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2012 Tax Forms 1040 Ez

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2012 Tax Forms 1040 Ez

2012 tax forms 1040 ez Publication 596 - Main Content Table of Contents Chapter 1—Rules for EveryoneRule 1—Adjusted Gross Income (AGI) Limits Rule 2—You Must Have a Valid Social Security Number (SSN) Rule 3—Your Filing Status Cannot Be Married Filing Separately Rule 4—You Must Be a U. 2012 tax forms 1040 ez S. 2012 tax forms 1040 ez Citizen or Resident Alien All Year Rule 5—You Cannot File Form 2555 or Form 2555-EZ Rule 6—Your Investment Income Must Be $3,300 or Less Rule 7—You Must Have Earned Income Chapter 2—Rules If You Have a Qualifying ChildRule 8—Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Rule 9—Your Qualifying Child Cannot Be Used by More Than One Person To Claim the EIC Rule 10—You Cannot Be a Qualifying Child of Another Taxpayer Chapter 3—Rules If You Do Not Have a Qualifying ChildRule 11—You Must Be at Least Age 25 but Under Age 65 Rule 12—You Cannot Be the Dependent of Another Person Rule 13—You Cannot Be a Qualifying Child of Another Taxpayer Rule 14—You Must Have Lived in the United States More Than Half of the Year Chapter 4—Figuring and Claiming the EICRule 15—Earned Income Limits IRS Will Figure the EIC for You How To Figure the EIC Yourself Schedule EIC Chapter 5—Disallowance of the EICForm 8862 Are You Prohibited From Claiming the EIC for a Period of Years? Chapter 6—Detailed ExamplesExample 1—Sharon Rose Example 2—Cynthia and Jerry Grey Chapter 1—Rules for Everyone This chapter discusses Rules 1 through 7. 2012 tax forms 1040 ez You must meet all seven rules to qualify for the earned income credit. 2012 tax forms 1040 ez If you do not meet all seven rules, you cannot get the credit and you do not need to read the rest of the publication. 2012 tax forms 1040 ez If you meet all seven rules in this chapter, then read either chapter 2 or chapter 3 (whichever applies) for more rules you must meet. 2012 tax forms 1040 ez Rule 1—Adjusted Gross Income (AGI) Limits Your adjusted gross income (AGI) must be less than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. 2012 tax forms 1040 ez Adjusted gross income (AGI). 2012 tax forms 1040 ez   AGI is the amount on line 4 of Form 1040EZ, line 22 of Form 1040A, or line 38 of Form 1040. 2012 tax forms 1040 ez   If your AGI is equal to or more than the applicable limit listed above, you cannot claim the EIC. 2012 tax forms 1040 ez You do not need to read the rest of this publication. 2012 tax forms 1040 ez Example—AGI is more than limit. 2012 tax forms 1040 ez Your AGI is $38,550, you are single, and you have one qualifying child. 2012 tax forms 1040 ez You cannot claim the EIC because your AGI is not less than $37,870. 2012 tax forms 1040 ez However, if your filing status was married filing jointly, you might be able to claim the EIC because your AGI is less than $43,210. 2012 tax forms 1040 ez Community property. 2012 tax forms 1040 ez   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3), and live in a state that has community property laws, your AGI includes that portion of both your and your spouse's wages that you are required to include in gross income. 2012 tax forms 1040 ez This is different from the community property rules that apply under Rule 7. 2012 tax forms 1040 ez Rule 2—You Must Have a Valid Social Security Number (SSN) To claim the EIC, you (and your spouse, if filing a joint return) must have a valid SSN issued by the Social Security Administration (SSA). 2012 tax forms 1040 ez Any qualifying child listed on Schedule EIC also must have a valid SSN. 2012 tax forms 1040 ez (See Rule 8 if you have a qualifying child. 2012 tax forms 1040 ez ) If your social security card (or your spouse's, if filing a joint return) says “Not valid for employment” and your SSN was issued so that you (or your spouse) could get a federally funded benefit, you cannot get the EIC. 2012 tax forms 1040 ez An example of a federally funded benefit is Medicaid. 2012 tax forms 1040 ez If you have a card with the legend “Not valid for employment” and your immigration status has changed so that you are now a U. 2012 tax forms 1040 ez S. 2012 tax forms 1040 ez citizen or permanent resident, ask the SSA for a new social security card without the legend. 2012 tax forms 1040 ez If you get the new card after you have already filed your return, you can file an amended return on Form 1040X, Amended U. 2012 tax forms 1040 ez S. 2012 tax forms 1040 ez Individual Income Tax Return, to claim the EIC. 2012 tax forms 1040 ez U. 2012 tax forms 1040 ez S. 2012 tax forms 1040 ez citizen. 2012 tax forms 1040 ez   If you were a U. 2012 tax forms 1040 ez S. 2012 tax forms 1040 ez citizen when you received your SSN, you have a valid SSN. 2012 tax forms 1040 ez Valid for work only with INS authorization or DHS authorization. 2012 tax forms 1040 ez   If your social security card reads “Valid for work only with INS authorization” or “Valid for work only with DHS authorization,” you have a valid SSN, but only if that authorization is still valid. 2012 tax forms 1040 ez SSN missing or incorrect. 2012 tax forms 1040 ez   If an SSN for you or your spouse is missing from your tax return or is incorrect, you may not get the EIC. 2012 tax forms 1040 ez Other taxpayer identification number. 2012 tax forms 1040 ez   You cannot get the EIC if, instead of an SSN, you (or your spouse, if filing a joint return) have an individual taxpayer identification number (ITIN). 2012 tax forms 1040 ez ITINs are issued by the Internal Revenue Service to noncitizens who cannot get an SSN. 2012 tax forms 1040 ez No SSN. 2012 tax forms 1040 ez   If you do not have a valid SSN, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). 2012 tax forms 1040 ez You cannot claim the EIC. 2012 tax forms 1040 ez Getting an SSN. 2012 tax forms 1040 ez   If you (or your spouse, if filing a joint return) do not have an SSN, you can apply for one by filing Form SS-5 with the SSA. 2012 tax forms 1040 ez You can get Form SS-5 online at www. 2012 tax forms 1040 ez socialsecurity. 2012 tax forms 1040 ez gov, from your local SSA office, or by calling the SSA at 1-800-772-1213. 2012 tax forms 1040 ez Filing deadline approaching and still no SSN. 2012 tax forms 1040 ez   If the filing deadline is approaching and you still do not have an SSN, you have two choices. 2012 tax forms 1040 ez Request an automatic 6-month extension of time to file your return. 2012 tax forms 1040 ez You can get this extension by filing Form 4868, Application for Automatic Extension of Time to File U. 2012 tax forms 1040 ez S. 2012 tax forms 1040 ez Individual Income Tax Return. 2012 tax forms 1040 ez For more information, see the instructions for Form 4868. 2012 tax forms 1040 ez File the return on time without claiming the EIC. 2012 tax forms 1040 ez After receiving the SSN, file an amended return, Form 1040X, claiming the EIC. 2012 tax forms 1040 ez Attach a filled-in Schedule EIC, Earned Income Credit, if you have a qualifying child. 2012 tax forms 1040 ez Rule 3—Your Filing Status Cannot Be “Married Filing Separately” If you are married, you usually must file a joint return to claim the EIC. 2012 tax forms 1040 ez Your filing status cannot be “Married filing separately. 2012 tax forms 1040 ez ” Spouse did not live with you. 2012 tax forms 1040 ez   If you are married and your spouse did not live in your home at any time during the last 6 months of the year, you may be able to file as head of household, instead of married filing separately. 2012 tax forms 1040 ez In that case, you may be able to claim the EIC. 2012 tax forms 1040 ez For detailed information about filing as head of household, see Publication 501, Exemptions, Standard Deduction, and Filing Information. 2012 tax forms 1040 ez Rule 4—You Must Be a U. 2012 tax forms 1040 ez S. 2012 tax forms 1040 ez Citizen or Resident Alien All Year If you (or your spouse, if married) were a nonresident alien for any part of the year, you cannot claim the earned income credit unless your filing status is married filing jointly. 2012 tax forms 1040 ez You can use that filing status only if one spouse is a U. 2012 tax forms 1040 ez S. 2012 tax forms 1040 ez citizen or resident alien and you choose to treat the nonresident spouse as a U. 2012 tax forms 1040 ez S. 2012 tax forms 1040 ez resident. 2012 tax forms 1040 ez If you make this choice, you and your spouse are taxed on your worldwide income. 2012 tax forms 1040 ez If you need more information on making this choice, get Publication 519, U. 2012 tax forms 1040 ez S. 2012 tax forms 1040 ez Tax Guide for Aliens. 2012 tax forms 1040 ez If you (or your spouse, if married) were a nonresident alien for any part of the year and your filing status is not married filing jointly, enter “No” on the dotted line next to line 64a (Form 1040) or in the space to the left of line 38a (Form 1040A). 2012 tax forms 1040 ez Rule 5—You Cannot File Form 2555 or Form 2555-EZ You cannot claim the earned income credit if you file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. 2012 tax forms 1040 ez You file these forms to exclude income earned in foreign countries from your gross income, or to deduct or exclude a foreign housing amount. 2012 tax forms 1040 ez U. 2012 tax forms 1040 ez S. 2012 tax forms 1040 ez possessions are not foreign countries. 2012 tax forms 1040 ez See Publication 54, Tax Guide for U. 2012 tax forms 1040 ez S. 2012 tax forms 1040 ez Citizens and Resident Aliens Abroad, for more detailed information. 2012 tax forms 1040 ez Rule 6—Your Investment Income Must Be $3,300 or Less You cannot claim the earned income credit unless your investment income is $3,300 or less. 2012 tax forms 1040 ez If your investment income is more than $3,300, you cannot claim the credit. 2012 tax forms 1040 ez Form 1040EZ. 2012 tax forms 1040 ez   If you file Form 1040EZ, your investment income is the total of the amount on line 2 and the amount of any tax-exempt interest you wrote to the right of the words “Form 1040EZ” on line 2. 2012 tax forms 1040 ez Form 1040A. 2012 tax forms 1040 ez   If you file Form 1040A, your investment income is the total of the amounts on lines 8a (taxable interest), 8b (tax-exempt interest), 9a (ordinary dividends), and 10 (capital gain distributions) on that form. 2012 tax forms 1040 ez Form 1040. 2012 tax forms 1040 ez   If you file Form 1040, use Worksheet 1 in this chapter to figure your investment income. 2012 tax forms 1040 ez    Worksheet 1. 2012 tax forms 1040 ez Investment Income If You Are Filing Form 1040 Use this worksheet to figure investment income for the earned income credit when you file Form 1040. 2012 tax forms 1040 ez Interest and Dividends         1. 2012 tax forms 1040 ez Enter any amount from Form 1040, line 8a 1. 2012 tax forms 1040 ez   2. 2012 tax forms 1040 ez Enter any amount from Form 1040, line 8b, plus any amount on Form 8814, line 1b 2. 2012 tax forms 1040 ez   3. 2012 tax forms 1040 ez Enter any amount from Form 1040, line 9a 3. 2012 tax forms 1040 ez   4. 2012 tax forms 1040 ez Enter the amount from Form 1040, line 21, that is from Form 8814 if you are filing that form to report your child's interest and dividend income on your return. 2012 tax forms 1040 ez (If your child received an Alaska Permanent Fund dividend, use Worksheet 2 in this chapter to figure the amount to enter on this line. 2012 tax forms 1040 ez ) 4. 2012 tax forms 1040 ez   Capital Gain Net Income         5. 2012 tax forms 1040 ez Enter the amount from Form 1040, line 13. 2012 tax forms 1040 ez If the amount on that line is a loss, enter -0- 5. 2012 tax forms 1040 ez       6. 2012 tax forms 1040 ez Enter any gain from Form 4797, Sales of Business Property, line 7. 2012 tax forms 1040 ez If the amount on that line is a loss, enter -0-. 2012 tax forms 1040 ez (But, if you completed lines 8 and 9 of Form 4797, enter the amount from line 9 instead. 2012 tax forms 1040 ez ) 6. 2012 tax forms 1040 ez       7. 2012 tax forms 1040 ez Substract line 6 of this worksheet from line 5 of this worksheet. 2012 tax forms 1040 ez (If the result is less than zero, enter -0-. 2012 tax forms 1040 ez ) 7. 2012 tax forms 1040 ez   Royalties and Rental Income From Personal Property         8. 2012 tax forms 1040 ez Enter any royalty income from Schedule E, line 23b, plus any income from the rental of personal property shown on Form 1040, line 21 8. 2012 tax forms 1040 ez       9. 2012 tax forms 1040 ez Enter any expenses from Schedule E, line 20, related to royalty income, plus any expenses from the rental of personal property deducted on Form 1040, line 36 9. 2012 tax forms 1040 ez       10. 2012 tax forms 1040 ez Subtract the amount on line 9 of this worksheet from the amount on line 8. 2012 tax forms 1040 ez (If the result is less than zero, enter -0-. 2012 tax forms 1040 ez ) 10. 2012 tax forms 1040 ez   Passive Activities         11. 2012 tax forms 1040 ez Enter the total of any net income from passive activities (such as income included on Schedule E, line 26, 29a (col. 2012 tax forms 1040 ez (g)), 34a (col. 2012 tax forms 1040 ez (d)), or 40). 2012 tax forms 1040 ez (See instructions below for lines 11 and 12. 2012 tax forms 1040 ez ) 11. 2012 tax forms 1040 ez       12. 2012 tax forms 1040 ez Enter the total of any losses from passive activities (such as losses included on Schedule E, line 26, 29b (col. 2012 tax forms 1040 ez (f)), 34b (col. 2012 tax forms 1040 ez (c)), or 40). 2012 tax forms 1040 ez (See instructions below for lines 11 and 12. 2012 tax forms 1040 ez ) 12. 2012 tax forms 1040 ez       13. 2012 tax forms 1040 ez Combine the amounts on lines 11 and 12 of this worksheet. 2012 tax forms 1040 ez (If the result is less than zero, enter -0-. 2012 tax forms 1040 ez ) 13. 2012 tax forms 1040 ez   14. 2012 tax forms 1040 ez Add the amounts on lines 1, 2, 3, 4, 7, 10, and 13. 2012 tax forms 1040 ez Enter the total. 2012 tax forms 1040 ez This is your investment income 14. 2012 tax forms 1040 ez   15. 2012 tax forms 1040 ez Is the amount on line 14 more than $3,300? ❑ Yes. 2012 tax forms 1040 ez You cannot take the credit. 2012 tax forms 1040 ez  ❑ No. 2012 tax forms 1040 ez Go to Step 3 of the Form 1040 instructions for lines 64a and 64b to find out if you can take the credit (unless you are using this publication to find out if you can take the credit; in that case, go to Rule 7, next). 2012 tax forms 1040 ez       Instructions for lines 11 and 12. 2012 tax forms 1040 ez In figuring the amount to enter on lines 11 and 12, do not take into account any royalty income (or loss) included on line 26 of Schedule E or any amount included in your earned income. 2012 tax forms 1040 ez To find out if the income on line 26 or line 40 of Schedule E is from a passive activity, see the Schedule E instructions. 2012 tax forms 1040 ez If any of the rental real estate income (or loss) included on Schedule E, line 26, is not from a passive activity, print “NPA” and the amount of that income (or loss) on the dotted line next to line 26. 2012 tax forms 1040 ez Worksheet 2. 2012 tax forms 1040 ez Worksheet for Line 4 of Worksheet 1 Complete this worksheet only if Form 8814 includes an Alaska Permanent Fund dividend. 2012 tax forms 1040 ez Note. 2012 tax forms 1040 ez Fill out a separate Worksheet 2 for each Form 8814. 2012 tax forms 1040 ez     1. 2012 tax forms 1040 ez Enter the amount from Form 8814, line 2a 1. 2012 tax forms 1040 ez   2. 2012 tax forms 1040 ez Enter the amount from Form 8814, line 2b 2. 2012 tax forms 1040 ez   3. 2012 tax forms 1040 ez Subtract line 2 from line 1 3. 2012 tax forms 1040 ez   4. 2012 tax forms 1040 ez Enter the amount from Form 8814, line 1a 4. 2012 tax forms 1040 ez   5. 2012 tax forms 1040 ez Add lines 3 and 4 5. 2012 tax forms 1040 ez   6. 2012 tax forms 1040 ez Enter the amount of the child's Alaska Permanent Fund dividend 6. 2012 tax forms 1040 ez   7. 2012 tax forms 1040 ez Divide line 6 by line 5. 2012 tax forms 1040 ez Enter the result as a decimal (rounded to at least three places) 7. 2012 tax forms 1040 ez   8. 2012 tax forms 1040 ez Enter the amount from Form 8814, line 12 8. 2012 tax forms 1040 ez   9. 2012 tax forms 1040 ez Multiply line 7 by line 8 9. 2012 tax forms 1040 ez   10. 2012 tax forms 1040 ez Subtract line 9 from line 8. 2012 tax forms 1040 ez Enter the result on line 4 of Worksheet 1 10. 2012 tax forms 1040 ez     (If filing more than one Form 8814, enter on line 4 of Worksheet 1 the total of the amounts on line 10 of all Worksheets 2. 2012 tax forms 1040 ez )     Example—completing Worksheet 2. 2012 tax forms 1040 ez Your 10-year-old child has taxable interest income of $400, an Alaska Permanent Fund dividend of $1,000, and ordinary dividends of $1,100, of which $500 are qualified dividends. 2012 tax forms 1040 ez You choose to report this income on your return. 2012 tax forms 1040 ez You enter $400 on line 1a of Form 8814, $2,100 ($1,000 + $1,100) on line 2a, and $500 on line 2b. 2012 tax forms 1040 ez After completing lines 4 through 11, you enter $400 on line 12 of Form 8814 and line 21 of Form 1040. 2012 tax forms 1040 ez On Worksheet 2, you enter $2,100 on line 1, $500 on line 2, $1,600 on line 3, $400 on line 4, $2,000 on line 5, $1,000 on line 6, 0. 2012 tax forms 1040 ez 500 on line 7, $400 on line 8, $200 on line 9, and $200 on line 10. 2012 tax forms 1040 ez You then enter $200 on line 4 of Worksheet 1. 2012 tax forms 1040 ez Rule 7—You Must Have Earned Income This credit is called the “earned income” credit because, to qualify, you must work and have earned income. 2012 tax forms 1040 ez If you are married and file a joint return, you meet this rule if at least one spouse works and has earned income. 2012 tax forms 1040 ez If you are an employee, earned income includes all the taxable income you get from your employer. 2012 tax forms 1040 ez Rule 15 has information that will help you figure the amount of your earned income. 2012 tax forms 1040 ez If you are self-employed or a statutory employee, you will figure your earned income on EIC Worksheet B in the Form 1040 instructions. 2012 tax forms 1040 ez Earned Income Earned income includes all of the following types of income. 2012 tax forms 1040 ez Wages, salaries, tips, and other taxable employee pay. 2012 tax forms 1040 ez Employee pay is earned income only if it is taxable. 2012 tax forms 1040 ez Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. 2012 tax forms 1040 ez But there is an exception for nontaxable combat pay, which you can choose to include in earned income, as explained later in this chapter. 2012 tax forms 1040 ez Net earnings from self-employment. 2012 tax forms 1040 ez Gross income received as a statutory employee. 