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2012 Income Tax Form 1040

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2012 Income Tax Form 1040

2012 income tax form 1040 4. 2012 income tax form 1040   Sales and Trades of Investment Property Table of Contents IntroductionNominees. 2012 income tax form 1040 Topics - This chapter discusses: Useful Items - You may want to see: What Is a Sale or Trade?Dividend versus sale or trade. 2012 income tax form 1040 Worthless Securities Constructive Sales of Appreciated Financial Positions Section 1256 Contracts Marked to Market Basis of Investment PropertyCost Basis Basis Other Than Cost Adjusted Basis Stocks and Bonds How To Figure Gain or LossFair market value. 2012 income tax form 1040 Debt paid off. 2012 income tax form 1040 Payment of cash. 2012 income tax form 1040 Special Rules for Mutual Funds Nontaxable TradesLike-Kind Exchanges Corporate Stocks Exchange of Shares In One Mutual Fund For Shares In Another Mutual Fund Insurance Policies and Annuities U. 2012 income tax form 1040 S. 2012 income tax form 1040 Treasury Notes or Bonds Transfers Between Spouses Related Party TransactionsGain on Sale or Trade of Depreciable Property Capital Gains and LossesCapital or Ordinary Gain or Loss Holding Period Nonbusiness Bad Debts Short Sales Wash Sales Options Straddles Sales of Stock to ESOPs or Certain Cooperatives Rollover of Gain From Publicly Traded Securities Gains on Qualified Small Business Stock Exclusion of Gain From DC Zone Assets Reporting Capital Gains and LossesException 1. 2012 income tax form 1040 Exception 2. 2012 income tax form 1040 Section 1256 contracts and straddles. 2012 income tax form 1040 Market discount bonds. 2012 income tax form 1040 File Form 1099-B or Form 1099-S with the IRS. 2012 income tax form 1040 Capital Losses Capital Gain Tax Rates Special Rules for Traders in SecuritiesHow To Report Introduction This chapter explains the tax treatment of sales and trades of investment property. 2012 income tax form 1040 Investment property. 2012 income tax form 1040   This is property that produces investment income. 2012 income tax form 1040 Examples include stocks, bonds, and Treasury bills and notes. 2012 income tax form 1040 Property used in a trade or business is not investment property. 2012 income tax form 1040 Form 1099-B. 2012 income tax form 1040   If you sold property such as stocks, bonds, mutual funds, or certain commodities through a broker during the year, you should receive, for each sale, a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or substitute statement, from the broker. 2012 income tax form 1040 You should receive the statement by February 15 of the next year. 2012 income tax form 1040 It will show the gross proceeds from the sale. 2012 income tax form 1040 The IRS will also get a copy of Form 1099-B from the broker. 2012 income tax form 1040   Use Form 1099-B (or substitute statement received from your broker) to complete Form 8949. 2012 income tax form 1040 If you sold a covered security in 2013, your broker will send you a Form 1099-B (or substitute statement) that shows your basis. 2012 income tax form 1040 This will help you complete Form 8949. 2012 income tax form 1040 Generally, a covered security is a security you acquired after 2010, with certain exceptions explained in the Instructions for Form 8949. 2012 income tax form 1040    For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in this chapter. 2012 income tax form 1040 Also see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). 2012 income tax form 1040 Nominees. 2012 income tax form 1040   If someone receives gross proceeds as a nominee for you, that person will give you a Form 1099-B, which will show gross proceeds received on your behalf. 2012 income tax form 1040   If you receive a Form 1099-B that includes gross proceeds belonging to another person, see Nominees , later under Reporting Capital Gains and Losses for more information. 2012 income tax form 1040 Other property transactions. 2012 income tax form 1040   Certain transfers of property are discussed in other IRS publications. 2012 income tax form 1040 These include: Sale of your main home, discussed in Publication 523, Selling Your Home; Installment sales, covered in Publication 537; Various types of transactions involving business property, discussed in Publication 544, Sales and Other Dispositions of Assets; Transfers of property at death, covered in Publication 559; and Disposition of an interest in a passive activity, discussed in Publication 925. 2012 income tax form 1040 Topics - This chapter discusses: What Is a Sale or Trade? , Basis of Investment Property , Adjusted Basis , How To Figure Gain or Loss , Nontaxable trades , Transfers Between Spouses , Related Party Transactions , Capital Gains and Losses , Reporting Capital Gains and Losses , and Special Rules for Traders in Securities . 2012 income tax form 1040 Useful Items - You may want to see: Publication 551 Basis of Assets Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 6781 Gains and Losses From Section 1256 Contracts and Straddles 8582 Passive Activity Loss Limitations 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets See chapter 5, How To Get Tax Help , for information about getting these publications and forms. 2012 income tax form 1040 What Is a Sale or Trade? This section explains what is a sale or trade. 2012 income tax form 1040 It also explains certain transactions and events that are treated as sales or trades. 2012 income tax form 1040 A sale is generally a transfer of property for money or a mortgage, note, or other promise to pay money. 2012 income tax form 1040 A trade is a transfer of property for other property or services, and may be taxed in the same way as a sale. 2012 income tax form 1040 Sale and purchase. 2012 income tax form 1040   Ordinarily, a transaction is not a trade when you voluntarily sell property for cash and immediately buy similar property to replace it. 2012 income tax form 1040 The sale and purchase are two separate transactions. 2012 income tax form 1040 But see Like-Kind Exchanges under Nontaxable Trades, later. 2012 income tax form 1040 Redemption of stock. 2012 income tax form 1040   A redemption of stock is treated as a sale or trade and is subject to the capital gain or loss provisions unless the redemption is a dividend or other distribution on stock. 2012 income tax form 1040 Dividend versus sale or trade. 2012 income tax form 1040   Whether a redemption is treated as a sale, trade, dividend, or other distribution depends on the circumstances in each case. 2012 income tax form 1040 Both direct and indirect ownership of stock will be considered. 2012 income tax form 1040 The redemption is treated as a sale or trade of stock if: The redemption is not essentially equivalent to a dividend — see Dividends and Other Distributions in chapter 1, There is a substantially disproportionate redemption of stock, There is a complete redemption of all the stock of the corporation owned by the shareholder, or The redemption is a distribution in partial liquidation of a corporation. 2012 income tax form 1040 Redemption or retirement of bonds. 2012 income tax form 1040   A redemption or retirement of bonds or notes at their maturity generally is treated as a sale or trade. 2012 income tax form 1040 See Stocks, stock rights, and bonds and Discounted Debt Instruments under Capital or Ordinary Gain or Loss, later. 2012 income tax form 1040   In addition, a significant modification of a bond is treated as a trade of the original bond for a new bond. 2012 income tax form 1040 For details, see Regulations section 1. 2012 income tax form 1040 1001-3. 2012 income tax form 1040 Surrender of stock. 2012 income tax form 1040   A surrender of stock by a dominant shareholder who retains ownership of more than half of the corporation's voting shares is treated as a contribution to capital rather than as an immediate loss deductible from taxable income. 2012 income tax form 1040 The surrendering shareholder must reallocate his or her basis in the surrendered shares to the shares he or she retains. 2012 income tax form 1040 Trade of investment property for an annuity. 2012 income tax form 1040   The transfer of investment property to a corporation, trust, fund, foundation, or other organization, in exchange for a fixed annuity contract that will make guaranteed annual payments to you for life, is a taxable trade. 2012 income tax form 1040 If the present value of the annuity is more than your basis in the property traded, you have a taxable gain in the year of the trade. 2012 income tax form 1040 Figure the present value of the annuity according to factors used by commercial insurance companies issuing annuities. 2012 income tax form 1040 Transfer by inheritance. 2012 income tax form 1040   The transfer of property of a decedent to the executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or other disposition. 2012 income tax form 1040 No taxable gain or deductible loss results from the transfer. 2012 income tax form 1040 Termination of certain rights and obligations. 2012 income tax form 1040   The cancellation, lapse, expiration, or other termination of a right or obligation (other than a securities futures contract) with respect to property that is a capital asset (or that would be a capital asset if you acquired it) is treated as a sale. 2012 income tax form 1040 Any gain or loss is treated as a capital gain or loss. 2012 income tax form 1040   This rule does not apply to the retirement of a debt instrument. 2012 income tax form 1040 See Redemption or retirement of bonds , earlier. 2012 income tax form 1040 Worthless Securities Stocks, stock rights, and bonds (other than those held for sale by a securities dealer) that became completely worthless during the tax year are treated as though they were sold on the last day of the tax year. 2012 income tax form 1040 This affects whether your capital loss is long term or short term. 2012 income tax form 1040 See Holding Period , later. 2012 income tax form 1040 Worthless securities also include securities that you abandon after March 12, 2008. 2012 income tax form 1040 To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it. 2012 income tax form 1040 All the facts and circumstances determine whether the transaction is properly characterized as an abandonment or other type of transaction, such as an actual sale or exchange, contribution to capital, dividend, or gift. 2012 income tax form 1040 If you are a cash basis taxpayer and make payments on a negotiable promissory note that you issued for stock that became worthless, you can deduct these payments as losses in the years you actually make the payments. 2012 income tax form 1040 Do not deduct them in the year the stock became worthless. 2012 income tax form 1040 How to report loss. 2012 income tax form 1040   Report worthless securities in Form 8949, Part I or Part II, whichever applies. 2012 income tax form 1040    Report your worthless securities transactions on Form 8949 with the correct box checked for these transactions. 2012 income tax form 1040 See Form 8949 and the Instructions for Form 8949. 2012 income tax form 1040 Filing a claim for refund. 2012 income tax form 1040   If you do not claim a loss for a worthless security on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the loss. 2012 income tax form 1040 You must use Form 1040X, Amended U. 2012 income tax form 1040 S. 2012 income tax form 1040 Individual Income Tax Return, to amend your return for the year the security became worthless. 2012 income tax form 1040 You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. 2012 income tax form 1040 (Claims not due to worthless securities or bad debts generally must be filed within 3 years from the date a return is filed, or 2 years from the date the tax is paid, whichever is later. 2012 income tax form 1040 ) For more information about filing a claim, see Publication 556. 2012 income tax form 1040 Constructive Sales of Appreciated Financial Positions You are treated as having made a constructive sale when you enter into certain transactions involving an appreciated financial position (defined later) in stock, a partnership interest, or certain debt instruments. 2012 income tax form 1040 You must recognize gain as if the position were disposed of at its fair market value on the date of the constructive sale. 2012 income tax form 1040 This gives you a new holding period for the position that begins on the date of the constructive sale. 2012 income tax form 1040 Then, when you close the transaction, you reduce your gain (or increase your loss) by the gain recognized on the constructive sale. 2012 income tax form 1040 Constructive sale. 2012 income tax form 1040   You are treated as having made a constructive sale of an appreciated financial position if you: Enter into a short sale of the same or substantially identical property, Enter into an offsetting notional principal contract relating to the same or substantially identical property, Enter into a futures or forward contract to deliver the same or substantially identical property (including a forward contract that provides for cash settlement), or Acquire the same or substantially identical property (if the appreciated financial position is a short sale, an offsetting notional principal contract, or a futures or forward contract). 2012 income tax form 1040   You are also treated as having made a constructive sale of an appreciated financial position if a person related to you enters into a transaction described above with a view toward avoiding the constructive sale treatment. 2012 income tax form 1040 For this purpose, a related person is any related party described under Related Party Transactions , later in this chapter. 2012 income tax form 1040 Exception for nonmarketable securities. 2012 income tax form 1040   You are not treated as having made a constructive sale solely because you entered into a contract for sale of any stock, debt instrument, or partnership interest that is not a marketable security if it settles within 1 year of the date you enter into it. 2012 income tax form 1040 Exception for certain closed transactions. 2012 income tax form 1040   Do not treat a transaction as a constructive sale if all of the following are true. 2012 income tax form 1040 You closed the transaction on or before the 30th day after the end of your tax year. 2012 income tax form 1040 You held the appreciated financial position throughout the 60-day period beginning on the date you closed the transaction. 2012 income tax form 1040 Your risk of loss was not reduced at any time during that 60-day period by holding certain other positions. 2012 income tax form 1040   If a closed transaction is reestablished in a substantially similar position during the 60-day period beginning on the date the first transaction was closed, this exception still applies if the reestablished position is closed before the 30th day after the end of your tax year in which the first transaction was closed and, after that closing, (2) and (3) above are true. 2012 income tax form 1040   This exception also applies to successive short sales of an entire appreciated financial position. 2012 income tax form 1040 For more information, see Revenue Ruling 2003-1 in Internal Revenue Bulletin 2003-3. 