forms and instructions 1040   If the tax return information of the parent is also used on any other child's Form 8615, enter on line 7 the total of the amounts from line 5 of all the other children's Forms 8615. 2011 tax forms and instructions 1040 Do not include the amount from line 5 of the Form 8615 being completed. 2011 tax forms and instructions 1040 Example. 2011 tax forms and instructions 1040 Paul and Jane Persimmon have three children, Sharon, Jerry, and Mike, who must attach Form 8615 to their tax returns. 2011 tax forms and instructions 1040 The children's net unearned income amounts on line 5 of their Forms 8615 are: Sharon — $800 Jerry — $600 Mike — $1,000 Line 7 of Sharon's Form 8615 will show $1,600, the total of the amounts on line 5 of Jerry's and Mike's Forms 8615. 2011 tax forms and instructions 1040 Line 7 of Jerry's Form 8615 will show $1,800 ($800 + $1,000). 2011 tax forms and instructions 1040 Line 7 of Mike's Form 8615 will show $1,400 ($800 + $600). 2011 tax forms and instructions 1040 Other children's information not available. 2011 tax forms and instructions 1040   If the net unearned income of the other children is not available when the return is due, either file the return using estimates or get an extension of time to file. 2011 tax forms and instructions 1040 See Parent's return information not known timely , earlier. 2011 tax forms and instructions 1040 Line 11 (tentative tax). 2011 tax forms and instructions 1040   Subtract line 10 from line 9 and enter the result on this line. 2011 tax forms and instructions 1040 This is the tentative tax. 2011 tax forms and instructions 1040   If line 7 is blank, skip lines 12a and 12b and enter the amount from line 11 on line 13. 2011 tax forms and instructions 1040 Also skip the discussion for lines 12a and 12b that follows. 2011 tax forms and instructions 1040 Lines 12a and 12b (dividing the tentative tax). 2011 tax forms and instructions 1040   If an amount is entered on line 7, divide the tentative tax shown on line 11 among the children according to each child's share of the total net unearned income. 2011 tax forms and instructions 1040 This is done on lines 12a, 12b, and 13. 2011 tax forms and instructions 1040 Add the amount on line 7 to the amount on line 5 and enter the total on line 12a. 2011 tax forms and instructions 1040 Divide the amount on line 5 by the amount on line 12a and enter the result, as a decimal, on line 12b. 2011 tax forms and instructions 1040 Example. 2011 tax forms and instructions 1040 In the earlier example under Line 7 (net unearned income of other children), Sharon's Form 8615 shows $1,600 on line 7. 2011 tax forms and instructions 1040 The amount entered on line 12a is $2,400, the total of the amounts on lines 5 and 7 ($800 + $1,600). 2011 tax forms and instructions 1040 The decimal on line 12b is  . 2011 tax forms and instructions 1040 333, figured as follows and rounded to three places. 2011 tax forms and instructions 1040   $800 = . 2011 tax forms and instructions 1040 333     $2,400   Step 3. 2011 tax forms and instructions 1040 Figuring the Child's Tax (Form 8615, Part III) The final step in figuring a child's tax using Form 8615 is to determine the larger of: The total of: The child's share of the tentative tax based on the parent's tax rate, plus The tax on the child's taxable income in excess of net unearned income, figured at the child's tax rate, or The tax on the child's taxable income, figured at the child's tax rate. 2011 tax forms and instructions 1040 This is the child's tax. 2011 tax forms and instructions 1040 It is figured on Form 8615, lines 14 through 18. 2011 tax forms and instructions 1040 Alternative minimum tax. 2011 tax forms and instructions 1040   A child may be subject to alternative minimum tax (AMT) if he or she has certain items given preferential treatment under the tax law. 2011 tax forms and instructions 1040 See Alternative Minimum Tax (AMT) in chapter 30. 2011 tax forms and instructions 1040    For more information on who is liable for AMT and how to figure it, see Form 6251, Alternative Minimum Tax—Individuals. 2011 tax forms and instructions 1040 For information on special limits that apply to a child who files Form 6251, see Certain Children Under Age 24 in the Instructions for Form 6251. 2011 tax forms and instructions 1040 Prev  Up  Next   Home   More Online Publications
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The 2011 Tax Forms And Instructions 1040