2012 tax forms 1040 ez Wages, salaries, and tips. 2012 tax forms 1040 ez    Wages, salaries, and tips you receive for working are reported to you on Form W-2, in box 1. 2012 tax forms 1040 ez You should report these on line 1 (Form 1040EZ) or line 7 (Forms 1040A and 1040). 2012 tax forms 1040 ez Nontaxable combat pay election. 2012 tax forms 1040 ez   You can elect to include your nontaxable combat pay in earned income for the earned income credit. 2012 tax forms 1040 ez The amount of your nontaxable combat pay should be shown on your Form W-2, in box 12, with code Q. 2012 tax forms 1040 ez Electing to include nontaxable combat pay in earned income may increase or decrease your EIC. 2012 tax forms 1040 ez For details, see Nontaxable combat pay in chapter 4. 2012 tax forms 1040 ez Net earnings from self-employment. 2012 tax forms 1040 ez   You may have net earnings from self-employment if: You own your own business, or You are a minister or member of a religious order. 2012 tax forms 1040 ez Minister's housing. 2012 tax forms 1040 ez   The rental value of a home or a housing allowance provided to a minister as part of the minister's pay generally is not subject to income tax but is included in net earnings from self-employment. 2012 tax forms 1040 ez For that reason, it is included in earned income for the EIC (except in the cases described in Approved Form 4361 or Form 4029 , below). 2012 tax forms 1040 ez Statutory employee. 2012 tax forms 1040 ez   You are a statutory employee if you receive a Form W-2 on which the “Statutory employee” box (box 13) is checked. 2012 tax forms 1040 ez You report your income and expenses as a statutory employee on Schedule C or C-EZ (Form 1040). 2012 tax forms 1040 ez Strike benefits. 2012 tax forms 1040 ez   Strike benefits paid by a union to its members are earned income. 2012 tax forms 1040 ez Approved Form 4361 or Form 4029 This section is for persons who have an approved: Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, or Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits. 2012 tax forms 1040 ez Each approved form exempts certain income from social security taxes. 2012 tax forms 1040 ez Each form is discussed here in terms of what is or is not earned income for the EIC. 2012 tax forms 1040 ez Form 4361. 2012 tax forms 1040 ez   Whether or not you have an approved Form 4361, amounts you received for performing ministerial duties as an employee count as earned income. 2012 tax forms 1040 ez This includes wages, salaries, tips, and other taxable employee compensation. 2012 tax forms 1040 ez A nontaxable housing allowance or the nontaxable rental value of a home is not earned income. 2012 tax forms 1040 ez Also, amounts you received for performing ministerial duties, but not as an employee, do not count as earned income. 2012 tax forms 1040 ez Examples include fees for performing marriages and honoraria for delivering speeches. 2012 tax forms 1040 ez Form 4029. 2012 tax forms 1040 ez   Whether or not you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation count as earned income. 2012 tax forms 1040 ez However, amounts you received as a self-employed individual do not count as earned income. 2012 tax forms 1040 ez Also, in figuring earned income, do not subtract losses on Schedule C, C-EZ, or F from wages on line 7 of Form 1040. 2012 tax forms 1040 ez Disability Benefits If you retired on disability, taxable benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. 2012 tax forms 1040 ez Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. 2012 tax forms 1040 ez You must report your taxable disability payments on line 7 of either Form 1040 or Form 1040A until you reach minimum retirement age. 2012 tax forms 1040 ez Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income. 2012 tax forms 1040 ez Report taxable pension payments on Form 1040, lines 16a and 16b, or Form 1040A, lines 12a and 12b. 2012 tax forms 1040 ez Disability insurance payments. 2012 tax forms 1040 ez   Payments you received from a disability insurance policy that you paid the premiums for are not earned income. 2012 tax forms 1040 ez It does not matter whether you have reached minimum retirement age. 2012 tax forms 1040 ez If this policy is through your employer, the amount may be shown in box 12 of your Form W-2 with code “J. 2012 tax forms 1040 ez ” Income That Is Not Earned Income Examples of items that are not earned income include interest and dividends, pensions and annuities, social security and railroad retirement benefits (including disability benefits), alimony and child support, welfare benefits, workers' compensation benefits, unemployment compensation (insurance), nontaxable foster care payments, and veterans' benefits, including VA rehabilitation payments. 2012 tax forms 1040 ez Do not include any of these items in your earned income. 2012 tax forms 1040 ez Earnings while an inmate. 2012 tax forms 1040 ez   Amounts received for work performed while an inmate in a penal institution are not earned income when figuring the earned income credit. 2012 tax forms 1040 ez This includes amounts for work performed while in a work release program or while in a halfway house. 2012 tax forms 1040 ez Workfare payments. 2012 tax forms 1040 ez   Nontaxable workfare payments are not earned income for the EIC. 2012 tax forms 1040 ez These are cash payments certain people receive from a state or local agency that administers public assistance programs funded under the federal Temporary Assistance for Needy Families (TANF) program in return for certain work activities such as (1) work experience activities (including remodeling or repairing public housing) if sufficient private sector employment is not available, or (2) community service program activities. 2012 tax forms 1040 ez Community property. 2012 tax forms 1040 ez   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3), and live in a state that has community property laws, your earned income for the EIC does not include any amount earned by your spouse that is treated as belonging to you under those laws. 2012 tax forms 1040 ez That amount is not earned income for the EIC, even though you must include it in your gross income on your income tax return. 2012 tax forms 1040 ez Your earned income includes the entire amount you earned, even if part of it is treated as belonging to your spouse under your state's community property laws. 2012 tax forms 1040 ez Nevada, Washington, and California domestic partners. 2012 tax forms 1040 ez   If you are a registered domestic partner in Nevada, Washington, or California, the same rules apply. 2012 tax forms 1040 ez Your earned income for the EIC does not include any amount earned by your partner. 2012 tax forms 1040 ez Your earned income includes the entire amount you earned. 2012 tax forms 1040 ez For details, see Publication 555. 2012 tax forms 1040 ez Conservation Reserve Program (CRP) payments. 2012 tax forms 1040 ez   If you were receiving social security retirement benefits or social security disability benefits at the time you received any CRP payments, your CRP payments are not earned income for the EIC. 2012 tax forms 1040 ez Nontaxable military pay. 2012 tax forms 1040 ez   Nontaxable pay for members of the Armed Forces is not considered earned income for the EIC. 2012 tax forms 1040 ez Examples of nontaxable military pay are combat pay, the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS). 2012 tax forms 1040 ez See Publication 3, Armed Forces' Tax Guide, for more information. 2012 tax forms 1040 ez    Combat pay. 2012 tax forms 1040 ez You can elect to include your nontaxable combat pay in earned income for the EIC. 2012 tax forms 1040 ez See Nontaxable combat pay in chapter 4. 2012 tax forms 1040 ez Chapter 2—Rules If You Have a Qualifying Child If you have met all the rules in chapter 1, use this chapter to see if you have a qualifying child. 2012 tax forms 1040 ez This chapter discusses Rules 8 through 10. 2012 tax forms 1040 ez You must meet all three of those rules, in addition to the rules in chapters 1 and 4, to qualify for the earned income credit with a qualifying child. 2012 tax forms 1040 ez You must file Form 1040 or Form 1040A to claim the EIC with a qualifying child. 2012 tax forms 1040 ez (You cannot file Form 1040EZ. 2012 tax forms 1040 ez ) You also must complete Schedule EIC and attach it to your return. 2012 tax forms 1040 ez If you meet all the rules in chapter 1 and this chapter, read chapter 4 to find out what to do next. 2012 tax forms 1040 ez No qualifying child. 2012 tax forms 1040 ez   If you do not meet Rule 8, you do not have a qualifying child. 2012 tax forms 1040 ez Read chapter 3 to find out if you can get the earned income credit without a qualifying child. 2012 tax forms 1040 ez Rule 8—Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Your child is a qualifying child if your child meets four tests. 2012 tax forms 1040 ez The fours tests are: Relationship, Age, Residency, and Joint return. 2012 tax forms 1040 ez The four tests are illustrated in Figure 1. 2012 tax forms 1040 ez The paragraphs that follow contain more information about each test. 2012 tax forms 1040 ez Relationship Test To be your qualifying child, a child must be your: Son, daughter, stepchild, foster child, or a descendant of any of them (for example, your grandchild), or Brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them (for example, your niece or nephew). 2012 tax forms 1040 ez The following definitions clarify the relationship test. 2012 tax forms 1040 ez Adopted child. 2012 tax forms 1040 ez   An adopted child is always treated as your own child. 2012 tax forms 1040 ez The term “adopted child” includes a child who was lawfully placed with you for legal adoption. 2012 tax forms 1040 ez Foster child. 2012 tax forms 1040 ez   For the EIC, a person is your foster child if the child is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. 2012 tax forms 1040 ez (An authorized placement agency includes a state or local government agency. 2012 tax forms 1040 ez It also includes a tax-exempt organization licensed by a state. 2012 tax forms 1040 ez In addition, it includes an Indian tribal government or an organization authorized by an Indian tribal government to place Indian children. 2012 tax forms 1040 ez ) Example. 2012 tax forms 1040 ez Debbie, who is 12 years old, was placed in your care 2 years ago by an authorized agency responsible for placing children in foster homes. 2012 tax forms 1040 ez Debbie is your foster child. 2012 tax forms 1040 ez Figure 1. 2012 tax forms 1040 ez Tests for Qualifying Child Please click here for the text description of the image. 2012 tax forms 1040 ez Conditions for Qualifying Child Age Test Your child must be: 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 student, and younger than you (or your spouse, if filing jointly, or Permanently and totally disabled at any time during 2013, regardless of age. 2012 tax forms 1040 ez The following examples and definitions clarify the age test. 2012 tax forms 1040 ez Example 1—child not under age 19. 2012 tax forms 1040 ez Your son turned 19 on December 10. 2012 tax forms 1040 ez Unless he was permanently and totally disabled or a student, he is not a qualifying child because, at the end of the year, he was not under age 19. 2012 tax forms 1040 ez Example 2—child not younger than you or your spouse. 2012 tax forms 1040 ez Your 23-year-old brother, who is a full-time student and unmarried, lives with you and your spouse. 2012 tax forms 1040 ez He is not disabled. 2012 tax forms 1040 ez Both you and your spouse are 21 years old, and you file a joint return. 2012 tax forms 1040 ez Your brother is not your qualifying child because he is not younger than you or your spouse. 2012 tax forms 1040 ez Example 3—child younger than your spouse but not younger than you. 2012 tax forms 1040 ez The facts are the same as in Example 2 except that your spouse is 25 years old. 2012 tax forms 1040 ez Because your brother is younger than your spouse, he is your qualifying child, even though he is not younger than you. 2012 tax forms 1040 ez Student defined. 2012 tax forms 1040 ez   To qualify as a student, your child must be, during some part of each of any 5 calendar months during the calendar year: A full-time student at a school that has a regular teaching staff, course of study, and regular student body at the school, or A student taking a full-time, on-farm training course given by a school described in (1), or a state, county, or local government. 2012 tax forms 1040 ez   The 5 calendar months need not be consecutive. 2012 tax forms 1040 ez   A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance. 2012 tax forms 1040 ez School defined. 2012 tax forms 1040 ez   A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. 2012 tax forms 1040 ez However, on-the-job training courses, correspondence schools, and schools offering courses only through the Internet do not count as schools for the EIC. 2012 tax forms 1040 ez Vocational high school students. 2012 tax forms 1040 ez   Students who work in co-op jobs in private industry as a part of a school's regular course of classroom and practical training are considered full-time students. 2012 tax forms 1040 ez Permanently and totally disabled. 2012 tax forms 1040 ez   Your child is permanently and totally disabled if both of the following apply. 2012 tax forms 1040 ez He or she cannot engage in any substantial gainful activity because of a physical or mental condition. 2012 tax forms 1040 ez A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death. 2012 tax forms 1040 ez Residency Test Your child must have lived with you in the United States for more than half of 2013. 2012 tax forms 1040 ez The following definitions clarify the residency test. 2012 tax forms 1040 ez United States. 2012 tax forms 1040 ez   This means the 50 states and the District of Columbia. 2012 tax forms 1040 ez It does not include Puerto Rico or U. 2012 tax forms 1040 ez S. 2012 tax forms 1040 ez possessions such as Guam. 2012 tax forms 1040 ez Homeless shelter. 2012 tax forms 1040 ez   Your home can be any location where you regularly live. 2012 tax forms 1040 ez You do not need a traditional home. 2012 tax forms 1040 ez For example, if your child lived with you for more than half the year in one or more homeless shelters, your child meets the residency test. 2012 tax forms 1040 ez Military personnel stationed outside the United States. 2012 tax forms 1040 ez   U. 2012 tax forms 1040 ez S. 2012 tax forms 1040 ez military personnel stationed outside the United States on extended active duty are considered to live in the United States during that duty period for purposes of the EIC. 2012 tax forms 1040 ez Extended active duty. 2012 tax forms 1040 ez   Extended active duty means you are called or ordered to duty for an indefinite period or for a period of more than 90 days. 2012 tax forms 1040 ez Once you begin serving your extended active duty, you are still considered to have been on extended active duty even if you do not serve more than 90 days. 2012 tax forms 1040 ez Birth or death of child. 2012 tax forms 1040 ez    child who was born or died in 2013 is treated as having lived with you for more than half of 2013 if your home was the child's home for more than half the time he or she was alive in 2013. 2012 tax forms 1040 ez Temporary absences. 2012 tax forms 1040 ez   Count time that you or your child is away from home on a temporary absence due to a special circumstance as time the child lived with you. 2012 tax forms 1040 ez Examples of a special circumstance include illness, school attendance, business, vacation, military service, and detention in a juvenile facility. 2012 tax forms 1040 ez Kidnapped child. 2012 tax forms 1040 ez   A kidnapped child is treated as living with you for more than half of the year if the child lived with you for more than half the part of the year before the date of the kidnapping. 2012 tax forms 1040 ez The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or the child's family. 2012 tax forms 1040 ez This treatment applies for all years until the child is returned. 2012 tax forms 1040 ez However, the last year this treatment can apply is the earlier of: The year there is a determination that the child is dead, or The year the child would have reached age 18. 2012 tax forms 1040 ez   If your qualifying child has been kidnapped and meets these requirements, enter “KC,” instead of a number, on line 6 of Schedule EIC. 2012 tax forms 1040 ez Joint Return Test To meet this test, the child cannot file a joint return for the year. 2012 tax forms 1040 ez Exception. 2012 tax forms 1040 ez   An exception to the joint return test applies if your child and his or her spouse file a joint return only to claim a refund of income tax withheld or estimated tax paid. 2012 tax forms 1040 ez Example 1—child files joint return. 2012 tax forms 1040 ez You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. 2012 tax forms 1040 ez He earned $25,000 for the year. 2012 tax forms 1040 ez The couple files a joint return. 2012 tax forms 1040 ez Because your daughter and her husband file a joint return, she is not your qualifying child. 2012 tax forms 1040 ez Example 2—child files joint return to get refund of tax withheld. 2012 tax forms 1040 ez Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. 2012 tax forms 1040 ez They do not have a child. 2012 tax forms 1040 ez Neither is required to file a tax return. 2012 tax forms 1040 ez Taxes were taken out of their pay, so they file a joint return only to get a refund of the withheld taxes. 2012 tax forms 1040 ez The exception to the joint return test applies, so your son may be your qualifying child if all the other tests are met. 2012 tax forms 1040 ez Example 3—child files joint return to claim American opportunity credit. 2012 tax forms 1040 ez The facts are the same as in Example 2 except no taxes were taken out of your son's pay. 2012 tax forms 1040 ez He and his wife are not required to file a tax return, but they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. 2012 tax forms 1040 ez Because claiming the American opportunity credit is their reason for filing the return, they are not filing it only to claim a refund of income tax withheld or estimated tax paid. 2012 tax forms 1040 ez The exception to the joint return test does not apply, so your son is not your qualifying child. 2012 tax forms 1040 ez Married child. 2012 tax forms 1040 ez   Even if your child does not file a joint return, if your child was married at the end of the year, he or she cannot be your qualifying child unless: You can claim an exemption for the child, or The reason you cannot claim an exemption for the child is that you let the child's other parent claim the exemption under the Special rule for divorced or separated parents (or parents who live apart) described later. 