2012 income tax form 1040 This bulletin is available at www. 2012 income tax form 1040 irs. 2012 income tax form 1040 gov/pub/irs-irbs/irb03-03. 2012 income tax form 1040 pdf. 2012 income tax form 1040 Appreciated financial position. 2012 income tax form 1040   This is any interest in stock, a partnership interest, or a debt instrument (including a futures or forward contract, a short sale, or an option) if disposing of the interest would result in a gain. 2012 income tax form 1040 Exceptions. 2012 income tax form 1040   An appreciated financial position does not include the following. 2012 income tax form 1040 Any position from which all of the appreciation is accounted for under marked-to-market rules, including section 1256 contracts (described later under Section 1256 Contracts Marked to Market ). 2012 income tax form 1040 Any position in a debt instrument if: The position unconditionally entitles the holder to receive a specified principal amount, The interest payments (or other similar amounts) with respect to the position are payable at a fixed rate or a variable rate described in Regulations section 1. 2012 income tax form 1040 860G-1(a)(3), and The position is not convertible, either directly or indirectly, into stock of the issuer (or any related person). 2012 income tax form 1040 Any hedge with respect to a position described in (2). 2012 income tax form 1040 Certain trust instruments treated as stock. 2012 income tax form 1040   For the constructive sale rules, an interest in an actively traded trust is treated as stock unless substantially all of the value of the property held by the trust is debt that qualifies for the exception to the definition of an appreciated financial position (explained in (2) above). 2012 income tax form 1040 Sale of appreciated financial position. 2012 income tax form 1040   A transaction treated as a constructive sale of an appreciated financial position is not treated as a constructive sale of any other appreciated financial position, as long as you continue to hold the original position. 2012 income tax form 1040 However, if you hold another appreciated financial position and dispose of the original position before closing the transaction that resulted in the constructive sale, you are treated as if, at the same time, you constructively sold the other appreciated financial position. 2012 income tax form 1040 Section 1256 Contracts Marked to Market If you hold a section 1256 contract at the end of the tax year, you generally must treat it as sold at its fair market value on the last business day of the tax year. 2012 income tax form 1040 Section 1256 Contract A section 1256 contract is any: Regulated futures contract, Foreign currency contract, Nonequity option, Dealer equity option, or Dealer securities futures contract. 2012 income tax form 1040 Exceptions. 2012 income tax form 1040   A section 1256 contract does not include: Interest rate swaps, Currency swaps, Basis swaps, Interest rate caps, Interest rate floors, Commodity swaps, Equity swaps, Equity index swaps, Credit default swaps, or Similar agreements. 2012 income tax form 1040 For more details, including definitions of these terms, see section 1256. 2012 income tax form 1040 Regulated futures contract. 2012 income tax form 1040   This is a contract that: Provides that amounts which must be deposited to, or can be withdrawn from, your margin account depend on daily market conditions (a system of marking to market), and Is traded on, or subject to the rules of, a qualified board of exchange. 2012 income tax form 1040 A qualified board of exchange is a domestic board of trade designated as a contract market by the Commodity Futures Trading Commission, any board of trade or exchange approved by the Secretary of the Treasury, or a national securities exchange registered with the Securities and Exchange Commission. 2012 income tax form 1040 Foreign currency contract. 2012 income tax form 1040   This is a contract that: Requires delivery of a foreign currency that has positions traded through regulated futures contracts (or settlement of which depends on the value of that type of foreign currency), Is traded in the interbank market, and Is entered into at arm's length at a price determined by reference to the price in the interbank market. 2012 income tax form 1040   Bank forward contracts with maturity dates longer than the maturities ordinarily available for regulated futures contracts are considered to meet the definition of a foreign currency contract if the above three conditions are satisfied. 2012 income tax form 1040   Special rules apply to certain foreign currency transactions. 2012 income tax form 1040 These transactions may result in ordinary gain or loss treatment. 2012 income tax form 1040 For details, see Internal Revenue Code section 988 and Regulations sections 1. 2012 income tax form 1040 988-1(a)(7) and 1. 2012 income tax form 1040 988-3. 2012 income tax form 1040 Nonequity option. 2012 income tax form 1040   This is any listed option (defined later) that is not an equity option. 2012 income tax form 1040 Nonequity options include debt options, commodity futures options, currency options, and broad-based stock index options. 2012 income tax form 1040 A broad-based stock index is based on the value of a group of diversified stocks or securities (such as the Standard and Poor's 500 index). 2012 income tax form 1040 Warrants based on a stock index that are economically, substantially identical in all material respects to options based on a stock index are treated as options based on a stock index. 2012 income tax form 1040 Cash-settled options. 2012 income tax form 1040   Cash-settled options based on a stock index and either traded on or subject to the rules of a qualified board of exchange are nonequity options if the Securities and Exchange Commission (SEC) determines that the stock index is broad based. 2012 income tax form 1040   This rule does not apply to options established before the SEC determines that the stock index is broad based. 2012 income tax form 1040 Listed option. 2012 income tax form 1040   This is any option traded on, or subject to the rules of, a qualified board or exchange (as discussed earlier under Regulated futures contract). 2012 income tax form 1040 A listed option, however, does not include an option that is a right to acquire stock from the issuer. 2012 income tax form 1040 Dealer equity option. 2012 income tax form 1040   This is any listed option that, for an options dealer: Is an equity option, Is bought or granted by that dealer in the normal course of the dealer's business activity of dealing in options, and Is listed on the qualified board of exchange where that dealer is registered. 2012 income tax form 1040   An “options dealer” is any person registered with an appropriate national securities exchange as a market maker or specialist in listed options. 2012 income tax form 1040 Equity option. 2012 income tax form 1040   This is any option: To buy or sell stock, or That is valued directly or indirectly by reference to any stock or narrow-based security index. 2012 income tax form 1040  Equity options include options on a group of stocks only if the group is a narrow-based stock index. 2012 income tax form 1040 Dealer securities futures contract. 2012 income tax form 1040   For any dealer in securities futures contracts or options on those contracts, this is a securities futures contract (or option on such a contract) that: Is entered into by the dealer (or, in the case of an option, is purchased or granted by the dealer) in the normal course of the dealer's activity of dealing in this type of contract (or option), and Is traded on a qualified board or exchange (as defined under Regulated futures contract , earlier). 2012 income tax form 1040 A securities futures contract that is not a dealer securities futures contract is treated as described later under Securities Futures Contracts . 2012 income tax form 1040 Marked-to-Market Rules A section 1256 contract that you hold at the end of the tax year will generally be treated as sold at its fair market value on the last business day of the tax year, and you must recognize any gain or loss that results. 2012 income tax form 1040 That gain or loss is taken into account in figuring your gain or loss when you later dispose of the contract, as shown in the example under 60/40 rule, below. 2012 income tax form 1040 Hedging exception. 2012 income tax form 1040   The marked-to-market rules do not apply to hedging transactions. 2012 income tax form 1040 See Hedging Transactions , later. 2012 income tax form 1040 60/40 rule. 2012 income tax form 1040   Under the marked-to-market system, 60% of your capital gain or loss will be treated as a long-term capital gain or loss, and 40% will be treated as a short-term capital gain or loss. 2012 income tax form 1040 This is true regardless of how long you actually held the property. 2012 income tax form 1040 Example. 2012 income tax form 1040 On June 22, 2012, you bought a regulated futures contract for $50,000. 2012 income tax form 1040 On December 31, 2012 (the last business day of your tax year), the fair market value of the contract was $57,000. 2012 income tax form 1040 You recognized a $7,000 gain on your 2012 tax return, treated as 60% long-term and 40% short-term capital gain. 2012 income tax form 1040 On February 1, 2013, you sold the contract for $56,000. 2012 income tax form 1040 Because you recognized a $7,000 gain on your 2012 return, you recognize a $1,000 loss ($57,000 − $56,000) on your 2013 tax return, treated as 60% long-term and 40% short-term capital loss. 2012 income tax form 1040 Limited partners or entrepreneurs. 2012 income tax form 1040   The 60/40 rule does not apply to dealer equity options or dealer securities futures contracts that result in capital gain or loss allocable to limited partners or limited entrepreneurs (defined later under Hedging Transactions ). 2012 income tax form 1040 Instead, these gains or losses are treated as short term. 2012 income tax form 1040 Terminations and transfers. 2012 income tax form 1040   The marked-to-market rules also apply if your obligation or rights under section 1256 contracts are terminated or transferred during the tax year. 2012 income tax form 1040 In this case, use the fair market value of each section 1256 contract at the time of termination or transfer to determine the gain or loss. 2012 income tax form 1040 Terminations or transfers may result from any offsetting, delivery, exercise, assignment, or lapse of your obligation or rights under section 1256 contracts. 2012 income tax form 1040 Loss carryback election. 2012 income tax form 1040   An individual having a net section 1256 contracts loss (defined later), generally can elect to carry this loss back 3 years instead of carrying it over to the next year. 2012 income tax form 1040 See How To Report , later, for information about reporting this election on your return. 2012 income tax form 1040   The loss carried back to any year under this election cannot be more than the net section 1256 contracts gain in that year. 2012 income tax form 1040 In addition, the amount of loss carried back to an earlier tax year cannot increase or produce a net operating loss for that year. 2012 income tax form 1040   The loss is carried to the earliest carryback year first, and any unabsorbed loss amount can then be carried to each of the next 2 tax years. 2012 income tax form 1040 In each carryback year, treat 60% of the carryback amount as a long-term capital loss and 40% as a short-term capital loss from section 1256 contracts. 2012 income tax form 1040   If only a portion of the net section 1256 contracts loss is absorbed by carrying the loss back, the unabsorbed portion can be carried forward, under the capital loss carryover rules, to the year following the loss. 2012 income tax form 1040 (See Capital Losses under Reporting Capital Gains and Losses, later. 2012 income tax form 1040 ) Figure your capital loss carryover as if, for the loss year, you had an additional short-term capital gain of 40% of the amount of net section 1256 contracts loss absorbed in the carryback years and an additional long-term capital gain of 60% of the absorbed loss. 2012 income tax form 1040 In the carryover year, treat any capital loss carryover from losses on section 1256 contracts as if it were a loss from section 1256 contracts for that year. 2012 income tax form 1040 Net section 1256 contracts loss. 2012 income tax form 1040   This loss is the lesser of: The net capital loss for your tax year determined by taking into account only the gains and losses from section 1256 contracts, or The capital loss carryover to the next tax year determined without this election. 2012 income tax form 1040 Net section 1256 contracts gain. 2012 income tax form 1040   This gain is the lesser of: The capital gain net income for the carryback year determined by taking into account only gains and losses from section 1256 contracts, or The capital gain net income for that year. 2012 income tax form 1040  Figure your net section 1256 contracts gain for any carryback year without regard to the net section 1256 contracts loss for the loss year or any later tax year. 2012 income tax form 1040 Traders in section 1256 contracts. 2012 income tax form 1040   Gain or loss from the trading of section 1256 contracts is capital gain or loss subject to the marked-to-market rules. 2012 income tax form 1040 However, this does not apply to contracts held for purposes of hedging property if any loss from the property would be an ordinary loss. 2012 income tax form 1040 Treatment of underlying property. 2012 income tax form 1040   The determination of whether an individual's gain or loss from any property is ordinary or capital gain or loss is made without regard to the fact that the individual is actively engaged in dealing in or trading section 1256 contracts related to that property. 2012 income tax form 1040 How To Report If you disposed of regulated futures or foreign currency contracts in 2013 (or had unrealized profit or loss on these contracts that were open at the end of 2012 or 2013), you should receive Form 1099-B, or substitute statement, from your broker. 2012 income tax form 1040 Form 6781. 2012 income tax form 1040   Use Part I of Form 6781 to report your gains and losses from all section 1256 contracts that are open at the end of the year or that were closed out during the year. 2012 income tax form 1040 This includes the amount shown in box 10 of Form 1099-B. 2012 income tax form 1040 Then enter the net amount of these gains and losses on Schedule D (Form 1040), line 4 or line 11, as appropriate. 2012 income tax form 1040 Include a copy of Form 6781 with your income tax return. 2012 income tax form 1040   If the Form 1099-B you receive includes a straddle or hedging transaction, defined later, it may be necessary to show certain adjustments on Form 6781. 2012 income tax form 1040 Follow the Form 6781 instructions for completing Part I. 2012 income tax form 1040 Loss carryback election. 2012 income tax form 1040   To carry back your loss under the election procedures described earlier, file Form 1040X or Form 1045, Application for Tentative Refund, for the year to which you are carrying the loss with an amended Form 6781 and an amended Schedule D (Form 1040) attached. 