2011 tax forms and instructions 1040 3. 2011 tax forms and instructions 1040   Abandonments Table of Contents You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership but without passing it on to anyone else. 2011 tax forms and instructions 1040 Whether an abandonment has occurred is determined in light of all the facts and circumstances. 2011 tax forms and instructions 1040 You must both show an intention to abandon the property and affirmatively act to abandon the property. 2011 tax forms and instructions 1040 A voluntary conveyance of the property in lieu of foreclosure is not an abandonment and is treated as the exchange of property to satisfy a debt. 2011 tax forms and instructions 1040 For more information, see Sales and Exchanges in Publication 544. 2011 tax forms and instructions 1040 The tax consequences of abandonment of property that secures a debt depend on whether you were personally liable for the debt (recourse debt) or were not personally liable for the debt (nonrecourse debt). 2011 tax forms and instructions 1040 See Publication 544 if you abandoned property that did not secure debt. 2011 tax forms and instructions 1040 This publication only discusses the tax consequences of abandoning property that secured a debt. 2011 tax forms and instructions 1040 Abandonment of property securing recourse debt. 2011 tax forms and instructions 1040    In most cases, if you abandon property that secures debt for which you are personally liable (recourse debt), you do not have gain or loss until the later foreclosure is completed. 2011 tax forms and instructions 1040 For details on figuring gain or loss on the foreclosure, see chapter 2. 2011 tax forms and instructions 1040 Example 1—abandonment of personal-use property securing recourse debt. 2011 tax forms and instructions 1040 In 2009, Anne purchased a home for $200,000. 2011 tax forms and instructions 1040 She borrowed the entire purchase price, for which she was personally liable, and gave the bank a mortgage on the home. 2011 tax forms and instructions 1040 In 2013, Anne lost her job and was unable to continue making her mortgage loan payments. 2011 tax forms and instructions 1040 Because her mortgage loan balance was $185,000 and the FMV of her home was only $150,000, Anne decided to abandon her home by permanently moving out on August 1, 2013. 2011 tax forms and instructions 1040 Because Anne was personally liable for the debt and the bank did not complete a foreclosure of the property in 2013, Anne has neither gain nor loss in tax year 2013 from abandoning the home. 2011 tax forms and instructions 1040 If the bank sells the house at a foreclosure sale in 2014, Anne will have to figure her gain or nondeductible loss for tax year 2014 as discussed earlier in chapter 2. 2011 tax forms and instructions 1040 Example 2—abandonment of business or investment property securing recourse debt. 2011 tax forms and instructions 1040 In 2009, Sue purchased business property for $200,000. 2011 tax forms and instructions 1040 She borrowed the entire purchase price, for which she was personally liable, and gave the lender a security interest in the property. 2011 tax forms and instructions 1040 In 2013, Sue was unable to continue making her loan payments. 2011 tax forms and instructions 1040 Because her loan balance was $185,000 and the FMV of the property was only $150,000, Sue abandoned the property on August 1, 2013. 2011 tax forms and instructions 1040 Because Sue was personally liable for the debt and the lender did not complete a foreclosure of the property in 2013, Sue has neither gain nor loss in tax year 2013 from abandoning the property. 2011 tax forms and instructions 1040 If the lender sells the property at a foreclosure sale in 2014, Sue will have to figure her gain or deductible loss for tax year 2014 as discussed earlier in chapter 2. 2011 tax forms and instructions 1040 Abandonment of property securing nonrecourse debt. 2011 tax forms and instructions 1040    If you abandon property that secures debt for which you are not personally liable (nonrecourse debt), the abandonment is treated as a sale or exchange. 2011 tax forms and instructions 1040   The amount you realize on the abandonment of property that secured nonrecourse debt is the amount of the nonrecourse debt. 2011 tax forms and instructions 1040 If the amount you realize is more than your adjusted basis, then you have a gain. 2011 tax forms and instructions 1040 If your adjusted basis is more than the amount you realize, then you have a loss. 2011 tax forms and instructions 1040 For more information on how to figure gain and loss, see Gain or Loss from Sales or Exchanges in Publication 544. 2011 tax forms and instructions 1040   Loss from abandonment of business or investment property is deductible as a loss. 2011 tax forms and instructions 1040 The character of the loss depends on the character of the property. 2011 tax forms and instructions 1040 The amount of deductible capital loss may be limited. 2011 tax forms and instructions 1040 For more information, see Treatment of Capital Losses in Publication 544. 