2012 tax forms 1040 ez    Social security number. 2012 tax forms 1040 ez Your qualifying child must have a valid social security number (SSN), unless the child was born and died in 2013 and you attach to your return a copy of the child's birth certificate, death certificate, or hospital records showing a live birth. 2012 tax forms 1040 ez You cannot claim the EIC on the basis of a qualifying child if: The qualifying child's SSN is missing from your tax return or is incorrect, The qualifying child's social security card says “Not valid for employment” and was issued for use in getting a federally funded benefit, or Instead of an SSN, the qualifying child has: An individual taxpayer identification number (ITIN), which is issued to a noncitizen who cannot get an SSN, or An adoption taxpayer identification number (ATIN), issued to adopting parents who cannot get an SSN for the child being adopted until the adoption is final. 2012 tax forms 1040 ez   If you have more than one qualifying child and only one has a valid SSN, you can use only that child to claim the EIC. 2012 tax forms 1040 ez For more information about SSNs, see Rule 2. 2012 tax forms 1040 ez Rule 9—Your Qualifying Child Cannot Be Used by More Than One Person To Claim the EIC Sometimes a child meets the tests to be a qualifying child of more than one person. 2012 tax forms 1040 ez However, only one of these persons can actually treat the child as a qualifying child. 2012 tax forms 1040 ez Only that person can use the child as a qualifying child to take all of the following tax benefits (provided the person is eligible for each benefit). 2012 tax forms 1040 ez The exemption for the child. 2012 tax forms 1040 ez The child tax credit. 2012 tax forms 1040 ez Head of household filing status. 2012 tax forms 1040 ez The credit for child and dependent care expenses. 2012 tax forms 1040 ez The exclusion for dependent care benefits. 2012 tax forms 1040 ez The EIC. 2012 tax forms 1040 ez The other person cannot take any of these benefits based on this qualifying child. 2012 tax forms 1040 ez In other words, you and the other person cannot agree to divide these tax benefits between you. 2012 tax forms 1040 ez The other person cannot take any of these tax benefits unless he or she has a different qualifying child. 2012 tax forms 1040 ez The tiebreaker rules, which follow, explain who, if anyone, can claim the EIC when more than one person has the same qualifying child. 2012 tax forms 1040 ez However, the tiebreaker rules do not apply if the other person is your spouse and you file a joint return. 2012 tax forms 1040 ez Tiebreaker rules. 2012 tax forms 1040 ez   To determine which person can treat the child as a qualifying child to claim the six tax benefits just listed, the following tiebreaker rules apply. 2012 tax forms 1040 ez If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. 2012 tax forms 1040 ez If the parents file a joint return together and can claim the child as a qualifying child, the child is treated as the qualifying child of the parents. 2012 tax forms 1040 ez If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. 2012 tax forms 1040 ez If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year. 2012 tax forms 1040 ez If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year. 2012 tax forms 1040 ez If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. 2012 tax forms 1040 ez If the child's parents file a joint return with each other, this rule can be applied by treating the parents' total AGI as divided evenly between them. 2012 tax forms 1040 ez See Example 8. 2012 tax forms 1040 ez   Subject to these tiebreaker rules, you and the other person may be able to choose which of you claims the child as a qualifying child. 2012 tax forms 1040 ez See Examples 1 through 13. 2012 tax forms 1040 ez   If you cannot claim the EIC because your qualifying child is treated under the tiebreaker rules as the qualifying child of another person for 2013, you may be able to take the EIC using a different qualifying child, but you cannot take the EIC using the rules in chapter 3 for people who do not have a qualifying child. 2012 tax forms 1040 ez If the other person cannot claim the EIC. 2012 tax forms 1040 ez   If you and someone else have the same qualifying child but the other person cannot claim the EIC because he or she is not eligible or his or her earned income or AGI is too high, you may be able to treat the child as a qualifying child. 2012 tax forms 1040 ez See Examples 6 and 7. 2012 tax forms 1040 ez But you cannot treat the child as a qualifying child to claim the EIC if the other person uses the child to claim any of the other six tax benefits listed earlier in this chapter. 2012 tax forms 1040 ez Examples. 2012 tax forms 1040 ez    The following examples may help you in determining whether you can claim the EIC when you and someone else have the same qualifying child. 2012 tax forms 1040 ez Example 1—child lived with parent and grandparent. 2012 tax forms 1040 ez You and your 2-year-old son Jimmy lived with your mother all year. 2012 tax forms 1040 ez You are 25 years old, unmarried, and your AGI is $9,000. 2012 tax forms 1040 ez Your only income was $9,000 from a part-time job. 2012 tax forms 1040 ez Your mother's only income was $20,000 from her job, and her AGI is $20,000. 2012 tax forms 1040 ez Jimmy's father did not live with you or Jimmy. 2012 tax forms 1040 ez The special rule explained later for divorced or separated parents (or parents who live apart) does not apply. 2012 tax forms 1040 ez Jimmy is a qualifying child of both you and your mother because he meets the relationship, age, residency, and joint return tests for both you and your mother. 2012 tax forms 1040 ez However, only one of you can treat him as a qualifying child to claim the EIC (and the other tax benefits listed earlier in this chapter for which that person qualifies). 2012 tax forms 1040 ez He is not a qualifying child of anyone else, including his father. 2012 tax forms 1040 ez If you do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can treat him as a qualifying child to claim the EIC (and any of the other tax benefits listed earlier for which she qualifies). 2012 tax forms 1040 ez Example 2—parent has higher AGI than grandparent. 2012 tax forms 1040 ez The facts are the same as in Example 1 except your AGI is $25,000. 2012 tax forms 1040 ez Because your mother's AGI is not higher than yours, she cannot claim Jimmy as a qualifying child. 2012 tax forms 1040 ez Only you can claim him. 2012 tax forms 1040 ez Example 3—two persons claim same child. 2012 tax forms 1040 ez The facts are the same as in Example 1 except that you and your mother both claim Jimmy as a qualifying child. 2012 tax forms 1040 ez In this case, you as the child's parent will be the only one allowed to claim Jimmy as a qualifying child for the EIC and the other tax benefits listed earlier for which you qualify. 2012 tax forms 1040 ez The IRS will disallow your mother's claim to the EIC and any of the other tax benefits listed earlier unless she has another qualifying child. 2012 tax forms 1040 ez Example 4—qualifying children split between two persons. 2012 tax forms 1040 ez The facts are the same as in Example 1 except that you also have two other young children who are qualifying children of both you and your mother. 2012 tax forms 1040 ez Only one of you can claim each child. 2012 tax forms 1040 ez However, if your mother's AGI is higher than yours, you can allow your mother to claim one or more of the children. 2012 tax forms 1040 ez For example, if you claim one child, your mother can claim the other two. 2012 tax forms 1040 ez Example 5—taxpayer who is a qualifying child. 2012 tax forms 1040 ez The facts are the same as in Example 1 except that you are only 18 years old. 2012 tax forms 1040 ez This means you are a qualifying child of your mother. 2012 tax forms 1040 ez Because of Rule 10, discussed next, you cannot claim the EIC and cannot claim your son as a qualifying child. 2012 tax forms 1040 ez Only your mother may be able to treat Jimmy as a qualifying child to claim the EIC. 2012 tax forms 1040 ez If your mother meets all the other requirements for claiming the EIC and you do not claim Jimmy as a qualifying child for any of the other tax benefits listed earlier, your mother can claim both you and Jimmy as qualifying children for the EIC. 2012 tax forms 1040 ez Example 6—grandparent with too much earned income to claim EIC. 2012 tax forms 1040 ez The facts are the same as in Example 1 except that your mother earned $50,000 from her job. 2012 tax forms 1040 ez Because your mother's earned income is too high for her to claim the EIC, only you can claim the EIC using your son. 2012 tax forms 1040 ez Example 7—parent with too much earned income to claim EIC. 2012 tax forms 1040 ez The facts are the same as in Example 1 except that you earned $50,000 from your job and your AGI is $50,500. 2012 tax forms 1040 ez Your earned income is too high for you to claim the EIC. 2012 tax forms 1040 ez But your mother cannot claim the EIC either, because her AGI is not higher than yours. 2012 tax forms 1040 ez Example 8—child lived with both parents and grandparent. 2012 tax forms 1040 ez The facts are the same as in Example 1 except that you and Jimmy's father are married to each other, live with Jimmy and your mother, and have AGI of $30,000 on a joint return. 2012 tax forms 1040 ez If you and your husband do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can claim him instead. 2012 tax forms 1040 ez Even though the AGI on your joint return, $30,000, is more than your mother's AGI of $20,000, for this purpose half of the joint AGI can be treated as yours and half as your husband's. 2012 tax forms 1040 ez In other words, each parent's AGI can be treated as $15,000. 2012 tax forms 1040 ez Example 9—separated parents. 2012 tax forms 1040 ez You, your husband, and your 10-year-old son Joey lived together until August 1, 2013, when your husband moved out of the household. 2012 tax forms 1040 ez In August and September, Joey lived with you. 2012 tax forms 1040 ez For the rest of the year, Joey lived with your husband, who is Joey's father. 2012 tax forms 1040 ez Joey is a qualifying child of both you and your husband because he lived with each of you for more than half the year and because he met the relationship, age, and joint return tests for both of you. 2012 tax forms 1040 ez At the end of the year, you and your husband still were not divorced, legally separated, or separated under a written separation agreement, so the Special rule for divorced or separated parents (or parents who live apart) does not apply. 2012 tax forms 1040 ez You and your husband will file separate returns. 2012 tax forms 1040 ez Your husband agrees to let you treat Joey as a qualifying child. 2012 tax forms 1040 ez This means, if your husband does not claim Joey as a qualifying child for any of the tax benefits listed earlier, you can claim him as a qualifying child for any tax benefit listed earlier for which you qualify. 2012 tax forms 1040 ez However, your filing status is married filing separately, so you cannot claim the EIC or the credit for child and dependent care expenses. 2012 tax forms 1040 ez See Rule 3. 2012 tax forms 1040 ez Example 10—separated parents claim same child. 2012 tax forms 1040 ez The facts are the same as in Example 9 except that you and your husband both claim Joey as a qualifying child. 2012 tax forms 1040 ez In this case, only your husband will be allowed to treat Joey as a qualifying child. 2012 tax forms 1040 ez This is because, during 2013, the boy lived with him longer than with you. 2012 tax forms 1040 ez You cannot claim the EIC (either with or without a qualifying child). 2012 tax forms 1040 ez However, your husband's filing status is married filing separately, so he cannot claim the EIC or the credit for child and dependent care expenses. 2012 tax forms 1040 ez See Rule 3. 2012 tax forms 1040 ez Example 11—unmarried parents. 2012 tax forms 1040 ez You, your 5-year-old son, and your son's father lived together all year. 2012 tax forms 1040 ez You and your son's father are not married. 2012 tax forms 1040 ez Your son is a qualifying child of both you and his father because he meets the relationship, age, residency, and joint return tests for both you and his father. 2012 tax forms 1040 ez Your earned income and AGI are $12,000, and your son's father's earned income and AGI are $14,000. 2012 tax forms 1040 ez Neither of you had any other income. 2012 tax forms 1040 ez Your son's father agrees to let you treat the child as a qualifying child. 2012 tax forms 1040 ez This means, if your son's father does not claim your son as a qualifying child for the EIC or any of the other tax benefits listed earlier, you can claim him as a qualifying child for the EIC and any of the other tax benefits listed earlier for which you qualify. 2012 tax forms 1040 ez Example 12—unmarried parents claim same child. 2012 tax forms 1040 ez The facts are the same as in Example 11 except that you and your son's father both claim your son as a qualifying child. 2012 tax forms 1040 ez In this case, only your son's father will be allowed to treat your son as a qualifying child. 2012 tax forms 1040 ez This is because his AGI, $14,000, is more than your AGI, $12,000. 2012 tax forms 1040 ez You cannot claim the EIC (either with or without a qualifying child). 2012 tax forms 1040 ez Example 13—child did not live with a parent. 2012 tax forms 1040 ez You and your 7-year-old niece, your sister's child, lived with your mother all year. 2012 tax forms 1040 ez You are 25 years old, and your AGI is $9,300. 2012 tax forms 1040 ez Your only income was from a part-time job. 2012 tax forms 1040 ez Your mother's AGI is $15,000. 2012 tax forms 1040 ez Her only income was from her job. 2012 tax forms 1040 ez Your niece's parents file jointly, have an AGI of less than $9,000, and do not live with you or their child. 2012 tax forms 1040 ez Your niece is a qualifying child of both you and your mother because she meets the relationship, age, residency, and joint return tests for both you and your mother. 2012 tax forms 1040 ez However, only your mother can treat her as a qualifying child. 2012 tax forms 1040 ez This is because your mother's AGI, $15,000, is more than your AGI, $9,300. 2012 tax forms 1040 ez Special rule for divorced or separated parents (or parents who live apart). 2012 tax forms 1040 ez   A child will be treated as the qualifying child of his or her noncustodial parent (for purposes of claiming an exemption and the child tax credit, but not for the EIC) if all of the following statements are true. 2012 tax forms 1040 ez The parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Lived apart at all time during the last 6 months of 2013, whether or not they are or were married. 2012 tax forms 1040 ez The child received over half of his or her support for the year from the parents. 2012 tax forms 1040 ez The child is in the custody of one or both parents for more than half of 2013. 2012 tax forms 1040 ez Either of the following statements is true. 2012 tax forms 1040 ez The custodial parent signs Form 8332 or a substantially similar statement that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches the form or statement to his or her return. 2012 tax forms 1040 ez If the divorce decree or separation agreement went into effect after 1984 and before 2009, the noncustodial parent may be able to attach certain pages from the decree or agreement instead of Form 8332. 2012 tax forms 1040 ez A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2013 provides that the noncustodial parent can claim the child as a dependent, and the noncustodial parent provides at least $600 for support of the child during 2013. 2012 tax forms 1040 ez For details, see Publication 501. 2012 tax forms 1040 ez Also see Applying Rule 9 to divorced or separated parents (or parents who live apart), next. 2012 tax forms 1040 ez Applying Rule 9 to divorced or separated parents (or parents who live apart). 2012 tax forms 1040 ez   If a child is treated as the qualifying child of the noncustodial parent under the special rule just described for children of divorced or separated parents (or parents who live apart), only the noncustodial parent can claim an exemption and the child tax credit for the child. 2012 tax forms 1040 ez However, the custodial parent, if eligible, or another eligible taxpayer can claim the child as a qualifying child for the EIC and other tax benefits listed earlier in this chapter. 2012 tax forms 1040 ez If the child is the qualifying child of more than one person for these benefits, then the tiebreaker rules determine which person can treat the child as a qualifying child. 2012 tax forms 1040 ez Example 1. 2012 tax forms 1040 ez You and your 5-year-old son lived all year with your mother, who paid the entire cost of keeping up the home. 2012 tax forms 1040 ez Your AGI is $10,000. 2012 tax forms 1040 ez Your mother’s AGI is $25,000. 2012 tax forms 1040 ez Your son's father did not live with you or your son. 2012 tax forms 1040 ez Under the Special rule for divorced or separated parents (or parents who live apart), your son is treated as the qualifying child of his father, who can claim an exemption and the child tax credit for the child. 2012 tax forms 1040 ez However, your son's father cannot claim your son as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the EIC. 2012 tax forms 1040 ez You and your mother did not have any child care expenses or dependent care benefits. 2012 tax forms 1040 ez If you do not claim your son as a qualifying child, your mother can claim him as a qualifying child for the EIC and head of household filing status, if she qualifies for these tax benefits. 2012 tax forms 1040 ez Example 2. 2012 tax forms 1040 ez The facts are the same as in Example 1 except that your AGI is $25,000 and your mother's AGI is $21,000. 2012 tax forms 1040 ez Your mother cannot claim your son as a qualifying child for any purpose because her AGI is not higher than yours. 2012 tax forms 1040 ez Example 3. 2012 tax forms 1040 ez The facts are the same as in Example 1 except that you and your mother both claim your son as a qualifying child for the EIC. 2012 tax forms 1040 ez Your mother also claims him as a qualifying child for head of household filing status. 2012 tax forms 1040 ez You as the child's parent will be the only one allowed to claim your son as a qualifying child for the EIC. 2012 tax forms 1040 ez The IRS will disallow your mother's claim to the EIC and head of household filing status unless she has another qualifying child. 