2012 income tax form 1040 Follow the instructions for completing Form 6781 for the loss year to make this election. 2012 income tax form 1040 Hedging Transactions The marked-to-market rules, described earlier, do not apply to hedging transactions. 2012 income tax form 1040 A transaction is a hedging transaction if both of the following conditions are met. 2012 income tax form 1040 You entered into the transaction in the normal course of your trade or business primarily to manage the risk of: Price changes or currency fluctuations on ordinary property you hold (or will hold), or Interest rate or price changes, or currency fluctuations, on your current or future borrowings or ordinary obligations. 2012 income tax form 1040 You clearly identified the transaction as being a hedging transaction before the close of the day on which you entered into it. 2012 income tax form 1040 This hedging transaction exception does not apply to transactions entered into by or for any syndicate. 2012 income tax form 1040 A syndicate is a partnership, S corporation, or other entity (other than a regular corporation) that allocates more than 35% of its losses to limited partners or limited entrepreneurs. 2012 income tax form 1040 A limited entrepreneur is a person who has an interest in an enterprise (but not as a limited partner) and who does not actively participate in its management. 2012 income tax form 1040 However, an interest is not considered held by a limited partner or entrepreneur if the interest holder actively participates (or did so for at least 5 full years) in the management of the entity, or is the spouse, child (including a legally adopted child), grandchild, or parent of an individual who actively participates in the management of the entity. 2012 income tax form 1040 Hedging loss limit. 2012 income tax form 1040   If you are a limited partner or entrepreneur in a syndicate, the amount of a hedging loss you can claim is limited. 2012 income tax form 1040 A “hedging loss” is the amount by which the allowable deductions in a tax year that resulted from a hedging transaction (determined without regard to the limit) are more than the income received or accrued during the tax year from this transaction. 2012 income tax form 1040   Any hedging loss allocated to you for the tax year is limited to your taxable income for that year from the trade or business in which the hedging transaction occurred. 2012 income tax form 1040 Ignore any hedging transaction items in determining this taxable income. 2012 income tax form 1040 If you have a hedging loss that is disallowed because of this limit, you can carry it over to the next tax year as a deduction resulting from a hedging transaction. 2012 income tax form 1040   If the hedging transaction relates to property other than stock or securities, the limit on hedging losses applies if the limited partner or entrepreneur is an individual. 2012 income tax form 1040   The limit on hedging losses does not apply to any hedging loss to the extent that it is more than all your unrecognized gains from hedging transactions at the end of the tax year that are from the trade or business in which the hedging transaction occurred. 2012 income tax form 1040 The term “unrecognized gain” has the same meaning as defined under Loss Deferral Rules in Straddles, later. 2012 income tax form 1040 Sale of property used in a hedge. 2012 income tax form 1040   Once you identify personal property as being part of a hedging transaction, you must treat gain from its sale or exchange as ordinary income, not capital gain. 2012 income tax form 1040 Self-Employment Income Gains and losses derived in the ordinary course of a commodity or option dealer's trading in section 1256 contracts and property related to these contracts are included in net earnings from self-employment. 2012 income tax form 1040 See the Instructions for Schedule SE (Form 1040). 2012 income tax form 1040 In addition, the rules relating to contributions to self-employment retirement plans apply. 2012 income tax form 1040 For information on retirement plan contributions, see Publication 560 and Publication 590. 2012 income tax form 1040 Basis of Investment Property Basis is a way of measuring your investment in property for tax purposes. 2012 income tax form 1040 You must know the basis of your property to determine whether you have a gain or loss on its sale or other disposition. 2012 income tax form 1040 Investment property you buy normally has an original basis equal to its cost. 2012 income tax form 1040 If you get property in some way other than buying it, such as by gift or inheritance, its fair market value may be important in figuring the basis. 2012 income tax form 1040 Cost Basis The basis of property you buy is usually its cost. 2012 income tax form 1040 The cost is the amount you pay in cash, debt obligations, or other property or services. 2012 income tax form 1040 Unstated interest. 2012 income tax form 1040   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 the amount considered to be unstated interest. 2012 income tax form 1040 You generally have unstated interest if your interest rate is less than the applicable federal rate. 2012 income tax form 1040 For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. 2012 income tax form 1040 Basis Other Than Cost There are times when you must use a basis other than cost. 2012 income tax form 1040 In these cases, you may need to know the property's fair market value or the adjusted basis of the previous owner. 2012 income tax form 1040 Fair market value. 2012 income tax form 1040   This is the price at which the property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. 2012 income tax form 1040 Sales of similar property, around the same date, may be helpful in figuring fair market value. 2012 income tax form 1040 Property Received for Services If you receive investment property for services, you must include the property's fair market value in income. 2012 income tax form 1040 The amount you include in income then becomes your basis in the property. 2012 income tax form 1040 If the services were performed for a price that was agreed to beforehand, this price will be accepted as the fair market value of the property if there is no evidence to the contrary. 2012 income tax form 1040 Restricted property. 2012 income tax form 1040   If you receive, as payment for services, property that is subject to certain restrictions, your basis in the property generally is its fair market value when it becomes substantially vested. 2012 income tax form 1040 Property becomes substantially vested when it is transferable or is no longer subject to substantial risk of forfeiture, whichever happens first. 2012 income tax form 1040 See Restricted Property in Publication 525 for more information. 2012 income tax form 1040 Bargain purchases. 2012 income tax form 1040   If you buy investment property at less than fair market value, as payment for services, you must include the difference in income. 2012 income tax form 1040 Your basis in the property is the price you pay plus the amount you include in income. 2012 income tax form 1040 Property Received in Taxable Trades If you received investment property in trade for other property, the basis of the new property is its fair market value at the time of the trade unless you received the property in a nontaxable trade. 2012 income tax form 1040 Example. 2012 income tax form 1040 You trade A Company stock for B Company stock having a fair market value of $1,200. 2012 income tax form 1040 If the adjusted basis of the A Company stock is less than $1,200, you have a taxable gain on the trade. 2012 income tax form 1040 If the adjusted basis of the A Company stock is more than $1,200, you have a deductible loss on the trade. 2012 income tax form 1040 The basis of your B Company stock is $1,200. 2012 income tax form 1040 If you later sell the B Company stock for $1,300, you will have a gain of $100. 2012 income tax form 1040 Property Received in Nontaxable Trades If you have a nontaxable trade, you do not recognize gain or loss until you dispose of the property you received in the trade. 2012 income tax form 1040 See Nontaxable Trades , later. 2012 income tax form 1040 The basis of property you received in a nontaxable or partly nontaxable trade is generally the same as the adjusted basis of the property you gave up. 2012 income tax form 1040 Increase this amount by any cash you paid, additional costs you had, and any gain recognized. 2012 income tax form 1040 Reduce this amount by any cash or unlike property you received, any loss recognized, and any liability of yours that was assumed or treated as assumed. 2012 income tax form 1040 Property Received From Your Spouse If property is transferred to you from your spouse (or former spouse, if the transfer is incident to your divorce), your basis is the same as your spouse's or former spouse's adjusted basis just before the transfer. 2012 income tax form 1040 See Transfers Between Spouses , later. 2012 income tax form 1040 Recordkeeping. 2012 income tax form 1040 The transferor must give you the records necessary to determine the adjusted basis and holding period of the property as of the date of the transfer. 2012 income tax form 1040 Property Received as a Gift To figure your basis in property that you received as a gift, you must know its adjusted basis to the donor just before it was given to you, its fair market value at the time it was given to you, the amount of any gift tax paid on it, and the date it was given to you. 2012 income tax form 1040 Fair market value less than donor's adjusted basis. 2012 income tax form 1040   If the fair market value of the property at the time of the gift was less than the donor's adjusted basis just before the gift, your basis for gain on its sale or other disposition is the same as the donor's adjusted basis plus or minus any required adjustments to basis during the period you hold the property. 2012 income tax form 1040 Your basis for loss is its fair market value at the time of the gift plus or minus any required adjustments to basis during the period you hold the property. 2012 income tax form 1040 No gain or loss. 2012 income tax form 1040   If you use the basis for figuring a gain and the result is a loss, and then use the basis for figuring a loss and the result is a gain, you will have neither a gain nor a loss. 2012 income tax form 1040 Example. 2012 income tax form 1040 You receive a gift of investment property having an adjusted basis of $10,000 at the time of the gift. 2012 income tax form 1040 The fair market value at the time of the gift is $9,000. 2012 income tax form 1040 You later sell the property for $9,500. 2012 income tax form 1040 You have neither gain nor loss. 2012 income tax form 1040 Your basis for figuring gain is $10,000, and $9,500 minus $10,000 results in a $500 loss. 2012 income tax form 1040 Your basis for figuring loss is $9,000, and $9,500 minus $9,000 results in a $500 gain. 2012 income tax form 1040 Fair market value equal to or more than donor's adjusted basis. 2012 income tax form 1040   If the fair market value of the property at the time of the gift was equal to or more than the donor's adjusted basis just before the gift, your basis for gain or loss on its sale or other disposition is the donor's adjusted basis plus or minus any required adjustments to basis during the period you hold the property. 2012 income tax form 1040 Also, you may be allowed to add to the donor's adjusted basis all or part of any gift tax paid, depending on the date of the gift. 2012 income tax form 1040 Gift received before 1977. 2012 income tax form 1040   If you received property as a gift before 1977, your basis in the property is the donor's adjusted basis increased by the total gift tax paid on the gift. 2012 income tax form 1040 However, your basis cannot be more than the fair market value of the gift at the time it was given to you. 2012 income tax form 1040 Example 1. 2012 income tax form 1040 You were given XYZ Company stock in 1976. 2012 income tax form 1040 At the time of the gift, the stock had a fair market value of $21,000. 2012 income tax form 1040 The donor's adjusted basis was $20,000. 2012 income tax form 1040 The donor paid a gift tax of $500 on the gift. 2012 income tax form 1040 Your basis for gain or loss is $20,500, the donor's adjusted basis plus the amount of gift tax paid. 2012 income tax form 1040 Example 2. 2012 income tax form 1040 The facts are the same as in Example 1 except that the gift tax paid was $1,500. 2012 income tax form 1040 Your basis is $21,000, the donor's adjusted basis plus the gift tax paid, but limited to the fair market value of the stock at the time of the gift. 2012 income tax form 1040 Gift received after 1976. 2012 income tax form 1040   If you received property as a gift after 1976, your basis is the donor's adjusted basis increased by the part of the gift tax paid that was for the net increase in value of the gift. 2012 income tax form 1040 You figure this part by multiplying the gift tax paid on the gift by a fraction. 2012 income tax form 1040 The numerator (top part) is the net increase in value of the gift and the denominator (bottom part) is the amount of the gift. 2012 income tax form 1040   The net increase in value of the gift is the fair market value of the gift minus the donor's adjusted basis. 2012 income tax form 1040 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. 2012 income tax form 1040 Example. 2012 income tax form 1040 In 2013, you received a gift of property from your mother. 2012 income tax form 1040 At the time of the gift, the property had a fair market value of $101,000 and an adjusted basis to her of $40,000. 2012 income tax form 1040 The amount of the gift for gift tax purposes was $87,000 ($101,000 minus the $14,000 annual exclusion), and your mother paid a gift tax of $21,000. 2012 income tax form 1040 You figure your basis in the following way: Fair market value $101,000 Minus: Adjusted basis 40,000 Net increase in value of gift $61,000 Gift tax paid $21,000 Multiplied by . 2012 income tax form 1040 701 ($61,000 ÷ $87,000) . 2012 income tax form 1040 701 Gift tax due to net increase in value $14,721 Plus: Adjusted basis of property to  your mother 40,000 Your basis in the property $54,721 Part sale, part gift. 2012 income tax form 1040   If you get property in a transfer that is partly a sale and partly a gift, your basis is the larger of the amount you paid for the property or the transferor's adjusted basis in the property at the time of the transfer. 2012 income tax form 1040 Add to that amount the amount of any gift tax paid on the gift, as described in the preceding discussion. 2012 income tax form 1040 For figuring loss, your basis is limited to the property's fair market value at the time of the transfer. 2012 income tax form 1040 Gift tax information. 2012 income tax form 1040   For information on gift tax, see Publication 950, Introduction to Estate and Gift Taxes. 2012 income tax form 1040 For information on figuring the amount of gift tax to add to your basis, see Property Received as a Gift in Publication 551. 2012 income tax form 1040 Property Received as Inheritance Before or after 2010. 