2011 tax forms and instructions 1040 You cannot deduct any loss from abandonment of your home or other property held for personal use. 2011 tax forms and instructions 1040 Example 1—abandonment of personal-use property securing nonrecourse debt. 2011 tax forms and instructions 1040 In 2009, Timothy purchased a home for $200,000. 2011 tax forms and instructions 1040 He borrowed the entire purchase price, for which he was not personally liable, and gave the bank a mortgage on the home. 2011 tax forms and instructions 1040 In 2013, Timothy lost his job and was unable to continue making his mortgage loan payments. 2011 tax forms and instructions 1040 Because his mortgage loan balance was $185,000 and the FMV of his home was only $150,000, Timothy decided to abandon his home by permanently moving out on August 1, 2013. 2011 tax forms and instructions 1040 Because Timothy was not personally liable for the debt, the abandonment is treated as a sale or exchange of the home in tax year 2013. 2011 tax forms and instructions 1040 Timothy's amount realized is $185,000 and his adjusted basis in the home is $200,000. 2011 tax forms and instructions 1040 Timothy has a $15,000 nondeductible loss in tax year 2013. 2011 tax forms and instructions 1040 (Had Timothy’s adjusted basis been less than the amount realized, Timothy would have had a gain that he would have to include in gross income. 2011 tax forms and instructions 1040 ) The bank sells the house at a foreclosure sale in 2014. 2011 tax forms and instructions 1040 Timothy has neither gain nor loss from the foreclosure sale. 2011 tax forms and instructions 1040 Because he was not personally liable for the debt, he also has no cancellation of debt income. 2011 tax forms and instructions 1040 Example 2—abandonment of business or investment property securing nonrecourse debt. 2011 tax forms and instructions 1040 In 2009, Robert purchased business property for $200,000. 2011 tax forms and instructions 1040 He borrowed the entire purchase price, for which he was not personally liable, and gave the lender a security interest in the property. 2011 tax forms and instructions 1040 In 2013, Robert was unable to continue making his loan payments. 2011 tax forms and instructions 1040 Because his loan balance was $185,000 and the FMV of the property was only $150,000, Robert decided to abandon the property on August 1, 2013. 2011 tax forms and instructions 1040 Because Robert was not personally liable for the debt, the abandonment is treated as a sale or exchange of the property in tax year 2013. 2011 tax forms and instructions 1040 Robert's amount realized is $185,000 and his adjusted basis in the property is $180,000 (as a result of $20,000 of depreciation deductions on the property). 2011 tax forms and instructions 1040 Robert has a $5,000 gain in tax year 2013. 2011 tax forms and instructions 1040 (Had Robert’s adjusted basis been greater than the amount realized, he would have had a deductible loss. 2011 tax forms and instructions 1040 ) The lender sells the property at a foreclosure sale in 2014. 2011 tax forms and instructions 1040 Robert has neither gain nor loss from the foreclosure sale. 2011 tax forms and instructions 1040 Because he was not personally liable for the debt, he also has no cancellation of debt income. 2011 tax forms and instructions 1040 Canceled debt. 2011 tax forms and instructions 1040    If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you will realize ordinary income equal to the canceled debt. 2011 tax forms and instructions 1040 This income is separate from any amount realized from abandonment of the property. 2011 tax forms and instructions 1040 You must report this income on your return unless one of the exceptions or exclusions described in chapter 1 applies. 2011 tax forms and instructions 1040 See chapter 1 for more details. 2011 tax forms and instructions 1040 Forms 1099-A and 1099-C. 2011 tax forms and instructions 1040    In most cases, if you abandon real property (such as a home), intangible property, or tangible personal property held (wholly or partly) for use in a trade or business or for investment, that secures a loan and the lender knows the property has been abandoned, the lender should send you Form 1099-A showing information you need to figure your gain or loss from the abandonment. 2011 tax forms and instructions 1040 Also, if your debt is canceled and the lender must file Form 1099-C, the lender can include the information about the abandonment on that form instead of on Form 1099-A. 2011 tax forms and instructions 1040 The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. 2011 tax forms and instructions 1040 For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. 2011 tax forms and instructions 1040 Prev  Up  Next   Home   More Online Publications