2012 tax forms 1040 ez Rule 10—You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. 2012 tax forms 1040 ez ) if all of the following statements are true. 2012 tax forms 1040 ez You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. 2012 tax forms 1040 ez Or, you are that person's brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. 2012 tax forms 1040 ez You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student, and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. 2012 tax forms 1040 ez You lived with that person in the United States for more than half of the year. 2012 tax forms 1040 ez You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). 2012 tax forms 1040 ez For more details about the tests to be a qualifying child, see Rule 8. 2012 tax forms 1040 ez If you are a qualifying child of another taxpayer, you cannot claim the EIC. 2012 tax forms 1040 ez This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. 2012 tax forms 1040 ez Put “No” beside line 64a (Form 1040) or line 38a (Form 1040A). 2012 tax forms 1040 ez Example. 2012 tax forms 1040 ez You and your daughter lived with your mother all year. 2012 tax forms 1040 ez You are 22 years old, unmarried, and attended a trade school full time. 2012 tax forms 1040 ez You had a part-time job and earned $5,700. 2012 tax forms 1040 ez You had no other income. 2012 tax forms 1040 ez Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother. 2012 tax forms 1040 ez She can claim the EIC if she meets all the other requirements. 2012 tax forms 1040 ez Because you are your mother's qualifying child, you cannot claim the EIC. 2012 tax forms 1040 ez This is so even if your mother cannot or does not claim the EIC. 2012 tax forms 1040 ez Child of person not required to file a return. 2012 tax forms 1040 ez   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you met the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. 2012 tax forms 1040 ez Example 1—return not required. 2012 tax forms 1040 ez The facts are the same as in the last example except your mother had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. 2012 tax forms 1040 ez As a result, you are not your mother's qualifying child. 2012 tax forms 1040 ez You can claim the EIC if you meet all the other requirements to do so. 2012 tax forms 1040 ez Example 2—return filed to get refund of tax withheld. 2012 tax forms 1040 ez The facts are the same as in Example 1 except your mother had wages of $1,500 and had income tax withheld from her wages. 2012 tax forms 1040 ez She files a return only to get a refund of the income tax withheld and does not claim the EIC or any other tax credits or deductions. 2012 tax forms 1040 ez As a result, you are not your mother's qualifying child. 2012 tax forms 1040 ez You can claim the EIC if you meet all the other requirements to do so. 2012 tax forms 1040 ez Example 3—return filed to get EIC. 2012 tax forms 1040 ez The facts are the same as in Example 2 except your mother claimed the EIC on her return. 2012 tax forms 1040 ez Since she filed the return to get the EIC, she is not filing it only to get a refund of income tax withheld. 2012 tax forms 1040 ez As a result, you are your mother's qualifying child. 2012 tax forms 1040 ez You cannot claim the EIC. 2012 tax forms 1040 ez Chapter 3—Rules If You Do Not Have a Qualifying Child Use this chapter if you do not have a qualifying child and have met all the rules in chapter 1. 2012 tax forms 1040 ez This chapter discusses Rules 11 through 14. 2012 tax forms 1040 ez You must meet all four of those rules, in addition to the rules in chapters 1 and 4, to qualify for the earned income credit without a qualifying child. 2012 tax forms 1040 ez You can file Form 1040, Form 1040A, or Form 1040EZ to claim the EIC without a qualifying child. 2012 tax forms 1040 ez If you meet all the rules in chapter 1 and this chapter, read chapter 4 to find out what to do next. 2012 tax forms 1040 ez If you have a qualifying child. 2012 tax forms 1040 ez   If you meet Rule 8, you have a qualifying child. 2012 tax forms 1040 ez If you meet Rule 8 and do not claim the EIC with a qualifying child, you cannot claim the EIC without a qualifying child. 2012 tax forms 1040 ez Rule 11—You Must Be at Least Age 25 but Under Age 65 You must be at least age 25 but under age 65 at the end of 2013. 2012 tax forms 1040 ez If you are married filing a joint return, either you or your spouse must be at least age 25 but under age 65 at the end of 2013. 2012 tax forms 1040 ez It does not matter which spouse meets the age test, as long as one of the spouses does. 2012 tax forms 1040 ez You meet the age test if you were born after December 31, 1948, and before January 2, 1989. 2012 tax forms 1040 ez If you are married filing a joint return, you meet the age test if either you or your spouse was born after December 31, 1948, and before January 2, 1989. 2012 tax forms 1040 ez If neither you nor your spouse meets the age test, you cannot claim the EIC. 2012 tax forms 1040 ez Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). 2012 tax forms 1040 ez Death of spouse. 2012 tax forms 1040 ez   If you are filing a joint return with your spouse who died in 2013, you meet the age test if your spouse was at least age 25 but under age 65 at the time of death. 2012 tax forms 1040 ez Example 1. 2012 tax forms 1040 ez You are age 28 and unmarried. 2012 tax forms 1040 ez You meet the age test. 2012 tax forms 1040 ez Example 2—spouse meets age test. 2012 tax forms 1040 ez You are married and filing a joint return. 2012 tax forms 1040 ez You are age 23 and your spouse is age 27. 2012 tax forms 1040 ez You meet the age test because your spouse is at least age 25 but under age 65. 2012 tax forms 1040 ez Example 3—spouse dies in 2013. 2012 tax forms 1040 ez You are married and filing a joint return with your spouse who died in August 2013. 2012 tax forms 1040 ez You are age 67. 2012 tax forms 1040 ez Your spouse would have become age 65 in November 2013. 2012 tax forms 1040 ez Because your spouse was under age 65 when she died, you meet the age test. 2012 tax forms 1040 ez Rule 12—You Cannot Be the Dependent of Another Person If you are not filing a joint return, you meet this rule if: You checked box 6a on Form 1040 or 1040A, or You did not check the “You” box on line 5 of Form 1040EZ, and you entered $10,000 on that line. 2012 tax forms 1040 ez If you are filing a joint return, you meet this rule if: You checked both box 6a and box 6b on Form 1040 or 1040A, or You and your spouse did not check either the “You” box or the “Spouse” box on line 5 of Form 1040EZ, and you entered $20,000 on that line. 2012 tax forms 1040 ez If you are not sure whether someone else can claim you as a dependent, get Publication 501 and read the rules for claiming a dependent. 2012 tax forms 1040 ez If someone else can claim you as a dependent on his or her return, but does not, you still cannot claim the credit. 2012 tax forms 1040 ez Example 1. 2012 tax forms 1040 ez In 2013, you were age 25, single, and living at home with your parents. 2012 tax forms 1040 ez You worked and were not a student. 2012 tax forms 1040 ez You earned $7,500. 2012 tax forms 1040 ez Your parents cannot claim you as a dependent. 2012 tax forms 1040 ez When you file your return, you claim an exemption for yourself by not checking the You box on line 5 of your Form 1040EZ and by entering $10,000 on that line. 2012 tax forms 1040 ez You meet this rule. 2012 tax forms 1040 ez You can claim the EIC if you meet all the other requirements. 2012 tax forms 1040 ez Example 2. 2012 tax forms 1040 ez The facts are the same as in Example 1, except that you earned $2,000. 2012 tax forms 1040 ez Your parents can claim you as a dependent but decide not to. 2012 tax forms 1040 ez You do not meet this rule. 2012 tax forms 1040 ez You cannot claim the credit because your parents could have claimed you as a dependent. 2012 tax forms 1040 ez Joint returns. 2012 tax forms 1040 ez   You generally cannot be claimed as a dependent by another person if you are married and file a joint return. 2012 tax forms 1040 ez   However, another person may be able to claim you as a dependent if you and your spouse file a joint return merely to claim a refund of income tax withheld or estimated tax paid. 2012 tax forms 1040 ez But neither you nor your spouse can be claimed as a dependent by another person if you claim the EIC on your joint return. 2012 tax forms 1040 ez Example 1—return filed to get refund of tax withheld. 2012 tax forms 1040 ez You are 26 years old. 2012 tax forms 1040 ez You and your wife live with your parents and had $800 of wages from part-time jobs and no other income. 2012 tax forms 1040 ez Neither you nor your wife is required to file a tax return. 2012 tax forms 1040 ez You do not have a child. 2012 tax forms 1040 ez Taxes were taken out of your pay so you file a joint return only to get a refund of the withheld taxes. 2012 tax forms 1040 ez Your parents are not disqualified from claiming an exemption for you just because you filed a joint return. 2012 tax forms 1040 ez They can claim exemptions for you and your wife if all the other tests to do so are met. 2012 tax forms 1040 ez Example 2—return filed to get EIC. 2012 tax forms 1040 ez The facts are the same as in Example 1except no taxes were taken out of your pay. 2012 tax forms 1040 ez Also, you and your wife are not required to file a tax return, but you file a joint return to claim an EIC of $63 and get a refund of that amount. 2012 tax forms 1040 ez Because claiming the EIC is your reason for filing the return, you are not filing it only to claim a refund of income tax withheld or estimated tax paid. 2012 tax forms 1040 ez Your parents cannot claim an exemption for either you or your wife. 2012 tax forms 1040 ez Rule 13—You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. 2012 tax forms 1040 ez ) if all of the following statements are true. 2012 tax forms 1040 ez You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. 2012 tax forms 1040 ez Or, you are that person's brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. 2012 tax forms 1040 ez You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student, and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. 2012 tax forms 1040 ez You lived with that person in the United States for more than half of the year. 2012 tax forms 1040 ez You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). 2012 tax forms 1040 ez For more details about the tests to be a qualifying child, see Rule 8. 2012 tax forms 1040 ez If you are a qualifying child of another taxpayer, you cannot claim the EIC. 2012 tax forms 1040 ez This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. 2012 tax forms 1040 ez Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). 2012 tax forms 1040 ez Example. 2012 tax forms 1040 ez You lived with your mother all year. 2012 tax forms 1040 ez You are age 26, unmarried, and permanently and totally disabled. 2012 tax forms 1040 ez Your only income was from a community center where you went three days a week to answer telephones. 2012 tax forms 1040 ez You earned $5,000 for the year and provided more than half of your own support. 2012 tax forms 1040 ez Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother for the EIC. 2012 tax forms 1040 ez She can claim the EIC if she meets all the other requirements. 2012 tax forms 1040 ez Because you are a qualifying child of your mother, you cannot claim the EIC. 2012 tax forms 1040 ez This is so even if your mother cannot or does not claim the EIC. 2012 tax forms 1040 ez Joint returns. 2012 tax forms 1040 ez   You generally cannot be a qualifying child of another taxpayer if you are married and file a joint return. 2012 tax forms 1040 ez   However, you may be a qualifying child of another taxpayer if you and your spouse file a joint return merely to claim a refund of income tax withheld or estimated tax paid. 2012 tax forms 1040 ez But neither you nor your spouse can be a qualifying child of another taxpayer if you claim the EIC on your joint return. 2012 tax forms 1040 ez Child of person not required to file a return. 2012 tax forms 1040 ez   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you meet the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. 2012 tax forms 1040 ez Example 1—return not required. 2012 tax forms 1040 ez You lived all year with your father. 2012 tax forms 1040 ez You are 27 years old, unmarried, permanently and totally disabled, and earned $13,000. 2012 tax forms 1040 ez You have no other income, no children, and provided more than half of your own support. 2012 tax forms 1040 ez Your father had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. 2012 tax forms 1040 ez As a result, you are not your father's qualifying child. 2012 tax forms 1040 ez You can claim the EIC if you meet all the other requirements to do so. 2012 tax forms 1040 ez Example 2—return filed to get refund of tax withheld. 2012 tax forms 1040 ez The facts are the same as in Example 1 except your father had wages of $1,500 and had income tax withheld from his wages. 2012 tax forms 1040 ez He files a return only to get a refund of the income tax withheld and does not claim the EIC or any other tax credits or deductions. 2012 tax forms 1040 ez As a result, you are not your father's qualifying child. 2012 tax forms 1040 ez You can claim the EIC if you meet all the other requirements to do so. 2012 tax forms 1040 ez Example 3—return filed to get EIC. 2012 tax forms 1040 ez The facts are the same as in Example 2 except your father claimed the EIC on his return. 2012 tax forms 1040 ez Since he filed the return to get the EIC, he is not filing it only to get a refund of income tax withheld. 2012 tax forms 1040 ez As a result, you are your father's qualifying child. 2012 tax forms 1040 ez You cannot claim the EIC. 2012 tax forms 1040 ez Rule 14—You Must Have Lived in the United States More Than Half of the Year Your home (and your spouse's, if filing a joint return) must have been in the United States for more than half the year. 2012 tax forms 1040 ez If it was not, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). 2012 tax forms 1040 ez United States. 2012 tax forms 1040 ez   This means the 50 states and the District of Columbia. 2012 tax forms 1040 ez It does not include Puerto Rico or U. 2012 tax forms 1040 ez S. 2012 tax forms 1040 ez possessions such as Guam. 2012 tax forms 1040 ez Homeless shelter. 2012 tax forms 1040 ez   Your home can be any location where you regularly live. 2012 tax forms 1040 ez You do not need a traditional home. 2012 tax forms 1040 ez If you lived in one or more homeless shelters in the United States for more than half the year, you meet this rule. 2012 tax forms 1040 ez Military personnel stationed outside the United States. 2012 tax forms 1040 ez   U. 2012 tax forms 1040 ez S. 2012 tax forms 1040 ez military personnel stationed outside the United States on extended active duty (defined in chapter 2) are considered to live in the United States during that duty period for purposes of the EIC. 2012 tax forms 1040 ez Chapter 4—Figuring and Claiming the EIC You must meet one more rule to claim the EIC. 2012 tax forms 1040 ez You need to know the amount of your earned income to see if you meet the rule in this chapter. 2012 tax forms 1040 ez You also need to know that amount to figure your EIC. 2012 tax forms 1040 ez Rule 15—Earned Income Limits Your earned income must be less than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. 2012 tax forms 1040 ez Earned Income Earned income generally means wages, salaries, tips, other taxable employee pay, and net earnings from self-employment. 2012 tax forms 1040 ez Employee pay is earned income only if it is taxable. 2012 tax forms 1040 ez Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. 2012 tax forms 1040 ez But there is an exception for nontaxable combat pay, which you can choose to include in earned income. 2012 tax forms 1040 ez Earned income is explained in detail in Rule 7 in chapter 1. 2012 tax forms 1040 ez Figuring earned income. 2012 tax forms 1040 ez   If you are self-employed, a statutory employee, or a member of the clergy or a church employee who files Schedule SE (Form 1040), you will figure your earned income when you fill out Part 4 of EIC Worksheet B in the Form 1040 instructions. 2012 tax forms 1040 ez   Otherwise, figure your earned income by using the worksheet in Step 5 of the Form 1040 instructions for lines 64a and 64b or the Form 1040A instructions for lines 38a and 38b, or the worksheet in Step 2 of the Form 1040EZ instructions for lines 8a and 8b. 2012 tax forms 1040 ez   When using one of those worksheets to figure your earned income, you will start with the amount on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). 2012 tax forms 1040 ez You will then reduce that amount by any amount included on that line and described in the following list. 2012 tax forms 1040 ez Scholarship or fellowship grants not reported on a Form W-2. 2012 tax forms 1040 ez A scholarship or fellowship grant that was not reported to you on a Form W-2 is not considered earned income for the earned income credit. 2012 tax forms 1040 ez Inmate's income. 2012 tax forms 1040 ez Amounts received for work performed while an inmate in a penal institution are not earned income for the earned income credit. 2012 tax forms 1040 ez This includes amounts received for work performed while in a work release program or while in a halfway house. 2012 tax forms 1040 ez If you received any amount for work done while an inmate in a penal institution and that amount is included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “PRI” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). 2012 tax forms 1040 ez Pension or annuity from deferred compensation plans. 2012 tax forms 1040 ez A pension or annuity from a nonqualified deferred compensation plan or a nongovernmental section 457 plan is not considered earned income for the earned income credit. 2012 tax forms 1040 ez If you received such an amount and it was included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “DFC” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). 2012 tax forms 1040 ez This amount may be reported in box 11 of your Form W-2. 2012 tax forms 1040 ez If you received such an amount but box 11 is blank, contact your employer for the amount received as a pension or an annuity. 2012 tax forms 1040 ez Clergy. 2012 tax forms 1040 ez   If you are a member of the clergy who files Schedule SE and the amount on line 2 of that schedule includes an amount that was also re
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Understanding Your CP161 Notice