2012 income tax form 1040   If you inherited property from a decedent who died before or after 2010, or who died in 2010 and the executor of the decedent's estate elected not to file Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, your basis in that property generally is its fair market value (its appraised value on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return) on: The date of the decedent's death, or The later alternate valuation date if the estate qualifies for, and elects to use, alternate valuation. 2012 income tax form 1040 If no Form 706 was filed, use the appraised value on the date of death for state inheritance or transmission taxes. 2012 income tax form 1040 For stocks and bonds, if no Form 706 was filed and there are no state inheritance or transmission taxes, see the Form 706 instructions for figuring the fair market value of the stocks and bonds on the date of the decedent's death. 2012 income tax form 1040 Appreciated property you gave the decedent. 2012 income tax form 1040   Your basis in certain appreciated property that you inherited is the decedent's adjusted basis in the property immediately before death rather than its fair market value. 2012 income tax form 1040 This applies to appreciated property that you or your spouse gave the decedent as a gift during the 1-year period ending on the date of death. 2012 income tax form 1040 Appreciated property is any property whose fair market value on the day you gave it to the decedent was more than its adjusted basis. 2012 income tax form 1040 More information. 2012 income tax form 1040   See Publication 551 for more information on the basis of inherited property, including community property, property held by a surviving tenant in a joint tenancy or tenancy by the entirety, a qualified joint interest, and a farm or closely held business. 2012 income tax form 1040 Inherited in 2010 and executor elected to file Form 8939. 2012 income tax form 1040   If you inherited property from a decedent who died in 2010 and the executor made the election to file Form 8939, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, to figure your basis. 2012 income tax form 1040 Adjusted Basis Before you can figure any gain or loss on a sale, exchange, or other disposition of property or figure allowable depreciation, depletion, or amortization, you usually must make certain adjustments (increases and decreases) to the basis of the property. 2012 income tax form 1040 The result of these adjustments to the basis is the adjusted basis. 2012 income tax form 1040 Adjustments to the basis of stocks and bonds are explained in the following discussion. 2012 income tax form 1040 For information about other adjustments to basis, see Publication 551. 2012 income tax form 1040 Stocks and Bonds The basis of stocks or bonds you own generally is the purchase price plus the costs of purchase, such as commissions and recording or transfer fees. 2012 income tax form 1040 If you acquired stock or bonds other than by purchase, your basis is usually determined by fair market value or the previous owner's adjusted basis as discussed earlier under Basis Other Than Cost . 2012 income tax form 1040 The basis of stock must be adjusted for certain events that occur after purchase. 2012 income tax form 1040 For example, if you receive more stock from nontaxable stock dividends or stock splits, you must reduce the basis of your original stock. 2012 income tax form 1040 You must also reduce your basis when you receive nondividend distributions (discussed in chapter 1). 2012 income tax form 1040 These distributions, up to the amount of your basis, are a nontaxable return of capital. 2012 income tax form 1040 The IRS partners with companies that offer Form 8949 and Schedule D (Form 1040) software that can import trades from many brokerage firms and accounting software to help you keep track of your adjusted basis in securities. 2012 income tax form 1040 To find out more, go to www. 2012 income tax form 1040 irs. 2012 income tax form 1040 gov/Filing/Filing-Options. 2012 income tax form 1040 Identifying stock or bonds sold. 2012 income tax form 1040   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 stock or bonds. 2012 income tax form 1040 Adequate identification. 2012 income tax form 1040   You will make an adequate identification if you show that certificates representing shares of stock from a lot that you bought on a certain date or for a certain price were delivered to your broker or other agent. 2012 income tax form 1040 Broker holds stock. 2012 income tax form 1040   If you have left the stock certificates with your broker or other agent, you will make an adequate identification if you: Tell your broker or other agent the particular stock to be sold or transferred at the time of the sale or transfer, and Receive a written confirmation of this from your broker or other agent within a reasonable time. 2012 income tax form 1040  Stock identified this way is the stock sold or transferred even if stock certificates from a different lot are delivered to the broker or other agent. 2012 income tax form 1040 Single stock certificate. 2012 income tax form 1040   If you bought stock in different lots at different times and you hold a single stock certificate for this stock, you will make an adequate identification if you: Tell your broker or other agent the particular stock to be sold or transferred when you deliver the certificate to your broker or other agent, and Receive a written confirmation of this from your broker or other agent within a reasonable time. 2012 income tax form 1040   If you sell part of the stock represented by a single certificate directly to the buyer instead of through a broker, you will make an adequate identification if you keep a written record of the particular stock that you intend to sell. 2012 income tax form 1040 Bonds. 2012 income tax form 1040   These methods of identification also apply to bonds sold or transferred. 2012 income tax form 1040 Identification not possible. 2012 income tax form 1040   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. 2012 income tax form 1040 Except for certain mutual fund shares, discussed later, you cannot use the average price per share to figure gain or loss on the sale of the shares. 2012 income tax form 1040 Example. 2012 income tax form 1040 You bought 100 shares of stock of XYZ Corporation in 1998 for $10 a share. 2012 income tax form 1040 In January 1999 you bought another 200 shares for $11 a share. 2012 income tax form 1040 In July 1999 you gave your son 50 shares. 2012 income tax form 1040 In December 2001 you bought 100 shares for $9 a share. 2012 income tax form 1040 In April 2013 you sold 130 shares. 2012 income tax form 1040 You cannot identify the shares you disposed of, so you must use the stock you acquired first to figure the basis. 2012 income tax form 1040 The shares of stock you gave your son had a basis of $500 (50 × $10). 2012 income tax form 1040 You figure the basis of the 130 shares of stock you sold in 2013 as follows: 50 shares (50 × $10) balance of stock bought in 1998 $ 500 80 shares (80 × $11) stock bought in January 1999 880 Total basis of stock sold in 2013 $1,380 Shares in a mutual fund or REIT. 2012 income tax form 1040    The basis of shares in a mutual fund (or other regulated investment company) or a real estate investment trust (REIT) is generally figured in the same way as the basis of other stock and usually includes any commissions or load charges paid for the purchase. 2012 income tax form 1040 Example. 2012 income tax form 1040 You bought 100 shares of Fund A for $10 a share. 2012 income tax form 1040 You paid a $50 commission to the broker for the purchase. 2012 income tax form 1040 Your cost basis for each share is $10. 2012 income tax form 1040 50 ($1,050 ÷ 100). 2012 income tax form 1040 Commissions and load charges. 2012 income tax form 1040   The fees and charges you pay to acquire or redeem shares of a mutual fund are not deductible. 2012 income tax form 1040 You can usually add acquisition fees and charges to your cost of the shares and thereby increase your basis. 2012 income tax form 1040 A fee paid to redeem the shares is usually a reduction in the redemption price (sales price). 2012 income tax form 1040   You cannot add your entire acquisition fee or load charge to the cost of the mutual fund shares acquired if all of the following conditions apply. 2012 income tax form 1040 You get a reinvestment right because of the purchase of the shares or the payment of the fee or charge. 2012 income tax form 1040 You dispose of the shares within 90 days of the purchase date. 2012 income tax form 1040 You acquire new shares in the same mutual fund or another mutual fund, for which the fee or charge is reduced or waived because of the reinvestment right you got when you acquired the original shares. 2012 income tax form 1040   The amount of the original fee or charge in excess of the reduction in (3) is added to the cost of the original shares. 2012 income tax form 1040 The rest of the original fee or charge is added to the cost basis of the new shares (unless all three conditions above also apply to the purchase of the new shares). 2012 income tax form 1040 Choosing average basis for mutual fund shares. 2012 income tax form 1040   You can choose to use the average basis of mutual fund shares if you acquired the identical shares at various times and prices, or you acquired the shares after 2010 in connection with a dividend reinvestment plan, and left them on deposit in an account kept by a custodian or agent. 2012 income tax form 1040 The methods you can use to figure average basis are explained later. 2012 income tax form 1040 Undistributed capital gains. 2012 income tax form 1040   If you had to include in your income any undistributed capital gains of the mutual fund or REIT, increase your basis in the stock by the difference between the amount you included and the amount of tax paid for you by the fund or REIT. 2012 income tax form 1040 See Undistributed capital gains of mutual funds and REITs under Capital Gain Distributions in chapter 1. 2012 income tax form 1040 Reinvestment right. 2012 income tax form 1040   This is the right to acquire mutual fund shares in the same or another mutual fund without paying a fee or load charge, or by paying a reduced fee or load charge. 2012 income tax form 1040      The original cost basis of mutual fund shares you acquire by reinvesting your distributions is the amount of the distributions used to purchase each full or fractional share. 2012 income tax form 1040 This rule applies even if the distribution is an exempt-interest dividend that you do not report as income. 2012 income tax form 1040 Table 4-1. 2012 income tax form 1040 This is a worksheet you can use to keep track of the adjusted basis of your mutual fund shares. 2012 income tax form 1040 Enter the cost per share when you acquire new shares and any adjustments to their basis when the adjustment occurs. 2012 income tax form 1040 This worksheet will help you figure the adjusted basis when you sell or redeem shares. 2012 income tax form 1040 Table 4-1. 2012 income tax form 1040 Mutual Fund Record Mutual Fund Acquired1 Adjustment to Basis Per Share Adjusted2 Basis Per Share Sold or redeemed Date Number of Shares Cost Per Share Date Number of Shares                                                                                                                                                                                                                                                                         1 Include share received from reinvestment of distributions. 2012 income tax form 1040 2 Cost plus or minus adjustments. 2012 income tax form 1040 Automatic investment service. 2012 income tax form 1040   If you participate in an automatic investment service, your basis for each share of stock, including fractional shares, bought by the bank or other agent is the purchase price plus a share of the broker's commission. 2012 income tax form 1040 Dividend reinvestment plans. 2012 income tax form 1040   If you participate in a dividend reinvestment plan and receive stock from the corporation at a discount, your basis is the full fair market value of the stock on the dividend payment date. 2012 income tax form 1040 You must include the amount of the discount in your income. 2012 income tax form 1040 Public utilities. 2012 income tax form 1040   If, before 1986, you excluded from income the value of stock you had received under a qualified public utility reinvestment plan, your basis in that stock is zero. 2012 income tax form 1040 Stock dividends. 2012 income tax form 1040   Stock dividends are distributions made by a corporation of its own stock. 2012 income tax form 1040 Generally, stock dividends are not taxable to you. 2012 income tax form 1040 However, see Distributions of Stock and Stock Rights under Dividends and Other Distributions in chapter 1 for some exceptions. 2012 income tax form 1040 If the stock dividends are not taxable, you must divide your basis for the old stock between the old and new stock. 2012 income tax form 1040 New and old stock identical. 2012 income tax form 1040   If the new stock you received as a nontaxable dividend is identical to the old stock on which the dividend was declared, divide the adjusted basis of the old stock by the number of shares of old and new stock. 2012 income tax form 1040 The result is your basis for each share of stock. 2012 income tax form 1040 Example 1. 2012 income tax form 1040 You owned one share of common stock that you bought for $45. 2012 income tax form 1040 The corporation distributed two new shares of common stock for each share held. 2012 income tax form 1040 You then had three shares of common stock. 2012 income tax form 1040 Your basis in each share is $15 ($45 ÷ 3). 2012 income tax form 1040 Example 2. 2012 income tax form 1040 You owned two shares of common stock. 2012 income tax form 1040 You bought one for $30 and the other for $45. 2012 income tax form 1040 The corporation distributed two new shares of common stock for each share held. 2012 income tax form 1040 You had six shares after the distribution—three with a basis of $10 each ($30 ÷ 3) and three with a basis of $15 each ($45 ÷ 3). 2012 income tax form 1040 New and old stock not identical. 2012 income tax form 1040   If the new stock you received as a nontaxable dividend is not identical to the old stock on which it was declared, the basis of the new stock is calculated differently. 2012 income tax form 1040 Divide the adjusted basis of the old stock between the old and the new stock in the ratio of the fair market value of each lot of stock to the total fair market value of both lots on the date of distribution of the new stock. 2012 income tax form 1040 Example. 2012 income tax form 1040 You bought a share of common stock for $100. 2012 income tax form 1040 Later, the corporation distributed a share of preferred stock for each share of common stock held. 2012 income tax form 1040 At the date of distribution, your common stock had a fair market value of $150 and the preferred stock had a fair market value of $50. 2012 income tax form 1040 You figure the basis of the old and new stock by dividing your $100 basis between them. 2012 income tax form 1040 The basis of your common stock is $75 (($150 ÷ $200) × $100), and the basis of the new preferred stock is $25 (($50 ÷ $200) × $100). 2012 income tax form 1040 Stock bought at various times. 2012 income tax form 1040   Figure the basis of stock dividends received on stock you bought at various times and at different prices by allocating to each lot of stock the share of the stock dividends due to it. 2012 income tax form 1040 Taxable stock dividends. 2012 income tax form 1040   If your stock dividend is taxable when you receive it, the basis of your new stock is its fair market value on the date of distribution. 2012 income tax form 1040 The basis of your old stock does not change. 2012 income tax form 1040 Stock splits. 2012 income tax form 1040   Figure the basis of stock splits in the same way as stock dividends if identical stock is distributed on the stock held. 2012 income tax form 1040 Stock rights. 2012 income tax form 1040   A stock right is a right to acquire a corporation's stock. 2012 income tax form 1040 It may be exercised, it may be sold if it has a market value, or it may expire. 2012 income tax form 1040 Stock rights are rarely taxable when you receive them. 2012 income tax form 1040 See Distributions of Stock and Stock Rights under Dividends and Other Distributions in chapter 1. 2012 income tax form 1040 Taxable stock rights. 2012 income tax form 1040   If you receive stock rights that are taxable, the basis of the rights is their fair market value at the time of distribution. 2012 income tax form 1040 The basis of the old stock does not change. 2012 income tax form 1040 Nontaxable stock rights. 2012 income tax form 1040   If you receive nontaxable stock rights and allow them to expire, they have no basis. 2012 income tax form 1040   If you exercise or sell the nontaxable stock rights and if, at the time of distribution, the stock rights had a fair market value of 15% or more of the fair market value of the old stock, you must divide the adjusted basis of the old stock between the old stock and the stock rights. 2012 income tax form 1040 Use a ratio of the fair market value of each to the total fair market value of both at the time of distribution. 2012 income tax form 1040   If the fair market value of the stock rights was less than 15%, their basis is zero. 2012 income tax form 1040 However, you can choose to divide the basis of the old stock between the old stock and the stock rights. 2012 income tax form 1040 To make the choice, attach a statement to your return for the year in which you received the rights, stating that you choose to divide the basis of the stock. 2012 income tax form 1040 Basis of new stock. 2012 income tax form 1040   If you exercise the stock rights, the basis of the new stock is its cost plus the basis of the stock rights exercised. 2012 income tax form 1040 Example. 2012 income tax form 1040 You own 100 shares of ABC Company stock, which cost you $22 per share. 2012 income tax form 1040 The ABC Company gave you 10 nontaxable stock rights that would allow you to buy 10 more shares at $26 per share. 2012 income tax form 1040 At the time the stock rights were distributed, the stock had a market value of $30, not including the stock rights. 2012 income tax form 1040 Each stock right had a market value of $3. 2012 income tax form 1040 The market value of the stock rights was less than 15% of the market value of the stock, but you chose to divide the basis of your stock between the stock and the rights. 2012 income tax form 1040 You figure the basis of the rights and the basis of the old stock as follows: 100 shares × $22 = $2,200, basis of old stock   100 shares × $30 = $3,000, market value of old stock   10 rights × $3 = $30, market value of rights   ($3,000 ÷ $3,030) × $2,200 = $2,178. 2012 income tax form 1040 22, new basis of old stock   ($30 ÷ $3,030) × $2,200 = $21. 2012 income tax form 1040 78, basis of rights   If you sell the rights, the basis for figuring gain or loss is $2. 2012 income tax form 1040 18 ($21. 2012 income tax form 1040 78 ÷ 10) per right. 2012 income tax form 1040 If you exercise the rights, the basis of the stock you acquire is the price you pay ($26) plus the basis of the right exercised ($2. 2012 income tax form 1040 18), or $28. 2012 income tax form 1040 18 per share. 2012 income tax form 1040 The remaining basis of the old stock is $21. 2012 income tax form 1040 78 per share. 2012 income tax form 1040 Investment property received in liquidation. 2012 income tax form 1040   In general, if you receive investment property as a distribution in partial or complete liquidation of a corporation and if you recognize gain or loss when you acquire the property, your basis in the property is its fair market value at the time of the distribution. 2012 income tax form 1040 S corporation stock. 2012 income tax form 1040   You must increase your basis in stock of an S corporation by your pro rata share of the following items. 2012 income tax form 1040 All income items of the S corporation, including tax-exempt income, that are separately stated and passed through to you as a shareholder. 2012 income tax form 1040 The nonseparately stated income of the S corporation. 2012 income tax form 1040 The amount of the deduction for depletion (other than oil and gas depletion) that is more than the basis of the property being depleted. 2012 income tax form 1040   You must decrease your basis in stock of an S corporation by your pro rata share of the following items. 2012 income tax form 1040 Distributions by the S corporation that were not included in your income. 2012 income tax form 1040 All loss and deduction items of the S corporation that are separately stated and passed through to you. 2012 income tax form 1040 Any nonseparately stated loss of the S corporation. 2012 income tax form 1040 Any expense of the S corporation that is not deductible in figuring its taxable income and not properly chargeable to a capital account. 2012 income tax form 1040 The amount of your deduction for depletion of oil and gas wells to the extent the deduction is not more than your share of the adjusted basis of the wells. 2012 income tax form 1040 However, your basis in the stock cannot be reduced below zero. 2012 income tax form 1040 Specialized small business investment company stock or partnership interest. 2012 income tax form 1040   If you bought this stock or interest as replacement property for publicly traded securities you sold at a gain, you must reduce the basis of the stock or interest by the amount of any postponed gain on that sale. 2012 income tax form 1040 See Rollover of Gain From Publicly Traded Securities , later. 2012 income tax form 1040 Qualified small business stock. 2012 income tax form 1040   If you bought this stock as replacement property for other qualified small business stock you sold at a gain, you must reduce the basis of this replacement stock by the amount of any postponed gain on the earlier sale. 2012 income tax form 1040 See Gains on Qualified Small Business Stock , later. 2012 income tax form 1040 Short sales. 2012 income tax form 1040   If you cannot deduct payments you make to a lender in lieu of dividends on stock used in a short sale, the amount you pay to the lender is a capital expense, and you must add it to the basis of the stock used to close the short sale. 2012 income tax form 1040   See Payments in lieu of dividends , later, for information about deducting payments in lieu of dividends. 2012 income tax form 1040 Premiums on bonds. 2012 income tax form 1040   If you buy a bond at a premium, the premium is treated as part of your basis in the bond. 2012 income tax form 1040 If you choose to amortize the premium paid on a taxable bond, you must reduce the basis of the bond by the amortized part of the premium each year over the life of the bond. 2012 income tax form 1040   Although you cannot deduct the premium on a tax-exempt bond, you must amortize it to determine your adjusted basis in the bond. 2012 income tax form 1040 You must reduce the basis of the bond by the premium you amortized for the period you held the bond. 2012 income tax form 1040   See Bond Premium Amortization in chapter 3 for more information. 2012 income tax form 1040 Market discount on bonds. 2012 income tax form 1040   If you include market discount on a bond in income currently, increase the basis of your bond by the amount of market discount you include in your income. 2012 income tax form 1040 See Market Discount Bonds in chapter 1 for more information. 2012 income tax form 1040 Bonds purchased at par value. 2012 income tax form 1040   A bond purchased at par value (face amount) has no premium or discount. 2012 income tax form 1040 When you sell or otherwise dispose of the bond, you figure the gain or loss by comparing the bond proceeds to the purchase price of the bond. 2012 income tax form 1040 Example. 2012 income tax form 1040 You purchased a bond several years ago for its par value of $10,000. 2012 income tax form 1040 You sold the bond this year for $10,100. 2012 income tax form 1040 You have a gain of $100. 2012 income tax form 1040 However, if you had sold the bond for $9,900, you would have a loss of $100. 2012 income tax form 1040 Acquisition discount on short-term obligations. 2012 income tax form 1040   If you include acquisition discount on a short-term obligation in your income currently, increase the basis of the obligation by the amount of acquisition discount you include in your income. 2012 income tax form 1040 See Discount on Short-Term Obligations in chapter 1 for more information. 2012 income tax form 1040 Original issue discount (OID) on debt instruments. 2012 income tax form 1040   Increase the basis of a debt instrument by the OID you include in your income. 2012 income tax form 1040 See Original Issue Discount (OID) in chapter 1. 2012 income tax form 1040 Discounted tax-exempt obligations. 2012 income tax form 1040   OID on tax-exempt obligations is generally not taxable. 2012 income tax form 1040 However, when you dispose of a tax-exempt obligation issued after September 3, 1982, that you acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. 2012 income tax form 1040 The accrued OID is added to the basis of the obligation to determine your gain or loss. 2012 income tax form 1040   For information on determining OID on a long-term obligation, see Debt Instruments Issued After July 1, 1982, and Before 1985 or Debt Instruments Issued After 1984, whichever applies, in Publication 1212 under Figuring OID on Long-Term Debt Instruments. 2012 income tax form 1040   If the tax-exempt obligation has a maturity of 1 year or less, accrue OID under the rules for acquisition discount on short-term obligations. 2012 income tax form 1040 See Discount on Short-Term Obligations in chapter 1. 2012 income tax form 1040 Stripped tax-exempt obligation. 2012 income tax form 1040   If you acquired a stripped tax-exempt bond or coupon after October 22, 1986, you must accrue OID on it to determine its adjusted basis when you dispose of it. 2012 income tax form 1040 For stripped tax-exempt bonds or coupons acquired after June 10, 1987, part of this OID may be taxable. 2012 income tax form 1040 You accrue the OID on these obligations in the manner described in chapter 1 under Stripped Bonds and Coupons . 2012 income tax form 1040   Increase your basis in the stripped tax-exempt bond or coupon by the taxable and nontaxable accrued OID. 2012 income tax form 1040 Also increase your basis by the interest that accrued (but was not paid and was not previously reflected in your basis) before the date you sold the bond or coupon. 2012 income tax form 1040 In addition, for bonds acquired after June 10, 1987, add to your basis any accrued market discount not previously reflected in basis. 2012 income tax form 1040 How To Figure Gain or Loss You figure gain or loss on a sale or trade of property by comparing the amount you realize with the adjusted basis of the property. 2012 income tax form 1040 Gain. 2012 income tax form 1040   If the amount you realize from a sale or trade is more than the adjusted basis of the property you transfer, the difference is a gain. 2012 income tax form 1040 Loss. 2012 income tax form 1040   If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss. 2012 income tax form 1040 Amount realized. 2012 income tax form 1040   The amount you realize from a sale or trade of property is everything you receive for the property minus your expenses of sale (such as redemption fees, sales commissions, sales charges, or exit fees). 2012 income tax form 1040 Amount realized includes the money you receive plus the fair market value of any property or services you receive. 2012 income tax form 1040   If you finance the buyer's purchase of your property and the debt instrument does not provide for adequate stated interest, the unstated interest that you must report as ordinary income will reduce the amount realized from the sale. 2012 income tax form 1040 For more information, see Publication 537. 2012 income tax form 1040   If a buyer of property issues a debt instrument to the seller of the property, the amount realized is determined by reference to the issue price of the debt instrument, which may or may not be the fair market value of the debt instrument. 2012 income tax form 1040 See Regulations section 1. 2012 income tax form 1040 1001-1(g). 2012 income tax form 1040 However, if the debt instrument was previously issued by a third party (one not part of the sale transaction), the fair market value of the debt instrument is used to determine the amount realized. 2012 income tax form 1040 Fair market value. 2012 income tax form 1040   Fair market value is the price at which property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. 2012 income tax form 1040 Example. 2012 income tax form 1040 You trade A Company stock with an adjusted basis of $7,000 for B Company stock with a fair market value of $10,000, which is your amount realized. 2012 income tax form 1040 Your gain is $3,000 ($10,000 – $7,000). 2012 income tax form 1040 If you also receive a note for $6,000 that has an issue price of $6,000, your gain is $9,000 ($10,000 + $6,000 – $7,000). 2012 income tax form 1040 Debt paid off. 2012 income tax form 1040   A debt against the property, or against you, that is paid off as a part of the transaction or that is assumed by the buyer must be included in the amount realized. 2012 income tax form 1040 This is true even if neither you nor the buyer is personally liable for the debt. 2012 income tax form 1040 For example, if you sell or trade property that is subject to a nonrecourse loan, the amount you realize generally includes the full amount of the note assumed by the buyer even if the amount of the note is more than the fair market value of the property. 2012 income tax form 1040 Example. 2012 income tax form 1040 You sell stock that you had pledged as security for a bank loan of $8,000. 2012 income tax form 1040 Your basis in the stock is $6,000. 2012 income tax form 1040 The buyer pays off your bank loan and pays you $20,000 in cash. 2012 income tax form 1040 The amount realized is $28,000 ($20,000 + $8,000). 2012 income tax form 1040 Your gain is $22,000 ($28,000 – $6,000). 2012 income tax form 1040 Payment of cash. 2012 income tax form 1040   If you trade property and cash for other property, the amount you realize is the fair market value of the property you receive. 2012 income tax form 1040 Determine your gain or loss by subtracting the cash you pay and the adjusted basis of the property you trade in from the amount you realize. 2012 income tax form 1040 If the result is a positive number, it is a gain. 2012 income tax form 1040 If the result is a negative number, it is a loss. 2012 income tax form 1040 No gain or loss. 2012 income tax form 1040   You may have to use a basis for figuring gain that is different from the basis used for figuring loss. 2012 income tax form 1040 In this case, you may have neither a gain nor a loss. 2012 income tax form 1040 See No gain or loss in the discussion on the basis of property you received as a gift under Basis Other Than Cost, earlier. 2012 income tax form 1040 Special Rules for Mutual Funds To figure your gain or loss when you dispose of mutual fund shares, you need to determine which shares were sold and the basis of those shares. 2012 income tax form 1040 If your shares in a mutual fund were acquired all on the same day and for the same price, figuring their basis is not difficu