You received this notice because of the money you owe from your tax return.


What you need to do

  • Read your notice carefully ― it will explain how much money you owe on your taxes.
  • Check the list of payments we applied to your account to see if we applied all the payments you made.
  • Pay the amount owed by the date on the notice's payment coupon.
  • Make payment arrangements if you can't pay the full amount you owe.

  • You may want to...


    Answers to Common Questions

  • Do I have to pay interest on the amount I owe?
    Interest will accrue on the amount you owe unless you pay it by the requested payment date on the notice’s payment coupon.

  • Do I receive a penalty if I cannot pay the full amount?
    Yes. You usually will receive a late payment penalty. Notice 746, Information About Your Notice, Penalty and Interest has more information about penalties and interest.

  • What happens if I cannot pay the full amount I owe?
    You can arrange to make a payment plan with us if you cannot pay the full amount you owe.

  • How can I set up a payment plan?
    Call the toll-free number listed on the top right corner of your notice to discuss payment options or learn more about payment arrangements here.

  • What should I do if I disagree with the notice?
    Contact us at the toll free number listed on the top right corner of your notice. Please have your documentation (such as cancelled checks, amended return, etc.) ready when you call.

  •  


  • Tips for next year

    Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions for which you may qualify. In many cases, you can file free. Learn more about how to file electronically here.