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The 2012 Income Tax Form 1040

2012 income tax form 1040 21. 2012 income tax form 1040   Medical and Dental Expenses Table of Contents What's New Introduction Useful Items - You may want to see: What Are Medical Expenses? What Expenses Can You Include This Year?Community property states. 2012 income tax form 1040 How Much of the Expenses Can You Deduct? Whose Medical Expenses Can You Include?Yourself Spouse Dependent Decedent What Medical Expenses Are Includible?Insurance Premiums Meals and Lodging Transportation Disabled Dependent Care Expenses How Do You Treat Reimbursements?Insurance Reimbursement Damages for Personal Injuries How Do You Figure and Report the Deduction on Your Tax Return?What Tax Form Do You Use? Impairment-Related Work Expenses Health Insurance Costs for Self-Employed Persons What's New Medical and dental expenses. 2012 income tax form 1040  Beginning January 1, 2013, you can deduct only the part of your medical and dental expenses that exceed 10% of your adjusted gross income (AGI) (7. 2012 income tax form 1040 5% if either you or your spouse is age 65 or older). 2012 income tax form 1040 Standard mileage rate. 2012 income tax form 1040  The standard mileage rate allowed for operating expenses for a car when you use it for medical reasons is 24 cents per mile. 2012 income tax form 1040 See Transportation under What Medical Expenses Are Includible. 2012 income tax form 1040 Introduction This chapter will help you determine the following. 2012 income tax form 1040 What medical expenses are. 2012 income tax form 1040 What expenses you can include this year. 2012 income tax form 1040 How much of the expenses you can deduct. 2012 income tax form 1040 Whose medical expenses you can include. 2012 income tax form 1040 What medical expenses are includible. 2012 income tax form 1040 How to treat reimbursements. 2012 income tax form 1040 How to report the deduction on your tax return. 2012 income tax form 1040 How to report impairment-related work expenses. 2012 income tax form 1040 How to report health insurance costs if you are self-employed. 2012 income tax form 1040 Useful Items - You may want to see: Publications 502 Medical and Dental Expenses 969 Health Savings Accounts and Other Tax-Favored Health Plans Form (and Instructions) Schedule A (Form 1040) Itemized Deductions What Are Medical Expenses? Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. 2012 income tax form 1040 These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. 2012 income tax form 1040 They include the costs of equipment, supplies, and diagnostic devices needed for these purposes. 2012 income tax form 1040 Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. 2012 income tax form 1040 They do not include expenses that are merely beneficial to general health, such as vitamins or a vacation. 2012 income tax form 1040 Medical expenses include the premiums you pay for insurance that covers the expenses of medical care, and the amounts you pay for transportation to get medical care. 2012 income tax form 1040 Medical expenses also include amounts paid for qualified long-term care services and limited amounts paid for any qualified long-term care insurance contract. 2012 income tax form 1040 What Expenses Can You Include This Year? You can include only the medical and dental expenses you paid this year, regardless of when the services were provided. 2012 income tax form 1040 If you pay medical expenses by check, the day you mail or deliver the check generally is the date of payment. 2012 income tax form 1040 If you use a “pay-by-phone” or “online” account to pay your medical expenses, the date reported on the statement of the financial institution showing when payment was made is the date of payment. 2012 income tax form 1040 If you use a credit card, include medical expenses you charge to your credit card in the year the charge is made, not when you actually pay the amount charged. 2012 income tax form 1040 Separate returns. 2012 income tax form 1040   If you and your spouse live in a noncommunity property state and file separate returns, each of you can include only the medical expenses each actually paid. 2012 income tax form 1040 Any medical expenses paid out of a joint checking account in which you and your spouse have the same interest are considered to have been paid equally by each of you, unless you can show otherwise. 2012 income tax form 1040 Community property states. 2012 income tax form 1040   If you and your spouse live in a community property state and file separate returns, or are registered domestic partners in Nevada, Washington, or California, any medical expenses paid out of community funds are divided equally. 2012 income tax form 1040 Each of you should include half the expenses. 2012 income tax form 1040 If medical expenses are paid out of the separate funds of one individual, only the individual who paid the medical expenses can include them. 2012 income tax form 1040 If you live in a community property state, and are not filing a joint return, see Publication 555, Community Property. 2012 income tax form 1040 How Much of the Expenses Can You Deduct? Generally, you can deduct on Schedule A (Form 1040) only the amount of your medical and dental expenses that is more than 10% of your AGI (7. 2012 income tax form 1040 5% of your AGI if either you or your spouse is age 65 or older)(Form 1040, line 38). 2012 income tax form 1040 Example. 2012 income tax form 1040 You are unmarried and under age 65 and your AGI is $40,000, 10% of which is $4,000. 2012 income tax form 1040 You paid medical expenses of $2,500. 2012 income tax form 1040 You cannot deduct any of your medical expenses because they are not more than 10% of your AGI. 2012 income tax form 1040 Whose Medical Expenses Can You Include? You can generally include medical expenses you pay for yourself, as well as those you pay for someone who was your spouse or your dependent either when the services were provided or when you paid for them. 2012 income tax form 1040 There are different rules for decedents and for individuals who are the subject of multiple support agreements. 2012 income tax form 1040 See Support claimed under a multiple support agreement , later. 2012 income tax form 1040 Yourself You can include medical expenses you paid for yourself. 2012 income tax form 1040 Spouse You can include medical expenses you paid for your spouse. 2012 income tax form 1040 To include these expenses, you must have been married either at the time your spouse received the medical services or at the time you paid the medical expenses. 2012 income tax form 1040 Example 1. 2012 income tax form 1040 Mary received medical treatment before she married Bill. 2012 income tax form 1040 Bill paid for the treatment after they married. 2012 income tax form 1040 Bill can include these expenses in figuring his medical expense deduction even if Bill and Mary file separate returns. 2012 income tax form 1040 If Mary had paid the expenses, Bill could not include Mary's expenses in his separate return. 2012 income tax form 1040 Mary would include the amounts she paid during the year in her separate return. 2012 income tax form 1040 If they filed a joint return, the medical expenses both paid during the year would be used to figure their medical expense deduction. 2012 income tax form 1040 Example 2. 2012 income tax form 1040 This year, John paid medical expenses for his wife Louise, who died last year. 2012 income tax form 1040 John married Belle this year and they file a joint return. 2012 income tax form 1040 Because John was married to Louise when she received the medical services, he can include those expenses in figuring his medical expense deduction for this year. 2012 income tax form 1040 Dependent You can include medical expenses you paid for your dependent. 2012 income tax form 1040 For you to include these expenses, the person must have been your dependent either at the time the medical services were provided or at the time you paid the expenses. 2012 income tax form 1040 A person generally qualifies as your dependent for purposes of the medical expense deduction if both of the following requirements are met. 2012 income tax form 1040 The person was a qualifying child (defined later) or a qualifying relative (defined later), and The person was a U. 2012 income tax form 1040 S. 2012 income tax form 1040 citizen or national, or a resident of the United States, Canada, or Mexico. 2012 income tax form 1040 If your qualifying child was adopted, see Exception for adopted child , next. 2012 income tax form 1040 You can include medical expenses you paid for an individual that would have been your dependent except that: He or she received gross income of $3,900 or more in 2013, He or she filed a joint return for 2013, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. 2012 income tax form 1040 Exception for adopted child. 2012 income tax form 1040   If you are a U. 2012 income tax form 1040 S. 2012 income tax form 1040 citizen or U. 2012 income tax form 1040 S. 2012 income tax form 1040 national and your adopted child lived with you as a member of your household for 2013, that child does not have to be a U. 2012 income tax form 1040 S. 2012 income tax form 1040 citizen or national or a resident of the United States, Canada, or Mexico. 2012 income tax form 1040 Qualifying Child A qualifying child is a child who: Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew), Was: Under age 19 at the end of 2013 and younger than you (or your spouse, if filing jointly), Under age 24 at the end of 2013, a full-time student, and younger than you (or your spouse, if filing jointly), or Any age and permanently and totally disabled, Lived with you for more than half of 2013, Did not provide over half of his or her own support for 2013, and Did not file a joint return, or, if he or she did, it was only to claim a refund. 2012 income tax form 1040 Adopted child. 2012 income tax form 1040   A legally adopted child is treated as your own child. 2012 income tax form 1040 This includes a child lawfully placed with you for legal adoption. 2012 income tax form 1040   You can include medical expenses that you paid for a child before adoption if the child qualified as your dependent when the medical services were provided or when the expenses were paid. 2012 income tax form 1040   If you pay back an adoption agency or other persons for medical expenses they paid under an agreement with you, you are treated as having paid those expenses provided you clearly substantiate that the payment is directly attributable to the medical care of the child. 2012 income tax form 1040   But if you pay the agency or other person for medical care that was provided and paid for before adoption negotiations began, you cannot include them as medical expenses. 2012 income tax form 1040    You may be able to take an adoption credit for other expenses related to an adoption. 2012 income tax form 1040 See the Instructions for Form 8839, Qualified Adoption Expenses, for more information. 2012 income tax form 1040 Child of divorced or separated parents. 2012 income tax form 1040   For purposes of the medical and dental expenses deduction, a child of divorced or separated parents can be treated as a dependent of both parents. 2012 income tax form 1040 Each parent can include the medical expenses he or she pays for the child, even if the other parent claims the child's dependency exemption, if: The child is in the custody of one or both parents for more than half the year, The child receives over half of his or her support during the year from his or her parents, and The child's parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Live apart at all times during the last 6 months of the year. 2012 income tax form 1040 This does not apply if the child's exemption is being claimed under a multiple support agreement (discussed later). 2012 income tax form 1040 Qualifying Relative A qualifying relative is a person: Who is your: Son, daughter, stepchild, foster child, or a descendant of any of them (for example, your grandchild), Brother, sister, half brother, half sister, or a son or daughter of either of them, Father, mother, or an ancestor or sibling of either of them (for example, your grandmother, grandfather, aunt, or uncle), Stepbrother, stepsister, stepfather, stepmother, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law, or Any other person (other than your spouse) who lived with you all year as a member of your household if your relationship did not violate local law, Who was not a qualifying child (see Qualifying Child earlier) of any other person for 2013, and For whom you provided over half of the support in 2013. 2012 income tax form 1040 But see Child of divorced or separated parents , earlier, and Support claimed under a multiple support agreement, next. 2012 income tax form 1040 Support claimed under a multiple support agreement. 2012 income tax form 1040   If you are considered to have provided more than half of a qualifying relative's support under a multiple support agreement, you can include medical expenses you pay for that person. 2012 income tax form 1040 A multiple support agreement is used when two or more people provide more than half of a person's support, but no one alone provides more than half. 2012 income tax form 1040   Any medical expenses paid by others who joined you in the agreement cannot be included as medical expenses by anyone. 2012 income tax form 1040 However, you can include the entire unreimbursed amount you paid for medical expenses. 2012 income tax form 1040 Example. 2012 income tax form 1040 You and your three brothers each provide one-fourth of your mother's total support. 2012 income tax form 1040 Under a multiple support agreement, you treat your mother as your dependent. 2012 income tax form 1040 You paid all of her medical expenses. 2012 income tax form 1040 Your brothers reimbursed you for three-fourths of these expenses. 2012 income tax form 1040 In figuring your medical expense deduction, you can include only one-fourth of your mother's medical expenses. 2012 income tax form 1040 Your brothers cannot include any part of the expenses. 2012 income tax form 1040 However, if you and your brothers share the nonmedical support items and you separately pay all of your mother's medical expenses, you can include the unreimbursed amount you paid for her medical expenses in your medical expenses. 2012 income tax form 1040 Decedent Medical expenses paid before death by the decedent are included in figuring any deduction for medical and dental expenses on the decedent's final income tax return. 2012 income tax form 1040 This includes expenses for the decedent's spouse and dependents as well as for the decedent. 2012 income tax form 1040 The survivor or personal representative of a decedent can choose to treat certain expenses paid by the decedent's estate for the decedent's medical care as paid by the decedent at the time the medical services were provided. 2012 income tax form 1040 The expenses must be paid within the 1-year period beginning with the day after the date of death. 2012 income tax form 1040 If you are the survivor or personal representative making this choice, you must attach a statement to the decedent's Form 1040 (or the decedent's amended return, Form 1040X) saying that the expenses have not been and will not be claimed on the estate tax return. 2012 income tax form 1040 Qualified medical expenses paid before death by the decedent are not deductible if paid with a tax-free distribution from any Archer MSA, Medicare Advantage MSA, or health savings account. 2012 income tax form 1040 Amended returns and claims for refund are discussed in chapter 1. 2012 income tax form 1040 What if you pay medical expenses of a deceased spouse or dependent?   If you paid medical expenses for your deceased spouse or dependent, include them as medical expenses on your Form 1040 in the year paid, whether they are paid before or after the decedent's death. 2012 income tax form 1040 The expenses can be included if the person was your spouse or dependent either at the time the medical services were provided or at the time you paid the expenses. 2012 income tax form 1040 What Medical Expenses Are Includible? Use Table 21-1, later, as a guide to determine which medical and dental expenses you can include on Schedule A (Form 1040). 2012 income tax form 1040 This table does not include all possible medical expenses. 2012 income tax form 1040 To determine if an expense not listed can be included in figuring your medical expense deduction, see What Are Medical Expenses , earlier. 2012 income tax form 1040 Insurance Premiums You can include in medical expenses insurance premiums you pay for policies that cover medical care. 2012 income tax form 1040 Medical care policies can provide payment for treatment that includes: Hospitalization, surgical services, X-rays, Prescription drugs and insulin, Dental care, Replacement of lost or damaged contact lenses, and Long-term care (subject to additional limitations). 2012 income tax form 1040 See Qualified Long-Term Care Insurance Contracts in Publication 502. 2012 income tax form 1040 If you have a policy that provides payments for other than medical care, you can include the premiums for the medical care part of the policy if the charge for the medical part is reasonable. 2012 income tax form 1040 The cost of the medical part must be separately stated in the insurance contract or given to you in a separate statement. 2012 income tax form 1040 Note. 2012 income tax form 1040 When figuring the amount of insurance premiums you can include in medical expenses on Schedule A, do not include any health coverage tax credit advance payments shown in box 1 of Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. 2012 income tax form 1040 Also, do not include insurance premiums attributable to a nondependent child under age 27 if your premiums increased as a result of adding this child to your policy. 2012 income tax form 1040 Employer-sponsored health insurance plan. 2012 income tax form 1040   Do not include in your medical and dental expenses any insurance premiums paid by an employer-sponsored health insurance plan unless the premiums are included in box 1 of your Form W-2. 2012 income tax form 1040 Also, do not include any other medical and dental expenses paid by the plan unless the amount paid is included in box 1 of your Form W-2. 2012 income tax form 1040 Example. 2012 income tax form 1040 You are a federal employee participating in the premium conversion plan of the Federal Employee Health Benefits (FEHB) program. 2012 income tax form 1040 Your share of the FEHB premium is paid by making a pre-tax reduction in your salary. 2012 income tax form 1040 Because you are an employee whose insurance premiums are paid with money that is never included in your gross income, you cannot deduct the premiums paid with that money. 2012 income tax form 1040 Long-term care services. 2012 income tax form 1040   Contributions made by your employer to provide coverage for qualified long-term care services under a flexible spending or similar arrangement must be included in your income. 2012 income tax form 1040 This amount will be reported as wages in box 1 of your Form W-2. 2012 income tax form 1040 Health reimbursement arrangement (HRA). 2012 income tax form 1040   If you have medical expenses that are reimbursed by a health reimbursement arrangement, you cannot include those expenses in your medical expenses. 2012 income tax form 1040 This is because an HRA is funded solely by the employer. 2012 income tax form 1040 Retired public safety officers. 2012 income tax form 1040   If you are a retired public safety officer, do not include as medical expenses any health or long-term care premiums that you elected to have paid with tax-free distributions from your retirement plan. 2012 income tax form 1040 This applies only to distributions that would otherwise be included in income. 2012 income tax form 1040 Medicare A. 2012 income tax form 1040   If you are covered under social security (or if you are a government employee who paid Medicare tax), you are enrolled in Medicare A. 2012 income tax form 1040 The payroll tax paid for Medicare A is not a medical expense. 2012 income tax form 1040   If you are not covered under social security (or were not a government employee who paid Medicare tax), you can voluntarily enroll in Medicare A. 2012 income tax form 1040 In this situation you can include the premiums you paid for Medicare A as a medical expense. 2012 income tax form 1040 Medicare B. 2012 income tax form 1040   Medicare B is supplemental medical insurance. 2012 income tax form 1040 Premiums you pay for Medicare B are a medical expense. 2012 income tax form 1040 Check the information you received from the Social Security Administration to find out your premium. 2012 income tax form 1040 Medicare D. 2012 income tax form 1040    Medicare D is a voluntary prescription drug insurance program for persons with Medicare A or B. 2012 income tax form 1040 You can include as a medical expense premiums you pay for Medicare D. 2012 income tax form 1040 Prepaid insurance premiums. 2012 income tax form 1040   Premiums you pay before you are age 65 for insurance for medical care for yourself, your spouse, or your dependents after you reach age 65 are medical care expenses in the year paid if they are: Payable in equal yearly installments, or more often, and Payable for at least 10 years, or until you reach age 65 (but not for less than 5 years). 2012 income tax form 1040 Unused sick leave used to pay premiums. 2012 income tax form 1040   You must include in gross income cash payments you receive at the time of retirement for unused sick leave. 2012 income tax form 1040 You also must include in gross income the value of unused sick leave that, at your option, your employer applies to the cost of your continuing participation in your employer's health plan after you retire. 2012 income tax form 1040 You can include this cost of continuing participation in the health plan as a medical expense. 2012 income tax form 1040   If you participate in a health plan where your employer automatically applies the value of unused sick leave to the cost of your continuing participation in the health plan (and you do not have the option to receive cash), do not include the value of the unused sick leave in gross income. 2012 income tax form 1040 You cannot include this cost of continuing participation in that health plan as a medical expense. 2012 income tax form 1040 Table 21-1. 2012 income tax form 1040 Medical and Dental Expenses Checklist. 2012 income tax form 1040 See Publication 502 for more information about these and other expenses. 2012 income tax form 1040 You can include: You cannot include: Bandages Birth control pills prescribed by your doctor Body scan Braille books Breast pump and supplies Capital expenses for equipment or improvements to your home needed for medical care (see the worksheet in Publication 502) Diagnostic devices Expenses of an organ donor Eye surgery—to promote the correct function of the eye Fertility enhancement, certain procedures Guide dogs or other animals aiding the blind, deaf, and disabled Hospital services fees (lab work, therapy, nursing services, surgery, etc. 2012 income tax form 1040 ) Lead-based paint removal Legal abortion Legal operation to prevent having children such as a vasectomy or tubal ligation Long-term care contracts, qualified Meals and lodging provided by a hospital during medical treatment Medical services fees (from doctors, dentists, surgeons, specialists, and other medical practitioners) Medicare Part D premiums Medical and hospital insurance premiums Nursing services Oxygen equipment and oxygen Part of life-care fee paid to retirement home designated for medical care Physical examination Pregnancy test kit Prescription medicines (prescribed by a doctor) and insulin Psychiatric and psychological treatment Social security tax, Medicare tax, FUTA, and state employment tax for worker providing medical care (see Wages for nursing services, below) Special items (artificial limbs, false teeth, eye-glasses, contact lenses, hearing aids, crutches, wheelchair, etc. 2012 income tax form 1040 ) Special education for mentally or physically disabled persons Stop-smoking programs Transportation for needed medical care Treatment at a drug or alcohol center (includes meals and lodging provided by the center) Wages for nursing services Weight-loss, certain expenses for obesity Baby sitting and childcare Bottled water Contributions to Archer MSAs (see Publication 969) Diaper service Expenses for your general health (even if following your doctor's advice) such as— —Health club dues —Household help (even if recommended by a doctor) —Social activities, such as dancing or swimming lessons —Trip for general health improvement Flexible spending account reimbursements for medical expenses (if contributions were on a pre-tax basis) Funeral, burial, or cremation expenses Health savings account payments for medical expenses Illegal operation, treatment, or medicine Life insurance or income protection policies, or policies providing payment for loss of life, limb, sight, etc. 2012 income tax form 1040 Maternity clothes Medical insurance included in a car insurance policy covering all persons injured in or by your car Medicine you buy without a prescription Nursing care for a healthy baby Prescription drugs you brought in (or ordered shipped) from another country, in most cases Nutritional supplements, vitamins, herbal supplements, “natural medicines,” etc. 2012 income tax form 1040 , unless recommended by a medical practitioner as a treatment for a specific medical condition diagnosed by a physician Surgery for purely cosmetic reasons Toothpaste, toiletries, cosmetics, etc. 2012 income tax form 1040 Teeth whitening Weight-loss expenses not for the treatment of obesity or other disease Meals and Lodging You can include in medical expenses the cost of meals and lodging at a hospital or similar institution if a principal reason for being there is to get medical care. 2012 income tax form 1040 See Nursing home , later. 2012 income tax form 1040 You may be able to include in medical expenses the cost of lodging not provided in a hospital or similar institution. 2012 income tax form 1040 You can include the cost of such lodging while away from home if all of the following requirements are met. 2012 income tax form 1040 The lodging is primarily for and essential to medical care. 2012 income tax form 1040 The medical care is provided by a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital. 2012 income tax form 1040 The lodging is not lavish or extravagant under the circumstances. 2012 income tax form 1040 There is no significant element of personal pleasure, recreation, or vacation in the travel away from home. 2012 income tax form 1040 The amount you include in medical expenses for lodging cannot be more than $50 for each night for each person. 2012 income tax form 1040 You can include lodging for a person traveling with the person receiving the medical care. 2012 income tax form 1040 For example, if a parent is traveling with a sick child, up to $100 per night can be included as a medical expense for lodging. 2012 income tax form 1040 Meals are not included. 2012 income tax form 1040 Nursing home. 2012 income tax form 1040   You can include in medical expenses the cost of medical care in a nursing home, home for the aged, or similar institution, for yourself, your spouse, or your dependents. 2012 income tax form 1040 This includes the cost of meals and lodging in the home if a principal reason for being there is to get medical care. 2012 income tax form 1040   Do not include the cost of meals and lodging if the reason for being in the home is personal. 2012 income tax form 1040 You can, however, include in medical expenses the part of the cost that is for medical or nursing care. 2012 income tax form 1040 Transportation Include in medical expenses amounts paid for transportation primarily for, and essential to, medical care. 2012 income tax form 1040 You can include: Bus, taxi, train, or plane fares, or ambulance service, Transportation expenses of a parent who must go with a child who needs medical care, Transportation expenses of a nurse or other person who can give injections, medications, or other treatment required by a patient who is traveling to get medical care and is unable to travel alone, and Transportation expenses for regular visits to see a mentally ill dependent, if these visits are recommended as a part of treatment. 2012 income tax form 1040 Car expenses. 2012 income tax form 1040   You can include out-of-pocket expenses, such as the cost of gas and oil, when you use your car for medical reasons. 2012 income tax form 1040 You cannot include depreciation, insurance, general repair, or maintenance expenses. 2012 income tax form 1040   If you do not want to use your actual expenses for 2013, you can use the standard medical mileage rate of 24 cents per mile. 2012 income tax form 1040    You can also include parking fees and tolls. 2012 income tax form 1040 You can add these fees and tolls to your medical expenses whether you use actual expenses or use the standard mileage rate. 2012 income tax form 1040 Example. 