Page Last Reviewed or Updated: 26-Mar-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The 2012 Tax Forms 1040 Ez

2012 tax forms 1040 ez 2. 2012 tax forms 1040 ez   Depreciation of Rental Property Table of Contents The BasicsWhat Rental Property Can Be Depreciated? When Does Depreciation Begin and End? Depreciation Methods Basis of Depreciable Property Claiming the Special Depreciation Allowance MACRS DepreciationDepreciation Systems Property Classes Under GDS Recovery Periods Under GDS Conventions Figuring Your Depreciation Deduction Figuring MACRS Depreciation Under ADS Claiming the Correct Amount of Depreciation You recover the cost of income producing property through yearly tax deductions. 2012 tax forms 1040 ez You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. 2012 tax forms 1040 ez Three factors determine how much depreciation you can deduct each year: (1) your basis in the property, (2) the recovery period for the property, and (3) the depreciation method used. 2012 tax forms 1040 ez You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures and equipment, as an expense. 2012 tax forms 1040 ez You can deduct depreciation only on the part of your property used for rental purposes. 2012 tax forms 1040 ez Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. 2012 tax forms 1040 ez You may have to use Form 4562 to figure and report your depreciation. 2012 tax forms 1040 ez See Which Forms To Use in chapter 3. 2012 tax forms 1040 ez Also see Publication 946. 2012 tax forms 1040 ez Section 179 deduction. 2012 tax forms 1040 ez   The section 179 deduction is a means of recovering part or all of the cost of certain qualifying property in the year you place the property in service. 2012 tax forms 1040 ez This deduction is not allowed for property used in connection with residential rental property. 2012 tax forms 1040 ez See chapter 2 of Publication 946. 2012 tax forms 1040 ez Alternative minimum tax (AMT). 2012 tax forms 1040 ez   If you use accelerated depreciation, you may be subject to the AMT. 2012 tax forms 1040 ez Accelerated depreciation allows you to deduct more depreciation earlier in the recovery period than you could deduct using a straight line method (same deduction each year). 2012 tax forms 1040 ez   The prescribed depreciation methods for rental real estate are not accelerated, so the depreciation deduction is not adjusted for the AMT. 2012 tax forms 1040 ez However, accelerated methods are generally used for other property connected with rental activities (for example, appliances and wall-to-wall carpeting). 2012 tax forms 1040 ez   To find out if you are subject to the AMT, see the Instructions for Form 6251. 2012 tax forms 1040 ez The Basics The following section discusses the information you will need to have about the rental property and the decisions to be made before figuring your depreciation deduction. 2012 tax forms 1040 ez What Rental Property Can Be Depreciated? You can depreciate your property if it meets all the following requirements. 2012 tax forms 1040 ez You own the property. 2012 tax forms 1040 ez You use the property in your business or income-producing activity (such as rental property). 2012 tax forms 1040 ez The property has a determinable useful life. 2012 tax forms 1040 ez The property is expected to last more than one year. 2012 tax forms 1040 ez Property you own. 2012 tax forms 1040 ez   To claim depreciation, you usually must be the owner of the property. 2012 tax forms 1040 ez You are considered as owning property even if it is subject to a debt. 2012 tax forms 1040 ez Rented property. 2012 tax forms 1040 ez   Generally, if you pay rent for property, you cannot depreciate that property. 2012 tax forms 1040 ez Usually, only the owner can depreciate it. 2012 tax forms 1040 ez However, if you make permanent improvements to leased property, you may be able to depreciate the improvements. 2012 tax forms 1040 ez See Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. 2012 tax forms 1040 ez Cooperative apartments. 2012 tax forms 1040 ez   If you are a tenant-stockholder in a cooperative housing corporation and rent your cooperative apartment to others, you can deduct depreciation on your stock in the corporation. 2012 tax forms 1040 ez See chapter 4, Special Situations. 2012 tax forms 1040 ez Property having a determinable useful life. 2012 tax forms 1040 ez   To be depreciable, your property must have a determinable useful life. 2012 tax forms 1040 ez This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. 2012 tax forms 1040 ez What Rental Property Cannot Be Depreciated? Certain property cannot be depreciated. 2012 tax forms 1040 ez This includes land and certain excepted property. 2012 tax forms 1040 ez Land. 2012 tax forms 1040 ez   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. 2012 tax forms 1040 ez But if it does, the loss is accounted for upon disposition. 2012 tax forms 1040 ez The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. 2012 tax forms 1040 ez   Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. 2012 tax forms 1040 ez These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property. 2012 tax forms 1040 ez Example. 2012 tax forms 1040 ez You built a new house to use as a rental and paid for grading, clearing, seeding, and planting bushes and trees. 2012 tax forms 1040 ez Some of the bushes and trees were planted right next to the house, while others were planted around the outer border of the lot. 2012 tax forms 1040 ez If you replace the house, you would have to destroy the bushes and trees right next to it. 2012 tax forms 1040 ez These bushes and trees are closely associated with the house, so they have a determinable useful life. 2012 tax forms 1040 ez Therefore, you can depreciate them. 2012 tax forms 1040 ez Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. 2012 tax forms 1040 ez Excepted property. 2012 tax forms 1040 ez   Even if the property meets all the requirements listed earlier under What Rental Property Can Be Depreciated , you cannot depreciate the following property. 2012 tax forms 1040 ez Property placed in service and disposed of (or taken out of business use) in the same year. 2012 tax forms 1040 ez Equipment used to build capital improvements. 2012 tax forms 1040 ez You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. 2012 tax forms 1040 ez For more information, see chapter 1 of Publication 946. 2012 tax forms 1040 ez When Does Depreciation Begin and End? You begin to depreciate your rental property when you place it in service for the production of income. 2012 tax forms 1040 ez You stop depreciating it either when you have fully recovered your cost or other basis, or when you retire it from service, whichever happens first. 2012 tax forms 1040 ez Placed in Service You place property in service in a rental activity when it is ready and available for a specific use in that activity. 2012 tax forms 1040 ez Even if you are not using the property, it is in service when it is ready and available for its specific use. 2012 tax forms 1040 ez Example 1. 2012 tax forms 1040 ez On November 22 of last year, you purchased a dishwasher for your rental property. 2012 tax forms 1040 ez The appliance was delivered on December 7, but was not installed and ready for use until January 3 of this year. 2012 tax forms 1040 ez Because the dishwasher was not ready for use last year, it is not considered placed in service until this year. 2012 tax forms 1040 ez If the appliance had been installed and ready for use when it was delivered in December of last year, it would have been considered placed in service in December, even if it was not actually used until this year. 2012 tax forms 1040 ez Example 2. 2012 tax forms 1040 ez On April 6, you purchased a house to use as residential rental property. 2012 tax forms 1040 ez You made extensive repairs to the house and had it ready for rent on July 5. 2012 tax forms 1040 ez You began to advertise the house for rent in July and actually rented it beginning September 1. 2012 tax forms 1040 ez The house is considered placed in service in July when it was ready and available for rent. 2012 tax forms 1040 ez You can begin to depreciate the house in July. 2012 tax forms 1040 ez Example 3. 2012 tax forms 1040 ez You moved from your home in July. 2012 tax forms 1040 ez During August and September you made several repairs to the house. 2012 tax forms 1040 ez On October 1, you listed the property for rent with a real estate company, which rented it on December 1. 2012 tax forms 1040 ez The property is considered placed in service on October 1, the date when it was available for rent. 2012 tax forms 1040 ez Conversion to business use. 2012 tax forms 1040 ez   If you place property in service in a personal activity, you cannot claim depreciation. 2012 tax forms 1040 ez However, if you change the property's use to business or the production of income, you can begin to depreciate it at the time of the change. 2012 tax forms 1040 ez You place the property in service for business or income-producing use on the date of the change. 2012 tax forms 1040 ez Example. 2012 tax forms 1040 ez You bought a house and used it as your personal home several years before you converted it to rental property. 2012 tax forms 1040 ez Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. 2012 tax forms 1040 ez You can begin to claim depreciation in the year you converted it to rental property because at that time its use changed to the production of income. 2012 tax forms 1040 ez Idle Property Continue to claim a deduction for depreciation on property used in your rental activity even if it is temporarily idle (not in use). 2012 tax forms 1040 ez For example, if you must make repairs after a tenant moves out, you still depreciate the rental property during the time it is not available for rent. 2012 tax forms 1040 ez Cost or Other Basis Fully Recovered You must stop depreciating property when the total of your yearly depreciation deductions equals your cost or other basis of your property. 2012 tax forms 1040 ez For this purpose, your yearly depreciation deductions include any depreciation that you were allowed to claim, even if you did not claim it. 2012 tax forms 1040 ez See Basis of Depreciable Property , later. 2012 tax forms 1040 ez Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. 2012 tax forms 1040 ez You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. 2012 tax forms 1040 ez You sell or exchange the property. 2012 tax forms 1040 ez You convert the property to personal use. 2012 tax forms 1040 ez You abandon the property. 2012 tax forms 1040 ez The property is destroyed. 2012 tax forms 1040 ez Depreciation Methods Generally, you must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate residential rental property placed in service after 1986. 2012 tax forms 1040 ez If you placed rental property in service before 1987, you are using one of the following methods. 2012 tax forms 1040 ez ACRS (Accelerated Cost Recovery System) for property placed in service after 1980 but before 1987. 2012 tax forms 1040 ez Straight line or declining balance method over the useful life of property placed in service before 1981. 2012 tax forms 1040 ez See MACRS Depreciation , later, for more information. 2012 tax forms 1040 ez Rental property placed in service before 2013. 2012 tax forms 1040 ez   Continue to use the same method of figuring depreciation that you used in the past. 2012 tax forms 1040 ez Use of real property changed. 2012 tax forms 1040 ez   Generally, you must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986. 2012 tax forms 1040 ez This includes your residence that you changed to rental use. 2012 tax forms 1040 ez See Property Owned or Used in 1986 in Publication 946, chapter 1, for those situations in which MACRS is not allowed. 2012 tax forms 1040 ez Improvements made after 1986. 2012 tax forms 1040 ez   Treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. 2012 tax forms 1040 ez As a result, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. 2012 tax forms 1040 ez For more information about improvements, see Additions or improvements to property , later in this chapter under Recovery Periods Under GDS. 2012 tax forms 1040 ez This publication discusses MACRS depreciation only. 2012 tax forms 1040 ez If you need information about depreciating property placed in service before 1987, see Publication 534. 2012 tax forms 1040 ez Basis of Depreciable Property The basis of property used in a rental activity is generally its adjusted basis when you place it in service in that activity. 2012 tax forms 1040 ez This is its cost or other basis when you acquired it, adjusted for certain items occurring before you place it in service in the rental activity. 2012 tax forms 1040 ez If you depreciate your property under MACRS, you may also have to reduce your basis by certain deductions and credits with respect to the property. 2012 tax forms 1040 ez Basis and adjusted basis are explained in the following discussions. 2012 tax forms 1040 ez If you used the property for personal purposes before changing it to rental use, its basis for depreciation is the lesser of its adjusted basis or its fair market value when you change it to rental use. 2012 tax forms 1040 ez See Basis of Property Changed to Rental Use in chapter 4. 2012 tax forms 1040 ez Cost Basis The basis of property you buy is usually its cost. 2012 tax forms 1040 ez The cost is the amount you pay for it in cash, in debt obligation, in other property, or in services. 2012 tax forms 1040 ez Your cost also includes amounts you pay for: Sales tax charged on the purchase (but see Exception next), Freight charges to obtain the property, and Installation and testing charges. 2012 tax forms 1040 ez Exception. 2012 tax forms 1040 ez   If you deducted state and local general sales taxes as an itemized deduction on Schedule A (Form 1040), do not include those sales taxes as part of your cost basis. 2012 tax forms 1040 ez Such taxes were deductible before 1987 and after 2003. 2012 tax forms 1040 ez Loans with low or no interest. 2012 tax forms 1040 ez   If you buy property on any time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, less the amount considered to be unstated interest. 2012 tax forms 1040 ez See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. 2012 tax forms 1040 ez Real property. 2012 tax forms 1040 ez   If you buy real property, such as a building and land, certain fees and other expenses you pay are part of your cost basis in the property. 2012 tax forms 1040 ez Real estate taxes. 2012 tax forms 1040 ez   If you buy real property and agree to pay real estate taxes on it that were owed by the seller and the seller does not reimburse you, the taxes you pay are treated as part of your basis in the property. 2012 tax forms 1040 ez You cannot deduct them as taxes paid. 2012 tax forms 1040 ez   If you reimburse the seller for real estate taxes the seller paid for you, you can usually deduct that amount. 2012 tax forms 1040 ez Do not include that amount in your basis in the property. 2012 tax forms 1040 ez Settlement fees and other costs. 2012 tax forms 1040 ez   The following settlement fees and closing costs for buying the property are part of your basis in the property. 2012 tax forms 1040 ez Abstract fees. 2012 tax forms 1040 ez Charges for installing utility services. 2012 tax forms 1040 ez Legal fees. 2012 tax forms 1040 ez Recording fees. 2012 tax forms 1040 ez Surveys. 2012 tax forms 1040 ez Transfer taxes. 2012 tax forms 1040 ez Title insurance. 2012 tax forms 1040 ez Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. 2012 tax forms 1040 ez   The following are settlement fees and closing costs you cannot include in your basis in the property. 2012 tax forms 1040 ez Fire insurance premiums. 2012 tax forms 1040 ez Rent or other charges relating to occupancy of the property before closing. 2012 tax forms 1040 ez Charges connected with getting or refinancing a loan, such as: Points (discount points, loan origination fees), Mortgage insurance premiums, Loan assumption fees, Cost of a credit report, and Fees for an appraisal required by a lender. 2012 tax forms 1040 ez   Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. 2012 tax forms 1040 ez Assumption of a mortgage. 2012 tax forms 1040 ez   If you buy property and become liable for an existing mortgage on the property, your basis is the amount you pay for the property plus the amount remaining to be paid on the mortgage. 2012 tax forms 1040 ez Example. 2012 tax forms 1040 ez You buy a building for $60,000 cash and assume a mortgage of $240,000 on it. 2012 tax forms 1040 ez Your basis is $300,000. 2012 tax forms 1040 ez Separating cost of land and buildings. 2012 tax forms 1040 ez   If you buy buildings and your cost includes the cost of the land on which they stand, you must divide the cost between the land and the buildings to figure the basis for depreciation of the buildings. 2012 tax forms 1040 ez The part of the cost that you allocate to each asset is the ratio of the fair market value of that asset to the fair market value of the whole property at the time you buy it. 2012 tax forms 1040 ez   If you are not certain of the fair market values of the land and the buildings, you can divide the cost between them based on their assessed values for real estate tax purposes. 2012 tax forms 1040 ez Example. 2012 tax forms 1040 ez You buy a house and land for $200,000. 2012 tax forms 1040 ez The purchase contract does not specify how much of the purchase price is for the house and how much is for the land. 2012 tax forms 1040 ez The latest real estate tax assessment on the property was based on an assessed value of $160,000, of which $136,000 was for the house and $24,000 was for the land. 2012 tax forms 1040 ez You can allocate 85% ($136,000 ÷ $160,000) of the purchase price to the house and 15% ($24,000 ÷ $160,000) of the purchase price to the land. 2012 tax forms 1040 ez Your basis in the house is $170,000 (85% of $200,000) and your basis in the land is $30,000 (15% of $200,000). 2012 tax forms 1040 ez Basis Other Than Cost You cannot use cost as a basis for property that you received: In return for services you performed; In an exchange for other property; As a gift; From your spouse, or from your former spouse as the result of a divorce; or As an inheritance. 2012 tax forms 1040 ez If you received property in one of these ways, see Publication 551 for information on how to figure your basis. 2012 tax forms 1040 ez Adjusted Basis To figure your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service for business or the production of income. 2012 tax forms 1040 ez The result of these adjustments to the basis is the adjusted basis. 2012 tax forms 1040 ez Increases to basis. 2012 tax forms 1040 ez   You must increase the basis of any property by the cost of all items properly added to a capital account. 2012 tax forms 1040 ez These include the following. 2012 tax forms 1040 ez The cost of any additions or improvements made before placing your property into service as a rental that have a useful life of more than 1 year. 2012 tax forms 1040 ez Amounts spent after a casualty to restore the damaged property. 2012 tax forms 1040 ez The cost of extending utility service lines to the property. 2012 tax forms 1040 ez Legal fees, such as the cost of defending and perfecting title, or settling zoning issues. 2012 tax forms 1040 ez Additions or improvements. 2012 tax forms 1040 ez   Add to the basis of your property the amount an addition or improvement actually cost you, including any amount you borrowed to make the addition or improvement. 2012 tax forms 1040 ez This includes all direct costs, such as material and labor, but does not include your own labor. 2012 tax forms 1040 ez It also includes all expenses related to the addition or improvement. 2012 tax forms 1040 ez   For example, if you had an architect draw up plans for remodeling your property, the architect's fee is a part of the cost of the remodeling. 2012 tax forms 1040 ez Or, if you had your lot surveyed to put up a fence, the cost of the survey is a part of the cost of the fence. 2012 tax forms 1040 ez   Keep separate accounts for depreciable additions or improvements made after you place the property in service in your rental activity. 2012 tax forms 1040 ez For information on depreciating additions or improvements, see Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. 2012 tax forms 1040 ez    The cost of landscaping improvements is usually treated as an addition to the basis of the land, which is not depreciable. 2012 tax forms 1040 ez However, see What Rental Property Cannot Be Depreciated, earlier. 2012 tax forms 1040 ez Assessments for local improvements. 2012 tax forms 1040 ez   Assessments for items which tend to increase the value of property, such as streets and sidewalks, must be added to the basis of the property. 2012 tax forms 1040 ez For example, if your city installs curbing on the street in front of your house, and assesses you and your neighbors for its cost, you must add the assessment to the basis of your property. 2012 tax forms 1040 ez Also add the cost of legal fees paid to obtain a decrease in an assessment levied against property to pay for local improvements. 2012 tax forms 1040 ez You cannot deduct these items as taxes or depreciate them. 2012 tax forms 1040 ez    However, you can deduct as taxes, charges or assessments for maintenance, repairs, or interest charges related to the improvements. 2012 tax forms 1040 ez Do not add them to your basis in the property. 2012 tax forms 1040 ez Deducting vs. 2012 tax forms 1040 ez capitalizing costs. 2012 tax forms 1040 ez   Do not add to your basis costs you can deduct as current expenses. 2012 tax forms 1040 ez However, there are certain costs you can choose either to deduct or to capitalize. 2012 tax forms 1040 ez If you capitalize these costs, include them in your basis. 2012 tax forms 1040 ez If you deduct them, do not include them in your basis. 2012 tax forms 1040 ez   The costs you may choose to deduct or capitalize include carrying charges, such as interest and taxes, that you must pay to own property. 2012 tax forms 1040 ez   For more information about deducting or capitalizing costs and how to make the election, see Carrying Charges in Publication 535, chapter 7. 2012 tax forms 1040 ez Decreases to basis. 2012 tax forms 1040 ez   You must decrease the basis of your property by any items that represent a return of your cost. 2012 tax forms 1040 ez These include the following. 2012 tax forms 1040 ez Insurance or other payment you receive as the result of a casualty or theft loss. 2012 tax forms 1040 ez Casualty loss not covered by insurance for which you took a deduction. 2012 tax forms 1040 ez Amount(s) you receive for granting an easement. 2012 tax forms 1040 ez Residential energy credits you were allowed before 1986, or after 2005, if you added the cost of the energy items to the basis of your home. 2012 tax forms 1040 ez Exclusion from income of subsidies for energy conservation measures. 2012 tax forms 1040 ez Special depreciation allowance claimed on qualified property. 2012 tax forms 1040 ez Depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. 2012 tax forms 1040 ez If you did not deduct enough or deducted too much in any year, see Depreciation under Decreases to Basis in Publication 551. 2012 tax forms 1040 ez   If your rental property was previously used as your main home, you must also decrease the basis by the following. 2012 tax forms 1040 ez Gain you postponed from the sale of your main home before May 7, 1997, if the replacement home was converted to your rental property. 2012 tax forms 1040 ez District of Columbia first-time homebuyer credit allowed on the purchase of your main home after August 4, 1997 and before January 1, 2012. 2012 tax forms 1040 ez Amount of qualified principal residence indebtedness discharged on or after January 1, 2007. 2012 tax forms 1040 ez Claiming the Special Depreciation Allowance For 2013, your residential rental property may qualify for a special depreciation allowance. 2012 tax forms 1040 ez This allowance is figured before you figure your regular depreciation deduction. 2012 tax forms 1040 ez See Publication 946, chapter 3, for details. 2012 tax forms 1040 ez Also see the Instructions for Form 4562, Line 14. 2012 tax forms 1040 ez If you qualify for, but choose not to take, a special depreciation allowance, you must attach a statement to your return. 2012 tax forms 1040 ez The details of this election are in Publication 946, chapter 3, and the Instructions for Form 4562, Line 14. 2012 tax forms 1040 ez MACRS Depreciation Most business and investment property placed in service after 1986 is depreciated using MACRS. 2012 tax forms 1040 ez This section explains how to determine which MACRS depreciation system applies to your property. 2012 tax forms 1040 ez It also discusses other information you need to know before you can figure depreciation under MACRS. 2012 tax forms 1040 ez This information includes the property's: Recovery class, Applicable recovery period, Convention, Placed-in-service date, Basis for depreciation, and Depreciation method. 2012 tax forms 1040 ez Depreciation Systems MACRS consists of two systems that determine how you depreciate your property—the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). 2012 tax forms 1040 ez You must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. 2012 tax forms 1040 ez Excluded Property You cannot use MACRS for certain personal property (such as furniture or appliances) placed in service in your rental property in 2013 if it had been previously placed in service before 1987 when MACRS became effective. 2012 tax forms 1040 ez In most cases, personal property is excluded from MACRS if you (or a person related to you) owned or used it in 1986 or if your tenant is a person (or someone related to the person) who owned or used it in 1986. 2012 tax forms 1040 ez However, the property is not excluded if your 2013 deduction under MACRS (using a half-year convention) is less than the deduction you would have under ACRS. 2012 tax forms 1040 ez For more information, see What Method Can You Use To Depreciate Your Property? in Publication 946, chapter 1. 2012 tax forms 1040 ez Electing ADS If you choose, you can use the ADS method for most property. 2012 tax forms 1040 ez Under ADS, you use the straight line method of depreciation. 2012 tax forms 1040 ez The election of ADS for one item in a class of property generally applies to all property in that class that is placed in service during the tax year of the election. 2012 tax forms 1040 ez However, the election applies on a property-by-property basis for residential rental property and nonresidential real property. 2012 tax forms 1040 ez If you choose to use ADS for your residential rental property, the election must be made in the first year the property is placed in service. 2012 tax forms 1040 ez Once you make this election, you can never revoke it. 2012 tax forms 1040 ez For property placed in service during 2013, you make the election to use ADS by entering the depreciation on Form 4562, Part III, Section C, line 20c. 2012 tax forms 1040 ez Property Classes Under GDS Each item of property that can be depreciated under MACRS is assigned to a property class, determined by its class life. 2012 tax forms 1040 ez The property class generally determines the depreciation method, recovery period, and convention. 2012 tax forms 1040 ez The property classes under GDS are: 3-year property, 5-year property, 7-year property, 10-year property, 15-year property, 20-year property, Nonresidential real property, and Residential rental property. 2012 tax forms 1040 ez Under MACRS, property that you placed in service during 2013 in your rental activities generally falls into one of the following classes. 2012 tax forms 1040 ez 5-year property. 2012 tax forms 1040 ez This class includes computers and peripheral equipment, office machinery (typewriters, calculators, copiers, etc. 2012 tax forms 1040 ez ), automobiles, and light trucks. 2012 tax forms 1040 ez This class also includes appliances, carpeting, furniture, etc. 2012 tax forms 1040 ez , used in a residential rental real estate activity. 2012 tax forms 1040 ez Depreciation on automobiles, other property used for transportation, computers and related peripheral equipment, and property of a type generally used for entertainment, recreation, or amusement is limited. 2012 tax forms 1040 ez See chapter 5 of Publication 946. 2012 tax forms 1040 ez 7-year property. 2012 tax forms 1040 ez This class includes office furniture and equipment (desks, file cabinets, etc. 2012 tax forms 1040 ez ). 2012 tax forms 1040 ez This class also includes any property that does not have a class life and that has not been designated by law as being in any other class. 2012 tax forms 1040 ez 15-year property. 2012 tax forms 1040 ez This class includes roads, fences, and shrubbery (if depreciable). 2012 tax forms 1040 ez Residential rental property. 2012 tax forms 1040 ez This class includes any real property that is a rental building or structure (including a mobile home) for which 80% or more of the gross rental income for the tax year is from dwelling units. 2012 tax forms 1040 ez It does not include a unit in a hotel, motel, inn, or other establishment where more than half of the units are used on a transient basis. 2012 tax forms 1040 ez If you live in any part of the building or structure, the gross rental income includes the fair rental value of the part you live in. 2012 tax forms 1040 ez The other property classes do not generally apply to property used in rental activities. 2012 tax forms 1040 ez These classes are not discussed in this publication. 2012 tax forms 1040 ez See Publication 946 for more information. 2012 tax forms 1040 ez Recovery Periods Under GDS The recovery period of property is the number of years over which you recover its cost or other basis. 2012 tax forms 1040 ez The recovery periods are generally longer under ADS than GDS. 2012 tax forms 1040 ez The recovery period of property depends on its property class. 2012 tax forms 1040 ez Under GDS, the recovery period of an asset is generally the same as its property class. 2012 tax forms 1040 ez Class lives and recovery periods for most assets are listed in Appendix B of Publication 946. 2012 tax forms 1040 ez See Table 2-1 for recovery periods of property commonly used in residential rental activities. 2012 tax forms 1040 ez Qualified Indian reservation property. 2012 tax forms 1040 ez   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations. 2012 tax forms 1040 ez For more information, see chapter 4 of Publication 946. 2012 tax forms 1040 ez Additions or improvements to property. 2012 tax forms 1040 ez   Treat additions or improvements you make to your depreciable rental property as separate property items for depreciation purposes. 2012 tax forms 1040 ez   The property class and recovery period of the addition or improvement is the one that would apply to the original property if you had placed it in service at the same time as the addition or improvement. 2012 tax forms 1040 ez   The recovery period for an addition or improvement to property begins on the later of: The date the addition or improvement is placed in service, or The date the property to which the addition or improvement was made is placed in service. 2012 tax forms 1040 ez Example. 2012 tax forms 1040 ez You own a residential rental house that you have been renting since 1986 and depreciating under ACRS. 2012 tax forms 1040 ez You built an addition onto the house and placed it in service in 2013. 2012 tax forms 1040 ez You must use MACRS for the addition. 2012 tax forms 1040 ez Under GDS, the addition is depreciated as residential rental property over 27. 2012 tax forms 1040 ez 5 years. 2012 tax forms 1040 ez Table 2-1. 