2012 income tax form 1040 In 2013, Bill Jones drove 2,800 miles for medical reasons. 2012 income tax form 1040 He spent $500 for gas, $30 for oil, and $100 for tolls and parking. 2012 income tax form 1040 He wants to figure the amount he can include in medical expenses both ways to see which gives him the greater deduction. 2012 income tax form 1040 He figures the actual expenses first. 2012 income tax form 1040 He adds the $500 for gas, the $30 for oil, and the $100 for tolls and parking for a total of $630. 2012 income tax form 1040 He then figures the standard mileage amount. 2012 income tax form 1040 He multiplies 2,800 miles by 24 cents a mile for a total of $672. 2012 income tax form 1040 He then adds the $100 tolls and parking for a total of $772. 2012 income tax form 1040 Bill includes the $772 of car expenses with his other medical expenses for the year because the $772 is more than the $630 he figured using actual expenses. 2012 income tax form 1040 Transportation expenses you cannot include. 2012 income tax form 1040   You cannot include in medical expenses the cost of transportation in the following situations. 2012 income tax form 1040 Going to and from work, even if your condition requires an unusual means of transportation. 2012 income tax form 1040 Travel for purely personal reasons to another city for an operation or other medical care. 2012 income tax form 1040 Travel that is merely for the general improvement of one's health. 2012 income tax form 1040 The costs of operating a specially equipped car for other than medical reasons. 2012 income tax form 1040 Disabled Dependent Care Expenses Some disabled dependent care expenses may qualify as either: Medical expenses, or Work-related expenses for purposes of taking a credit for dependent care. 2012 income tax form 1040 (See chapter 32 and Publication 503, Child and Dependent Care Expenses. 2012 income tax form 1040 ) You can choose to apply them either way as long as you do not use the same expenses to claim both a credit and a medical expense deduction. 2012 income tax form 1040 How Do You Treat Reimbursements? You can include in medical expenses only those amounts paid during the taxable year for which you received no insurance or other reimbursement. 2012 income tax form 1040 Insurance Reimbursement You must reduce your total medical expenses for the year by all reimbursements for medical expenses that you receive from insurance or other sources during the year. 2012 income tax form 1040 This includes payments from Medicare. 2012 income tax form 1040 Even if a policy provides reimbursement for only certain specific medical expenses, you must use amounts you receive from that policy to reduce your total medical expenses, including those it does not reimburse. 2012 income tax form 1040 Example. 2012 income tax form 1040 You have insurance policies that cover your hospital and doctors' bills but not your nursing bills. 2012 income tax form 1040 The insurance you receive for the hospital and doctors' bills is more than their charges. 2012 income tax form 1040 In figuring your medical deduction, you must reduce the total amount you spent for medical care by the total amount of insurance you received, even if the policies do not cover some of your medical expenses. 2012 income tax form 1040 Health reimbursement arrangement (HRA). 2012 income tax form 1040   A health reimbursement arrangement is an employer-funded plan that reimburses employees for medical care expenses and allows unused amounts to be carried forward. 2012 income tax form 1040 An HRA is funded solely by the employer and the reimbursements for medical expenses, up to a maximum dollar amount for a coverage period, are not included in your income. 2012 income tax form 1040 Other reimbursements. 2012 income tax form 1040   Generally, you do not reduce medical expenses by payments you receive for: Permanent loss or loss of use of a member or function of the body (loss of limb, sight, hearing, etc. 2012 income tax form 1040 ) or disfigurement to the extent the payment is based on the nature of the injury without regard to the amount of time lost from work, or Loss of earnings. 2012 income tax form 1040   You must, however, reduce your medical expenses by any part of these payments that is designated for medical costs. 2012 income tax form 1040 See How Do You Figure and Report the Deduction on Your Tax Return , later. 2012 income tax form 1040   For how to treat damages received for personal injury or sickness, see Damages for Personal Injuries , later. 2012 income tax form 1040 You do not have a medical deduction if you are reimbursed for all of your medical expenses for the year. 2012 income tax form 1040 Excess reimbursement. 2012 income tax form 1040   If you are reimbursed more than your medical expenses, you may have to include the excess in income. 2012 income tax form 1040 You may want to use Figure 21-A to help you decide if any of your reimbursement is taxable. 2012 income tax form 1040 Premiums paid by you. 2012 income tax form 1040   If you pay either the entire premium for your medical insurance or all of the costs of a plan similar to medical insurance and your insurance payments or other reimbursements are more than your total medical expenses for the year, you have an excess reimbursement. 2012 income tax form 1040 Generally, you do not include the excess reimbursement in your gross income. 2012 income tax form 1040 Premiums paid by you and your employer. 2012 income tax form 1040   If both you and your employer contribute to your medical insurance plan and your employer's contributions are not included in your gross income, you must include in your gross income the part of your excess reimbursement that is from your employer's contribution. 2012 income tax form 1040   See Publication 502 to figure the amount of the excess reimbursement you must include in gross income. 2012 income tax form 1040 Reimbursement in a later year. 2012 income tax form 1040   If you are reimbursed in a later year for medical expenses you deducted in an earlier year, you generally must report the reimbursement as income up to the amount you previously deducted as medical expenses. 2012 income tax form 1040   However, do not report as income the amount of reimbursement you received up to the amount of your medical deductions that did not reduce your tax for the earlier year. 2012 income tax form 1040 For more information about the recovery of an amount that you claimed as an itemized deduction in an earlier year, see Itemized Deduction Recoveries in chapter 12. 2012 income tax form 1040 Figure 21-A. 2012 income tax form 1040 Is Your Excess Medical Reimbursement Taxable? Please click here for the text description of the image. 2012 income tax form 1040 Figure 21-A. 2012 income tax form 1040 Is Your Excess Medical Reimbursement Taxable? Medical expenses not deducted. 2012 income tax form 1040   If you did not deduct a medical expense in the year you paid it because your medical expenses were not more than 10% of your AGI (7. 2012 income tax form 1040 5% of your AGI if either you or your spouse was age 65 or older), or because you did not itemize deductions, do not include the reimbursement up to the amount of the expense in income. 2012 income tax form 1040 However, if the reimbursement is more than the expense, see Excess reimbursement , earlier. 2012 income tax form 1040 Example. 2012 income tax form 1040 For 2013, you were unmarried and under age 65 and you had medical expenses of $500. 2012 income tax form 1040 You cannot deduct the $500 because it is less than 10% of your AGI. 2012 income tax form 1040 If, in a later year, you are reimbursed for any of the $500 in medical expenses, you do not include the amount reimbursed in your gross income. 2012 income tax form 1040 Damages for Personal Injuries If you receive an amount in settlement of a personal injury suit, part of that award may be for medical expenses that you deducted in an earlier year. 2012 income tax form 1040 If it is, you must include that part in your income in the year you receive it to the extent it reduced your taxable income in the earlier year. 2012 income tax form 1040 See Reimbursement in a Later Year , discussed under How Do You Treat Reimbursements, earlier. 2012 income tax form 1040 Future medical expenses. 2012 income tax form 1040   If you receive an amount in settlement of a damage suit for personal injuries, part of that award may be for future medical expenses. 2012 income tax form 1040 If it is, you must reduce any future medical expenses for these injuries until the amount you received has been completely used. 2012 income tax form 1040 How Do You Figure and Report the Deduction on Your Tax Return? Once you have determined which medical expenses you can include, you figure and report the deduction on your tax return. 2012 income tax form 1040 What Tax Form Do You Use? You figure your medical expense deduction on Schedule A (Form 1040). 2012 income tax form 1040 You cannot claim medical expenses on Form 1040A or Form 1040EZ. 2012 income tax form 1040 If you need more information on itemized deductions or you are not sure if you can itemize, see chapter 20. 2012 income tax form 1040 Enter the amount you paid for medical and dental expenses on Schedule A (Form 1040). 2012 income tax form 1040 This should be your expenses that were not reimbursed by insurance or any other sources. 2012 income tax form 1040 Generally, you can deduct only the amount of your medical and dental expenses that is more than 10% of your AGI (7. 2012 income tax form 1040 5% if either you or your spouse was age 65 or older) shown on line 38, Form 1040. 2012 income tax form 1040 Impairment-Related Work Expenses If you are a person with a disability, you can take a business deduction for expenses that are necessary for you to be able to work. 2012 income tax form 1040 If you take a business deduction for impairment-related work expenses, do not take a medical deduction for the same expenses. 2012 income tax form 1040 You have a disability if you have: A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed, or A physical or mental impairment (for example, a sight or hearing impairment) that substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, or working. 2012 income tax form 1040 Impairment-related expenses defined. 2012 income tax form 1040   Impairment-related expenses are those ordinary and necessary business expenses that are: Necessary for you to do your work satisfactorily, For goods and services not required or used, other than incidentally, in your personal activities, and Not specifically covered under other income tax laws. 2012 income tax form 1040 Where to report. 2012 income tax form 1040   If you are self-employed, deduct the business expenses on the appropriate form (Schedule C, C-EZ, E, or F) used to report your business income and expenses. 2012 income tax form 1040   If you are an employee, complete Form 2106, Employee Business Expenses, or Form 2106-EZ, Unreimbursed Employee Business Expenses. 2012 income tax form 1040 Enter on Schedule A (Form 1040), that part of the amount on Form 2106, or Form 2106-EZ, that is related to your impairment. 2012 income tax form 1040 Enter the amount that is unrelated to your impairment also on Schedule A (Form 1040). 2012 income tax form 1040 Your impairment-related work expenses are not subject to the 2%-of-adjusted-gross-income limit that applies to other employee business expenses. 2012 income tax form 1040 Example. 2012 income tax form 1040 You are blind. 2012 income tax form 1040 You must use a reader to do your work. 2012 income tax form 1040 You use the reader both during your regular working hours at your place of work and outside your regular working hours away from your place of work. 2012 income tax form 1040 The reader's services are only for your work. 2012 income tax form 1040 You can deduct your expenses for the reader as business expenses. 2012 income tax form 1040 Health Insurance Costs for Self-Employed Persons If you were self-employed and had a net profit for the year, you may be able to deduct, as an adjustment to income, amounts paid for medical and qualified long-term care insurance on behalf of yourself, your spouse, your dependents, and, your children who were under age 27 at the end of 2013. 2012 income tax form 1040 For this purpose, you were self-employed if you were a general partner (or a limited partner receiving guaranteed payments) or you received wages from an S corporation in which you were more than a 2% shareholder. 2012 income tax form 1040 The insurance plan must be established under your trade or business and the deduction cannot be more than your earned income from that trade or business. 2012 income tax form 1040 You cannot deduct payments for medical insurance for any month in which you were eligible to participate in a health plan subsidized by your employer, your spouse's employer, or, an employer of your dependent or your child under age 27 at the end of 2013. 2012 income tax form 1040 You cannot deduct payments for a qualified long-term care insurance contract for any month in which you were eligible to participate in a long-term care insurance plan subsidized by your employer or your spouse's employer. 2012 income tax form 1040 If you qualify to take the deduction, use the Self-Employed Health Insurance Deduction Worksheet in the Form 1040 instructions to figure the amount you can deduct. 2012 income tax form 1040 But if any of the following applies, do not use that worksheet. 2012 income tax form 1040 You had more than one source of income subject to self-employment tax. 2012 income tax form 1040 You file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. 2012 income tax form 1040 You are using amounts paid for qualified long-term care insurance to figure the deduction. 2012 income tax form 1040 If you cannot use the worksheet in the Form 1040 instructions, use the worksheet in Publication 535, Business Expenses, to figure your deduction. 2012 income tax form 1040 Note. 2012 income tax form 1040 When figuring the amount you can deduct for insurance premiums, do not include any advance payments shown on Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. 2012 income tax form 1040 If you are claiming the health coverage tax credit, subtract the amount shown on Form 8885, from the total insurance premiums you paid. 2012 income tax form 1040 Do not include amounts paid for health insurance coverage with retirement plan distributions that were tax-free because you are a retired public safety officer. 2012 income tax form 1040 Where to report. 2012 income tax form 1040    You take this deduction on Form 1040. 2012 income tax form 1040 If you itemize your deductions and do not claim 100% of your self-employed health insurance on Form 1040, you can generally include any remaining premiums with all other medical expenses on Schedule A (Form 1040), subject to the 10% limit (7. 2012 income tax form 1040 5% if either you or your spouse was age 65 or older). 2012 income tax form 1040 See Self-Employed Health Insurance Deduction in chapter 6 of Publication 535, Business Expenses, and Medical and Dental Expenses in the Instructions for Schedule A (Form 1040), for more information. 2012 income tax form 1040 Prev  Up  Next   Home   More Online Publications