2012 tax forms 1040 ez MACRS Recovery Periods for Property Used in Rental Activities   MACRS Recovery Period   Type of Property General Depreciation System Alternative Depreciation System   Computers and their peripheral equipment 5 years 5 years   Office machinery, such as: Typewriters Calculators Copiers 5 years 6 years   Automobiles 5 years 5 years   Light trucks 5 years 5 years   Appliances, such as: Stoves Refrigerators 5 years 9 years   Carpets 5 years 9 years   Furniture used in rental property 5 years 9 years   Office furniture and equipment, such as: Desks Files 7 years 10 years   Any property that does not have a class life and that has not been designated by law as being in any other class 7 years 12 years   Roads 15 years 20 years   Shrubbery 15 years 20 years   Fences 15 years 20 years   Residential rental property (buildings or structures) and structural components such as furnaces, waterpipes, venting, etc. 2012 tax forms 1040 ez 27. 2012 tax forms 1040 ez 5 years 40 years   Additions and improvements, such as a new roof The same recovery period as that of the property to which the addition or improvement is made, determined as if the property were placed in service at the same time as the addition or improvement. 2012 tax forms 1040 ez   Conventions A convention is a method established under MACRS to set the beginning and end of the recovery period. 2012 tax forms 1040 ez The convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year you dispose of the property. 2012 tax forms 1040 ez Mid-month convention. 2012 tax forms 1040 ez    A mid-month convention is used for all residential rental property and nonresidential real property. 2012 tax forms 1040 ez Under this convention, you treat all property placed in service, or disposed of, during any month as placed in service, or disposed of, at the midpoint of that month. 2012 tax forms 1040 ez Mid-quarter convention. 2012 tax forms 1040 ez   A mid-quarter convention must be used if the mid-month convention does not apply and the total depreciable basis of MACRS property placed in service in the last 3 months of a tax year (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) is more than 40% of the total basis of all such property you place in service during the year. 2012 tax forms 1040 ez   Under this convention, you treat all property placed in service, or disposed of, during any quarter of a tax year as placed in service, or disposed of, at the midpoint of the quarter. 2012 tax forms 1040 ez Example. 2012 tax forms 1040 ez During the tax year, Tom Martin purchased the following items to use in his rental property. 2012 tax forms 1040 ez He elects not to claim the special depreciation allowance discussed earlier. 2012 tax forms 1040 ez A dishwasher for $400 that he placed in service in January. 2012 tax forms 1040 ez Used furniture for $100 that he placed in service in September. 2012 tax forms 1040 ez A refrigerator for $800 that he placed in service in October. 2012 tax forms 1040 ez Tom uses the calendar year as his tax year. 2012 tax forms 1040 ez The total basis of all property placed in service that year is $1,300. 2012 tax forms 1040 ez The $800 basis of the refrigerator placed in service during the last 3 months of his tax year exceeds $520 (40% × $1,300). 2012 tax forms 1040 ez Tom must use the mid-quarter convention instead of the half-year convention for all three items. 2012 tax forms 1040 ez Half-year convention. 2012 tax forms 1040 ez    The half-year convention is used if neither the mid-quarter convention nor the mid-month convention applies. 2012 tax forms 1040 ez Under this convention, you treat all property placed in service, or disposed of, during a tax year as placed in service, or disposed of, at the midpoint of that tax year. 2012 tax forms 1040 ez   If this convention applies, you deduct a half year of depreciation for the first year and the last year that you depreciate the property. 2012 tax forms 1040 ez You deduct a full year of depreciation for any other year during the recovery period. 2012 tax forms 1040 ez Figuring Your Depreciation Deduction You can figure your MACRS depreciation deduction in one of two ways. 2012 tax forms 1040 ez The deduction is substantially the same both ways. 2012 tax forms 1040 ez You can either: Actually compute the deduction using the depreciation method and convention that apply over the recovery period of the property, or Use the percentage from the MACRS percentage tables. 2012 tax forms 1040 ez In this publication we will use the percentage tables. 2012 tax forms 1040 ez For instructions on how to compute the deduction, see chapter 4 of Publication 946. 2012 tax forms 1040 ez Residential rental property. 2012 tax forms 1040 ez   You must use the straight line method and a mid-month convention for residential rental property. 2012 tax forms 1040 ez In the first year that you claim depreciation for residential rental property, you can claim depreciation only for the number of months the property is in use, and you must use the mid-month convention (explained under Conventions , earlier). 2012 tax forms 1040 ez 5-, 7-, or 15-year property. 2012 tax forms 1040 ez   For property in the 5- or 7-year class, use the 200% declining balance method and a half-year convention. 2012 tax forms 1040 ez However, in limited cases you must use the mid-quarter convention, if it applies. 2012 tax forms 1040 ez For property in the 15-year class, use the 150% declining balance method and a half-year convention. 2012 tax forms 1040 ez   You can also choose to use the 150% declining balance method for property in the 5- or 7-year class. 2012 tax forms 1040 ez The choice to use the 150% method for one item in a class of property applies to all property in that class that is placed in service during the tax year of the election. 2012 tax forms 1040 ez You make this election on Form 4562. 2012 tax forms 1040 ez In Part III, column (f), enter “150 DB. 2012 tax forms 1040 ez ” Once you make this election, you cannot change to another method. 2012 tax forms 1040 ez   If you use either the 200% or 150% declining balance method, you figure your deduction using the straight line method in the first tax year that the straight line method gives you an equal or larger deduction. 2012 tax forms 1040 ez   You can also choose to use the straight line method with a half-year or mid-quarter convention for 5-, 7-, or 15-year property. 2012 tax forms 1040 ez The choice to use the straight line method for one item in a class of property applies to all property in that class that is placed in service during the tax year of the election. 2012 tax forms 1040 ez You elect the straight line method on Form 4562. 2012 tax forms 1040 ez In Part III, column (f), enter “S/L. 2012 tax forms 1040 ez ” Once you make this election, you cannot change to another method. 2012 tax forms 1040 ez MACRS Percentage Tables You can use the percentages in Table 2-2, earlier, to compute annual depreciation under MACRS. 2012 tax forms 1040 ez The tables show the percentages for the first few years or until the change to the straight line method is made. 2012 tax forms 1040 ez See Appendix A of Publication 946 for complete tables. 2012 tax forms 1040 ez The percentages in Tables 2-2a, 2-2b, and 2-2c make the change from declining balance to straight line in the year that straight line will give a larger deduction. 2012 tax forms 1040 ez If you elect to use the straight line method for 5-, 7-, or 15-year property, or the 150% declining balance method for 5- or 7-year property, use the tables in Appendix A of Publication 946. 2012 tax forms 1040 ez How to use the percentage tables. 2012 tax forms 1040 ez   You must apply the table rates to your property's unadjusted basis (defined below) each year of the recovery period. 2012 tax forms 1040 ez   Once you begin using a percentage table to figure depreciation, you must continue to use it for the entire recovery period unless there is an adjustment to the basis of your property for a reason other than: Depreciation allowed or allowable, or An addition or improvement that is depreciated as a separate item of property. 2012 tax forms 1040 ez   If there is an adjustment for any reason other than (1) or (2), for example, because of a deductible casualty loss, you can no longer use the table. 2012 tax forms 1040 ez For the year of the adjustment and for the remaining recovery period, figure depreciation using the property's adjusted basis at the end of the year and the appropriate depreciation method, as explained earlier under Figuring Your Depreciation Deduction . 2012 tax forms 1040 ez See Figuring the Deduction Without Using the Tables in Publication 946, chapter 4. 2012 tax forms 1040 ez Unadjusted basis. 2012 tax forms 1040 ez   This is the same basis you would use to figure gain on a sale (see Basis of Depreciable Property , earlier), but without reducing your original basis by any MACRS depreciation taken in earlier years. 2012 tax forms 1040 ez   However, you do reduce your original basis by other amounts claimed on the property, including: Any amortization, Any section 179 deduction, and Any special depreciation allowance. 2012 tax forms 1040 ez For more information, see chapter 4 of Publication 946. 2012 tax forms 1040 ez Please click here for the text description of the image. 2012 tax forms 1040 ez Table 2-2 Tables 2-2a, 2-2b, and 2-2c. 2012 tax forms 1040 ez   The percentages in these tables take into account the half-year and mid-quarter conventions. 2012 tax forms 1040 ez Use Table 2-2a for 5-year property, Table 2-2b for 7-year property, and Table 2-2c for 15-year property. 2012 tax forms 1040 ez Use the percentage in the second column (half-year convention) unless you are required to use the mid-quarter convention (explained earlier). 2012 tax forms 1040 ez If you must use the mid-quarter convention, use the column that corresponds to the calendar year quarter in which you placed the property in service. 2012 tax forms 1040 ez Example 1. 2012 tax forms 1040 ez You purchased a stove and refrigerator and placed them in service in June. 2012 tax forms 1040 ez Your basis in the stove is $600 and your basis in the refrigerator is $1,000. 2012 tax forms 1040 ez Both are 5-year property. 2012 tax forms 1040 ez Using the half-year convention column in Table 2-2a, the depreciation percentage for Year 1 is 20%. 2012 tax forms 1040 ez For that year your depreciation deduction is $120 ($600 × . 2012 tax forms 1040 ez 20) for the stove and $200 ($1,000 × . 2012 tax forms 1040 ez 20) for the refrigerator. 2012 tax forms 1040 ez For Year 2, the depreciation percentage is 32%. 2012 tax forms 1040 ez That year's depreciation deduction will be $192 ($600 × . 2012 tax forms 1040 ez 32) for the stove and $320 ($1,000 × . 2012 tax forms 1040 ez 32) for the refrigerator. 2012 tax forms 1040 ez Example 2. 2012 tax forms 1040 ez Assume the same facts as in Example 1, except you buy the refrigerator in October instead of June. 2012 tax forms 1040 ez Since the refrigerator was placed in service in the last 3 months of the tax year, and its basis ($1,000) is more than 40% of the total basis of all property placed in service during the year ($1,600 × . 2012 tax forms 1040 ez 40 = $640), you are required to use the mid-quarter convention to figure depreciation on both the stove and refrigerator. 2012 tax forms 1040 ez Because you placed the refrigerator in service in October, you use the fourth quarter column of Table 2-2a and find the depreciation percentage for Year 1 is 5%. 2012 tax forms 1040 ez Your depreciation deduction for the refrigerator is $50 ($1,000 x . 2012 tax forms 1040 ez 05). 2012 tax forms 1040 ez Because you placed the stove in service in June, you use the second quarter column of Table 2-2a and find the depreciation percentage for Year 1 is 25%. 2012 tax forms 1040 ez For that year, your depreciation deduction for the stove is $150 ($600 x . 2012 tax forms 1040 ez 25). 2012 tax forms 1040 ez Table 2-2d. 2012 tax forms 1040 ez    Use this table when you are using the GDS 27. 2012 tax forms 1040 ez 5 year option for residential rental property. 2012 tax forms 1040 ez Find the row for the month that you placed the property in service. 2012 tax forms 1040 ez Use the percentages listed for that month to figure your depreciation deduction. 2012 tax forms 1040 ez The mid-month convention is taken into account in the percentages shown in the table. 2012 tax forms 1040 ez Continue to use the same row (month) under the column for the appropriate year. 2012 tax forms 1040 ez Example. 2012 tax forms 1040 ez You purchased a single family rental house for $185,000 and placed it in service on February 8. 2012 tax forms 1040 ez The sales contract showed that the building cost $160,000 and the land cost $25,000. 2012 tax forms 1040 ez Your basis for depreciation is its original cost, $160,000. 2012 tax forms 1040 ez This is the first year of service for your residential rental property and you decide to use GDS which has a recovery period of 27. 2012 tax forms 1040 ez 5 years. 2012 tax forms 1040 ez Using Table 2-2d, you find that the percentage for property placed in service in February of Year 1 is 3. 2012 tax forms 1040 ez 182%. 2012 tax forms 1040 ez That year's depreciation deduction is $5,091 ($160,000 x . 2012 tax forms 1040 ez 03182). 2012 tax forms 1040 ez Figuring MACRS Depreciation Under ADS Table 2–1, earlier, shows the ADS recovery periods for property used in rental activities. 2012 tax forms 1040 ez See Appendix B in Publication 946 for other property. 2012 tax forms 1040 ez If your property is not listed in Appendix B, it is considered to have no class life. 2012 tax forms 1040 ez Under ADS, personal property with no class life is depreciated using a recovery period of 12 years. 2012 tax forms 1040 ez Use the mid-month convention for residential rental property and nonresidential real property. 2012 tax forms 1040 ez For all other property, use the half-year or mid-quarter convention, as appropriate. 2012 tax forms 1040 ez See Publication 946 for ADS depreciation tables. 2012 tax forms 1040 ez Claiming the Correct Amount of Depreciation You should claim the correct amount of depreciation each tax year. 2012 tax forms 1040 ez If you did not claim all the depreciation you were entitled to deduct, you must still reduce your basis in the property by the full amount of depreciation that you could have deducted. 2012 tax forms 1040 ez For more information, see Depreciation under Decreases to Basis in Publication 551. 2012 tax forms 1040 ez If you deducted an incorrect amount of depreciation for property in any year, you may be able to make a correction by filing Form 1040X, Amended U. 2012 tax forms 1040 ez S. 2012 tax forms 1040 ez Individual Income Tax Return. 2012 tax forms 1040 ez If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amount of depreciation. 2012 tax forms 1040 ez Filing an amended return. 2012 tax forms 1040 ez   You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. 2012 tax forms 1040 ez You claimed the incorrect amount because of a mathematical error made in any year. 2012 tax forms 1040 ez You claimed the incorrect amount because of a posting error made in any year. 2012 tax forms 1040 ez You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. 2012 tax forms 1040 ez You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. 2012 tax forms 1040 ez   Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return for the property used in your rental activity. 2012 tax forms 1040 ez This also occurs when you use the same impermissible method of determining depreciation (for example, using the wrong MACRS recovery period) in two or more consecutively filed tax returns. 2012 tax forms 1040 ez   If an amended return is allowed, you must file it by the later of the following dates. 2012 tax forms 1040 ez 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. 2012 tax forms 1040 ez A return filed before an unextended due date is considered filed on that due date. 2012 tax forms 1040 ez 2 years from the time you paid your tax for that year. 2012 tax forms 1040 ez Changing your accounting method. 2012 tax forms 1040 ez   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. 2012 tax forms 1040 ez In some instances, that consent is automatic. 2012 tax forms 1040 ez For more information, see Changing Your Accounting Method in Publication 946,  chapter 1. 2012 tax forms 1040 ez Prev  Up  Next   Home   More Online Publications